As filed with the Securities and Exchange Commission on January 25, 1999
Registration No. 333-43919
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 3 to Form S-1 REGISTRATION STATEMENT Under THE SECURITIES ACT
OF 1933
-------------------
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Colorado 1301 88-021849
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification No.)
3-5 Audrey Avenue
Oyster Bay, New York 11771
telephone: (516) 922-4170; facsimile: (516) 922-4174
(Address and telephone number of principal executive
offices and principal place of business)
JAMES R. CALLENDER, SR.
President and Chief Executive Officer
Environmental Remediation Holding Corporation
3-5 Audrey Avenue
Oyster Bay, New York 11771
telephone: (516) 922-4170; facsimile: (516) 922-4174
(Name, address and telephone number of agent for service)
--------------------
Copies of communications to:
Mercedes Travis, Esq.
MINTMIRE AND ASSOCIATES
265 Sunrise Avenue Suite 204
Palm Beach, Florida 33480
telephone: (561) 832-5696
facsimile: (561) 659-5371
<PAGE>
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. [ ]
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CALCULATION 0F REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Proposed Maximum
Aggregate 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(2)
- --------------------------------------------------------------------------------------------------------------
Common Stock,
par value $.0001 per share... 31,172,908 shares $2.06/1.22/0.81/0.35 $30,422,28 $441.64
==============================================================================================================
</TABLE>
(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 OTC
Bulletin Board (a) as to 3,723,800 shares, at $2.06 per share on January 2,
1998, the date prior to the filing of the Registration Statement, (b) as to
12,758,228 shares, at $1.22 per share on April 8, 1998, the date prior to the
filing of Amendment No. 1 to the Registration Statement, (c) as to 4,444,374
shares, at $0.81 per share on July 9, 1998, the date prior to the filing of
Amendment No. 2 to the Registration Statement and (d) as to 10,246,506 shares,
at $.35 per share on January 13, 1999, the date prior to the filing of Amendment
No. 3 to the Registration Statement.
(2) A registration filing fee of $8,015.76 has previously been paid. A wire
transfer in the amount of $441.64, representing the balance of the total
registration filing fee, accompanies this Amendment No. 3 to the Registration
Statement.
--------------------
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.
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<PAGE>
SUBJECT TO COMPLETION, DATED January 25, 1999
PROSPECTUS
Environmental Remediation Holding Corporation
--------------------
This Prospectus relates to an aggregate of up to 31,172,908 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").
A maximum of 3,723,800 shares of Common Stock offered hereby are issuable
by the Company to the investors listed in the Securities Purchase Agreement (the
"1997 Investors"), pursuant to a Securities Purchase Agreement, dated as of
October 15, 1997 (the "Securities Purchase Agreement"), upon the conversion of
the Company's 5.5% convertible senior subordinated secured notes due 2002 (the
"1997 Notes") (at a base conversion rate of $1.25 per share, subject to certain
limited conditions) and the exercise of its warrants to purchase Common Stock
(the "1997 Warrants") (at an exercise price of $3.17 per share) held by the 1997
Investors. The maximum number of shares of Common Stock which may be issued by
the Company upon conversion of the 1997 Notes and the exercise of the 1997
Warrants is 3,440,000 shares and 283,800 shares, respectively. Because the
conversion rate of the 1997 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 1997 Notes were to have been
received on April 8, 1998, the lowest applicable conversion rate would have been
$.96 per share (80% of the average share price for the five consecutive trading
days preceding such date), resulting in a total of 3,723,800 shares of Common
Stock issuable upon conversion (including 283,800 shares into which the 1997
Warrants are exercisable), subject to certain conditions. The 1997 Investors
acquired the 1997 Notes and 1997 Warrants in a private placement from October to
December 1997.
A maximum of 12,758,228 shares of Common Stock offered hereby are issuable
in tranches by the Company to Kingsbridge Capital Limited, a British Virgin
Islands company ("Kingsbridge"), which may receive such shares pursuant to a
Private Equity Line of Credit Agreement, dated as of March 23, 1998 (the
"Kingsbridge Investment Agreement"). The purchase price of the shares of Common
Stock issuable pursuant to the Kingsbridge Investment Agreement is based on
future market prices at the time the shares are purchased and sold. The timing
of purchases and the amount of Common Stock sold to Kingsbridge will be
determined by the Company. Upon each purchase and sale of shares, the Company
will supplement this Prospectus to reflect the amount of shares to be resold by
Kingsbridge. In connection with entering into the Kingsbridge Investment
Agreement, the Company issued to Kingsbridge a three-year warrant to purchase
100,000 shares of Common Stock at an exercise price of $1.20 per share (94% of
the market price calculated as of March 23, 1998), exercisable beginning on
September 21, 1998.
A maximum of 410,000 shares of Common Stock offered hereby are issuable by
the Company to nine "accredited" investors (the "April 1998 Investors") pursuant
to an April 1998 private placement (the "April 1998 Private Placement"), upon
the conversion of the Company's 12% convertible notes which are due on the
earlier of January 1999 or at such time as the Company receives the first
draw-down under the Kingsbridge Investment Agreement (the "April 1998 Notes")
(at a base conversion rate of $1.50 per share) and the exercise of its warrants
to purchase Common Stock (the "April 1998 Warrants") (at an exercise price of
$1.25 per share) held by the April 1998 Investors. The maximum number of shares
of Common Stock which may be issued by the Company upon conversion of the April
1998 Notes and the exercise of the April 1998 Warrants is 200,000 shares and
210,000 shares, respectively.
A maximum of 1,050,000 shares of Common Stock offered hereby are issuable
by the Company to two "accredited" investors (the "First June 1998 Investors")
pursuant to a June 1998 private placement (the "First June 1998 Private
Placement"), upon the exercise of its warrants to purchase Common Stock (the
"First June 1998 Warrants") (at an exercise price of $0.75 per share) held by
the First June 1998 Investors.
<PAGE>
A maximum of 956,250 shares of Common Stock offered hereby are issuable by
the Company to five "accredited" investors (the "Second June 1998 Investors")
pursuant to a June 1998 private placement (the "Second June 1998 Private
Placement"), upon the conversion of the Company's 12% subordinated convertible
notes, which are due on the earlier of December 1999 or upon the receipt by the
Company of debt or equity or revenue from the sale of leases or other property
of not less than $4 million (the "Second June 1998 Notes") (at a base conversion
rate of $1.00 per share, subject to certain adjustments) and the exercise of its
warrants to purchase Common Stock (the "Second June 1998 Warrants") (at an
exercise price of $0.50 per share for the first two years and $0.85 per share
thereafter) held by the Second June 1998 Investors. The maximum number of shares
of Common Stock which may be issued by the Company upon conversion of the Second
June 1998 Notes and the exercise of the Second June 1998 Warrants is 425,000
shares and 531,250 shares, respectively.
A maximum of 2,310,140 shares of Common Stock offered hereby are issuable
by the Company to one "accredited" investor (the "Third June 1998 Investor")
pursuant to a June 1998 private placement (the "Third June 1998 Private
Placement"), upon the conversion of the Company's 5.5% convertible notes due
2000 (the "Third June 1998 Notes") (at a base conversion price of $.72) and the
exercise of its warrants to purchase Common Stock (the "Third June 1998
Warrants") (at an exercise price of $.86 per share) held by the Third June 1998
Investors. Certain penalties were to be paid to the Third June 1998 Investor in
the event the registration statement was not effective within sixty days. In
lieu of such payment, the Investor has elected to take 282,016 shares in full
liquidation of all penalties due through December 1998. The maximum number of
shares of Common Stock which may be issued by the Company upon conversion of the
Third June 1998 Notes, payment of the penalties through December 1998 and the
exercise of the Third June 1998 Warrants is 1,798,124 shares (subject to certain
adjustments), 282,016 shares and 230,000 shares, respectively.
A maximum of 3,530,490 shares of Common Stock offered hereby are issuable
by the Company to a limited number of "accredited" investors (the "July/August
1998 Investors") pursuant to a July/August private placement (the "July/August
1998 Funding"), upon the conversion of the Company's 8.0% convertible notes due
in July and August 2000 (the "July Notes") (at base conversion prices of $.8925,
$.8775 and $1.19 respectively) and the exercise of its warrants to purchase
Common Stock (the "July Warrants") (at exercise prices of $.74375, $.73125 and
$.99375 respectively) held by the placement agent of the July Notes. In October
1998 a portion of these notes were converted. Accordingly the maximum number of
shares of Common Stock which have been and may be issued by the Company upon
conversion of the July Notes and the exercise of the July Warrants is 3,306,840
shares (including adjustment due to the conversions and subject to certain other
adjustments) and 223,650 shares respectively.
A maximum of 2,250,000 shares of Common Stock offered hereby are issuable
by the Company to one "accredited" investor (the "September 1998 Investor")
pursuant to a private placement dated September 1998 but closed in October 1998
(the "September 1998 Financing"), upon conversion of the Company's 20.0%
convertible note due in October 2000 (the "September 1998 Note") (at a base
conversion price of $1.00) and the exercise of its warrants to purchase Common
Stock (the "September 1998 Warrants") (at an exercise price of $.40). The
Company is obligated to register 150% of the shares underlying the September
1998 Notes. Accordingly, the maximum number of shares of Common Stock which may
be issued by the Company upon conversion of the September 1998 Notes and the
exercise of the September 1998 Warrants is 750,000 shares (subject to certain
adjustments) and 1,500,000 shares respectively.
A maximum of 3,040,000 shares of Common Stock offered hereby are issuable
by the Company to four "accredited" investors (the "October 1998 Investors")
pursuant to an October private placement (the "October 1998 Financing"), upon
conversion of the Company's 12.0% convertible notes due on December 31, 1999
(the "October 1998 Notes") (at a base conversion price of $1.25) and the
exercise of its "A" and "B" warrants to purchase Common Stock (the "October 1998
"A" and "B" Warrants") (at an exercise price of $.50 for the "A" Warrants and an
exercise price of $3.00 for the "B" Warrants). Accordingly, the maximum number
of shares of Common Stock which may be issued by the Company upon conversion of
the October 1998 Notes and the exercise of the October 1998 "A" and "B"
Warrants) is 640,000, 1,200,000 and 1,200,000 respectively.
A maximum of 1,144,000 shares of Common Stock offered hereby are issuable
hereby pursuant to a settlement reached with regard to the Company's purchase of
the Uinta Oil & Gas properties in Uintah and Duchesne Counties, Utah in
September 1997. The price at which such shares shall be valued on January 18,
1999 is based upon a five day average of designated dates with exclusion of the
highest and lowest price. For purposes of calculating the maximum number of
shares offered hereby, this price has been assumed to be $.30.
<PAGE>
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 issued to the Selling Shareholders. 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
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 December
31, 1998, was $.39 per share.
The Company will pay all the expenses, estimated to be approximately
$540,000, 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 registration rights and other agreements
with each of the Selling Shareholders.
The Shares offered hereby involve a high degree of risk. See "Risk Factors"
beginning on page 8 hereof.
<PAGE>
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 January 25, 1999
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 whose predecessor company was formed in 1995. In
1997, the Company focused on acquiring and servicing marginally-producing oil
and natural gas properties which contained the potential for increased value
through workovers and secondary recovery operations utilizing the Company's
proprietary horizontal drilling system. Lower oil prices and increasing
equipment costs in 1998 have reduced the economic feasibility of these
activities at this time. The Company 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 refocused its activities and has 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
exploration of possible reserves.
In May 1997, the Company entered into an exclusive joint venture with the
Democratic Republic of Sao Tome & Principe ("Sao Tome"), an archipelago island
nation 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 exploration and is conducting geophysical,
seismic, environmental and engineering feasibility studies. In April 1998, the
Government of Sao Tome
1
<PAGE>
granted approval to the joint venture to proceed with the preparation and
sale of leases of its oil concession rights, which sales were expected to occur
in early 1999. 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. In April 1998 the Company
agreed to enter into a joint venture with a privately held Delaware corporation,
AMCO Montenegro, Inc. and its related ABC Group of companies ("AMCO") to
construct and operate an "Off-Shore Logistics Center" for the oil industry in
the Gulf of Guinea, on the Island of Sao Tome. Due to political conflict, the
parties were unable to finalize the agreements. In April 1998, Jugobanks AD
Podgorica of Montenegro agreed to finance $50,000,000 for the construction of
the "Off-Shore Logistics Center" in Sao Tome. The Company and AMCO were working
with the bank on final loan documentation. When funds were blocked because of
the war in the region, the Company terminated its tentative agreement with AMCO
since AMCO could not perform at the time performance was required. In April
1998, the Government of Sao Tome and the Company filed their exclusive economic
zone ("EEZ") coordinates with the United Nations. In June 1998, the Company and
Sao Tome signed a letter of intent to award a contract to Schlumberger
Geco-Prakla ("Schlumberger") to perform a marine seismic survey in anticipation
of the license round to be held in Sao Tome and to act as technical advisor and
coordinator of such license round. In July 1998, the Company closed and formed
the joint venture national oil company with the Government of Sao Tome. The oil
company is called the Sao Tome Principe National Petroleum Company , S.A.
('STPETRO"). STPETRO is owned 51% by the Government of Sao Tome and 49% by the
Company. In addition, the Company was granted under the original agreement with
the government, a long term management arrangement with STPETRO. In July 1998,
the Ministry of Cabinets and the Prime Minister executed the STPETRO formation
documents and they were promulgated into law by the President. In September
1998, the Government of Sao Tome and STPETRO entered into a Technical Assistance
Agreement ("TAA Agreement") with Mobil Exploration and Producing Services, Inc.
("Mobil"). Under such agreement, Mobil will perform a technical evaluation and
feasibility study of oil and gas exploration in certain designated acreage
within the filed EEZ. The agreement is for an initial term of 18 months and
superceded the need for lease sales in early 1999. Mobil retains a right of
first refusal to acquire development rights to all or a portion of the acreage
which it is evaluating. Mobil then executed an agreement with Schlumberger to
perform the marine seismic survey as previously agreed under the letter of
intent with the Company signed in June 1998. Under the Mobil/Schlumberger
agreement, Schlumberger will perform seismic work on the option blocks
designated in the TAA Agreement. Such work is to commence in January 1999. The
Company continues to maintain a right to construct the Off- Shore Logistics
Center and is seeking an appropriate joint venture partner for the project.
In October 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. In December 1997, the Company re-entered the first of two
existing shut-in wells on the property, and expected to ultimately recover up to
5 BCF per well using 5% of the estimated possible gas in place. Due to
mechanical failure downhole, this well has been shut in again. The daily
production rates from the second
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<PAGE>
well can not be determined until the completion of the reentry. The Company
is currently meeting with two potential farm-out partners to work the project
and believes it will negotiate arrangements to drill additional wells on the
northern and southern portions of the leasehold.
In addition, the Company acquired in February and March 1997 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 reserves
verified by Dr. Joseph Shoaf, P.E., 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 oil from the
Wichita County field. Of these wells, 13 had mechanical failure. The Company is
evaluating feasible economic options including the potential sale of the Rusk
County and Wichita County properties.
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 was estimated that the first approximately 36 wells would
be scheduled for recompletion and stimulation in the fall of 1998 and the
Company estimated that, after initial workover operations were completed, these
wells could produce in excess of 3,900 barrels of oil per day. These estimates
were subject to internal verification by the Company. An independent reserve
report prepared by Richard Stephen Shuster, P.E. indicates, based on a study of
133 of such wells, which may or may not include any of the wells which are the
subject of the MIII joint venture, proven and producing reserves of
approximately 5.77 million barrels of oil and 23.4 BCF of natural gas on these
sites. The leases on the MIII project were never transferred to the Company and
it is currently evaluating its options with regard to this project.
In September 1997, the Company entered into an agreement to acquire 22 oil
and natural gas wells located in Uintah and Duchesne Counties, Utah from 3 joint
owners. Under this agreement, the Company acquired net revenue interests ranging
from 76% to 84% (and 100% working interest in all but 2 of the wells) in oil and
gas properties totaling 13,680 acres, located near the MIII fields, currently
producing approximately 70 barrels of oil per day from six 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.
Independent reserve reports prepared in 1997 by Ralph L. Nelms and Gerry Graham
of Sandwood Consultants indicates the gross recoverable reserves of these
properties total approximately 2.624 million barrels of oil and 3.302 BCF of
natural gas. The Company is currently evaluating the existing reserve reports,
the underlying data on these leases and the economic feasibility of increasing
production in light of current oil prices or of the sale or other disposition of
these properties. The Company is engaged in arbitration regarding this project
and believes that a settlement on all issues will be completed in January 1999.
See "Business - Legal Proceedings."
3
<PAGE>
Lower oil prices and higher equipment costs have reduced the economic
feasibility of drilling, workover and recompletion activities such that they are
marginal at best. Therefore, the Company has directed its primary focus to its
high potential international prospects and to a lesser extent to its remediation
activiites.
The Company provides 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. Due to the price structure in the oil and gas business at this time,
the Company does not believe that it is in its best interest to construct this
barge. However, a substantial increase in oil prices would cause the Company to
reevaluate its decision regarding such construction.
In addition, the Company has obtained rights to participate in a ten-year
concession with the Panama Canal Commission, through a joint venture with
Centram Marine Services, S.A., to supply fuel to tankers and other commercial
vessels traversing the Panama Canal. These operations are expected to commence
at such time as adequate financing is secured, of which there can be no
assurance.
To further penetrate the environmental remediation services market in
Louisiana. In February 1998, the Company sought to acquire a 70% equity interest
in Ven Virotek, Inc., a Louisiana corporation ("Virotek"), from its sole
shareholder, Recycling Remedies, Inc. Virotek owns and operates a NORM solid
waste disposal site in Houma, Lousiana and holds permits from Louisiana
environmental authorities to dispose of salt water, brine and naturally occuring
waste products. In March 1998, Virotek obtained two contracts from the U.S.
Department of Energy to dispose of salt water brine from the strategic petroleum
reserves located in Houma, Louisiana. Under the contracts, it is contemplated
initially that a total of 475,000 barrels of brine will be shipped to Virotek
for disposal, and Virotek will receive $1.00 per barrel for its services. In
August , 1998, this acquisition was canceled because during the due diligence
process the Company discovered (1) serious unresolved environmental issues, (2)
greater refurbishment expenses than originally estimated and (3) larger
liabilities than originally represented.
The Company commenced negotiations for remediation work in Mexico in
September
4
<PAGE>
1998 and for remediation work in Venezuela in December 1998. Neither
negotiation has been reduced to contract at this time.
In 1997, the Company believed that it was 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 system, 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.
Given adequate oil prices, 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. In the long run, the Company believes that the
BAPCO Tool will have greater applicability in the international market.
Beginning in the early 1990's, the combination of secondary recovery of oil
reserves in conjunction with environmental remediation of abandoned oil wells
became 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 production, large independent oil companies have typically
contracted some or all of the required "plug and abandonment" work to third
party contractors. 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 continues to believe
that at such time as oil prices rise to suitable levels, such activities
represent a potentially stable revenue source for them.
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) 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, (ii) at such times as oil prices are more favorable, continuing to
pursue environmental remediation service contracts for oil and gas well rework
and "plug and abandonment" services in the United States and internationally,
and (iii) exploiting the BAPCO Tool.
The Company's principal executive offices are located at 3-5 Audrey Avenue,
Oyster Bay, New York 11771, and its telephone number is (516) 922-4170. The
Company's main operational facility is located at 1686 General Mouton,
Lafayette, Louisiana 70508, and its telephone
5
<PAGE>
number is (318) 264-9657.
The Offering
Shares Offered......................... Up to 31,172,908 shares of Common Stock.
Shares Outstanding:
Before the Offering.............. 38,402,750 (1) shares of Common Stock.
After the Offering............. Up to 68,149,642 shares of Common Stock,
assuming the full conversion of the notes
and exercise of the warrants issued to
the Selling Shareholders at the base
conversion prices assumed.see
"Selling Shareholders" for a description
of the conversion rate of the notes and
warrants.
Use of Proceeds...................... Other than the exercise price of the
warrants issued to the Selling
Shareholders, the Company will not
receive any proceeds from the sale of
the Shares by the Selling Shareholders.
Trading Symbol........................ ERHC
(1) Shares outstanding as of 12/31/98 were 39,613,436; however, 1,210,686
of such shares are attributable to conversions under the July/August 1998
Financing and such shares are part of the shares offered hereby. Accordingly,
the before offering shares have been adjusted to remove that portion of the
outstanding shares which are being offered under this Prospectus. Of the
remaining 38,402,750 shares of Common Stock, the issuance of 8,100,000 was
rescinded and 2,000,000 have not been delivered as of the date hereof as they
are in dispute. See "Management - Compensation of Directors" and "Business -
Managing Exploratory Activities - Sao Tome."
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."
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Summary Financial Information
Fiscal Years ended September 30,
Statement of
Operations Data 1996 1997 (1) 1998 (2)
Revenues:
Environmental
Remediation
Services $ 0 $ 108,944 $ 65,404
Crude Oil sales 0 0 0
Other Income 60,477 7,331 33,874
Operating expenses 789,225 17,029,327 11,681,706
Income before
taxes and
extraordinary items (728,748) (16,913,052) (11,582,428)
Provision (benefit)
for income items 0 0 0
Net income (loss) (3) (728,748) (16,913,052) (11,582,428)
Net income (loss)
per share (0.30) (1.61) (0.46)
Weighed average
common stock
outstanding 2,469,511 10,500,293 24,970,815
Balance Sheet Data (at end of period)
Property and
equipment 3,477,000 4,351,185 6,654,662
Total Assets 3,477,000 4,894,936 11,691,218
Total Liabilities 6,730 1,748,376 12,922,127
Stockholders equity 347,270 3,146,560 (2,730,909)
- -------------
(1) The Company acquired 100% of the issued and outstanding common stock of
ERHC, 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 Statement.
(2) 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."
(3) The net cash operating loss of the Company was $4,849,236 and
$1,283,900 for the fiscal years ended September 30, 1998 and 1997, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
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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, 1998, the Company had total
revenues of $99,278 and a net loss of $11,582,428. As of September 30, 1998, the
Company had stockholders' equity of ($2,730,909) and a working capital deficit
of $4,832,338. 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 time frames 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.
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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
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
its 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. Although Company management is exploring the private and/or
public equity markets as potential capital sources in connection with its
development plans, the Company currently does not have any binding 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 reasonable
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 and producing new
reserves. To the extent that future
9
<PAGE>
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 a bank arrangement or 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, Utah and Sao Tome
The Company's properties in Texas and Utah constituted all the Company's
existing inventory of producing properties in 1998. Texas, Utah and Sao Tome
constitute all of the Company's drilling locations. Substantially all of the
Company's 1999 budget is associated with its Sao Tome activities. 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.
Potential Risks of Insufficient Insurance Coverage
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 pollution, personal injury claims and
other damage to properties. As protection against operating hazards, the
10
<PAGE>
Company currently maintains insurance coverage against some, but 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 had the right to terminate the
agreement in the event the Company failed to make the remaining concession fee
payment of $1,000,000 at the time Sao Tome determined, and the United Nations
accepts as filed, the EEZ boundaries or failed to timely commence the orderly
development of the national oil and gas joint venture company. The Company
believes that additional payments of $250,000 and $500,000 made for certain
expenses associated with Sao Tome will be credited to the concession fee. There
can be no assurance that the operations under the joint venture, even with the
remaining concession fee payment made, 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 devaluation, 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
Equatorial Guinea has disputed the mid point calculation on their mutual border
or common area between the two countries. In 1996, agencies of the United
Nations and a multi-country commission began to study the respective countries'
border lines and common area rights, although there has been no resolution to
date. This is designated the Gulf of Guinea Commission. See "Business-Managing
Exploratory Activities."
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<PAGE>
Material Foreign Currency Risks
Revenues from the Company's operations in Sao Tome and substantially all
raw material purchases for use in Sao Tome will be U.S. dollar-denominated and
managed through the Company's Louisiana operational facility. The Company
believes that it will not be significantly affected by exchange rate
fluctuations in local African currencies relative to the U.S. dollar. The
Company believes that the effects of such fluctuations will be limited to wages
for local laborers and operating supplies, neither of which is expected to be
material to the Company's results of operations when the joint venture begins
more substantial operations in Sao Tome. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Overview."
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 reserves will generally decline as
they are depleted, except to the extent that the Company conducts successful
exploration or development activities or acquires properties containing proved
reserves. As of September 30, 1998, approximately 65.6% of the Company's total
estimated 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 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 can not predict the ultimate cost of compliance with these requirements
or their effect on operations. Significant expenditures may be required to
comply with governmental
12
<PAGE>
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 Chairman of the Board and Vice President, James R. Callender, Sr., its
President and Chief Executive 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, 1998, none of the Company's executive officers is covered by a
long-term employment agreement and the Company does not possess any key-person
life insurance policies on the lives of any such officers. Furthermore, demands
on the time of one of its executive officers (its secretary, treasurer who
maintains a limited law practice) 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."
13
<PAGE>
Control by Existing Shareholders
Sam L. Bass, Jr., the Company's Chairman of the Board, and the other
officers and directors of the Company beneficially own approximately 20.76% and
5.2%, respectively (taking into account the rescission of 8,100,000 shares), of
the outstanding Common Stock on December 31, 1998 before the Shares offered
hereby and 11.7% and 0% respectively after the Shares offered hereby.
Accordingly, Mr. Bass and such persons may be able to control the outcome of
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 West Africa, 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
14
<PAGE>
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. In 1997, the Company would generally assume preclosing liabilities,
including environmental liabilities, and will generally acquire interests in the
properties on an "as is" basis. Under current policy, this is no longer true.
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
After the offering, the Shares represent approximately 45.74% of the total
number of shares of Common Stock outstanding on December 31, 1998. Sales of
substantial amounts of Shares pursuant to this Prospectus, or otherwise, could
adversely affect the market price of the Common Stock.
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
15
<PAGE>
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.
THE COMPANY
The Company is an independent oil and gas company whose predecessor was
formed in 1995. In 1997, the Company focused on acquiring and servicing
marginally-producing oil and natural gas properties which contained the
potential for increased value through workovers and secondary recovery
operations utilizing the Company's proprietary fracture-enhancing horizontal
drilling system. Lower oil prices and increasing equipment costs in 1998 have
reduced the economic feasibility of these activities at this time. The Company
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 refocused its activities and has 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 exploration 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
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<PAGE>
Environmental Remediation Holding Corporation. The Company currently
contemplates reincorporating in another state, changing its corporate name to
better reflect its primary focus and changing its corporate office in early
1999.
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 Investor Private Placement
In November and 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 October 2002 (the "1997 Notes") and warrants to
purchase Common Stock (the "1997 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 1997 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 $3.17 per share) is up to
3,440,000 shares and 283,800 shares, respectively. This Prospectus covers the up
to 3,723,800 total shares of Common Stock issuable upon the conversion of the
1997 Notes and the exercise of the 1997 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."
The Kingsbridge Line of Credit Agreement
In March 1998, the Company entered into a Private Equity Line of Credit
Agreement (the "Kingsbridge Investment Agreement") with Kingsbridge Capital
Limited, a British Virgin Islands company ("Kingsbridge"), pursuant to which the
Company has the right to receive up to $10,000,000 in equity financing from the
sale of its Common Stock in tranches to Kingsbridge. Through the Company's
exercise of put options, Kingsbridge is required to purchase, and the Company is
required to sell, subject to certain closing conditions and limitations on the
timing of purchases and amount of Common Stock to be sold with respect to
exercises of individual put options, at least $3,000,000 in shares of Common
Stock at a purchase price equal to 79% of the average of the lowest prices of
the Common Stock on the trading day on which notice of exercise of the put
option is given and on the one trading day prior, and the two trading days
following, such put option exercise notice. The minimum market price for sales
of shares is $1.00 per share. At a market price of $1.00, the maximum number of
shares of Common Stock which may be issued by the Company upon the exercise of
the put options is 12,658,228 shares. Notwithstanding the foregoing, the maximum
number of shares issuable to Kingsbridge shall not exceed 19.9% of the
outstanding shares of Common Stock at the time of such exercise(s). In
connection with entering into the Kingsbridge Investment Agreement, the Company
issued to
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Kingsbridge a three-year warrant to purchase 100,000 shares of Common Stock at
an exercise price of $1.20 per share (94% of the market price calculated as of
March 23, 1998), exercisable beginning on September 21, 1998 (the "Kingsbridge
Warrant"). As a condition precedent to the purchase and sale of shares pursuant
to the Kingsbridge Investment Agreement, among others, the Company is required
to register with the Commission all of the shares of Common Stock subject to the
put option, as well as those into which the Kingsbridge Warrant is exercisable,
for resale by Kingsbridge. This Prospectus covers the up to 12.758,228 total
shares of Common Stock issuable upon the notice of a put option exercise and
exercise of the Kingsbridge Warrant.
See "Selling Shareholders."
On August 11, 1998, the Company and Kingsbridge agreed to enter into an
agreement to cancel the Kingsbridge Private Equity Line of Credit dated March
23, 1998. Pursuant to the terms of the proposed cancellation, the Company will
pay a penalty in the amount of $100,000 and will issue warrants to purchase up
to an additional 100,000 shares of the Company's Common Stock (the "Kingsbridge
Warrants"). The Company has decided to cancel the Kingsbridge Private Equity
Line of Credit because terms of certain of the third quarter 1998 fundings
require the Company to cancel this agreement so as to limit the number of shares
of the Company's Common Stock outstanding upon conversion of the Company's
convertible notes in the future. However, as of December 31, 1998, the Company
had not completed the terms of the anticipated cancellation, and therefore
continues to be obligated to register the potential Kingsbridge shares issuable
under the put option exercise notice and the Kingsbridge Warrant. Under the
terms of the cancellation, the Company will be responsible for the registration
of the additional warrants. On December 10, 1998, Kingsbridge made application
to the American Arbitration Association for arbitration of outstanding issues
between the parties. The Company has filed an Answer in such proceedings.
The April 1998 Financing
In April 1998, the Company raised gross proceeds of $300,000 in two
closings of a private placement of the Company's 12% convertible notes, which
are due on the earlier of January 1999 or at such time as the Company receives
the first draw-down under the Kingsbridge Investment Agreement (the "April 1998
Notes"), and warrants to purchase shares of Common Stock (the "April 1998
Warrants") to nine "accredited" investors. The maximum number of shares of
Common Stock which may be issued by the Company upon the conversion of the April
1998 Notes (at a base price of $1.50 per share), subject to certain adjustments,
and the exercise of the April 1998 Warrants (at an exercise price of $1.25 per
share) is 200,000 shares and 210,000 shares, respectively. This Prospectus
covers the 410,000 shares of Common Stock issuable upon the conversion of the
April 1998 Notes and the exercise of the April 1998 Warrants. See "Selling
Shareholders." The Company used the net proceeds of this financing for oil and
gas-related production activities and for working capital. See "Business -
Workover and Recovery Activities."
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<PAGE>
The First June 1998 Financing
In June 1998, the Company raised gross proceeds of $200,000 in a private
placement of warrants to purchase shares of Common Stock (the "First June 1998
Warrants") to two "accredited" investors. The maximum number of shares of Common
Stock which may be issued upon the exercise of the First June 1998 Warrants (at
an exercise price of $.75) is 1,050,000 shares. This Prospectus covers the
1,050,000 shares of Common Stock issuable upon the exercise of the June
Warrants. See "Selling Shareholders." The Company used the net proceeds of this
financing for working capital.
The Second June 1998 Financing
In June 1998, the Company raised gross proceeds of $425,000 in the private
placement of the Company's 12% subordinated convertible notes, which are due on
the earlier of December 1999 or upon the receipt by the Company of debt or
equity or revenue from the sale of leases or other property of not less than $4
million (the "Second June 1998 Notes") and warrants to purchase shares of Common
Stock (the "Second June 1998 Warrants") to a limited number of "accredited"
investors. The maximum number of shares of Common Stock which may be issued by
the Company upon the conversion of the Second June 1998 Notes (at a base
conversion price of $1.00 per share), subject to certain adjustments, and the
exercise of the Second June 1998 Warrants (at an exercise price of $.50 per
share for the first two years and $.85 per share thereafter, both subject to
adjustment) is 425,000 shares and 531,250 shares, respectively. This Prospectus
covers the 956,250 shares of Common Stock issuable upon the conversion of the
Second June 1998 Notes and the exercise of the Second June 1998 Warrants. See
"Selling Shareholders." The Company used the net proceeds of this financing for
working capital.
The Third June 1998 Financing
In June 1998, the Company raised gross proceeds of $1,250,000 in a private
placement of the Company's 5.5% convertible notes due 2000 (the "Third June 1998
Notes") and warrants to purchase shares of Common Stock (the "Third June 1998
Warrants") to one "accredited" investor. The conversion price is calculated
pursuant to a formula as the lower of the average closing bid price per share
for the five days prior to the closing (which was $.72) or 80% of the average
closing bid price per share for the five days prior to notice of intent to
convert. In the event that the lower price were the average closing bid price
for the five days prior to the closing, the maximum number of shares of Common
Stock which may be issued by the Company upon conversion of the Third June 1998
Notes would be 1,798,124 shares. The maximum number of shares of Common Stock
which may be issued by the Company upon the exercise of the Third June 1998
Warrants (at an exercise price of $.86) is 230,000 shares. Certain penalties
were to be paid to the Third June 1998 Investor in the event the registration
statement was not effective within sixty days. In lieu of such payments, the
Investor has elected to take 282,016 additional shares in full liquidation of
all penalties due through December 1998. This Prospectus covers the 2,310,140
shares of Common Stock issuable upon the conversion of
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<PAGE>
the Third June 1998 Notes, payment of the penalty shares and the exercise
of the Third June 1998 Warrants. See "Selling Shareholders." The Company
utilized a significant portion of the net proceeds of this financing to make a
concession fee payment of $1,000,000 towards the amounts then due in connection
with its Sao Tome joint venture. See "Business - Managing Exploratory
Activities."
The July/August 1998 Funding
In July and August 1998, the Company raised gross proceeds of $1,200,000,
$275,000 and $1,010,000 respectively in a private placement of up to $3,000,000
in three(3) tranches of the Company's 8.0% convertible notes due in July and
August 2000 (the "July Notes") to a limited number of "accredited" investors.
The conversion price of the July Notes is calculated by formula as the lower of
(i) 120% of the average closing bid price per share of the Company's Common
Stock for the five (5) days preceding the closing of the transaction or (ii) 75%
of the average closing bid price per share of the Company's Common Stock for the
five (5) days preceding the date upon which notice of conversion is given by the
investor to the Company. In the event that the lower price were the 120% of the
average closing bid price for the five (5) days prior to the closing bid price
for the five (5) days prior to the closing of each tranche, the maximum number
of shares of the Common Stock which may be issued by the Company upon conversion
of the July Notes (at a base price of $.8925, $.8775 and $1.19 respectively) is
2,506,668. However, if 75% of the average closing bid price for the five (5)
days prior to the notice of intent to convert were the lower price, there is no
way to ascertain the maximum number of shares of Common Stock which may be
issued by the Company upon conversion of the July Notes at this time. Because
the conversion rate of the July Notes is based in part on future average trading
prices of the Common Stock, the number of shares which may actually be issued
upon conversion could differ significantly. For example, in the event the
average closing bid price for the five (5) days prior to the note of intent to
convert were $.74375, 75% of such number would equal a share price of $.55781
resulting in a total of 4,454,922 shares of Common Stock issuable upon
conversion exclusive of the exercise of any of the warrants. Warrants were
issued to the placement agent at the close of each tranche (the "July
Warrants"). The maximum number of shares of Common Stock which may be issued by
the Company upon the exercise of the July Warrants (at an exercise price of
$.74375, $.73125 and $.99375 respectively) is 223,650 shares. In October 1998,
July Notes totally $412,350 and accrued interest thereon were converted at
prices ranging from $.321 to $.399 per shares for a total issuance of 1,210,686.
This Prospectus covers the maximum of up to 3,530,490 (2,506,668 total shares of
Common Stock issuable upon conversion of the July Notes at the base prices plus
800,172 total shares as an adjusted amount to reflect the October conversions
and 223,650 total shares issuable upon exercise of the July Warrants). See
"Selling Shareholders."
The September 1998 Financing
By documents dated September 1998, the Company raised gross proceeds of
$500,000 in in October 1998 in a private placement of the Company's 20%
convertible note due in October
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<PAGE>
2000 (the "September 1998 Note") and a warrant to purchase shares of Common
Stock (the "September 1998 Warrant") to one "accredited" investor. The
conversion price is calculated pursuant to a formula as the lower of (i) 90% of
the average closing bid price for the five days prior to conversion or (ii)
$1.00. In the event that the lower price were $1.00 maximum number of shares of
Common Stock which may be issued by the Company upon conversion of the September
1998 Note would be 750,000 (assuming the lower price is $1.00 and pursuant to
the terms of the September 1998 Note which require registration to initially
cover 150% of the shares underlying the September 1998 Note). For purposes of
registering the maximum number of shares of Common Stock under this Prospectus,
the conversion rate is assumed to be $1.00. Because the conversion rate of the
September 1998 Note 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 the average
closing bid price for the five days prior to notice of intent to convert were
$.50, 90% of such number would equal a share price of $.45, resulting in a total
of 1,111,111 shares of Common Stock issuable upon conversion, exclusive of the
exercise of any of the September 1998 Warrant and the requirement of
registration of 150% would equal 1,666,666 shares of Common Stock. The maximum
number of shares of Common Stock which may be issued by the Company upon the
exercise of the September 1998 Warrant (at an exercise price of $.40) is
1,500,000 shares. This Prospectus covers the up to 2,250,000 total shares of
Common Stock issuable, with certainty, upon the conversion of the September 1998
Note and the exercise of the September 1998 Warrant. See "Selling Shareholders."
The Company used $250,000 of the net proceeds to make certain payments necessary
for Sao Tome other than the concession fee and the balance was used for working
capital.
The October 1998 Financing
In October 1998, the Company commenced a the private placement for up to
$1,500,000 under which it has raised gross proceeds in three (3) closings
totaling $800,000 of the Company's 12% subordinated convertible notes, which are
due on December 31, 1999 (the "October 1998 Notes"), and "A" and "B" warrants to
purchase shares of Common Stock (the "October 1998 "A" and "B" Warrants") to a
limited number of "accredited" investors. The maximum number of shares of Common
Stock which may be issued by the Company upon the conversion of the October 1998
Notes (at a base conversion price of $1.25 per share), subject to certain
adjustments, the exercise of the October 1998 "A" Warrants (at an exercise price
of $.50 per share) and the exercise of the October 1998 "B" Warrants (at an
exercise price of $3.00 per share) is up to 640,000 shares, 1,200,000 shares and
1,200,000 shares, respectively. This Prospectus covers the 3,040,000 shares of
Common Stock issuable upon the conversion of the October 1998 Notes and the
exercise of the October 1998 "A" and "B" Warrants. See "Selling Shareholders."
Uinta Settlement
In January 1999, the Company agreed to a settlement with Uinta. Pursuant to
such
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<PAGE>
settlement, the maximum number of shares of Common Stock which may be
issued by the Company on or about January 18, 1999 (assuming the strike price is
the closing price on January 7, 1999 of $.30 (the "Strike Price")) is 1,144,000.
Since the Strike Price 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 the average
closing bid price for the five days prior to January 18, 1999 were less than the
assumed Strike Price, such number of shares offered hereby would be higher. This
Prospectus covers the up to 1,144,000 total shares of Common Stock issuable with
certainty, upon the completion of the Uinta settlement.
USE OF PROCEEDS
The 3,723,800 Shares covered by this Prospectus relating to the 1997
Investor Private Placement are issuable upon the conversion of the 1997 Notes
and the exercise of the 1997 Warrants. If all such 1997 Warrants covered by this
Prospectus are exercised in full at their stated exercise prices, the Company
will receive gross proceeds of approximately $899,646.
The 12,658,228 Shares covered by this Prospectus relating to the
Kingsbridge put options, if the Company were to give a put option notice, would
result in gross proceeds to the Company of approximately $10,000,000. If all
100,000 Shares covered by this Prospectus which are issuable to Kingsbridge upon
the exercise of the Kingsbridge Warrant are exercised at their exercise price of
$1.20 per share, the Company will receive gross proceeds of approximately
$120,000.
The 410,000 Shares covered by this Prospectus relating to the April 1998
Financing are issuable upon the conversion of the April 1998 Notes and the
exercise of the April 1998 Warrants. If the April 1998 Warrants to purchase
210,000 shares are exercised in full at their stated exercise prices of $1.25
per share, the Company will receive gross proceeds of $262,500.
The 1,050,000 Shares covered by this Prospectus which are issuable to the
First June 1998 Financing upon the exercise of the First June 1998 Warrants have
an exercise price of $.75 per share, or an aggregate of $787,500.
The 956,250 Shares covered by this Prospectus relating to the Second June
1998 Financing are issuable upon the conversion of the Second June 1998 Notes
and the exercise of the Second June 1998 Warrants. If the Second June 1998
Warrants to purchase 531,250 shares are exercised in full at their stated
exercise prices, the Company will receive gross proceeds of $265,625.
The 2,028,124 shares covered by this Prospectus relating to the Third June
1998 Financing are issuable upon the conversion of the Third June 1998 Notes and
the exercise of the Third June 1998 Warrants. If the Third June 1998 Warrants to
purchase 230,000 shares are exercised in full at their stated exercise price of
$.87 per share, the Company will receive gross
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<PAGE>
proceeds of $200,100.
The 3,530,490 shares covered by this Prospectus relating to the July/August
1998 Financing are issuable upon the conversion of the July Notes and the
exercise of the July Warrants. If the July Warrants to purchase up to 223,650
shares are exercised in full at their stated exercise prices of $.74375, $.73125
and $.99375 per share, the Company will receive gross proceeds of $188,755.
The 2,250,000 shares covered by this Prospectus relating to the September
1998 Financing are issuable upon the conversion of the September 1998 Note and
the exercise of the September 1998 Warrant. If the September 1998 Warrant to
purchase up to 1,500,000 shares is exercised in full at the stated exercise
price of $.40, the Company will receive gross proceeds of $600,000.
The 3,040,000 shares covered by this Prospectus relating to the October
1998 Financing are issuable upon conversion of the October 1998 Notes and the
exercise of the October 1998 "A" and "B" Warrants. If the October 1998 "A"
Warrants to purchase up to 1,200,000 shares are exercised in full at their
stated price of $.50, the Company will receive gross proceeds of $600,000. If
the October 1998 "B" Warrants to purchase up to 1,200,000 shares are exercised
in full at the stated exercise price of $3.00, the Company will receive gross
proceeds of $3,600,000.
Expenses expected to be incurred by the Company in connection with this
registration are estimated at approximately $540,000. The Selling Shareholders
will pay all of their underwriting commissions and discounts and counsel fees
and expenses in connection with the sale of the Shares. See "Plan of
Distribution." Proceeds to the Company from the exercise of the warrants issued
to the Selling Shareholders will be available for working capital and general
corporate purposes. No assurance can be given, however, as to when, if ever, any
or all of such Warrants will be exercised.
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholders. See "Selling Shareholders".
DILUTION
The net tangible book value of the Company's Common Stock as of September
30, 1998 was ($.05) 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, 1998, other than to
give effect to the conversion of the various convertible notes, the Kingsbridge
put option and the exercise of the various warrants issued to the Selling
Shareholders to purchase up to all 31,172,908 shares of Common Stock which are
being offered hereby, the Company will have an aggregate of up to 57,922,808
(31,172,908 offered hereby plus 26, 749,900 shares outstanding on September 30,
1998) shares of Common Stock outstanding with a net tangible
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<PAGE>
book value of approximately $.42 per share. Assuming a sale at the
anticipated offering price set forth below, this will represent an immediate
dilution of $.07 per share to new shareholders. The following table illustrates
this dilution per share:
Anticipated offering price per share...(1).................. $ .35
Net tangible book value per share
before Offering (2)................................. ($ .05)
Increase attributable to the conversion of Notes
and exercise of Warrants............................. $ .47
Net tangible book value per share after Offering
and conversion of Notes and exercise of Warrants.... $ .42
Dilution per share to new shareholders(3)................. $ .07
(1) The Anticipated Offering Price per share is based on the closing price
as quoted on the OTC on January 13, 1999.
(2) 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.
(3) 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.
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.
High Low
---- ----
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
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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
2nd Quarter (January 1 - March 31, 1998) ........... 2-3/16 7/8
3rd Quarter (April 1 - June 30, 1998) .............. 1-3/4 41/64
4th Quarter (July 1 - September 30, 1998).......... 1-1/8 11/16
Fiscal Year 1999
1st Quarter (October 1, - December 31, 1998)....... 53/64 1/4
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, 1998, there were approximately 2,075 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.
SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of September
30, 1996, 1997 and 1998, 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.
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<PAGE>
Fiscal Years ended September 30,
Statement of
Operations Data 1996 (1) 1997 (2) 1998
Revenues:
Environmental
Remediation
Services $ 0 $ 108,944 $ 65,404
Crude Oil sales 0 0 0
Other Income 60,477 7,331 33,874
Operating expenses 789,225 17,029,327 11,681,706
Income before
taxes and
extraordinary items (728,748) (16,913,052) (11,582,428)
Provision (benefit)
for income items 0 0 0
Net income (loss) (3) (728,748) (16,913,052) (11,582,428)
Net income (loss)
per share (0.30) (1.61) (0.46)
Weighed average
common stock
outstanding 2,469,511 10,500,293 24,971,815
Balance Sheet Data (at end of period)
Property and
equipment 3,477,000 4,351,185 6,654,662
Total Assets 3,477,000 4,894,936 11,691,218
Total Liabilities 6,730 1,748,376 12,922,127
Stockholders equity 347,270 3,146,560 (2,730,909)
- -------------
(1) The Company acquired 100% of the issued and outstanding common stock of
ERHC, effective August 19, 1996, in a reverse triangular merger, which has been
accounted for as a reorganization of ERFC. See Note1 to Notes to Consolidated
Financial Statement.
(2) 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."
(3) The net cash operating loss of the Company was $4,849,236 and
$1,283,900 for the fiscal years ended September 30, 1998 and 1997, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
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
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<PAGE>
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) 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, (ii) at such times as pil prices are more favorable, continuing to
pursue environmental remediation service contracts for oil and gas well rework
and "plug and abandonment" services in the United States and internationally and
(iii) exploiting the BAPCO Tool.
The Company has acquired all of its oil and gas properties since 1997. The
Company's current development plans require substantial capital expenditures in
connection with the exploration, development and exploitation of oil and natural
gas properties. The Company has historically funded capital expenditures through
a combination of equity contributions and short-term financing arrangements.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
Results of Operations
Fiscal Year Ended September 30, 1998 compared to Fiscal year Ended
September 30, 1997
During fiscal 1998 the Company incurred a net loss of $11,582,428, compared
to a net loss of $16,913,052 in fiscal 1997, reflecting the Company's increased
level of business operations. In fiscal 1998 a total of $935,916 was accrued,
but not paid in cash, as compensation to three officers of the Company.
Depreciation and depletion equaled $504,314 in fiscal 1998 compared to $273,000
in fiscal 1997. Amortization of the beneficial conversion feature discount on
convertible debt was $1,364,063 for the period ended September 30, 1998 compared
to $0 for the period ended September 30, 1997. The net cash operating loss of
the Company for fiscal 1998 was $4,849,236 compared to $1,283,879 for fiscal
1997.
Officers' compensation, professional fees, travel, consultant fees and
miscellaneous expenses for the period ended September 30, 1998 compared to the
period ended September 30,
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1997 increased significantly due to the Company's business operations
continuing to increase. Professional fees in the period ended September 30, 1998
included legal, audit, petroleum engineering and other engineering costs.
The Company had revenues of $99,278 in fiscal 1998 compared to $116,275 in
fiscal 1997. Included in fiscal 1998 were preparatory expenses of approximately
$200,000 related to the cost of bringing a delegation of government officials,
including the Prime Minister of Sao Tome, to the United States for meetings with
various committees of the United Nations and the United States government,
determining the boundaries of the concession and facilitating the passage of a
law in Sao Tome regarding the boundaries of the country.
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
1999 in part through additional debt or equity capital and in part through cash
flow from operations. A description of the Company's most recent financing
activities is included herein under the heading "The Company."
The Company presently intends to utilize any cash flow from operations as
follows: (i) seismic studies and fees for the Sao Tome joint venture; (ii)
production of wells in the Uintah Basin, (iii) production in the oil fields in
Texas; and (vi) working capital and general corporate purposes.
Capital Expenditures and Business Plan
In May 1997, the Company entered into an exclusive joint venture with the
Democratic Republic of Sao Tome & Principe ("Sao Tome") 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. At that time, the Company
was required to pay a $5,000,000 concession fee to the Sao Tome government. In
September 1997, the Company received a Memorandum of Understanding from the Sao
Tome government which allows the Company to pay this concession fee within five
days after Sao Tome 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 Sao Tome from the net proceeds of the
1997 Private Placement, in June 1998, paid $1,000,000 of this concession fee
from the net proceeds of the Third June 1998 Private Placement, in August, paid
$1,000,000 of this concession fee from the net proceeds of the July/August 1998
Financing. Subsequent to September 30, 1998, $250,000 was paid from the net
proceeds of the September 1998 Financing and $500,000 was paid from the net
proceeds of the October 1998 Financing to pay other expenses and obligations
relative to Sao Tome which the Company believes will be credited to the
concession fee.
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<PAGE>
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. During fiscal 1997, the
Company issued 1,000,000 shares of its common stock to acquire geologic data
concerning Sao Tome. The Company anticipates spending approximately $2,200,000
over the next 12 months for additional studies necessary to determine the
location and depth of the targeted oil deposits. The Company has spent to date
$250,000 in preparatory expenses including determining the boundaries of the
concession and facilitating the passage of a law in Sao Tome regarding the
boundaries of the country. The costs of further development of this project
cannot be determined until a more definite development plan is established. The
costs depend on the Company's determination to either independently develop the
concession, take on operational partners or lease a portion of the concession
for third-party development.
