<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
------- ACT OF 1934 (Fee Required)
For the fiscal year ended: DECEMBER 31, 1997
-----------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
------- EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission file number: 33-34200
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OMEGA DEVELOPMENT, INC.
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(Name of small business issuer in its charter)
Nevada 13-3476854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9422 S. College Pl., Suite 222
Tulsa, OK 74137
- ------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer(s)telephone number: (918)299-3212
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- --------------------------------------------------------------------------------
(Former name, former address or former fiscal year, if changed since last
report)
Securities registered under Section 12(b) of the Exchange Act: None
----
Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par
Value, $.001
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [ X ]
State Issuer's revenues for its most recent fiscal year. $ 0 .
----
State the aggregate market value of the voting stock held by non-affiliates.
The Common Stock does not trade on any recognized stock exchange.
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State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date. 15,000,000 shares of common
---------------------------
stock, $.001 par value, as of March 10, 1998.
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DOCUMENTS INCORPORATED BY REFERENCE: NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT. YES NO X
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<PAGE>
FORM 10-KSB
OMEGA DEVELOPMENT, INC.
ANNUAL REPORT
DECEMBER 31, 1997
Table of Contents
PART I
Page
----
Item 1. Description of Business . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 3
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . 3
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . 4
Item 6. Management's Discussion and Analysis or
Plan of Operation . . . . . . . . . . . . . . . . . . . 5
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . 7
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . 7
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons, Compliance With Section 16(a)
of the Exchange Act . . . . . . . . . . . . . . . . . . 8
Item 10. Executive Compensation . . . . . . . . . . . . . . . . 9
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . 10
Item 12. Certain Relationships and Related Transactions . . . . 11
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
(i)
<PAGE>
OMEGA DEVELOPMENT, INC.
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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General
- -------
Omega Development, Inc. ("Omega" or "the Company") was incorporated in the State
of Nevada on July 15, 1988 under the name of "Lewison Enterprises, Inc." Since
then the Company has experienced a series of business consolidations and
reorganizations, the most recent of which are discussed below. At present, the
Company has no ongoing business operations.
Omega's business plan during the first three quarters of 1996 consisted of
operating its sole operating property and development of the Home Partners of
America, Inc. business. In June 1995, Omega Development, Inc., acquired all of
the common stock of Home Partners of America, Inc. ("HPA"), a New Jersey
corporation. Home Partners of America is a home improvement financing and
services corporation. HPA is a development stage company and was to provide
home improvement loans that were to be 90% insured by the Federal government
under the HUD-FHA Title I Property Improvement Program, and conventional home
improvement loans for bank portfolios. Prior to this acquisition, the Company's
sole operating asset since its 1994 Reorganization, was the ABB Building, a
142,000 square foot general purpose office building, located in Windsor,
Connecticut, a suburb of Hartford. The ABB Building is 100% occupied by one
tenant. The Company negotiated a new lease with the tenant in March 1996 and
attempted to refinance the debt on the building (See "Item 2. - Description of
Property"). However, the Company was not successful and the bank that held the
mortgage on the property instituted foreclosure proceedings, which were
consummated on September 27, 1996. Since the ABB Building was the Company's
only operating asset, management was additionally forced to cease its
development plans in connection with HPA. Since that time the Company has had
no ongoing operations and minimal activity.
Acquisition of Home Partners of America, Inc.
- ---------------------------------------------
In a transaction consummated June 21, 1995, Omega acquired all of the common
stock of Home Partners of America, Inc., a New Jersey corporation. HPA is in the
home improvement financing and services business. HPA was to provide home
improvement loans that were 90% insured by the Federal government under the HUD-
FHA Title I Property Improvement Program, and conventional home improvement
loans for bank portfolios. Generally, these loans would qualify as community
reinvestment loans. HPA was also to
1
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provide homeowners with technical services including, home inspections, cost
estimates, contractor qualification, subcontracting, project supervision and
completion certifications. However, as discussed above, management was forced to
cease its development plans in connection with HPA. In December 1996, the HPA
subsidiary was sold to the principal shareholder of the Company for a nominal
amount.
Plan of Operation
- -----------------
The Company's business plan at December 31, 1997 is to seek to acquire or merge
with potential businesses that may, in the opinion of management, warrant the
Company's involvement. The Company recognizes that as a result of its limited
financial, managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited. The Company's
principal business objective will be to seek long-term growth potential in the
business in which it participates rather than immediate, short-term earnings.
As of December 2, 1997, the Company entered into a Stock Exchange Agreement and
Plan of Reorganization to acquire Heater Specialists, Inc. and Primenergy, Inc.
See footnote 10, Pending Merger, to the Financial Statements following on page
F-11.
Employees
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As of December 31, 1997, the Company employed 1 person.
ITEM 2. DESCRIPTION OF PROPERTY
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As of December 31, 1997, the Company neither owned nor leased any property.
During the first three quarters of 1996, the Company's sole operating asset was
a 100% interest in the Omega-Hartford Limited Partnership, which owned the ABB
Building, a 142,000 square foot office building. In a transaction consummated
in March 1996, the Company executed an extension of the lease on the building
with the tenant through September 2002. However, Omega could not successfully
refinance the debt and the bank who held the mortgage on the property instituted
foreclosure proceedings, which were consummated on September 27, 1996.
The Company's executive offices are located in Tulsa, Oklahoma, and until
October 1996, occupied office space under an operating lease covering
approximately 1,900 square feet, which was scheduled to expire in July 1998.
The annual rent for these offices was approximately $23,800. In October 1996,
the Company found other tenants for its office space and the landlord cancelled
its lease.
2
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ITEM 3. LEGAL PROCEEDINGS
- -----------------------------
A former employee of the Company's previously owned subsidiary, HPA, sued the
Company in March 1996 for unpaid wages and other claims related to loan advances
to another former employee of the Company. In November 1997, the Company agreed
with the former employee to settle the lawsuit following an arbitration hearing
for the payment of $12,000 in exchange for a full release of all claims by the
former employee. The lawsuit was settled in January 1998 by payment of $12,000
to the former employee in exchange for a full release of all claims by the
former employee.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
There were no matters submitted to the Company's stockholders during the fourth
quarter of the fiscal year ended December 31, 1997.
3
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------
To date there has been no significant public market for the Company's Common
Stock. In light of the Company's lack of business operations or properties as
of December 31, 1997, it is unlikely its Common Stock had any value other than a
nominal value. Of the 15,000,000 shares of the Company's common stock presently
outstanding, approximately 14,252,130 shares or 95.0% are "restricted
securities," as the SEC's rules and regulations define such term. The holders
of these restricted shares may not sell them in the public market unless they
are first registered for sale under the Act, or are sold in compliance with Rule
144 under the Act. The holders of approximately 8,784,564 shares are
"affiliates," as defined by the Act (See "Item 11. - Security Ownership of
Certain Beneficial Owners and Management," following).
In connection with the acquisition of HPA in 1995, the selling stockholders
received demand and "piggyback" registration rights for the Common Stock
exchanged and for the Common Stock into which the Series C Preferred Stock was
converted. Additionally, under the terms of a private offering under which
209,000 shares of Common Stock have been sold, the investors were granted
registration rights within six months after the closing date of the offering.
The principal shareholder of the Company made a capital contribution of $18,920
in 1997 to pay certain liabilities of the Company.
As described above, approximately 14,252,130 shares of the Company's Common
Stock which are currently outstanding are "restricted" securities, as Rule 144
promulgated under the Act defines that term. In the future, the holders of
these shares may sell them in compliance with Rule 144. Generally under Rule
144, a person holding restricted securities for a period of at least one year
may, if there is adequate public information available concerning the Company,
every three months sell in ordinary brokerage transactions or transactions with
a market maker an amount equal to the greater of (i) 1% of the Company's then
outstanding stock, or (ii) the average weekly volume of sales during the four
calendar weeks preceding the sale. After two years have elapsed, a person who
is not an affiliate of the Company may sell an unlimited amount of the
---
restricted securities. Under Rule 144, however, affiliates of the Company are
subject to these volume limitations as long as they are affiliated with the
Company and for a period of at least three months after their affiliation ends,
regardless of the length of the holding period. Sales under Rule 144 may, in
the future, tend to depress the market price of the Company's securities should
a public market develop.
4
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At February 12, 1998, there were approximately 571 record holders of the
Company's Common Stock. The Company has not paid any cash dividends on shares
of its Common Stock since its inception and currently intends to retain earnings
in the future for the Company's operations and expansion of its business.
ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ---------------------------------------------------------------------
PLAN OF OPERATION
-----------------
The Company's business plan at December 31, 1997 is to seek to acquire or merge
with potential businesses that may, in the opinion of management, warrant the
Company's involvement. The Company recognizes that as a result of its limited
financial, managerial or other resources, the number of suitable potential
businesses that may be available to it will be extremely limited. The Company's
principal business objective will be to seek long-term growth potential in the
business in which it participates rather than immediate, short-term earnings.
In seeking to attain its business objectives, the Company will not restrict its
search to any particular industry. As of December 2, 1997, the Company entered
into a Stock Exchange Agreement and Plan of Reorganization to acquire Heater
Specialists, Inc. and Primenergy, Inc. See footnote 10, Pending Merger, to the
Financial Statements following on page F-11.
The Company's business plan during the first three quarters of 1996 consisted of
operating its sole operating property and development of the Home Partners of
America, Inc. ("HPA") business. With the loss of the ABB Building through
foreclosure (See Item 1, Description of Business, above), management was forced
to abandon its plans to pursue development of the HPA business. In December
1996, the HPA subsidiary was sold to the principal shareholder of the Company
for a nominal amount. Since that time the Company has had no ongoing operations
and minimal activity.
At present, the Company has only one employee, no office and the on going
general and administrative expenses are near zero. During 1996, the Company had
a significant working capital deficit and suffered a severe cash flow problem.
The Company has relied on equity contributions from a stockholder, small equity
placements under a private placement memorandum and loans from Directors and a
private investor to fund its current overhead. Such equity placements totaled
$58,000 in calendar 1996. The equity placements were in the form of Units
consisting of (i) one share of common Stock; (ii) one common stock purchase
warrant, which was exercisable into one share of Common Stock per warrant until
October 31, 1996, at a price of $2.00; and (iii) one common stock purchase
warrant, which was exercisable into one share of Common Stock per warrant until
October 31, 1997, at a price of $3.00. Working capital loans from Directors and
a private investor totaled $79,000 in 1996. In connection
5
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with the working capital loans in 1996, the Company issued a total of 30,000
shares of Common Stock. The principal shareholder of the Company made a capital
contribution of $18,920 in 1997 to pay certain liabilities of the Company.
In December 1996, management reached an agreement with many of its creditors and
the holders of the Preferred Stock whereby they would convert their respective
liabilities and Preferred Stock to shares of the Company's Common Stock. In
total, $1,061,666 of accounts payables and accrued liabilities were converted to
3,132,583 shares of Common Stock. The Preferred Stock was converted into 666,667
shares of Common Stock in accordance with a previous agreement.
RESULTS OF OPERATIONS - FISCAL 1997 VS. FISCAL 1996
---------------------------------------------------
The net loss for the year ended December 31, 1997 was $32,148 compared to a net
loss of $1,939,706 for the year ended December 31, 1996. Generally, the
decreased net loss for the current year is attributable to the loss recognized
in the third quarter of 1996 from writing off the Excess of Cost Over Book Value
of Investment in Subsidiary ($2,352,098), offset by the extraordinary gain
($1,226,243) recognized from the extinguishment of debt in connection with the
foreclosure on the Company's sole operating asset, the ABB Building in Hartford,
Connecticut, in the third quarter of 1996.
Rental income decreased to zero in the year ended December 31, 1997 compared to
approximately $786,000 in the year ended December 31, 1996. The reduction in
rental income was primarily due to the cessation of rental income from the
Company's ABB Building due to the bank foreclosure on the building in September
1996.
The gain on sale of subsidiary of $153,775 in 1996 resulted from the sale of the
HPA subsidiary to the principal shareholder of the Company. The gain related to
the assumption of liabilities in excess of assets of HPA by the principal
shareholder.
General and administrative expenses decreased approximately $257,600 (91%) in
the current year as compared to the prior year. The reduction is primarily due
to a general winding down of the business since October 1996.
Depreciation and amortization expenses decreased approximately $710,200 (99%) in
1997 as compared to 1996. This decrease is primarily attributable to the bank
foreclosure on the ABB Building in September 1996, whereby no depreciation was
taken on the building in the current year.
6
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Interest expense declined to zero in the year ended December 31, 1997 as
compared to approximately $754,600 in the year ended December 31, 1996. This
decline is a result of the bank foreclosure on the ABB Building in September
1996.
No income tax expense or benefit has been recorded for 1997, as a valuation
allowance has been provided for the tax effects of the entire net operating loss
carry forwards and other net deductible temporary differences.
Some of the information in this report constitutes "forward looking" statements
within Omega's interpretation of the Private Securities Litigation Reform Act of
1995. Although Omega believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its businesses, there is no
assurance these transactions and financial goals will be achieved. Factors that
could cause actual results to differ from those in forward looking statements,
or used as a basis for forward looking statements, include the success in the
Company's plan to acquire or merge with potential businesses that may warrant
the Company's business.
ITEM 7. FINANCIAL STATEMENTS
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The information required by this Item begins at page F-1 following page 15
hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ---------------------------------------------------------------------------
FINANCIAL DISCLOSURE
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None.