In April 1998, the Government of Sao Tome granted approval to the joint
venture to proceed with the preparation and sale of leases of its oil concession
rights, which sales were expected to occur in early 1999. In June 1998, the
Company and Sao Tome signed a letter of intent to award a contract to
Schlumberger to perform a marine seismic survey in anticipation of the license
round to be held in Sao Tome, and to act as the technical advisor and
coordinator of such license round. Schlumberger is a seismic data service
company located in Great Britain. The exact number and size of the lease blocks
to be offered have not yet been determined. The Company intends to run the
survey and acquire the seismic data in late 1998 in order to proceed with the
licensing round commencing in early 1999. In July 1998, the Company closed and
formed the joint venture national oil company with the Government of Sao Tome.
The oil company is called the STPETRO. STPETRO is owned 51% by the Government of
Sao Tome and 49% by the Company. In addition, the Company was granted under the
original agreement with the government, a long term management arrangement with
STPETRO. In July 1998, the Ministry of Cabinets and the Prime Minister executed
the STPETRO formation documents and they were promulgated into law by the
President. In September 1998, the Government of Sao Tome and STPETRO entered
into a Technical Assistance Agreement with Mobil. Under such agreement, Mobil
will perform a technical evaluation and feasibility study of oil and gas
exploration in certain designated acreage. The agreement is for an initial term
of 18 months and superceded the need for lease sales in early 1999. Mobil
retains a right of first refusal to acquire development rights to all or a
portion of the acreage which it is evaluating. Mobil then executed an agreement
with Schlumberger to perform the marine seismic survey as previously agreed
under the letter of intent with the Company signed in June 1998. Under the
Mobil/Schlumberger agreement, Schlumberger will perform seismic work on the
option blocks designated in the TAA Agreement. Such work is to commence in
January 1999. The Company continues to maintain a right to construct the
Off-Shore Logistics Center and is seeking an appropriate joint venture partner
for the project.
Revenues from the Company's operations in Sao Tome and substantially all
raw material purchases for use in Sao Tome will be U.S. dollar-denominated and
managed through the Company's Louisiana operational facility. The Company
believes that it will not be
29
<PAGE>
significantly affected by exchange rate fluctuations in local African currencies
relative to the U.S. dollar. The Company believes that the effects of such
fluctuations will be limited to wages for local laborers and operating supplies,
neither of which is expected to be material to the Company's results of
operations when the joint venture begins more substantial operations in Sao
Tome.
In October 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. The Company paid $200,000 and issued 50,000 shares of its
common stock to acquire the lease. The Company has spent more than $200,000
reworking the first of two existing shut-in wells on the property. Due to
mechanical failure downhole, this well has been shut in again. In 1998, the
Company planned on spending $650,000 to $1,200,000 to make the wells
operational, utilizing funds to be acquired under the Investment Agreement with
Kingsbridge. See "The Company --- The Kingsbridge Equity Line of Credit
Agreement." The Company is currently considering whether to conduct geophysics
surveys to aid in the selection of future drilling locations. The Company
believes that, assuming the entire lease is productive, there are about 75
locations to be drilled. In 1998, depending on the availability of funding, the
Company expected to drill 15 to 20 new wells at this site, at a cost of
approximately $650,000 to $1,200,000 per well. The Company is responsible for
only half of the drilling cost of each well, as it shares this cost with its
operational co-venturer, Autry Stephens & Co. The operational dates, as well as
the daily production rates, of the second well cannot be determined until the
completion of the reentry. The Company is currently meeting with two potential
farm-out partners to work the project and believes it will negotiate
arrangements to drill additional wells on the northern and southern portions of
the leasehold.
In February and March 1997, the Company acquired leases in oil fields,
which together comprise approximately 1,200 acres and 200 wells, located in Rusk
County and Wichita County, Texas. The Company issued 500,000 shares of its
common stock to acquire the leases. Through December 1997, the Company had
recompleted 18 wells, all of which were operational as of March 20, 1998. Of
these wells, 13 had mechanical failures. The Company has located its BAPCO Tool
on site. The Company anticipates spending $1,200,000 in order to bring
production on the fields up to a commercial level. At the current time, the
Company is evaluating feasible economic options including the potential sale of
the Rusk County and Wichita County properties.
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. At this time, none of the wells are operational. The Company
had designed a development program, under which it planned to recomplete and
restimulate 36 wells and to drill five to seven development and extension wells
at this site. This plan would require spending a minimum of $1,000,000 to
$1,500,000 in order to make the project operational. Subject to the availability
of such funds, the Company anticipated that the first wells would be on line by
fall 1998. The leases on the MIII project were never
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<PAGE>
transferred to the Company and it is currently evaluating its options with
regard to this project.
In September 1997, the Company acquired net revenue interests ranging from
76% to 84% (and 100% working interest in all but 2 of the wells) in oil and gas
properties totaling 13,680 acres, located near the MIII fields in the Uinta
Basin with 22 oil and natural gas wells. These wells are currently producing
approximately 70 barrels of oil per day from six producing wells which began
realizing revenues for the Company in November 1997. The Company planned on
spending approximately $1,000,000 on additional equipment and up to $80,000 per
well on well stimulation in order to bring 12 more wells on line in 1999. The
Company plans to plug and abandon 2 more wells and to perform further study on
the other 2 wells. The Company planned on funding this plan through the use of
funds acquired under the Kingsbridge Investment Agreement. See "The Company -
The Kingsbridge Equity Line of Credit Agreement." To date, the Company has
received no funds under the Kingsbridge Investment Agreement, no longer intends
to take down any funds under this agreement, has negotiated terms to cancel this
agreement and Kingsbridge is seeking arbitration of the agreement and its
cancellation. Provided additional financing of $5,000,000 to $10,000,000 is
secured from another source, the Company would schedule to implement a
recompilation and drilling program on this project. The Company is currently
evaluating the existing reserve reports, the underlying data on these leases and
the economic feasibility of increasing production in light of the current oil
prices or of the sale or other disposition of these properties. The Company is
engaged in arbitration regarding this project and believes that a settlement on
all issues will be completed in January 1999.
In April 1997, the Company entered into a master service agreement with
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 substantial
deposit was made by the Company to secure the barge. The Company believes the
original barge supplier will not be able to deliver since the owner of the
company died. The Company is attempting to recover the deposit and is seeking an
alternate supplier. Additional funding is being sought to purchase and equip the
barge. It is estimated that the Company's barge could be ready to operate 180
days following funding. Due to the price structure of the oil and gas business
at this time, the Company does not believe that it is in its best interest to
construct this barge. However, a substantial increase in oil prices would cause
the Company to reevaluate its decision regarding such construction. To date, the
Company has not yet determined the extent of financing that will be necessary
for this project. The Chevron agreement was originally entered into by BAPCO and
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.
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<PAGE>
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.
The Company's current development plans require substantial capital
expenditures in connection with the exploration, development and exploitation of
its 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. Although Company management is exploring the private and/or
public equity markets as potential capital sources in connection with its
development plans, the Company currently does not have any binding 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 reasonable
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 and 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 a bank arrangement or 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.
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. Such decline occurred in fiscal 1998. This was
primarily due to excess oil supplies worldwide.
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.
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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 $29,224,228 which
expire in the years 2010 through 2013. The Company has a $11,595,000 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.
Year 2000 Compliance
The Company is currently in the process of evaluating its information
technology for Year 2000 compliance. The Company does not expect that the cost
to modify its information technology infrastructure to be Year 2000 compliant
will be material to its financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance.
BUSINESS
Overview
The Company is an independent oil and gas company whose predecessor was
formed in 1995. In 1997, the Company focused on acquiring and servicing
marginally-producing oil and natural gas properties which contained the
potential for increased value through workovers and secondary recovery
operations utilizing the Company's proprietary horizontal drilling tool. Lower
oil prices and increasing equipment costs in 1998 have reduced the economic
feasibility of these activities at this time. The Company 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 refocused
its activities and has 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 exploration of possible reserves.
In May 1997, the Company entered into an exclusive joint venture with the
Sao Tome, an archipelago island nation 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
exploration and is conducting geophysical, seismic, environmental and
engineering feasibility
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studies. In April 1998, the Government of Sao Tome granted approval to the joint
venture to proceed with the preparation and sale of leases of its oil concession
rights, which sales were expected to occur in early 1999. In July 1998, The
Company closed and formed the joint venture national oil company with the
Government of Sao Tome. This company is called STPETRO. The Company owns 49% of
STPETRO. In July, 1998, the formation of STPETRO was promulgated into law. In
September 1998, the Government of Sao Tome and STPETRO entered into a TAA
Agreement with Mobil. 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 October 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. In December 1997, the Company re-entered
the first of two existing shut-in wells on the property, and expected to
ultimately recover up to 5 BCF per well using 5% of the estimated possible gas
in place. Due to mechanical failure downhole, this well has been shut-in again.
The daily production rates from the second well cannot be determined until the
completion of the reentry. The Company is currently meeting with two potential
farm-out partners to work the project and believes it has negotiated an
arrangement to drill additional wells on the northern and southern portions of
the leasehold.
In addition, the Company acquired in February and March 1997 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 reserves
verified by Dr. Joseph Shoaf, P.E., 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 oil from the Wichita County
field. Of these wells, 13 had mechanical failures. The Company is evaluating
feasible economic options including the potential sale of the Rusk County and
Wichita County properties.
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 was estimated that the first approximately 36 wells would
be scheduled for recompletion and stimulation in the fall of 1998 and, the
Company estimated that, after initial workover operations were completed, these
wells could produce in excess of 3,900 barrels of oil per day. These estimates
were subject to internal verification by the Company. An independent reserve
report prepared by Richard Stephen Shuster, P.E. indicates , based on a study of
133 of such wells, which may or may not include any of the wells which are the
subject of the MIII joint venture, proven and producing reserves of
approximately 5.77 million barrels of oil and 23.4 BCF of natural gas on these
sites. The leases on the MIII project were never transferred to the Company and
it is currently evaluating its
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<PAGE>
options with regard to this project.
In September 1997, the Company acquired net revenue interests ranging from
76% to 84% in oil and gas properties totaling 13,680 acres, located near the
MIII fields, currently producing approximately 70 barrels of oil per day from
six 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 prepared by Ralph L.
Nelms and Gerry Graham of the gross recoverable reserves of these properties are
approximately 2.624 million barrels of oil and 3.302 BCF of natural gas. The
Company is currently evaluating the existing reserve reports, underlying data on
these leases and the economic feasibility of increasing production in light of
current oil prices or of the sale or other disposition of these properties. The
Company is engaged in arbitration regarding this project and believes that a
settlement on all issues will be completed in January 1999.
The Company provides 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 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. Due to the price
structure of the oil and gas business at this time, the Company does not believe
it is in its best interest to construct this barge. However, a substantial
increase in oil prices would cause the Company to reevaluate its decision
regarding such construction.
In addition, the Company has obtained rights to participate in a ten-year
concession with the Panama Canal Commission, through a joint venture with
Centram Marine Services, S.A., to supply fuel to tankers and other commercial
vessels traversing the Panama Canal. These operations are expected to commence
at such time as adequate financing is secured, of which there can be no
assurance.
To further penetrate the environmental remediation services market in
Louisiana. In February 1998, the Company sought to acquire a 70% equity interest
in Ven Virotek, Inc., a Louisiana corporation ("Virotek"), from its sole
shareholder, Recycling Remedies, Inc. Virotek owns and operates a NORM solid
waste disposal site in Houma, Lousiana and holds permits from Louisiana
environmental authorities to dispose of salt water, brine and naturally occuring
waste products. In March 1998, Virotek obtained two contracts from the U.S.
Department of
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<PAGE>
Energy to dispose of salt water brine from the strategic petroleum reserves
located in Houma, Louisiana. Under the contracts, it is contemplated initially
that a total of 475,000 barrels of brine will be shipped to Virotek for
disposal, and Virotek will receive $1.00 per barrel for its services. In August,
1998, this acquisiton was canceled because during the due diligence process the
Company discovered (1) serious unresolved environmental issues, (2) greater
refurbishment expenses than originally estimated and (3) larger liabilities than
originally represented.
The Company commenced negotiations for remediation work in Mexico in
September 1998 and for remediation work in Venezuela in December 1998. Neither
negotiation has been reduced to contract at this time.
In 1997, the Company believed that it was 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 system, 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.
Given adequate oil prices, 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. In the long run, the Company believes that the
BAPCO Tool will have greater applicability in the international market.
Beginning in the early 1990's, the combination of secondary recovery of oil
reserves in conjunction with environmental remediation of abandoned oil wells
have became 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 production, large independent oil companies have
typically outsourced some or all of the required "plug and abandonment" work to
third party contractors. 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 continues to believe
that at such time as oil prices rise to suitable levels, such activities
represent a potentially stable revenue source for them.
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
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strategy of: (i) 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, (ii) at such time
as oil prices are more favorable, continuing to pursue environmental remediation
service contracts for oil and gas well rework and "plug and abandonment"
services in the United States and internationally, and (iii) exploiting the
BAPCO Tool.
Key elements of the Company's growth strategy include:
(1) 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.
(2) Pursue Additional Environmental Remediation Contracts. The Company
continues to pursue 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.
(3) Exploit the BAPCO Tool. The Company has an experienced management and
engineering team that focuses on acquisitions of projects where the BAPCO Tool
can be utilized to enhance primary and secondary recovery projects. The Company
has had an 80% success ratio for improved production from wells on which the
tool has been used.
Summary of Properties
A summary of the Company's oil and gas properties is as follows:
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<TABLE>
<S> <C> <C> <C> <C> <C>
Anticipated Investment
Date to Make Anticipated
Property Nature of Interest Acquired Cost Operational Operational Date
- ------------------- -------------------------------------------- ------------------- --------------------- -------------------------
Sao Tome Joint Venture to drill May 1997 $5,000,000 $2,200,000 (1) Undetermined as of
and develop fields concession this time. STPETRO
fee, formed and Technical
$4,000,000 of Agreement
which has
been paid (2)
- ------------------- -------------------------------------------- ------------------- --------------------- ------------------------
Nueces River 37.5% interest in a Oct 1997 $200,000 and $650,000 (3) To be determined
Natural Gas 49,000 acre natural 50,000 shares upon completion of
Prospect, Texas gas lease of Common negotiations with two
Stock potential farm-out
partners
- ------------------- -------------------------------------------- ------------------- --------------------- -------------------------
Rusk and Leases in Oil fields February 500,000 Currently 5 wells currently
Wichita and March shares Operational Operational
County Oil 1997 Common
Fields, Texas Stock
- ------------------- -------------------------------------------- ------------------- --------------------- -------------------------
Uintah and Joint Venture with July 1997 $55,000 and Minimum (5)
Ouray MIII Corporation to contemplated $1,000,000 to
Reservation develop and operate issuance of $1,500,000
(MIII Project) 335 wells 250,000 shares
Utah of Common
Stock to MIII
- ------------------- -------------------------------------------- ------------------- --------------------- -------------------------
Uinta Project, Net revenue interests September $250,000 and Currently 6 wells currently
Utah ranging from 76% to 1997 1,000,000 Operational (6) operational
84% (and 100% shares
working interest on all Common
but 2 wells) in oil and Stock
gas properties of (7)
approximately 13,680
acres, with 22 wells
- ------------------- -------------------------------------------- ------------------- --------------------- -------------------------
</TABLE>
(1) The Company has spent (i)$2,500,000 for data that had been purchased
through cash and stock as of March 1998, and (ii) $250,000 in expenses
preparatory to drilling. The Company anticipates spending $1,500,000 over the
next 12 months for additional seismic studies needed to determine the location
and depth of the targeted oil deposits and
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$700,000 for operating costs associated with STPETRO in Sao Tome including
salaries and improvements. The costs of further development of this project
cannot be determined until a more definite development plan is established. The
costs depend on the Company's determination to either independently develop the
concession, take on operational partners or lease a portion of the concession
for third-party development. By Agreement dated August 18, 1998, Procura
assigned and transferred all of its rights and obligations in the venture to the
Company. In consideration of such assignment, the Company issued 2,000,000
shares of its restricted stock to Procura. As of December 31, 1998 said shares
had not been delivered to Procura because Procura has made certain claims to the
Company that it or its principals are entitled to additional shares. The Company
has authorized further negotiations to settle any disputes with Procura. Under
the terms of the approved offer, Procura would receive 4,000,000 shares of
restricted Common Stock, $12,000 per month for 6 months and warrants to purchase
2,000,000 shares of Common Stock on a graduated basis beginning at $1.00 and
increasing to $3.00 exercisable in increments of 250,000 based upon production
levels. Based upon prior meetings with the principals of Procura, the Company
believes such offer will be accepted. See "--Managing Exploratory Activities -
Sao Tome."
(2) As of December 31, 1998, the Company had paid $4,000,000 of this
concession fee and an additional $750,000 for certain costs and expenses
associated with the project. The Company believes that this additional $750,000
will be credited to the balance of the concession fee. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Capital Expenditures and Business Plan
(3) The Company has already spent approximately $350,000 reworking the
first of two existing shut-in wells on the property. Due to mechanical failure
downhold, this well has been shut in again. The Company plans on spending
approximately $650,000 to $1,250,000 to bring the second well on line. Provided
financing is secured, the Company would also like to drill 15 to 20 new wells at
this site in 1999 and is currently negotiating with two potential farm-out
partners for wells in the northern and southern portions of the leasehold. The
Company is responsible for only half of the drilling cost of each well, as it
shares this cost with its operational co-venturer, Autry Stephens & Co. See
"-Workover and Recovery Activities."
(4) The Company expects to have to spend $1,200,000 to bring production up
to a commercial level. The Company is evaluating feasible economic options
including the potential sale of these properties. See "-Workover and Recovery
Activities."
(5) The leases on the MIII project were never transferred to the Company
and it is currently evaluating its options with regard to this project.
(6) The Company plans on spending approximately $1,000,000 on additional
equipment and up to $80,000 per well on well stimulation in order to bring 12
additional wells on line. It
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<PAGE>
plans to plug and abandon 2 wells and do further study on the remaining 2 wells.
The Company anticipated utilizing funds acquired through the Investment
Agreement with Kingsbridge. Provided other financing of $5,000,000 to
$10,000,000 is secured, the Company is considering the most feasible options to
implement a recompilation and drilling program. The Company has entered into a
settlement agreement with regard to outstanding issues between the parties. See
"-Workover and Recovery Activities" and "Legal Proceedings."
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 May 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") and the management of such oil company by the
Company during that period. 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 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
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 failed to
make any remaining concession fee payment at the time Sao Tome determines, and
the United Nations accepts, the EEZ boundaries or fails to timely commence the
orderly development of the national oil and gas joint venture company. By
Agreement dated August 18, 1998, Procura assigned and transferred all of its
rights and obligations in the venture to the Company. In consideration of such
assignment, the Company issued 2,000,000 shares of its restricted stock to
Procura. As of December 31, 1998 said shares had not been delivered to Procura
because Procura has made certain claims to the Company that it or its principals
are entitled to additional shares. The Company has authorized further
negotiations to settle any disputes with Procura. Under the
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<PAGE>
terms of the approved offer, Procura would receive 4,000,000 shares of
restricted Common Stock, $12,000 per month for 6 months and warrants to purchase
2,000,000 shares of Common Stock on a graduated basis beginning at $1.00 and
increasing to $3.00 exercisable in increments of 250,000 based upon production
levels. Based upon prior meetings with the principals of Procura, the Company
believes such offer will be accepted.
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, in June 1998, paid $1,000,000 of this concession fee from the net
proceeds of the Third June 1998 Private Placement, in August, paid $1,000,000 of
this concession fee from the net proceeds of the July/August 1998 Financing. In
addition, the Company paid $250,000 out of the net proceeds of the September
1998 Financing and $500,000 out of the net proceeds of the October 1998
Financing, each of which payment were for certain expenses associated with Sao
Tome. The Company believes that these additional expense payment will be
credited to the concession fee.
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, 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 early 1999. The costs associated with drilling and testing such
a well cannot be determined until the seismic data have been processed and
evaluated. In April 1998, the Government of Sao Tome granted approval to the
joint venture to proceed with the preparation and sale of leases of its oil
concession rights, which sales were expected to occur in early 1999. In June
1998, the Company and Sao Tome signed a letter of intent to award a contract to
Schlumberger to perform a marine seismic survey in anticipation of the license
round to be held in Sao Tome and to act as technical advisor and coordinator of
such license round. In July 1998, the Company closed and formed the joint
venture national oil company with the Government of Sao Tome. The oil company is
called the STPETRO. STPETRO is owned 51% by the Government of Sao Tome and 49%
by the Company. The Company previously was granted a 25-year management
arrangement with STPETRO in the 1997 Letter of Intent. In July 1998, the
Ministry of Cabinets and the Prime Minister executed the STPETRO formation
documents and they were promulgated into law by the President. In September
1998, the Government of Sao Tome and STPETRO entered into a TAA Agreement with
Mobil. Under such agreement, Mobil will perform a technical evaluation and
feasibility study of oil and gas exploration in certain designated acreage. The
agreement is for an initial term of 18 months and superceded the need for lease
sales in early 1999. Mobil retains a right of first refusal to acquire
development rights to all or a portion of the acreage which it is evaluating.
Mobil then executed an agreement with Schlumberger to perform the marine seismic
survey as previously agreed under the letter of intent with the Company signed
in June 1998. Under the Mobil/Schlumberger agreement, Schlumberger will perform
seismic work on the option blocks designated in the TAA
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Agreement. Such work is to commence in January 1999.
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
Exxon, since at least the late 1970s. Over the next 20 years, industry experts
say, Western oil companies will invest between $40 billion and $60 billion in
the Gulf of Guinea alone.
AMCO Montenegro
In April 1998 the Company agreed to enter into a 50/50 joint venture with a
privately held Delaware corporation, AMCO Montenegro, Inc., and its related ABC
Group of companies ("AMCO") to construct and operate an "Off-Shore Logistics
Center" for the oil industry in the Gulf of Guinea, on the Island of Sao Tome.
AMCO Montenegro is a construction company based in Virginia. Due to political
conflict, the parties were uanble to finalizing the agreements. In April 1998,
Jugobanks AD Podgorica of Montenegro agreed to finance $50,000,000 for the
construction of the "Off-Shore Logistics Center" in Sao Tome. When funds were
blocked because of war in the region, the Company terminated its tentative
agreement with AMCO since AMCO could not perform at the time performance was
required. In April 1998, the Government of Sao Tome and the Company filed their
EEZ coordinates with the United Nations. The Company continues to maintain the
right to construct the Off-Shore Logistics Center and is seeking an appropriate
joint venture partner for the project There can be no assurance that the
financing or an appropriate partner will be available for this project.
Workover and Recovery Activities
In 1997, the Company concentrated its acquisition efforts on
marginally-producing properties which demonstrated 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 pursued a workover and recompletion program on the
properties it intends to commence some workover and recompletion in the future.
"Workovers" refer to the major repairs and modifications occasionally
required by
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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. 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
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 leases well servicing rigs for its projects and intends
to continue to do so in the future when such services are required. The
completion process may require from a few days to several weeks.
The Company's staff has focused on maximizing the value of the properties
within its reserve base. The results of their efforts are reflected in limited
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 anticipated spending in excess of $1.825 million on
workover and recompletion operations during fiscal 1998. Through September 30,
1998, the Company has spent approximately $460,000 on these operations.
In connection with this focus, the Company actively pursues operating cost
reductions on the properties it acquired. 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 Prospect," 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. In December 1997, the Company re-entered
the first of two existing shut-in wells on the property, and expected to
ultimately recover up to 5 BCF per well using 5% of the estimated possible gas
in place. Due to mechanical failure, this well has been shut in again. The daily
production rates, as
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well as the anticipated operational dates, from the second well cannot be
determined until the completion of the reentry. Following revitalization, the
Company estimates that such well has 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
November 1998, the Company issued 491,646 shares of its restricted stock to
Autrey Stephens & Co. in lieu of payment of $338,007 which represented the
Company's share of the costs to reenter the first well. In addition, the Company
issued 249,536 shares of its restricted stock to Hinge Line Inc. in lieu of
payment of $171,556 which Hinge Line Inc. had paid on behalf of the Company as
the Company's share of the yearly option fee which is due each April for
retention of the option on the remaining 49,000 acres. This option fee is due
each April for a period of 4 years at a total payment of $343,000 per year. The
Company is currently meeting with two potential farm-out partners to work the
project and believes it has negotiated an arrangement to drill additional wells
on the northern and southern portions of this leasehold.
The Company plans on spending approximately $650,000 to $1,200,000 to bring
both wells on line. Provided financing is secured, the Company also expects to
drill 15 to 20 new wells at this site, at a cost of approximately $650,000 to
$1,200,000 per well. The Company is responsible for half of the drilling cost of
each well, as it shares this cost with its operational co-venturer, Autry
Stephens & Co. The anticipated operational dates of these wells depend on the
amount of funds raised by the Company in 1999.
Rusk and Wichita County Oil Fields
The Company holds directly 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. has reserves verified. Through December 1997, the
Company had recompleted 18 wells, all of which were operational as of March 20,
1998. Of these wells, 13 had mechanical failures. The Company had located its
BAPCO Tool on site but it has since been removed. The Company anticipated
spending $1,200,000 in order to bring production on the fields up to a
commercial level. 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. The Company is evaluating feasible economic options
including the potential sale of the Rusk County and Wichita County properties.
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, valued at a total of $515,625.
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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 had 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 was estimated that the
first approximately 36 wells would be scheduled for recompletion and
restimulation by fall 1998, provided that the Company raised the required
funding. After initial workover operations were completed, the Company estimated
that these wells could produce in excess of 3,900 barrels of oil per day. These
estimates were subject to internal verification by the Company. An independent
reserve report prepared by Richard Stephen Shuster, P.E. indicates, based on a
study of 133 such wells, which may or may not include any of the wells which are
the subject of the MIII joint venture, proven and producing reserves of
approximately 5.77 million barrels of oil and 23.4 BCF of natural gas on these
sites. 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 reached 5,000 MCF, MIII had agreed to construct a gas gathering
plant on such site, with the Company retaining a 25% interest in the plant. As
of this date, it is highly unlikely that such plant will be constructed.
The Company believed it had a 37.762% working interest in the wells located
on the MIII property, and would be entitled to receive a $2.50 per barrel
operator fee on production in the fields. The Company also believed it had the
right to receive an additional 5% working interest in the wells after start-up
costs of approximately $1.5 million had been 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 contemplated issuing 250,000 shares of
Common Stock to MIII in connection with entering into this venture. Such shares
were never issued. In 1998, the Company planned to recomplete and restimulate 36
wells and to drill five to seven development and extension wells at this site,
provided adequate financing was secured. The leases on the MIII project were
never transferred to the Company and it is currently evaluating its options with
regard to this project.
Uintah Project
In September 1997, the Company acquired net revenue interests ranging from
76% to 84% (and 100% working interest) in oil and gas properties totaling 13,680
acres, located near the MIII fields in the Uinta Basin with 22 oil and natural
gas wells, currently producing approximately 70 barrels of oil per day from six
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 prepared by Ralph L. Nelms
and Gerry Graham of Sandwood Consultants indicated that the total ultimate
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gross recoverable reserves of these properties are 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 Formations at depths ranging from 5,500 to 16,000 feet. The
remaining net revenue interests in these properties are held by the Ute Tribe.
At such time as oil prices rise, the Company plans on spending
approximately $1,000,000 on additional equipment and up to $80,000 per well on
well stimulation in order to bring 12 more wells on line. It plans to plug and
abandon 2 wells and do further study on the remaining 2 wells. The Company
anticipated utilizing funds acquired under the Investment Agreement with
Kingsbridge. Provided other additional financing of about $5,000,000 to
$10,000,000 is secured, the Company plans extensive work in this field,
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
existing wells to test the viability of more shallow formations for potential
future development. The Company is currently evaluating the existing reserve
reports, underlying data on these leases and the economic feasibility of
increasing production in light of current oil prices or the sale or other
disposition of these properties. The Company is engaged in arbitration regarding
this project and believes that a settlement on all issues will be completed in
January 1999.
Lower oil prices and higher equipment costs have reduced the economic
feasibility of drilling, workover and recompletion activities such that they are
marginal at best. Therefore, the Company has directed its primary focus to its
high potential international prospects and to a lesser extent to its remediation
activities.
Reserves
The following table sets forth estimates of the proven oil and gas reserves
(gross) of the Company as of December 31, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Oil Equivalent
Oil Gas --------------
------------------------------ ------------------------------- (millions of
(millions of barrels) (billion cubic feet) barrels)
Field (1) Developed Undeveloped Total Developed Undeveloped Total Total
----- --------- ----------- ----- --------- ----------- ------ ----------
Nueces River Prospect, Texas. - - - - - - -
Rusk County Field, Texas..... - - - - - - -
Wichita County Field, Texas.. - - - - - - -
Uintah & Ouray Reservation,
Utah....................... - - - - - - -
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Uinta Project, Utah.......... - - - - - - -
--- ----- ----- ---- ----- ----- -----
Total............. - - - - - - -
====== ===== ===== ===== ===== ==== ====
</TABLE>
- - ----------
(1) The Company is currently in the process of evaluating reserve reports
on these properties, and therefore, internally verified estimates for the
developed and undeveloped proven oil and gas reserves are not available at this
time.
Estimates of the Company's proved reserves 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 50
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
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level of production from oil and natural gas wells that are suitable for
secondary recovery. Given adequate oil prices, 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 large
workover contracts in the United States and internationally and for use on its
own oil and gas properties in Texas and Utah. In the long run, the Company
believes the BAPCO Tool will have greater applicability in the international
market.
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. At such time as production wells become economically feasible, the
Company plans to construct additional tools. The BAPCO Tool has been tested on
multiple wells in a variety of formations during the past 3 years. The BAPCO
Tool has been continuously updated and modified since the tool was first
designed and developed by Sam L. Bass, Jr., the Company's Chairman of the Board
and by Herman Schellstede, an engineering consultants.
Environmental Remediation Services
The Company provides environmental remediation services to oil and gas
operators. These services 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 utilizing 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 anticipates that its staff will be 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 will use 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.
Provided funds are available, of which there can be no assurance, the Company
expects to deliver emergency crews trained in chemical and oil spill containment
and clean-up throughout many parts of the world should such contracts become
available.
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In April 1997, the Company entered into a master service agreement with
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 substantial
deposit was made by the Company to secure the barge. The Company believes the
original barge supplier will not be able to deliver since the owner of the
company died. The Company is attempting to recover the deposit and is seeking an
alternate supplier. It is estimated that the Company's barge could be ready to
operate 180 days following funding. To date, the Company has not determined the
exact level of financing that will be necessary for this project, but expects
$1.5 million is necessary to get the barge operational. The Chevron agreement
was originally entered into by BAPCO and 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. Due to the price structure of the oil and gas business at
this time, the Company does not believe that it is in its best interest to
construct this barge. However, a substantial increase in oil prices would cause
the Company to reevaluate its decision regarding such construction.
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
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 sealings which can lead to "blow outs," spilling oil and gas
into the surrounding waters and creating 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.
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.
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To assist in the Company's penetration of the environmental remediation
services market in Louisiana, in February 1998, the Company executed an
agreement to acquire a 70% equity interest in Virotek, a Louisiana corporation,
from its only other shareholder, Recycling Remedies, Inc. Virotek owns and
operates a NORM solid waste disposal site in Houma, Louisiana and holds permits
from Louisiana environmental authorities to dispose of salt water brine and
naturally occurring waste products. Under the Company's agreement to acquire its
interest in Virotek, the Company paid an initial installment payment of $15,000
in cash and signed a promissory note in the amount of $300,000. The Company's
payment of the promissory note is pending its receipt from the seller of audited
financial statements for Virotek. The Company came to believe that such
financial statements would not be provided and that this transaction was not
likely to be completed. In August 1998, this acquisition was canceled because
during the due diligence process the Company discovered (1) serious unresolved
environmental issues, (2) greater refurbishment expenses than originally
estimated and (3) larger liabilities than originally represented.
In late September 1998, the Company commenced negotiations for a contract
with PEMEX in Mexico to process 150,000 tons of oil contaminated drill bit
cuttings. The process would involve moving a high temperature burner to a
central site in southern Mexico near the Yucatan Peninsula and incinerating the
oil contamination within the cuttings. The contract will require PEMEX to pay
the Company a processing fee of between $160-$170 per ton. The cost to
incinerate and process the cuttings is estimated to be approximately $103 per
ton including the cost to incinerate and transport the cuttings, salaries and
operating expenses and the 8% commission which the Company would be required to
pay to the Mexican agent. The Company estimates that it would require $1.8
million to complete this project, for which the Company would require additional
funding.
In late November 1998, the Company commenced negotiations for a contract
with a major international oil company in Venezuela to incinerate oil based
drill cuttings from 6 wells to be drilled. This is in the preliminary stages and
economic feasibility has not been determined.
The Company is evaluating the financial merit of each of these projects and
potential funding sources at this time.
Offshore Logistics Services
Panama Refueling Concession
In December 1996, the Company entered into a joint venture agreement with
Centram Marine Services, S.A., which was amended in March 1997, pursuant to
which the venture obtained rights to participate in 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 45 such vessels traverse the Panama Canal daily. Pursuant to the
terms of the joint
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venture agreement, the Company is entitled to receive 66-2/3% of all net profits
of the venture, in exchange for the provision of a tug boat and a 30,000 barrel
fuel barge. 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 as such time as adequate financing is secured, of which
there can be no assurance. However, the Company believes that all initial funds
available to it will be focused initially on its Sao Tome activities unless such
funds are available solely for this project.
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 500,000 gallons of fuel a day at the start of the program and
increasing to one million gallons by the end of the first year of operation.
Based on a markup of $0.04 per gallon, the Company anticipates gross sales on
500,000 gallons to be in the range of $250,000 per day resulting in a gross
profit of $20,000 per day. There is no assurance that these anticipated profits
will be attained.
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. As of December 31, 1998,
the Company continues to sell oil from both of these properties. All such sales
were made on the spot market. In the future, the Company intends to continue to
sell its crude oil and natural gas, and associated oil and gas products, on the
spot market.
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.
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
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<PAGE>
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 contracts with third parties 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." Revision were made in July 1998. 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
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<PAGE>
many wells and/or oilfield uneconomical to operate. The Company is evaluating
the impact, if any, of the revisions to its business activities.
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 4 to 14 years. The Company also
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.
Currently, there are a great number of new and successful secondary
recovery programs. Many of these methods are allowing for a much higher rate of
recovery than shown by the Company. The technique that the Company has chosen to
utilize, after consideration of other methods, by means of the BAPCO tool, is
that of the lateral drilling system. This technique, which calls for drilling a
50' long, 2 inch diameter horizontal drain hole into the formation is ideally
suited for both the Gunsite and Rusk County formations, as they are a
"fractured" type horizon, and the oil is being drained from existing fractures
in the formation. The drilling of horizontal drain holes is expected to
encounter many new fracture systems within the formation, resulting in
significant oil production increases from each well because it interconnects
various fracture systems, thus enhancing the recovery potential. Based on data
supplied by the Schellstede Company, initial production increases from 8 to 10
barrels per day are common in similar types of shallow wells laterally drilled
using the lateral drilling system.
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<PAGE>
Properties
The Company's principal executive offices are located in Oyster Bay, New
York in approximately 1,100 square feet of leased office space. The Company
currently pays $850 per month in rent under its lease, which extends through
March 2000. 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, 1998, the Company had 15 full-time employees, including
three petroleum engineers and one geologist. 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
believed it has a number of meritorious defenses and potential counterclaims and
vigorously defended this action. This case went to trial in August 1998 in
Denver and judgment was found in favor of the Company. The award is in excess of
$17,000, however, there local counsel believes that such judgment may not be
recoverable since PDC has few assets. The time for appeal has lapsed and the
Company is evaluating whether to seek recovery on the judgment.
Uinta Oil & Gas, Inc., ("Uinta") one of the three "joint" sellers under the
agreement to acquire the Uinta leases and certain other assets took certain
actions that were in contravention of the agreement when certain anticipated
funding to the Company did not occur. The Company gave Uinta notice of its
demand for arbitration under the agreement. Uinta commenced an action agains the
Company, BAPCO, Sam L. Bass, Jr., Noreen Wilson, Jim Griffin, Robert E. McKnight
and Robert Ballou (the Company's geologist) in Uintah County, Utah in April
1998. The complaint alleges fraud in the inducement, rescission of the
agreement, breach of contract and securities fraud and requests punitive damages
and appointment of a receiver. The Company then filed a formal demand for
arbitration. Uinta filed a request for a receiver to be appointed. This motion
was denied; however, the court held the issue of arbitration in abeyance pending
an evidentiary hearing on the allegations of Uinta's allegations of fraud since
Utah law contains an
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<PAGE>
exception to mandatory arbitration when there are allegations of fraud.
Prior to the hearing on receivership, the other two "joint" sellers, Coconino,
S.M.A., Inc. and Pine Valley Exploration, Inc. filed their formal demand for
arbitration. The Company believes that it has numerous meritorious defenses to
this action. In the interim, the Company has made an offer to settle this
matter. The Company believes that a settlement on all issues will be completed
in January 1999. Under the terms of the executed settlement, for the 500,000
shares of restricted stock which were issued at a guarantee price of $2 per
share, additional restricted shares will be issued which reflect the difference
between $2 and the price on October 16, 1998 and December 30, 1998 and the
500,000 shares of restricted stock which were to be issued in early 1998 will be
issued and treated as if issued at the time such deliverance was initially
required. In addition, the parties will receive additional shares equal to the
difference between the value on a date certain in January 1999 and $2 (the
"Strike Price") for the second block of 500,000. The Company will reimburse
certain filing fees, attorneys fees and will pay for certain office equipment.
The Company will receive a quitclaim deed and assignments to perfect the
Company's interest in the leases. In addition, (1) Uinta will be issued shares
of the Company's Common Stock the amount of which shall be determined by
dividing $250,000 by the Strike Price, half of which shares shall be included in
this registration and half of which shall be restricted securities, (2) in
exchange for assignment of a 4% overriding royalty interest, Uinta will receive
restricted shares the amount of which shall be determined by dividing $677,000
by the Strike Price, (3) a deficiency value equal to $41,200 for the Utah office
building will be liquidated by issuance of shares the amount of which shall be
equal to $41,200 divided by the Strike Price, which shares shall be included in
this registration statement, (4) Uinta will receive no more than $10,000 to cost
its court costs and attorneys fees, and (5) payment of outstanding production
service invoices to third parties totally $27,000 shall be paid in the form of
shares included in this registration statement, which shares shall be equal to
$27,000 divided by the Strike Price. See "Selling Shareholders".
On August 11, 1998, the Company and Kingsbridge agreed to enter into an
agreement to cancel the Kingsbridge Private Equity Line of Credit dated March
23, 1998. Pursuant to the terms of the proposed cancellation, the Company will
pay a penalty in the amount of $100,000 and will issue warrants to purchase up
to an additional 100,000 shares of the Company's Common Stock (the "Kingsbridge
Warrants"). The Company has decided to cancel the Kingsbridge Private Equity
Line of Credit because terms of certain of the third quarter 1998 fundings
require the Company to cancel this agreement so as to limit the number of shares
of the Company's Common Stock outstanding upon conversion of the Company's
convertible notes in the future. However, as of December 31, 1998, the Company
had not completed the terms of the anticipated cancellation, and therefore
continues to be obligated to register the potential Kingsbridge shares issuable
under the put option exercise notice and the Kingsbridge Warrant. Under the
terms of the cancellation, the Company will be responsible for the registration
of the additional warrants. On December 10, 1998, Kingsbridge made application
to the American Arbitration Association for arbitration of outstanding issues
between the parties, claiming beaches of contracts. The Company has filed an
Answer in such proceedings. The Company believes it has just and meritorious
defenses to the claims and intends to vigorously defend these
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<PAGE>
claims.
Other than the above legal proceeding, the Company is not a party to any
other material pending or threatened legal proceeding.
MANAGEMENT
Directors and Executive Officers
The names and age of the directors and executive officers of the Company,
and their positions with the Company as of the date of this Amendment, are as
follows:
Name Age Position
- - ---- ----------
Sam L. Bass, Jr............. 63 Chairman of the Board and Vice
President
James R. Callender, Sr....... 57 President, Chief Executive Officer
and Director
Noreen G. Wilson............ 45 Vice President, Chief Financial
Officer and Director (1)
James A. Griffin............ 43 Secretary, Treasurer and Director
Robert McKnight............. 62 President of BAPCO and Director(1)
William Beaton.............. 75 Director
Alfred L. Cotten............ 46 Director
Kenneth M. Waters........... 73 Director
- -------------------
(1) Noreen G. Wilson's resignation as the Vice President, Chief Financial
Officer and as a Director was accepted on November 23, 1998. Robert McKnight was
appointed as the Acting Chief Financial Officer effective the same date.
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 since September 1996,
Vice President since September 1998 and served as President and Chief Executive
Officer of the Company from September 1996 until September 1998. 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
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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. Mr. Bass is the father of
Alfred L. Cotten.
James R. Callender, Sr. has served as the President since September 1998
and has served as the Chief Executive Officer since August 1997 and a Director
since September 1996. He previously served as the Vice President of the Company
from August 1997 until assuming the officer of the President. 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.
Noreen G. Wilson served as Chief Financial Officer of the Company from June
1997 until November 23, 1998. Prior to her resignation, she was a Director of
the Company from 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 Imperial
International Design, a consulting company. She provided consulting services for
the financing of American builders and contractors overseas, primarily working
through OPIC, 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
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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 Acting Chief Financial Officer since November
23, 1998 and a Director since July, 1998. He has served as 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.
Alfred L. Cotten has been a Director of the Company since December 1998.
Mr. Cotten is currently working for Noble Drilling. From 1993 until 1995, Mr.
Cotten was a Sub-Sea Engineer with Wilrig, U.S.A., Inc., in Lafayette,
Louisiana. From 1992 until 1993, Mr. Cotten worked for Bass Environmental, Inc.
assisting with the initial funding for operations and pulling samples for
subsequent remedial clean-up projects. From 1990 until 1992, Mr. Cotten was a
sales and service representative for P.S.D. Controls, in Lafayette. From 1986
until 1990, Mr. Cotten obtained an OIM License and performed barge engineer
duties for Penrod Drilling Corporation in Dallas, Texas. From 1984 to 1986, Mr.
Cotten was a Sub-sea engineer for Sonat Offshore of Dallas, Texas, working in
Malaysia. From 1977 to 1984, Mr. Cotten was a Sub-sea engineer for Penrod
Drilling. Mr. Cotten pursued a Petroleum Engineering Degree from the University
of Southern Louisiana in 1977 and 1978, having previously attended Lousiana
State University in 1971 and 1972. Mr. Cotten is the son of Sam L. Bass.
Kenneth M. Waters has been a Director of the Company since July, 1998. He
previously served on the Advisory Board from September 1996 until his
appointment to the Board. From 1992 until the present, Mr. Waters has served as
the Vice President of Bulk Tank Inc. From 1984 to 1992, Mr. Waters was a rancher
and independent geological consultant. From 1980 until
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<PAGE>
1984, Mr. Waters worked for Texoma Production Co., Houston, Texas, first as
a Vice President for Exploration and Production and then in 1981 until 1984 as
President. From 1958 until 1980, Mr. Waters was a Vice President and Manager for
Consolidated Natural Gas Co., in New Orleans, Louisiana. From 1954 to 1958, Mr.
Waters worked for the California Co. which is now known as Chevron, in New
Orleans, Louisiana, working for the first 4 years in Geological and Geophysical
Training, 2 years as an Area Exploration Geologist and then 2 years as Assistant
Chief Development Geologist. After serving in the U.S. Air Force in the Second
World War, Mr. Waters earned a MA degree from Indiana University in 1950 with a
major in geology and a minor in physics.
All directors hold office until the next annual meeting of shareholders and
until 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 Sam L. Bass
and Al Cotton, who are father and son, and 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.
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.
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<PAGE>
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 Indian 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.
Committees of the Board of Directors
The Company expects to establish an Audit Committee and Compensation
Committee in early 1999, 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.
In June 1997, the Company issued 150,000 shares of the Company's Common
Stock to two independent consultants (75,000 each) for services valued at
$28,125. One of the consultants, Robert McKnight, subsequently joined the
Company as an employee of BAPCO in August 1997 and now serves as the Acting
Chief Financial Officer of the Company.
In July 1997, the Company issued to each of James R. Callender, Noreen G.
Wilson 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.
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<PAGE>
In October 1997, the Company issued 100,000 shares of Common Stock to
Kenneth M. Waters in repayment of loans made by him to BAPCO. In November 1997,
the Company issued 12,500 shares of Common Stock to Al Cotten for consulting
services performed by him for the Company.
In September 1998, the Company, under a mistaken interpretation of a
contingent obligation of the Company to issue shares in connection with the
efforts to close the Sao Tome contract, authorized the issuance and in October
1998 issued 2,000,000 shares to each of Sam L. Bass, Jr., James R. Callender,
Sr., Noreen Wilson and James A. Griffin. When it was discovered that such shares
were issued in error, by vote of the Board of Directors, on December 18, 1998,
such issuance was rescinded. Mr. Bass, Mr. Callender and Mr. Griffin have agreed
to tender their shares immediately to the transfer agent for cancellation. The
transfer agent has been notified to place a stop upon the shares of Ms. Wilson
in the event her shares are not tendered in a timely fashion. On the same date,
the Company issued 425,000 shares to Robert McKnight and 100,000 to Kenneth M.
Waters in connection with their serving on the Board of Directors. Such shares
are not subject to the rescission. Mr. Waters has tendered his shares back to
the Company for cancellation because of personal tax considerations.
Compensation of Executive Officers
The following table sets forth, in summary form, the cash compensation
earned during the period from October 1, 1997 to September 30, 1998 by its Chief
Executive Officer and the three other most highly compensated executive officers
whose compensation exceeded $100,000 during such period.
Summary Compensation Table
<TABLE>
<S> <C> <C> <C> <C> <C>
Annual Compensation (c, d, e) Long Term Compensation (f)
(a) (b) (c) (d) (e) (f)
NAME AND FISCAL SALARY BONUS OTHER ANNUAL RESTRICTED
PRINCIPAL (2) ($) COMPENSATION STOCK
POSITION YEAR AWARDS
(1)
============================= ============= =============== ============= =========================== ======================
Sam L. Bass, Jr. 1998 $480,000 0 $125,000 0
Vice President (4)
- ----------------------------- ------------- --------------- ------------- --------------------------- ----------------------
James R. Callender 1998 $480,000 0 0 0
President and Chief
Executive Officer
- ----------------------------- ------------- --------------- ------------- --------------------------- ----------------------
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<PAGE>
- ----------------------------- ------------- --------------- ------------- --------------------------- ----------------------
James A. Griffin, 1998 $120,000 0 0 0
Secretary, Treasurer
- ----------------------------- ------------- --------------- ------------- --------------------------- ----------------------
Noreen G. Wilson, 1998 $480,000 0 0 0
Executive Vice
President and Chief
Financial Officer
- ----------------------------- ------------- --------------- ------------- --------------------------- ----------------------
</TABLE>
(1) Sam L. Bass served as President and Chief Executive Officer and James
R. Callender served as Vice President in 1997 until September 12, 1998.
(2) Salaries for Sam L. Bass, Jr., James A. Griffin, and Noreen G. Wilson
were accrued and not paid in cash. Each individual has an option to convert all
or part of any accrued salary to Common Stock of the Company at the rate of 1/2
of the average price of the Common Stock for the months in which the salary was
earned.
(3) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for the named executive officer.
(4) Represents amortization of Common Stock of Environmental Remediation
Funding Corporation distributed in 1995 to Sam L. Bass, Jr.
Proposed Employment Agreements
The Company contemplates entering into three-year employment agreements
with each of Sam L. Bass, Jr., James A. Callender, Sr., 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. In October 1998, the
Company adopted a Consultant stock option plan under which 250,000 shares have
been issued and registered with the Securities and Exchange Commission on Form
S-8.
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 and
key employees 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,
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<PAGE>
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% 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.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of December 31, 1998,
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.
Common Shares Beneficially Owned
<TABLE>
<S> <C> <C> <C>
Name (1) Number (2) Percentage Percentage
Before Offering After Offering
- ------------------------------- ------------------------- ---------------------- ---------------------
Sam L. Bass, Jr 9,971,568 (3)(6) 25.97% 14.63%
James R. Callender, Sr 2,500,000 (6) 6.51% 3.67%
Noreen G. Wilson 2,000,000 (6) 5.21% 2.94%
James A. Griffin 2,500,000 (6) 6.51% 3.67%
Robert McKnight 500,000 1.30% **
William Beaton 500,000 1.30% **
Alfred L. Cotten 12,500 (4) ** **
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<PAGE>
Kenneth M. Waters 200,000 (5) ** **
All officers and 18,184,06 (6) 46.80% 24.91%
directors as a group 8
(Eight (8) persons)
</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, 3-5 Audrey Avenue, Oyster Bay, New York 11771.
(2) Shares beneficially owned and percentage of ownership are based on
38,402,750 (39,613,436 less 1,210,686 offered hereby) shares of Common Stock
outstanding as of December 31, 1998 before the offering and 68,149,642 shares of
Common Stock after the offering of the Shares hereby. 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 and 50,000 shares owned by
Sheila Williams Bass, his wife.
(4) Alfred L. Cotten received his 12, 500 shares from his father, Sam L.
Bass, Jr.
(5) Mr. Waters has tendered the shares issued to him in connection with his
serving on the Board of Directors for personal tax reasons.