7
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
- -------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows. The Company
expects that these persons will serve in these offices until the next annual
meeting or until their respective successors are elected and qualified:
Name Age Position
- -------------------- ------- ----------------------------
A. Paul Shapansky 47 Chairman of the Board, President
and Chief Executive Officer and
Principal Financial Officer
Herbert Maxwell 76 Director
A. Paul Shapansky. Mr. Shapansky joined the Company in January 1994 as Chief
- ------------------
Operating Officer and was appointed Chairman, President and Chief Executive
Officer in December 1994 in connection with the 1994 Reorganization. He has
served as a financial consultant to the Company through his investment banking
firm, A.G. Group Inc., since March 1993 and was responsible for the combination
with Lewison Enterprises, Inc. and Omega Development Corp. in July 1993,
arranging new funding for the Company's operations and the 1994 Reorganization
in December 1994. Mr. Shapansky has been President and owner of A.G. Group
Inc., an investment banking firm, since 1988. From September 1996 to September
1997, Mr. Shapansky was a Financial Advisor for Prudential Securities, Inc.
Previously, Mr. Shapansky was President of Struthers Industries, Inc. (SIR-
AMEX), a company in the aerospace industry, from May 1991 to January 1992 where
he arranged for Struthers to purchase Peacock Aerospace from Nortek, Inc. for
$5.4 million and listed Struthers on the American Stock Exchange in December
1991. He was formerly Vice-President Finance, Secretary and a Director of
C.I.S. Technologies, Inc. (CISI-NASDAQ National Market System) from January 1985
to January 1988 where he completed equity financing for C.I.S. of more than $35
million for its startup in the health care industry. Mr. Shapansky has a
Bachelor of Commerce (Honours) degree in Actuarial Mathematics and Finance, from
the University of Manitoba in Winnipeg, Canada.
8
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Herbert Maxwell. Mr. Maxwell has been a director of the Company since December
- ---------------
1994. He has been self-employed as a crisis management consultant and investor
for over 20 years. Mr. Maxwell resides in the Manhattan district of New York
City and also serves as President and a director for Zachary Ventures, Inc. and
is a director on numerous other private companies.
The Company's directors are elected for one year terms and hold office until
their successors are elected. The number of directors serving on the Board is
three. The Company's officers are elected annually by the Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's common stock, to report their initial ownership of the
common stock and any subsequent changes in that ownership to the SEC and to
furnish the Company with a copy of each such report. SEC regulations impose
specific due dates for such reports, and the Company is required to disclose any
failure to file by these dates.
To the Company's knowledge, during and with respect to fiscal 1997, all Section
16(a) filing requirements applicable to its officers, directors and more than
ten percent stockholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
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No executive officer of Omega met the definition of "highly compensated" within
the meaning of the Securities and Exchange Commission's executive compensation
disclosure rules.
Stock Options
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The Company has never had an employee stock option or other plan under which
cash, stock, restricted stock, phantom stock, stock options, stock appreciation
rights, warrants, convertible securities, performance units and performance
shares, or similar instruments may be awarded.
9
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Compensation Of Directors
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Directors receive no additional compensation for service on the Board of
Directors or any committee thereof. All Directors are reimbursed by the Company
for out-of-pocket expenses incurred by them in connection with their service on
the Board of Directors and any committee thereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Principal Shareholders - Common Stock
- -------------------------------------
The following table shows the number of shares of Common Stock of the Company
beneficially owned, as of February 26, 1998, by (i) the persons known to the
Company to be the beneficial owners of more than five percent (5%) of the
outstanding shares, (ii) each of the directors of the Company, (iii) the
Company's Chief Executive Officer, and (iv) by all executive officers and
directors of the Company as a group, as follows:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned Outstanding Shares
- ---------------- ------------------ ------------------
<S> <C> <C>
A. Paul Shapansky 7,352,429 (1) 49.0%
9422 S. College Pl.
Suite 222
Tulsa, OK 74137
Herbert Maxwell 1,432,135 9.6%
1501 Broadway
Suite 1807
New York, NY 10036
Dennis W. Rendflesh 1,675,141 (2) 11.2%
508 Whiston Pl.
Edmonton, Alberta
Canada T6M2C6
RAS Investment Banking Group 1,600,000 10.7%
2 Broadway
New York, NY 10004-2801
All Executive Officers and 8,784,564 58.6%
Directors as a group (2 persons)
</TABLE>
(1) Of these shares, 1,830,000 shares are held by Omega Investors LLC No.
1, of which Mr. Shapansky is the Manager and
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Controlling Member, 1,000,000 shares are held in trust by Mr.
Shapansky's wife and 200,000 shares are held in trust for Mr.
Shapansky's minor children.
(2) Of these shares, 200,000 shares are held in trust by Mr. Rendflesh's
wife and 30,000 shares are held in trust for Mr. Rendflesh's minor
children.
Preferred Stock
- ---------------
In November 1993, the Company issued 400,000 shares of $5.00 par value Series B
Preferred Stock to Aviation Specialists, Inc. in connection with the acquisition
of an aircraft. The Preferred Stock paid a dividend of $.30 per share per year,
payable monthly and was convertible at the option of the holder into Common
Stock of Omega, at a ratio of one share of Preferred Stock for one share of
Common Stock. The Preferred Stock was also callable, at the option of Omega, at
a call price of $5.00 per share. Additionally, Omega could, at its option,
redeem the Preferred Stock at any time by transferring the aircraft back to the
seller and issuing 50,000 shares of its Common Stock to the seller. In the last
quarter of 1995 the Series B Preferred Stock was redeemed and canceled and the
plane was transferred back to the seller for 50,000 shares of Common Stock and
an agreement to pay the seller $120,000 in accrued Preferred Stock dividends.
In December 1996, the accrued Preferred Stock dividends were converted to Common
Stock by agreement.
In connection with the acquisition of HPA in June 1995, the Company exchanged
400,000 shares of newly issued Series C $5.00 par value convertible Preferred
Stock of Omega in partial payment of the purchase price for HPA. In December
1996, the 400,000 shares of Series C convertible Preferred Stock were converted
into 666,667 shares of Common Stock by agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------------------
Herbert Maxwell, a director of the Company, was issued 10,000 shares in March
1996 in connection with a working capital loan. Mr. Maxwell also received
90,466 shares in December 1996 in connection with the conversion of liabilities
to Common Stock. A. Paul Shapansky was issued 1,056,146 shares in December 1996
in connection with the conversion of liabilities to Common Stock. Mr. Shapansky
contributed $18,920 to the Company in 1997 to pay certain liabilities of the
Company. In December 1996, the HPA subsidiary was sold to the principal
shareholder of the Company (Mr. Shapansky) for a nominal amount.
11
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------------
(a) Exhibits
The following documents are included as exhibits to this Form 10-KSB.
Those exhibits below incorporated by reference herein are indicated as such
by the information supplied in the parenthetical thereafter. If no
parenthetical appears after an exhibit, such exhibit is filed herewith.
Exhibits
- --------
2.1 Agreement and Plan of Reorganization by and between Lewison Enterprises,
Inc., Omega Development Corp. and the shareholders of Omega Development
Corp. dated July 13, 1993 (Filed as Exhibit 2.1 to the Form 8-K dated July
23, 1993, previously filed with the Commission, File No. 33-34200).
2.2 Plan and Agreement of Reorganization by and among Omega Development Inc.,
Omega Development Corporation, P. Thomas Mann, Peter Allen Dysert, the
Peter Allen Dysert Trust UTI dated July 13, 1983, Kirby J. Bourgeois,
Toklan Oil & Gas Corporation, Stephen M. King Properties, Inc., A. Paul
Shapansky and Omega Investors L.L.C. No. 1 consummated on December 22,
1994 (Filed as Exhibit 2.1 to the Form 8-K dated December 22, 1994,
previously filed with the Commission, File No. 33-34200).
2.3 Stock Purchase/Exchange Agreement by and among Home Partners of America,
Inc., RAS Investment Banking Group, J. Tabs Investment and Michael Coleman
and Omega Development, Inc. dated June 2, 1995 (Filed as Exhibit 2.1 to
the Form 8-K dated June 21, 1995, previously filed with the Commission,
File No. 33-34200).
2.4 Stock Exchange Agreement and Plan of Reorganization by and between Omega
Development, Inc. And the shareholders of Heater Specialists, Inc. and
Primenergy, Inc. dated December 2, 1997.
3.1 (a) Articles of Incorporation of Lewison Enterprises, Inc. filed with the
Secretary of State of Nevada July 14, 1988 (incorporated by reference
to Registration Statement on Form S-1, File Number 33-34200, of
Lewison Enterprises, Inc.);
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(b) Amendment to Articles of Incorporation of the Company, as filed with
the Secretary of State of Nevada on September 22, 1989 (incorporated
by reference to Form 10-K of the Company [then known as The Postal
Group, Inc.] for year ended December 31, 1989);
(c) Amendment to Articles of Incorporation of the Company filed with the
Secretary of State of Nevada on October 27, 1992 (incorporated by
reference to Form 10-KSB of the Company for the year ended December
31, 1992);
(d) Amendment to Articles of Incorporation of the Company filed with the
Secretary of State of Nevada on January 19, 1994 (incorporated by
reference to Form 10-KSB of the Company for the year ended December
31, 1993).
3.2 Bylaws of the Company (incorporated by reference to Registration Statement
on Form S-1, File Number 33-34200, previously filed with the Commission).
4.1 Specimen Form of Certificate for Common Stock (incorporated by reference to
Registration Statement of Form S-1, File Number 33-34200, previously filed
with the Commission).
4.2 Board of Directors Action dated November 8, 1993, designating preferences
of Class B Preferred Stock, pursuant to authority in Certificate of
Amendment of Exhibit 3.1(c) above (incorporated by reference to Form 10-KSB
of the Company for the year ended December 31, 1993).
4.3 Specimen Form of Certificate for Preferred Stock (incorporated by reference
to Form 10-KSB of the Company for the year ended December 31, 1993).
10.1 Agreement and plan of Reorganization dated June 15, 1989 among the Company,
Mail-it-Quik, Inc., and the shareholders of Mail-it-Quik, Inc.
(incorporated by reference to Form 8-K dated June 30, 1989).
10.2 Rescission and revocation of Agreement and Plan of Reorganization
(incorporated by reference to Form 8-K dated December 31, 1990).
10.3 Agreement and Plan of Reorganization by and between Lewison Enterprises,
Inc., Omega Development Corp. and the shareholders of Omega Development
Corp. dated July 13, 1993 (incorporated by reference to Form 8-K dated July
23, 1993).
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10.4 HPA Stock Purchase Agreement by and between Omega Development, Inc. and
Omega Investors LLC #1, effective December 15, 1996 (incorporated by
reference to Form 10-KSB of the Company for the year ended December 31,
1996).
16.1 Letter dated August 17, 1995, issued by Arthur Andersen LLP addressing
Registrant disclosures in Form 8-K reporting a change in auditors (Filed as
Exhibit 1 to the Form 8-K dated August 15, 1995, previously filed with the
Commission, File No. 33-34200).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed with the Securities and
Exchange Commission during the last quarter of fiscal 1997.
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OMEGA DEVELOPMENT, INC.
Date: March 19, 1998 By: /S/A. Paul Shapansky
--------------------------
A. Paul Shapansky
Chairman of the Board, President
and Chief Executive Officer and
Principal Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
Signature Title Date
- ----------------------- --------------------- ----------
/S/A. Paul Shapansky Chairman of the Board, March 19, 1998
- --------------------- President and Chief
A. Paul Shapansky Executive Officer and
Principal Financial Officer
/S/Herbert Maxwell Director March 19, 1998
- ---------------------
Herbert Maxwell
15
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Omega Development, Inc.
We have audited the accompanying consolidated balance sheet of Omega
Development, Inc. and subsidiaries as of December 31, 1997 and the related
statements of operations and accumulated deficit, changes in stockholders'
deficit and cash flows for each of the two years in the period ended December
31, 1997. 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 disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Omega Development, Inc. and
subsidiaries as of December 31, 1997, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
February 25, 1998
F-1
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
ASSETS 1997
------------
<S> <C>
CURRENT ASSETS:
Prepaid expenses $ 492
OFFICE EQUIPMENT, at cost net of accumulated depreciation
of $18,511 in 1997 21,197
----------
TOTAL ASSETS $ 21,689
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 49,110
COMMITMENTS AND CONTINGENCIES (Note 8) --
STOCKHOLDERS' DEFICIT:
Common Stock, $0.001 par value; 25,000,000 shares authorized;
15,000,000 shares issued and outstanding 15,000
Additional Paid in Capital 4,604,134
Accumulated Deficit (4,646,555)
----------
Total Stockholders' Deficit (27,421)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 21,689
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES:
Rental income $ -- $ 785,970
Gain on sale of subsidiary -- 153,775
Other income -- 1,000
------------ ------------
Total revenues -- 940,745
------------ ------------
EXPENSES:
General and administrative 26,676 284,278
Depreciation and amortization 5,472 715,671
Interest -- 754,647
Write off excess of cost over book value
of investment in subsidiary -- 2,352,098
------------ ------------
Total operating expenses 32,148 4,106,694
------------ ------------
NET LOSS BEFORE EXTRAORDINARY ITEM (32,148) (3,165,949)
EXTRAORDINARY ITEM
Gain on extinguishment of debt -- 1,226,243
------------ ------------
NET LOSS (32,148) (1,939,706)
ACCUMULATED DEFICIT, beginning of period (4,614,407) (2,674,701)
------------ ------------
ACCUMULATED DEFICIT, end of period ($4,646,555) ($4,614,407)
============ ============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Loss before extraordinary item $ 0.00 ($0.28)
Extraordinary gain 0.00 0.11
------------ ------------
Net loss per common share $ 0.00 ($0.17)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 15,000,000 11,178,455
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Preferred Common Common Additional
Shares Preferred Shares Stock Paid-In Accumulated
Outstanding Stock Outstanding Par Value Capital Deficit
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 400,000 $ 786,000 11,112,750 $11,113 $2,683,312 ($2,674,701)
Issuance of common stock in
connection with private equity
offering and notes payable -- -- 88,000 88 57,942 --
Conversion of liabilities and
preferred stock into common
stock (400,000) (786,000) 3,799,250 3,799 1,843,960 --
Net loss for the period -- -- -- -- -- (1,939,706)
---------- ----------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 0 0 15,000,000 15,000 4,585,214 (4,614,407)
Capital contribution by principal
shareholder -- -- -- -- 18,920 --
Net loss for the period -- -- -- -- -- (32,148)
---------- ----------- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 0 $0 15,000,000 $15,000 $4,604,134 ($4,646,555)
========== =========== ========== ========== ========== ==========
</TABLE>
F-4
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($ 32,148) ($1,939,706)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write off excess of cost over book value of
investment in subsidiary -- 2,352,098
Depreciation and amortization 5,472 715,671
Gain on sale of subsidiary -- (153,775)
Extraordinary gain on extinguishment of debt -- (1,226,243)
Changes in assets and liabilities:
Accounts receivable -- 174,760
Prepaid expenses 5,130 --
Deposits and other assets -- 697
Accounts payable and accrued liabilities 2,506 (77,895)
Increase in due to officers/stockholders -- 10,591
----------- -----------
Total adjustments 13,108 1,795,904
----------- -----------
Net cash used in operating activities (19,040) (143,802)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of office and other equipment -- 6,834
----------- -----------
Net cash provided by investing activities 0 6,834
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable -- 79,000
Proceeds from sale of common shares -- 58,000
Proceeds received from capital contribution 18,920 --
----------- -----------
Net cash provided by financing activities 18,920 137,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (120) 32
CASH, beginning of period 120 88
----------- -----------
CASH, end of period $ 0 $ 120
=========== ===========
Cash paid during the period for interest $ -- $ 740,995
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
OMEGA DEVELOPMENT, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
- --------------------------------------------
ORGANIZATION
- ------------
Omega Development, Inc. ("Omega" or "the Company") was incorporated in the State
of Nevada on July 15, 1988 under the name of "Lewison Enterprises, Inc." Since
then the Company has experienced a series of business consolidations and
reorganizations, the most recent of which are discussed below.