(6) Shares mistakenly issued in October 1998. Mr. Bass, Mr. Callender and
Mr. Griffin have agreed to tender their shares immediately to the transfer agent
for cancellation. The transfer agent has been notified to place a stop upon the
shares of Ms. Wilson in the event her shares are not tendered in a timely
fashion. Accordingly, once tendered, the share ownership of each of these
parties will be reduced and the overall share ownership by all officers and
directors as a group will be reduced. If all shares are tendered, the table
would be as follows:
Name (1) Number Percentage Percentage
Before Offering After Offering
- ------------------------ --------------- ------------------- ------------------
Sam L. Bass, Jr 7,971,568 20.76% 11.70%
James R. Callender, Sr 500,000 1.30% **
Noreen G. Wilson 0 ** **
James A. Griffin 500,000 1.30% **
_______________________________________________________________________________
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Robert McKnight 500,000 1.30% **
William Beaton 500,000 1.30% **
Alfred L. Cotten 12,500 ** **
Kenneth M. Waters 100,000 ** **
All officers and directors 10,084,068 25.96% 11.70%
as a group (Eight (8)
persons)
SELLING SHAREHOLDERS
The 1997 Investor Private Placement
In November and December 1997, the Company raised gross proceeds of
$4,300,000 in two closings of a private placement of the Company's 5.5%
convertible senior subordinated secured notes due October 2002 (the "1997
Notes") and warrants to purchase Common Stock (the "1997 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 1997
Notes (at a base conversion rate of $1.25 per share, subject to certain limited
conditions) and the exercise of the 1997 Warrants (at an exercise price of $3.17
per share) is up to 3,440,000 shares and 283,800 shares, respectively. This
Prospectus covers the maximum of up to 3,723,800 total shares of Common Stock
issuable upon the conversion of the 1997 Notes and the exercise of the 1997
Warrants. The 1997 Investors intend to sell the Common Stock acquired thereby
from time to time in the future upon conversion of the 1997 Notes and the
exercise of the 1997 Warrants. Based on the number of outstanding shares of
Common Stock of the Company as of December 31, 1998, the shares issuable under
the 1997 Notes and the 1997 Warrants represent approximately 9.69% of the
outstanding Common Stock of the Company. As of December 31, 1998, none of the
1997 Notes had been converted and none of the 1997 Warrants had been exercised.
All of the Shares held or to be held by the 1997 Investors could be offered
hereunder except that, under the terms of the 1997 Notes, the holders thereof
could convert the original principal amount of the 1997 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 1997 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 31, 1997 (the agreed upon date between the
parties) (ii) 100% of the Average Share Price for the five consecutive trading
days immediately preceding the first anniversary, 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 1997 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
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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 1997 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 1997 Notes were to have been received on April 8,
1998, the lowest applicable conversion rate would have been $.96 per share (80%
of the Average Share Price for the five consecutive trading days preceding such
date), resulting in a total of 3,723,800 shares of Common Stock issuable upon
conversion (including 283,800 shares into which the 1997 Warrants are
exercisable), subject to the elimination of the 90-day Base Price provision
described above. The 1997 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 1997 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 1997 Warrants may be
exercised at any time through October 15, 2002.
In connection with the sale of the 1997 Notes and the 1997 Warrants, the
Company entered into a Registration Rights Agreement with the 1997 Investors,
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 Company has
failed to register the shares into which the 1997 Notes are convertible and the
1997 Warrants are exercisable during the 120-day period following the completion
of this transaction. As a result, the Company is required to make certain
payments to the 1997 Investors. The Company is currently in negotiations with
these Investors to determine the amounts to be paid.
The public offering of the Shares by the 1997 Investors will terminate on
the earlier of October 15, 2000 or the date on which all Shares offered hereby
have been sold by the 1997 Investors.
The Kingsbridge Line of Credit Agreement*
In March 1998, the Company entered into the Kingsbridge Investment
Agreement, pursuant to which the Company has the right to receive up to
$10,000,000 in equity financing from the sale of its Common Stock in tranches to
Kingsbridge. At the same time, the Company issued a three-year warrant to
purchase 100,000 shares of Common Stock (the "Kingsbridge Warrant"). Through the
Company's exercise of put options, Kingsbridge is required to purchase, and the
Company is required to sell, subject to certain closing conditions and
limitations on the timing of purchases and amount of Common Stock to be sold
with respect to exercises of individual put options, at least $3,000,000 in
shares of Common Stock at a purchase price equal to 79% of the average of the
lowest prices of the Common Stock on the trading day on which notice of exercise
of the put option is given and on the one trading day prior, and the two trading
days following, such put option exercise notice. The minimum market price for
sales of shares is $1.00 per share. For purposes of registering the maximum
number of shares of Common Stock under this Prospectus, the market price is
assumed to be $1.00. At a market price of $1.00, the maximum number of shares of
Common Stock which may be issued by the
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Company upon the exercise of the put options and the number of shares which may
be purchased on exercise of the Kingsbridge Warrant are 12,658,228 shares and
100,000 shares respectively. This Prospectus covers the maximum of up to 12,
758,228 total shares issued upon notice of a put option exercise and exercise of
the Kingsbridge Warrant. Because the purchase price of the Common Stock 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 exercise
individual put options were to have been received on March 26, 1998, the lowest
applicable purchase price would have been $0.98 per share (79% of the lowest
prices of the Common Stock for the applicable days before and after the put
option exercise notice), resulting in a total of 10,204,082 shares of Common
Stock offered hereby. Notwithstanding the foregoing, the maximum number of
shares issuable to Kingsbridge shall not exceed 19.9% of the outstanding shares
of Common Stock at the time of such exercise(s).
In connection with entering into the Kingsbridge Investment Agreement, the
Company issued the Kingsbridge Warrant, a three-year warrant to purchase 100,000
shares of Common Stock at an exercise price of $1.20 per share (94% of the
market price calculated as of March 23, 1998), exercisable beginning on
September 24, 1998. As a condition precedent to the purchase and sale of shares
pursuant to the Kingsbridge Investment Agreement, among others, the Company is
required to register with the Commission under the terms of a Registration
Rights Agreement all of the shares of Common Stock subject to the put option, as
well as those into which the Kingsbridge Warrant is exercisable, for resale by
Kingsbridge. The Kingsbridge Investment Agreement has a term of two years, but
may be terminated by Kingsbridge earlier in the event the Common Stock subject
to the put options is not, or fails to be, registered for resale after specified
time periods lapse. Based on the number of outstanding shares of the Common
Stock of the Company as of December 31, 1998, if all of the shares were issued
pursuant to the put option exercise notice and the Kingsbridge Warrant, they
would represent approximately 33.22% of the outstanding Common Stock of the
Company. As of December 31, 1998, no put option exercise notices had been given
to Kingsbridge and none of the Kingsbridge Warrant had been exercised.
In connection with the Kingsbridge arrangement, the Company entered into a
Registration Rights Agreement, 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 Company has failed to register the shares into which the put
option exercise would be applied and the Kingsbridge Warrant is exercisable
during the 90-day period following the completion of this transaction. As a
result, the Company is required to make a lump sum payment in the amount of
$10,000. The Company is currently in negotiations with Kingsbridge regarding
such payment.
On August 11, 1998, the Company and Kingsbridge agreed to enter into an
agreement to cancel the Kingsbridge Private Equity Line of Credit dated March
23, 1998. Pursuant to the terms of the proposed cancellation, the Company will
pay a penalty in the amount of $100,000 and will issue warrants to purchase up
to an additional 100,000 shares of the Company's Common Stock (the "Kingsbridge
Warrants"). The Company has decided to cancel the Kingsbridge Private Equity
Line of Credit because terms of certain of the third quarter 1998 fundings
require the Company to cancel this
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<PAGE>
agreement so as to limit the number of shares of the Company's Common Stock
outstanding upon conversion of the Company's convertible notes in the future.
However, as of December 31, 1998, the Company had not completed the terms of the
anticipated cancellation, and therefore continues to be obligated to register
the potential Kingsbridge shares issuable under the put option exercise notice
and the Kingsbridge Warrant. Under the terms of the cancellation, the Company
will be responsible for the registration of the additional warrants. On December
10, 1998, Kingsbridge made application to the American Arbitration Association
for arbitration of outstanding issues between the parties. The Company has filed
an Answer in such proceedings.
- -------------------------------------------
* This page will be modified to reflect the number of shares of Common
Stock, if any, acquired by Kingsbridge from time to time as set forth in a
Prospectus Supplement.
- --------------------------------------------
The April 1998 Financing
In April 1998, the Company raised gross proceeds of $300,000 in two
closings of a private placement of the Company's 12% convertible notes, which
are due on the earlier of January 1999 or at such time as the Company receives
the first draw-down under the Kingsbridge Investment Agreement (the "April 1998
Notes"), and warrants to purchase shares of Common Stock (the "April 1998
Warrants") to nine "accredited" investors. The maximum number of shares of
Common Stock which may be issued by the Company upon the conversion of the April
1998 Notes (at a base price of $1.50 per share), subject to certain adjustments,
and the exercise of the April 1998 Warrants (at an exercise price of $1.25 per
share) to 200,000 shares and 210,000 shares, respectively. This Prospectus
covers the 410,000 shares of Common Stock issuable upon the conversion of the
April 1998 Notes and the exercise of the April 1998 Warrants. Based on the
number of outstanding shares of Common Stock of the Company as of December 31,
1998, the shares issuable under the April 1998 Notes and April 1998 Warrants
represent approximately 1.07% of the outstanding Common Stock of the Company. As
of December 31, 1998, none of the April Notes had been converted and none of the
Warrants had been exercised
All of the shares to be held upon conversion by the holders of the April
1998 Notes may be offered in that, under the terms of the April 1998 Notes, such
holders may convert 100% of the principal amount of the April 1998 Notes at any
time after the issuance date. The conversion rate of the April 1998 Notes is
equal to $1.50 per share and this price was used for purposes of registering the
maximum number of shares of Common Stock upon conversion of the April 1998 Notes
under this Prospectus. The April 1998 Notes are subordinated to any senior debt
incurred by the Company. All of the shares to be held upon exercise by the
holders of the April 1998 Warrants may be offered in that, under the terms of
the April 1998 Warrants, the holders thereof may exercise at any time up until
April 2001. The exercise price of the April 1998 Warrants is equal to $1.25 per
share and this price was used for purposes of registering the maximum number of
shares of Common Stock under this Prospectus for exercise of the April 1998
Warrants. In connection with the sale of the April 1998 Notes and the April 1998
Warrants, the Company committed to register the April 1998 shares under the
Securities Act for
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resale by, and for the benefit of, such shareholders.
The First June 1998 Financing
In June 1998, the Company raised gross proceeds of $200,000 in a private
placement of warrants to purchase shares of Common Stock (the "June 1998
Warrants") to two "accredited" investors. The maximum number of shares of Common
Stock which may be issued upon the exercise of the June 1998 Warrants (at an
exercise price of $.75) is up to 1,050,000 shares. This Prospectus covers the
1,050,000 shares of Common Stock issuable upon the exercise of the June 1998
Warrants. Based on the number of outstanding shares of Common Stock of the
Company as of December 31, 1998, the First June 1998 shares represent
approximately 2.73% of the outstanding Common Stock of the Company. As of
December 31, 1998, none of the June 1998 Warrants had been exercised.
All of the shares to be held by the Investors upon exercise of the First
June 1998 Warrants may be offered hereunder in that, under the terms of the
First June 1998 Warrants, the holders thereof may exercise at any time up until
5 PM Eastern Standard Time on the first business day after the fourteen month
period following the date of the declaration of the effectiveness of the
Company's registration statement in which the First June 1998 Warrants are
registered. The exercise price of the First June 1998 Warrants is equal to $.75
per share and this price was used for purposes of registering the maximum number
of shares of Common Stock under this Prospectus for exercise of the First June
1998 Warrants.
In the event that a holder of the First June 1998 Warrants exercises for
not less than 250,000 shares of the Company's Common Stock (25,000 in the case
of the 50,000 warrant holder), within 180 days of June 1, 1998 and exercise for
at least an additional 50,000 shares of Common Stock (5,000 in the case of the
50,000 warrant holder), within 360 days of June 1, 1998, the Company shall issue
to such holder of the First June 1998 Warrants additional warrants for the
purchase of a number of shares equal to the number of shares purchased under the
First June 1998 Warrants within 180 and 360 days of June 1, 1998. The exercise
price of these additional warrants is equal to $2.00 per share. Such additional
warrants may be exercised at any time up until 5 PM Eastern Standard Time on the
first business day after the twenty-four (24) month period following the date of
the effectiveness of the Company's registration statement in which the
additional warrants are registered.
In connection with the sale of the First June 1998 Warrants, the Company
committed to register the First June 1998 Funding shares under the Securities
Act for resale by, and for the benefit of, such shareholders. The Company has
committed to register the additional warrants within ninety (90) days of
issuance.
The Second June 1998 Financing
In June 1998, the Company raised gross proceeds of $425,000 in the private
placement of the Company's 12% subordinated convertible notes, which are due on
the earlier of December 1999 or upon the receipt by the Company of debt or
equity or revenue from the sale of leases or other property
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of not less than $4 million (the "Second June 1998 Notes"), and warrants to
purchase shares of Common Stock (the "Second June 1998 Warrants") to a limited
number of "accredited" investors. The maximum number of shares of Common Stock
which may be issued by the Company upon the conversion of the Second June 1998
Notes (at a base conversion price of $1.00 per share), subject to certain
adjustments, and the exercise of the Second June 1998 Warrants (at an exercise
price of $.50 per share for the first two years and $.85 per share thereafter)
is up to 425,000 shares and 531,250 shares, respectively. This Prospectus covers
the 956,250 shares of Common Stock issuable upon the conversion of the Second
June 1998 Notes and the exercise of the Second June 1998 Warrants. Based on the
number of outstanding shares of Common Stock of the Company as of December 31,
1998, the Second June 1998 shares represent approximately 2.49% of the
outstanding Common Stock of the Company. As of December 31, 1998, none of the
Second June 1998 Notes or the Second June 1998 Warrants had been exercised.
All of the shares to be held upon conversion by the holders of the Second
June 1998 Notes may be offered in that, under the terms of the Second June 1998
Notes, such holders may convert 100% of the principal amount of the Second June
1998 Notes at any time after the issuance date. The conversion rate of the
Second June 1998 Notes is equal to $1.00 per share and this price was used for
purposes of registering the maximum number of shares of Common Stock upon
conversion of the Second June 1998 Notes under this Prospectus. The Second June
1998 Notes are subordinated to any senior debt incurred by the Company. All of
the shares to be held upon exercise by the holders of the Second June 1998
Warrants may be offered in that, under the terms of the Second June 1998
Warrants, holders may exercise at any time until June 2002. The exercise price
of the Second June 1998 Warrants is equal to $.50 per share for the first two
years and $.85 per share thereafter (subject to adjustment) and these prices
were used for purposes of registering the maximum number of shares of Common
Stock under this Prospectus for exercise of the Second June 1998 Warrants. In
the event the Company has not registered the Second June Warrants within six
months of issuance, the exercise price for the entire term through June 14, 2000
shall remain at $.50 per share. The Second June 1998 Warrants contain cashless
exercise and anti-dilution provisions which include, but are not limited to,
anti-dilutive protection against stock or management option issuances below $.50
per share. Additionally, the exercise price of the Second June 1998 Warrants
will be adjusted downward to 50% of fair market value when the registration
statement becomes effective, if after 90 days the share price of the Common
Stock falls below $.75 per share for more than five consecutive trading days or
seven out of ten trading days. In connection with the sale of the Second June
1998 Notes and the Second June 1998 Warrants, the Company committed to register
the Second June 1998 shares under the Securities Act for resale by, and for the
benefit of, such shareholders.
The Third June 1998 Financing
In June 1998, the Company raised gross proceeds of $1,250,000 in a private
placement of the Company's 5.5% convertible notes due in June 2000 (the "Third
June 1998 Notes") and warrants to purchase shares of Common Stock (the "Third
June 1998 Warrants") to one "accredited" investor. The conversion price is
calculated pursuant to a formula as the lower of (i) the average closing bid
price for the five days prior to the closing ($.7195) or (ii) 80% of the average
closing bid price for the five
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days prior to notice of intent to convert. In the event that the lower price
were the average closing bid price for the five days prior to the closing, the
maximum number of shares of Common Stock which may be issued by the Company upon
conversion of the Third June 1998 Notes would be 1,798,124 shares. 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 of $.7195.
Because the conversion rate of the Third June 1998 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 the average closing bid price for the five days prior to
notice of intent to convert were $.7195, 80% of such number would equal a share
price of $.5756, resulting in a total of 2,247,655 shares of Common Stock
issuable upon conversion, exclusive of the exercise of any of the Third June
1998 Warrants. The maximum number of shares of Common Stock which may be issued
by the Company upon the exercise of the Third June 1998 Warrants (at an exercise
price of 120% of the average closing bid price for the five (5) days prior to
the closing which is equal to $.8634) is 230,000 shares. Certain penalties were
to be paid to the Third June 1998 Note Investor in the event the registration
statement was not effective within sixty days. In lieu of such payments, the
Investor has elected to take 282,016 additional shares in full liquidation of
all penalties due through December 1998. This Prospectus covers the up to
2,310,140 total shares of Common Stock issuable, with certainty, upon the
conversion of the Third June 1998 Notes, the exercise of the Third June 1998
Warrants and payment of penalties through December 1998. Based on the number of
outstanding shares of Common Stock of the Company as of December 31, 1998, the
Third June 1998 shares represent approximately 6.02% of the outstanding Common
Stock of the Company. As of December 31, 1998, none of the Third June 1998 Notes
had been converted and none of the Third June 1998 Warrants had been exercised.
All of the shares to be held upon conversion by the holders of the Third
June 1998 Notes may be offered, except that, under the terms of the Third June
1998 Notes, such holders could convert the original principal amount of the
Third June 1998 Notes only to the extent of one-third of such amount on and
after each of July 23, 1998, August 23, 1998 and September 23, 1998. The
conversion rate of the Third June 1998 Notes equal to $.72 per share was used
for purposes of registering the maximum number of shares of Common Stock upon
conversion of the Third June 1998 Notes under this Prospectus. The Third June
1998 Notes are subordinates to any senior debt incurred by the Company.
All of the shares to be held upon exercise by the Holders of the Third June
1998 Warrants may be offered in that, under the terms of the Third June 1998
Warrants, such holders may exercise at any time until June 23, 2003. The
exercise price of the Third June 1998 Warrants is equal to $.87 per share and
this price was used for purposes of registering the maximum number of shares of
Common Stock under this Prospectus for exercise of the Third June 1998 Warrants.
In connection with the sale of the Third June 1998 Notes and the Third 1998 June
Warrants, the Company entered into a Registration Rights Agreement with the
Third June 1998 Investors, pursuant to which the Company agreed to register the
Third June 1998 shares under the Securities Act for resale by, and for the
benefit of, such shareholders.
The Company used $1,000,000 of the net proceeds as an additional concession
fee payment in
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connection with its Sao Tome joint venture. The balance was used for working
capital. The Company has failed to register the shares into which the Third June
1998 Notes are convertible and the Third June 1998 Warrants are exercisable
during the 60-day period following the completion of this transaction. As a
result, the Company is required to make certain payments to the Third June 1998
Investors. The Company is currently in negotiations with these Investors to
determine the amounts to be paid.
The firm of Joseph Charles & Associates which is located at Lenox Center,
3355 Lenox Road, #750, Atlanta, GA 30326 acted as the underwriter of this
placement.
The July/August 1998 Funding
In July and August 1998, the Company raised gross proceeds of $1,200,000,
$275,000 and $1,010,000 respectively in a private placement of up to $3,000,000
in three(3) tranches of the Company's 8.0% convertible notes due in July and
August 2000 (the "July Notes") to a limited number of "accredited" investors.
The conversion price of the July Notes is calculated by formula as the lower of
(i) 120% of the average closing bid price per share of the Company's Common
Stock for the five (5) days preceding the closing of the transaction or (ii) 75%
of the average closing bid price per share of the Company's Common Stock for the
five (5) days preceding the date upon which notice of conversion is given by the
investor to the Company. In the event that the lower price were the 120% of the
average closing bid price for the five (5) days prior to the closing bid price
for the five (5) days prior to the closing of each tranche, the maximum number
of shares of the Common Stock which may be issued by the Company upon conversion
of the July Notes (at a base price of $.8925, $.8775 and $1.19 respectively) is
2,506,668. However if 75% of the average closing bid price for the five (5) days
prior to the notice of intent to convert were the lower price, there is no way
to ascertain the maximum number of shares of Common Stock which may be issued by
the Company upon conversion of the July Notes at this time. Because the
conversion rate of the July Notes is based in part on future average trading
prices of the Common Stock, the number of shares which may actually be issued
upon conversion could differ significantly. For example, in the event the
average closing bid price for the five (5) days prior to the note of intent to
convert were $.74375, 75% of such number would equal a share price of $.55781
resulting in a total of 4,454,922 shares of Common Stock issuable upon
conversion exclusive of the exercise of any of the warrants. Warrants were
issued to the placement agent at the close of each tranche (the "July
Warrants"). The maximum number of shares of Common Stock which may be issued by
the Company upon the exercise of the July Warrants (at an exercise price of
$.74375, $.73125 and $.99375 respectively) is 223,650 shares. Based on the
number of outstanding shares of the Common Stock of the Company as of December
31, 1998, the shares issuable under the July Notes and July Warrants represent
approximately 9.19% of the outstanding stock of the Company. In October 1998,
July Notes totally $412,350 and accrued interest thereon were converted at
prices ranging from $.321 to $.399 per shares for a total issuance of 1,210,686.
As of December 31, 1998, no other July notes had been converted and none of the
July Warrants had been exercised. This Prospectus covers the maximum of up to
3,530,490 (2,506,668 total shares of Common Stock issuable upon conversion of
the July Notes at the base prices plus 800,172 total shares as an adjusted
amount to reflect the October conversions and 223,650 total shares issuable upon
exercise of the July Warrants).
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Under the terms of the July Notes, the holders thereof could convert the
original principal amount of the notes only to the extent of one-third of such
amount on and after each thirty (3) day period following the issuance date. The
July Notes are subordinate to any senior debt incurred by the Company.
Under the terms of the July Warrants, the holders thereof may exercise at
any time up until 5 PM Eastern Standard Time on July 30, 2003 and August 5, 1998
respectively. The exercise price of the July Warrants are equal to $.74375,
$.73125 and $.99375 respectively.
In connection with the sale of the July Notes and the July Warrants, the
Company entered into a Registration Rights Agreement with the Selling
Shareholders, pursuant to which the Company agreed to register the July 1998
Funding shares under the Securities Act for resale by, and for the benefit of,
such shareholders.
The Company used $1,000,000 of the net proceeds as an additional concession
fee payment in connection with its Sao Tome joint venture. The balance was used
for working capital. The Company has failed to register the shares into which
the July Notes are convertible and the July Warrants are exercisable during the
60-day period following the completion of this transaction. As a result, the
Company is required to make certain payments to the July/August Investors. The
Company is currently in negotiations with these Investors to determine the
amounts to be paid.
The firm of J.P. Carey Securities, Inc. which is located at Atlanta
Financial Center, East Tower, 3343 Peachtree Road, Suite 500, Atlanta, GA 30326
acted as the underwriter of this funding.
The September 1998 Financing
By documents dated September 1998, the Company raised gross proceeds of
$500,000 in October 1998 in a private placement of the Company's 20% convertible
note due in October 2000 (the "September 1998 Note") and a warrant to purchase
shares of Common Stock (the "September 1998 Warrant") to one "accredited"
investor. The conversion price is calculated pursuant to a formula as the lower
of (i) 90% of the average closing bid price for the five days prior to
conversion or (ii) $1.00. In the event that the lower price were $1.00 maximum
number of shares of Common Stock which may be issued by the Company upon
conversion of the September 1998 Note would be 750,000 (assuming the lower price
is $1.00 and pursuant to the terms of the September 1998 Note which require
registration to initially cover 150% of the shares underlying the September 1998
Note). For purposes of registering the maximum number of shares of Common Stock
under this Prospectus, the conversion rate is assumed to be $1.00. Because the
conversion rate of the September 1998 Note 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 the average closing bid price for the five days prior to notice of intent
to convert were $.50, 90% of such number would equal a share price of $.45,
resulting in a total of 1,111,111 shares of Common Stock issuable upon
conversion, exclusive of the exercise of any of the September 1998 Warrant and
the requirement of registration of 150% would equal 1,666,666 shares of Common
Stock. The maximum number of
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shares of Common Stock which may be issued by the Company upon the exercise of
the September 1998 Warrant (at an exercise price of $.40) is 1,500,000 shares.
This Prospectus covers the up to 2,250,000 total shares of Common Stock
issuable, with certainty, upon the conversion of the September 1998 Note and the
exercise of the September 1998 Warrant. Based on the number of outstanding
shares of Common Stock of the Company as of December 31, 1998, the September
1998 shares represent approximately 1.95% of the outstanding Common Stock of the
Company. As of December 31, 1998, none of the September 1998 Note had been
converted and none of the September 1998 Warrant had been exercised.
The September 1998 Note precludes the holder from converting all or any
part of said note prior to the first anniversary date of issuance (October 26,
1999). The conversion rate of the September 1998 Note equal to $1.00 per share
was used for purposes of registering the maximum number of shares of Common
Stock upon conversion of the September 1998 Note under this Prospectus. The
September 1998 Note is subordinates to any senior debt incurred by the Company.
Commencing on the first anniversary of the issuance of said note, the remaining
principal amount and all accrued and unpaid interest and fees, if any, shall
automatically and without further action on the part of the holder be payable in
twelve monthly installments commencing with a first payment on November 1, 1999
and a final payment on the maturity date. The Company has the option at any time
prior to the first anniversary of said note to prepay all or any portion of the
remaining principal plus an amount equal to twenty percent on the portion so
paid.
Under the terms of the September 1998 Warrant , the holder may exercise at
any time from the issuance date until October 26, 2008, for up to 750,000 shares
of Common Stock and from October 26, 1999 until October 26, 2008, 750,000 shares
of Common Stock. The exercise price of the September 1998 Warrant is equal to
$.40 per share and this price was used for purposes of registering the maximum
number of shares of Common Stock under this Prospectus for exercise of the
September Warrant.
In connection with the sale of the September 1998 Note and the September
1998 Warrant, the Company agreed (i) to use its best efforts to register 150% of
the September 1998 Note shares under the Securities Act for resale by, and for
the benefit of, such shareholders within one year of issuance and to have such
registration remain effective until the earlier of the date upon which the Note
is sold or the term of said note and further, granted the holder certain
piggy-back registration rights; and (ii) to use its best efforts to register
100% of the September 1998 Warrant under the Securities Act for resale by, and
for the benefit of, such shareholders within two years of issuance and to have
such registration remain effective until the earlier of the date upon which the
Warrant is sold or for the life of said warrant and further granted the holder
certain piggy-back registration rights.
The Company used $250,000 of the net proceeds to make certain payments
necessary for Sao Tome other than the concession fee and the balance was used
for working capital.
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<PAGE>
The October 1998 Financing
In October 1998, the Company commenced a the private placement for up to
$1,500,000 under which it has raised gross proceeds in three (3) closings
totaling 800,000 of the Company's 12% subordinated convertible notes, which are
due on December 31, 1999 (the "October 1998 Notes"), and "A" and "B" warrants to
purchase shares of Common Stock (the "October 1998 "A" and "B" Warrants") to a
limited number of "accredited" investors. The maximum number of shares of Common
Stock which may be issued by the Company upon the conversion of the October 1998
Notes (at a base conversion price of $1.25 per share), subject to certain
adjustments, the exercise of the October 1998 "A" Warrants (at an exercise price
of $.50 per share) and the exercise of the October 1998 "B" Warrants (at an
exercise price of $3.00 per share) is up to 640,000 shares, 1,200,000 shares and
1,200,000 shares, respectively. This Prospectus covers the 3,040,000 shares of
Common Stock issuable upon the conversion of the October 1998 Notes and the
exercise of the October 1998 "A" and "B" Warrants. Based on the number of
outstanding shares of Common Stock of the Company as of December 31, 1998, the
October 1998 shares represent approximately 7.92% of the outstanding Common
Stock of the Company. As of December 31, 1998, none of the October 1998 Notes or
the October 1998 "A" or "B" Warrants had been exercised.*
- -----------------------------
* This page will be modified to reflect the number of shares of Common
Stock, if any, acquired by investors for the balance of this private placement
from time to time as set forth in a Prospectus Supplement.
- -----------------------------
All of the shares to be held upon conversion by the holders of the October
1998 Notes may be offered in that, under their terms, such holders may convert
100% of the principal amount of said notes at any time after the issuance date.
The conversion rate of the October 1998 Notes is equal to $1.25 per share and
this price was used for purposes of registering the maximum number of shares of
Common Stock upon conversion of the October 1998 Notes under this Prospectus.
The October 1998 Notes are subordinated to any senior debt incurred by the
Company. All of the shares to be held upon exercise by the holders of the
October "A" 1998 Warrants may be offered in that, under the terms of the October
1998 "A" Warrants, holders may exercise at any time until December 31, 2003. The
exercise price of the October 1998 "A" Warrants is equal to $.50 per share
(subject to adjustment) and these prices were used for purposes of registering
the maximum number of shares of Common Stock under this Prospectus for exercise
of the October 1998 "A" Warrants. All of the shares to be held upon exercise by
the holders of the October "B" 1998 Warrants may be offered in that, under the
terms of the October 1998 "B" Warrants, holders may exercise at any time until
the earlier of (i) five years from the date of exercise of the October 1998 "A"
Warrant or (ii) December 31, 2008. The exercise price of the October 1998 "B"
Warrants is equal to $3.00 per share (subject to adjustment) and these prices
were used for purposes of registering the maximum number of shares of Common
Stock under this Prospectus for exercise of the October 1998 "B" Warrants. The
October 1998 Notes and the October 1998 "A" and "B" Warrants have certain
piggy-back registration rights. The October 1998 "A" and "B" Warrants contain
cashless exercise and anti-dilution provisions which include, but are not
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<PAGE>
limited to, anti-dilutive protection against stock or management option
issuances below $.50 per share. The Company has the right to call the October
1998 "A" Warrant at any time after the underlying shares are registered if the
Common Stock of the Company exceeds a price of $4.50 per share for an average of
twenty consecutive trading days. The Company has the right to call the October
1998 "B" Warrants at any time after eighteen months after the holder has
exercised its October 1998 "A" Warrant and after the underlying shares are
registered if the Common Stock of the Company exceeds a price of $9.00 per share
for an average of twenty consecutive trading days. The Company has agreed not to
call the "A" and "B" warrants simultaneously. In connection with the sale of the
October 1998 Notes and the October 1998 "A" and "B" Warrants, the Company
committed to register the October 1998 shares under the Securities Act for
resale by, and for the benefit of, such shareholders.
The Company used $500,000 of the net proceeds to fulfill its obligations
under its contract with Sao Tome and the balance was used to fund operating
costs relative to the Sao Tome operation and to provide working capital.
Uinta Settlement
In January 1999, the Company agreed to a settlement with Uinta. Pursuant to
such settlement, the maximum number of shares of Common Stock which may be
issued by the Company on or about January 18, 1999 (assuming the strike price is
the closing price on January 7, 1999 of $ .30 (the "Strike Price")) is
1,144,000. Since the Strike Price 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 the average closing bid price for the five days prior to January 18, 1999
were less than the assumed Strike Price, such number of shares offered hereby
would be higher. This Prospectus covers the up to 1,144,000 total shares of
Common Stock issuable, with certainty, upon the completion of the Uinta
settlement. Based on the number of outstanding shares of Common Stock of the
Company as of December 31, 1998, the Uinta settlement shares represent
approximately 2.98% of the outstanding Common Stock of the Company.
Under the terms of the executed settlement, for the 500,000 shares of
restricted stock which were issued at a guarantee price of $2 per share,
additional restricted shares will be issued which reflect the difference between
$2 and the price on October 16, 1998 and December 30, 1998 (under the formula
set forth in the agreement, 861,111 and 1,312,500 shares of restricted stock
respectively) and the 500,000 shares of restricted stock which were to be issued
in early 1998 will be issued and treated as if issued at the time such
deliverance was initially required, which shares bear registration rights and
are offered hereby . In addition, the parties will receive additional shares
equal to the difference between the value on a date certain in January 1999 and
$2 for the second block of 500,000 (assuming the Strike Price, 2,833,333 shares
of restricted stock). The Company will reimburse certain filing fees, attorneys
fees and will pay for certain office equipment. The Company will receive a
quitclaim deed and assignments to perfect the Company's interest in the leases.
In addition, (1) Uinta will be issued shares of the Company's Common Stock the
amount of which shall be determined by dividing $250,000 by the Strike Price,
half of which shares shall be included in this registration and half of
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<PAGE>
which shall be restricted securities (assuming the Strike Price, 416,667
shares of restricted stock and 416,667 shares which bear registration rights and
are offered hereby) , (2) in exchange for assignment of a 4% overriding royalty
interest, Uinta will receive restricted shares the amount of which shall be
determined by dividing $677,000 by the Strike Price (assuming the Strike Price,
2,256,667 shares of restricted stock), (3) a deficiency value equal to $41,200
for the Utah office building will be liquidated by issuance of shares the amount
of which shall be equal to $41,200 divided by the Strike Price, (assuming the
Strike Price, 137,333 shares of Common Stock, which shares bear registration
rights and are offered hereby, (4) Uinta will receive no more than $10,000 to
cost its court costs and attorneys fees, and (5) payment of outstanding
production service invoices to third parties totally $27,000 shall be paid in
the form of shares included in this registration statement, which shares shall
be equal to $27,000 divided by the Strike Price (assuming the Strike Price,
90,000 shares which are offered hereby).
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, 1998. 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.
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares and
Shares Owned Before 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
- - ------------------- ----- -------- ------ ------------ ---------
1997 Investor Private Placement
- - -------------------------------
Banque Edouard Constant SA 320,000 24,000 344,000 344,000 0.5
11, Cours de Rive
Case Postale 3754
1211 - Geneva
Switzerland
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<PAGE>
Elara Ltd. 600,000 45,000 645,000 645,000 0.95
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 1.14
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 0.5
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 0.5
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 0.5
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 0.13
c/o Porter Capital Management Co.
100 Shoreline Highway, Suite 211B
Mill Valley, CA 94941
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<PAGE>
Cranshire Capital, L.P. 240,000 18,000 258,000 258,000 0.38
3000 Dundee Road
Suite 105
Northbrook, IL 60062
Legion Fund, Ltd. 120,000 9,000 129,000 129,000 0.19
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 0.63
1, Rue Toepffer
1206 - Geneva
Switzerland
Avalon Research Group, Inc. -- 25,800 25,800 25,800 0.04
1900 Glades Road, Suite 201
Boca Raton, FL 33431
Kingsbridge Line of Credit
- - --------------------------
Kingsbridge Capital Limited 12,658,228 100,000 12,758,228 12,758,228 18.72
Main Street (2)
Kilcullen, County Kildare
Republic of Ireland
April 1998 Financing
- - --------------------
Robert and Jessica Baron 16,667 17,500 34,167 34,167 0.05
4664 Coco Plum Way
Delray Beach, FL 33445
Frank Ferrante 8,333 8,750 17,083 17,083 0.03
4 Twilight Place
Fort Monmouth, NJ 07758
Rosemary Friedman Trust 50,000 52,500 102,500 102,500 0.15
4420 Bocaire Boulevard
Boca Raton, FL 33487
Diane Hom 16,667 17,500 34,167 34,167 0.05
205 West End Avenue, #22J
New York, NY 10025
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<PAGE>
Stanley Katz 16,667 17,500 34,167 34,167 0.05
10 Bonnie Drive
Northport, NY 11768
Howard Talks/Carol Hall, JTWROS 50,000 52,500 102,500 102,500 0.15
249 Tradewind Drive
Palm Beach, FL 33480
Kenneth Tice 6,666 7,000 13,666 13,666 0.02
181 Drake Lane
Ledgewood, NJ 07852
Stephen Warner 25,000 26,250 51,250 51,250 0.08
8 Shannon Circle
West Palm Beach, FL 33401
David Warren 10,000 10,500 20,500 20,500 0.03
2004 Lake Osbourne Drive, #9
Lake Worth, FL 33461
First June 1998 Financing
- - -------------------------
Corporate Builders - 50,000 50,000 50,000 0.07
777 S. Flagler Drive
Suite 909
West Palm Beach, FL 33401
Legal Computer Technology, Inc. -- 500,000 500,000 500,000 0.73
277 Royal Poinciana Way
Suite 155
Palm Beach, FL 33480
Howard Talks - 500,000 500,000 500,000 0.73
249 Tradewind Drive
Palm Beach, FL 33480
Second June 1998 Financing
- - --------------------------
Azriel and Sheila Nagar 25,000 31,250 56,250 56,250 0.08
342 Irving Avenue
South Orange, NJ 07079
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<PAGE>
Edward R. Rohquin 30,000 37,500 67,500 67,500 0.10
9906 White Sands Place
Bonita Springs, FL 34135
Joseph and Valerie Spano 100,000 125,000 225,000 225,000 0.33
150 Tamiami Trail North
Naples, FL 34102
David B. Thornburgh 100,000 125,000 225,000 225,000 0.33
420 W. San Marino Drive
Miami Beach, FL 33139
David B. Thornburgh Family Trust 170,000 212,500 382,500 382,500 0.56
420 W. San Marino Drive
Miami Beach, FL 33139
Third June 1998 Financing
- - -------------------------
Intercontinental Holding Company 17,373 -- 17,373 17,373 0.03
8351 Roswell Road, #239
Atlanta, GA 30350
Joseph Charles & Associates 43,433 75,000 118,433 118,433 0.17
Lenox Center
3355 Lenox Road, #750
Atlanta, GA 30326
ProFutures Special
Equities Fund, L.P. 2,019,334 155,000 2,174,334 2,174,334 3.19
1310 Highway 620
Suite 200
Austin, TX 78734
July/August Funding
- ------------------------------------
Closing No. 1-
Atlantis Capital Fund Ltd. 907,371 - 907,371 907,371 1.33
c/o Thomas Kernaghan & (3)
Company Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
Canada M5H 2V2
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<PAGE>
Atlas Capital Fund Ltd. 494,044 - 494,044 494,044 0.72
c/o Citco Fund Services (3)
(Cayman Island) Ltd.
Corporate Center
West Bay Road
P.O. Box 31106-SMB
Grand Cayman
Cayman Islands
British West Indies
Oscar Brito 168,067 - 168,067 168,067 0.25
Calle Neveri
Qnta Shanti
Colinas de Tamaneco 1080
Caracas, Venezuela
Correllus International Ltd. 112,045 - 112,045 112,045 0.16
c/o Azucena 37
Torreblanca del Sol
296 40 Fuengirola
Malaga, Spain
Sandro Grimaldi 168,067 - 168,067 168,067 0.25
Calle Neveri
Qnta Shanti
Colinas de Tamaneco 1080
Caracas, Venezuela
J.P. Carey - 108,000 108,000 108,000 0.16
Atlanta Financial Center
East Tower
3343 Peachtree Road
Suite 500
Atlanta, GA 30326
Closing No. 2 -
Holden Holding Ltd. 255,497 - 255,497 255,497 0.37
c/o City Trust (3)
3rd Floor, Murdoch House
South Quay
Douglas
Isle of Mann 1M1 5AS
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<PAGE>
PrimeCap Management Group 170,940 - 170,940 170,940 0.25
Ltd.
c/o Midland Walwyn
#200
32555 Simon Avenue
Abbotsford
British Columbia
Canada V2T 4Ys
J.P. Carey - 24,750 24,750 24,750 0.04
Atlanta Financial Center
East Tower
3343 Peachtree Road
Suite 500
Atlanta, GA 30326
Closing No. 3 -
GPS America Fund Ltd. 434,170 - 434,170 434,170 0.64
c/o Citco Fund Services (3)
(Europe) B.V.
World Trade Center
Amsterdam
Tower B, 17th Floor
Strawinskylaan 1725
P.O. Box 7241
1007 JE Amsterdam
the Netherlands
Mohammed Khalifa 596,639 - 596,639 596,639 0.88
P.O. Box 3207
Dubai, U.A.E.
J.P. Carey - 90,900 90,900 90,900 0.13
Atlanta Financial Center
East Tower
3343 Peachtree Road
Suite 500
Atlanta, GA 30326
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<PAGE>
September 1998 Funding
- -------------------------------------
Talisman Capital Opportunity 750,000 1,500,000 2,250,000 2,250,000 3.30
Fund Ltd.
16101 La Grande Drive
Suite 100
Little Rock, AR 72211
October 1998 Funding
- -----------------------------------
David Abelove 80,000 300,000 380,000 380,000 0.56
7529 Foote Road (4)
Clinton, NY 13323
Prudential Securities Inc. C/F 240,000 900,000 1,140,000 1,140,000 1.67
David Thornburgh - IRA (4)
dated 3/10/98
A/C # AFG-813978
1 New York Plaza
11th Floor
New York, NY 13323
Attn: Retirement Operations
1300 Windlass Corporation 80,000 300,000 380,000 380,000 0.56
Unit 1204 (4)
4401 Gulf Shore Boulevard
Naples, FL 34103
David B. Thornburgh Family 240,000 900,000 1,140,000 1,140,000 1.67
Trust (4)
420 W. San Marino Drive
Miami Beach, FL 33139
Uinta Settlement
- ----------------------------------
Uinta Oil & Gas Inc. 478,517 - 478,517 478,517 0.70
3954 East 200
North East Highway 40
Ballard, UT 84066
Pine Valley Exploration, Inc. 185,650 - 185,650 185,650 0.27
19307 West Warren
Detroit, MI 48228
84
<PAGE>
Coconino, S.M.A., Inc. 247,500 - 247,500 247,500 0.36
1567 W. Silver Springs Road
Park City, UT 84098
Joseph H. Lorenzo 5,000 - 5,000 5,000 0.01
Craig Phillips 82,400 - 82,400 82,400 0.12
Ballard, UT
Robert Ballou (5) 54,933 - 54,933 54,933 0.08
Stripper Operators Inc 60,000 - 60,000 60,000 0.09
Production Service Company 30,000 - 30,000 30,000 0.04
Total 24,644,208 6,528,700 31,172,908 31,172,908 45.74%
</TABLE>
(1) All Shares are beneficially owned and the sole voting and investment
power is held by the persons named.
(2) The number of shares beneficially owned by Kingsbridge will be modified
to reflect the number of such shares acquired by Kingsbridge, if any, from time
to time as set forth in a Prospectus Supplement. Although the shares associated
with the put option exercise will not be issued until such time as a put option
exercise notice is given, pursuant to the terms of the Registration Rights
Agreement, the Company is required to register all of the shares of Common Stock
subject to the put option, as well as those into which the Kingsbridge Warrant
is exercisable.
(3) The Investor made partial conversion of its July Note in October 1998.
(4) Half of which warrants are "A" and half of which warrants are "B".
(5) Robert Ballou is now employed as a geologist with the Company, but was
not affiliated at the time the original transaction was concluded.
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.
85
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED 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." Mr. Bass transferred 12,500 of
his shares to his son, Alfred L. Cotten, currently a Director of the Company.
In June 1997, the Company issued 150,000 shares of its Common Stock to two
independent consultants (75,000 each) in exchange for services valued at
$28,125. One of the consultants, Robert McKnight subsequently became employed by
BAPCO and now serves as the Acting Chief Financial Officer and a Director of the
Company.
In July 1997, the Company issued 1,500,000 shares of its Common Stock,
500,000 each, to James R. Callender, Sr., Noreen G. Wilson and William Beaton.
In September 1998, the Company, under a mistaken interpretation of a
contingent obligation of the Company to issue shares in connection with the
efforts to close the Sao Tome contract, authorized the issuance and in October
1998 issued 2,000,000 shares to each of Sam L. Bass, Jr., James R. Callender,
Sr., Noreen Wilson and James A. Griffin. When it was discovered that such shares
were issued in error, by vote of the Board of Directors, on December 18, 1998,
such issuance was rescinded. Mr. Bass, Mr. Callender and Mr. Griffin have agreed
to tender their shares immediately to the transfer agent for cancellation. The
transfer agent has been notified to place a stop upon the shares of Ms. Wilson
in the event her shares are not tendered in a timely fashion. On the same date,
the Company issued 425,000 shares to Robert McKnight and 100,000 to Kenneth M.
Waters in connection with their serving on the Board of Directors. Such shares
are not subject to the rescission. Mr. Waters has tendered his shares back to
the Company for cancellation because of personal tax considerations.
From time to time, Noreen G. Wilson and James A. Griffin, while executive
officers and directors of the Company, have advanced funds to the Company in the
total amount of $1,469,559
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<PAGE>
through September 30, 1998, pursuant to 8.5% demand promissory notes, of which
$738,231 was repaid through September 30, 1998, and $731,328 remains outstanding
at September 30, 1998. Such notes are convertible into Common Stock at a
conversion rate equal to 1/2 the market price per share of Common Stock at the
time of the advance.
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
26,749,900 shares were outstanding on September 30, 1998, 1997, and 10,000,000
shares of Preferred Stock, Series B, par value $.001 per share ("Preferred
Shares"), issuable in series, none of which are outstanding. As of December 31,
1998, 39,613,436 shares were outstanding. Of such shares, 1,210,686 relates to
this Registration Statement, 8,100,000 have been rescinded and 2,000,000 have
not been delivered and are in dispute.
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
87
<PAGE>
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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.
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)
88
<PAGE>
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.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing: (a) the name of any such broker-dealers; (b) the
number of Shares involved; (c) the price at which such Shares are to be sold;
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable; (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this Prospectus, as supplemented; and (f) other facts material to the
transaction.
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 the sale is made in compliance with such
exemption.
The Company will pay all of the expenses, estimated to be approximately
$540,000, 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 Mintmire & Associates, Palm Beach, Florida.
89
<PAGE>
EXPERTS
The consolidated balance sheets as of September 30, 1997 and 1998, and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 1998, have been
included herein in reliance on the report of Durland & Company, CPAs, P.A.
independent public accountants, given on the authority of that firm as experts
in auditing and accounting.
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, as amended, 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.