In June 1995 Omega acquired all of the common stock of Home Partners of
America, Inc. ("HPA"), a New Jersey corporation. HPA is a home improvement
financing and services corporation. HPA is a development stage company and was
to provide home improvement loans that were to be 90% insured by the Federal
government under the HUD-FHA Title I Property Improvement Program, and
conventional home improvement loans for bank portfolios. The Company's sole
operating asset during 1996 was the ABB Building, a 142,000 square foot general
purpose office building, located in Windsor, Connecticut, a suburb of Hartford.
The ABB Building is 100% occupied by one tenant and the Company negotiated a new
lease with the tenant in March 1996 and attempted to refinance the debt on the
building as described in Note 5. However, Omega could not successfully
refinance the debt and the bank that held the mortgage on the property
instituted foreclosure proceedings, which were consummated on September 27,
1996. Since the ABB Building was the Company's only operating asset, management
was additionally forced to cease its development plans in connection with HPA
(See also Note 3).
Since the foreclosure of the ABB Building , the Company ceased all operations
and currently has one employee. Omega's current business plan is to seek to
acquire or merge with potential businesses that may, in the opinion of
management, warrant the Company's involvement. The Company recognizes that as a
result of its limited financial, managerial or other resources, the number of
suitable potential businesses that may be available to it will be extremely
limited. The Company's principal business objective will be to seek long-term
growth potential in the business in which it participates rather than immediate,
short-term earnings. As of December 2, 1997, the Company entered into a Stock
Exchange Agreement and Plan of Reorganization to merge with Heater Specialists,
Inc. and Primenergy, Inc. See footnote 10, Pending Merger.
The principal stockholder of the Company has agreed to fund the operations of
the Company in sufficient amounts for the Company to meet its recorded
obligations at December 31, 1997, and its continued operations as a going
concern.
F-6
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------
CONSOLIDATION
- -------------
The Company's consolidated financial statements at December 31, 1997 include the
accounts of Omega and its wholly owned subsidiary, Omega Capital Corp. All
intercompany transactions have been eliminated.
REVENUE RECOGNITION
- -------------------
Tenant rental income under operating leases is recognized on a straight-line
basis over the lease term. Deferred rent receivable is recorded for those leases
that specify scheduled rent increases over the lease term or that provide for
initial rent periods without charge. However, deferred rent is not recorded if
there is doubt about its collectibility.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation is recorded using the straight-line method over the estimated
useful lives of the properties. Tenant improvements are included as a component
of investments in real estate and are amortized over the life of the lease or
the useful life of the improvement, whichever is shorter. Those lease terms
range from seven to 20 and 25 years for anchor tenants and average approximately
five years for other tenants. The remaining balance of tenant improvements is
charged to amortization expense if a tenant moves out.
INCOME TAXES
- ------------
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Deferred
---------------------------
taxes are determined based on the estimated future tax effects of differences
between the financial statements and tax basis of assets and liabilities and of
net operating loss carry forwards ("NOL"). SFAS 109 requires that the tax
benefit of such NOLs be recorded as an asset to the extent that management
concludes the realization of the NOLs is "more likely than not."
EARNINGS PER SHARE
- ------------------
In 1997, the Financial Accounting Standards Board issued statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
F-7
<PAGE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. BUSINESS DISPOSAL
- ---------------------
In a transaction consummated June 21, 1995 and accounted for as a purchase,
Omega acquired all of the common stock of Home Partners of America, Inc., a New
Jersey corporation. HPA is a home improvement loan financing and services
corporation. HPA was to provide home improvement loans that were 90% insured by
the Federal government under the HUD-FHA Title I Property Improvement Program,
and conventional home improvement loans for bank portfolios. HPA was also to
provide homeowners with technical services including, home inspections, cost
estimates, contractor qualification, subcontracting, project supervision and
completion certifications. However, as discussed above, management was forced
to cease its development plans in connection with HPA.
The Excess of Cost Over Book Value of Investment in Subsidiary related to the
HPA acquisition of $2,352,098 was expensed in September 1996 when management
decided not to pursue development plans of HPA. In December 1996, the HPA
subsidiary was sold to the principal shareholder of the Company for a nominal
amount, resulting in a gain of approximately $153,000 related to the assumption
of liabilities in excess of assets of HPA by the principal shareholder.
4. REAL ESTATE PROPERTIES
- --------------------------
The Company's sole operating asset during the first three quarters of 1996 was
the ABB Building in Windsor, Connecticut. In a transaction consummated in March
1996 the Company negotiated an extension of the lease on the building with the
tenant, and through September 1996 worked on agreements to refinance the
mortgage debt on the building with a new lender including an agreement with the
current lender to extinguish the previous mortgage on the building with a
substantial discount (see Note 5). Prior to the new lease agreement discussed
above, the ABB Building was owned by a partnership whereby Omega owned a 95%
interest and the tenant owned a 5% interest. In connection with the new lease
agreement, the tenant assigned its 5% interest in the property to Omega and
agreed there were no outstanding claims, offsets, disputes or liabilities owed
by either party to the other. However, as discussed in Note 5 below, the
Company was not successful in refinancing the debt on the building and the bank
that held the mortgage on the property instituted and completed foreclosure
proceedings.
F-8
<PAGE>
5. NOTES PAYABLE
- -----------------
In June 1996, the Company reached an agreement with the bank that held the
mortgage on the ABB Building. The loan was payable in monthly installments
equal to 100% of the property's net cash flow, matured in October 1997and had an
interest rate of 9.36%. The loan was in default due to various violations of
the terms of the loan including non payment of interest. In August 1996 the
bank instituted foreclosure proceedings which were completed on September 27,
1996, at which time the bank assumed title to the building.
Immediately before the foreclosure, the outstanding principal on the mortgage on
the building was approximately $13,584,000. The net book value of the building
immediately preceeding the foreclosure was approximately $12,358,000, therefore
the transaction resulted in an extraordinary gain of $1,226,000.
6. STOCKHOLDERS' EQUITY
- ------------------------
In connection with the acquisition of HPA in June 1995, the Company exchanged
400,000 shares of newly issued Series C $5.00 par value convertible Preferred
Stock of Omega in partial payment of the purchase price for HPA. The 400,000
shares of Series C convertible Preferred Stock was convertible into 666,667
shares of Common Stock of Omega, subject to certain anti-dilution adjustments.
During 1996 the Company relied on small equity placements under a private
placement memorandum and loans from a Director and a private investor to fund
its current overhead. Such equity placements in calendar 1996 totaled $58,000.
The equity placements are in the form of Units (58,000 Units) consisting of (i)
one share of Common Stock; (ii) one common stock purchase warrant, exercisable
into one share of Common Stock per warrant until October 31, 1996, at a price of
$2.00; and (iii) one common stock purchase warrant, exercisable into one share
of Common Stock per warrant until October 31, 1997, at a price of $3.00. These
warrants were not included in the computation of diluted earnings per share
because the warrant's exercise price was greater than the average market price
of the common shares and, therefore, the effect would be antidilutive. The
warrants expired in 1996 and 1997 unexercised.
Working capital loans from a Director and a private investor totaled $79,000 in
1996 and the Company issued a total of 30,000 shares of Common Stock in
connection with the working capital loans. The principal shareholder of the
Company contributed $18,920 in December 1997 to pay for certain liabilities of
the Company.
In December 1996, management reached an agreement with many of its creditors and
the holders of the Preferred Stock whereby they would convert their respective
liabilities and Preferrred Stock to shares of the Company's Common Stock. In
total, $1,061,666 of accounts payables and accrued liabilities and amounts due
to officers/directors were converted to 3,132,583 shares of Common
F-9
<PAGE>
Stock. The Preferred Stock was converted into 666,667 shares of Common Stock in
accordance with a previous agreement.
7. INCOME TAXES
- ----------------
The Company had certain federal income tax net operating loss carry forwards
(NOLs) at December 31, 1997. SFAS 109 requires that the tax benefit of such
NOLs be recorded as an asset to the extent that management concludes the
realization of the NOLs is "more likely than not." Realization of the future
tax benefits is dependent on the Company's ability to generate taxable income
within the carry forward periods. Management has concluded that, using the
criteria of SFAS 109, a valuation allowance should be provided for the entire
balance of the net deferred tax asset.
8. COMMITMENTS AND CONTINGENCIES
- ---------------------------------
The Company had a lease commitment for their executive offices which was to
expire in July 1998. In October 1996, the Company found other tenants for its
office space and the landlord cancelled its lease. Lease expense during 1996
was $16,131. At December 31, 1997, no other lease commitments exist.
9. STATEMENT OF CASH FLOWS
- ---------------------------
For purposes of reporting cash flows, cash includes cash and money market
accounts that are due on demand. No cash payments for income taxes were made in
1997 or 1996.
The Company had the following noncash investing and financing activities in 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Write off excess of cost over book value of
investment in subsidiary $ -- $ 2,352,098
Settlements on notes payable -- 13,584,320
Foreclosure of ABB Building -- 12,358,156
Convert liabilities to Common Stock -- 1,061,666
Convert Preferred Stock to Common Stock -- 786,000
</TABLE>
F-10
<PAGE>
10. PENDING MERGER
- -------------------
On December 2, 1997, the Company signed a Stock Exchange Agreement and Plan of
Reorganization (the "Agreement") with Heater Specialists, Inc. ("HSI") and
Primenergy, Inc. ("Prime"). The Agreement provides for a merger of HSI and
Prime with Omega. The shareholders of HSI and Prime will exchange all of their
outstanding common shares for 8,000,000 newly issued shares of Omega. After the
exchange, current shareholders of Omega will hold 1,000,000 shares of common
stock. New investors will contribute approximately $3,000,000 of common equity
(net of issuance costs) through a private equity offering in exchange for
1,000,000 shares of common stock and stock warrants. The exchange will qualify
under either Section 351 or Section 368(a)(1)(B), or both, of the Internal
Revenue Code of 1986, as amended, as a "tax-free" exchange or reorganization,
subject to the terms and conditions as more fully provided in the Agreement.
The closing is scheduled to take place in April 1998, unless closing is delayed
by mutual agreement. The new equity of approximately $3,000,000 will be used to
pay down bank credit lines and to fund the business plans of HSI and Prime. The
funding is a stipulated condition precedent to closing, however management of
Omega cannot assure that such equity will be provided.
Primenergy, Inc. possesses a license which permits the integrated application of
several technologies to convert biomass into energy. Prime's proprietary
process design incorporates a low temperature, air-starved gasification of
biomatter to produce an energy source for electricity generation, steam
production, process heat, or any combination of these useful forms of energy.
Prime has been working with government officials within the Republic of the
Philippines, and more specifically Metro Manila, for over a year on an
opportunity to build a $60 million plant that will convert municipal solid waste
to energy. Prime has been working with the Philippine Presidential Task Force
on Waste Disposal which management believes will lead to multiple projects in
the Philippines for energy cogeneration over the next few years. Although
management of Prime is confident that a contract will be executed with the
Republic of the Philippines, at the date of this writing a firm contract has not
yet been received and no assurance can be given that this objective will be
achieved.
Heater Specialists, Inc. is a fully integrated single source manufacturer of
refractory lined vessels and equipment for the oil refining, chemical process,
power generation and incineration industries. HSI offers a unique combination of
steel fabrication expertise and refractory technology and is the primary
contractor for gasifier units sold by Prime and performs the steel fabrication
and refractory work on the gasifiers.
F-11
<PAGE>
EXHIBIT 2.4
OMEGA DEVELOPMENT, INC.