Changes in and disagreements with Accountants
None
Qualitative and Quantitative Disclosures about Market Risk
None
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report ..............................................F-2
Consolidated Balance Sheets ...............................................F-3
Consolidated Statements of Operations ......................................F-4
Consolidated Statements of Stockholders' Equity ............................F-5
Consolidated Statements of Cash Flows .....................................F-6
Notes to Consolidated Financial Statements .................................F-7
Supplementary information ..................................................F-16
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO: The Board of Directors and Stockholders
Environmental Remediation Holding Corporation
We have audited the accompanying consolidated balance sheets of
Environmental Remediation Holding Corporation and subsidiary, (the "Company") as
of September 30, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended September 30, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Environmental Remediation Holding Corporation and subsidiary as of September 30,
1997 and 1998 and the consolidated results of their operations and their cash
flows for each of the three years in the period ended September 30, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has experienced operating losses since
inception. The Company's financial position and operating results raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
January 21, 1999
F-2
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30,
---------------------------------
1997 1998
--------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 327,743 $ 36,359
Restricted cash 0 18,826
Accounts receivable 0 193,736
Prepaid expenses and other current assets 215,708 256,059
--------------- ---------------
Total current assets 543,451 504,980
-------------- ---------------
PROPERTY AND EQUIPMENT
Oil and gas properties 515,625 1,240,175
Equipment 4,220,000 6,435,113
Deposit on purchase of equipment 136,560 0
--------------- -------------
Total property and equipment before depreciation and depletion 4,872,185 7,675,288
Less: accumulated depreciation and depletion (521,000) (1,020,626)
---------------- --------------
Net property and equipment 5,393,185 6,654,662
------------- --------------
OTHER ASSETS
Master service agreement 300 300
Investment in STPetro, S.A. 0 49,000
Due from STPetro, S.A. 0 452,276
DRSTP concession fee 0 4,000,000
Deferred offering costs 0 30,000
----------------- ------------
Total other assets 300 4,531,576
----------------- ------------
Total Assets $ 5,936,936 $ 11,691,218
=============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Stockholder loans payable $ 465,094 $ 731,328
Note payable - bank 175,000 0
Current portion of long-term debt 0 308,636
Suspended revenue 0 141,409
Accounts payable and accrued liabilities :
Accounts payable 111,054 1,365,764
Accrued officer salaries 960,000 1,673,985
Accrued interest 37,228 1,116,196
-------------- --------------
Total current liabilities 1,748,376 5,337,318
------------- --------------
LONG TERM LIABILITIES
Long term loans 0 41,631
Convertible debt, net 0 7,543,178
--------------- -------------
Total long term liabilities 0 7,584,809
----------------- ------------
Total Liabilities 1,748,376 12,922,127
------------------ ------------
Common stock issued under a repurchase agreement;
issued and outstanding 1,000,000 and 750,000 shares 2,000,000 1,500,000
----------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.0001 par value; authorized
10,000,000 shares; none issued and outstanding 0 0
Common stock, $0.0001 par value; authorized 950,000,000 shares;
issued and outstanding 21,989,526 and 25,999,900 2,199 2,600
Additional paid-in capital in excess of par 19,952,865 25,020,717
Additional paid-in capital - warrants 0 207,502
Deficit (17,645,204) 29,224,228)
Stock subscriptions receivable (913,300) 0
Beneficial conversion feature 0 1,387,500
Deferred compensation, net (250,000) (125,000)
--------------- ----------------
Total Stockholders' Equity (Deficit) 1,146,560 (2,730,909)
--------------- -----------------
Total Liabilities and Stockholders'Equity Deficit) $ 4,894,936 $ 11,691,218
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Operations
Year ended September 30,
------------------------------------------
1996 1997 1998
--------------- ---------- ------------
REVENUE
Environmental remediation services $ 0 $ 108,944 $ 65,404
Crude oil 0 0 0
Other income 60,477 7,331 33,874
--------------- ------------- -----------
Total revenue 60,477 116,275 99,278
--------------- ----------- ------------
COSTS AND EXPENSES
Compensation :
Officers 147,326 1,185,000 1,793,000
Directors 0 3,492,981 446,250
Consulting fees 337,956 8,883,356 920,723
Geological data and reports 0 2,008,848 8,000
General and administrative expense 55,943 1,145,355 5,533,916
Depreciation and depletion 248,000 273,000 499,626
Interest expense 0 40,787 2,480,191
-------------- ------------- -----------
Total costs and expenses 789,225 17,029,327 11,681,706
--------------- ------------- -------------
Net loss $ (728,748) $(16,913,052) $(11,582,428)
=============== ============= =============
Weighted average number
of shares outstanding 2,469,511 10,500,293 24,970,815
=============== ============= ============
Net loss per share - basic $ (0.30) $ (1.61) $ (0.46)
=============== ============= ===========
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
Years ended September 30, 1996, 1997 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock Beneficial Total
APIC Conv. Stk.Subs. Defr'd Accum. S/H Equity
APIC Warrants Feature Receivable Comp. Deficit (Deficit)
------------------- ----------- --------- --------- ---------- -------- ----------- ----------
Number
of Shares Amount
---------- --------- ---------- --------- --------- --------- --------- ----------- ----------
BALANCE, September 30, 1995 1,639,450 $ 164 499,924 0 0 0 (500,000) (3,404) (3,316)
Common stock issued for :
10/95 - equipment 744,000 74 3,719,926 0 0 0 0 0 3,720,000
1st quarter - cash 20,000 2 49,998 0 0 0 0 0 50,000
08/96 - reverse merger 356,317 36 (243,366) 0 0 0 0 0 (243,330)
08/96 - S-8 services 73,277 7 73,270 0 0 0 0 0 73,277
4th quarter - cash and services 406,330 41 529,846 0 0 0 0 0 529,887
09/96 - deferred comp. amort. - 0 0 0 0 0 72,500 0 72,500
Net loss - 0 0 0 0 0 0 (728,748) (728,748)
------------ ------- ------------ ---------- ----------- ------- ---------- ---------- -------------
BALANCE, September 30, 1996 3,239,374 324 4,629,598 0 0 0 (427,500) (732,152) 3,470,270
Common stock issued for :
03/97 - oil wells/leases 500,000 50 515,575 0 0 0 0 0 515,625
2nd quarter - services 1,900,000 190 1,474,810 0 0 0 0 0 1,475,000
04/97 - Chevron contract 3,000,000 300 0 0 0 0 0 0 300
04/97 - contributed to corp (100,000) (10) (99,990) 0 0 0 0 0 (100,000)
04/97 - BAPCO acquisition 4,000,000 400 499,600 0 0 0 0 0 500,000
3rd quarter - services 2,992,981 299 1,933,307 0 0 0 0 0 1,933,606
09/97 - cash stk subs rec'v 1,201,171 120 1,282,460 0 0 (913,300) 0 0 369,280
4th quarter - services 4,235,000 423 9,022,608 0 0 0 0 0 9,023,031
4th quarter - cash 1,021,000 103 694,897 0 0 0 0 0 695,000
09/97 - deferred comp. amort. - 0 0 0 0 0 177,500 0 177,500
Net loss - 0 0 0 0 0 0 (16,913,052) (16,913,052)
------------ ------- ------------ ---------- ----------- -------- ---------- ------------ -------------
BALANCE, September 30, 1997 21,989,526 2,199 19,952,865 0 0 (913,300)(250,000) 17,645,204) 1,146,560
Common stock issued for :
10/97 - stock subs rec'd - 0 0 0 0 913,300 0 0 913,300
10/97 - Uinta acquisition 1,000,000 100 1,999,900 0 0 0 0 0 2,000,000
10/97 - Nueces acquisition 50,000 5 148,745 0 0 0 0 0 148,750
11/97 - bene conv feat create - 0 0 0 1,075,000 0 0 0 1,075,000
1st quarter - services 355,000 36 921,964 0 0 0 0 0 922,000
1st quarter - cash 177,008 18 167,676 0 0 0 0 0 167,694
01/98 - building equity 24,000 2 69,998 0 0 0 0 0 70,000
2nd quarter - services 23,200 2 28,494 0 0 0 0 0 28,496
2nd quarter - cash 666,664 67 438,432 0 0 0 0 0 438,499
06/98 - bene conv feat create - 0 0 0 312,500 0 0 0 312,500
3rd quarter - services 162,420 16 102,868 0 0 0 0 0 102,884
3rd quarter - cash 234,200 23 135,577 200,000 0 0 0 0 135,600
09/98 - accounts payable 491,646 49 337,958 0 0 0 0 0 338,007
09/98 - option fee and penalty 229,536 30 219,193 0 0 0 0 0 219,223
4th quarter - services 479,700 48 473,552 0 0 0 0 0 473,600
4th quarter - cash 47,000 5 23,495 7,502 0 0 0 0 23,500
09/98 - deferred comp. amort - 0 0 0 0 0 125,000 0 125,000
Net loss - 0 0 0 0 0 0 (11,343,788) (11,343,788)
------------ ------- ------------ ---------- ----------- -------- --------- ------------ -------------
BALANCE September 30, 1998 25,999,900 $ 2,600 25,020,717 207,502 1,387,500 0 (125,000) (28,988,992) (2,495,673)
============ ======= ============ ========== =========== ======== ========= ============ =============
Common stock issued under a repurchase agreement:
BALANCE, September 30, 1996 0 $ 0 0 0 0 0 0 0 0
7/97 - DRSTP info 1,000,000 100 1,999,900 0 0 0 0 0 2,000,000
------------ ------- ------------ ---------- ----------- -------- -------- ---------- ------------
BALANCE, September 30, 1997 1,000,000 100 1,999,900 0 0 0 0 0 2,000,000
12/97 - cash repurchase (250,000) 0 (500,000) 0 0 0 0 0 (500,000)
------------ ------- ------------ ---------- ----------- -------- -------- ---------- ------------
BALANCE, September 30, 1998 750,000 $ 100 1,499,900 0 0 0 0 0 1,500,000
============ ======= ============ ========== =========== ======= ======== ========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Years ended September 30,
----------------------------------------------------
1996 1997 1998
-------------- ----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (728,748) $ (16,913,052) $ (11,579,024)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization of deferred compensation 72,500 177,500 125,000
Amortization of bene. conv. feat. and conv. debt expenses 0 0 1,518,243
Stock issued for services rendered 385,000 12,292,829 1,526,980
Stock issued for DRSTP geological data 0 2,000,000 0
Depreciation and depletion 248,000 273,000 499,626
Other (60,477) (6,730) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 0 0 (193,736)
(Increase) decrease in prepaid expenses and other current assets 0 (215,708) (40,351)
(Increase) decrease in due from STPetro, S.A. 0 0 (452,276)
Increase (decrease) in suspended revenue 0 0 141,409
Increase (decrease) in accounts payable 0 111,054 1,811,940
Increase (decrease) in accrued salaries 0 960,000 713,985
Increase (decrease) in accrued interest expense and penalties 0 37,228 1,078,968
------------- ----------------- ----------------
Net cash provided by (used by) operating activities (83,725) (1,283,879) ( 4,849,236)
------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
DRSTP concession fee payment 0 0 (4,000,000)
Investment in STPetro, S.A. 0 0 (49,000)
Acquisition of property and equipment (5,000) (131,560) (526,306)
------------- ----------------- ----------------
Net cash provided by (used by) investing activities (5,000) (131,560) (4,575,306)
------------- ----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of bank borrowing 0 175,000 0
Payment of loans 0 0 (182,780)
Net proceeds from sale of convertible debt 0 0 7,719,937
Proceeds from loans payable to stockholders 22,730 760,481 1,059,194
Payments on stockholder loans payable (16,000) (295,287) (792,960)
Common stock and warrants sold for cash 81,995 1,102,988 865,293
Payments of deferred offering costs 0 0 (30,000)
Repurchase of common stock 0 0 (500,000)
Proceeds from stock subscription receivable 0 0 913,300
------------ ----------------- ----------------
Net cash provided by (used by) financing activities 88,725 1,743,182 9,051,984
------------- ----------------- ----------------
Net increase (decrease) in cash 0 327,743 (272,558)
CASH, beginning of period 0 0 327,743
------------- ----------------- ----------------
CASH, end of period $ 0 $ 327,743 $ 55,185
============= ================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 0 $ 3,559 $ 30,819
============= ================= ================
Non cash financing and investing activities:
Stock issued to acquire :
Environmental remediation equipment $ 3,720,000 $ 0 $ 0
============= ================= ===============
BAPCO equipment $ 0 $ 500,000 $ 0
============= ================= ================
Oil and gas properties and equipment $ 0 $ 515,625 $ 2,148,750
============= ================= ================
Master service agreement $ 0 $ 300 $ 0
============= ================= ================
Accounts payable settlement $ 0 $ 0 $ 338,007
============= ================= ================
Equity in building $ 0 $ 0 $ 70,000
============= ================= ================
Option fee and penalty settlement $ 0 $ 0 $ 219,223
============= ================= ================
Convertible debt and warrants issued for services $ 0 $ 0 $ 51,252
============= ================= ================
Mortgage payable assumed $ 0 $ 0 $ 28,782
============= ================= ================
Capital lease - telephone equipment $ 0 $ 0 $ 3,393
============== ================ ===============
Bank loan - truck $ 0 $ 0 $ 25,872
============ =============== ================
</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
The Company. Environmental Remediation Holding Corporation, (ERHC), was
incorporated on May 12, 1986 in Colorado as Valley View Ventures, Inc., (VVV).
Its name was changed to Regional Air Group Corporation, (RAGC), on September 20,
1988, and then to Environmental Remediation Holding Corporation on August 29,
1996. VVV was created in 1986 as a blind pool to seek a merger opportunity with
a viable operating company. In 1988 the company acquired, via a reverse merger,
Mid-Continent Airlines which was a regional "feeder" airline operating as
Braniff Express. On September 28, 1989, Braniff Airlines filed Chapter 11
Bankruptcy. This event proved to be catastrophic to the then operating business
of the Company. RAGC liquidated its assets and liabilities shortly thereafter
and remained dormant until its reverse merger with Environmental Remediation
Funding Corporation on August 19, 1996.
Nature of operations.
ERHC operates in the environmental remediation industry and the oil and
natural gas production industry from its corporate headquarters in Oyster Bay,
New York, and its operating offices in Lafayette, Louisiana.
Use of estimates
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the statements of
financial condition and revenues and expenses for the years then ended. Actual
results could differ significantly from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of SSI and
BAPCO, its wholly owned subsidiaries. Intercompany accounts and transactions
have been eliminated in the consolidation.
Cash equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Concentration of risks
The Company primarily transacts its business with one financial
institution. The amount of deposit in that one institution exceeds the $100,000
federally insured limit at September 30, 1997 and 1998.
Accounts receivable
No allowance for uncollectible accounts has been provided. Management has
evaluated the accounts and believes they are all collectible.
Deferred offerings costs
Deferred offering costs represent capitalized payments made in connection
with the Company's proposed public offering. These costs are charged to
additional paid-in-capital as the cash proceeds for the offerings are received.
In the event the monies are not raised, these costs will be charged to
operations.
Compensation for services rendered for stock
The Company issued shares of common stock in lieu of services rendered. The
costs of the services are valued according to the terms of relative agreements,
market value on the date of obligation, or based on the requirements of Form
S-8, if applicable. The cost of the services has been charged to operations.
Net loss per share
Net loss per common share - basic is computed by dividing the net loss by
the number of shares of common stock outstanding during the period. Net loss per
share - diluted is not presented because the inclusion of common share
equivalents would be anti-dilutive.
DRSTP geological data
In July 1997, the Company acquired substantial geologic data and other
information from an independent source in exchange for one million shares of the
Company's common stock. This data was valued at $2,000,000 based on the
F-7
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(2) Significant Acquisitions
agreement with the seller that the 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. 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, except for certain
environmental remediation licences which it continues to hold.
On April 9, 1997, the Company acquired 100% of the issued and outstanding
common stock of Bass American Petroleum Company, (BAPCO), which was accounted
for as a purchase. BAPCO had been an inactive company for several years
previously, however BAPCO owned a variety of oil well production enhancing
equipment, which is proprietary to, but not patented by BAPCO. The transaction
was in essence an asset acquisition. At the time of the acquisition, BAPCO was
100% owned by the Chairman, President and CEO of ERHC. The Company has begun
using BAPCO as the operator of the various oil and natural gas leases it has
acquired.
(3) Going Concern
The Company's current liabilities exceed its current assets by $4,832,338.
The Company has incurred net losses of $728,248, $16,913,052 and $11,582,428 in
1996, 1997 and 1998 respectively. These conditions raise substantial doubt as to
the ability of the Company to continue as a going concern. The Company is in
ongoing negotiations to raise general operating funds and funds for specific
projects. However, there is no assurance that such financing will be obtained.
The Company is in preliminary discussions with several parties regarding the
potential sale of some to all of its US based crude oil production fields. In
prior years, the Company was able to raise funds in a timely manner, there is no
evidence that they will continue to do so in the future.
(4) Restricted Cash
A total balance of $18,826 in restricted cash, which is invested in
interest-bearing certificates of deposit, pledged as collateral for a
performance bond covering the Utah properties.
(5) Property, Equipment, Depreciation and Depletion
Property and equipment are valued at cost. Maintenance and repair costs are
charged to expense as incurred. When items of property or equipment are sold or
retired, the related costs are removed from the accounts and any gains or losses
are reflected as income.
Depreciation is computed on the straight-line method for financial
reporting purposes, based on the estimated useful lives of the assets. Autos and
trucks are depreciated over a three to five year life, field equipment over a
five to fifteen year life, office furniture over a three to five year life, and
the building over a thirty year life. Depreciation expense totaled , $0,
$40,787, and $495,083 for the years ended September 30, 1996, 1997 and 1998,
respectively.
At September 30, 1996, the Company had no oil and gas reserves. In March
1997, the Company acquired an undivided 7/8 net revenue with a 100% working
interest in a 100 well lease located in the Gunsite Sand Lease in Ector, Texas,
in exchange for 300,000 shares of the Company's common stock. The Company valued
this transaction at the closing price of stock given up, $1.03125 per share, or
a total of $309,375. The Company received an independent evaluation of this
field which reflected reserves. In March 1997, the Company acquired an undivided
7/8 interest in a 100 well lease located in the Woodbine Sand Lease Block in
Henderson County, Texas, in exchange for 200,000 shares of the Company's common
stock. The Company valued this transaction at the closing price of the stock
given up, $1.03125 per share, or a total of $206,250. The Company received an
independent evaluation of this field which reflected reserves.Both acquisitions
also included all existing equipment on site. The Company has not recorded the
fair market value of the equipment in place, as all of such equipment has
minimal scrap value, which is the only valuation method available due to the
non-operational status of the wells at acquisition. The Company spent
approximately $460,000 for the year ended
F-8
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(5) Property, Equipment, Depreciation and Depletion (continued) September
30, 1998 on well equipment repairs and well rework, all on the Gunsite lease.
The Company will capitalize and depreciate repairs which are believed to extend
the useful life of such existing equipment beyond one year, as well as the cost
of replacement equipment.
On September 29, 1997, the Company entered into an agreement to acquire 22
wells on 7 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah, from three joint owners. The purchase agreement was closed on October 8,
1997, at which time the Company received the lease assignment. The terms of the
acquisition are for the Company to pay $250,000 in cash and 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 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 for its use. The total valuation of this transaction is $2,250,000 and
is applied as $375,800 of oil and gas reserves and $1,874,200 of equipment.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and abandoned
approximately 10 years ago. This agreement requires the Company to pay the
seller $200,000 and issue 50,000 shares of the Company's common stock, as well
as to pay the Company's proportionate share of the costs to reenter this well.
The Company is also required to carry the seller's 1/8 proportionate share of
the reentry costs, estimated between $250,000 and $500,000, until the well is
producing. The seller also owns an undivided 50% interest in the oil and gas
lease on the 49,019 acres of land contiguous to the initial well. The agreement
allows the Company to acquire a 3/8 undivided interest in this lease by paying
to the seller approximately $343,000 each April for 4 years. The Company
received the initial lease assignment on December 1, 1997. The Company is
currently evaluating the existing reserve reports and underlying data of these
leases and has contracted another independent appraiser to complete new reserve
reports for its use.
Depletion (including provisions for future abandonment and restoration
costs) of all capitalized costs of proved oil and gas producing properties is
expensed using the unit-of-production method by individual fields as the proven
developed reserves are produced. Depletion expense was $0, $0 and $4,354 for the
years ended September 30, 1996, 1997 and 1998, respectively.
At September 30, major classes of property and equipment consisted of the
following :
1997 1998
-------------------- --------------------
Oil and gas properties $ 515,625 $ 1,240,175
Land 0 2,500
Building 0 96,282
Field equipment 4,220,000 6,229,859
Office furniture and equipment 0 67,800
Vehicles 0 38,672
Deposit on purchase of equipment 136,560 0
-------------------- --------------------
Total 4,872,185 7,675,288
Less: accumulated depreciation (521,000) (1,020,626)
-------------------- --------------------
Net property and equipment $ 4,351,185 $ 6,654,662
==================== ====================
(6) Master Service Agreement
In September 1996 Bass Environmental Services Worldwide, Inc., (BESW),
entered into a master service agreement with Chevron to plug and abandon oil
wells located in the Gulf of Mexico off the coast of Louisiana. In April 1997,
BESW assigned this contract to the Company in exchange for 3,000,000 shares of
the Company's common stock.Chevron has reissued the contract in the Company's
name. At the time of the acquisition, BESW was controlled by the CEO of ERHC.
The Company valued this acquisition on the basis of the par value of the
Company's common stock given up, or $300, because no historical cost basis could
be individually determined and the contract has minimal value until the Company
has built or purchased the equipment to commercialize the contract. The Company
hopes to begin commercializing the agreement in fiscal 1999.
(7) Notes payable
The Company issued two notes payable to stockholders who are also officers
and directors in exchange for cash amounting to $1,842,405. These notes carry no
stated maturity date and an 8.5% rate of interest. The Company has repaid
$1,104,247
F-9
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(7) Notes payable, (continued) on these notes, including interest and principal
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, $21,273 and
$35,300 for the period since inception ended September 30, 1995 and for the
years ended September 30, 1996, 1997 and 1998 respectively.
In January 1997, the Company issued a note payable to a bank in exchange
for $175,000 cash. This note carried a maturity date of March 15, 1997 and a
9.6875% interest rate. The 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 repaid this loan in full plus accrued interest in
December 1997.
In November 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 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 283,800 shares
of common stock a with an exercise price of $3.17 per share, or total additional
proceeds to the Company of $899,636 in cash in the event all of the warrants are
exercised. The notes are secured by the Company's non - MIII oil reserves in
Utah. As the notes are potentially convertible at a price below market, the
Company recorded a beneficial conversion feature discount of $1,075,000 in
accordance with FASB EITF Topic D-60. The discount is amortized over the period
from inception of the notes to the convertibility dates, 60, 90 and 120 days in
this case. The amount of amortization for the year ended September 30, 1998 was
$1,075,000.
In April 1998, the Company issued 12% convertible subordinated unsecured
notes due January 1999 in exchange for $300,000 is cash. These notes are
convertible into shares of the Company's common stock at a conversion price of
$1.50 per share. If all of these notes are converted, the Company will be
required to issue 200,000 shares of common stock. These notes also carried
warrants for an additional 210,000 shares of common stock with an exercise price
of $1.25 per share, or total additional proceeds to the Company of $262,500 in
cash in the event all of the warrants are exercised. In June 1998, the Company
issued 12% convertible subordinated unsecured notes due December 1999 in
exchange for $425,000 cash. These notes are convertible into shares of the
Company's common stock at a conversion price of $1.00 per share. If all of these
notes are converted, the Company will be required to issue 425,000 shares of
common stock. These notes also carried warrants for an additional 531,250 shares
of common stock with an exercise price of $0.50 per share for the first two
years, and $0.85 per share thereafter or total additional proceeds to the
Company of $265,625 or $451,563 in cash in the event all of the warrants are
exercised.
In June 1998, the Company issued 5.5% convertible subordinated unsecured
notes due June 2000 in exchange for $1,250,000 cash and $43,750 of broker fees.
These notes are convertible into shares of the Company's common stock at a
conversion price to be determined by a stated formula. If all of these notes are
converted using the conversion price of the issuance date ($0.69517), the
Company will be required to issue 1,798,124 shares of common stock. These notes
also carried warrants for an additional 230,000 shares of common stock with an
exercise price of $0.8634 per share, or total additional proceeds to the Company
of $198,582 in cash in the event all of the warrants are exercised. As the notes
are potentially convertible at a price below market, the Company recorded a
beneficial conversion feature discount of $312,500 in accordance with FASB EITF
Topic D-60. The discount is amortized over the period from inception of the
notes to the convertibility dates, 60, 90 and 120 days in this case. The amount
of amortization for the year ended September 30, 1998 was $289,063.
In July 1998, the Company issued 8.0% convertible subordinated unsecured
notes due July 2000 in exchange for $1,200,000 cash. These notes are convertible
into shares of the Company's common stock at a conversion price to be determined
by so stated formula. If all of these notes are converted using the conversion
price as of the issuance date ($0.478723), the Company will be required to issue
2,506,668 shares of common stock. In connection with this funding, the Company
issued warrants for 108,000 shares of common stock with an exercise price of
$0.74375 per share, or total proceeds to the Company of $80,325 in cash if all
of the warrants are exercised. The Company recorded an expense discount to the
notes amounting to $7,425 in connection with this issuance as the warrant
exercise price was below the market price of the common stock at issuance.
In July 1998, the Company issued 8.0% convertible subordinated unsecured
notes due August 2000 in exchange for $275,000 cash. These notes are convertible
into shares of the Company's common stock at a conversion price to be determined
by so stated formula. If all of these notes are converted using the conversion
price as of the issuance date ($0.644878), the Company will be required to issue
426,437shares of common stock. In connection with this funding, the Company
issued warrants for 24,750 shares of common stock with an exercise price of
$0.73125 per share, or total proceeds to the Company of $18,098 in cash if all
of the warrants are exercised. The Company recorded an expense
F-10
<PAGE>
(7) Notes Payable, (continued) discount to the notes amounting to $77 in
connection with this issuance as the warrant exercise price was below the market
price of the common stock at issuance. In August 1998, the Company issued 8.0%
convertible subordinated unsecured notes due August 2000 in exchange for
$1,010,000 cash. These notes are convertible into shares of the Company's common
stock at a conversion price to be determined by so stated formula. If all of
these notes are converted using the conversion price of the issuance date
($0.979813), the Company will be required to issue1,030,809 shares of common
stock. In connection with this funding, the Company issued warrants for 90,900
shares of common stock with an exercise price of $0.9938 per share, or total
proceeds to the Company of $90,336 in cash if all of the warrants are exercised.
The Company did not record an expense discount to the notes amounting to $7,425
in connection with this issuance as the warrant exercise price was below the
market price of the common stock was below the warrant exercise price at
issuance
(8) Accrued Salaries
At September 30, 1997 and 1998 the Company has accrued salaries of $960,000
and $1,673,985, 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. If the three officers chose to convert all of
the accrued salaries to common stock, the Company would be required to issue
3,644,031 shares of common stock
(9) Accrued Interest
Accrued interest consisted of the following at September 30 :
1997 1998
--------------------- --------------------
Accrued interest - other $ 37,228 $ 56,774
Accrued interest - convertible debt 0 288,547
Accrued penalties - convertible debt 0 770,875
--------------------- --------------------
Total $ 37,228 $ 1,116,196
===================== ====================
(10) Oil Production
During the year ended September 30, 1998, the Company completed repairs on
well equipment on twenty wells on the Gunsite Sand Lease. Two of these are
employed as water injection wells. Thirteen have had further mechanical
failures. The remaining five are producing approximately six barrels of crude
oil per day. At September 30, 1998, three of the twenty two Utah wells are
producing approximately twenty to twenty six barrels per day. Five more are
temporarily off line for minor repairs and produce approximately sixty nine to
eighty five barrels per day when operating. At the current market price for
crude oil at the wellhead, (approximately $8.00 per barrel), the Company does
not find it economically feasible to complete other than minor repairs in order
to reestablish well production. Furthermore, the Company is actively negotiating
with several potential purchasers for its East Texas leases. The Company is
utilizing the successful effort method of accounting for its oil and gas
producing activities. The Company regularly assesses oil and gas reserves for
possible impairment on an aggregate basis in accordance with SFAS 121.
(11) Income Taxes
The Company has a consolidated net operating loss carry-forward amounting
to $29,224,228, expiring as follows: $3,404 in 2015, $728,748 in 2016,
$16,913,052 in 2017 and $11,582,428 in 2018. The Company has an $11,689,691
deferred tax asset resulting from the loss carry-forward, for which it has
established a 100% valuation allowance. Until the Company's current plans begin
to produce earnings it is unclear as to the ability of the Company to utilize
these carry-forwards. The Tax Reform Act of 1986 provided for a limitation on
the use of net operating loss carryforwards following certain ownership changes.
Such a change in ownership under the IRS rules and regulations potentially could
occur pursuant to the Company's S-1 amendment.
(12) Stockholders' Equity
The Company has authorized 950,000,000 shares of $0.0001 par value common
stock and 10,000,000 shares of $0.0001 par value preferred stock. On September
30, 1995, the predecessor entity, ERFC, had 1,639,450 shares issued and
outstanding, which had been issued during the month since inception as 884,407
shares for $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 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.
F-11
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(12) Stockholders' Equity (continued) In August 1996, ERFC issued 20,500
shares in exchange for $42,892 in cash. On August 19,1996, the sucessor Company
issued 2,433,950 shares of common stock to acquire 100% of the issued and
outstanding common stock of ERFC. At the time of the acquisition ERHC, then
known as RAGC, had 356,317 shares issued and outstanding as a result of a 1 for
2,095 share reverse stock split. On August 19, 1996, the Company issued 73,277
shares of common stock to a consultant in exchange for services related to the
merger valued at $1.00 per share. In August 1996, the Company issued 10,000
shares of its common stock, valued at $70,000, to an attorney for services to be
rendered at below market rates for a period of 4 months. In September 1996, the
Company issued 55,000 shares of its common stock under three consulting
contracts previously negotiated, valued at $385,000. In September 1996, the
Company issued 320,830 shares of its common stock in exchange for $31,995 in
cash. In February 1997, the Company issued 1,600,000 shares of common stock via
an S-8 registration in exchange for consulting and professional services valued
at $1,100,000. In March 1997, the Company acquired a 100 oil well lease in
exchange for 300,000 shares of the Company's common stock valued at $309,375. In
March 1997, the Company acquired a 100 oil well lease in exchange for 200,000
shares of the Company's common stock valued at $206,250. In March 1997, the
Company issued 300,000 shares of common stock via an S-8 registration valued at
$375,000 in exchange for public relations services, of which approximately
150,000 had been earned at fiscal year end. The balance will either be earned or
returned to ERHC. In April 1997, the Company issued 3,000,000 shares of common
stock in exchange for the assignment of the Chevron P&A master service
agreement, valued at $300. In April 1997, the Company issued 1,342,981 shares of
common stock to three directors in lieu of cash compensation for services
rendered to the Company valued at $1,342,981. In April 1997, a director
contributed 100,000 shares of common stock back to the Company with a value of
$100,000. In April 1997, the Company issued 4,000,000 shares of common stock in
exchange for 100% of the issued and outstanding common stock of Bass American
Petroleum Company, (BAPCO), valued at historical cost of $500,000. In May 1997,
the Company issued 1,500,000 shares of common stock via an S- 8 in exchange for
consulting and professional services valued at $562,500. In June 1997, the
Company issued 150,000 shares of common stock to two independent consultants for
services valued at $28,125. One of these consultants became an employee of the
Company in September 1997.
In July 1997, the Company issued 800,000 shares under a Section 4(2)
exemption from registration to a previously unrelated party in exchange for
$400,000 in cash. In July 1997, the Company acquired substantial geologic data
and other information from an independent source in exchange for 1,000,000
shares of the Company's common stock. This data was valued at $2,000,000 based
on the agreement with the seller that the 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 principally related to the Company's acquisition of the
MIII agreement, valued at $6,465,031. 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 August 1997, 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.
On September 29, 1997, the Company entered into an agreement to acquire 22
wells on oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah, from three joint owners. The purchase agreement was closed on October 8,
1997, at which time the Company received the lease assignment. The terms of the
acquisition are for the Company to pay $250,000 in cash and 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 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 for its use. The total valuation of this transaction is $2,250,000 and
is applied as $375,800 of oil and gas reserves and $1,874,200 of equipment.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and abandoned
approximately 10 years ago. This agreement requires the Company to pay the
seller $200,000 and issue 50,000 shares of the Company's common stock, as well
as to pay the Company's proportionate share of the costs to reenter this well.
The Company is also required to carry the seller's 1/8 proportionate share of
the reentry costs, estimated between $250,000 and $500,000, until the well is
producing. The seller also owns an undivided 50% interest in the oil and gas
lease on the 49,019 acres of land contiguous to the initial well. The agreement
allows the Company to acquire a 3/8 undivided interest in this lease by paying
to the seller approximately $343,000 each April for 4 years. The Company
received the initial lease assignment on December 1, 1997. The Company is
currently evaluating
F-12
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(12) Stockholders' Equity (continued) the existing reserve reports and
underlying data of these leases as well as has contracted another independent
appraiser to complete new reserve reports for its use.
In December 1997, the Company repurchased 250,000 shares of its common
stock for $500,000 in cash. This was the first 25% quarterly repurchase agreed
to by the Company relating to the 1,000,000 shares issued to acquire the DRSTP
geological data. In January 1998, the Company issued 24,000 shares valued at
$70,000 and assumed a mortgage payable of $28,782 to acquire a small office in
Utah, valued at $98,782 , from Unita Oil and Gas. In the 1st quarter, the
Company issued 177,008 shares in exchange for $167,694 in cash and 355,000
shares in exchange for services valued at $922,000. In the 2nd quarter, the
Company issued 666,664 shares in exchange for $438,499 in cash and 23,200 shares
in exchange for services valued at $28,496. In the 3rd quarter, the Company
issued 234,200 shares in exchange for $135,600 in cash and 162,420 shares for
services valued at $102,884. In the 4th quarter, the Company issued 47,000
shares in exchange for $23,500 in cash and 479,700 shares in exchange for
services valued at $473,600. In September 1998, the Company issued 491,646
shares to its working interest partner on the Nueces project in exchange for its
payable of $338,007. In September 1998, the Company issued 299,536 shares for
its portion of the annual option payment on the Nueces project and a late
payment penalty for a total value of $219,223.
Warrants
In March 1998, the Company issued a warrant for 100,000 shares of common
stock with an exercise price of $1.20 per share, or total proceeds of $210,000
in cash for the Company if all of the warrants are exercised. This warrant was
issued in conjunction with entering into the Kingsbridge Investment Agreement.
In June 1998, the Company received $200,000 in cash in exchange for warrants for
1,050,000 shares of common stock with an exercise price of $0.75 per share, or
total proceeds to the Company of $787,500 in cash if all of the warrants are
exercised.
Contingent issuances
The Company is contingently liable to issue up to a total of three million
shares of restricted stock 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 a total of two
million shares of restricted stock to two officers and directors of the Company
for their efforts in closing the M III contract in Utah upon the joint venture
oil production level of 4,000 barrels a day being attained. This two million
shares includes the 500,000 shares the Company is to issue to MIII. The Company
is also contingently liable to issue an additional two million shares upon the
joint venture attaining production of a total of 6,000 barrels a day. The
Company is contingently liable to issue 3,644,031 shares for officer's accrued
salaries as of September 30, 1998.
Rescinded and returned shares
In September 1998, the Board of Directors authorized the issuance of
100,000 shares to a director. This director returned the shares to the Company
due to personal tax considerations. In September 1998, the Board of Directors
authorized the issuance of 2,000,000 shares each to four officers and directors
in connection with the DRSTP Agreement. In December 1998, the Board of Directors
rescinded the issuance as if it had never occurred.
Procura Financial Consultants, cc (PFC)
Under the May 1997 Agreement between the DRSTP and the Company, PFC is a
junior partner to the Agreement. The Company and PFC are negotiating an
agreement whereby the Company would issue shares to PFC in exchange for PFC
foregoing its rights under the May 1997 Agreement. The Company has issued, but
not delivered 2,000,000 shares in anticipation of settling this negotiation.
However, at the date of this report no final agreement has been reached.
Arbitration settlements
The Company has notified Kingsbridge that it intends to cancel the equity
line of credit previously negotiated. The negotiated cancellation agreement
requires the Company to pay $100,000 in cash and issue warrants for 100,000
shares of common stock. This settlement agreement has not yet been funded and
Kingsbridge filed for arbitration in December 1998.
In April 1998, Uinta Oil and Gas, Inc. (Uinta) filed suit in Utah relating
to the Company's October 1997 acquisition of twenty two oil and gas wells in
Utah. The other two joint sellers of these wells, along with Uinta, filed a
formal demand for arbitration as the purchase agreement requires. The Company
has entered into negotiations to settle this matter and expects to issue
additional shares in this settlement. However, at the date of this report, no
final agreement has been reached.
(13) 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
F-13
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(13) Deferred Compensation (continued) compensation expense at a rate of
$31,250 per quarter. This consultant later became ERFC's Chairman, President and
CEO.
On August 30, 1996, the Company issued 10,000 shares of its common stock,
valued at $70,000, to an attorney for services to be rendered at below market
rates for a period of 4 months. Accordingly, the Company amortized this expense
over the term of the agreement.
(14) Commitments and Contingencies
The Company is committed to lease payments for 10 vehicles under operating
leases totaling $50,598, $7,826 and $3,913 for the years ended September 30,
1999, 2000 and 2001. The Company paid $0, $52,500 and $76,642 in vehicle lease
expense for the years ended September 30, 1996, 1997 and 1998, respectively. The
Company currently leases its office space and operating facilities on a two year
lease and three year lease respectively. The Company is committed to lease
payments on the two facilities totalling $67,108 and $60,808 for the years
ending September 30, 1999 and 2000. The Company paid $8,550, $45,950 and $68,908
in leased facility rent for the years ended September 30, 1996, 1997 and 1998
respectively.
(15) Segment Information
The Company has three distinct lines of business through its two wholly
owned subsidiaries, Site Services, Inc., (SSI), and Bass American Petroleum
Company, (BAPCO), and a joint venture agreement. SSI operates in the
environmental remediation industry and BAPCO will operate in the oil and gas
production industry. SSI's principal identifiable assets consist of $3,224,000,
net, of environmental equipment, and the Chevron P&A master service agreement
valued at $300, net. Revenues of $65,000 relate to SSI. BAPCO's principal
identifiable assets consist of crude oil reserves valued at $1,240,175,
equipment valued at $2,508,000 and land and building valued at $98,782. 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.
(16) Sao Tome Concession
Concession fee payment
When the Company entered into the joint venture agreement in May 1997 with
the Democratic Republic of Sao Tome and Principe, (DRSTP), the Company was
required to pay a $5,000,000 concession fee to the DRSTP goverment. In September
1997, the Company received a Memorandum of Understanding from the DRSTP
government which allows the Company to pay this concession fee within five days
after the DRSTP files the relevant official maritime claims maps with the United
Nations and the Gulf of Guinea Commission. In December 1997, the Company paid
$2,000,000 of this concession fee to the DRSTP from the proceeds of the
convertible note offering. On July 2, 1998 the Company paid $1,000,000 of the
Concession fee to the government of the DRSTP. On July 31, 1998 the Company paid
an additional $1,000,000 of the concession fee to the government of the DRSTP.
Investment in STPetro, S.A.
In July 1998, the Government of the Democratic Republic of Sao Tome and
Principe established STPetro, S.A. as the national petroleum company. The
charter established the initial ownership of STPetro, S.A. as 51% by the
government and 49% by ERHC in exchange for $51,000 and $49,000 respectively. The
Company immediately forwarded $20,000 of its $49,000 in cash, and believes that
$29,000 of expenses it has paid on behalf of STPetro, S.A. prior to its
formation will be credited to it for the balance owed.
Due from STPetro,S.A.
The Company has expended approximately $452,000 on behalf of STPetro, S.A.,
principally prior to the formation of STPetro, S.A. The Company believes that
these expenses are recoverable from STPetro, S.A. under its May 1997 agreement
with the DRSTP.
(17) Suspended Revenue
The Company's oil and gas production revenue, amounting to $147,782 for the
year ended September 30, 1998 has been placed in suspense as the Company has not
yet received valid complete division orders on its leases and wells
(18) Subsequent Events
a) Stockholder's equity
In October 1998, the Company received conversion notices on $419,848 of the
convertible debt issued in July and August, 1998. This debt was converted into
800,172 shares of common stock.
b) Convertible notes
In October 1998, the Company issued 20% convertible subordinated unsecured
notes due October 2000 in exchange for
F-14
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(18) Subsequent Events (continued)
b) Convertible notes (continued) $500,000 cash. These notes are convertible
into shares of the Company's common stock at a conversion price to be determined
by so stated formula. If all of these notes are converted using the conversion
price as of the issuance date ($1.00), the Company will be required to issue
500,000 shares of common stock. These notes also carried warrants for an
additional 1,500,000 shares of common stock with an exercise price of $0.40 per
share, or total additional proceeds to the Company of $600,000 in cash in the
event all of the warrants are exercised.
In October 1998, the Company issued 12% convertible subordinated unsecured
notes due December 31, 1999 in exchange for $800,000 cash. These notes are
convertible into shares of the Company's common stock at a conversion price to
be determined by so stated formula. If all of these notes are converted using
the conversion price of the issuance date ($1.25), the Company will be required
to issue 640,000 shares of common stock. These notes also carried "A" and "B"
warrants for an additional 1,200,000 and 1,200,000 shares of common stock with
exercise prices of $0.50 and $3.00 per share, or total additional proceeds to
the Company of $4,200,000 in cash in the event all of the warrants are
exercised.
F-15
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
SUPPLEMENTARY INFORMATION
----
(UNAUDITED)
F-16
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
September 30, 1996, 1997 and 1998
-----
(Unaudited)
1996 1997 1998
Developed oil and gas properties $ 0 $ 515,625 $ 891,425
Undeveloped oil and gas properties-- 0 0 348,750
------------- -------------- ------------
0 515,625 1,240,175
Accumulated depreciation, depletion and valuation
allowance 0 0 4,354
-------------- ------------- ------------
Net capitalized cost $ 0 $ 515,625 $1,235,821
=============== ============= ============
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
Years ended September 30, 1996, 1997 and 1998
(Unaudited)
1996 1997 1998
------------ ------------- ------------
Acquisition of properties:
Developed $ 0 $ 515,625 $ 375,800
Undeveloped 0 0 348,750
Exploration costs, excluding valuation allowance 0 0 0
Development costs $ 0 $ 0 $ 0
See accompanying notes to supplementary information
F-17
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW RELATING TO PROVED OIL AND GAS RESERVES
Years ended September 30, 1996, 1997 and 1998
1996 1997 1998
------------- ------------ -----------
Future cash inflows $ 0 $ 0 $ 0
Future production and development costs 0 0 0
Future income tax expenses 0 0 0
----------- ------------ ----------
Future net cash inflows 0 0 0
10% annual discount for estimated timing
of cash flow 0 0 0
-------------- ----------- ----------
Standardized measure of discounted
future net cash flow $ 0 $ 0 $ 0
============== ============ =========
F-18
See accompanying notes to supplementary information
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOW AND CHANGES THEREIN RELATING
TO PROVED OIL AND GAS RESERVES
Years ended September 30, 1996, 1997 and 1998
----
(Unaudited)
The following are the principal sources of change in the standardized
measure of discounted future net cash flows during 1996, 1997 and 1998:
<TABLE>
<S> <C> <C> <C>
1996 1997 1998
----------------- ---------------- -----------
Sales of oil and gas produced, net of production costs $ 0 $ 0 $ 0
Net changes in prices and production costs 0 0 0
Extensions, discoveries and improved recovery, 0
Less recovery costs 0 0
Revisions of previous quantity estimates 0 0 0
Reserves purchases, net of development costs 0 515,625 724,550
Reserves sold 0 0 0
Accretion of discount 0 0 0
Net change in income taxes 0 0 0
Other 0 0 0
----------------- ---------------- ------------
Net change 0 515,625 724,550
Standardized measure of discounted future net cash
flow:
Beginning of year 0 0 515,625
----------------- ---------------- ------------
End of year $ 0 $515,625 $ 1,240,175
================= ================ ============
</TABLE>
See accompanying notes to supplementary information
F-19
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
RESERVE QUANTITY INFORMATION
Years ended September 30, 1996, 1997 and 1998
----
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1996 1997 1998
Gas Oil Gas Oil Gas Oil
(MCF) (bbls) (MCF) (bbls.) (MCF) (bbls.)
Proved developed and undeveloped reserves:
Beginning of year 0 0 0 0 0 0
Extensions, discoveries and 0 0 0 0 0 0
improved recovery
Revisions of previous 0 0 0 0 0 0
estimates (1)
Sales 0 0 0 0 0 16,735
Purchases 0 0 0 0 0 0
Production 0 0 0 0 0 0
End of year 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- ---------
Proved developed reserves 0 0 0 0 0 0
=========== =========== =========== =========== =========== =========
</TABLE>
See accompanying notes to supplementary information
F-20
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
Years ended September 30, 1996, 1997 and 1998
----
(Unaudited)
<TABLE>
<S> <C> <C> <C>
1996 1997 1998
------------------ --------------- -----------------
Revenue:
Oil and gas sales $ 0 $ 0 $ 0
Costs and expenses: 0 0 0
Lease operating expenses 0 0 0
Exploration costs 0 0 0
Depreciation and depletion 0 0 0
Income tax (benefit) expense 0 0 0
------------------ --------------- -----------------
Results of operation from producing activities
(excluding corporate overhead and interest
costs) $ 0 $ 0 $ 0
================== =============== =================
</TABLE>
See accompanying notes to supplementary information
F-21
<PAGE>
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
NOTES TO SUPPLEMENTARY INFORMATION
----
(Unaudited)
(1) PRESENTATION OF RESERVE DISCLOSURE INFORMATION
Reserve disclosure information is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 69 ("SFAS 69"),
Disclosures About Oil and Gas Producing Activities
(2) DETERMINATION OF PROVED RESERVES
The estimates of the Company's proved reserves were determined by an
independent petroleum engineer in accordance with the provisions of SFAS 69. The
estimates of proved reserves are inherently imprecise and are continually
subject to revision based on production history, results of additional
exploration and development and other factors. Estimated future net revenues
were computed by applying current prices of oil and gas received by the Company
to estimated future production of reserves, less estimated future development
and production costs, based on current costs.
(3) RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
The results of operations from oil and gas producing activities were
prepared in accordance with the provisions of SFAS 69. General and
administrative expenses, interest costs and other unrelated costs are not
deducted in computing results of operations from oil and gas activities.
(4) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES
THEREIN RELATING TO PROVED OIL AND GAS RESERVES
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves and the changes of the standardized measure of
discounted future net cash flows relating to proved oil and gas reserves were
prepared in accordance with the provisions of SFAS 69.
Future production and development costs are computed estimating the
expenditures to be incurred in developing and producing the oil and gas reserves
at year-end, based on year-end costs and assuming continuation of existing
economic conditions.
Future income tax expenses are calculated by applying the year-end U.S. tax
rate to future pre-tax cash inflows relating to proved oil and gas reserves,
less the tax basis of properties involved. Future income tax expenses give
effect to permanent differences and tax credits and allowances relating to the
proved oil and gas reserves.
Future net cash flows are discounted at a rate of 10% annually (pursuant to
SFAS 69) to derive the standardized measure of discounted future net cash flows.
This calculation does not necessarily represent an estimate of fair market value
or present value of such cash flows since future prices and costs can vary
substantially from year-end and the use of a 10% discount figure is arbitrary.
F-22
<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 .................................................... 1
Risk Factors........................................................... 8
The Company............................................................ 16
Use of Proceeds........................................................ 22
Dilution................................................................23
Price Range for Common Stock........................................... 24
Dividend Policy.........................................................25
Selected Financial Data................................................ 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 26
Business............................................................... 33
Management............................................................. 56
Principal Shareholders ................................................ 63
Selling Shareholders................................................... 65
Certain Transactions................................................... 86
Description of Capital Stock........................................... 87
Plan of Distribution................................................... 88
Legal Matters.......................................................... 89
Experts................................................................ 90
Available Information.................................................. 90
Index to Consolidated Financial Statements....................... F-1
=====================================================================
<PAGE>
- ------------------------------------------------------------------------------
Environmental
Remediation Holding
Corporation
------------------
Prospectus
-----------------
January 25, 1999
- ------------------------------------------------------------------------------
<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.
Securities and Exchange Commission registration $ 8,457.40
fee
Accounting fees and expenses 75,000.00
Legal fees and expenses 450,000.00
Miscellaneous expenses 6,542.60
$ 540,000.00
Total
- - --------------------
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 August 1996 through December 31, 1998:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
DATE
OF TITLE OF
SALE SECURITIES AMOUNT CONSIDERATION PURCHASER
- - ---- ---------- ------ ------------- ---------
8/96 Common Stock 2,433,950 Acquisition of 100% of Environmental Remediation
issued and outstanding Funding Corp.
shares of ERFC
8/96 Common Stock 10,000 Legal services for a Ken Krauseman, Esq.
period of four months
Valued at $70,000
9/96 Common Stock 320,830 $ 31,995 Purchaser in Rule 506
(1) In Private Placement
(1 Purchaser)
3/97 Common Stock 300,000 100 oil well lease in Mytec & Associates
Texas - valued at
$309,375
3/97 Common Stock 200,000 100 oil well lease in Mytec & Associates
Texas - valued at
$206,250
4/97 Common Stock 3,000,000 Assignment of Chevron Bass Environmental
Master Service Agreement Services Worldwide,
- valued at $300 Inc.
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
Valued at $1,342,981 - 500,000
3. Marvin Gibbons
- 342,981
4/97 Common Stock 4,000,000 In exchange for 100% of Sam L. Bass, Jr. as
issued and outstanding Sole Shareholder of
shares of Bass American Bass American
Petroleum Co. (BAPCO) - Petroleum Co.
valued at historical cost (BAPCO)
of $500,000
6/97 Common Stock 150,000 Consulting Services - 1. Robert McKnight
valued at $28,125 - 75,000
2. Herman Shellstede
- 75,000
7/97 Common Stock 800,000 $400,000 Central Florida
(1) 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 Callender, Sr.
service on the Company's 2. Noreen G. Wilson
Board of Directors 3. William Beaton
(500,000 each)
Valued at $2,250,000
7/97 Common Stock 147,000 $147,000 Purchasers in Rule 506
(1) private placement (17
purchasers)
8/97 Common Stock 74,000 $148,000 Purchasers in Rule 506
(1) 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
(1) private placement (23
purchasers)
10/97 Common Stock 830,273 $913,000 Purchasers in Rule 506
(1) private placement (14
purchasers)
10/97 Common Stock 1,000,000 Oil reserves and 1. Uinta Oil & Gas, Inc
(2) equipment 2. Pine Valley
Valued at $2,000,000 Exploration, Inc.
3. Coconino, S.M.A.,
Inc.
4. Joseph H. Lorenzo
<PAGE>
10/97 Common Stock 112,599 $123,109 Purchasers in Rule 506
(1) private placement (6
purchasers)
10/97 5.5% Convertible $4,300,000 $4,300,000 Accredited institutional
Senior principal investors
Subordinated amount; (10 institutions)
Notes convertible
into up
to 3,440,000
shares of
CommonStock
(1)
10/97 Warrants to Exercisable No additional Accredited institutional
Purchase into 283,800 consideration investors
Common shares of (11 institutions)
Stock (1) Common Stock
10/97 Common Shares 100,000 For consulting Kenneth M. Waters
services valued at
$295,000
10/97 Common Shares 50,000 3/8 Undivided Interest Hinge Line, Inc.
Gas reserves and
one natural gas well-
Valued at $148,750
10/97 Common Shares 45,000 Consulting Services Steve Boltax
Valued at $17,100
10/97 Common Shares 50,000 Consulting Services MyTec & Associates
rendered in connection
with Wichita and Rusk
Counties valued at
$148,500
10/97 Common Shares 50,000 Consulting Services Sheila Williams Bass
Valued at $144,000
10/97 Common Shares 100,000 Professional Services Senator Vance Hartke
Valued at $291,000
11/97 Common Shares 64,409 $67,750 Purchasers in Rule 506
(1) private placement (8 purchasers)
12/97 Common Shares 10,000 Consulting Services C.D. Johnston, Jr.
Valued at $26,400
2/98 Common Shares 24,000 Part of acquisition of Craig Phillips
Utah office building Robert Ballou
Valued at $70,000
2/98 Common Shares 282,000 $180,250 Purchasers in Rule 506
(1) Private placement
(2 purchasers)
2/98 Common Shares 84,664 For services valued at Purchasers in Rule 506
$21,999 Private Placement
(5 purchasers)
2/98 Common Shares 23,200 Consulting Services Jerome Rappaport
Valued at $28,496 Andrew Racz
3/98 Warrant to Exercisable In connection with Kingsbridge Capital
Purchase into 100,000 entering into Investors Limited
Common Stock shares of Agreement
Common
Stock (1)
3/98 Common Stock 300,000 $236,250 Purchasers in Rule 506
(1) Private Placement
(1 Purchaser)
4/98 12.0% $300,000; $300,000 Accredited investors
Convertible convertible (9 institutions)
Notes into up to
200,000 shares
of Common
Stock (1)
4/98 Warrants to Exercisable No additional Accredited investors
purchase into 210,000 consideration (9 institutions)
Common Stock shares (1)
<PAGE>
6/98 Warrants to Exercisable $200,000 Accredited investors
purchase into 1,050,000 (3 institutions)
Common Stock shares (1)
6/98 12.0% $425,000; $425,000 Accredited investors
Subordinated Convertible (5 institutions)
Convertible into up to
Notes 425,000 shares
of Common
Stock (1)
6/98 Warrants to Exercisable No additional Accredited investors
purchase into 531,250 consideration (5 institutions)
Common Stock shares (1)
6/98 5.5% $1,293,750 $1,250,000 Accredited investor
Convertible convertible (1 institution)
Notes into up to
1,798,124
shares
of Common
Stock (1)
6/98 Warrants to Exercisable No additional Accredited investor
purchase into 230,000 consideration (1 institution)
Common Stock shares (1)
6/98 Common Shares 234,200 $135,600 Purchasers in Rule 506
(1) Private placement
(15 purchasers)
6/98 Common Shares 62,420 For services Jerome Rappaport
Valued at $31,884 Ilona Minovskiy
Yvonne Montiel
Assonta LoGiudice
Maria Cardenas
HWK Consultants, Inc.