FORM 10-KSB
DECEMBER 31, 1997
STOCK EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
STOCK EXCHANGE AGREEMENT
AND
PLAN OF REORGANIZATION
December 2, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Exchange of Shares ................................................. 1
1.1 Exchange ............................................................. 1
1.2 The Closing .......................................................... 2
ARTICLE II Representations, Warranties, and Agreements of the Transferors..... 2
2.1 Corporate Organization and Qualification ............................. 3
2.2 Validity of Transaction .............................................. 3
2.3 Capitalization ....................................................... 3
2.4 Directors; Officers .................................................. 4
2.5 Financial Position; Absence of Undisclosed Liabilities ............... 4
2.6 Properties ........................................................... 6
2.7 Material Contracts ................................................... 6
2.8 Insurance ............................................................ 7
2.9 Litigation and Claims ................................................ 7
2.10 Securities Laws Compliance ........................................... 7
2.11 Tax and Other Liabilities ............................................ 7
2.12 Finder or Broker ..................................................... 8
2.13 Conflict of Interest ................................................. 8
2.14 Employees and Consultants ............................................ 8
2.15 Business; Compliance with Laws ....................................... 8
2.16 Non-Competition Agreement ............................................ 8
2.17 Investment Intent .................................................... 9
ARTICLE III Representations, Warranties, and Agreements of the Acquiror ...... 9
3.1 Organization ......................................................... 9
3.2 Validity of Agreement ................................................ 9
3.3 Investment Intent ....................................................10
3.4 Finder or Broker .....................................................10
3.5 Capitalization .......................................................10
3.6 Directors; Officers ..................................................11
3.7 Financial Position; Absence of Undisclosed Liabilities ...............11
3.8 Properties ...........................................................13
3.9 Material Contracts ...................................................13
3.10 Insurance ............................................................14
3.11 Legal Proceedings; Orders ............................................14
3.12 Securities Laws Compliance ...........................................15
3.13 Tax and Other Liabilities ............................................15
3.14 Finder or Broker .....................................................16
3.15 Conflict of Interest .................................................16
3.16 Employees and Consultants ............................................16
i
<PAGE>
Page
----
3.17 Business; Compliance with Laws .......................................16
3.18 Books and Records ....................................................16
3.19 Accounts Receivable ..................................................17
3.20 Certain Payments .....................................................17
3.21 Disclosure ...........................................................17
3.22 Relationships with Related Persons ...................................18
3.23 Environmental Matters ................................................18
3.24 Employee Benefit Plans ...............................................19
ARTICLE IV Covenants of Acquiror Prior to Closing Date .......................19
4.1 Due Diligence Review .................................................19
4.2 Operation of the Business of Acquiror ................................19
4.3 Negative Covenant ....................................................20
4.4 Required Approvals ...................................................20
4.5 Notification .........................................................20
4.6 Payment of Indebtedness by Related Parties ...........................20
4.7 No Negotiation .......................................................20
4.8 Best Efforts .........................................................20
ARTICLE V Covenants of Transferors Prior to Closing Date .....................21
5.1 Approvals of Governmental Bodies .....................................21
5.2 Best Efforts .........................................................21
ARTICLE VI Conditions Precedent to Transferors' Obligation to Close...........21
6.1 Accuracy of Representations .........................................21
6.2 Acquiror's Performance ...............................................21
6.3 Consents .............................................................21
6.4 Additional Documents .................................................22
6.5 No Proceedings .......................................................22
6.6 No Claim Regarding Stock Ownership or Sale Proceeds ..................22
6.7 No Prohibition .......................................................22
6.8 Consummation of Private Placement ....................................23
6.9 Registration Rights Agreement ........................................23
6.10 Adoption of Stock Option Plan ........................................23
6.11 Recapitalization of Acquiror .........................................23
6.12 Filing of Tax Returns and SEC Reports ................................23
6.13 Settlement of Pending Lawsuit ........................................23
ARTICLE VII Conditions Precedent to Acquiror's Obligation to Close............23
7.1 Accuracy of Representations ..........................................23
7.2 Transferors' Performance .............................................24
ii
<PAGE>
Page
----
7.3 Consents ..............................................................24
7.4 Additional Documents ..................................................24
7.5 No Injunction .........................................................24
ARTICLE VIII Termination .....................................................24
8.1 Termination Events ....................................................24
8.2 Effect of Termination .................................................25
ARTICLE IX Indemnification and Remedies ......................................25
9.1 Survival; Right to Indemnity Not Affected by Knowledge ................25
9.2 Indemnification .......................................................26
9.3 Time Limitation .......................................................27
9.4 Limitations on Amount .................................................27
9.5 Remedies ..............................................................27
ARTICLE X Miscellaneous ......................................................27
10.1 Communications .......................................................27
10.2 Amendments and Waivers ...............................................28
10.3 Delays or Omissions; Waiver ..........................................28
10.4 Entire Agreement .....................................................29
10.5 Headings .............................................................29
10.6 Counterparts; Governing Law ..........................................29
10.7 Further Actions ......................................................29
10.8 Expenses .............................................................29
10.9 Confidentiality ......................................................29
iii
<PAGE>
INDEX OF DEFINED TERMS
----------------------
Page
----
"Accounts Receivable"........................................................17
"Acquiror Material Contracts"................................................14
"Balance Sheets"............................................................. 4
"CERCLA".....................................................................18
"Closing Date"............................................................... 2
"Closing".................................................................... 2
"Code"....................................................................... 1
"Companies".................................................................. 1
"Company".................................................................... 1
"Contemplated Transactions"..................................................14
"Employee Benefit Plans".....................................................19
"ERISA"......................................................................19
"Financial Statements"....................................................... 4
"GAAP".......................................................................11
"Hazardous Substance"........................................................18
"HSI Balance Sheet".......................................................... 4
"HSI Shares"................................................................. 1
"HSI Transferors"............................................................ 2
"HSI"........................................................................ 1
"Indemnitee".................................................................26
iv
<PAGE>
Page
----
"Indemnitor".................................................................26
"Interim Omega Balance Sheet"................................................11
"Material Contracts"......................................................... 7
"Omega Balance Sheet"........................................................11
"Omega Common Stock"......................................................... 1
"Order"......................................................................15
"Primenergy Balance Sheet"................................................... 4
"Primenergy Shares".......................................................... 2
"Primenergy Transferor"...................................................... 2
"Primenergy"................................................................. 1
"Proceeding".................................................................14
"Related Person".............................................................18
"Transferors' Advisors"......................................................19
v
<PAGE>
STOCK EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT, dated as of December 2, 1997, by and among Don R. Mellott
as trustee of the Don R. Mellott Trust UID 22/nd/ day of May, 1995 ("DRM"),
Janet K. Mellott as trustee of the Janet K. Mellott Trust UID 22/nd/ day of May,
1995 ("JKM"), Don Hartman Little as trustee of the Don Hartman Little Revocable
Living Trust UTA Dated January 16, 1996 ("DHL"), Wanza Lavoyce Little as trustee
of the Wanza Lavoyce Little Revocable Living Trust UTA Dated January 16, 1996
("WLL"), William Alan Jackson ("Jackson"), Seth Anderson ("Anderson"), Darrell
L. Raymond ("Raymond"), and James H. Dorough ("Dorough"), (DRM, JKM, DHL, WLL,
Jackson, Anderson, Raymond, and Dorough hereinafter individually a "Transferor"
and collectively, the "Transferors") and Omega Development, Inc., a Nevada
corporation having offices at 9422 S. College Place, Suite 222, Tulsa Oklahoma
74137 ("Acquiror"). Paul Shapansky ("Shapansky") also joins in this Agreement
for the limited purpose set forth in Article IX hereof.
WHEREAS, DRM, JKM, DHL, WLL, Jackson, Anderson, Raymond and Dorough are the
holders of all of the issued and outstanding capital stock of Heater
Specialists, Inc. ("HSI"), an Oklahoma corporation with offices at 3171 North
Toledo Avenue, Tulsa, Oklahoma 74115, and
WHEREAS, DRM is the holder of all of the issued and outstanding stock of
Primenergy, Inc. ("Primenergy"), an Oklahoma corporation with offices at 3172
North Toledo Avenue, Tulsa, Oklahoma 74115 (HSI and Primenergy are sometimes
collectively referred to as the "Companies" and individually as a "Company"),
and
WHEREAS, Acquiror desires to acquire all of the outstanding shares of the
capital stock of HSI and Primenergy in exchange for shares of the common stock,
par value $.001 per share of Acquiror ("Omega Common Stock"), and Transferors
desire to transfer their shares of the capital stock of HSI and Primenergy to
Acquiror in exchange for shares of Omega Common Stock in a transaction that
qualifies under either Section 351 or Section 368(a)(1)(B), or both, of the
Internal Revenue Code of 1986, as amended (the "Code"), as a "tax-free" exchange
or reorganization, subject to the terms and conditions and as more fully
provided in this Agreement.
NOW THEREFORE, for and in consideration of the mutual promises and
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Exchange of Shares
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1.1 Exchange.
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(a) Immediately prior to the execution of this Agreement and the
exchange of shares contemplated herein the total issued and outstanding
capital stock of HSI was 634.61538 shares of common stock (the "HSI
Shares") of which 164.51923 shares representing 25.92425% of the
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HSI Shares were owned by DRM, 164.51923 shares representing 25.92425% of
the HSI Shares were owned by JKM, 79.32692 shares representing 12.5% of the
HSI Shares were owned by DHL, 79.32692 shares representing 12.5% of the HSI
Shares were owned by WLL, 79.32692 shares representing 12.5% of the HSI
Shares were owned by Jackson, 25.38462 shares representing 4.0% of the HSI
Shares were owned by Anderson, 25.38462 shares representing 4.0% of the HSI
Shares were owned by Raymond, and 16.82692 shares representing 2.6515% of
the HSI Shares were owned by Dorough. Said persons are herein sometimes
referred to as the "HSI Transferors."
(b) Immediately prior to the execution of this Agreement and the
exchange of shares contemplated herein, the total issued and outstanding
capital stock of Primenergy was 500 shares of common stock, par value $.01
per share (the "Primenergy Shares"), of which all were owned by DRM who is
herein sometimes referred to as the "Primenergy Transferor."
(c) Subject to and in accordance with the terms and conditions of this
Agreement, Transferors shall transfer to and exchange with the Acquiror,
and the Acquiror shall acquire from and exchange with the HSI Transferors
all 634.61538 shares of common stock of HSI, such shares, having $1.00 par
value, representing all of the issued and outstanding HSI Shares in
exchange for 6,900,000 shares of Omega Common Stock which shall be
allocated among the HSI Transferors in the same percentage amounts
corresponding to their previous percentage ownership of the HSI Shares as
set forth above .
(d) Subject to and in accordance with the terms and conditions of this
Agreement, DRM shall transfer to and exchange with the Acquiror, and the
Acquiror shall acquire from and exchange with the Primenergy Transferor 500
issued and outstanding shares of common stock of Primenergy, such shares
representing all of the issued and outstanding Primenergy Shares in
exchange for 1,100,000 shares of Omega Common Stock.
(e) Such 8,000,000 shares of Omega Common Stock to be issued to all of
the Transferors pursuant to this Section 1.1 shall constitute at least
88.9% of the entire issued and outstanding number of shares of the Acquiror
as of the Closing (as defined below) before taking into account the shares
of Omega Common Stock to be issued in the private placement contemplated by
Section 6.8 of this Agreement.
1.2 The Closing. The closing of the exchange of shares (the "Closing")
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shall take place at the offices of HSI at 3171 N. Toledo, Tulsa, OK on or before
10:00 a.m. local time, January 30, 1998 (the time and date of the Closing being
herein referred to as the "Closing Date"). On the Closing Date there shall be
delivered to the Acquiror certificates for the HSI Shares and the Primenergy
Shares against delivery by the Acquiror of certificates for 8,000,000 shares of
the Omega Common Stock.
ARTICLE II
Representations, Warranties, and Agreements of the Transferors
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The Transferors represent and warrant to, and agree with, the Acquiror as
follows:
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2.1 Corporate Organization and Qualification. Each of the Companies is a
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corporation duly organized, validly existing, and in good standing under the
laws of the state of Oklahoma , and is qualified to transact business and is in
good standing as a foreign corporation in every jurisdiction in which its
ownership, leasing, licensing, or use of property or assets or the conduct of
its business makes such qualification necessary, except in such jurisdictions
where the failure to be so qualified or in good standing would not have a
material adverse effect on the business, results of operations, financial
condition, or prospects of such Company. Each Company, other than as set forth
on Schedule 2.1, has no subsidiaries and has no investment, whether by way of
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ownership of stock or other securities or by loan, advance, or otherwise, in any
corporation, partnership, firm, association, or other business entity. Each
Company has all required power and authority to own its property and to carry on
its business as now conducted.
2.2 Validity of Transaction. Transferors have all requisite power and
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authority to execute, deliver, and perform this Agreement and to transfer the
HSI Shares and the Primenergy Shares to the Acquiror. This Agreement has been
duly authorized, executed, and delivered by Transferors, is the legal, valid,
and binding obligation of each Transferor and is enforceable as to the
Transferors in accordance with its terms, except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium, or other similar laws or by
legal or equitable principles relating to or limiting creditors' rights
generally or as rights to indemnification may be limited by applicable
securities laws. Except as to filings which may be required under applicable
state securities regulations and as disclosed in Schedule 2.2, no consent,
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authorization, approval, order, license, certificate, or permit of or from, or
declaration or filing with, any federal, state, local, or other governmental
authority or of any court or other tribunal is required for the execution,
delivery, or performance of this Agreement by Transferors or the Companies. No
consent of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which any Transferors or either Company is a
party, or by which any of their properties or assets are bound, is required for
the execution, delivery, or performance by the Transferors of this Agreement,
and the execution, delivery, and performance of this Agreement, by the
Transferors will not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate or result in a breach
of any term of the Certificate of Incorporation or by-laws of either Company, or
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on the Company or Transferors or to which any
of their operations, business, properties, or assets is subject. The HSI Shares
and Primenergy Shares are duly authorized, validly issued, fully paid, and
nonassessable, have not been issued or transferred in violation of any
preemptive right of stockholders, rights of first refusal, options to acquire or
otherwise and the Acquiror will have good title to the HSI Shares and Primenergy
Shares, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders agreements, proxies, voting agreements and voting
trusts (other than any created by the Acquiror).
2.3 Capitalization. The authorized capital stock of HSI consists of
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25,000 shares of Common Stock having a $1.00 par value, and the authorized
capital stock of Primenergy consists of 1,000,000 shares of Common Stock having
$0.01 par value. All issued and outstanding shares of HSI and Primenergy have
been validly issued and are fully paid and nonassessable and have not been
issued in violation of any federal or state securities laws. Except as disclosed
in Schedule 2.3, there are no outstanding or authorized subscriptions, options,
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warrants, calls, rights, commitments, or any other
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agreements of any character directly or indirectly obligating either Company to
issue (i) any additional shares of its capital stock or (ii) any securities
convertible into, or exercisable or exchangeable for; or evidencing the right to
subscribe for, any shares of its capital stock. Except as disclosed in Schedule
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2.3, neither Company has adopted or authorized any plan for the benefit of its
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officers, employees, or directors which require or permit the issuance, sale,
purchase, or grant of any shares of the Company's capital stock, any securities
convertible into, or exercisable or exchangeable for, or evidencing the right to
subscribe for any shares of such Company's capital stock, or any phantom shares
or any stock appreciation rights. Neither Company is under any obligation
(contingent or otherwise) to purchase or otherwise acquire or retire any shares
of its capital stock.
2.4 Directors; Officers. A true and correct list of the directors and
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officers of HSI and Primenergy, all of whom have been duly and properly elected
to the positions set forth opposite their respective names, is attached hereto
as Schedule 2.4.
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2.5 Financial Position; Absence of Undisclosed Liabilities.
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(a) The Company has delivered to the Acquiror balance sheets of HSI
and Primenergy as of September 30, 1996 and December 31, 1996,
respectively, and the related income statements and statements of cash flow
and accountants' reports for the fiscal year then ended, (hereinafter
collectively referred to as the "Financial Statements"). The Financial
Statements (including the notes thereto) (i) present fairly the financial
condition of the applicable Company as of their respective dates and
results of operations and cash flows for their respective periods, (ii) are
in accordance with the books and records of the applicable Company (which,
in turn, are accurate and complete in all material respects) and (iii) were
prepared in accordance with generally accepted accounting principles. The
Company has also delivered to the Acquiror balance sheets of HSI and
Primenergy as of September 30, 1997 (such balance sheet as of September 30,
1997 shall hereafter be referred to as the "Primenergy Balance Sheet" and
the "HSI Balance Sheet," respectively, with both such balance sheets
sometimes being collectively referred to as the "Balance Sheets"), and the
related income statements for the period then ended.
(b) As of the date hereof, (i) except as set forth in Schedule 2.5(b)
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and certain fees and expenses of attorneys of the Companies incurred in
connection with the transactions herein described, neither Company has any
indebtedness or liabilities of any nature (matured or unmatured, fixed or
contingent, direct or indirect, as guarantor or in any other capacity) in
the aggregate in excess of $25,000 which are not set forth on the Balance
Sheet and (ii) all reserves established by the Companies and set forth in
the Balance Sheets are adequate for the purposes for which they were
established.
(c) Except as described elsewhere in this Agreement and as set forth
on Schedule 2.5(c), since the date of the applicable Balance Sheet:
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(i) neither Company has entered into any contract or transaction
which was not in the ordinary course of its business;
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(ii) each Company has operated its business only in the ordinary
and usual course consistent with past practice;
(iii) there has been no material adverse change, either in the
single case or in the aggregate, in the business, prospects,
operations, or condition (financial or otherwise) of either Company;
(iv) there has been no damage to, or destruction or loss of,
physical property (whether or not covered by insurance) which may have
a material adverse effect on the business, prospects, operations, or
condition (financial or otherwise) of either Company;
(v) neither Company has declared or paid any cash dividend or
made any distribution on its securities, or redeemed, purchased, or
otherwise acquired any of its securities except in a manner and in
amounts consistent with prior practice (including, without limitation,
the planned distribution to shareholders prior to December 31, 1997 in
an amount expected to be required for the Transferors to pay their
anticipated liability for federal and state income tax attributable to
income of the Companies attributable to them) plus any distribution
subsequent to December 31, 1997 if deemed necessary or appropriate by
reason of the Company's final tax return results and the Transferors'
resultant tax liability;
(vi) neither Company has increased the compensation of any of its
officers, or the rate of pay of its employees as a group, except as
part of regular compensation increases in the ordinary course of its
business;
(vii) neither Company has received any notice that there has
been a loss of, or cancellation of a material order by, any material
customer of the Company;
(viii) there has been no resignation or termination of
employment of any officer or key employee of either Company;
(ix) there has been no borrowing or agreement to borrow by either
Company or change in the contingent obligations of such Company by way
of guaranty, endorsement, indemnity, warranty, or otherwise or grant
of a mortgage or security interest in any properties of such Company;
(x) there has not been any payment of any obligation or liability
other than current liabilities paid in the ordinary course of
business; and
(xi) there has been no sale, assignment or transfer of any
tangible asset of either Company except in the ordinary course of
business.
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2.6 Properties.
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(a) Each Company has (and at the time of Closing, will have) good and,
where applicable, marketable title to all properties and assets used in its
business or owned by it, free and clear of all liens, leases, mortgages,
security interests, pledges, charges, and encumbrances, except (i) as shown
on the Balance Sheets, (ii) liens for current taxes and assessments not yet
due or being contested in good faith by appropriate proceedings, (iii) such
minor imperfections of title and encumbrances and minor liens existing by
operation of law, if any, which do not materially interfere with the
present use of the properties subject thereto or affected thereby or
otherwise materially impair the business operations of the Company, or (iv)
as shown on Schedule 2.6(a). All real and other tangible properties and
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assets owned, leased, or licensed by each Company are in good and usable
condition, subject to ordinary wear and tear.
(b) The real and other properties and assets (including licenses,
permits, approvals, and other intangible assets) owned, leased, or licensed
by each Company constitute all such properties and assets which are
necessary to the business of such Company as presently conducted and as
proposed to be conducted.
(c) Schedule 2.6(c) hereto list all items of real and personal
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property owned by each Company.
2.7 Material Contracts. Schedule 2.7-A contains a true and complete list
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of all of the following contracts, agreements, instruments, leases, licenses,
arrangements, or undertakings of any nature, written or oral to which either
Company is a party or by which any of its assets are bound:
(a) Employment, consulting, agency or other service agreements (other
than employment arrangements terminable at will without liability on the
part of the employer or upon payment of no more than applicable statutory
or regulatory severance or termination benefits);
(b) Collective bargaining agreements;
(c) Contracts or commitments limiting the freedom of the Company to
compete in any line of business or in any geographic area with any person;
(d) Contracts which involve future payments, performance of services
or development of assets of an aggregate amount or value in excess of
$10,000 or having a term in excess of twelve (12) months from the date of
this Agreement;
(e) Contracts or commitments to sell, lease or otherwise dispose of
any assets other than in the ordinary course of business;
(f) Contracts or commitments of any kind, including royalty agreements
or management agreements with any employee, director, officer or
stockholder of a Transferor or any affiliate of a Transferor or of any of
the foregoing;
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(g) Stock option, warrant or other agreements granting a right to
acquire stock;
(h) Shareholder agreements, buy/sell agreements, voting trust
agreements or other agreements affecting the purchase, sale or voting of
capital stock; or
(i) Any other contract which is otherwise material to the business or
prospects of the Company (hereinafter referred to collectively as "Material
Contracts").
The Companies have furnished the Acquiror true, correct, and complete copies (or
where oral, written descriptions) of all Material Contracts, including all
amendments, supplements, modifications, and waivers thereto. All Material
Contracts are in full force and effect and, except as set forth on
Schedule 2.7-B, the Company which is a party thereto has performed in all
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material respects all of its obligations thereunder. No party to a Material
Contract has made a claim to the effect that such Company has failed to perform
an obligation thereunder. To the knowledge of each Company, there is no plan,
intention, or indication of any contracting party to a Material Contract to
which it is a party to cause the termination, cancellation, or modification of
such Material Contract or to reduce or otherwise change its activity thereunder
so as to affect adversely in any material respect the benefits derived or
expected to be derived therefrom by such Company.
2.8 Insurance. Each Company has insured by reputable insurers its assets
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that are of an insurable character against risks of liability, casualty, and
fire in adequate and customary amounts. Each Company maintains with such
insurers insurance against hazards, risks, and liability to persons and property
to the extent and in the manner customary for companies in similar businesses,
similarly situated.
2.9 Litigation and Claims. Except as set forth on Schedule 2.9, there is
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no litigation, arbitration, claim, or other proceeding (formal or informal) or
governmental investigation pending or, to the knowledge of either Company,
threatened (or any basis therefor known to the Company) with respect to such
Company, any of its businesses, properties, or assets, or any of its directors,
officers, or employees to the extent such proceeding relates to the business of
such Company.
2.10 Securities Laws Compliance. Subject to the accuracy of the
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representations and warranties of the Acquiror set forth in Article III hereof,
the exchange of the HSI Shares and Primenergy Shares for the Omega Common Stock
by and between Acquiror and the Transferors complies with all applicable federal
and state securities laws.
2.11 Tax and Other Liabilities. All taxes required by law which are
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due and payable by either Company have been paid, all taxes such Company is
obligated to withhold from amounts owing to any employee or third party have
been withheld, and all tax returns and reports required by law to have been
filed by such Company have been duly filed and reflect the amounts due and paid.
There are in effect no waivers of applicable statutes of limitations with
respect to any taxes, governmental charges, duties, imports, levies, or fees for
any year and neither Company has agreed to any extension of time with respect to
any tax assessment or deficiency. The Federal income tax returns of each Company
have not been and are not now being audited by the Internal Revenue Service for
any of such Company's tax periods. No tax liens have been asserted against any
of such Company's assets.
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2.12 Finder or Broker. Neither Transferors nor any person acting on
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behalf of Transferors has negotiated with any finder, broker, intermediary, or
similar person in connection with the transactions contemplated herein.
2.13 Conflict of Interest. Except as set forth on Schedule 2.13 no
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officer, director, or stockholder of either Company has any interest in any
corporation, partnership, or other entity that is engaged in a business which is
in competition with that of such Company, is a supplier to such Company, or is a
party to any Material Contract.
2.14 Employees and Consultants.
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(a) To the knowledge of either Company, no employee or agent of, or
consultant to, such Company is in violation of any term of any employment,
agency, or consulting contract, or any other contract or agreement with any
third party relating to the right of any such employee, agent, or
consultant to be employed or engaged by such Company because of the nature
of the business conducted or to be conducted by such Company or for any
other reason.
(b) Except as disclosed in Schedule 2.14(b) attached hereto, neither
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Company has, or contributes to, any pension, profit-sharing, incentive, or
other employee benefit plan (including without limitation any of the type
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974), nor does such Company have any obligation to, or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits. Neither Company is indebted to
any director, officer, employee, or stockholder, whether by loan, advance,
or otherwise nor is any director, officer, employee, or stockholder so
indebted to such Company except as disclosed in Schedule 2.14(b) attached
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hereto. Neither Company is a party to or bound by any collective bargaining
agreement.
2.15 Business; Compliance with Laws. Each Company has all necessary
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franchises, permits, licenses, authorizations and other rights and privileges
necessary to permit it to own its property and to conduct its business as
currently conducted. All such franchises, permits, licenses, and authorizations
are in full force and effect. Neither Company is in violation of any law,
statute, or regulation which may have a materially adverse impact on the
business or prospects of such Company, nor is such Company in violation of any
judgment, injunction, order or decree relevant to its securities, the ownership
of its properties, or the carrying on of its business,
2.16 Non-Competition Agreement. In consideration of the sale of each
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Company and its goodwill hereunder and in order to induce Acquiror to enter into
and perform this Agreement, except as provided in Schedule 2.16, each Transferor
agrees that so long as each Transferor is employed by the Acquiror or is not
employed by reason of his voluntary resignation or of being terminated "for
cause" pursuant to his employment agreement with Acquiror, it shall not, and
shall not permit or suffer any of its affiliates, to compete directly or
indirectly with such Company or the Acquiror in the business of such Company
within the continental United States for a period of five years from the Closing
Date. If this non-competition agreement exceeds the time, geographic or other
limitation permitted by applicable law, it shall be deemed reformed to the
maximum extent permitted by applicable law.
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2.17 Investment Intent. Each Transferor is acquiring the shares of
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Omega Stock to which he or she is entitled hereunder for his or her own account
for investment and not with a view to, or for sale in connection with, any
public distribution thereof in violation of the Securities Act. Each Transferor
understands that the offer and sale of the Omega Common Stock have not been
registered under the Securities Act or qualified under applicable state
securities laws and that the shares of Omega Common Stock are being offered and
exchanged with such Transferor pursuant to one or more exemptions from the
registration or qualification requirements of such securities laws and that the
representations and warranties contained in this Section 2.17 are given with the
intention that Acquiror may rely thereon for purposes of claiming such
exemptions. Each Transferor understands that he or she must bear the economic
risk of its investment in Acquiror for an indefinite period of time, as the
shares of Omega Common Stock cannot be sold unless subsequently registered under
the Securities Act and qualified under state securities laws, unless an
exemption from such registration and qualification is available.