7/98 8.0% $2,485,000 $2,485,000 Accredited Investors
Convertible convertible (10 Institutions)
Notes into up to
3,303,840
Shares
of Common
Stock (1)(3)
7/98 Warrants Exercisable No additional Accredited Investors
to purchase into 223,650 consideration 10 Institutions)
Common Stock shares (1)
8/98 Common Stock 47,0000 $23,500 Purchasers in Rule 506
(1) Private Placement
(9 Purchasers)
8/98 Common Stock 50,000 Consulting Services Andrew Racz
Valued at $25,000
8/98 Common Stock 4,700 Consulting Services Jerome Rappaport
Valued at $2,350
8/98 Common Stock 50,000 Penalty due on Don Hillin
Payment made
By Hinge Line, Inc.
In April to continue
Option on 49,000
Acres, valued at
$47,656
8/98 Common Stock 525,000 In connection with 1. Robert McKnight -
Services on the Companys 425,000
Board of Directors 2. Kenneth Waters-
Valued at $446,250 100,000
(4)
9/98 Common Stock 249,536 Payment on Hinge Line Inc.
Nueces in lieu of
Balance due of
$171,556
9/98 Common Stock 491,646 Payment on Autry C. Stephens
Nueces in lieu of
Balance due of
$338,007
<PAGE>
10/98 20.0% $ 500,000 $500,000 Accredited Investor
Convertible convertible (1 Institution)
Note into up to
500,000 Shares
of Common
Stock (1)
10/98 Warrants Exercisable No additional Accredited Investor
to purchase into 1,500,000 consideration (1 Institution)
Common Stock shares (1)
10/98 12.0% $800,000 $800,000 Accredited Investors
Convertible convertible (4 Institutions)
Notes into up to
640,000 Shares
of Common
Stock (1)
10/98 Warrants Exercisable No additional Accredited Investors
to purchase into consideration (4 Institutions)
Common Stock 2,400,000
shares (1)
10/98 Common Stock 109,000 Consulting Services R&S Environmental
Valued at $45,984 Inc.
10/98 Common Stock 8,000,000 In consideration 1. Sam Bass -
Of services to the 2,000,000
Company relative 2. Jim Callender -
To the finalization 2,000,000
Of contracts with 3. Noreen Wilson -
Sao Tome and Mobil 2,000,000
Not Valued (5) 4. Jim Griffin -
2,000,000
11/98 Common Stock 100,000 Consulting Services Richard Magar
Valued at $71,000
11/98 Common Stock 2,000,000 Payment in Settlement Procura
Of claims relative
To original Sao Tome
Agreement valued at
Not Valued (6)
</TABLE>
(1) 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.
(2) The Company was obligated to issue 1,000,000 of which 500,000 were
issued and the balance will be issued pursuant to the Uinta Settlement.
(3) A total of $412,350 of such convertible notes were converted in October
1998 and 1,210,686 shares issued on such conversions.
<PAGE>
(4) Mr. Waters has returned his 100,000 shares to the Company due to
personal tax considerations, therefore no value has been attributed to
such shares.
(5) The Board of Directors rescinded the issuance of 8,000,000 shares on
December 18, 1998, therefore no value has been attributed to such
shares.
(6) The parties had agreed to settle matters relative to the Sao Tome
contract, and Procura is now disputing the settlement. The Company is
holding the shares until resolution of this matter, therefore no value
has been attributed to such shares. The Company has authorized an offer
of a proposed settlement, which based upon discussions with the
principals of Procura, the Company believes will be accepted.
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 Mintmire & Associates
10.1 Master Service Order and Agreement, dated October 1,
1996, between the Company and Chevron U.S.A. Inc.
[incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, filed on December 29, 1997,
Commission File No. 0-17325]
10.2 Joint Venture Agreement, dated December 12, 1996,
between the Company and Centram Marine Services S.A.
[incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, filed on December 29, 1997,
Commission File No. 0-17325]
10.3 * Letter of Intent dated May 18, 1997, between
Environmental Remediation Holding Corporation,
Procura Financial Consultants, and the Democratic
Republic of Sao Tome Principe.
10.4 Joint Venture Agreement, dated July 28, 1997,
between the Company and MIII Corporation.
[incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year
<PAGE>
ended September 30, 1997, filed on December 29, 1997
Commission File No. 0-17325]
10.5 Memorandum of Agreement, dated September 30, 1997,
between theCompany, theGovernment of the Democratic
Republic of Sao Tome & Principe, and Procura
Financial Consultants, c.c. [incorporated herein by
reference to the Company's Annual Report on Form10-K
for the fiscal year ended September 30, 1997,
filed on December 29, 1997, Commission File No.
0-17325]
10.6 Form of Securities Purchase Agreement, dated as of
October 15,1997, between the Company and each of the
Purchasers listed therein, together with forms ofthe
5.5% Convertible Senior Subordinated Secured Note
and Warrant to Purchase Common Stock.
10.7 Form of Registration Rights Agreement, dated as of
October 15, 1997, between the Company and each ofthe
Purchasers listed therein.
10.8 Private Equity Line of Credit Agreement, dated
as of March 23, 1998, between the Company and
Kingsbridge Capital Limited.
10.9 Form of the Company's 12% Convertible Note ("April
1998 Notes")[incorporated herein by reference to the
Company's Form 10-Q for the quarter ended March 31,
1998 , Commission File No. 0-17325]
10.10 Form ofthe Company's Warrants("April 1998 Warrants")
[incorporated herein by reference to the Company's
Form 10-Q for the quarter ended March 31, 1998,
Commission File No. 0-17325]
10.11 Form of the Company's Warrants ("June 1998 Warrants)
[incorporated by reference tothe Company's Form 10-Q
for the quarter ended June 30, 1998, Commission File
No. 0-17325]
10.12 Form of the Company's 12% Convertible Note ("Second
June 1998 Notes") [incorporated herein by reference
to the Company's Form 10Q for the quarter ended June
30, 1998, Commission File No. 0-17325]
10.13 Form of the Company's Warrant ("Second June 1998
Warrants") [incorporated herein by reference to the
Company's Form 10-Q for the quarter ended June 30,
1998, Commission File No. 0-17325]
10.14 Form of the Third June 1998 Financing Securities
Purchase
<PAGE>
Agreement [incorporated herein by reference to the
Company's Form 10-Q for the quarter ended June 30,
1998, Commission File No. 0-17325]
10.15 Form of the Company's 5.5% Convertible Note ("Third
June 1998 Notes") [incorporated herein by reference
to the Company's Form 10Q for the quarter ended June
30, 1998, Commission File No. 0-17325]
10.16 Form of the Company's Warrant ("Third June 1998
Warrants") [incorporated herein by reference to the
Company's Form 10-Q for the quarter ended June 30,
1998, Commission File No. 0-17325]
10.17 Form of the Third June 1998 Financing Registration
Rights Agreement[incorporated herein by reference to
the Company's Form 10-Q for the quarter ended June
30, 1998, Commission File No. 0-17325]
10.18 Form of the July/August 1998 Financing Securities
Purchase Agreement [incorporated herein by reference
to the Company's Form 10Q for the quarter ended June
30, 1998, Commission File No. 0-17325]
10.19 Form of the Company's 8% Convertible Note ("July
Notes") [incorporated herein by reference to the
Company's Form 10-Q for the quarter ended June 30,
1998, Commission File No. 0-17325]
10.20 Form of the Company's Warrant and Warrant Agreement
("July Warrants)[incorporated herein by reference to
the Company's Form 10Q for the quarter ended June 30
1998, Commission File No. 0-17325]
10.21 Form of the July/August 1998 Financing Registration
Rights Agreement[incorporated herein by reference to
the Company's Form 10Q for the quarter ended June 30
1998, Commission File No. 0-17325]
10.22 Joint Venture Formation of the Sao Tome Principe
National Petroleum Company executed July 9, 1998,
(English translation) [incorporated herein by
reference to the Company's Form 10-Q for the quarter
ended June 30, 1998, Commission File No. 0-17325]
10.23 * Settlement Agreement dated August 18, 1998, between
the Company and Procura Financial Corporation, cc.
relative to participation in Sao Tome
<PAGE>
10.24 * Technical Assistance Agreement by and among
Democratic Republic of Sao Tome Principe and Sao
Tome and Principe National Petroleum Company, S.A.
and Mobil Exploration and Producing Services Inc.
[Partially Redacted - Subject to a Confidential
Treatment Application filed with the SEC]
10.25 * Form of the Securities Purchase Agreement("September
1998 Financing")
10.26 * Form ofthe Company's 20% Convertible Note("September
1998 Note")
10.27 * Form of the Company's Warrant ("September 1998
Warrant") and the Warrant Agreement
10.28 * Form of the Company's 12% Convertible Note ("October
1998 Notes")
10.29 * Form of the Company's Warrants("October 1998 "A" and
"B" Warrants) and Warrant Agreement
10.30 * Memorandum of Compromise and Settlement Agreement
between Environmental Redmediation Holding Corporat-
ion, Pine Valley Exploration, Inc., Coconino, S.M.A.
Inc., Uinta Oil & Gas, Inc., Craig Phillips, and
Joseph H. Lorenz dated January 4, 1999
21.1 Subsidiaries of the Company
23.1 * Consent of Durland & Company, CPA's P.A., independ-
ent public accountants.
23.2 * Consent of Mintmire & Associates (included in the
opinion filed as Exhibit 5.1).
23.3 Consent of Dr. Joseph Shoaf, P.E.
23.4 Consent of Gerry A. Graham for Sandwood Consultants.
27.1 Financial Data Schedule.
- ------------------------------------
Unless otherwise indicated, all exhibits have been filed.
* Filed herewith
(b) Financial Statement Schedules. None.
<PAGE>
Item 17. Undertakings.
7. The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales are being
made, a posteffective 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 State-
ment; 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
thatare incorporated by reference inthe 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;
(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.
8. 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 bethe initial bona fide offering
thereof.
9. 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,
<PAGE>
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to the registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Lafayette, State of Louisiana, on the 25th day of January 1999.
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
By: /s/ JamesR. Callender, Sr.
------------------------------------------
James R. Callender, Sr.
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the 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 25, 1999
- --------------------------- and Vice President
Sam L. Bass, Jr.
/s/ James R. Callender, Sr. President and Chief Executive January 25, 1999
- --------------------------- Officer and Director
James R. Callender, Sr.
/s/ Robert McKnight Acting Chief Financial Officer, January 25, 1999
- --------------------------- President of BAPCO and
Robert McKnight Director (principal financial
or accounting officer)
<PAGE>
/s/ James A. Griffin Secretary, Treasurer and January 25, 1999
- --------------------------- Director
James A. Griffin
/s/ William Beaton Director January 25, 1999
- ---------------------------
William Beaton
/s/ Alfred L. Cotten Director January 25, 1999
- ---------------------------
Alfred L. Cotten
/s/ Kenneth M. Waters Director January 25, 1999
- ---------------------------
Kenneth M. Waters
EXHIBIT 5.1
Mintmire & Associates
265 Sunrise Avenue
Suite 204
Palm Beach, FL 33480
Environmental Remediation Holding Corporation
305 Audrey Avenue
Oyster Bay, New York 11771
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, Amendment 3, filed on January 25, 1999 (the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Act"), covering up to
31,172,908 shares of the Company's Common Stock, par value $.0001 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 the 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, 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,
/s/ MINTMIRE & ASSOCIATES
EXHIBIT 10.3
(Logo) Environmental Remediation Holding
Corporation
Letter of Understanding
1. ERHC/PFC would fund allthe necessary feasibility studies and would make
those studies available to the Government.
2. ERHC/PFC will help the Government negotiate oil concessions with the
major oil companies. These negotiations will be more profitable oncethe
studies are available.
3. ERHC/PFC will help put in place an environmental plan prior to that
will protect the environment against an possible environment damage.
4. ERHC/PFC and the Government will keep the best concessions for
themselves and form a oil company. ERHC/PFC will provide the necessary
funding to do the first wells. ERHC/PFC and the Government will own 40%
each leaving 20% in a fund to be used to repay debt and pay overhead.
ERHC/PFC will have a management contract for the oil company, and will
guarantee that overhead will not exceed 20% of the difference will be
paid by ERHC/PFC . This agreement will stay in place for 25 years at
the end of that time ERHC/PFC will turn over there interest in the oil
company to the Government.
5. ERHC/PFC will budget $1.00 per barrel to be set aside for the education
of students to be trained in the United States in the oil industry. As
engineers and managers are trained, ERHC/PFC will phase out ERHC/PFC
personnel and the Government will operate the oil company.
6. ERHC/PFC will negotiate on behalf of the Government with Major Oil
companies additional concession once the feasibility studies are
completed. ERHC/PFC will retain a 5% override to be paid by the oil
company for there services.
7. ERHC/PFC within forty five (45) days of the effective date will provide
a payment of five million ($5,000,000) dollar USD to the Government of
Sao Tome and Principe.
SIGNED ON THIS 18 DAY OF MAY , 1997
/S/ Raul Brangance Neto
PRIME MINISTER
For and on behalf of the Democratic Republic of Sao Tome and Principe
/S/ Noreen G. Wilson
Noreen G. Wilson Vice President
Environmental Remediation Holding Corp.
/S/ Barend J. Hofmeyr
Barend J. Hofmeyr
Director Procura Financial Consultants
EXHIBIT 10.23
AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of August, 1998, by
and between Procura Financial Consulting, c.c., ("PFC") a closed corporation
registered in the Republic of South Africa, located at P.O. Box 73192, Lynnwood
Ridge 0040 South Africa and Environmental Remediation Holding Corporation
("ERHC"), 1686 General Mouton, Lafayette, LA 70508.
For and in consideration of the sum of $10.00, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned hereby agree as follows:
1. PFC hereby transfers, sells, and assigns to ERHC all its right,
title, and interest in and to certain rights and entitlement arising out of that
certain agreement dated July 29, 1997, titled Memorandum of Understanding
Between The Democratic Government of Sao Tome and Principe ("DRSTP") and
Environmental Remediation
Holding Corporation and Procura Financial Consulting, c.c.
2. ERHC agrees in consideration therefor, to issue a total of 1,000,000
shares of its common stock (restricted under Rule 144) within ten (10) days
hereof; and an additional 250,000 shares of which were earned as of May 1, 1997
and the balance of 750,000 of which shall be deemed earned and subject to
issuance effective as of the date of the agreement.
IN TESTIMONY WHEREOF, witness the signatures of the parties hereto.
Procura Financial Consulting, c.c.,
By: /s/ Pieter DuRand
Environmental Remediation Holding
Corporation
By: /s/ Noreen Wilson
EXHIBIT 10.24
TECHNICAL ASSISTANCE AGREEMENT
BY AND AMONG
DEMOCRATIC REPUBLIC OF SAO TOME PRINCIPE
AND
SAO TOME AND PRINCIPE NATIONAL PETROLEUM COMPANY S.A.
AND
MOBIL EXPLORATION AND PRODUCING SERVICES INC.
September 10, 1998
<PAGE>
TECHNICAL ASSISTANCE AGREEMENT
This Technical Assistance Agreement ("Agreement") is entered into this the 10th
day of September 1998 by and among the Democratic Republic of Sao Tome Principe
("Republic"), Sao Tome and Principe National Petroleum Company S.A. ("STPetro")
a public company organized under the laws of the Republic and Mobil Exploration
and Producing Services Inc. ("Mobile") a company organized under the laws of the
State of Delaware USA. (Republic, STPetro and Mobil collectively referred to as
"Parties".)
WHEREAS:
By various memoranda of agreement, letters and stipulations entered into between
the Republic, on the one hand, and Evnironmental Remediation Holding Corp.
("ERHC") and Procura Financial. Consultants C.C.("PFC") on the other hand,
ERHC/PFC agreed to perform an evaluation and feasibility study of oil gas and
mineral reserves within the Republic in exchange for the granting of oil and gas
concessions to a goint venture company to be created by the Republic, ERHC and
PFC, such documents include but are not limited to:
(1) Letter of understanding between the Republic and ERHC dated May 18, 1998,
(2) A Memorandum of Agreement ("MOA") between the Republic, on the one hand,
and ERHC/PFC on the other hand dated May 27, 1997,
(3) A Memorandum of Understanding between the Republic and ERHC/PFC dated
July 29, 1997,
(4) Memorandum of Understanding between the republic and ERHC dated September
30, 1997, and
(5) Stipulation by and between the Republic and ERHC dated November 20, 1997.
By Agreement dated August 18, 1998, PFC assigned and transferred to ERHC all of
PFC's rights and obligations in the venture under the documents described in
preamble A above, as well as all other agreements related thereto.
In July of 1998, the joint venture company STPetro was created by the Republic
and ERHC in accordance with Article 99(d) of the Constitution of the Republic,
by Decree Lay Ner: 27/98 to engage in all activities connected with or related
to the petroleum and gas industry as well as other activities as set out in such
Decree Law.
The Republic desires to have a technical evaluation and feasibility study of oil
and gas exploration potential performed on a portion of the area within the
Republic described as offshore blocks 1 through 22 and additional areas as
depicted on the map attached hereto as Appendix "A" ("Acreage").
Mobil is willing to undertake such technical evaluation and feasibility study of
oil and gas
<PAGE>
exploration potential of the Acreage and, subject to the conditions of this
Agreement, participate with STPetro in petroleum exploration, development and
production.
Now therefore the Parties agree as follows:
Article I - Term
This Agreement is effective, after it is signed by STPetro and Mobil, as of the
date approved by the Republic, as shown on the signature page ("Effective Date")
and shall terminate 18 months after the Effective Date. If this Agreement is not
approved by the Republic by October 31, 1998, it shall be null and void.
Article II - Evaluation
During the term of this Agreement, Mobil will conduct a technical evaluation and
feasibility study of oil and gas exploration potential of the Acreage and
produce a written report of its findings ("Evaluation Report").
Article III - Seismic Survey
As part of its technical evaluation, Mobil shall conduct, or cause to be
conducted, a 2-D reconnaissance seismic survey over the Acreage. Such survey
shall be of sufficient quantity and quality taking into account all pre-existing
geoscientific information available, to prepare the Evaluation Report. Mobil
shall design the program and negotiate for acquisition of the seismic data
directly with a seismic contractor. Mobil shall also be entitled to examine free
of cost (and copy) any other geoscientific information in the possession of
STPetro or the Republic which may bear on Mobil's evaluation of the Acreage.
During the term of this Agreement, seismic data acquired or processed and all
information generated by employees of Mobil shall remain the property of Mobil.
Subject to any rights of the seismic contractor, at the termination of this
Agreement, seismic data acquired and processed within the area to be covered by
a Production Sharing Contract ("PSC") in which Mobil has an interest shall be
owned jointly by the Parties; all other seismic data shall become the property
of STPetro and the Republic. Republic hereby grants all rights necessary for
Mobil and its subcontractors to conduct such seismic surbey. During the surbey
STPetro may designate up to a maximum of three (3) representatives of the
Republic and/or STPetro to accompany the seismic vessel during seismic
acquisition subject to vessel capacity and the consent of the seismic
contractor.
Article IV - Evaluation Report
On or before one (1) year from the Effective Date, Mobil shall conduct a review
of the progress of the seismic program and the Evaluation Report for the
Republic and STPetro and share preliminary conclusions, if any, regarding the
oil and gas exploration potential of the subject Acreage. On or before the end
of the term of this Agreement, Mobil shall deliver to the Republic and STPetro a
written Evaluation Report describing the exploration potential of the Acreage.
The Evaluation Report shall address seismic interpretations, geologic
characteristics including stratigraphic interpretation, geochemistry (depending
on availability of data), reserve potential
<PAGE>
and risk assessment, and shall draw conclusions concerning oil and gas
exploration potential. Although Mobil shall product the Evaluation Report using
practices which are standard and acceptable in the international petroleum
industry, the Parties acknowledge that geoscientific conclusions are inherently
risky. Therefore, Mobil does not warrant or represent that the information
contained in the Evaluation Report will be accurate or reliable, and conclusions
drawn from the Report shall be at the sole risk, cost and expense of the Party
or any succeeding recipient that draws such conclusions.
Article V - Consideration
In consideration of the grant of rights to conduct the technical evaluation and
feasibility study together with rights, under certain conditions to participate
with STPetro in further exploration, development and production of petroleum,
Mobil shall pay each of the following amounts:
(1) all costs and expenses of the seismic acquisition and
reprocessing (payable directly to third party contractors);
(2) the amount of [Redacted Rule 24b-2 Confidential Treatment
Application] US dollars (US [Redacted Rule 24b-2 Confidential
Treatment Application]) to the Republic within ten (10) days
after the Effective Date of this Agreement;
(3) the amount of [Redacted Rule 24b-2 Confidential Treatment
Application] US dollars (US [Redacted Rule 24b-2 Confidential
Treatment Application]) to the Republic, on a date which is
nine (9) months after the Effective Date of this Agreement.
(4) If Mobile exercises its right of first refusal under the terms
of Article VII, STPetro shall receive [Redacted Rule 24b-2
Confidential Treatment Application]% of a Contractor's
interest in the PSC, carried through first production by
Mobil, subject to cost recovery by Mobil.
If such date in subsection (b) or (c) is a Saturday, Sunday or bank holiday,
such payment date shall be the next business day in Dallas, Texas USA. Payments
to the Republic shall be made by electronic transfer to a bank and an account in
the name of the Republic as designated to Mobil in writing by the Minister of
Planning and Finance.
Article VI - Production Sharing Contract Negotiations
During the term of this Agreement, Mobil shall have the exclusive right to
negotiate with STPetro for a mutually acceptable PSC. Such negotiations shall
commence as soon as practicable after the Effective Date of this Agreement and
shall be conducted diligently and in good faith by the Parties. The following
principles and essential terms shall be incorporated into the terms of the PSC
as well as other terms to be negotiated:
(1) Cost Recovery by Contractor of all petroleum operations costs which
shall include all costs for acquiring seismic expended by Mobil under
the terms of this Agreement. Bonus
<PAGE>
payments, although not cost recoverable, will be tax deductible.
(2) An exploration well obligation of two (2) wells to be drilled within
the first 18 months after the effective date of the PSC, subject to
deferral in the event that drilling would have an impact upon
resolution of any unresolved border claims by other countries.
(3) A signature bonus payable by Mobil on the date of the PSC becomes
effective of an amount calculated as the sum of:(i)[Redacted Rule 24b-2
Confidential Treatment Application] US dollars (US [Redacted Rule 24b-2
Confidential Treatment Application]) plus (ii) [Redacted Rule 24b-2
Confidential Treatment Application] US dollars (US [Redacted Rule 24b-2
Confidential Treatment Application]) per block as designated on the
attached Acreage map, subject to deferral of the amount set out in (ii)
above for each block having a border that is subject to an unresolved
claim by another country or countries in the area.
(4) A right of the Contractor to freely export its share of production, and
to export and retain abroad all proceeds from the sale of its share of
production.
(5) Payment by Contractor of US [Redacted Rule 24b-2 Confidential Treatment
Application] dollars per block annual rental after the first year to
defer drilling, production or relinquishment for individual blocks
where drilling operations have not occurred.
(6) Valuation of production for the purposes of cost recovery, payment of
royalty and determining Contractor's income tax to be at net realized
prices obtained.
(7) An arbitration provision using internationally accepted rules in a
neutral forum to resolve disputes.
(8) Confirmation of the PSC by a legalization process to effectively make
the PSC a law in the Republic.
(9) Currency to be converted at Market rates.
(10) Books to be kept in US dollars.
(11) Free import and export of goods, materials and services by Mobil, its
Affiliates and subcontractors.
(12) Right of Contractor to transfer interests in the PSC without penalty
subject to the consent of STPetro and the Republic which shall not be
unreasonably withheld.
(13) Force Majeure provision to excuse obligations.
(14) Structural provisions to ensure creditability of income tax paid to the
Republic, for US tax purposes, exemption from all other taxes and
duties and a tax stability provision.
<PAGE>
(15) Production sharing terms described in Appendix B attached hereto.
(16) Mobil shall be the operator under the terms of the PSC subject to the
terms of a Joint Operating Agreement to be negotiated between Mobil and
STPetro.
Article VII - Right of First Refusal
As consideration to Mobil for its services and payments under the terms of this
Agreement, the Republic hereby grants Mobil a right of first refusal to acquire
a PSC to be awarded on all or a portion of the Acreage to be designated by Mobil
under terms negotiated in accordance with Article VI. Mobil shall exercise its
right as follows:
On or before the end of the term of this Agreement, Mobil shall notify STPetro
in writing that it is either: (i) exercising its right to enter into a PSC on
all or a portion of the Acreage (and describing such portion); or (ii)
relinquishing its right.
Within thirty (30) days after notification that Mobil is exercising its right,
the Republic, STPetro and Mobil (or its affiliate) shall execute such PSC.
In lieu of any one or more of the blocks designated 1 through 22, Mobil may
designate and select one or more blocks continguous to the Acreage to the sough
as shown on the map marked Appendix "A" attached hereto ("Optional Block
Nomination Area") excluding areas in water depths less that 1500 meters. Such
block shall be of a size comparable to blocks within the Acreage, provided that
Mobil may not select more that 22 blocks in total. The configuration of any such
newly designated block or blocks shall be subject to mutual agreement of the
Parties. Except as provided herein, any newly-designated block or blocks shall
be subject to the same terms and conditions contained in this Agreement that
apply to the originally designated Acreage. As consideration for grant of a
right of first refusal on the Optional Block Nomination Area, Mobil agrees to
pay an additional royalty on production from any field covered by the terms of
the PSC as follows:
Cumulative Production Additional Royalty
[Redacted Rule 24b-2 Confidential Treatment Application]bbls 1%
[Redacted Rule 24b-2 Confidential Treatment Application]bbls 2%
[Redacted Rule 24b-2 Confidential Treatment Application]bbls and above 3%
Such Additional Royalty shall be added to the royalty payable under the PSC as
set out in Appendix B.
Article VIII - Confidentiality
The Parties shall keep confidential and not disclose to third parties
information concerning the terms of this Agreement, all PSC negotiations, all
written communications between the Parties dealing with the subject matter of
this Agreement or PSC negotiations, all geoscientific information related to the
Acreage and the Evaluation Report (collectively called "Confidential
<PAGE>
Information"). Information in the public domain on the date of this Agreement
shall not be considered Confidential Information.
Confidential Information may be disclosed to:
(1) employees, officers and directors of the Parties;
(2) Government Officials of the Republic;
(3) employees, officers and directors of an Affiliate;
(4) any professional consultant or agent retained by any Party for
the purpose of evaluating the Confidential Information.
"Affiliate" means a company, partnership or other legal entity which controls,
or is controlled by, or which is controlled by an entity which controls a Party.
For purposes of this definition, control means the ownership, directly or
indirectly, of more than fifty percent (50%) of the shares or voting rights in a
company, partnership or legal entity. As to STPetro, Affiliate includes ERHC.
The obligations contained in this Article shall survive termination of the
Agreement and shall continue until the effective date of the PSC described in
Article VI or Mobil relinquishment of its first refusal right in Article VII,
whichever occurs earlier.
Article IX - Law and Disputes
(1) This Agreement shall be governed by, construed, interpreted and applied
in accordance with substantive laws of the State of Texas, USA to the
exclusion of any conflicts of law rules which would refer the matter to
the laws of another jurisdiction.
(2) Any dispute, controversy or claim arising out of or in relation to or
in connection with this Agreement or the activities carried out under
this Agreement, including without limitation any disputes as to the
construction, validity, interpretation, enforceability or breach of
this Agreement, shall be exclusively and finally settled by arbitration
under the Rules of Conciliation and Arbitration of the International
Chamber of commerce by three arbitrators. Each side shall appoint one
(1) arbitrator within thirty (30) days of the submission of a Notice of
Arbitration. The Party-appointed arbitrators shall in turn appoint a
presiding arbitrator within thirty (30) days following the appointment
of the Party-appointed arbitrators.
(3) The arbitration proceedings shall be held in London, England. The
proceedings shall be conducted in the English language, and the
arbitrators shall be fluent in the English language. The arbitrators
shall have at all times no financial interest in the Parties, dispute,
controversy or claim.
(4) Awards shall be final and not subject to appeal. Judgment upon the
award may be entered in any court having jurisdiction over the party or
the assets of the Party owning
<PAGE>
the judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be.
Article X - Notices
Except as otherwise provided, all notices authorized or required between the
Parties by any of the provisions of this Agreement, shall be in writing, in
English and delivered in person, by courier service or by any electronic means
of transmitting written communications and addressed to the Parties as
designated below. Any notice given under any provision of this Agreement shall
be deemed delivered only when received by the Party to whom such notice is
directed, and the time for such Party to deliver any notice in response to such
originating notice shall run from the date the first such notice is received.
"Received" for purposes of this Article with respect to notice delivered
pursuant to this Agreement shall be actual delivery of the notice to the address
of the Party to be notified, specified in accordance with this Article. Each
Party shall have the right to change its address at any time and/or designate
that copies of all such notices be directed to another person at another
address, by giving notice thereof to all other Parties.
Mobil Exploration and Producing Services Inc.
P. O. Box 650232
Dallas, Texas 75265-0232
Attn: Kevin Meyer
Fax: (214) 951-2104
Republic and STPetro
c/o: Office of the Prime Minister
P. O. Box 302
Attn: for the Republic: Prime Minister
Attn: for STPetro: Carlos Gomes, President
Fax: 011-239-12-22596
Article XI - Representation and Warranties
(1) As of the date of signing this Agreement, Mobil represents and warrants
to STPetro and the Republic that:(i)it is duly incorporated and validly
existing under the laws of the State of Delaware, USA;(ii)all requisite
corporate authority or authorizations for the execution delivery and
performance of this Agreement have been obtained and are in effect; and
(iii) execution delivery and performance of this Agreement does not
violate any applicable law or regulation or result in a violation of or
default under any term or provision under any contract or agreement to
which Mobile is a party.
(2) As of the date of signing this Agreement, STPetro represents and
warrants to Mobil and the Republic that: (i) it is duly incorporated
and validly existing under the laws of the Republic; (ii) all requisite
corporate authority or authorizations for the execution delivery and
performance of this Agreement have been obtained and are in effect;
(iii) execution delivery and performance of this Agreement does not
violate any applicable law or regulation or result in a violation of or
default under any term or provision under any
<PAGE>
contract or agreement to which STPetro is a party; and (iv) neither
STPetro nor its employees or agents have taken or agreed to take any
action which would result in liability on behalf of Mobil for
commissions, finder's fees or other compensation for services in
connection with this Agreement other than as expressly set out herein.
(3) As of the date of approving this Agreement, the Republic represents and
warrants to Mobil and STPetro that: (i) all requisite authority or
authorizations for the execution delivery and performance of this
Agreement have been obtained and are in effect; (ii) execution delivery
and performance of this Agreement does not violate any applicable law
or regulation or result in a violation of or default under any term or
provision under any contract or agreement to which Republic is a party.
(4) Each Party individually hereby agrees to indemnify, hold harmless and
defend the other Parties from and against any claim, loss or damage
which the other Parties may suffer or incur by reason of breach of the
above representations and warranties.
(5) In the event any warranty or representation contained herein shall
prove to be untrur in any material respect, the Parties shall promptly
meet in order to determine a courts of curative action and adjustment
to the consideration set forth in this Agreement. Remedies set out in
this Article or hereinafter agreed upon shall be cumulative of other
remedies permitted by governing law or this Agreement.
(6) The warranties contained in this Article XI are the only
representations and warranties applicable to this Agreement and no
other representations or warranties, express or implied, shall apply
thereto.
Article XII - Miscellaneous Provisions
(1) Further Performance - Each Party undertakes to execute all other
documents, permits, and agreements as may be required to carry out the
intent of this Agreement.
(2) Fees and Taxes - Mobil and its seismic contractor shall not be required
to pay any duty, fee, levy or tax to STPetro or the Republic on account
of performance in accordance with the terms of this Agreement except
that Mobil or seismic contractor may be required to pay a non-
discriminatory city port fee if such Parties use such facilities to
handle goods or materials. No tax, fee or levy shall be due from Mobil
on account of payments made in accordance with Article V of this
Agreement. No payments of any kind shall be made by Mobil except as
expressly set out herein.
(3) Public Statements - Republic shall be primarily responsible for making
press releases within the Republic provided such releases do not
contain financial or Confidential Information. Mobil or STPetro
individually shall be responsible for preparation and release of press
releases and public statements outside of the Republic with respect to
matters arising in relation to this Agreement, provided such statements
are sent from the Party preparing the release to the other parties at
least twelve (12) hours before release. All Parties shall endeavor in
good faith ot agree on the text and timing of such releases
<PAGE>
and statements.
(4) Force Majeure - The non-performance or delay in performance by either
party of any obligation hereunder shall be excused if and to the extent
that, such non-performance or delay is caused by Force Majeure. A Party
whose obligations hereunder have been suspended as a result of Force
Majeure shall resume the performance of such obligations as soon as
reasonably possible after the removal of the cause therefore. The term
"Force Majeure" as used herein shall mean an act of God, strike, act of
a public enemy, war, lightening, fire, storm, flood, explosions,
governmental action or non-action, unavailability of a seismic vessel
or any other cause which is not reasonably within the control of the
Party claiming suspension of its obligations by virtue of such Force
Majeure. The period during which a Force Majeure event is pending shall
be added to the terms of this Agreement provided however that a Force
Majeure event which lasts forup to two years shall cause this Agreement
to terminate unless extended by mutual agreement.
(5) Assignment - No Party may assign any interest, obligation or right
under this Agreement except that Mobil or STPetro may assign its rights
hereunder to an Affiliate, as defined in Article VIII, upon giving the
other Parties prior written notice of such assignment.
(6) Counterparts - This Agreement may be executed in any number of
counterparts in English and Portuguese, each of which when so executed
shall be an original.
(7) Headings - The captions and headings of the Articles of this Agreement
are for convenience only, and shall not be interpreted or construed so
as to limit in any way or change the subject matter of any part of this
Agreement.
(8) Entire Agreement - This Agreement constitutes the full and complete
Agreement of the Parties with respect to the subject matter of this
Agreement and supersedes and cancels all prior agreements and
understandings between the Parties, whether written or oral, expressed
or implied, including but not limited to the Letter of Intent between
MOBIL and STPetro dated 11 August 1998.
(9) Amendments - No amendments changes or modifications to this Agreement
shall be valid unless signed by authorized representatives of the
Parties.
Signed by Mobil and STPetro on the date first written in the Preamble.
Mobil
by_____________________________________
M.W.Scoggins
Title: President, International Exploration and Producing
STPetro, for and on behalf of the Republic
by:________________________________ by:_____________________________
Carlos Gomes Jim R. Callender, Sr.
Title: President Title: CEO
Approved by the Republic this the 10th day of September, 1998
- ------------------------------------------------
Minister Homero Salvaterra, in accordance with written delegation of authority
dated September 7, 1998 for and on behalf of Raul Braganca Neto, Prim Minister.
<PAGE>
Appendix "B"
Fiscal Terms
<TABLE>
<S> <C> <C>
Element Terms Conditions
Bonuses Signature:$** = $** per block Payable to the Republic Discovery and
Commercial Discovery:$** production bonuses are payable on each
Production:$ ** @ first oil; field
$ ** @ 25 TBD sustained;
$ ** @ 50 TBD sustained;
$ ** @ 75 TBD sustained;
$ ** @ 100 TBD sustained
Rentals $ ** per block oPayable to Republic annually on each
non-producing block
Royalty 0 - 25 TBD **% o Based on average daily production from
25 - 50 TBD **% each field
50 - 75 TBD **%
75 - 100 TBD **%
> 100 TBD **%
STPetro Participation [Redacted Rule 24D-2 Confidential o Mobil is entitled to recover the costs
Treatment Application]% participating interest, fully carried on STPetro's behalf
carried through exploration, appraisal and
development to first oil
Profit Splits Tranche Republic Contractor o Based on average daily production from
0 - 50 TBD **% **% each field
50 - 100 TBD **% **%
100- 150 TBD **% **%
150- 200 TBD **% **%
200- 250 TBD **% **%
> 250 TBD **% **%
Cost Recovery o All petroleum operations costs (except bonuses)are o Contractor may recover exploration &
expensed and recoverable out of 80% of the appraisal costs from first available
production remaining after payment of royalty. production on the contract area.
o All unrecovered costs are carried over to the o Contractor will be subject to petroleum
subsequent years. profits tax on the uplift.
o On the last day of each year, any unrecovered costs
will be multiplied by 15% and the
calculated amount (the "uplift") shall be
added to and become part of the petroleum
operations costs.
Depreciation for Tax o Exploration/appraisal costs and bonus payments are
Purposes expensed for tax purposes
o All other capital depreciated over 4 years, straight
line
Petroleum Profits Tax **% o Assumed rate, payable to the Republic
Development Period ** years after commercial discovery declared
Training $ ** per year
Infrastructure,
public works $ ** year during production o Payments commence in
the year of first oil production development
Additional Royalty due 1% due on production from **; o Due on the entire contract area if Mobil
in consideration for 2% due on production from **; selects any of the Optional Block
optional Block Nomin- 3% due on production from ** and over Nomination Area
ation Area selection
Other o No taxes, duties, fees or payments
applicable other than those noted in TAA.
</TABLE>
**[Redacted Rule 24b-2 Confidential Treatment Application]
<PAGE>
MEMORANDUM
SEPTEMBER 10, 1998
Reference is made to the English text of the Technical Assistance Agreement
("TAA"), signed today between Mobil Exploration and Producing Services Inc. and
STPetro S.A. and approved by the Democratic Republic of Sao Tome and Principe
(collectively called the "Parties"). Attached to this Memorandum is an
unofficial Portugese text of the TAA.
The Parties undertake to review and revise the Portuguese text as soon as
reasonably practical with the intent of approving, ratifying and confirming a
mutually agreeable Portugese text which is consistent with the English test.
Nothing in this memorandum shall be construed to modify or affect the effective
date of the TAA as provided for therein.
Mobil
by:__________________________________
STPetro
by:__________________________________ by:_______________________________
President CEO
Republic
by:________________________________
ACORDO DE ASSISTENCIA TECNICA
Este acordo sobre assistencia tecnica ("Acordo") entabulado em 10 de
setembro de 1998 entre a Republica Democratica de Sao Tome e Principe
("Republic") e a Empresa de Petroleo de Sao Tome e Principe S.A. (STPetro), uma
empresa publica organizada conforme as leis da Republica e a Mobil Exploration
and Producing Services Inc. ("Mobil"), uma empresa organizada conforme as leis
do Estado de Delaware, Estados Unidos da America (A Republica, a STPetro e a
Mobil sae doravante denominadas colectivamente como "as Partes").
<PAGE>
ACORDO DE ASSISTENCIA TECNICA
Este acordo sobre assistencia tecnica ("Acordo") entabulado em 10 de
setembro de 1998 entre a Republica Democratica de Sao Tome e Principe
("Republica") e a Empresa de Petroleo de Sao Tome e Primcipe S.A. (STPetro), uma
empresa publica organizada conforme as leis da Republica e a Mobil Exploration
and Producting Services Inc. ("Mobil"), uma empresa organizada conforme as leis
do Estado de Delaware, Estados Unidios da America (a Republica, a STPetro e a
Mobil sao doravante denominadas colectivamente como "as Partes").
CONSIDERANDO:
A. Por meio de diversos memorandos de acordo, oficios e estipulacoes
entabuladas de um lado pela Republica e,por outro lado, pela Environmental
Remediation Holding Corp. ("ERHC") e Procura Financial Consultants C.C.("PFC"),
a ERHC/PFC concordou em realizar uma avaliacao e um estudo de viabilidade sobre
as reservas de petroleo, minerios e gas na Republica, em troca da concessao de
petroleo e gas a um consorcio empresarial constituido pela Republica, pela ERHC
e pela PFC, cuja documentacao inclui mas nao se circunscreve a:
i) Carta de entendimento entre a Republica e a ERHC, de 18 de maio de 1997,
ii) Memorando de Acordo ("MDA") entre a Republica, por um lado, e a
ERHC/PFC, por outro lado, de 27 de Maio de 1997,
iii) Um memorando de entendimento entre a Republica e a ERHC/PFC de 29 de
julho de 1997,
iv) Memorando de Entendimento entre a Republica e a ERHC, de 30 de setembro
de 1997, e
v) Estipulacoes entre a Republica e a ERHC, de 20 de novembro de 1997.
(2) Conforme o acordo de 18 agosto de 1998, a PFC artribuiu e transferiu a
ERHC todos os direitos e obrigacoes da PFC no empreendimento, nos termos dos
documentos descritos no preambulo A, acima, alem de todos os outros acordos
conexos.
(3) Em julho de 1998, o conforcio STPetro foi criado pela Republica e pela
ERHC em conformidade com o artigo 99 (d) da Constituicao da Republica, mediante
o decreto-lei 27/98, para dedicar-se a actividades relacionadas com a exploracao
do gas e do petroleo, alem de outras actividades conexas descritas no referido
decreto-lei.
(4) A Republica deseja contar com uma avaliacao tecnica e um estudo de
viabilidade do potencial da exploracao de petroleo e gas realizado em uma parte
do territorio da Republica descrita como blocos de 1 a 22 e areas adicionais na
plataforma continentall, como constantes do mappa apenso, Apendice "A"
("Superficie").
<PAGE>
(5) A Mobil esta disposta a empreender a avaliacao tecnica e o estudo de
viabilidade do potencial da exploracao de petroleo e gas na "Superficie" e, em
conformidade com as condicoes deste acordo, participar com a STPetro na
exploracao, desenvolvimento e producao de petroleo.
Em consequencia, as Partes acordam O seguinte:
Artigo I - Termo
Este acordo entrara em vigor ao ser subscrito pela STPetro e pela Mobil
apos a data da sua aprovacao pela Republica, tal como confirmado pela pagina de
subscricao ("data de vigencia") e devera caducar 18 meses apos a data de
vigencia. Se este acordo nao for aprovado pela Republica ate 31 de outubro de
1998, sera cancelado e anulado.
Artigo II - Avaliacao
Durante a vigencia deste acordo, a Mobil realizara uma avaliacao tecnica e
um estudo de viabilidade do petencial da exploracao de petroleo e gas na
superficie e apresentara um relatorio escrito sobre as suas descoberta
("Relatorio de Avaliacao").
Artigo III - Levantamento sismico
Como parte da sua avaliacao tecnica, a Mobil realizara ou encomendara um
levantamento sismico de reconhecimento da superficie em duas dimensoes. Esse
levantamento sera de qualidade e quantidade suficiente e levara em conta todas
as informacoes goecientificas preexistentes, para a elaboracao do relatorio de
avaliacao. A Mobil devera configurar o programa e negociar a aquisicao de dados
sismicos directamente com uma empreiteira sismica. Alem disso a Mobil tera o
direito de examinar e copiar gratuitamente quaisquer outras informacoes
geocientificas de posse da STPetro ou da Republica que possam incidir sobre a
avaliacao da superficie pela Mobil. Durante a vigencia desta acordo, os dados
sismicos adquiridos ou processados bem como todas as informacoes geradas pelos
funcionarios da Mobil serao da propriedade da Mobil. Sujeitos a quaisquer
direitos da emprieteira sismica, no vencimento deste acordo, os dados sismicos
adquiridos e processados no area abrangida pelo Contrato de Partilha da Producao
(CPD) na qual a Mobil mantiver interesse passarao a ser propriedade conjunta das
partes e outros dados fisicos passarao a ser de propriedade da STPetro e da
Republica. A Republica por meio deste cede todos os direitos que a Mobil e os
seus subempreiteiros possam necessitar para realizar o referido levantamento
sismico. Durante o levantamento, a STPetro tera o direito de designar um maximo
de ate 3 (tres) representantes da Republica e da STPetro para acompanhar o navoi
sismico durante a colecta dos dados sismicos, dependendo da lotacao do navio e
da consentimento do empreiteiro sismico
Artigo IV - Relatorio de Avaliacao
Ate um (1) ano antes da data de vigencia, a Mobil devera realizar uma
resenha do profresso registrado pelo programa sismico e do Relatorio de
Avaliacao para a Republica e a STPetro e
<PAGE>
devera a eles divulgar as concllusoes preliminares que tiverem sido
definidas no diz respeito ao potencial da exploracao de petroleo e gas na
referida superficie. Ate o momento do vencimento deste Acordo, a Mobil devera
encaminhar a Republica e a STPetro um relatorio de avaliacao por escrito do qual
constara o potencial da exploracao da superficie. O relatorio de avaliacao
devera incluir uma interpretacao sismica, caracteristicas geologicas, inclusive
interpretacao estratigrafica, geoquimica (dependendo da disponibilidade de
dados), potencial da reserva e avaliacao de riscos, alem de apresentar as
conclusoes sobre o potencial da exploracao de petroleo e gas. Embora a Mobil
deva elaborar o relatorio de avaliacao usando praxes padronizadas e aceitaveis
pela industria internacional do petroleo, as Partes reconhecem que as conclusoes
geocientificas sao inerentemente incertas. Consequentemente, a Mobil nao garante
nem afirma que as informacoes que constam do relatorio de avaliacao sejam
acuradas ou confiaveis e que as conclusoes retiradas do relatorio correrao por
contao, risco e custos da Parte ou de qualquer recipiente que possa extrair tais
conclusoes.
Artigo V- Compensacoes
Como compensacao pela concessao de direitos para realizar a avaliacao
tecnica e o estudo de viabilidade juntamente com o direito de, em certas
condicoes, participar com a STPetro em outras exploracoes, desenvolvimento e
producao do petroleo, a Mobil pagara os seguintes montantes:
a) todos os custos e despesas da colecta de dados sismicos e de
reprocessamento (pagaveis directamente a subempreiteiros);
b) a importancia de [Redacted Rule 24b-2 Confidential Treatment] Estados
Unidos (US $ [Redacted Rule 24b-2 Confidential Treatment]) a Republica ate dez
(10) dias apos a data de vigencia deste Acordo;
c) a imporancia de [Redacted Rule 24b-2 Confidential Treatment] Estados
Unidos (US$[Redacted Rule 24b-2 Confidential Treatment]) a Republica numa data
nove (9) meses apos a data de vigencia deste Acordo;
d) se a Mobil exercer o seu direito de primeira recusa segundo em
conformidade com o artigo VII, STPetro recebera [Redacted Rule 24b-2
Confidential Treatment]% dos interesses do empreiteiro no CPP ate a primeira
producao pela Mobil, sujeitos a recuperacao dos custos pela Mobil.
Se a data nas alieneas (b) ou (c) cair em um sabado, domingo ou feriado
bancario, o pagamento sera efectuado no proximo dai util em Dallas, Texas,
Estados Unidos da America. Os pagamentos a Republica serao efectuados por meio
de trasnferencia electronica a uma conta bancaria no nome da Republica que sera
designada por escrito a Mobil pelo Ministro do Plano e da Fazenda.
<PAGE>
Artigo VI - Negociacoes sobre contrato de partilha da producao
Durante a vigencia deste acordo, a Mobil tera direito exclusivo de negociar
com a STPetro com vista a um CPP mutuamente aceitavel. Tais negociacoes serao
iniciadas o mais prontamente possivel apos a entrada em vigor deste Acordo e
serao realizadas em boa-fe e com diligencia pelas partes. Os seguintes
principios e termos essenciais serao incorporados aos termos do CPP e a outros
termos a serem negociados:
(1) Ressarcimento de custos pelo empreiteiro relativamenta a todos os
custos operacionais de petroleo o que devera incluir todos os custos de colecta
de dados sismicos incorridos pela Mobil segundo os termos deste acordo. Embora o
seu custo nao seja recuperavel, os pagamentos de bonificacoes gozarao de deducao
tibutaria.
(2) A obrigacao da perfuracao e exploracao de dois pocos dentro dos
primeiros dezoito meses apos a data de vigencia do CPP, sujeita a postergacao
caso a perfuracao tenha um impacto sobre a resolucao de quaisquer reivindicacoes
fronteiricas pendentes por parte de outros paises.
(3) Uma bonificacao de assinatura pagavel pela Mobil na data de vigencia do
CPP calculada como a soma de: (i) [Redacted Rule 24b-2 Confidential Treatment]
Estados Unidos (US$[Redacted Rule 24b-2 Confidential Treatment]) mais (ii)
[Redacted Rule 24b-2 Confidential Treatment] Estados Unidos (US$[Redacted Rule
24b-2 Confidential Treatment]) por bloco, tal como designado no mapa da
superficie apenso, sujeito a adiamento dos montantes referidos no paragrafo (ii)
acima para cada bloco que tiver uma fronteir ainda sujeita a reivindicacoes
pendentes por outro ou outros paises na regiao.
(4) O direito do empreiteiro de exportar livrementa a sua parte da producao
e de exportar e manter no exterior os proventos da venda da sua parte da
producao.
(5) O pagamento pelo empreiteiro de US $[Redacted Rule 24b-2 Confidential
Treatment] por bloco em alugueres anuais apos o primeiro ano para postergar a
exploracao, producao ou cisa para blocos individuais nos quais as operacoes de
perforacao nao tiverem ocorrido.
(6) A avaliacao da producao para fins de ressarcimento de custos, pagamento
de direitos de exploracao e determinacao da tributacao do empreiteiro sera fieta
na base de precos liquidos realizados.
(7) Um dispositivo de arbitragem sera utilizado em um foro neutro para
resolver litigios segundo regras aceitas internacionalmente.
(8) Ratificacao do CPP por meio de um processo de legalizacao para
efectivar o CPP sob a forma de lei da Republica.
(9) A moeda sera convertida pelo contravalor do mercado.
<PAGE>
(10) A contabilidade sera mantida em dolares dos Estados Unidos.
(11) A liberdade de importacao e exportacao de bens, materiais e servicos
pela Mobil, suas afiliadas e subempreiteiras.
(12) Direito do empreiteiro de trasnferir interesses no CPP sem
penalidades, sujeito a aquiescencia da STPetro e da Rupublica, s quais nao
deverao ser retidos de maneira nao razoavel.
(13) Dispositivo de forca-maior para escusar obrigacoes.
(14) Clausulas estruturais para garantir credito por imposto de renda pago
a Republica para fins tributarios nos Estados Unidos, isencao de quaisquer
outros impostos e taxes e uma clausula sobre estabilidade tributaria.
(15) Condicoes para partilha da producao descritas no apendice B apenso.
(16) A Mobil sera a operadora segundo os termos do CPP e sujeita aos termos
de um Acordo Operacional Conjuncto a ser negociado entre a Mobil e a STPetrol.
Artigo VII - Direito de Primeira Recusa
Como compensacao a Mobil por servicos prestados e pagamentos nos termos
deste acordo, a Repbulica concede a Mobil por este meio o direito de primeira
recusa na aquisicao do CPP a ser atribuido sobre toda ou sobre uma parte da
superficie a ser designada pela Mobil segundo os termos negociados, em
conformidade com o artigo VI. A Mobil devera exercer os seus direitos da
seguinte forma:
Antes do vencimento desde acordo, a Mobil devera notificar por escrito a
STPetro que: (i) exercera o direito de entrar num CPP na totalidade ou em parte
da superficie (com descricao dessa parte). Ou (ii) renunciando a esse direito.
Dentro de 30 dias (trinta) apos a notificacao pela Mobil de que estara exercendo
o seu direito, a Republica, a STPetro e a Mobil (ou a sua afiliada) deverao
executar o referido CPP.
Em lugar de um ou varios blocos designados de 1 a 22, a Mobil podera
designar e escolher um ou mais blocos adjacentes a superficie no sentido sul,
como consta do mapa apenso marcado como Apendice "A" ("Area de Designacao de
Bloco Optativo) exclusive areas a profundidades inferiores a 1500 metros. Tais
blocos serao de dimensao identica aos blocos da superficie contanto que a Mobil
nao escolha um total superior a 22 blocos. A configuracao dos blocos designados
naovment estara sujeita a um acordo mutuo entre as partes. Com excepcao das
clausulas deste Acordo, qualquer bloco ou blocos novamente designados estara
sujeito aos mesmos termos e condicoes deste acordo, aplicaveis a superficie
designada inicialmente. Como compensacao pela cessao do direito de primeira
recusa na Area de Designacao de Bloco Optativo, a Mobil concordo em pagar
direitos adicionais de exploracao sobre a producao de qualquer campo abrangido
pelos termos do CPP na seguinte proporcao.
<PAGE>
Producao acumulada Direitos adicionais de exploracao
[Redacted Rule 24b-2 Confidential Treatment] 1%
[Redacted Rule 24b-2 Confidential Treatment] 2%
[Redacted Rule 24b-2 Confidential Treatment] e mais barris 3%
Tais direitos adicionais de exploracao serao acrescentados aos direitos
pagaveis em conformidade com o CPP, como estipulado no Apendice B.
Artigo VIII - Confidencialidade
As parte manterao em sigilo, sem divulgar a terceiras partes, informacoes
relativas aos termos deste acordo, a todas as negociacoes do CPP, a todas as
comunicacoes por escrito entre as Partes referentes ao terma da renegociacao
deste Acordo ou das negociacoes sobre o CPP, a todas as informacoes
geocientificas legadas a superficie e ao relatorio de avaliacao (denominados
colectivamente "informacoes confidenciais"). As iinformacoes que estiverem no
dominio publico na data de efectivacao deste acordo, nao serao consideradas
informacoes confidenciais.
As informacoes confidenciais poderao ser reveladas a:
(1) funcionarios, titulares e directores das partes;
(2) funcionarios do governo da Republica;
(3) funcionarios titulares e directores de uma afilada;
(4) Qualquer consultor ou agente profissional contratado por qualquer das
partes par avaliar as informacoes confidenciais.
"Afiliada" significa uma empresa sociedade ou outra entidade legal que
controle ou seja controlada por meio de uma entidade que controla uma das
Partes. Para os fins desta definicao, controle significa a proopriedade directa
ou indirecta de mais de 50 por cento das accoes ou de direitos de voto numa
empresa, sociedade ou entidade legal. No que diz respeito a STPetro, a Afiliada
inclui a ERHC.
As obrigacoes constantes deste Artigo perdurarao apos o vencimento deste
acordo ate a data de vigencia do CPP descrito no artigo VI ou ate que a Mobil
renuncie ao seu direito de premeira recusa mendionado no Artigo VII ou o que
ocorrer primeiro.
Artigo IX - Direito e litigios
A. Este Acordo sera regidom interpretado, considerado e aplicado consoante
as leis fundamentais do Texas, Estados Unidos, com a exclusao de
quaisquer normas sombre conflito de direito que submerteriam a materia
as leis de outra juridicao.
B. Qualquer litigo, controversia ou reivindicacao resultant deste acordo ou
a ele referente ou a ele vinculado ou referente z actividades empreendidas nos
termos deste Acordo, inclusive e nao limitadas a quaisquer construcao, validade,
imterpretacao, cumprimento
<PAGE>
ou infraccao deste Acordo sera solucionado final e exclusivamente por
arbitragem, segundo as normas de conciliacao e arbitragem da Camara de Comercio
Internacional por tres arbitros. Cada parte devera nomear um arbitro 30 (trinta)
dias apos a apresentacao de uma Notificacao de Arbitragem. Por sua vez, os
arbitros nomeados pelas Partes deverao nomear um arbitro presidente dentro de
trinta dias apos a nomeacao dos arbitros sufragados pelas Partes.
C. Os procedimentos de arbitragem terao lugar em Londres, na Inglaterra. Os
procedimentos serao realizados no idioma ingles e os arbitros deverao falar o
idioma ingles fluentemente. Em momento algum poderao os arbitros ter quaisquer
interesses financeiros nas Partes, no litigo, na controversia ou na
reivindacacao.
D. As decisoes serao definitivase nao estrao sujeitis a recurso. As
decisoes sobre o ressarcimento serao impetrados em qualquer tibunal que tenha
jurisdicao sobre as Partes ou sobre o patrimonio da Party perdedora e a suplica
podera ser apresentada ao tribunal no sentido da aceitacao judicial do
ressarcimento e de um mandato de execucao, conforme for o caso.
Artigo X - Avisos
Amenos que se disponha de outa forma, todos os avisos autorizados ou
requeridos entre as Partes por quaisquer disposicoes deste Acordo serao feitas
por excrito, em ingles e entregues em pessoa, por servico de entregas ou por
qualquer meio electronico de transmissao de comunicacoes escritas e enderecados
as Partes abaixo designadas. Qualquer aviso dado nos termos de qualquer
disposicao deste Acordo so sera considerado entreque quando tiver sido recbido
pela Parte a qual o aviso for destinado e o prazo para que tal Parte entregue
qualquer aviso em resposta ao aviso que o originou comecara da data em que o
primeiro aviso tiver sido recebido. Para os fins deste Artigo, no que diz
respeito a aviso entregue nos termos deste Acordo, "recebido" sera a entrega
real do aviso no endereco da Parte a ser notificada, especificado em
conformidade com este Artigo. Mediante aviso a todas as outras partes, cada
Parte tera o direito de mudar o seu endereco em qualquer momento e de designar
que as copias de todos estes avisos sejam endercadas a outra pessoa, em outro
endereco.
Mobil Exploration and Producing Services Inc.
P. O. Box 650232
Dallas, Texas 75265-0232
Attn: Kevin Meyer
Fax: (214) 951-2104
Republic e STPetro
Aos cuidados do Gabinete do Primeiro Ministro
Caixa Postal 302
Atencao: para a Republica: Primeiro Ministro
Atencao: para a STPetro: Carlos Gomes, Presidente
Fax: 011-239-12-22596
<PAGE>
Artigo XI - Declaracoes e Autorizacoes
(1) Na data da assinatura deste Acordo, a Mobil declara e garante a STPetro
e a Republica que : (i) esta devidamente constituida e funciona oficialmente de
acordo com as leis do Estado de Delaware, USA; (ii) todas as autorizacoes
empresariais pertinentes ou facudldades para a conclusao da execucao e o
cumprimento deste Acordo foram obtidas e estao em vigor; e (iii) a conclusao da
execucao e cumprimento deste Acordo nao infringem as leisou regulamentos
aplicaveis nem representarm uma infraccao de falta de cumprimento de qualquer
termo ou clausula ou acordo do qual a Mobil for Parte.
(2) Na data da assinatura deste Acordo, a STPetro declara e garante a Mobil
e a Republica que: (i) esta devidamente constituida e funciona oficialmente de
acordocom as leis da Republica; e (ii) todas as autorizacoes ou faculdades da
empresa para o cumprimento e a execucao deste Acordo ja foram obitas e
encontram-se em vigor; (iii) a conclusao da execucao e o cumprimento deste.
Acordo nao infringem quaisquer leis ou regulamentos aplicaveis nem ocasionarao a
infraccao ou falta de cumprimento segundo os termos e clausulas de qualquer
contrato ou acordo do qual a STPetro for parte; e (iv) nem a STPetros nem os
seus funcionarios ou agentes tomaram ou concordaram em tomar quaisquer
providencias que poderaiam ocasionar reaponsabilidade dolsa da Mobil em termos
de comissoes, honorarios de agentes ou quaisquer outras remuneracoes por
servicos prestados consoante este Acordo, a nao ser aqueles estipulados
expressamente no mesmo.
(3) Na data da ratificacao deste acordo, a Republica declara e garante a
Mobil e a STPetro que:(i) todas as autorizacoes devidas ou faculdades para a
conclusao da execucao e o cumprimento deste Acordo foram obtidas e estao em
vigor; (ii) a conclusao da execucao e o cumprimentop deste Acordo nao infringem
quaisquer leis ou regulamentos aplicaveis nem ocasionarao a infraccao ou falta
de cumprimento sugundo os termos e clausulas de contrato ou acordo do qual a
Republica faca parte.
(4) Cada Parte concorda em indemnizar, manter a salvo e defeder as demais
Partes de quaisquer litigis, perdas ou danos que as demais partes possam vir a
sofrer ou nos quais possam incorrer em virtude de falta de cumprimento das
declaracoes e garantias supracitadas.
(5) Caso qualquer declaracao ou garantia constante deste Acordo se revele
infundada no que diz respeio a qualquer aspecto pertinente, as Partes se
reunirao imediatamenta a fim de divisar correctivos e ajustes as compensacoes
prescritas neste Acordo. Os correctivos prescritos neste Artigo ou nos artigos
convidos a partir daquele momento serao de caracter cumulativo, alem dos outros
correctivos facultados pela lei em vigor ou pelo presente Acordo.
(6) As garantias constantes deste Artigo XI constituem apenas declaracoes e
garantias aplicaveis a este Acordo e nenhuma outra declaracao ou garantia,
expressa ou implicita,
<PAGE>
sera aplicavel ao mesmo.
Artigo XII - Disposicoes gerais
(1) Desempenho futuro - As Partes compromentem-se a executar a todos os
outros documento, alvaras, e acordos necessarios para a consecucao dos fins
precipuos deste Acordo.
(2) Taxas e emolumentos - Nem a Mobil nem o empreiteiro sismico serao
obrigados a pagar quisquer direitos, taxas, emolumentos e impostos a STPetro ou
a Republica a titulo do desempenho dos termos deste Acordo, embora se possa
requerer que a Mobil e a empreiteira sismica paguem uma tasa protuaria municipal
nao-discriminatoria se essas partes usarem tais instalacoes para o transporte de
bens ou materiais. Nenhuma tasa, honorario ou emolumento serao devidos pela
Mobil a titulo de pagamentos feitos de acordo com o Artigo V deste Acordo. A
Mobil nao fara qualquer tipo de pagamento salvo aqueles expressamente
estipulados neste Acordo.
(3) Declaracoes publicas - A Republica assumira responsabilidade primordial
pelas comunicacoes a imprensa no territorio nacional, desde que tais
comunicacoes nao contenham informacoes financeiras ou confidenciais. A mobil e a
STPetro serao responaveis pela elaboracao e divulgacao de todos os comunicados a
imprensa e declaracoes publicas fora do territoio da Republica relativamente a
questoe advindas em virtude deste Acordo, desde que tais declaracoes sejam
enviadas a cada Parte com antecdencia minima de 12 horas antes da divulgacao.
Todas as Partes procurarao de boa- fe acordar no que diz respeito a formulacao e
a oportunidade da divulagacoes e comunicados.
(4) Forca-maior - A falta de cumprimento ou atrasos no desempenho por
qualquer das Partes de qualquer obrigacao por meio deste Acordo serao escusados
desde que os atrasos ou a falta de cumprimento tenham sido causados por motivos
de forcamaior. A Parte cujas obrigacoes contratuais tiverem diso sustadas em
virtude de forcamaior devera reinicaiar o desempenho de tais obrigacoes tao
pontamente quanto for possivel, uma vez sustada a causa dos mesmos. A expressao
"forcamaior" usada neste Acordo significa acto da Providencia, greve actos de um
inimigo publico, guerra, raios, incendios, inunbdacoes, tempestades, explosoes,
accao ou inaccao do Governo, indiponibilidade de navio sismico ou qualquer outr
causa que razoavelmente estiver fora do controle da Parte que solicitar
suspensao das suas obrigacoes em virtude da forca-maior aludida. O periodo
estiver pendente sera acrescentado aos prazos deste Acordo. Nao obstante, um
evento de forca- maior que perdure por mais de dois anos ocasionara a resciasao
deste Acordo, a menos que seja prorrogado por deciasao mutua.
(5) Designacao - Nenhuma das Partes podera ceder qualquer intersse,
obrigacao ou direito consoante este Acordo salvo que a Mobil ou a STPetro
poderao ceder os seus direitos constantes deste Acordo a uma afilida, tal como
definida no Artigo VIII, mediante aviso previo as demais Partes, por excrito da
referida designacao.
(6) Exemplares - Este Acordo sera executado em um numero indefinido de
exemplares em
<PAGE>
ingles e em portugues, quando assim executado cada um deles sera
considerado original.
(7) Titulos - As legendas e titulos dos artigos deste Acordo destinam-se
unicamente a facilitar a leitura e de forma alguma deverao ser considerados ou
interpretados de caracter limitativo nem alterarao o tema precipuo de cada parte
deste Acordo.
(8) Totalidade do Acordo - Este Acordo constitui um acordo pleno e completo
entre as Partes Concernente ao tema precipuo deste cordo e anula e suplanta
todos os acordos e entendimentos anteriores entre as Partes, tenham eles sido
excritos, orais, expressos ou implicitos, inclusive embora nao estejam
circunscritos a Carta de Intencoes cursada entre a Mobil e a STPetro em 11 de
agosto de 1998.
(9) Emendas - Quaisquer emendas ou modificacoes a este Acordo so terao
validade quando tiverem sido assinadas pelos representantes autorizados das
Partes.
Assinado pela Mobil e pela STPetro na data que constou primeiramente do
Preambulo.
Mobil
by_____________________________________
M.W.Scoggins
Titulo: Presidente, Exploracao e Producao Internacional
STPetro, em nome e pela Republica
by:________________________________ by:_____________________________
Carlos Gomes Jim R. Callender, Sr.
Titulo: Presidente Titulo: Administrador-Geral
Ratificado pela Republica neste Decimo dia de Setembro de 1998
- ------------------------------------------------
Ministro Homero Salvaterra, em conformidade com delegacao escrita de
autoridade datada de 7 de setembro de 1998, em nome de Raul Braganca Neto,
Primeiro-Ministro.
<PAGE>
Appendix "B"
Fiscal Terms
<TABLE>
<S> <C> <C>
Element Terms Conditions
Bonuses Signature:$** = $** per block Payable to the Republic Discovery and
Commercial Discovery:$** production bonuses are payable on each
Production:$ ** @ first oil; field
$ ** @ 25 TBD sustained;
$ ** @ 50 TBD sustained;
$ ** @ 75 TBD sustained;
$ ** @ 100 TBD sustained
Rentals $ ** per block oPayable to Republic annually on each
non-producing block
Royalty 0 - 25 TBD **% o Based on average daily production from
25 - 50 TBD **% each field
50 - 75 TBD **%
75 - 100 TBD **%
> 100 TBD **%
STPetro Participation [Redacted Rule 24D-2 Confidential o Mobil is entitled to recover the costs
Treatment Application]% participating interest, fully carried on STPetro's behalf
carried through exploration, appraisal and
development to first oil
Profit Splits Tranche Republic Contractor o Based on average daily production from
0 - 50 TBD **% **% each field
50 - 100 TBD **% **%
100- 150 TBD **% **%
150- 200 TBD **% **%
200- 250 TBD **% **%
> 250 TBD **% **%
Cost Recovery o All petroleum operations costs (except bonuses)are o Contractor may recover exploration &
expensed and recoverable out of 80% of the appraisal costs from first available
production remaining after payment of royalty. production on the contract area.
o All unrecovered costs are carried over to the o Contractor will be subject to petroleum
subsequent years. profits tax on the uplift.
o On the last day of each year, any unrecovered costs
will be multiplied by 15% and the
calculated amount (the "uplift") shall be
added to and become part of the petroleum
operations costs.
Depreciation for Tax o Exploration/appraisal costs and bonus payments are
Purposes expensed for tax purposes
o All other capital depreciated over 4 years, straight
line
Petroleum Profits Tax **% o Assumed rate, payable to the Republic
Development Period ** years after commercial discovery declared
Training $ ** per year
Infrastructure,
public works $ ** year during production o Payments commence in
the year of first oil production development
Additional Royalty due 1% due on production from **; o Due on the entire contract area if Mobil
in consideration for 2% due on production from **; selects any of the Optional Block
optional Block Nomin- 3% due on production from ** and over Nomination Area
ation Area selection
Other o No taxes, duties, fees or payments
applicable other than those noted in TAA.
</TABLE>
**[Redacted Rule 24b-2 Confidential Treatment Application]
EXHIBIT 10.25
THIS SECURITIES PURCHASE AGREEMENT, as it may be amended from time to time
(the "Agreement"), dated as of the ___th day of September 1998, is entered into
by and among ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation (the "Company"); and Talisman Capital Opportunity Fund
Ltd.,(hereinafter referred to the "Investor").
WITNESSETH:
WHEREAS, the Company desires to sell to the Investor, and the Investor
desire to purchase from the Company, certain convertible notes and warrants 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 Investor of: (i)
$500,000 principal amount of the Company's 20% convertible notes due October __,
2000 convertible at the lesser of 100% of Market Price as defined in the Note or
$1.00 (the "Note"), which Note shall be substantially in the form of Exhibit A
annexed hereto and made a part hereof and (ii) warrants to purchase 1,500,000
shares of the Company's Common Stock exercisable at $.40 (the "Warrants"), the
form of which Warrants are an exhibit to a certain warrant agreement of even
date (the "Warrant Agreement") as set forth in Exhibit B annexed hereto and made
a part hereof.
2. ISSUANCE OF NOTES AND WARRANTS; REGISTRATION OF CONVERSION
AND EXERCISABLE SHARES.
(a) Issuance of Notes. On the terms and subject to the conditions
hereinafter set forth, on the Closing Date (as hereinafter defined), the Company
will issue and sell to the Investor the Note and the Warrants.
(b) Purchase Price: Payment. The purchase price for each of the Note shall
equal 100% of the aggregate principal amount thereof. Out of the Proceeds, the
Company agrees to pay the Investor's attorneys fee in an amount equal to
$10,000. The purchase price for the Notes shall be paid at the Closing by wire
transfer of immediately available funds or by certified or bank cashier's checks
(at the option of the Investor) payable to the order of the Company, or
otherwise as acceptable to the Company. The purchase price shall be payable by
the Investor against delivery of the Note and Warrants being purchased by it,
both of which shall be registered in the name of the Investor.
(c) Registration of Conversion and Excisable Shares.
(i) As to the Notes, the Company shall file, as soon as practicable, with
the United States Securities and Exchange Commission ("SEC") and use its best
efforts to cause it to be declared effective within one (1) year of the Closing
Date and remain effective until the earlier of the date on which all of the Note
is sold or for the life of the Note, a Form S-1 Registration Statement or other
appropriate form of registration in order to register for resale and
distribution under the Securities Act of 1933, as amended (the "Securities
Act"), all shares of Common Stock of the Company issuable upon voluntary or
mandatory conversion of the Note (the "Conversion Shares"). The obligations of
the Company to so register the Conversion Shares are set forth in the Note.
(ii) As to the Warrants, the Company shall file, as soon as practicable,
with the United States Securities and Exchange Commission ("SEC") and use its
best efforts to cause it to be declared effective within two (2) years of the
Closing Date and remain effective until the earlier of the date on which all of
the Warrants are sold or for the life of the Warrants, a Form S- 1 Registration
Statement or other appropriate form of registration in order to register for
resale and distribution under the Securities Act of 1933, as amended (the
"Securities Act"), all shares of Common Stock of the Company issuable upon
voluntary or mandatory exercise of the Warrants (the "Exercisable Shares"). The
obligations of the Company to so register the Exercisable Shares are set forth
in the Warrant 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 1 annexed hereto and made a part hereof, including, without limitation,
Bass American Petroleum Corp. ("BAPCO"). The Company hereby represents and
warrants to the Investor, as follows:
<PAGE>
(a) Organization and Good Standing. The Company and each of its existing
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with full corporate power
and authority to own its properties and carry on its business as now being
conducted. Each of the Company and such Subsidiaries is qualified as a foreign
corporation and is in good standing in each jurisdiction in which the conduct of
its business or the ownership of its assets requires such qualification.
(b) Capitalization of the Company. The authorized, issued and outstanding
capital stock of the Company is described on the Company's Form S-1, as amended,
submitted to the Securities and Exchange Commission (the "SEC") on July 24,1998
(the "Form S-1"). The Company's Form S-1 and all other documents and reports
filed by the Company and/or its Subsidiaries with the SEC since October 1, 1995
(the "SEC Documents") have been furnished to or otherwise made available to the
Investor or its representatives. The authorized, issued and outstanding shares
of capital stock of each of the Subsidiaries are disclosed on the SEC Documents.
(c) Authorization, Execution and Effect of Agreements. The Company has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to issue the Note and Warrants in the
manner and for the purpose contemplated by this Agreement, and to execute,
deliver and perform its obligations under this Agreement, the Note and the
Warrants (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 Note 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 Note and
Warrants, does not and will not (i) violate any provision of any law, rule,
regulation, order, writ, judgment, decree, administrative determination or award
having applicability to the Company or any of the Subsidiaries or (ii) conflict
with or result in a breach of or constitute a default under the Certificate of
Incorporation or By-Laws of the Company or any of the Subsidiaries, or any
indenture or loan or credit agreement, or any other material agreement or
instrument, to which the Company or any of the Subsidiaries is a party or by
which the Company or the Subsidiaries, or any of their respective properties are
bound or affected, and will not result in, or require the creation or imposition
of, any lien upon or with respect to any of the properties now owned by the
Company or any of the Subsidiaries or hereafter acquired by the Company or any
of the Subsidiaries.
(e) Financial Information. The (i) audited consolidated financial
statements of the Company for the fiscal year ended September 30, 1997 as set
forth in the Company's Form 10-K/A filed with the SEC (the "1998 Form 10-K") and
(ii) the unaudited financial statements of the Company for the nine months ended
June 30, 1998 as set forth in the Company's Form 10-Q filed with the SEC, as
amended from time to time (the "1998 Form 10Q/A"), were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied, and
fairly present the financial condition and results of operations of the Company
and the Subsidiaries for the periods indicated therein; provided, that the
unaudited financial statements do not contain certain footnote disclosures
required under GAAP for audited financial statements and are subject to year end
audit adjustments, none of which would be material to an Investor's decision to
purchase the Notes.
(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,
<PAGE>
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. To use the proceeds for (1) first to the extent of
$250,000 to cover certain payments necessary for Sao Tome and (2) the balance
for general working capital purposes as the Company so directs.
(i) Accuracy of all SEC Public Filings, All SEC Reports furnished to the
Investor or its representatives and all other documents and reports filed by or
on behalf of the Company with the SEC, when filed, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company and
each of its Subsidiaries has filed, on a timely basis, all required forms,
reports and documents with the SEC required to be filed by it pursuant to the
Securities Act and the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), all of which complied at the time of filing in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act.
(j) Absence of Certain Changes or Events. Since June 30, 1998, except as
contemplated by this Agreement, disclosed on Schedule 3(j) hereto and made a
part hereof, or disclosed in any Company SEC Report filed since June 30, 1998,
the Company and the Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, in the
Company's opinion, there has not been (i) any event or events having,
individually or in the aggregate, a Material Adverse Effect, (ii) any change by
the Company in its accounting methods, principles or practices, (iii) any
revaluation by the Company of any material asset (including, without limitation,
any writing down or writing up of the value of oil and gas reserves, writing off
of notes or accounts receivable or reversing of any accruals or reserves), other
than in the ordinary course of business consistent with past practice, (iv) any
entry by the Company or any Subsidiary into any commitment or transaction
material to the Company and the Subsidiaries taken as a whole, except in the
ordinary course of business and consistent in all material respects with past
practice, or (v) any declaration, setting aside or payment of any dividend or
distribution in respect of any capital stock of the Company or any redemption,
purchase or other acquisition of any of its securities.
(k) Absence of Litigation. Except as disclosed in the Company SEC Reports
or in Schedule3(k) annexed hereto and made a part hereof, there is no claim,
action, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company or any Subsidiary, or any property or asset of
the Company or any Subsidiary, before any court, arbitrator or Governmental
Authority, which, individually or when aggregated with other claims, actions,
proceedings or investigations or product liability claims, actions, proceedings
or investigations which are reasonably likely to result from facts and
circumstances that have given rise to such a claim, action, proceeding or
investigation, would have a Material Adverse Effect. As of the date hereof,
neither the Company nor any Subsidiary nor any property or asset of the Company
or any Subsidiary is subject to any order, writ, judgment, injunction, decree,
determination or award having, individually or in the aggregate, a Material
Adverse Effect.
(l) Labor Matters. Except as set forth in Schedule 3(l) annexed hereto and
made a part hereof, with respect to employees of the Company:
(i) to the best of the Company's knowledge, no senior executive or key
employee has any plans to terminate employment with the Company or any of its
Subsidiaries;
(ii) there is no unfair labor practice charge or complaint against the
Company or any of its Subsidiaries pending or, to the best of the Company's
knowledge, threatened before the National Labor Relations Board or any other
comparable authority;
<PAGE>
(iii) there is no demand for recognition made by any labor organization or
petition for election filed with the National Labor Relations Board or any other
comparable authority which, individually or in the aggregate, would have a
Material Adverse Effect;
(iv) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the best of the Company's
knowledge, no claims therefor have been threatened other than grievances or
arbitrations incurred in the ordinary course of business which, individually or
in the aggregate, would not have a Adverse Effect; and
(v) there is no litigation, arbitration proceeding, governmental
investigation, administrative charge, citation or action of any kind pending or,
to the knowledge of the Company or any of its Subsidiaries, proposed or
threatened against the Company relating to employment, employment practices,
terms and conditions of employment or wages and hours which, individually or in
the aggregate, would have a Material Adverse Effect. Except as disclosed in
Schedule 3(l), none of the Company nor any of its Subsidiaries has any
collective bargaining relationship or duty to bargain with any Labor
Organization (as such term is defined in Section 2(5) of the National Labor
Relations Act, as amended), and none of the Company nor any of its Subsidiaries
has recognized any labor organization as the collective bargaining
representative of any of its employees.
(m) Title to and Sufficiency of Assets. As of the date hereof, the Company
and the Subsidiaries own, and as of the Closing Date, the Company and the
Subsidiaries will own, good and marketable title to all of their assets
constituting personal property which is material to their business (excluding,
for purposes of this sentence, assets held under leases), free and clear of any
and all mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions (collectively, "Liens") except as set forth in
the Company SEC Reports or Schedule 3(m) annexed hereto and made a part hereof.
Such assets, together with all assets held by the Company and the Subsidiaries
under leases, include all tangible and intangible personal property, contracts
and rights necessary or required for the operation of the businesses of the
Company. As of the date hereof, the Company and the Subsidiaries own, and as of
the Closing Date, the Company and the Subsidiaries will own, good and marketable
title to all of their real estate, including oil and gas reserves, which is
material to such persons (excluding, for purposes of this sentence, leases to
real estate and oil and gas reserves), free and clear of any and all Liens,
except as set forth in the Company SEC Reports or in Schedule 3(m) annexed
hereto or such other Liens which would not, individually or in the aggregate,
have a Material Adverse Effect. Such assets, together with real estate and oil
and gas reserve assets held by the Company and the Subsidiaries under leases,
are adequate for the operation of the businesses of the Company, as presently
conducted. The leases to all real estate and oil and gas reserves which are
material to the operations of the businesses of the Company and the Subsidiaries
are in full force and effect and no event has occurred which, with the passage
of time, the giving of notice, or both, would constitute a default or event of
default by the Company or any Subsidiary or, to the knowledge of the Company,
any other person who is a party signatory thereto, other than such defaults or
events of default which, individually or in the aggregate, would not have a
Material Adverse Effect.
(n) Environmental Matters. For purposes of this Agreement, the following
terms shall have the following meanings:
(i) "Hazardous Substances" means
(A) petroleum and petroleum products, by-products or breakdown products,
radioactive materials, asbestos- containing materials and polychlorinated
biphenyls, and
(B) any other chemicals, materials or substances regulated as toxic or
hazardous or as a pollutant, contaminant or waste under any applicable
Environmental Law;
(ii) "Environmental Law" means any law, past, present or future and as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, or common law,
relating to pollution or protection of the environment, health or safety or
natural resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Substances; and
(iii) "Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any applicable
Environmental Law.
(A) Except as disclosed on Schedule 3(n-1) annexed hereto and made a part
hereof, the Company and the Subsidiaries are and have been in compliance with
all applicable Environmental Laws, have obtained all Environmental Permits and
are in compliance with their requirements, and have resolved all past
non-compliance with Environmental Laws and Environmental Permits without any
pending, on-going or future obligation, cost or liability, except in each case
for the notices set forth in Schedule 3(n-1) or where such non-compliance would
not, individually or in the aggregate, have a Material Adverse Effect.
<PAGE>
(B) Except as disclosed in Schedule 3(n-2) annexed hereto and made a part
hereof, neither the Company nor any of the Subsidiaries has (I) placed, held,
located, released, transported or disposed of any Hazardous Substances on,
under, from or at any of the Company's or any of the Subsidiaries' properties or
any other properties, other than in a manner that would not, in all such cases
taken individually or in the aggregate, result in a Company Material Adverse
Effect, (II) any knowledge of the presence of any Hazardous Substances on,
under, emanating from, or at any of the Company's or any of the Subsidiaries'
properties or any other property but arising from the Company's or any of the
Subsidiaries' current or former properties or operations, other than in a manner
that would not result in a Material Adverse Effect, or (III) any knowledge of
nor has it received any written notice (x) of any violation of or liability
under any Environmental Laws, (y) of the institution or pendency of any suit,
action, claim, proceeding or investigation by any Governmental Entity or any
third party in connection with any such violation or liability, (z) requiring
the response to or remediation of Hazardous Substances at or arising from any of
the Company's or any of the Subsidiaries' current or former properties or
operations or any other properties, (aa) alleging noncompliance by the Company
or any of the Subsidiaries with the terms of any Environmental Permit requiring
material expenditures or resulting in material liability or (bb) demanding
payment for response to or remediation of Hazardous Substances at or arising
from any of the Company's or any of the Subsidiaries' current or former
properties or operations or any other properties, except in each case for the
notices set forth in Schedule 3(n-2) annexed hereto.
(o) Brokers. No broker, finder or investment banker, is entitled to any
brokerage, finder's or other fee or commission in connection with the this
Agreement and the transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby separately represents and warrants to the Company as
follows:
(a) Investigation; Investment Representation. The Investor (i) possesses
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment hereunder; (ii) has
been afforded the opportunity to ask questions of, and receive answers from, the
Company concerning the terms and conditions of its investment, the transactions
contemplated hereby and the business and affairs of the Company; (iii) has
examined, to the extent it deems appropriate, all of the agreements and
documents referred to herein or in the schedules hereto and such other documents
that it has requested; and (iv) understands that the Notes are not being
registered under the Securities Act of 1933, as amended, on the ground that the
issuance thereof is exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as a transaction by an issuer not involving
a public offering, and the Company's reliance on this exemption is predicated in
part on the Investor' representations and warranties contained in this Section
4(a). The Investor is acquiring the Note and Warrants for its own account, for
investment purposes only and not with a view to the sale or distribution
thereof.
(b) Execution and Effect of Agreement. The 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 the Investor, enforceable against the 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 the Note is 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 Note of record then
outstanding, it will use its best efforts to cause each of its Subsidiaries to:
(a) Promptly pay all taxes (exclusive of income taxes imposed on the
Investor), 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 Note or Warrants by reason of any now existing or
hereafter enacted federal, state or local statute or ordinance, and indemnify
and hold the Investor harmless from and against all liabilities with respect to
or in connection with any such taxes, fees or charges.
(b) Maintain their corporate existence and right to carry on business, duly
procure all necessary renewals and extensions thereof, and use their best
efforts to maintain, preserve and renew all necessary or desirable rights,
powers, privileges and franchises owned by them.
(c) Promptly notify the Investor 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.
<PAGE>
(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 Note, the Warrants and the other
Transaction Documents.
(g) Except as provided in the Use of Proceeds set forth in Section 3(h),
the Company shall not transfer, sell, convey or use as collateral or otherwise
dispose of any the proceeds of this transaction to any Subsidiary or affiliate
except for cash or cash equivalent consideration and for a proper business
purpose, while the Note is outstanding, without the prior written consent from
the Investor.
(h) Except as provided in the Use of Proceeds set forth in Section 3(h),
the Company shall not and shall not permit any of its Subsidiaries to, directly
or indirectly, create or otherwise cause or permit to exist or become effective
any encumbrances or restriction on the ability of any Subsidiary to (i) pay a
dividend or make any other distribution on or in respect to its Capital Stock;
or (ii) make loans or advances or to pay any indebtedness or other obligation
owed to the Company or any Subsidiary.
6. FINANCIAL STATEMENTS; INSPECTION; NON-PUBLIC INFORMATION.
(a) The Company will furnish to the Investor (and its permitted
transferees, successors and assigns), as long as such Investor owns any of the
Note, 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 Investor, as long as its owns the
Note, the Conversion Shares, the Warrants or the Exercisable Shares, or any
authorized representative designated by the Investor, to visit and inspect at
the Investor's 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 Investor may
reasonably request.
(c) The Company in no event shall disclose non-public information to the
Investor, advisors to or representatives of the Investor unless prior to
disclosure of such information the Company marks such information as 'Non-Public
Information - Confidential" and provides the Investor, such advisors and
representatives with a reasonable opportunity to accept or refuse to accept such
non-public information for review. Nothing herein shall require the Company to
disclose non-public information to the Investor or its respective advisors or
representatives, and the Company represents that it does not disseminate
non-public information to the Investor who purchases stock in the Company in a
public offering, to money managers or to securities analysts; provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, notify immediately the advisors and representatives of the
Investor and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the Prospectus included in the Registration Statement, would cause such
Prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing herein
shall be construed to mean that such persons or entities other than the Investor
(without the written consent of the Investor prior to disclosure of such
information) may not obtain non-public information in the course of conducting
due diligence in accordance with the terms of this Agreement and nothing herein
shall prevent any such persons or entities from notifying the Company of their
opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of a material fact or omits
a material fact required to be stated in the Registration Statement or necessary
to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
7. TRANSFER OF NOTES.
(a) Permissible Transfers. The Investor acknowledges 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. Neither the Note, the Conversion Shares
issuable upon conversion of the Note, the Warrants or the Exercisable Shares
issuable upon exercise of the Warrants, may be distributed, transferred, or
otherwise disposed of by the Investor 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.
<PAGE>
In the event the Investor seeks to distribute, transfer or otherwise dispose of
the Note, the Conversion Shares, the Warrants or the Exercisable Shares prior to
registrations, the Investor shall provide the Company, at the Investor's sole
expense, an opinion of counsel reasonably satisfactory to the Company which
states that the anticipated distribution, transfer or other disposition of the
Note, the Conversion Shares, the Warrants or the Exercisable Shares is exempt
under the applicable federal securities laws and the "Blue Sky" or state
securities laws of the applicable resident state of the intended transferee and
references the applicable statutes and case law to support such opinion.
(b) Legend.
(i) As to the Notes, unless the Conversion Shares have been registered
pursuant to an effective Registration Statement filed under the Securities Act
or held for the requisite period to be freely transferable pursuant to Rule 144
promulgated under the Securities Act and otherwise comply with Rule 144(k) (in
either such case the certificates shall bear no legend), the Company shall cause
to be set forth on the certificates representing any Conversion Shares a legend
substantially in the following form: "This Note, and the securities issuable
upon the conversion of this Note, have not been registered under the Securities
Act of 1933, as amended (the "Act") or applicable state law and may not be sold,
transferred or otherwise disposed of unless registered under the Act and any
applicable state act or unless the Company receives an opinion from counsel to
the holder and is satisfied that this Note and the underlying securities may be
transferred without registration under the Act."
(ii) As to the Warrants, unless the Exercisable Shares have been registered
pursuant to an effective Registration Statement filed under the Securities Act
or held for the requisite period to be freely transferable pursuant to Rule 144
promulgated under the Securities Act and otherwise comply with Rule 144(k) (in
either such case the certificates shall bear no legend), the Company shall cause
to be set forth on the certificates representing any Exercisable Shares a legend
substantially in the following form: "This Warrant, and the securities issuable
upon the exercise of this Warrant, have not been registered under the Securities
Act of 1933, as amended (the "Act") or applicable state law and may not be sold,
transferred or otherwise disposed of unless registered under the Act and any
applicable state act or unless the Company receives an opinion of counsel for
the holder and is satisfied that this Warrant and the underling securities may
be transferred without registration under the Act."
(c) Registration of Conversion Shares and Exercisable Shares, Other
Exemption. The Company shall use its best efforts to cause the Conversion Shares
and Exercisable Shares to be registered for resale or distribution under the
Securities Act, all in accordance with the terms set forth in the Note and
Warrants respectively.
8. CONDITIONS PRECEDENT TO CLOSING.
(a) Conditions Precedent to Obligations of the Investor. The obligation of
the Investor to purchase the Note and the Warrants by it at the Closing
hereunder is subject to the fulfillment on or prior to the Closing Date of the
following conditions:
(i) Such Investor shall have received an opinion, addressed to it and dated
the Closing Date, of counsel to the Company acceptable to Investor, in the form
of Exhibit C hereto and made a part hereof.
(ii) The representations and warranties made by the Company herein shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of the Closing Date, and the Company shall have complied in all material
respects with all covenants hereunder required to be performed by it at or prior
to the Closing Date.
(iii) There shall not have occurred and be continuing any Material Adverse
Effect.
(iv) The purchase of the Note and the Warrants agreed to be purchased by
the Investor hereunder shall not be prohibited or enjoined (temporarily or
permanently) under the laws of any jurisdiction to which such Investor is
subject.
(v) All legal matters incident to the transactions contemplated by this
Agreement shall have been reasonably approved by counsel to the Investor.
(vi) Not less than $500,000 of the Note offered hereby shall have been
subscribed for by Investor as of the Closing Date.
(b) Conditions Precedent to Obligations to the Company. The obligation of
the Company to issue and sell the Note and the Warrants is subject to the
fulfillment on or prior to the Closing Date of the following conditions:
(i) The representations and warranties made by the Investor 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.
<PAGE>
(ii) The sale of the Note and the Warrants by the Company shall not be
prohibited or enjoined (temporarily or permanently) as of the Closing Date.
(iii) The purchase of the Note and Warrants agreed to be purchased by the
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 $500,000 of the Notes offered hereby shall have been
subscribed for by Investor as of the Closing Date.
9. CLOSING.
The closing hereunder (the "Closing") shall take place at 10:00 A.M. at the
offices of Mintmire & Associates, 265 Sunrise Avenue, Palm Beach, Florida 33480
on or before October __, 1998, or at such other location as may be mutually
agreed upon. The date of such Closing is referred to in this Agreement as the
"Closing Date".
(a) At the Closing, in addition to true copies of the other Transaction
Documents duly executed by the Company, the Company shall deliver to the
Investor (a) a duly executed Note in the form of Exhibit A hereto, and (b) duly
executed Warrants in the form attached to Exhibit B, 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, the Investor shall wire transfer the purchase price for
the Note and Warrants subscribed to by the Investor to following attorneys'
escrow account established by Mintmire & Associates, as counsel to the Company,
or such other location and counsel as may be mutually agreed upon. All of such
funds shall be held in escrow by such counsel until the Note and Warrants shall
have duly executed by the Company and delivered by the Company or such escrow
agent to the the Investor or its representative.
Wire Instructions:
Palm Beach National Bank & Trust Company
North Palm Beach, Florida
ABA #067008647
Attn: Ms. Dottie Wilson
For credit to: Donald F. Mintmire, P.A. Trust Account
Account No.: 110010359
Reference: Environmental Remediation Holding Corporation
10. ADJUSTMENT TO TERMS OF NOTE AND Warrants.
The conversion or excise price of the Note and Warrants may be adjusted
from time to time as set forth in the respective instruments.
11. REPLACEMENT OF NOTE OR Warrants.
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of the Note or Warrants 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 the Note or
Warrants, the Company at its expense will execute and deliver, in lieu thereof,
a new Note or Warrant of like tenor and, in the case of a new Note, dated the
date to which interest on such lost, stolen, destroyed or mutilated Note has
been paid.
12. BROKERS.
(a) The Investor represent and warrant to the Company that it has not
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.
(b) The Company represents and warrants to the Investor that neither the Company
nor any of its officers, directors or agents has engaged or authorized any
broker, finder, investment banker or other third party to act on its behalf,
directly or indirectly, as a broker, finder, investment banker or in any other
like capacity in connection with the transactions contemplated by this Agreement
nor has it consented to or acquiesced in anyone so acting, and it knows of no
claim by any person for compensation from it for so acting or of any basis for
such a claim.
<PAGE>
(13) RIGHT OF FIRST OFFER.
The Company agrees that, during the period beginning on the date hereof and
terminating on the second anniversary of the Closing Date, the Company will not,
without the prior written consent of the Investor as set forth in this paragraph
13, which consent shall not be unreasonably withheld, offer to sell or sell, or
agree to offer to sell or sell any equity or debt securities of the Company or
any of its subsidiaries (or any security convertible into or exercisable or
exchangeable, directly or indirectly, for equity or debt securities of the
Company or any of its subsidiaries) ("Future Offerings") unless the Company
shall have first delivered to the Investor at least five (5) trading days prior
to the closing of such Future Offering, written notice describing the proposed
Future Offering, including the terms and conditions thereof, and providing the
Investor and its affiliates an option during the five (5) trading day period
following delivery of such notice to purchase up to the full amount of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering. The Investor shall notify the Company, in
writing, prior to the end of such five (5) trading day period if it desires to
participate in the Future Offering and to complete the purchase on the later of
(if a closing date is set forth in the Future Offering, in accordance with such
Future Offering by 5PM Eastern Standard Time by the closing date set forth in
such Future Offering; or (ii) if no closing date is set forth in the Future
Offering, within five (5) days of the date the Investor notifies the Company
that it desires to participate in the Future Offering.
14. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Investor, each
person who controls the Investor and the Investor's employees, accountants,
attorneys and Investors (the "Investor's Indemnitees") against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Act or any other statute or at common law
for any legal or other expenses (including the costs of any investigation and
preparation) incurred by them in connection with any litigation, whether or not
resulting in any liability, but only insofar as such losses, claims, damages,
liabilities and litigation arise out of or are based upon any untrue statement
of material fact contained in this Agreement and all documents related thereto
or any amendment or supplement thereto or any application or other document
filed in any state or jurisdiction, or the omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
under the circumstances under which they were made, not misleading, all as of
the date of this Agreement or of such amendment as the case may be; provided,
however, that the indemnity agreement contained in this Section 14(a) shall not
apply to amount paid in settlement of any such litigation, if such settlements
are made without the consent of the Company, nor shall it apply to the
Investor's Indemnitees in respect to any such losses, claims, damages or
liabilities arising out of or based upon any such untrue statement or alleged
untrue statement or any such omission or alleged omission, if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Investor specifically for use in connection with the preparation
of this Agreement and the documents related thereto or any such amendment or
supplement thereto or any application or other document filed in any state or
jurisdiction. This indemnity agreement is in addition to any other liability
which the Company may otherwise have to the Investor's Indemnitees. The
Investor's Indemnitees agree, within ten (10) days after the receipt by them of
written notice of the commencement of any action against them in respect to
which indemnity may be sought from the Company under this Section 14(a), to
notify the Company in writing of the commencement of such action; provided,
however, that the failure of the Investor's Indemnitees to notify the Company of
any such action shall not relieve the Company from any liability which it may
have to the Investor's Indemnitees on account of the indemnity agreement
contained in this Section 14(a), and further shall not relieve the Company from
any other liability which it may have to the Investor's Indemnitees, and if the
Investor's Indemnitees shall notify the Company of the commencement thereof, the
Company shall be entitled to participate in (and, to the extent that the Company
shall wish, to direct) the defense thereof at its own expense, but such defense
shall be conducted by counsel of recognized standing and reasonably satisfactory
to the Investor's Indemnitees, defendant or defendants, in such litigation. The
Company agrees to notify the Investor's Indemnitees promptly of the commencement
of any litigation or proceedings against the Company or any of the Company's
officers or directors of which the Company may be advised in connection with the
issue and sale of any of the Securities and to furnish to the Investor's
Indemnitees, at their request, to provide copies of all pleadings therein and to
permit the Company's Indemnitees to be observers therein and apprise the
Investor's Indemnitees of all developments therein, all at the Company's
expense.
(b) The Investor agrees, in the same manner and to the same extent as set
forth in Section 14(a) above, to indemnify and hold harmless the Company, and
the Company's and Company's employees, accountants, attorneys and Investors (the
"Company's Indemnitees") with respect to (i) any statement in or omission from
this Agreement and the documents related thereto or any amendment or supplement
thereto or any application or other document filed in any state or jurisdiction,
or any information furnished pursuant to this Agreement, if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Investor on its behalf specifically for use in connection with
the preparation thereof or supplement thereto,
<PAGE>
or (ii) any untrue statement of a material fact made by the Investor or its
Investors not based on statements in this Agreement or the documents related
thereto or authorized in writing by the Company, or with respect to any
misleading statement made by the Investor or its Investors resulting from the
omission of material facts which misleading statement is not based upon this
Agreement or the documents related thereto, or information furnished in writing
by the Company or, (iii) any breach of any representation, warranty or covenant
made by the Investor in this Agreement. The Investor shall not be liable for
amounts paid in settlement of any such litigation if such settlement was
effected without its consent. In case of the commencement of any action in
respect of which indemnity may be sought from the Investor, the Company's
Indemnitees shall have the same obligation to give notice as set forth in
Section 14(a) above, subject to the same loss of indemnity in the event such
notice is not given, and the Investor shall have the same right to participate
in (and, to the extent that it shall wish, to direct) the defense of such action
at its own expense, but such defense shall be conducted by counsel of recognized
standing reasonably satisfactory to the Company. The Investor agrees to notify
the Company's Indemnitees and, at their request, to provide copies of all
pleadings therein and to permit the Company's Indemnitees to be observers
therein and apprise them of all the developments therein, all at the Investor's
expense.
15. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and agreements of the Company or of the
Investor contained in this Agreement or in any certificate, document, schedule
or instrument delivered pursuant hereto shall survive for a period of two (2)
years the Closing hereunder and the delivery of any and all documents and
instruments hereunder, regardless of any investigation made by or on behalf of
the Investor 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.
16. NOTICES.
Any notices or other communications required or permitted hereunder shall
be in writing and personally delivered or sent by telecopier or by registered or
certified mail, return receipt requested, postage prepaid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
1686 General Mouton
Lafayette, LA 70508
Attn: James Callender, President
Tel: (318) 264-9657
Fax: (318) 264-9940
-and-
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and
Chief Financial Officer
Fax: (561) 624-1171
With a copy to: Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Tel: (561) 832-5696
Fax: (561) 659-5371
If to the Investor:
Talisman Capital Opportunity Fund Ltd.
16101 LaGrande Drive
Suite 100
Little Rock, AR 72211
Attn: Brian Ladin
Tel: (501) 821-6800
Fax: (501) 821-6888
17. 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 Note and the Warrants, the obligations of the Company
and the rights of the holders of the Note and Warrants 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.
<PAGE>
18. SUCCESSORS.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
19. SECTION READINGS.
The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
20. 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.
21. 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.
22. 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.
23. RESOLUTION OF DISPUTES.
Any dispute regarding the interpretation or application of this Agreement,
the Note, the Warrants 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 upon the Investor 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.
(24) ATTORNEY FEES.
The Investor shall be entitled to recover from the Company the reasonable
attorneys' fees and expenses (and the reasonable costs of investigation)
incurred by such Holder in connection with enforcement by such Holder of any
obligation of the Company hereunder.
25. FEES AND EXPENSES.
The Company agrees to pay the fees and expenses of Investor's counsel in
connection with the preparation, negotiation and coordination of this Agreement
in an amount equal to $10,000.
26. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of
the date first written.
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
By: _________________________________
James Callender, President
TALISMAN CAPITAL OPPORTUNITY FUND LTD.
By:__________________________________
<PAGE>
SCHEDULE 1
Subsidiaries
There are no subsidiaries other than BAPCO.