ARTICLE III
Representations, Warranties, and Agreements of the Acquiror
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The Acquiror represents and warrants to, and agrees with, Transferors, and
each of them, as follows:
3.1 Organization. Acquiror is duly organized under the laws of the state
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of Nevada and has full power and authority to enter into this Agreement and to
consummate the transactions set forth herein, and is qualified to transact
business and is in good standing as a foreign corporation in every jurisdiction
in which its ownership, leasing, licensing, or use of property or assets or the
conduct of its business makes such qualification necessary, except in such
jurisdictions where the failure to be so qualified or in good standing would not
have a material adverse effect on the business, results of operations, financial
condition, or prospects of Acquiror. Acquiror, other than as set forth on
Schedule 3.1, has no subsidiaries and has no investment, whether by way of
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ownership of stock or other securities or by loan, advance, or otherwise, in any
corporation, partnership, firm, association, or other business entity. Acquiror
has all required power and authority to own its property and to carry on its
business as now conducted. Each subsidiary of Acquiror is duly organized under
the laws of the state of its incorporation and is qualified to do business and
is in good standing as a foreign corporation in every jurisdiction in which its
ownership, leasing, licensing or use of property or assets or the conduct of its
business makes such qualification necessary.
3.2 Validity of Agreement. All necessary proceedings to authorize the
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execution, delivery, and performance of this Agreement by Acquiror have been
duly taken or will be duly taken prior to Closing. This Agreement has been duly
authorized, executed, and delivered by Acquiror, is the legal, valid, and
binding obligation of Acquiror and is enforceable as to the Acquiror in
accordance with its terms, except as may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium, or other similar laws or by legal or
equitable principles relating to or limiting creditors' rights generally or as
rights to indemnification may be limited by applicable securities laws. Except
as to filings which may be required under applicable state securities
regulations, no consent, authorization, approval, order, license, certificate,
or permit of or from, or declaration or filing with, any federal, state, local,
or other governmental authority or of any court or other tribunal is required
for the execution, delivery, or
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performance of this Agreement by Acquiror. Except as disclosed in Schedule 3.2,
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no consent of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which Acquiror is a party, or by which any of
its properties or assets are bound, is required for the execution, delivery, or
performance by Acquiror of this Agreement, and the execution, delivery, and
performance of this Agreement, by Acquiror will not violate, result in a breach
of, conflict with, or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any such
contract, agreement, instrument, lease, license, arrangement, or understanding,
or violate or result in a breach of any term of the Certificate of Incorporation
or by-laws of Acquiror, or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment, or decree binding on Acquiror or to
which any of its operations, business, properties, or assets is subject. The
outstanding shares of Omega Common Stock are duly authorized, validly issued,
fully paid, and nonassessable, have not been issued or transferred in violation
of any preemptive right of stockholders, rights of first refusal, options to
acquire or otherwise and the Transferors will have good title to the Omega
Common Stock received upon consummation of the transactions contemplated hereby,
free and clear of all liens, security interests, pledges, charges, encumbrances,
stockholders agreements, proxies, voting agreements and voting trusts (other
than any created by the Transferors).
3.3 Investment Intent. Acquiror is acquiring the HSI Shares and
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Primenergy Shares for its own account for investment and not with a view to, or
for sale in connection with, any public distribution thereof in violation of the
Securities Act. Acquiror understands that the HSI Shares and Primenergy Shares
have not been registered for sale under the Securities Act or qualified under
applicable state securities laws and that the HSI Shares and Primenergy Shares
are being offered and exchanged with Acquiror pursuant to one or more exemptions
from the registration or qualification requirements of such securities laws and
that the representations and warranties contained in this Article III are given
with the intention that Transferors and the Company may rely thereon for
purposes of claiming such exemptions. Acquiror understands that it must bear the
economic risk of its investment in the Company for an indefinite period of time,
as the HSI Shares and Primenergy Shares cannot be sold unless subsequently
registered under the Securities Act and qualified under state securities laws,
unless an exemption from such registration and qualification is available.
Acquiror acknowledges that no public market for the securities of HSI and/or
Primenergy presently exists and none may develop in the future.
3.4 Finder or Broker. Neither Acquiror nor any person acting on behalf of
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such Acquiror has negotiated with any finder, broker, intermediary, or similar
person in connection with the transactions contemplated herein.
3.5 Capitalization. The authorized capital stock of Acquiror consists of
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(i) 25,000,000 shares of Omega Common Stock having a par value of $.001 per
share, of which there are a total of 15,000,000 shares issued and outstanding,
no shares reserved for issuance and no shares held by Acquiror as treasury
shares, and (ii) 5,000,000 shares of preferred stock having a par value of
$1.00 per share, of which there are no shares issued and outstanding, no shares
reserved for issuance and no shares held by Acquiror as treasury shares . All
issued and outstanding shares of Acquiror have been validly issued and are fully
paid and nonassessable and have not been issued in violation of any federal or
state securities laws. Except as disclosed in Schedule 3.5, there are no
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outstanding or authorized subscriptions, options, warrants, calls, rights,
commitments, or any other agreements of any character directly or indirectly
obligating Acquiror to issue (i) any additional shares of its capital stock or
(ii) any securities convertible
10
<PAGE>
into, or exercisable or exchangeable for; or evidencing the right to subscribe
for, any shares of its capital stock. Except as disclosed in Schedule 3.5,
------------
Acquiror has not adopted or authorized any plan for the benefit of its officers,
employees, or directors which require or permit the issuance, sale, purchase, or
grant of any shares of Acquiror's capital stock, any securities convertible
into, or exercisable or exchangeable for, or evidencing the right to subscribe
for any shares of Acquiror's capital stock, or any phantom shares or any stock
appreciation rights. Acquiror is not under any obligation (contingent or
otherwise) to purchase or otherwise acquire or retire any shares of its capital
stock.
3.6 Directors; Officers. A true and correct list of the directors and
-------------------
officers of Acquiror, all of whom have been duly and properly elected to the
positions set forth opposite their respective names, is attached hereto as
Schedule 3.6.
- ------------
3.7 Financial Position; Absence of Undisclosed Liabilities.
------------------------------------------------------
(a) Acquiror has delivered (or, in the case of items (b) and (c), will
deliver prior to Closing) to the Transferors: (a) consolidated balance
sheets of Acquiror as at December 31 in each of the years 1993 through
1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flow for each of the fiscal years then
ended, together with the reports thereon of Arthur Andersen, LLP (for years
1993 and 1994) and Ernst & Young, LLP (for 1995), independent certified
public accountants, (b) a consolidated balance sheet of Acquiror as at
December 31, 1996 (including the notes thereto, the "Omega Balance Sheet")
and the related consolidated statements of income, changes in stockholders'
equity, and cash flow for the fiscal year then ended, together with the
report thereon of Ernst & Young, LLP, independent certified public
accountants, and (c) an unaudited consolidated balance sheet of Acquiror as
at September 30, 1997 (the "Interim Omega Balance Sheet") and the related
unaudited consolidated statements of income, changes in stockholders'
equity, and cash flow for the nine months then ended, including in each
case the notes thereto. Such financial statements and notes fairly present
the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of Acquiror as at the respective dates
of and for the periods referred to in such financial statements, all in
accordance with generally accepted United States accounting principles,
applied on a consistent basis with prior periods ("GAAP"), subject, in the
case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the Omega
Balance Sheet); the financial statements referred to in this Section 3.7(a)
reflect the consistent application of such accounting principles throughout
the periods involved, except as disclosed in the notes to such financial
statements. No financial statements of any Person are required by GAAP to
be included in the consolidated financial statements of Acquiror.
(b) As of the date hereof, (i) except as set forth in Schedule 3.7(b)
---------------
and certain fees and expenses of attorneys of Acquiror incurred in
connection with the transactions herein described, Acquiror has no
indebtedness or liabilities of any nature (matured or unmatured, fixed or
contingent, direct or indirect, as guarantor or in any other capacity) in
the aggregate in excess of $5,000 which are not set forth on the Omega
Balance Sheet and (ii) all reserves established
11
<PAGE>
by Acquiror and set forth in the Omega Balance Sheets are adequate for the
purposes for which they were established.
(c) Except as described elsewhere in this Agreement and as set forth
on Schedule 3.7(c), since the date of the Omega Balance Sheet:
---------------
(i) Acquiror has not entered into any contract or transaction
which was not in the ordinary course of its business;
(ii) Acquiror has operated its business only in the ordinary and
usual course consistent with past practice;
(iii) there has been no material adverse change, either in the
single case or in the aggregate, in the business, prospects,
operations, or condition (financial or otherwise) of Acquiror;
(iv) there has been no damage to, or destruction or loss of,
physical property (whether or not covered by insurance) which may have
a material adverse effect on the business, prospects, operations, or
condition (financial or otherwise), of Acquiror;
(v) Acquiror has not declared or paid any cash dividend or made
any distribution on its securities, or redeemed, purchased, or
otherwise acquired any of its securities;
(vi) Acquiror has not increased the compensation of any of its
officers, or the rate of pay of its employees as a group;
(vii) Acquiror has not received any notice that there has been a
loss of, or cancellation of a material order by, any material
customer;
(viii) there has been no resignation or termination of
employment of any officer or key employee of Acquiror;
(ix) there has been no borrowing or agreement to borrow by
Acquiror or in the contingent obligations of Acquiror by way of
guaranty, endorsement, indemnity, warranty, or otherwise or grant of a
mortgage or security interest in any properties of Acquiror;
(x) there has not been any payment of any obligation or liability
other than current liabilities paid in the ordinary course of
business; and
(xi) there has been no sale, assignment or transfer of any
tangible asset of Acquiror except in the ordinary course of business.
12
<PAGE>
(d) The subsidiary of Acquiror has no assets, liabilities, employees,
obligations, or commitments and is not engaged in the active conduct of any
business or operations of any sort.
3.8 Properties.
----------
(a) Acquiror has good and, where applicable, marketable title to all
properties and assets used in its business or owned by it, free and clear
of all liens, leases, mortgages, security interests, pledges, charges, and
encumbrances, except (i) as shown on the Financial Statements, (ii) liens
for current taxes and assessments not yet due or being contested in good
faith by appropriate proceedings, (iii) such minor imperfections of title
and encumbrances and minor liens existing by operation of law, if any,
which do not materially interfere with the present use of the properties
subject thereto or affected thereby or otherwise materially impair the
business operations of Acquiror, or (iv) as shown on Schedule 3.8(a). All
---------------
real and other tangible properties and assets owned, leased, or licensed by
Acquiror are in good and usable condition, subject to ordinary wear and
tear.
(b) The real and other properties and assets (including licenses,
permits, approvals, and other intangible assets) owned, leased, or licensed
by Acquiror constitute all such properties and assets which are necessary
to the business of Acquiror as presently conducted and as proposed to be
conducted.
(c) Schedule 3.8(c) hereto list all items of real and personal
---------------
property owned by Acquiror.
3.9 Material Contracts. Schedule 3.9-A contains a true and complete list
------------------ --------------
of all of the following contracts, agreements, instruments, leases, licenses,
arrangements, or undertakings of any nature, written or oral to which Acquiror
is a party or by which any of its assets are bound:
(a) Employment, consulting, agency or other service agreements (other
than employment arrangements terminable at will without liability on the
part of the employer or upon payment of no more than applicable statutory
or regulatory severance or termination benefits);
(b) Collective bargaining agreements;
(c) Contracts or commitments limiting the freedom of Acquiror to
compete in any line of business or in any geographic area with any person;
(d) Contracts which involve future payments, performance of services
or development of assets of an aggregate amount or value in excess of
$5,000 or having a term in excess of twelve (12) months from the date of
this Agreement;
(e) Contracts or commitments to sell, lease or otherwise dispose of
any assets other than in the ordinary course of business;
13
<PAGE>
(f) Contracts or commitments of any kind, including royalty agreements
or management agreements with any employee, director, officer or
stockholder of Acquiror or any affiliate of Acquiror, or of any of the
foregoing;
(g) Stock option, warrant or other agreements granting a right to
acquire stock;
(h) Shareholder agreements, buy/sell agreements, voting trust
agreements or other agreements affecting the purchase, sale or voting of
capital stock; or
(i) Any other contract which is otherwise material to the business or
prospects of Acquiror (hereinafter referred to collectively as "Acquiror
Material Contracts").
Acquiror has furnished the Transferors true, correct, and complete copies (or
where oral, written descriptions) of all Material Contracts, including all
amendments, supplements, modifications, and waivers thereto. All Acquiror
Material Contracts are in full force and effect and, except as set forth on
Schedule 3.9-B, Acquiror thereto has performed in all material respects all of
- --------------
its obligations thereunder. No party to an Acquiror Material Contract has made a
claim to the effect that Acquiror has failed to perform an obligation
thereunder. To the knowledge of Acquiror, there is no plan, intention, or
indication of any contracting party to an Acquiror Material Contract to cause
the termination, cancellation, or modification of such Acquiror Material
Contract or to reduce or otherwise change its activity thereunder so as to
affect adversely in any material respect the benefits derived or expected to be
derived therefrom by Acquiror.
3.10 Insurance. Acquiror has insured by reputable insurers its assets
---------
that are of an insurable character against risks of liability, casualty, and
fire in adequate and customary amounts. Acquiror maintains with such insurers
insurance against hazards, risks, and liability to persons and property to the
extent and in the manner customary for companies in similar businesses,
similarly situated.
3.11 Legal Proceedings; Orders.
-------------------------
(a) Except as set forth in Schedule 3.11, there is no pending action,
-------------
arbitration, audit, hearing, investigation, litigation, or suit (whether
civil, criminal, administrative, investigative, or informal) commenced,
brought, conducted, or heard by or before, or otherwise involving, any
governmental body or arbitrator ("Proceeding");
(i) that has been commenced by or against Acquiror or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, Acquiror; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated hereby (the "Contemplated Transactions").
To the best knowledge of Acquiror, (1) no such Proceeding has been
threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such
Proceeding. Acquiror has delivered to Transferors copies of all
14
<PAGE>
pleadings, correspondence, and other documents relating to each Proceeding
listed in Schedule 3.11. The Proceedings listed in Schedule 3.11 will not
------------- -------------
have a material adverse effect on the business, operations, assets,
condition, or prospects of Acquiror.