<PAGE>
SCHEDULE 3(f)
Litigation, Proceedings: Defaults
There is no litigation, nor are there any proceedings or defaults that have
not been disclosed in SEC Reports except as follows:
o A requirement of the funding provided to the Company on November 15, 1997
from Avalon was that the Company would file its registration statement within
forty-five (45) days of the funding. The Form S-1 was filed on January 8, 1998,
however, this eight (8) day lateness was waived by the Avalon investors. In
addition, the Company had agreed to use its best effort to have its registration
declared effective within one hundred twenty (120) days of the November 15, 1997
closing. The Company believes that it has used its best efforts to have its
registration declared effective. The Avalon agreements required that in the
event that the registration statement was not effective within one hundred
twenty (120) days, that the Company would pay as liquidated damages an amount
equal to three percent (3%) of the aggregate amount of the notes per month. The
initial comments and the comments to the Amended Form S-1 have delayed
registration. While most of the comments received on the Amended Form S-1 are
purely accounting matters which the Company believes have now been resolved, as
a result of the delay in registration, pursuant to the Avalon agreements, the
Avalon investors may be due the liquidated damages and since they have not been
paid, may be in default of the agreement.
o In the Kingsbridge agreements, the Company had agreed to use its best
effort to have its registration declared effective within ninety (90) days of
the March 23, 1998 closing. The Company believes that it has used its best
efforts to have its registration declared effective. The Kingsbridge agreements
required that in the event that the registration statement was not effective
within such ninety (90) period, that the Company would be required to make a
lump sum payment in the amount of $10,000 within three (3) trading days of the
date by which such registration statement was required to have been declared
effective. Such ninety (90) period ended on June 21, 1998. To the extent such
sums may not have been paid, the Company may be in default of that agreement.
<PAGE>
SCHEDULE 3(j)
Absence of Certain Changes or Events
There were no changes or events which have not been disclosed in SEC Reports
<PAGE>
SCHEDULE 3(k)
Absence of Litigation
There is no claim, action proceeding or litigation pending or threatened
which has not been disclosed in an SEC Report
<PAGE>
SCHEDULE 3(l)
Labor Matters
None
<PAGE>
SCHEDULE 3(m)
Title to and Sufficiency of Assets
There are no Liens which have not been disclosed in an SEC Report
<PAGE>
SCHEDULE 3(n-1)
Environmental Matters - Notice
None
<PAGE>
SCHEDULE 3(n-2)
Environmental Compliance - Hazardous Waste
None
<PAGE>
EXHIBITS
EXHIBIT A - Form of 20% Convertible Note due September __, 2000
EXHIBIT B - Form of Warrant Agreement
EXHIBIT C - Opinion of Company Counsel
EXHIBIT 10.26
EXHIBIT A
This Note, and the securities issuable upon the conversion of this Note,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company receives an opinion from counsel to the holder and is
satisfied that this Note and the underlying securities may be transferred
without registration under the Act.
CONVERTIBLE NOTE
As of September __, 1998
Palm Beach, Florida
$500,000
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a
Colorado corporation (the "Company"), hereby promises to pay to the order of
TALISMAN CAPITAL OPPORTUNITY FUND LTD., any subsequent holder of this Note (the
"Payee"), at16101 LaGrande Drive Suite 100, Little Rock, AR 72211, 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 Five Hundred Thousand Dollars ($500,000), together
with simple interest from the date hereof (the "Issuance Date") on the unpaid
principal amount at an annual rate equal to twenty percent (20.0%) per annum.
Such principal and interest shall be paid in accordance with the terms of
Section 1 below, in cash, or by wire transfer to such account as the Payee shall
direct, in immediately available funds and in lawful currency of the United
States of America.
1. PAYMENTS.
(a) Unless previously fully converted into Common Stock of the Company as
herein provided, the unpaid principal amount of this Note shall be payable to
the Payee in cash on September __, 2000 (collectively the "Maturity Date").
(b) Interest on the unpaid principal balance of this Note at the rate of
twenty percent (20.0%) per annum shall accrue from the date hereof and shall be
payable to the Payee in cash as set forth in Section 1(c) hereof in arrears and
such interest may, at the election of the Payee, be payable in shares of Common
Stock of the Company, the number of which shall be equal to the product of such
interest payment divided by the Conversion Price, as defined herein, with the
overage, if any, payable in cash.
(c) Commencing of the first anniversary of the issuance date, the remaining
principal amount of this Note plus all accrued and unpaid interest and fees, if
any, shall automatically and without further action on the part of the holder,
be payable in twelve (12) monthly installments commencing with a first payment
on November __, 1999 with the final payment due on the Maturity Date.
(d) 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"
(defined as any days on which national banks in the United States are open for
business); and during any such extension, interest on principal amounts payable
shall accrue and be payable at the applicable rate.
2. RANKING OF NOTE.
Subject at all time to the subordination provisions set forth in Section 9
hereof, this Note shall constitute senior securities of the Company and shall
rank pari passu with all other indebtedness for money borrowed by the Company
and senior to any other indebtedness for money borrowed by the Company which, by
its terms shall be made expressly subject and subordinated to this Note.
3. PREPAYMENT OF NOTE.
(a) At any time prior to the first anniversary of this Note, the Company,
at its option, may prepay all or any portion of the remaining principal plus an
amount equal to twenty percent (20%) of the portion so paid.
4. CONVERSION.
Subject at all times to the Company's right to prepay the Notes as provided in
Section 3 hereof, the holder of the Note shall have the following conversion
rights (the "Conversion Rights"):
<PAGE>
(a) Voluntary Conversion. Commencing on the first anniversary of the
issuance date, the holder of this Note may elect to convert up to one hundred
(100%) percent of the original principal amount of this Note and any accrued but
unpaid interest, into shares of Common Stock of the Company, by written notice
given to the Company in accordance with the provisions of Section 4(g) hereof
(the "Conversion Notice"). In no event may the holder of this Note effect a
conversion of less than $10,000 principal amount of this Note. Such right of
Voluntary Conversion shall be effected by the surrender of this Note to the
Company for conversion 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 a form satisfactory to the Company,
duly executed by the registered holder or by his duly authorized attorney and
(iii) transfer tax stamps or funds therefore, if required pursuant to Section
4(f) herein.
(b) Conversion Price. Subject to adjustment from time to time as provided
in Section 4(c) below, the term AConversion Price" shall mean mean the lower of
(i) 90% of the Market Price (as defined herein); or
(ii) $1.00.
For purposes of this Note, Market Price shall mean the average of the
closing bid price according to Bloomberg L.P. ("Bloomberg") over the five (5)
trading day period immediately preceding the date of the Conversion Notice.
(c) Adjustments of Conversion Price. The Conversion Price in effect from
time to time shall be, subject to adjustment in accordance with the provisions
of this Section 4(c).
(i) Adjustments for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the 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 Conversion Price in effect immediately prior to the
combination shall be proportionately increased. Any adjustments under this
Section 4(c)(i) shall be effective at the close of business on the date the
stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the Company
shall at any time or from time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in shares of Common Stock, then, and in
each event, the 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 the Conversion Price then in effect by a fraction;
(A) the numerator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and
(B) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution.
(iii) Adjustments for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 4(c)(iii) with
respect to the rights of the holders of the Note.
<PAGE>
(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 a different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 4(c)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 4(c)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the holder of this
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon such
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 4(c)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 4(c)(iv)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Conversion Price shall be made and provision shall be made (by adjustments
of the Conversion Price or otherwise) so that the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale. In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section 4(c)(v) with respect to the rights of the
holders of this Note after the reorganization, merger, consolidation, or sale to
the end that the provisions of this Section 4(c)(v) (including any adjustment in
the Conversion Price 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) Additional Adjustments. If at any time or from time to time after the
Issuance Date, the Company shall issue or sell any share of Common Stock, other
that shares issued or sold pursuant to a employee or consultant stock option
plan or shares issued or sold pursuant to conversion or exercise rights granted
prior to the Issuance Date, to any party for a price per share which shall be
less than seventy five percent (75%) of the average closing bid price per share
of Common Stock as reported on Bloomberg for the five (5) consecutive trading
days immediately prior to the time of the 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 number 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.
(d) No Impediment. The Company shall not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the Note
set forth in this Section 4 against impairment.
(e) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Note pursuant to this Section 4, the Company at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish notice to the holder of this Note,
a certificate setting forth such adjustment and readjustment, showing in detail
the facts upon which such adjustment or readjustment is based.
<PAGE>
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 (1%) of such adjusted amount.
(f) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant hereto; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(g) Notices and Delivery of Shares. All notices and other communications
hereunder shall be in writing and shall be deemed given (i) on the same date, if
delivered personally or by facsimile by not later than 7:00 p.m. New York time
(provided, that a copy of such facsimile shall be simultaneously sent to Donald
F. Mintmire, Esq. at (561)659-5371, or (ii) three business days following being
mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the party in accordance with Section 7 hereof. 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 this Note surrendered for conversion,
certificates evidencing all shares of Common Stock into which this Note shall be
converted. In the event the certificates are not delivered within such five (5)
Business Days, the Company shall pay to the holder of the Note Liquidated
Damages as listed below for each day until the date such certificates are
delivered to the holder. Such Liquidated Damages shall be paid within ten (10)
Business Days of delivery of the shares or within ten (10) Business Days of the
end of each thirty (30) day period.
Liquidated Damages for each
$10,000 of Note Principal
No. of Business Days Date Amount Being Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1000
>10 $1000 + $200 for each
Business Day late beyond
10 days
(h) Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Note. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the Conversion Price of one share of the
Company's Common Stock on the applicable Conversion Date.
(i) Reservation of Common Stock. The Company shall at all times reserve and
keep available, out of its authorized but unissued 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 unissued 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 not later than 90 days after any date in which the Company shall
have insufficient shares of Common Stock so reserved for the purpose of
authorizing additional shares of Common Stock.
(j) Retirement of Note. Conversion of this Note shall be deemed to have
been effected on the applicable Conversion Date. The converting holder shall be
deemed to have become a stockholder of record of the Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of this Note, the
Company shall issue and deliver to such holder, at the expense of the Company,
against receipt of the original Note delivered for partial cancellation, a new
Note representing the unconverted portion of this Note so surrendered and Common
Stock equal to the portion converted.
(k) Regulatory Compliance.
<PAGE>
(i) The Company shall file, as soon as practicable, with the United States
Securities and Exchange Commission ("SEC") and use its best efforts to cause it
to be declared effective within one (1) year of the Issuance Date and remain
effective until the earlier of the date on which all of the Note is sold or for
the life of the Note (the "Effective Period"), a Form S-1 Registration Statement
or other appropriate form of registration in order to register for resale and
distribution under the Securities Act of 1933, as amended (the "Securities
Act"), all shares of Common Stock of the Company issuable upon voluntary or
mandatory conversion of the Note (the "Conversion Shares"). Such registration
shall initially cover at least 150% of the shares issuable upon conversion of
the Note into Common Stock and shall cover, to the extent allowed by applicable
law, such additional indeterminate number of shares of Common Stock as are
required to effect conversion of the Notes due to fluctuations in the price of
the Company's Common Stock, in accordance with Rule 416 of the Securities Act.
The Company shall prepare and file with the SEC such amendments and supplements
necessary to keep such registration statement effective throughout the Effective
Period and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of the shares covered by such registration
statement whenever the holder shall desire to sell or otherwise dispose of same.
(ii) If any shares of Common Stock to be reserved for the purpose of
conversion of this Note require registration or listing with or approval of any
government authority, stock exchange or other regulatory body under any federal
or state law or regulation or otherwise before such shares may be validly issued
or delivered upon conversion, the Company shall, at its sole cost and expense,
in good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
(iii) The shares of Common Stock issuable upon the election to convert
shall be Rule 144 restricted shares (the "Restricted Securities"). After
issuance, the Company agrees to use its best efforts to assist holder in
registering the Restricted Securities or to register the Restricted Securities
under the Act subject to the rules, regulations, and other provisions of said
Act.
(iii) In the event the holder elects to convert into ownership of shares of
the Company's Common Stock, at the time of such conversation, the holder of such
shares shall have the following piggyback rights:
(A) At any time that the Company proposes to file a Company registration
statement on Form S-1, including the pending Form S-1 registration filed on
January 8, 1998, under the Act (the "Registrations Statement"), of any amendment
to be filed thereof, the Company shall cause to be included in such registration
statement any securities issued or subject to issuance in this transaction;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
Company Registration Statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of holder's Restricted Securities, the Company may, at its election, give
written notice of such determination to holder and, thereupon:
(1) in the case of a determination not to register such other securities,
shall be relieved of its obligation to register holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
(2) in the case of a delay in registering, shall be permitted to delay
registering holder's Restricted Securities for the same period as the delay in
registering such other securities.
(B) The Company's obligation to include Restricted Securities in a
Company's Registration Statement pursuant to Section 4(k)(iii)(A) shall be
subject to the following limitations:
(1) The Company may elect, at its sole option and for any reason, not to
register holder's Restricted Shares, provided however, that this right is
limited to one (1) time and relative to one (1) particular Company Registration
Statement.
(2) The Company shall not be obligated to include any Restricted Securities
in a registration statement filed on Form S-4, Form S-8 or such other similar
successor forms then in effect under the Securities Act.
(3) If a Company Registration Statement involves an underwritten offering
and the managing underwriter advises the Company in writing that in its opinion,
the number of securities requested to be included in such Company Registration
Statement exceeds the number which can be sold in such offering without
adversely affecting the offering, the Company shall include in such Company
Registration Statement the number of such securities which the Company is so
advised can be sold in such offering without adversely affecting the offering,
determined as follows:
(i) first, the securities proposed by the Company to be sold for it own
account, and
<PAGE>
(ii) second, any Restricted Securities requested to be included in such
registration and any other securities of the Company in accordance with the
priorities, if and then existing among the holders of such securities pro rata
among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(4) The Company shall not be obligated to include Restricted Securities in
more than one (1) Company Registration Statement.
(C) To the extent holder's Restricted Securities are intended to be
included in a Company Registration Statement, holder may include any of its
Restricted Securities in such Company Registration Statement pursuant to this
Agreement only if holder furnishes to the Company in writing, within ten (10)
business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Act or such other information
as the Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make all information previously
furnished to the Company by holder not materially misleading.
(l) Limitations on Amount of Conversion. Notwithstanding anything contained
in this Note to the contrary, in no event shall any holder of Note be entitled
or required to convert this Note in excess of that number of shares of Common
Stock 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 total 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 portion of the 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 providing the Company upon not less than 30 days with
prior written notice (with such waiver taking effect only upon the expiration of
such 30-day notice period).
5. EVENTS OF DEFAULT.
The occurrence and continuance of any one or more of the following events
is herein referred to as an Event of Default:
(a) If the Company shall default in converting the applicable principal amount
of this Note into Common Stock and delivering stock certificates in respect of
such conversion within ten (10) Business Days from the Company's receipt of the
applicable notice of conversion pursuant to the provisions hereof, whether on
the Maturity Date or otherwise; or
(b) If the Company shall default in the payment of any installment of interest
on this Note when payable in accordance with the terms thereof for more than ten
(10) calendar days after the same shall become due if the Payee has not elected
to take such interest in Common Stock; and if the Payee has elected to take such
interest in Common Stock, if the Company shall default in delivering stock
certificates in respect of such election within ten (10) Business Days from the
Company's receipt of the notice of such election; 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 any covenant contained
in a certain warrant agreement between the Payee and the Company of even date
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 in accordance with the notice provisions herein; or
(e) If any representation or warranty made in writing by or on behalf of the
Company in connection with the transactions contemplated hereby shall prove to
have been false or incorrect in any material respect on the date as of which
made; or
<PAGE>
(f) If the Company or any of its "Significant Subsidiaries" (as defined herein)
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts as they become due, or shall file a voluntary
petition in bankruptcy or shall have an order for relief under the Bankruptcy
Act granted against it or them, or shall be adjudicated a bankrupt or insolvent,
or shall file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file any
answer admitting or not contesting the material allegations of a petition filed
against the Company or any of its Significant Subsidiaries in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, custodian, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company or any of its Significant
Subsidiaries, or the Company or its directors shall take any action looking to
the dissolution or liquidation of the Company or any of its Significant
Subsidiaries. For purposes of this Section 5(f), the term Significant Subsidiary
shall mean and include Bass American Petroleum Corp. and any other person, firm
or corporation (i) more than 50% of the common stock or equity interests of
which are owned of record by the Company or any Subsidiary of the Company, and
(ii) the net income before taxes or total assets of which represent more than
15% of the consolidated net income before taxes or consolidated assets of the
Company and all of its Subsidiaries; 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.
6. REMEDIES ON DEFAULT; ACCELERATION.
Upon the occurrence and during the continuance of an Event of Default, the
entire unpaid balance of principal and accrued interest on this Note may be
accelerated and declared to be immediately due and payable by the holder. Unless
waived by the written consent of the holder, such holder may proceed to protect
and enforce its rights 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. Upon the
occurrence 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. No course of dealing and no delay on the part of the holder of
this Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers and remedies. No
right, power or remedy conferred hereby upon the holder hereof shall be
exclusive of any other right, power or remedy referred to herein nor now or
hereafter available at law, in equity, by statute or otherwise.
7. NOTICES.
All notices, requests, demands or other communications hereunder shall be in
writing and personally addressed or sent by telecopier or by registered or
certified mail, return receipt requested, postage pre-paid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
1686 General Mouton
Lafayette, LA 70508
Attn: James Callender, President
Telephone (318) 264-9657
Fax (318) 264-9940922-4312; and
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and
Chief Financial Officer
Telephone (561) 694-9425
Fax (561) 624-1171
<PAGE>
with copy to: Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Telephone (561) 832-5696
Fax (561) 659-5371
If to the Holder: to such Holder at
the address set forth on the records
of the Company. 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 notices.
8. 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
law principles.
9. SUBORDINATION TO SENIOR DEBT.
(a) Payment of the principal of and interest on this Note is subordinated, to
the extent and in the manner provided herein, to the prior payment of all
indebtedness of the Company and/or all Subsidiaries of the Company, for money
borrowed or other obligations which is now or may hereafter be owed
(collectively, "Senior Debt") to any bank, commercial finance company, factor,
insurance company or other institution the lending activities of which 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 9, shall be made by the
Institutional Borrower or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to
the holders of Senior Debt or their representatives to the extent necessary to
pay all such Senior Debt in full after giving effect to any concurrent payment
or distribution to the holders of such Senior Debt.
(c) Upon the happening of any default in payment of the principal of or interest
on any Senior Debt, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Institutional Borrower on account of the principal of or interest on
this Note.
(d) Upon the happening of an event of default (other than under circumstances
when the terms of Section 9(c) above are applicable) with respect to any Senior
Debt pursuant to which the holder thereof is entitled under the terms of such
Senior Debt to accelerate the maturity thereof, and upon written notice thereof
given to each of the Institutional Borrower and the holder of this Note by such
holder of Senior Debt ("Payment Notice"), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no action
shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or
otherwise, shall be made or agreed to be made by the Institutional Borrower an
account of the principal of or interest on this Note until such Senior Debt has
been paid in full accordance with its terms.
(e) In the event that, notwithstanding the provisions of this Section 9,
any payment shall be made on account of the principal of or interest on this
Note in contravention of such provisions, then such payment shall be held for
the benefit of, and shall be paid over and delivered to, the holders of such
Senior Debt remaining unpaid to the 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.
<PAGE>
(f) Nothing contained in this Section 9 shall
(i) impair the conversion rights of the holder hereof referred to in
Section 4 above,
(ii) impair, as between the Company and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder hereof principal and interest as the same shall become due and payable,
or
(iii) prevent the holder hereof from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, all subject to the
express limitations provided herein.
(g) Upon the occurrence of an Event of Default, if any Senior Debt shall then be
outstanding, no acceleration of the maturity of this Note shall be effective
until the earlier of (i) ten (10) days shall have passed following the date of
delivery to the Institutional Borrower by a Senior Lender(s) of written notice
of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The
Company may pay the holder hereof any defaulted payment and all other amounts
due following any such acceleration of the maturity of this Note if this Section
9 would not prohibit such payment to be made at that time.
(h) Upon payment in full of all Senior Debt, the Payee of this Note shall be
subrogated to the rights of the holder or holders of Senior Debt to receive all
payments or distributions applicable on such 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
(i) shall be bound by all of the foregoing subordination provisions;
(ii) agrees expressly for the benefit of the present and future holders of
Senior Debt that this Note is subject to the foregoing subordination provisions;
(iii) authorizes such persons as shall be designated by all holders of
Senior Debt at any given time, on his or its benefit to execute and deliver such
agreements, assignments, proofs of claim and other documents appropriate to
effectuate the foregoing subordination provisions; and
(iv) hereby appoints the person so designated his or its attorney-in-fact
for such purpose.
(j) The foregoing subordination provisions shall be for the benefit of all
holders of Senior Debt from time to time outstanding, and each of such holders
may proceed to enforce such provisions either directly against the holder hereof
or in any other manner provided by law.
10. WAIVER OF STAY, EXTENSION OF USURY LAWS.
The Company covenants that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension of law or any usury laws or other law that would prohibit or forgive
the Company from paying all or any portion of the principal of or interest on
the Note as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Agreement; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the holder, but will permit execution of every such power as though no such law
had been enacted.
11. CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined herein), the Company
shall make an offer to purchase the outstanding principal amount of the Note at
a purchase price equal to the greater of : (i) 150% of the outstanding principal
amount of the Note plus accrued but unpaid interest to the date of the purchase;
or (ii) the Intrinsic Value of the Note (as defined herein) on the date the
Change of Control occurs. For purposes of this Note, Change of Control shall
mean (i) the purchase of a majority of the Company's Common Stock; (ii) a merger
of the Company with another entity which results in the shareholders of the
Company owning less that 50.01% of the restructured company; (iii) the removal
of James Callender as President and Chief Executive Officer or Noreen Wilson as
the Chief Financial Officer; or (iv) the sale of the Company to another entity.
For purposes of this Note, Intrinsic Value shall mean the result of the
following formula: (applicable Market Price less the maximum Conversion Price)
multiplied by ((principal amount of the Note outstanding plus any and all
accrued but unpaid interest plus fees, if any) divided by the maximum Conversion
Price).
<PAGE>
12. PERMITTED PAYMENTS.
Notwithstanding the provisions of Section 9 of this Note, and provided that
no default or event of default (or event which, with the passage of time or
giving of notice or both) has occurred, will occur as a result of the "Permitted
Payment" (herein defined), or will occur with the passage of time or giving of
notice or both, under any document or instrument evidencing such Senior Debt,
the Company may pay to the Payee, and the Payee may accept from the Company, the
principal payments of, and/or interest payments on, the outstanding principal
amount of this Note when due on an unaccelerated basis (herein, "Permitted
Payments"); it being understood and agreed by the Payee by accepting this Note
that neither:
(a) the payment terms set forth in Section l of this Note;
(b) the subordination provisions contained in Section 9 of this Note, nor
(c) the provisions of this Section 12 of this Note,
may be modified or amended without the prior written consent of each and every
holder of Senior Debt.
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 permitted 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;
and provided, further, that transfer or assignment by the holder is in
accordance with the rules governing Restricted Securities.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly
authorized officers as of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By: ______________________________________
Noreen G. Wilson , Vice President and
Chief Financial Officer
Attest: ___________________________________
EXHIBIT 10.27
EXHIBIT B
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of September _, 1998, between Environmental
Remediation Holding Corporation, a Colorado corporation (the "Company"), and
Talisman Capital Opportunity Fund Ltd. ("Talisman")
W I T N E S S E T H:
WHEREAS, Talisman wishes to acquire a certain warrant of the Company more
particularly described below; and
WHEREAS, the Company wishes to issue such warrant to Talisman pursuant to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the promises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
The Company hereby grants Talisman, (the "Holder") the right to purchase,
at any time from (i) September __, 1998 until 5:00 PM Eastern Standard Time on
September __, 2008, 750,000 shares ("Shares") and (ii) from September __, 1999
until 5PM Eastern Standard Time on September 2008, 750,000 Shares (the "Exercise
Term") of Common Stock, $0.0001 par value per share (the "Common Stock"), of the
Company (subject to adjustment as provided in Section 11 hereof) upon payment of
$.40 per Share (the "Exercise Price") in lawful funds of the United States of
America (the "Warrants").
2. Warrant Certificates.
The warrant certificates for the Warrants (the "Warrant Certificates")
delivered pursuant to this Agreement shall be in the forms set forth as Exhibits
A and B, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrants.
In case the Holder of the Warrants granted herein shall desire to
exercise the Warrants in whole or in part, the Holder shall surrender the
appropriate Warrant, with the form of exercise notice on the last pages hereof
(the "Form of Exercise") duly executed by the Holder, to the Company,
accompanied by payment of the Exercise Price.
(a) The Warrants granted herein may be exercised in whole or
in part but not for fractional Shares. In case of the exercise in part only, the
Company will deliver to the Holder a new warrant of like tenor in the name of
the Holder evidencing the right to purchase the number of Shares as to which the
Warrant has not been exercised.
4. Covenants of the Company.
The Company hereby covenants and agrees that prior to the expiration of
the Warrants by exercise or by their respective terms:
(a) The Company shall at all times reserve and keep available, out of
its authorized and unissued share capital, solely for the purpose of providing
for the exercise, forthwith upon the request of the Holder of the Warrants then
outstanding and in effect, such number of shares of Common Stock, as shall, from
time to time, be sufficient for the exercise of the Warrants granted by this
Agreement. The Company shall, from time to time, in accordance with the laws of
the State of New York, increase the authorized amount of its share capital if at
any time the number of shares of Common Stock remaining unissued and unreserved
for other purposes shall not be sufficient to permit the exercise of the
Warrants then outstanding and in effect.
(b) The Company covenants and agrees that all shares that may
be issued upon the exercise of the rights represented by the Warrants will, upon
issuance, be validly issued, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof.
<PAGE>
5. Loss, Theft, Destruction or Mutilation.
In case the Warrants shall become mutilated or defaced or be
destroyed, lost or stolen, the Company shall execute and deliver a new warrant
(i) in exchange for and upon surrender and cancellation of such mutilated or
defaced warrant or (ii) in lieu of and in substitution for such warrant so
destroyed, lost, or stolen, upon the Holder of such warrant filing with the
Company such evidence satisfactory to it that such warrant has been so lost or
stolen and of the ownership thereof by the Holder; provided, however, that, in
either case, the Company shall be entitled, as a condition to the execution and
delivery of such new warrant, to demand indemnity satisfactory to it and payment
of expenses and charges incurred in connection with the delivery of such new
warrant, and may demand a bond from the Holder. Any warrant so surrendered to
the Company shall be canceled.
6. Record Owner.
At the time of the surrender of the Warrants, together with
the Form of Exercise properly executed and payment of the Exercise Price, the
person exercising the Warrants shall be deemed to be the Holder of record of the
Common Stock deliverable upon such exercise, in whole or in part,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such securities shall not then be
actually delivered to such person.
7. Mailing of Notices, etc.
All notices and other communications from the Company to the
Holder of the Warrants shall be mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, to the Holder at the address
set forth in the records of the Company, or to such other address furnished to
the Company in writing from time to time by the Holder of such Warrants in
accordance with this Section 7.
8. Registration Under the Securities Act of 1933, as amended, and
Transfers.
a. Neither the Warrants nor the Shares underlying each of them have been
registered under the Securities Act of 1933, as amended (the "Act"). Unless and
until registered under the Act, such Warrants and all replacement Warrants shall
bear the following legend:
This Warrant, and the securities issuable upon the exercise of this
Warrant, have not been registered under the Securities Act of 1933, as amended
(the "Act") or applicable state law and may not be sold, transferred or
otherwise disposed of unless registered under the Act and any applicable state
act or unless the Company receives an opinion of counsel for the holder and is
satisfied that this Warrant and the underling securities may be transferred
without registration under the Act.
The Shares issuable upon exercise of such Warrants shall be Rule 144
restricted shares (the "Restricted Securities"). After issuance of the Shares,
Company agrees to use its best efforts to assist Holder in registering the
Shares or to register the Shares under the Act subject to the rules,
regulations, and other provisions of said Act.
b. The Company shall file, as soon as practicable, with the
United States Securities and Exchange Commission ("SEC") and use its best
efforts to cause it to be declared effective within two (2) years of the Closing
Date and remain effective until the earlier of the date on which all of the
Warrants are sold or for the life of the Warrants (the "Effective Period"), a
Form S-1 Registration Statement or other appropriate form of registration in
order to register for resale and distribution under the Securities Act of 1933,
as amended (the "Securities Act"), all shares of Common Stock of the Company
issuable upon voluntary or mandatory exercise of the Warrants (the "Exercisable
Shares"). Such registration shall initially cover 100% of the shares issuable
upon exercise of the Warrants into Common Stock. The Company shall prepare and
file with the SEC such amendments and supplements necessary to keep such
registration statement effective throughout the Effective Period and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of the shares covered by such registration statement whenever the
holder shall desire to sell or otherwise dispose of same.
c. No sale, transfer, assignment or other disposition of the
Warrants granted herein shall be effective unless the Payee or any subsequent
permitted assignee shall provide the Company with (i) an original form of
assignment (the "Form of Assignment") set forth on the last pages hereof, (ii)
the original warrant and (iii) an opinion of counsel for the Payee or such
subsequent permitted assignee, in a form reasonably satisfactory to the Company,
stating that the warrant and the underlying securities may be transferred
without registration under the Act. Upon acceptance of same for transfer, the
Company shall execute and deliver a new warrant in exchange for the one
surrendered or like tenor in the name of the permitted assignee and enter such
permitted assignee on the books of the Company as the registered holder.
<PAGE>
10. Piggyback Registration.
a. At any time that the Company proposes to file a Company
registration statement on Form S-1, including the pending Form S-1 registration
filed on January 8, 1998, under the Act (the "Registrations Statement"), or any
amendment filed thereof, the Company shall cause to be included in such
registration statement any securities issued or subject to issuance in this
transaction; provided, however, that if, at any time after giving written notice
of its intention to register any securities and prior to the effective date of
the Company Registration Statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of holder's Restricted Securities, the Company may, at its
election, give written notice of such determination to Holder and, thereupon:
(i) in the case of a determination not to register such other securities,
shall be relieved of its obligation to register Holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
(ii) in the case of a delay in registering, shall be permitted to delay
registering Holder's Restricted Securities for the same period as the delay in
registering such other securities.
b. The Company's obligation to include Restricted Securities in a Company's
Registration Statement pursuant to Section 10(a) shall be subject to the
following limitations:
(i) The Company may elect, at its sole option and for any reason, not to
register Holder's Restricted Shares, provided however, that this right is
limited to one (1) time and relative to one (1) particular Company Registration
Statement.
(ii) The Company shall not be obligated to include any Restricted
Securities in a registration statement filed on Form S-4, Form S-8 or such other
similar successor forms then in effect under the Securities Act.
(iii) If a Company Registration Statement involves an underwritten offering
and the managing underwriter advises the Company in writing that in its opinion,
the number of securities requested to be included in such Company Registration
Statement exceeds the number which can be sold in such offering without
adversely affecting the offering, the Company shall include in such Company
Registration Statement the number of such securities which the Company is so
advised can be sold in such offering without adversely affecting the offering,
determined as follows:
(A) first, the securities proposed by the Company to be sold for it own
account, and
(B) second, any Restricted Securities requested to be included in such
registration and any other securities of the Company in accordance with the
priorities, if and then existing among the holders of such securities pro rata
among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(iv) The Company shall not be obligated to include Restricted Securities in
more than one (1) Company Registration Statement.
(c) To the extent Holder's Restricted Securities are intended to be
included in a Company Registration Statement, Holder may include any of its
Restricted Securities in such Company Registration Statement pursuant to this
Agreement only if Holder furnishes to the Company in writing, within ten (10)
business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Act or such other information
as the Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make all information previously
furnished to the Company by Holder not materially misleading.
11. Antidilution Provision.
The applicable Exercise Price in effect from time to time shall be, subject
to adjustment in accordance with the provisions of this Section 11.
(a) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date hereof, effect a
stock split of the outstanding Common Stock, the applicable Exercise Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Company shall at any time or from time to time after the date hereof,
combine the outstanding shares of Common Stock, the applicable Exercise Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 11(a) shall be effective at the close of
business on the date the stock split or combination occurs.
<PAGE>
(b) Adjustments for Certain Dividends and Distributions. If
the Company shall at any time or from time after the date hereof, make or issue
or set a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Exercise Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying the applicable Exercise Price then in effect
by a fraction;
(i) the numerator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution.
(c) Adjustments for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the date hereof, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Exercise Price shall be made and provision shall be made (by
adjustments of the Exercise Price or otherwise) so that the Holder of the
Warrants shall receive upon exercise 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 the warrant been exercised into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the date hereof, retained such
securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this
Section 11(c) with respect to the rights of the holders of the Warrants.
(d) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon exercise of Warrants at any time or from time to time
after the date hereof shall be changed into the same or a 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 11(a), (b) and (c), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
11(e)), then, and in each event, an appropriate revision to the applicable
Exercise Price shall by made and provisions shall be made (by adjustments of the
Exercise Price of otherwise) so that the Holder of Warrants shall have the right
thereafter to exercise such Warrants into the kind and amount of shares of stock
and other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
warrant might have been exercised immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.
(e) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the date hereof there
shall be a capital reorganization of the Company (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 11(a), (b), and (c), or a reclassification, exchange or substitution
of shares provided for in Section 11(d)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the applicable Exercise Price shall be made and provision shall be made (by
adjustments of the Exercise Price or otherwise) so that the holder of Warrants
shall have the right thereafter to exercise such Warrants 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 exercise 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 11(e) with respect to the rights
of the holders of Warrants after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 11(e) (including any
adjustment in the applicable Exercise Price then in effect and the number of
shares of stock or other securities deliverable upon exercise of such warrant)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
(f) Additional Adjustments. If at any time or from time to
time after the Issuance Date, the Company shall issue or sell any share of
Common Stock, other that shares issued or sold pursuant to a employee or
consultant stock option plan or shares issued or sold pursuant to conversion or
exercise rights granted prior to the Issuance Date, to any party for a price per
share which shall be less than seventy five percent (75%) of the average closing
bid price per share of Common Stock as reported on Bloomberg for the five (5)
consecutive trading days immediately prior to the time of the issue or sale (the
"Trigger Price"), then forthwith upon such issue or sale, the number of shares
<PAGE>
of Common Stock issuable upon exercise of the Warrants in effect immediately
prior to such issue or sale shall be adjusted by multiplying the number of
shares of Common Stock issuable upon exercise of the Warrants in effect
immediately prior to the time of such issue or sale by a fraction:
(A) the number 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.
12. Laws of the State of New York.
The Warrants shall be governed by, interpreted under and
construed in all respects in accordance with, the laws of the State of New York,
irrespective of the place of domicile or residence of any party.
13. Entire Agreement and Modification.
The Company and the Holder hereby represent and warrant that
this Warrant Agreement and the Warrants issued hereunder are intended to and do
contain and embody all of the understandings and agreements, both written and
oral, of the parties hereto with respect to the subject matter of the Warrants
granted herein, and that there exists no oral agreement or understanding,
express or implied, whereby the absolute, final and unconditional character and
nature of this Warrants Agreement or the Warrants shall be in any way
invalidated, empowered or affected. A modification or waiver of any of the
terms, conditions or provisions of this Warrant Agreement or the Warrants shall
be effective only if made in writing and executed with the same formality as
these documents.
14. Controlling Document.
Notwithstanding anything contained herein, in the event of
conflict between any provision contained herein and those contained in the
Warrants, the provisions contained in this Agreement shall control.
The Warrants will become wholly void and of no effect and the rights
evidenced hereby will terminate unless exercised in accordance with the terms
and provisions hereof at or before 5:00 p.m., Eastern Time, on the Expiration
Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ENVIRONMENTAL REMEDIATION
HOLDING CORPORATION
By:______________________________________
Name: Noreen Wilson
Title: Vice President/Chief Financial Officer
Attest: ___________________________
TALISMAN CAPITAL OPPORTUNITY
FUND LTD.
By:______________________________________
Name:
Title:
Attest: ___________________________
<PAGE>
EXHIBIT A
This Warrant, and the securities issuable upon the exercise of this Warrant,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company receives an opinion of counsel for the holder and is
satisfied that this Warrant and the underling securities may be transferred
without registration under the Act.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREE
MENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, SEPTEMBER __, 2008
750,000 Warrant
WARRANT CERTIFICATE
This Warrant Certificate certifies that TALISMAN CAPITAL OPPORTUNITY
FUND LTD. ("Talisman") or registered assigns, is the registered holder of a
Warrant to purchase, from September __, 1998 until 5:00 P.M. Eastern Standard
Time on September __, 2008 ("Expiration Date"), up to 750,000 shares ("Shares")
of fully-paid and non-assessable common stock, par value $.0001 ("Common
Stock"), of Environmental Remediation Holding Corporation, a Colorado
corporation (the "Company"), at the Initial Exercise Price, subject to
adjustment in certain events, of $.40 per Share (the "Exercise Price") upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of September __, 1998, between the Company
and Talisman (the "Warrant Agreement"). Payment of the Exercise Price may be
made in cash, or by certified or official bank check in New York Clearing House
funds payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrant evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrant evidenced by this Warrant Certificate is part of a duly
authorized issue pursuant to the Warrant Agreement, which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to in a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrant; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrant shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement and in compliance with the rules governing restricted securities,
without any charge except for any tax, or other governmental charge imposed in
connection therewith.
Upon the exercise of less than all of the Warrant evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: _______________, 1998
ENVIRONMENTAL REMEDIATION
HOLDING CORPORATION
By:___________________________
Name:_________________________
Title___________________________
Attest:____________________________
Name:____________________________
Title:_____________________________
<PAGE>
EXHIBIT B
This Warrant, and the securities issuable upon the exercise of this Warrant,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company receives an opinion of counsel for the holder and is
satisfied that this Warrant and the underling securities may be transferred
without registration under the Act.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREE
MENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, SEPTEMBER __, 2008
750,000 Warrant
WARRANT CERTIFICATE
This Warrant Certificate certifies that TALISMAN CAPITAL OPPORTUNITY
FUND LTD. ("Talisman") or registered assigns, is the registered holder of a
Warrant to purchase, from September __, 1999 until 5:00 P.M. Eastern Standard
Time on September __, 2008 ("Expiration Date"), up to 750,000 shares ("Shares")
of fully-paid and non-assessable common stock, par value $.0001 ("Common
Stock"), of Environmental Remediation Holding Corporation, a Colorado
corporation (the "Company"), at the Initial Exercise Price, subject to
adjustment in certain events, of $.40 per Share (the "Exercise Price") upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of September __, 1998, between the Company
and Talisman (the "Warrant Agreement"). Payment of the Exercise Price may be
made in cash, or by certified or official bank check in New York Clearing House
funds payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrant evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrant evidenced by this Warrant Certificate is part of a duly
authorized issue pursuant to the Warrant Agreement, which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to in a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrant; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrant shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement and in compliance with the rules governing restricted securities,
without any charge except for any tax, or other governmental charge imposed in
connection therewith.
Upon the exercise of less than all of the Warrant evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: _______________, 1998
ENVIRONMENTAL REMEDIATION
HOLDING CORPORATION
By:___________________________
Name:_________________________
Title________________________
Attest:____________________________
Name:____________________________
Title:_____________________________
<PAGE>
[FORM OF EXERCISE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of ENVIRONMENTAL
REMEDIATION HOLDING CORPORATION in the amount of $_______________, all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of ________________________whose
address is _____________________________, and that such Certificate be delivered
to ___________________________________________, whose address is
- ---------------------------------------------------------------.
Dated: Signature:_________________________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:_________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
EXHIBIT 10.28
This Note, and the securities issuable upon the conversion of this Note, have
not been registered under the Securities Act of 1933, as amended (the "Act") or
applicable state law and may not be sold, transferred or otherwise disposed of
unless registered under the Act and any applicable state act or unless the
Company receives an opinion from counsel to the holder and is satisfied that
this Note and the underlying securities may be transferred without registration
under the Act.
CONVERTIBLE NOTE
As of October __, 1998
Palm Beach, Florida
$100,000
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a
Colorado corporation (the "Company"), hereby promises to pay to the order of
- ------------------------- or any subsequent holder of this Note (the "Payee"),
at --------------------------- ----, or at such other place as may be designated
by the Payee from time to time by notice to the Company, the principal sum of
One Hundred Thousand Dollars ($100,000), together with simple interest from the
date hereof (the "Issuance Date") on the unpaid principal amount at an annual
rate equal to twelve percent (12.0%) per annum. Such principal and interest
shall be paid in accordance with the terms of Section 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 the earlier of (i) the receipt of the Company of a sum in excess of
Five Million Dollars ($5,000,000.00) from the sale of any securities, assets or
rights, or upon receipt of advance payments, royalties or similar funds (the "$5
M Funding Date") or (ii) on or before December 31, 1999 (collectively the
"Maturity Date").
(b) Interest on the unpaid principal balance of this Note at the rate of twelve
percent (12.0%) per annum shall accrue from the date hereof and shall be payable
to the Payee in cash semi-annually and such interest may, at the election of the
Payee, be payable in shares of Common Stock of the Company, the number of which
shall be equal to the product of such interest payment divided by the Conversion
Price, as defined herein, with the overage, if any, payable in cash.
(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 Florida are authorized or required by law to close, then the
maturity thereof shall be extended to the next succeeding "Business Day"
(defined as any days on which national banks in the United States are open for
business); and during any such extension, interest on principal amounts payable
shall accrue and be payable at the applicable rate.
2. RANKING OF NOTE.
Subject at all time to the subordination provisions set forth in Section 9
hereof, this Note shall constitute senior securities of the Company and, except
as provided below, shall rank pari passu with all other indebtedness for money
borrowed by the Company and senior to any other indebtedness for money borrowed
by the Company which, by its terms shall be made expressly subject and
subordinated to this Note.
3. PREPAYMENT OF NOTE.
(a) In the event the $5 M Funding Date is prior to December 31, 1999, the
Company shall provide the holder with a notice that a prepayment event has
occurred (the "Prepayment Notice"). The holder shall have thirty (30) days from
the date of the Prepayment Notice to elect (i) to take prepayment of the
principal amount of the Note and any accrued but unpaid interest in whole
without premium or penalty or (ii) to convert in accordance with Section 4
hereof.
(b) Notwithstanding anything to the contrary set forth in Section 3(a) hereof,
subject at all times to the holder's right to convert all or any portion of this
Note into Common Stock pursuant to Section 4 hereof, the principal amount of
this Note and any accrued and unpaid interest may be prepaid, at the option of
the Company, in whole or in part, without premium or penalty, at any time or
from time to time from and after that date which shall be the earlier to occur
of (i) December 31, 1999
<PAGE>
or (ii) the date on which the Company shall register for resale pursuant to the
Securities Act of 1933, as amended (the "Act") all "Conversion Shares" (as
herein defined) issuable upon conversion of the entire principal amount of this
Note, pursuant to a Registration Statement on Form S-1 declared effective by the
Securities and Exchange Commission (the "SEC"). If either event set forth in
this Section 3(b) shall occur, the Company shall provide the holder with a
Prepayment Notice.
(c) Each Prepayment Notice shall specify the principal amount of this Note to be
redeemed. 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. 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 3, in the
event and to the extent that the Company shall provide the holder of this Note
with a Prepayment Notice, it shall simultaneously provide to the holder of this
Note evidence of the availability of funds to effect such prepayment; which
evidence of availability of funds shall include, without limitation, (i)
confirmation of cash or cash equivalent bank balances, (ii) an irrevocable bank
letter of credit, or (iii) a written commitment from a recognized lending
institution to effect the financing of such prepayment.
4. CONVERSION.
Subject at all times to the Company's right to prepay the Notes as provided in
Section 3 hereof, the holders of the Notes shall have the following conversion
rights (the "Conversion Rights"):
(a) Voluntary Conversion. At any time or from time to time following the
Issuance Date, the holder of this Note may elect to convert up to one hundred
(100%) percent of the original principal amount of this Note and any accrued but
unpaid interest, into shares of Common Stock of the Company, by written notice
given to the Company in accordance with the provisions of Section 4(g) hereof
(the "Conversion Notice"). In no event may the holder of this Note effect a
conversion of less than $10,000 principal amount of this Note. Such right of
Voluntary Conversion shall be effected by the surrender of this Note to the
Company for conversion 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 a form satisfactory to the Company,
duly executed by the registered holder or by his duly authorized attorney and
(iii) transfer tax stamps or funds therefore, if required pursuant to Section
4(f) herein.
(b) Conversion Price. Subject to adjustment from time to time as provided
in Section 4(c) below, the term AConversion Price" shall mean $1.25 per share of
Common Stock.
(c) Adjustments of Conversion Price. The Conversion Price in effect from
time to time shall be, subject to adjustment in accordance with the provisions
of this Section 4(c).
(i) Adjustments for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the 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 Conversion Price in effect immediately
prior to the combination shall be proportionately increased. Any adjustments
under this Section 4(c)(i) shall be effective at the close of business on the
date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the 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 the Conversion Price then in effect by a fraction;
(A) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
<PAGE>
(iii) Adjustments for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 4(c)(iii) with
respect to the rights of the holders of the Note.
(iv) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed into the same or a different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 4(c)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 4(c)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the holder of this
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon such
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 4(c)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 4(c)(iv)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Conversion Price shall be made and provision shall be made (by adjustments
of the Conversion Price or otherwise) so that the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale. In any such case, appropriate adjustment shall be made in the application
of the provisions of this Section 4(c)(v) with respect to the rights of the
holders of this Note after the reorganization, merger, consolidation, or sale to
the end that the provisions of this Section 4(c)(v) (including any adjustment in
the Conversion Price then in effect and the number of shares of stock or other
securities deliverable upon conversion of this Note) shall be applied after that
event in as nearly an equivalent manner as may be practicable.
(d) No Impediment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Note set forth in this
Section 4 against impairment.
(e) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Note pursuant to this Section 4, the Company at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish notice to the holder of this 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 (1%) of such adjusted amount.
<PAGE>
(f) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant hereto; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(g) Notices and Delivery of Shares. All notices and other communications
hereunder shall be in writing and shall be deemed given (i) on the same date, if
delivered personally or by facsimile by not later than 7:00 p.m. Florida time
(provided, that a copy of such facsimile shall be simultaneously sent to Donald
F. Mintmire, Esq. at (561)659-5371, or (ii) three business days following being
mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the party in accordance with Section 7 hereof. 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 this Note surrendered for conversion,
certificates evidencing all shares of Common Stock into which this Note shall be
converted.
(h) Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of the Note. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay cash equal to the product of
such fraction multiplied by the Conversion Price of one share of the Company's
Common Stock on the applicable Conversion Date.
(i) Reservation of Common Stock. The Company shall at all times reserve and keep
available, out of its authorized but unissued 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 unissued 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 not
later than 120 days after any date in which the Company shall have insufficient
shares of Common Stock so reserved for the purpose of authorizing additional
shares of Common Stock.
(j) Retirement of Note. Conversion of this Note shall be deemed to have been
effected on the applicable Conversion Date. The converting holder shall be
deemed to have become a stockholder of record of the Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of this Note, the
Company shall issue and deliver to such holder, at the expense of the Company,
against receipt of the original Note delivered for partial cancellation, a new
Note representing the unconverted portion of this Note so surrendered and Common
Stock equal to the portion converted.
(k) Regulatory Compliance.
(i) If any shares of Common Stock to be reserved for the purpose of
conversion of this Note require registration or listing with or approval of any
government authority, stock exchange or other regulatory body under any federal
or state law or regulation or otherwise before such shares may be validly issued
or delivered upon conversion, the Company shall, at its sole cost and expense,
in good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
(ii) The shares of Common Stock issuable upon the election to convert
shall be Rule 144 restricted shares (the "Restricted Securities"). After
issuance, the Company agrees to use its best efforts to assist holder in
registering the Restricted Securities or to register the Restricted Securities
under the Act subject to the rules, regulations, and other provisions of said
Act.
(iii) In the event the holder elects to convert into ownership of
shares of the Company's Common Stock, at the time of such conversation, the
holder of such shares shall have the following piggyback rights:
(A) At any time that the Company proposes to file a Company registration
statement on Form S-1, including the pending Form S-1 registration filed on
January 8, 1998, under the Act (the "Registrations Statement"), of any amendment
to be filed therof, the Company shall cause to be included in such registration
statement any securities issued or subject to issuance in this transaction;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
Company Registration Statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of holder's Restricted Securities, the Company may, at its election, give
written notice of such determination to holder and, thereupon:
(1) in the case of a determination not to register such other securities,
shall be relieved of its obligation to register holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
<PAGE>
(2) in the case of a delay in registering, shall be permitted to delay
registering holder's Restricted Securities for the same period as the delay in
registering such other securities.
(B) The Company's obligation to include Restricted Securities
in a Company's Registration Statement pursuant to Section 4(k)(iii)(A) shall be
subject to the following limitations:
(1) The Company may elect, at its sole option and for any reason, not to
register holder's Restricted Shares, provided however, that this right is
limited to one (1) time and relative to one (1) particular Company Registration
Statement.
(2) The Company shall not be obligated to include any Restricted Securities
in a registration statement filed on Form S-4, Form S-8 or such other similar
successor forms then in effect under the Securities Act.
(3) If a Company Registration Statement involves an underwritten offering
and the managing underwriter advises the Company in writing that in its opinion,
the number of securities requested to be included in such Company Registration
Statement exceeds the number which can be sold in such offering without
adversely affecting the offering, the Company shall include in such Company
Registration Statement the number of such securities which the Company is so
advised can be sold in such offering without adversely affecting the offering,
determined as follows:
(i) first, the securities proposed by the Company to be sold for it own
account, and
(ii) second, any Restricted Securities requested to be included in such
registration and any other securities of the Company in accordance with the
priorities, if and then existing among the holders of such securities pro rata
among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(4) The Company shall not be obligated to include Restricted Securities in
more than one (1) Company Registration Statement.
(C) To the extent holder's Restricted Securities are intended to be
included in a Company Registration Statement, holder may include any of its
Restricted Securities in such Company Registration Statement pursuant to this
Agreement only if holder furnishes to the Company in writing, within ten (10)
business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Act or such other information
as the Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make all information previously
furnished to the Company by holder not materially misleading.
(l) Limitations on Amount of Conversion. Notwithstanding anything contained in
this Note to the contrary, in no event shall any holder of Note be entitled or
required to convert this Note in excess of that number of shares of Common Stock
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 total 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
portion of the 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
providing the Company upon not less than 30 days with prior written notice (with
such waiver taking effect only upon the expiration of such 30-day notice
period).
5. EVENTS OF DEFAULT.
The occurrence and continuance of any one or more of the following events is
herein referred to as an Event of Default:
(a) If the Company shall default in converting the applicable principal amount
of this Note into Common Stock and delivering stock certificates in respect of
such conversion within ten (10) Business Days from the Company's receipt of the
applicable notice of conversion pursuant to the provisions hereof, whether on
the Maturity Date or otherwise; or
<PAGE>
(b) If the Company shall default in the payment of any installment of interest
on this Note when payable in accordance with the terms thereof for more than ten
(10) calendar days after the same shall become due if the Payee has not elected
to take such interest in Common Stock; and if the Payee has elected to take such
interest in Common Stock, if the Company shall default in delivering stock
certificates in respect of such election within ten (10) Business Days from the
Company's receipt of the notice of such election; or
(c) If the Company shall not, at the time of receipt of a Conversion Notice
hereunder, have a sufficient number of authorized and unissued shares of its
Common Stock available for issuance to the holder of this Note upon conversion
of all or any portion of this Note in accordance with the terms hereof, and such
default shall not have been remedied within sixty (60) calendar days from the
date of such Conversion Notice; or
(d) If the Company shall default in the performance of or compliance with any of
its material covenants or agreements contained herein and such default shall not
have been remedied within thirty (30) calendar days after written notice thereof
shall have been delivered to the Company by the holder of this Note in
accordance with the notice provisions herein; or
(e) If any representation or warranty made in writing by or on behalf of the
Company in connection with the transactions contemplated hereby 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" (as defined herein)
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts as they become due, or shall file a voluntary
petition in bankruptcy or shall have an order for relief under the Bankruptcy
Act granted against it or them, or shall be adjudicated a bankrupt or insolvent,
or shall file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file any
answer admitting or not contesting the material allegations of a petition filed
against the Company or any of its Significant Subsidiaries in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, custodian, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company or any of its Significant
Subsidiaries, or the Company or its directors shall take any action looking to
the dissolution or liquidation of the Company or any of its Significant
Subsidiaries. For purposes of this Section 5(f), the term Significant Subsidiary
shall mean and include Bass American Petroleum Corp. and any other person, firm
or corporation (i) more than 50% of the common stock or equity interests of
which are owned of record by the Company or any Subsidiary of the Company, and
(ii) the net income before taxes or total assets of which represent more than
15% of the consolidated net income before taxes or consolidated assets of the
Company and all of its Subsidiaries; 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.
6. REMEDIES ON DEFAULT; ACCELERATION.
Upon the occurrence and during the continuance of an Event of Default, the
entire unpaid balance of principal and accrued interest on this Note may be
accelerated and declared to be immediately due and payable by the holder. Unless
waived by the written consent of the holder, such holder may proceed to protect
and enforce its rights 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. Upon the
occurrence 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. No course of dealing and no delay on the part of the holder of
this Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers and remedies. No
right, power or remedy conferred hereby upon the holder hereof shall be
exclusive of any other right, power or remedy referred to herein nor now or
hereafter available at law, in equity, by statute or otherwise.
7. NOTICES.
All notices, requests, demands or other communications hereunder shall be in
writing and personally addressed or sent by telecopier or by registered or
certified mail, return receipt requested, postage pre-paid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
<PAGE>
If to the Company: Environmental Remediation Holding Corp.
3-5 Audrey Avenue
Oyster Bay, New York 11771
Attn: James A. Griffin, Secretary
Telephone (516) 922-4170
Fax (516) 922-4312
-and-
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and
Chief Financial Officer
Telephone (561) 694-9425
Fax (561) 624-1171
with copy to: Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Telephone (561) 832-5696
ax (561) 659-5371
If to the Holder: to such Holder at
the address set forth on the records
of the Company. 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 notices.
8. GOVERNING LAW.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Florida, without giving effect to conflict of law
principles.
9. SUBORDINATION TO SENIOR DEBT.
(a) Payment of the principal of and interest on this Note is subordinated, to
the extent and in the manner provided herein, to the prior payment of all
indebtedness of the Company and/or all Subsidiaries of the Company, for money
borrowed or other obligations which is now or may hereafter be owed
(collectively, "Senior Debt") to any bank, commercial finance company, factor,
insurance company or other institution the lending activities of which 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 9, shall be made by the
Institutional Borrower or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to
the holders of Senior Debt or their representatives to the extent necessary to
pay all such Senior Debt in full after giving effect to any concurrent payment
or distribution to the holders of such Senior Debt.
(c) Upon the happening of any default in payment of the principal of or interest
on any Senior Debt, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Institutional Borrower on account of the principal of or interest on
this Note.
<PAGE>
(d) Upon the happening of an event of default (other than under circumstances
when the terms of Section 9(c) above are applicable) with respect to any Senior
Debt pursuant to which the holder thereof is entitled under the terms of such
Senior Debt to accelerate the maturity thereof, and upon written notice thereof
given to each of the Institutional Borrower and the holder of this Note by such
holder of Senior Debt ("Payment Notice"), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no action
shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or
otherwise, shall be made or agreed to be made by the Institutional Borrower an
account of the principal of or interest on this Note until such Senior Debt has
been paid in full accordance with its terms.
(e) In the event that, notwithstanding the provisions of this Section 9, any
payment shall be made on account of the principal of or interest on this Note in
contravention of such provisions, then such payment shall be held for the
benefit of, and shall be paid over and delivered to, the holders of such Senior
Debt remaining unpaid to the 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 9 shall
(i) impair the conversion rights of the holder hereof referred to in
Section 4 above,
(ii) impair, as between the Company and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder hereof principal and interest as the same shall become due and payable,
or
(iii) prevent the holder hereof from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, all subject to the
express limitations provided herein.
(g) Upon the occurrence of an Event of Default, if any Senior Debt shall then be
outstanding, no acceleration of the maturity of this Note shall be effective
until the earlier of (i) ten (10) days shall have passed following the date of
delivery to the Institutional Borrower by a Senior Lender(s) of written notice
of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The
Company may pay the holder hereof any defaulted payment and all other amounts
due following any such acceleration of the maturity of this Note if this Section
9 would not prohibit such payment to be made at that time.
(h) Upon payment in full of all Senior Debt, the Payee of this Note shall
be subrogated to the rights of the holder or holders of Senior Debt to receive
all payments or distributions applicable on such 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
(i) shall be bound by all of the foregoing subordination provisions;
(ii) agrees expressly for the benefit of the present and future holders of
Senior Debt that this Note is subject to the foregoing subordination provisions;
(iii) authorizes such persons as shall be designated by all holders of
Senior Debt at any given time, on his or its benefit to execute and deliver such
agreements, assignments, proofs of claim and other documents appropriate to
effectuate the foregoing subordination provisions; and
(iv) hereby appoints the person so designated his or its attorney-in-fact
for such purpose.
(j) The foregoing subordination provisions shall be for the benefit of all
holders of Senior Debt from time to time outstanding, and each of such holders
may proceed to enforce such provisions either directly against the holder hereof
or in any other manner provided by law.
10. PERMITTED PAYMENTS.
Notwithstanding the provisions of Section 9 of this Note, and provided that no
default or event of default (or event which, with the passage of time or giving
of notice or both) has occurred, will occur as a result of the "Permitted
Payment" (herein defined), or will occur with the passage of time or giving of
notice or both, under any document or instrument evidencing such Senior Debt,
the Company may pay to the Payee, and the Payee may accept from the Company, the
principal payments of, and/or interest payments on, the outstanding principal
amount of this Note when due on an unaccelerated basis (herein, "Permitted
Payments"); it being understood and agreed by the Payee by accepting this Note
that neither:
<PAGE>
(a) the payment terms set forth in Section l 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.
11. SUCCESSORS AND ASSIGNS.
This Note shall be binding upon and inure to the benefit of the Company and the
holder hereof and their respective successors and permitted 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;
and provided, further, that transfer or assignment by the holder is in
accordance with the rules governing Restricted Securities.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly
authorized officers as of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By: ______________________________________
Noreen G. Wilson , Vice President and
Chief Financial Officer
Noreen G. Wilson , Chief
Financial Officer
Attest: ___________________________________
EXHIBIT 10.29
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of October __, 1998, between Environmental
Remediation Holding Corporation, a Colorado corporation (the "Company"), and
- ----------------
W I T N E S S E T H:
WHEREAS,---- wishes to acquire certain warrants of the Company more
particularly described below; and
WHEREAS, the Company wishes to issue such warrants to pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the promises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
The Company hereby grants , (the "Holder") the following:
a. The right to purchase, at any time from the date of the issuance
until 5:00 PM Eastern Standard Time on December 31, 2003 (the "Warrant "A"
Exercise Term"), 150,000 shares (the "Shares") of Common Stock, $0.0001 par
value per share (the "Common Stock"), of the Company (subject to adjustment as
provided in Section 11 hereof) upon payment of $.50 per Share (the "Warrant "A"
Exercise Price") in lawful funds of the United States of America (the "Warrant
"A").
b. The right to purchase, at any time from the date of issuance until
the earlier of (i) five (5) years from the date of the exercise of Warrant "A"
or (ii) December 31, 2008 (the Warrant "B" Exercise Term"), 150,000 Shares of
Common Stock of the Company (subject to adjustment as provided in Section 11
hereof) upon payment of $3.00 per Share (the Warrant "B" Exercise Price") in
lawful funds of the United States of America (the Warrant "B").
2. Warrant Certificates.
The warrant certificates for Warrant "A" and Warrant "B" (the "Warrant
Certificates) delivered and to be delivered pursuant to this Agreement shall be
in the forms set forth as Exhibits A and B, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrants.
In case the Holder of the warrants granted herein shall desire to
exercise Warrant "A" or Warrant "B" in whole or in part, the Holder shall
surrender the appropriate warrant, with the form of exercise notice on the last
pages hereof (the "Form of Exercise") duly executed by the Holder, to the
Company, accompanied by payment of the applicable Exercise Price.
(a) The warrants granted herein may be exercised in whole or
in part but not for fractional Shares. In case of the exercise in part only, the
Company will deliver to the Holder a new warrant of like tenor in the name of
the Holder evidencing the right to purchase the number of Shares as to which the
applicable warrant has not been exercised.
(b) The warrants granted herein may also be exercised by the
Holder, in whole or in part, at any time and from time to time and from time to
time during the applicable Exercise Period by presentation and surrender of the
applicable warrant to the Company at its principal executive offices with a
written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, the Holder shall surrender the applicable
warrant for that number of shares of Common Stock determined by
(i) multiplying the number of Shares for which such warrant is being
exercised by the Per Share Warrant Value as defined in Section 3(c) herein; and
(ii) dividing the product by the bid price of one share of the Common Stock
on the trading day immediately preceding the date of exercise as defined in
Section 3(d) hereof.
<PAGE>
In the event that a warrant is not exercised in full, the number of Shares shall
be reduced by the number of such Shares for which the applicable warrant is
exercised, and the Company, at its expense, shall forthwith issue and deliver to
or upon the order of the Holder a new warrant of like tenor in the name of the
Holder or as the Holder may request (subject to the rules governing transfers of
restricted securities), reflecting such adjusted number of Shares.
(c) As used herein "Per Share Warrant Value" shall mean the
difference resulting from subtracting the applicable Exercise Price from the bid
price of one share of Common Stock on the trading day immediately preceding the
Date of Exercise.
(d) As used herein "Date of Exercise" shall mean the date that
the advance copy of the Form of Exercise set forth herein is sent by facsimile
to the Company, provided that the original warrant and original Form of Exercise
are received by the Company within three (3) business days. If the Holder has
not sent advance notice by facsimile, the Date of Exercise shall be the date the
original Form of Exercise is received by the Company.
4. Company's Call Rights.
a. The Company has the right to call Warrant "A" any time after the
underlying shares are registered if the Common Stock of the Company exceeds a
price of $4.50 per share for an average of twenty (20) consecutive trading days.
b. The Company has the right to call Warrant "B" any time after eighteen
(18) months after the Holder has exercised Warrant "A" and after the underlying
shares are registered if the Common Stock of the Company exceeds a price of
$9.00 per share for an average of twenty (20) consecutive trading days.
c. Notwithstanding anything contained in this Section 4, the Company may
not call Warrant "A" and Warrant "B" simultaneously.
5. Covenants of the Company.
The Company hereby covenants and agrees that prior to the
expiration of Warrant "A" and Warrant "B" by exercise or by their respective
terms:
(a) The Company shall at all times reserve and keep available,
out of its authorized and unissued share capital, solely for the purpose of
providing for the exercise, forthwith upon the request of the Holder of the
warrants then outstanding and in effect, such number of shares of Common Stock,
as shall, from time to time, be sufficient for the exercise of the warrants
granted by this Agreement. The Company shall, from time to time, in accordance
with the laws of the State of Florida, increase the authorized amount of its
share capital if at any time the number of shares of Common Stock remaining
unissued and unreserved for other purposes shall not be sufficient to permit the
exercise of the warrants then outstanding and in effect.
(b) The Company covenants and agrees that all shares that may
be issued upon the exercise of the rights represented by Warrant "A" and Warrant
"B" will, upon issuance, be validly issued, fully paid and non-assessable, and
free from all taxes, liens and charges with respect to the issue thereof.
6. Loss, Theft, Destruction or Mutilation.
In case either Warrant "A" or Warrant "B" shall become
mutilated or defaced or be destroyed, lost or stolen, the Company shall execute
and deliver a new warrant (i) in exchange for and upon surrender and
cancellation of such mutilated or defaced warrant or (ii) in lieu of and in
substitution for such warrant so destroyed, lost, or stolen, upon the Holder of
such warrant filing with the Company such evidence satisfactory to it that such
warrant has been so lost or stolen and of the ownership thereof by the Holder;
provided, however, that, in either case, the Company shall be entitled, as a
condition to the execution and delivery of such new warrant, to demand indemnity
satisfactory to it and payment of expenses and charges incurred in connection
with the delivery of such new warrant, and may demand a bond from the Holder.
Any warrant so surrendered to the Company shall be canceled.
7. Record Owner.
At the time of the surrender of Warrant "A" or Warrant "B",
together with the Form of Exercise properly executed and payment of the
applicable Exercise Price, the person exercising such warrant shall be deemed to
be the Holder of record of the Common Stock deliverable upon such exercise, in
whole or in part, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such securities shall not
then be actually delivered to such person.
8. Mailing of Notices, etc.
All notices and other communications from the Company to the
Holder of Warrant "A" and Warrant "B" shall be mailed by first-class registered
or certified mail, return receipt requested, postage prepaid, to the Holder at
the address set forth in the records of the Company, or to such other address
furnished to the Company in writing from time to time by the Holder of such
warrants in accordance with this Section 8.
<PAGE>
9. Registration Under the Securities Act of 1933, as amended, and Transfers.
a. Neither Warrant "A" nor Warrant "B" nor the Shares underlying each of
them have been registered under the Securities Act of 1933, as amended (the
"Act"). Unless and until registered under the Act, such warrants and all
replacement warrants shall bear the following legend:
This Warrant, and the securities issuable upon the exercise of this
Warrant, have not been registered under the Securities Act of 1933, as amended
(the "Act") or applicable state law and may not be sold, transferred or
otherwise disposed of unless registered under the Act and any applicable state
act or unless the Company receives an opinion of counsel for the holder and is
satisfied that this Warrant and the underling securities may be transferred
without registration under the Act.
The Shares issuable upon exercise of such warrants shall be Rule 144
restricted shares (the "Restricted Securities"). After issuance of the Shares,
Company agrees to use its best efforts to assist Holder in registering the
Shares or to register the Shares under the Act subject to the rules,
regulations, and other provisions of said Act.
b. No sale, transfer, assignment or other disposition of the
warrants granted herein shall be effective unless the Payee or any subsequent
permitted assignee shall provide the Company with (i) an original form of
assignment (the "Form of Assignment") set forth on the last pages hereof, (ii)
the original warrant and (iii) an opinion of counsel for the Payee or such
subsequent permitted assignee, in a form reasonably satisfactory to the Company,
stating that the warrant and the underlying securities may be transferred
without registration under the Act. Upon acceptance of same for transfer, the
Company shall execute and deliver a new warrant in exchange for the one
surrendered or like tenor in the name of the permitted assignee and enter such
permitted assignee on the books of the Company as the registered holder.
10. Piggyback Registration.
a. At any time that the Company proposes to file a Company
registration statement on Form S-1, including the pending Form S-1 registration
filed on January 8, 1998, under the Act (the "Registrations Statement"), or any
amendment filed thereof, the Company shall cause to be included in such
registration statement any securities issued or subject to issuance in this
transaction; provided, however, that if, at any time after giving written notice
of its intention to register any securities and prior to the effective date of
the Company Registration Statement filed in connection with such registration,
the Company shall determine for any reason not to register or to delay
registration of holder's Restricted Securities, the Company may, at its
election, give written notice of such determination to Holder and, thereupon:
(i) in the case of a determination not to register such other securities,
shall be relieved of its obligation to register Holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
(ii) in the case of a delay in registering, shall be permitted to delay
registering Holder's Restricted Securities for the same period as the delay in
registering such other securities.
b. The Company's obligation to include Restricted Securities in a Company's
Registration Statement pursuant to Section 10(a) shall be subject to the
following limitations:
(i) The Company may elect, at its sole option and for any reason, not to
register Holder's Restricted Shares, provided however, that this right is
limited to one (1) time and relative to one (1) particular Company Registration
Statement.
(ii) The Company shall not be obligated to include any Restricted
Securities in a registration statement filed on Form S-4, Form S-8 or such other
similar successor forms then in effect under the Securities Act.
(iii) If a Company Registration Statement involves an underwritten offering
and the managing underwriter advises the Company in writing that in its opinion,
the number of securities requested to be included in such Company Registration
Statement exceeds the number which can be sold in such offering without
adversely affecting the offering, the Company shall include in such Company
Registration Statement the number of such securities which the Company is so
advised can be sold in such offering without adversely affecting the offering,
determined as follows:
(A) first, the securities proposed by the Company to be sold for it own
account, and
(B) second, any Restricted Securities requested to be included in such
registration and any other securities of the Company in accordance with the
priorities, if and then existing among the holders of such securities pro rata
among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
<PAGE>
(iv) The Company shall not be obligated to include Restricted Securities in
more than one (1) Company Registration Statement.
(c) To the extent Holder's Restricted Securities are intended
to be included in a Company Registration Statement, Holder may include any of
its Restricted Securities in such Company Registration Statement pursuant to
this Agreement only if Holder furnishes to the Company in writing, within ten
(10) business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Act or such other information
as the Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make all information previously
furnished to the Company by Holder not materially misleading.
11. Antidilution Provision.
The applicable Exercise Price in effect from time to time
shall be, subject to adjustment in accordance with the provisions of this
Section 11.
(a) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date hereof, effect a
stock split of the outstanding Common Stock, the applicable Exercise Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Company shall at any time or from time to time after the date hereof,
combine the outstanding shares of Common Stock, the applicable Exercise Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 11(a) shall be effective at the close of
business on the date the stock split or combination occurs.
(b) Adjustments for Certain Dividends and Distributions. If the Company
shall at any time or from time after the date hereof, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in shares of Common Stock, then, and in
each event, the applicable Exercise Price in effect immediately prior to such
event shall be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date, by multiplying the applicable Exercise Price then in effect by a fraction;
(i) the numerator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution.
(c) Adjustments for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the date hereof, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Exercise Price shall be made and provision shall be made (by
adjustments of the Exercise Price or otherwise) so that the Holder of the
warrants shall receive upon exercise 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 the warrant been exercised into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the date hereof, retained such
securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this
Section 11(c) with respect to the rights of the holders of the Warrant "A" and
Warrant "B".
(d) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon exercise of Warrant "A" or
Warrant "B" at any time or from time to time after the date hereof shall be
changed into the same or a 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 11(a), (b) and (c), or a reorganization, merger,
consolidation, or sale of assets provided for in Section 11(e)), then, and in
each event, an appropriate revision to the applicable Exercise Price shall by
made and provisions shall be made (by adjustments of the Exercise Price of
otherwise) so that the Holder of Warrant "A" and Warrant "B" shall have the
right thereafter to exercise such warrants into the kind and amount of shares of
stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such warrant might have been exercised immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
<PAGE>
(e) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the date hereof there shall be
a capital reorganization of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 11(a), (b), and (c), or a reclassification, exchange or substitution of
shares provided for in Section 11(d)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the applicable Exercise Price shall be made and provision shall be made (by
adjustments of the Exercise Price or otherwise) so that the holder of Warrant
"A" and Warrant "B" shall have the right thereafter to exercise such warrants
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 exercise 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 11(e) with respect
to the rights of the holders of Warrant "A" and Warrant "B" after the
reorganization, merger, consolidation, or sale to the end that the provisions of
this Section 11(e) (including any adjustment in the applicable Exercise Price
then in effect and the number of shares of stock or other securities deliverable
upon exercise of such warrant) shall be applied after that event in as nearly an
equivalent manner as may be practicable.
12. Laws of the State of Florida.
Warrant "A" and Warrant "B" shall be governed by, interpreted
under and construed in all respects in accordance with, the laws of the State of
Florida, irrespective of the place of domicile or residence of any party.
13. Entire Agreement and Modification.
The Company and the Holder hereby represent and warrant that
this Warrant Agreement and Warrant "A" and Warrant "B" issued hereunder are
intended to and do contain and embody all of the understandings and agreements,
both written and oral, of the parties hereto with respect to the subject matter
of the warrants granted herein, and that there exists no oral agreement or
understanding, express or implied, whereby the absolute, final and unconditional
character and nature of this Warrant Agreement, Warrant "A" and Warrant "B"
shall be in any way invalidated, empowered or affected. A modification or waiver
of any of the terms, conditions or provisions of this Warrant Agreement, Warrant
"A" or Warrant "B" shall be effective only if made in writing and executed with
the same formality as these documents.
14. Controlling Document.
Notwithstanding anything contained herein, in the event of
conflict between any provision contained herein and those contained in Warrant
"A" or Warrant "B", the provisions contained in this Agreement shall control.
Warrant "A" and Warrant "B" will become wholly void and of no effect
and the rights evidenced hereby will terminate unless exercised in accordance
with the terms and provisions hereof at or before 5:00 p.m., Eastern Time, on
the Expiration Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ENVIRONMENTAL REMEDIATION
HOLDING CORPORATION
By:______________________________________
Name: Noreen Wilson
Title: Vice President/Chief Financial Officer
Attest: ___________________________
Name: ___________________________
Title:_____________________________
--------------------------------------.
By:______________________________________
Name:
Title:
Attest: ___________________________
Name: ___________________________
Title:_____________________________
<PAGE>
EXHIBIT A
This Warrant, and the securities issuable upon the exercise of this Warrant,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company receives an opinion of counsel for the holder and is
satisfied that this Warrant and the underling securities may be transferred
without registration under the Act.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREE
MENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, DECEMBER 31, 2003
150,000 WARRANTS
WARRANT "A" CERTIFICATE
This Warrant "A" Certificate certifies that----------------- ("") or
registered assigns, is the registered holder of 150,000 Warrants to purchase, at
any time from October _, 1998, until 5:00 P.M. Eastern Standard Time on December
31, 2003 ("Expiration Date"), up to 150,000 shares ("Shares") of fully-paid and
non-assessable common stock, par value $.0001 ("Common Stock"), of Environmental
Remediation Holding Corporation, a Colorado corporation (the "Company"), at the
Initial Exercise Price, subject to adjustment in certain events, of $.50 per
Share (the "Exercise Price") upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the warrant agreement dated as of
October _, 1998, between the Company and (the "Warrant Agreement"). Payment of
the Exercise Price may be made in cash, or by certified or official bank check
in New York Clearing House funds payable to the order of the Company, or any
combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement and in compliance with the rules governing restricted securities,
without any charge except for any tax, or other governmental charge imposed in
connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: _______________, 1998
ENVIRONMENTAL REMEDIATION
HOLDING CORPORATION
By:_______________________
Name:_____________________
Title_____________________
Attest:____________________________
Name:____________________________
Title:_____________________________
<PAGE>
EXHIBIT B
This Warrant, and the securities issuable upon the exercise of this Warrant,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company receives an opinion of counsel for the holder and is
satisfied that this Warrant and the underling securities may be transferred
without registration under the Act.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREE
MENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME
ON THE EARLIER OF
(I) FIVE (5) YEARS FROM THE DATE OF EXERCISE OF WARRANT "A" OR (II)
DECEMBER 31, 2008
150,000 WARRANTS
WARRANT "B" CERTIFICATE
This Warrant "B" Certificate certifies that -----------------------
("") or registered assigns, is the registered holder of 150,000 Warrants to
purchase, at any time from October _, 1998, until 5:00 P.M. Eastern Standard
Time on the earlier of (i) five (5) years from the exercise of Warrant "A"
issued to the on even date or (ii) December 31, 2008 ("Expiration Date"), up to
150,000 shares ("Shares") of fully-paid and non-assessable common stock, par
value $.0001 ("Common Stock"), of Environmental Remediation Holding Corporation,
a Colorado corporation (the "Company"), at the Initial Exercise Price, subject
to adjustment in certain events, of $3.00 per Share (the "Exercise Price") upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the warrant agreement dated as of October _, 1998, between the Company
and (the "Warrant Agreement"). Payment of the Exercise Price may be made in
cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the, request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement and in compliance with the rules governing restricted securities,
without any charge except for any tax, or other governmental charge imposed in
connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: _______________, 1998
ENVIRONMENTAL REMEDIATION
HOLDING CORPORATION
By:_______________________
Name:_____________________
Title_____________________
Attest:____________________________
Name:____________________________
Title:_____________________________
<PAGE>
[FORM OF EXERCISE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of ENVIRONMENTAL
REMEDIATION HOLDING CORPORATION in the amount of $_______________, all in
accordance with the terms hereof. The undersigned requests that a certificate
for such Shares be registered in the name of ________________________whose
address is _____________________________, and that such Certificate be delivered
to ___________________________________________, whose address is
- ---------------------------------------------------------------.
Dated: Signature:________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant
Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:_________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
EXHIBIT 10.30
MEMORANDUM OF
COMPROMISE AND SETTLEMENT AGREEMENT
This memorandum of a compromise and settlement agreement entered herein
effective on the 4th day of January, 1999 by and between:
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION, a Colorado
corporation, with offices at Lafayette, Louisiana, herein represented by its
duly authorized counsel of record, Charles N. Wooten, Ltd., a professional law
corporation, through its chief executive officer, Mr. Charles N. Wooten, Sr.,
Esq., sometimes referred to herein as ("ERHC"):
PINE VALLEY EXPLORATION, INC., a corporation with offices at 26400
Lahser Rd., # 113, Southfield, Michigan 48034, herein represented by its duly
authorized counsel of record, Sullivan, Ward, Bone, Tyler & Asher, P.C., through
Mr. A. Stuart Tompkins, Esq., sometimes referred to herein as ("PVE"):
COCONINO, S.M.A., INC., a corporation with offices at 1567 W. Silver
Springs Road, Park City, Utah 84098, herein represented by its duly authorized
counsel of record, Fabian and Clendenin, through Mr. Robert Palmer Rees, Esq.,
sometimes referred to herein as ("COCONINO")
UNITA OIL & GAS, INC., a corporation with offices at 3954 East 200
North East Highway 40, Ballard, Utah 84066, herein represented by its duly
authorized counsel of record, Daniel S. Sam, P.C., through its chief executive
officer, Mr. Daniel S. Sam, Esq., sometimes referred to herein as ("UNITA")
CRAIG PHILLIPS, of full age of majority and domiciled in Ballard, Utah,
herein represented by his duly authorized counsel of record, Daniel S. Sam,
P.C., through its chief executive officer, Mr. Daniel S. Sam, Esq., sometimes
referred to herein as ("PHILLIPS"); and
JOSEPH H. LORENZO, of full age of majority and domiciled in
- ------------,----------, herein represented by his duly authorized counsel of
record, Baker & Hosteler, through Mr. Phillip S. Lorenzo, Esq., sometimes
referred to herein as ("LORENZO")
all collectively referred to as the parties hereto.
WHEREAS, there is presently pending a binding arbitration proceeding
before the American Arbitration Association in the nature of a civil claim
between some of the parties hereto which has been docketed as Case No.
81-Y-115-0164-98 and in which some of the parties hereto have asserted claims
and/or counterclaims against certain of the other parties hereto all arising out
of that certain agreement between ERHC as Purchaser and COCONINO, UNITA and PVE
as Sellers dated September 29, 1997 as well as certain other subsequent oral and
written agreements between those same parties. The merits of such claims has
been set for hearing before the arbitrator in Salt Lake City, Utah beginning on
January 13, 1999. It is the desire of the parties hereto to compromise and
settle all claims pending between them and this agreement expressing the major
and all necessary terms of the compromise shall be binding upon the parties
hereto from the effective date first above written with the final detailed
version of the written compromise and settlement agreement prepared for the
signatures of the appropriate officers or individuals made parties hereto to be
executed as soon as practical hereafter. Said final settlement agreement shall
also contain general mutual release language to further specify the settlement
and releases effected hereby.
This memorandum of the compromise and settlement agreement shall not,
under any circumstances, be considered as an admission by any of the parties
hereto of any breach of an obligation owed to other parties or the liability of
one to the other for any prior actions or inactions which may have occurred as a
result of the agreement referred to hereinabove between the Purchaser and
Sellers dated September 29, 1997 as well as certain other subsequent oral and
written agreements between such parties.
TERMS OF THE COMPROMISE AND SETTLEMENT AGREEMENT
The foregoing prefatory language is incorporated herein as substantive
terms hereof as if fully restated herein.
<PAGE>
1. COMMON OBLIGATIONS OF ERHC
TO COCONINO, PVE, UGO, and LORENZO
A.] ERHC has previously issued 500,000 shares of its common capital
stock as part performance of its obligations to purchase certain properties
under the purchase agreement between the Purchaser and Sellers dated September
29, 1997, which contained an SEC Rule 144 Restriction. Certificates for 250,000
shares were issued on October 13, 1997, representing the first installment under
the aforesaid contract and certificates for additional 250,000 shares were
issued December 30, 1997. The aforesaid certificates on each of the two
installments were issued in the proportions specified in the aforesaid purchase
agreement for the installment made at the closing of the purchase agreement as
follows:
12.5% of 99% (30,937.5 shares) to UOG 37.5% of 99% (92,812.5 shares) to
PVE 50.0% of 99% (123,750 shares) to COCONINO
1.0% (2,500 shares) to LORENZO
The aforesaid agreement further provided that ERHC guaranteed that each
such share issued would have a net trading value as of the earliest date when
pursuant to the legend and SEC Rule 144 such share would become tradable for at
least $2.00 per share. In the event that the net price for any of the shares
would be less that the guaranteed amount, the Sellers in the aforesaid agreement
at their option could accept sufficient additional SEC Rule 14 shares of ERHC
common capital stock to make up the shortfall, or could demand cash for such
shortfall.
[i] The parties have agreed that the value of the shares as of October
16, 1998, was $0.45 resulting in a $1.55 shortfall as of that date on the first
250,000 previously issued. ERHC agrees to cause this shortfall in the price of
the first 250,000 issued to the parties in the proportions mentioned hereinabove
to be paid and satisfied by the issuance and delivered on January 18, 1999
(effective as of October 16, 1998) of additional shares of SEC Rule 144 common
capital stock aggregating 861.111 shares. The selling parties have accepted this
option of payment of the calculated shortfall of 387,500 in the guaranteed
trading value of the 250,000 shares on October 16, 1998 in lieu of cash.
Additionally ERHC will cause its SEC counsel, Mintmire & Associates, Attn: Ms.
Mercedes Travis, 265 Sunrise Avenue Suite 204, Palm Beach, Florida 33480 to
issue an opinion letter authorizing the transfer agent to lift the Rule 144
restrictive legend from the 250,000 shares previously issued on October 16, 1997
upon presentation to SEC counsel of a copy of the SEC Form 144. Seller's
Representation Letter and Broker's Rule 144 Compliance letter relative to the
transfer of such shares.
[ii] The second installment paid to Sellers by Purchaser consisting of
250,000 shares of common capital stock with a legend contain SEC Rule 144
Restriction dated December 30, 1997, has a shortfall in the guaranteed price as
of December 30, 1998. It is agreed among the parties hereto that the common
capital stock closed on December 30, 1998 at a price of thirty-two (.32) cents.
It is agreed between the parties that the shortfall in the price of the second
250,00 issued to the parties in the proportions mentioned hereinabove is to be
paid and satisfied by the issuance and delivery on January 18, 1999 (affective
as of December 30, 1998) of additional shares of SEC 144 restricted capital
stock aggregating 1,312,500 shares. The selling parties and commission agent
have accepted this option of payment of the calculated shortfall of $420,000 in
the guaranteed minimum trading value of the 250,000 shares on December 30, 1998
in lieu of cash. Additionally ERHC will cause its SEC counsel, Mintmire &
Associates, Attn: Ms. Mercedes Travis, 265 Sunrise Avenue Suite 204, Palm Beach,
Florida 33480 to issue an opinion letter authorizing the transfer agent to lift
the Rule 144 restrictive legend from the 250,000 shares previously issued on
December 30, 1997 upon presentation to SEC counsel of a copy of the SEC Form
144. Seller's Representation Letter and Broker's Rule 144 Compliance letter
relative to the transfer of such shares.
[iii] On January 18, 1999, ERHC shall cause to be issued and delivered
to the Sellers and Joseph H. Lorenzo, the commission agent, in the proportions
mentioned in the purchase agreement of September 29, 1997, the balance of
500,000 shares of its common capital stock remaining to be issued with a legend
of SEC Rule 144 restriction, but the same shall be issued so that the shares and
effective date for Rule 144 holding period purposes commences on March 30, 1998
for 250,000 shares and June 30, 1998 for the final 250,000 shares. The shares
issued pursuant to this paragraph shall have the registration rights set forth
in Paragraph 3 of the terms and conditions of this compromise and settlement
agreement.
[iv] On January 18, 1999, should there exist any shortfall in the
guaranteed price for the 500,000 shares of capital stock to be issued in
accordance with Paragraph 1(A)[iii] above, and its average market value (as
defined hereinafter), such shortfall shall be made up with the issuance and
delivery on January 18, 1999 of additional shares of common stock in ERHC in the
same proportions to the Sellers and Mr. Joseph H. Lorenzo, the commission agent,
with an SEC Rule 144 Restriction contained in the legend of said certificates.
Average market price on January 18, 1999 shall be determined by an average
closing price using the dates of 1/11/99, 1/12/99, 1/13/99 1/14/99 and 1/15/99,
excluding the highest and lowest of such closing price.
<PAGE>
[v] It is understood by and between all parties hereto that upon
conclusion of the signing of the final compromise and settlement agreement by
the parties hereto and closing thereof, the guarantees of minimum stock values
as of any date of trading by the holders thereof shall have been terminated and
satisfied in full by ERHC other than as set forth herein.
B.] [i] ERHC will reimburse COCONINO and PVE for the AAA filing fees of
Five Thousand ($5,000) Dollars and no more upon the date of signing by the
parties hereto and closing of the final settlement agreement. (Payment will be
made by two bank checks, one to COCONINO and one to PVE, each for Two Thousand
Five Hundred ($2,500) Dollars. If AAA does not refund LORENZO his AAA filing
fees of Seven Hundred Fifty Dollars ($750) by the date of signing by the parties
hereto and closing of the final settlement agreement, then ERHC will reimburse
LORENZO said $750 and no more by bank check (and ERHC shall thereupon be
assigned any right of LORENZO to receive such refund from AAA, and LORENZO shall
endorse and deliver to ERHC any such refund that he may subsequently receive
from AAA).
[ii] ERHC will, upon the date of signing by the parties hereto and closing
of the final settlement agreement, issue and deliver two unsecured promissory
notes, one to COCONINO and one to PVE, each in the sum of Twelve Thousand Five
Hundred Dollars ($12,500), as reimbursement toward attorneys fees they have paid
their respective attorneys. Said promissory notes shall be in the form of the
"Exhibit A". The notes shall mature and be due in full within six months from
their stated issuance date. The notes shall not bear interest if they paid in
full on or before their stated maturity date. If a note is not paid in full upon
maturity, that note shall bear interest at the rate of six percent (6%) per
annum, accruing from that note's stated maturity date and continuing thereafter
until that note is paid in full. Any partial payments made after a note's stated
maturity date shall first be applied to recoverable expenses, then interest,
then principal on account of that note. ERHC shall not make any payment to
LORENZO on account of attorneys fees LORENZO may have incurred.
C.] In addition to all of the above, COCONINO, upon the date of signing
by the parties hereto and closing of the final settlement agreement, will be
paid by ERHC by bank check the sum of Twelve thousand, and no/100 ($12,000)
Dollars representing the price for a color copier and fax machine in the
possession of ERHC.
D.] At the date of signing by the parties hereto and closing of the
final settlement agreement, COCONINO and PVE will cause quitclaim deeds and
assignment to be signed by them to ERHC in a reasonable form prepared and
approved by ERHC's counsel, relating to any and all mineral lease agreements
previously assigned to it by UINTA and further than COCONINO will cause a bill
of sale to be issued to ERHC relating to the color copier and fax machine in the
possession of ERHC.
E.] Upon signing of the final compromise and settlement agreement by
all parties hereto, the arbitration proceedings presently pending before the
American Arbitration Association shall be suspended by the joint motion of all
parties hereto and the arbitrator shall retain jurisdiction in this matter until
the settlement agreement has been performed in full (including payment of the
promissory notes issued for the attorneys' fees) as well as the expiration of
the applicable SEC Rule 144 holding period to have expired for the common
capital stock to be issued under the terms and conditions of this compromise and
settlement agreement. After all obligations and consideration agreed upon
mutually between the parties have been delivered and such obligations have bee
fully performed and discharged, then the arbitration proceedings shall be
dismissed with full prejudice to all parties.
2. SEPARATE OBLIGATIONS OF ERHC
TO UINTA OIL & GAS, INC., and
CRAIG PHILLIPS
The Agreement to Purchase between ERHC, COCONINO, PVE AND UINTA dated
September 29, 1997 provided for ERHC to pay to an escrow account the sum of
$250,000 in certified, immediately available funds for the benefit of UNITA to
pay certain of its creditors. The source of the payment to this escrow account
by ERHC was to come from certain funding transactions in progress at the time of
the said agreement which did not close. ERHC was further to reserve in favor of
UINTA from the assignment of all of the Sellers' collective interest in
twenty-two (22) oil, gas and mineral leases a four percent (4%) overriding
royalty interest on the gross production receipts from said leases up to a
maximum sum of $677,000. As a consideration of this compromise and settlement
agreement and without which the same would not have been made, ERHC, UINTA and
CRAIG PHILLIPS agree as follows:
A.] ERHC shall cause to be issued to UINTA from its authorized capital
stock, common capital stock in lieu of $125,000 cash, which shares shall have
the registration rights set forth in Paragraph 3 of the terms and conditions of
this compromise and settlement agreement, and shall cause to issued to UINTA
additional common capital stock with an SEC Rule 144 restriction in lieu of the
remaining $125,000 cash consideration. The number of shares to be issued shall
be determined by the average closing price on the market quoted for the five
trading days preceding January 18, 1999, (i.e. 1/11/99, 1/12/99, 1/13/99,
1/14/99 and 1/15/99) with elimination of the highest and lowest prices quoted.
The average market value calculated for the stock shall then be
<PAGE>
divided into the sum of $250,000 to determine the actual number of free trading
and restricted stock to be issued of said shares as soon as practical following
January 18, 1998 or the signing of the final compromise and settlement agreement
by the parties and closing of the same which ever shall last occur.
B.] UNITA will cause to be assigned to ERHC, in the form approved by
its counsel, all overriding royalty interest (4% of gross production revenues)
in the 22 oil, gas and mineral leases previously assigned to ERHC by UNITA
located in Uintah and Duchesne Counties, Utah. ERHC will cause to be issued to
UNITA restricted (SEC Rule 144 Stock) common capital stock in ERHC having a
value of $677,000 as determined by the average market price under the same terms
and conditions as the restricted stock issued under the preceding paragraph. The
number of shares to be issued shall be determined by the average closing price
on the market quoted for the five trading days preceding January 18, 1999, (i.e.
1/11/99, 1/12/99, 1/13/99, 1/14/99 and 1/15/99) with elimination of the highest
and lowest prices quoted. The average market value calculated for the stock
shall then be divided into the sum of $677,000 to determine the actual number of
restricted stock t be issued in accordance with the terms of this paragraph of
the agreement. This capital stock would be placed in an escrow for the benefit
of UNITA and its creditors whose names and respective amounts due each were
annexed to the purchase agreement dated September 29, 1997. Withdrawals for
satisfaction of creditors would require the joint authorization of ERHC and
UINTA. Should the total of indebtedness be satisfied by payment of stock or its
proceeds, said transfer or sale shall be conducted in accordance with SEC Rule
144. Should the total of indebtedness be satisfied by payment of stock or its
proceeds in an amount less than the total of $677,000, the difference will be
released to UINTA and such transfer or sale shall be conducted in accordance
with SEC Rule 144.
C.] ERHC agrees to replace and release UINTA from all performance or
indemnity bonds which remain outstanding on the properties affected by this
settlement agreement including but not limited to the BLM bond and the twelve
mile wash property and will provide UNITA with proof of such replacement bonds
and release of UINTA as soon as practical following execution of the settlement
agreement by all parties and the closing of the final settlement agreement which
shall be no longer than thirty (30) days following closing. Furthermore, ERHC
agrees to hold UINTA harmless from any liability on such bonds presently
outstanding. In regard to the well on the twelve mile wash lease, which was lost
due to nonpayment of the lease obligation, the same would be bonded by ERHC
within thirty (30) days of the execution of the compromise and settlement
agreement by the parties and closing of the final settlement agreement. ERHC
agrees to hold harmless from all liability for required environmental
remediation services. ERHC will provide UINTA with proof of the bonding.
D.] In regard to the field office building, purchased by ERHC from
Craig Phillips and Robert Rallow individually, ERHC agrees to assume the then
existing debt of approximately $30,000, plus a transfer of 24,000 free trading
shares of common stock of ERHC. At the time the transfer of capital stock was to
take place, the market value thereof was approximately $70,000 or $2.92 per
share. The purchase price for the field office was to be $100,000. The shares
were to be in a proportion of 60% to Craig Phillips and 40% to Robert Ballou.
These transfers did not occur until March of 1998 when the market value of said
shares had dropped to $1.20 per share. ERHC will cause to be issued shares of
its common capital stock, which shares shall have the registration rights set
forth in Paragraph 3 of the terms and conditions of this proportions set forth
herein to make up the shortfall of the value of shares issued in the gross
amount of $41,200.
The number of shares to be issued shall be determined by the average closing
price on the market quoted for the five trading days preceding January 18, 1999,
(i.e. 1/11/99, 1/12/99, 1/13/99, 1/14/99 and 1/15/99) with elimination of the
highest and lowest prices quoted. The average market value calculated for the
stock shall then be divided into the sum of $41,200 to determine the final
number of shares to be issued to Craig Phillips and Bob Ballou.
E.] ERHC will reimburse UINTA for any court costs or filing fee paid by
it in the lawsuit filed in the Eighth District Court, Uintah County, Utah in
cash at the time of the signing of this compromise and settlement agreement b
the parties o the closing date which ever later occurs. ERHC will, upon the date
of signing by the parties hereto and closing of the final settlement agreement,
issue an unsecured promissory to UINTA and CRAIG PHILLIPS jointly in the maximum
principal sum of $10,000 to be utilized as reimbursement of attorney fees paid
by them collectively to their attorney of record. Daniel S. Sam, P.C. The note
will be non interest bearing until its maturity and then only at six (6%) and
shall become due six months from its date.
F.] ERHC will cause to be paid to Stripper Operators, Inc., its
invoices for services performed for ERHC between December 1, 1997 to the present
time in the approximate current amount of $18,000 and to Production Service
Company invoices dated between February 1,1998 and to present in the approximate
current amount of $9,000 by transfer of common capital stock in ERHC, which
shares shall have the registration rights set forth in Paragraph 3 of the terms
and conditions of this compromise and settlement agreement in lieu of cash
payment. The number of shares to be issued shall be determined by the average
closing price on the market quoted for the five trading days preceding January
18, 1999, (i.e. 1/11/99, 1/12/99, 1/13/99, 1/14/99 and 1/15/99) with elimination
of the highest and lowest prices quoted. closing price on the market quoted for
<PAGE>
the five trading days preceding January 18, 1999, (i.e. 1/11/99, 1/12/99,
1/13/99, 1/14/99 and 1/15/99) with elimination of the highest and lowest prices
quoted. The average market value calculated for the stock shall then be divided
into the sum of $18,000 to determine the final number of shares to be issued to
Stripper Operations, Inc. The average market value calculated for the stock
shall then be divided into the sum of $9,000 to determine the final number of
shares to be issued to Production Service Company. The transfer shall take place
a soon as practical after all filing requirements of SEC have been accomplished
and the shares have been registered in accordance with law by the SEC counsel
for ERHC
G.] Upon signing of the final compromise and settlement agreement by
all parties hereto and the delivery of all considerations mentioned hereinabove,
including receipts and releases of all parties hereto, in such form and content
approved by counsel for ERHC as well as counsel for all other parties hereto,
the arbitration proceeding presently pending before the American Arbitration
Association shall be suspended by joint motion of all parties without prejudice.
The final dismissal of the arbitration proceedings with full prejudice to all
parties therein shall be governed by the provisions of Paragraph 1(E) of this
compromise and settlement agreement. Additionally, if not already accomplished,
immediately upon signing of the final compromise and settlement agreement by all
parties hereto, the civil action pending or dismissed without prejudice in the
Eighth District Court, Uintah County, Utah entitled and bearing Docket Number on
the docket of said Court shall be subject of a complete release for all named
defendants therein by both UINTA and CRAIG PHILLIPS and dismissed with full
prejudice to all parties named as defendants therein.
3. REGISTRATION RIGHTS
As to the shares of common capital stock to be issued pursuant to Paragraph
2(A), 2(D) and 2(F), ERHC shall cause to be issued as soon as practicable after
the date of signing by the parties and closing of the final settlement
agreement, shares of common capital stock bearing a Rule 144 restrictive legend.
Upon execution of this agreement, ERHC shall include the shares set forth in
Paragraph 1(A)(iii), 2(A), 2(D), and 2(F) in Amendment 3 to its registration
statement on SEC form S-1, Registration Number 333-43919 (the "Registration")
listing the holder thereof as selling shareholders. Upon the effectiveness of
such Registration, said shares will be fully registered and the holder shall be
entitled to submit such shares to the transfer agent for replacement shares
without legend, or notify the transfer agent at the time of sale that such
shares are fully registered and may be sold without restriction.
THIS MEMORANDUM IS INTENDED TO REPRESENT THE ENTIRE COMPROMISE AND SETTLEMENT
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE AMENDED, MODIFIED OR CHANGED IN ANY
SUBSTANTIAL AND SUBSTANTIVE MANNER WITHOUT THE WRITTEN CONSENT OF ALL PARTIES
HEREIN. THIS AGREEMENT IS FURTHER INTENDED TO BE BINDING ON ALL PARTIES HEREIN,
THEIR HEIRS, AGENTS, ASSIGNS, LEGAL REPRESENTATIVES AND SUCCESSORS.
This memorandum compromise and settlement agreement may be executed in
counterparts each of which shall be an original but all of which shall
constitute but one agreement.
THUS done and signed at Lafayette, Louisiana this day of January, 1999.
WITNESS: ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION, through its counsel,
Charles N, Wooten
Ltd.
/S/ Claudine L Desomiaux by: /S/ Charles N. Wooten, Sr.
Charles N. Wooten, Sr.
/S/ Lulu L Bendila
THUS done and signed at Salt Lake City, Utah this day of January, 1999.
WITNESS: COCONINO, S.M.A., INC., through its counsel, Fabian
and Clendenin, A Professional Law Corp.
/S/ Connie L Manley by: /S/ Robert Palmer Rees
Robert Palmer Rees, Esq.
/S/ Scott M Peterson
THUS done and signed at Southfield, Michigan this day of January, 1999.
WITNESS: PINE VALLEY EXPLORATION, INC., through its
counsel, Sullivan, Ward, Bone, Tyler & Asher, P.C.
/S/ Alice Yee Simpson by: /S/ Stuart Tompkins
A. Stuart Tompkins, Esq.
/S/ Jacqueline M Beauton
THUS done and signed at Vernal, Utah this day of January, 1999.
WITNESS: UINTA OIL AND GAS, INC., and CRAIG PHILLIPS,
individually, through their counsel, Daniel S. Sam, P.C.
<PAGE>
/S/ Bryan Smith by: /S/ Daniel S. Sam
Daniel S. Sam, Esq..
/S/ Peggy Johnson
THUS done and signed at Denver, Colorado this day of January, 1999.
WITNESS: JOSEPH H. LORENZO, through his counsel of record,
Baker & Hostetler, LLP
/S/ Jean Kiley by: /S/ Phillip S. Lorenzo
Phillip S. Lorenzo, Esq.
EXHIBIT 23.1
Environmental Remediation Holding Corporation
3-5 Audrey Avenue
Oyster Bay, New York 11771
INDEPENDENT AUDITOR'S CONSENT
Ladies and Gentlemen:
We hereby consent to the use in this Registration Statement of Environmental
Remediation Holding Corporation on Amendment 3 to Form S-1 of our report
dated January 21, 1999 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 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited financial statements of Environment Remediation Holding Corporation for
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000799235
<NAME> Environmental Remediation Holding Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 55,185
<SECURITIES> 0
<RECEIVABLES> 193,736
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 504,980
<PP&E> 7,675,288
<DEPRECIATION> 1,020,626
<TOTAL-ASSETS> 11,691,218
<CURRENT-LIABILITIES> 5,337,318
<BONDS> 0
0
0
<COMMON> 2,600
<OTHER-SE> (2,733,509)
<TOTAL-LIABILITY-AND-EQUITY> 11,691,218
<SALES> 99,278
<TOTAL-REVENUES> 99,278
<CGS> 0
<TOTAL-COSTS> 11,681,706
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,480,191
<INCOME-PRETAX> (11,582,428)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,582,428)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,582,428)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