(b) Except as set forth in Schedule 3.11(b):
----------------
(i) there is no award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other governmental body or by any
arbitrator ("Order") to which Acquiror or any of the assets owned or
used by Acquiror is subject; and
(ii) no officer, director, agent, or employee of Acquiror is
subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or
practice relating to the business of Acquiror.
(c) Except as set forth in Schedule 3.11(c):
----------------
(i) Acquiror is, and at all times since January 1, 1995 has been,
in full compliance with all of the terms and requirements of each
Order to which it, or any of the assets owned or used by it, is or has
been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any
Order to which Acquiror, or any of the assets owned or used by
Acquiror, is subject; and
(iii) Acquiror has not received, at any time since January 1,
1995, any notice or other communication (whether oral or written) from
any governmental body or any other person regarding any actual,
alleged, possible, or potential violation of, or failure to comply
with, any term or requirement of any Order to which Acquiror, or any
of the assets owned or used by Acquiror, is or has been subject.
3.12 Securities Laws Compliance. Subject to the accuracy of the
--------------------------
representations and warranties of the Transferors set forth in Article II
hereof, the exchange of the HSI Shares and Primenergy Shares for the Omega
Common Stock by and between Acquiror and the Transferors complies with all
applicable federal and state securities laws.
3.13 Tax and Other Liabilities. All taxes required by law which are
-------------------------
due and payable by Acquiror have been paid, all taxes Acquiror is obligated to
withhold from amounts owing to any employee or third party have been withheld,
and, except as disclosed in Schedule 3.13, all tax returns and reports required
-------------
by law to have been filed by Acquiror have been duly filed and reflect the
amounts due and paid. The provision for taxes on the Omega Balance Sheet is
sufficient for the payment of all accrued and unpaid federal, state, county,
local, and other taxes of every kind of Acquiror, whether or not assessed or
disputed as of the date of the Omega Balance Sheet. There are in effect no
waivers of applicable statutes of limitations with respect to any taxes,
governmental charges, duties, imports, levies,
15
<PAGE>
or fees for any year and Acquiror has not agreed to any extension of time with
respect to any tax assessment or deficiency. The Federal income tax returns of
Acquiror have not been and are not now being audited by the Internal Revenue
Service for any of Acquiror's tax periods. No tax liens have been asserted
against any of Acquiror's assets and any potential assessment of any additional
taxes for periods for which returns have been filed is not expected to exceed
the recorded liability therefore, except as set forth on Schedule 3.13.
-------------
3.14 Finder or Broker. Neither Acquiror nor any person acting on
----------------
behalf of Acquiror has negotiated with any finder, broker, intermediary, or
similar person in connection with the transactions contemplated herein.
3.15 Conflict of Interest. Except as set forth on Schedule 3.15 no
-------------------- -------------
officer, director, or stockholder of Acquiror has any interest in any
corporation, partnership, or other entity that is engaged in a business which is
in competition with that of Acquiror, is a supplier to Acquiror, or is a party
to any Acquiror Material Contract.
3.16 Employees and Consultants.
-------------------------
(a) To the knowledge of Acquiror, no employee or agent of, or
consultant to, Acquiror is in violation of any term of any employment,
agency, or consulting contract, or any other contract or agreement with any
third party relating to the right of any such employee, agent, or
consultant to be employed or engaged by Acquiror because of the nature of
the business conducted or to be conducted by Acquiror or for any other
reason.
(b) Except as disclosed in Schedule 3.16(b) attached hereto, Acquiror
----------------
has no, and does not contribute to, any pension, profit-sharing, incentive,
or other employee benefit plan (including without limitation any of the
type defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974), nor does Acquiror have any obligation to, or customary
arrangement with employees for bonuses incentive compensation vacations,
severance pay, insurance, or other benefits. Acquiror is not indebted to
any director, officer, employee, or stockholder, whether by loan, advance,
or otherwise nor is any director, officer, employee, or stockholder so
indebted to Acquiror, except as disclosed in Schedule 3.16(b) attached
---------------
hereto. Acquiror is not a party to or bound by any collective bargaining
agreement.
3.17 Business; Compliance with Laws. Acquiror has all necessary
------------------------------
franchises, permits, licenses, authorizations and other rights and privileges
necessary to permit it to own its property and to conduct its business as
currently conducted. All such franchises, permits, licenses, and authorizations
are in full force and effect. Acquiror is not in violation of any law, statute,
or regulation which may have a materially adverse impact on the business or
prospects of Acquiror nor is Acquiror in violation of any judgment, injunction,
order or decree relevant to its securities, the ownership of its properties, or
the carrying on of its business.
3.18 Books and Records. The books of account, minute books, stock
-----------------
record books, and other records of Acquiror, all of which have been made
available to Transferors, are complete and correct and have been maintained in
accordance with sound business practices and the requirements of
16
<PAGE>
Section 13(b)(2) of the Securities Exchange Act of 1934, as amended, including
the maintenance of an adequate system of internal controls. The minute books of
Acquiror contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the Boards of Directors, and
committees of the Boards of Directors of Acquiror, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books.
3.19 Accounts Receivable. All accounts receivable of Acquiror that
-------------------
are reflected on the Omega Balance Sheet or the Interim Omega Balance Sheet or
on the accounting records of Acquiror as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the ordinary course
of business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of the respective
reserves shown on the Omega Balance Sheet or the Interim Omega Balance Sheet or
on the accounting records of Acquiror as of the Closing Date (which reserves are
adequate and calculated consistent with past practice and, in the case of the
reserve as of the Closing Date, will not represent a greater percentage of the
Accounts Receivable as of the Closing Date than the reserve reflected in the
Interim Omega Balance Sheet represented of the Accounts Receivable reflected
therein and will not represent a material adverse change in the composition of
such Accounts Receivable in terms of aging). Subject to such reserves, each of
the Accounts Receivable either has been or will be collected in full, without
any set-off, within ninety days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than returns in
the ordinary course of business, under any contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. Schedule 3.19 contains a complete and accurate list of all Accounts
-------------
Receivable as of the date of the Interim Omega Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
3.20 Certain Payments. Since January 1, 1995, neither Acquiror nor
----------------
any director, officer, agent, or employee of Acquiror or any other person
associated with or acting for or on behalf of Acquiror, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of Acquiror any affiliate of Acquiror, or (iv) in
violation of any laws, rules, regulations, or Orders, (b) established or
maintained any fund or asset that has not been recorded in the books and records
of Acquiror.
3.21 Disclosure.
----------
(a) No representation, warranty or statement of Acquiror in this
Agreement, including the Schedules hereto, omits to state a material fact
---------
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 4.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
17
<PAGE>
(c) There is no fact known to Acquiror that has specific application
to Acquiror (other than general economic or industry conditions) and that
materially adversely affects or, as far as either Acquiror can reasonably
foresee, materially threatens, the assets, business, prospects, financial
condition, or results of operations of Acquiror that has not been set forth
in this Agreement.
3.22 Relationships with Related Persons. No affiliate or other
----------------------------------
related person of Acquiror ("Related Person") has, or since the first day of the
next to last completed fiscal year of Acquiror, has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to Acquiror's business. No Related Person is, or since the
first day of the next to last completed fiscal year of Acquiror has owned (of
record or as a beneficial owner) an equity interest or any other financial or
profit interest in, a person that has had business dealings or a material
financial interest in any transaction with Acquiror. No Related Person is a
party to any contract with, or has any claim or right against, Acquiror. For
purposes of this Section 3.22, a "Related Person" of Acquiror means (a) any
person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with Acquiror;
(b) any person that holds a material interest in such specified person; (c) each
person that serves as a director, officer, partner, executor, or trustee of
Acquiror (or in a similar capacity); (d) any person in which such specified
person holds a material interest; (e) any person with respect to which such
specified person serves as a general partner or a trustee (or in a similar
capacity); and (f) any Related Person of any individual described in clause (b)
or (c). Such definition also includes any member of the immediate family of any
of the persons specified herein. Also for purposes of this Agreement, the term
"person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or governmental body.
3.23 Environmental Matters. In addition to and without limiting the
---------------------
generality or breadth of any of the other representations and warranties of
Acquiror in this Article III, (i) Acquiror has obtained all licenses, permits,
registrations and other authorizations that are required under all applicable
laws, regulations and other requirements of governmental or regulatory
authorities relating to pollution or to the protection of the environment,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. (S) 9601 et seq.) ("CERCLA"),
the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the
Solid Waste Disposal Act (42 U.S.C. (S) 6901 et seq.), the Toxic Substances
Control Act (42 U.S.C. (S) 2601 et seq.), the Clean Air Act (42 U.S.C. 7401 et
seq.), the Clean Water Act (33 U.S.C. (S) 1251 et seq.), the Safe Drinking Water
Act (42 U.S.C. (S) 300(f) et seq.), and duties or requirements arising out of
common law (collectively "Environmental Laws"); (ii) Acquiror is in compliance
with all Environmental Laws and with all such licenses, permits, registrations
and authorizations and has not violated any of the foregoing; (iii) none of
Acquiror's operations is or has been subject to any judicial or administrative
proceeding alleging the violation of any Environmental Law; (iv) none of
Acquiror's operations is on the "CERCLIS" list of hazardous waste sites or the
"National Priorities List" of the U.S. Environmental Protection Agency, or any
similar state list, or the subject of any federal, state or local investigation
evaluating whether any remedial action is needed to respond to a release of any
hazardous substance (as defined by 42 U.S.C. (S) 9106(14)), petroleum or any
other contaminant (hereafter referred to as a "Hazardous Substance"); (v)
Acquiror has no contingent or actual liability in connection with any release of
any Hazardous Substance into the environment; (vi) Acquiror has not performed or
suffered any act and knows of no
18
<PAGE>
condition that could give rise to liability to any person (governmental or not)
under CERCLA or any other Environmental Laws, nor has Acquiror received notice
of any such liability or any claim therefor or submitted notice pursuant to
Section 103 of CERCLA to any governmental or regulatory agency; and (vii) no
Hazardous Substance is present or has been released, discharged, placed, dumped
or otherwise come to be located on, at, beneath or near any of the assets or
properties of Acquiror or any surface waters or groundwater thereon or
thereunder. Acquiror has a Phase I environmental review report that has been
prepared with respect to each real property owned by Acquiror at any time and a
copy of each such report has been provided to Transferors.
3.24 Employee Benefit Plans. Acquiror has no director, officer and
----------------------
employee retirement, welfare or other benefit plans, agreements, practices,
programs, or arrangements ("Employee Benefit Plans") of any sort. Specifically,
and without limiting the generality of the foregoing, Acquiror has no Employee
Benefit Plan (whether or not set forth in a written document) covering any
employee, director or consultant of Acquiror or any subsidiary thereof, which is
subject to the requirements of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Code or is intended to be qualified under
Section 401(a) of the Code.
ARTICLE IV
Covenants of Acquiror Prior to Closing Date
-------------------------------------------
4.1 Due Diligence Review. Between the date of this Agreement and the
--------------------
Closing Date, Acquiror will (a) afford Transferors and their representatives and
prospective lenders and investors and their representatives (collectively,
"Transferors' Advisors") full and free access to Acquiror's personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish Transferors and Transferors' Advisors with
copies of all such contracts, books and records, and other existing documents
and data as Transferors may reasonably request, and (c) furnish Transferors and
Transferors' Advisors with such additional financial, operating, and other data
and information as Transferors may reasonably request.
4.2 Operation of the Business of Acquiror. Between the date of this
-------------------------------------
Agreement and the Closing Date, Acquiror will:
(a) conduct its business only in the ordinary course of business;
(b) use its best efforts to preserve intact its current business
organization, keep available the services of its current officers,
employees, and agents, and maintain the relations and good will with
suppliers, customers, landlords, creditors, employees, agents, and others
having business relationships with Acquiror;
(c) confer with Transferors concerning operational matters of a
material nature; and
(d) otherwise report periodically to Transferors concerning the status
of the business, operations, and finances of Acquiror.
19
<PAGE>
4.3 Negative Covenant. Except as otherwise expressly permitted by this
-----------------
Agreement, between the date of this Agreement and the Closing Date, Acquiror
will not, without the prior consent of Transferors, take any affirmative action,
or fail to take any reasonable action within their or its control, as a result
of which any of the changes or events listed in Section 3.7(c) is likely to
occur.
4.4 Required Approvals. As promptly as practicable after the date of this
------------------
Agreement, Acquiror will make all filings required to be made by them in order
to consummate the Contemplated Transactions. Between the date of this Agreement
and the Closing Date, Acquiror will (a) cooperate with Transferors, HSI and
Primenergy with respect to all filings that Transferors elect to make or is
required to make in connection with the Contemplated Transactions, and (b)
cooperate with Transferors in obtaining all consents identified in Schedule 2.2.
------------
4.5 Notification. Between the date of this Agreement and the Closing
------------
Date, Acquiror will promptly notify Transferors in writing if Acquiror becomes
aware of any fact or condition that causes or constitutes a breach of any of
Acquiror's representations and warranties as of the date of this Agreement, or
if Acquiror becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Schedules if this Agreement were dated the date of the
---------
occurrence or discovery of any such fact or condition, Acquiror will promptly
deliver to Transferors a supplement to the Schedules specifying such change.
---------
During the same period, Acquiror will promptly notify Transferors of the
occurrence of any breach of any covenant of Acquiror in this Article IV or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VI impossible or unlikely.
4.6 Payment of Indebtedness by Related Parties. Except as expressly
------------------------------------------
provided in this Agreement, Acquiror will cause all indebtedness owed to it by
any Related Person to be paid in full prior to Closing.
4.7 No Negotiation. Until such time, if any, as this Agreement is
--------------
terminated pursuant to Article VIII, Acquiror will not, and will cause each of
its representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any person (other than Transferors) relating to any
transaction involving the sale of the business or assets (other than in the
ordinary course of business) of Acquiror or any of the capital stock of Acquiror
or any merger, consolidation, business combination, or similar transaction
involving Acquiror.
4.8 Best Efforts. Between the date of this Agreement and the Closing
------------
Date, Acquiror will take all corporate action that may be necessary and
otherwise use its best efforts to cause the conditions in Article VI to be
satisfied.
20
<PAGE>
ARTICLE V
Covenants of Transferors Prior to Closing Date
-----------------------------------------------
5.1 Approvals of Governmental Bodies. As promptly as practicable after
--------------------------------
the date of this Agreement, Transferors will, and will cause HSI and Primenergy
to, make all filings required to be made by them to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date,
Transferors will, and will cause each Company to, (i) cooperate with Acquiror
with respect to all filings that Acquiror is required to make in connection with
the Contemplated Transactions, and (ii) cooperate with Acquiror in obtaining all
consents identified in Schedule 3.2; provided that this Agreement will not
------------
require either Company to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a governmental authorization.
5.2 Best Efforts. Except as set forth in the proviso to Section 5.1,
------------
between the date of this Agreement and the Closing Date, Transferors will use
their best efforts to cause the conditions in Article VII to be satisfied.
ARTICLE VI
Conditions Precedent to Transferors' Obligation to Close
--------------------------------------------------------
Transferors' obligations to exchange their HSI Shares and Primenergy Shares
for Omega Common Stock and to take the other actions required to be taken by
Transferor at the Closing are subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by
Transferor, in whole or in part):
6.1 Accuracy of Representations. All of Acquiror's representations and
---------------------------
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Schedules.
---------
6.2 Acquiror's Performance.
----------------------
(a) All of the covenants and obligations that Acquiror is required to
perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects. Without limiting the generality of
the foregoing, Transferors shall have received the financial statements of
Acquiror referred to in items (b) and (c) of Section 3.7(a) and there shall
be, in the sole and exclusive judgment of Transferors, no unacceptable
disclosures thereon or facts revealed thereby.
(b) Each document required to be delivered pursuant to Section 6.4
must have been delivered, and each of the other covenants and obligations
in Article IV must have been performed and complied with in all respects.
21
<PAGE>
6.3 Consents. Each of the Consents identified in Schedule 3.2, must have
-------- ------------
been obtained and must be in full force and effect.
6.4 Additional Documents. Each of the following documents must have been
--------------------
delivered to Transferor:
(a) an opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson,
dated the Closing Date, covering such matters as Transferors and their
counsel shall reasonably request;
(b) Each of the directors and officers of Acquiror serving immediately
prior to Closing shall submit the following:
(i) their resignations from all positions with the Acquiror
effective as of the Closing;
(ii) the directors shall submit a written consent to action
electing the persons designated on Schedule 6.4(b)(ii) as directors of
-------------------
Acquiror effective upon the Closing and the effectiveness of the
resignations of the currently serving directors; and
(iii) Releases in the form attached hereto as Exhibit 6.4(b).
--------------
(c) such other documents as Transferors may reasonably request for the
purpose of (i) enabling their counsel to provide the opinion referred to in
Section 7.4(a), (ii) evidencing the accuracy of any of Acquiror's
representations and warranties, (iii) evidencing the performance by
Acquiror of, or the compliance by Acquiror with, any covenant or obligation
required to be performed or complied with by it, (iv) evidencing the
satisfaction of any condition referred to in this Article VI, or (v)
otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
6.5 No Proceedings. Since the date of this Agreement, there must not have
--------------
been commenced or threatened against Transferors, or against any person
affiliated with any Transferor, any Proceeding (a) involving any challenge to,
or seeking damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.
6.6 No Claim Regarding Stock Ownership or Sale Proceeds. There must not
---------------------------------------------------
have been made or threatened by any person any claim asserting that such person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, Acquiror, or (b) is entitled to all or any portion of the
HSI Shares or Primenergy Shares being exchanged for the Omega Common Stock.
6.7 No Prohibition. Neither the consummation nor the performance of any
--------------
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause any Transferor or any person affiliated with
any Transferor to suffer any material adverse consequence under, (a) any
22
<PAGE>
applicable legal requirement or order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise proposed by or before any
governmental body.
6.8 Consummation of Private Placement. Acquiror shall have arranged a
---------------------------------
private placement of shares of Omega Common Stock to a limited number of
accredited investors pursuant to which Acquiror will raise a minimum of
U.S.$3,000,000 for a maximum of 1,000,000 shares of Omega Common Stock (which
shares shall represent not more than 10% of the total shares of Omega Common
Stock outstanding after taking into account the shares of Omega Common Stock
outstanding (i) prior to Closing, plus (ii) after taking into account the shares
to be issued upon Closing pursuant to this Agreement). Such private placement
shall be consummated either prior to Closing or contemporaneously with the
Closing of the transactions contemplated hereby.
6.9 Registration Rights Agreement. The Transferors and Acquiror shall
-----------------------------
have entered a Registration Rights Agreement in the form attached hereto as
Exhibit 6.9.
- -----------
6.10 Adoption of Stock Option Plan. Acquiror shall have adopted and
-----------------------------
its shareholders shall have approved a stock option plan in substantially the
form of Exhibit 6.10 pursuant to which the options granted to certain officers
------------
and employees of Primenergy shall be replaced by options to acquire shares of
Omega Common Stock.
6.11 Recapitalization of Acquiror. Acquiror shall have completed all
----------------------------
corporate action necessary to consummate a recapitalization which will effect a
reverse stock split whereby each holder of outstanding shares of Omega Common
Stock will receive one share of newly issued stock for each 15 shares held
immediately prior to the consummation of such recapitalization. After such
recapitalization, there will be issued and outstanding a total of not more than
1,000,000 shares of Omega Common Stock (before taking into account the shares of
Omega Common Stock to be issued to Transferors pursuant to this Agreement and
the 1,000,000 shares to be issued pursuant to the private placement contemplated
by Section 6.8 above).
6.12 Filing of Tax Returns and SEC Reports. Acquiror shall have filed
-------------------------------------
all federal, state and other income tax returns with the appropriate agencies
and all periodic, current and other reports and filings with the Securities and
Exchange Commission and any applicable securities exchange or self-regulatory
agency which it is required to file prior to Closing.
6.13 Settlement of Pending Lawsuit. The litigation described in
------------------------------
Schedule 3.11 shall be settled on terms and conditions acceptable to
- -------------
Transferors.
ARTICLE VII
Conditions Precedent to Acquiror's Obligation to Close
------------------------------------------------------
Acquiror's obligations to acquire the HSI Shares and Primenergy Shares in
exchange for shares of Omega Common Stock and to take the other actions required
to be taken by Acquiror at the Closing are subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by Acquiror, in whole or in part):
23
<PAGE>
7.1 Accuracy of Representations. All of Transferors' representations and
---------------------------
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
7.2 Transferors' Performance.
-------------------------
(a) All of the covenants and obligations that Transferors are required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
(b) Transferors shall have delivered certificates evidencing their
shares of the common stock of the Companies duly endorsed for transfer to
the Acquiror.
7.3 Consents. Each of the Consents identified in Schedule 2.2 must have
-------- ------------
been obtained and must be in full force and effect.
7.4 Additional Documents. Transferors must have caused the following
--------------------
documents to be delivered to Acquiror:
(a) an opinion of Conner & Winters, a Professional Corporation, dated
the Closing Date, covering such matters as Acquiror and its counsel shall
reasonably request; and
(b) such other documents as Acquiror may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 6.4(a), (ii) evidencing the accuracy of any representation or
warranty of Transferors, (iii) evidencing the performance by Transferors
of, or the compliance by Transferors with, any covenant or obligation
required to be performed or complied with by Transferors, (iv) evidencing
the satisfaction of any condition referred to in this Article VII, or (v)
otherwise facilitating the consummation of any of the Contemplated
Transactions.
7.5 No Injunction. There must not be in effect any legal requirement or
-------------
Order that (a) prohibits the exchange of the HSI Shares and/or Primenergy Shares
by Transferors to Acquiror or the issuance by Acquiror of the shares of Omega
Common Stock to the Transferors as provided for in this Agreement, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
ARTICLE VIII
Termination
-----------
8.1 Termination Events. This Agreement may, by notice given prior to or
------------------
at the Closing, be terminated:
24
<PAGE>
(a) by either Transferors or Acquirors if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
(b) (i) by Transferors if any of the conditions in Article VI has not
been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Transferors to comply with its obligations under this Agreement) and
Transferors have not waived such condition on or before the Closing Date;
or (ii) by Acquirors, if any of the conditions in Article VII has not been
satisfied of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Acquirors to comply
with its obligations under this Agreement) and Acquiror has not waived such
condition on or before the Closing Date;
(c) by mutual consent of Transferors and Acquiror; or
(d) by either Transferors or Acquiror if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before January 30, 1998, or such later date as the parties may agree upon.
8.2 Effect of Termination. Each party's right of termination under
---------------------
Section 8.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 8.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 10.8 and 10.9 will survive; provided, however,
that if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
ARTICLE IX
Indemnification and Remedies
----------------------------
9.1 Survival; Right to Indemnity Not Affected by Knowledge. All
------------------------------------------------------
representations, warranties, covenants, and obligations in this Agreement,
including the Schedules and any supplements to the Schedules, any certificates
--------- ---------
delivered pursuant to Sections 6.4(c) or 7.4(b), and any other certificate or
document delivered pursuant to this Agreement will survive the Closing. The
right to indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty,
covenant, or obligation. The waiver of any condition based on the accuracy of
any representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
25
<PAGE>
9.2 Indemnification.
---------------
(a) Transferors agree to protect, defend, indemnify, and hold harmless
the Acquiror against and in respect of any and all loss, liability,
deficiency, damage, cost, or expense, or actions in respect thereof
(including reasonable legal fees and expenses) (collectively Losses), as
and when incurred, occasioned by any knowing, willful or intentional
breach, falsity, or failure of any of the representations, warranties, or
covenants of the Transferors herein contained, or contained in any other
document executed and delivered by the Transferors to the Acquiror in
connection with this Agreement. The liability and obligations of the
Transferors under this Article IX shall be several and not joint and each
Transferor shall be liable and responsible for that portion of the total
obligation and liability of all Transferors hereunder that is equal to the
percentage of the shares of Omega Common Stock issued to such Transferor on
the Closing Date pursuant to this Agreement bears to the total number of
shares of Omega Common Stock issued to all Transferors on the Closing Date
pursuant to this Agreement.
(b) Shapansky agrees to protect, defend, indemnify, and hold harmless
Transferors against and in respect of (i) any and all Losses as and when
incurred, occasioned by any breach, falsity or failure of any of the
representations, warranties, or covenants of Acquiror herein contained, or
contained in or any other document executed and delivered by Acquiror to
Transferors in connection with this Agreement, and (ii) if not otherwise
covered by item (i) hereof, any taxes due and any penalties, interest,
costs and charges incurred in connection with the preparation and filing of
any tax returns after closing that cover any periods prior to Closing.
(c) Promptly after receipt by Acquiror or Transferors of notice of the
commencement of any action, proceeding, or investigation in respect of
which indemnity or reimbursement may be sought as provided above, such
party (the "Indemnitee") shall notify the party from whom indemnification
is claimed (the "Indemnitor"), but the failure of such Indemnitee to notify
the Indemnitor with respect to a particular action, proceeding, or
investigation shall not relieve the Indemnitor from any obligation or
liability (i) which it may have pursuant to this Agreement if the
Indemnitor is not substantially prejudiced by the failure to notify or (ii)
which it may have otherwise than pursuant to this Agreement. The Indemnitor
shall promptly assume the defense of the Indemnitee with counsel reasonably
satisfactory to the Indemnitee, and the fees and expenses of such counsel.
shall be at the sole cost and expense of the Indemnitor. The Indemnitee
will cooperate with the Indemnitor in the defense of any action,
proceeding, or investigation for which the Indemnitor assumes the defense.
Notwithstanding the foregoing, the Indemnitee shall have the right to
employ separate counsel in any such action, proceeding, or investigation
and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Indemnitee unless (i) the
Indemnitor has agreed to pay such fees and expenses, (ii) the Indemnitor
shall have failed promptly to assume the defense of such action,
proceeding, or investigation and employ counsel reasonably satisfactory to
the Indemnitee, or (iii) in the reasonable judgment of the Indemnitee there
may be one or more defenses available to the Indemnitee which are not
available to the Indemnitor with respect to such action, claim, or
proceeding, in which case the Indemnitor shall not have the right to assume
the defense of such action, proceeding, or investigation on behalf of the
Indemnitee. The Indemnitor shall not be liable for the settlement by the
Indemnitee of any action, proceeding, or investigation effected
26
<PAGE>
without its consent, which consent shall not be unreasonably withheld. The
Indemnitor shall not enter into any settlement in any action, suit, or
proceeding to which the Indemnitee is a party, unless such settlement
includes a general release of the Indemnitee with no payment by the
Indemnitee of consideration.
9.3 Time Limitation. If the Closing occurs, no Indemnitor will have any
---------------
liability (for indemnification or otherwise) with respect to any claim under
this Article IX (other than any claim for a breach of representations or
warranties of Transferors contained in Section 2.11 or, as it may apply to any
environmental laws, statutes or regulations, Section 2.15, and of Acquiror in
Sections 3.13, 3.23, or, as it may apply to any environmental laws, statutes or
regulations, Section 3.17) unless on or before one year from Closing an
Indemnitee notifies all Indemnitors of the claim specifying the factual basis of
that claim in reasonable detail to the extent then known by the Indemnitee. The
time period within which to assert any claims hereunder with respect to tax
matters shall be the date of the expiration of the period of limitations within
which the taxing authority must assert a claim or assessment against the
Companies, in the case of any breach of Section 2.11, or Acquiror, in the case
of any breach of Section 3.13. There shall be no termination of the time in
which a claim for indemnification may be asserted hereunder with respect to any
breach of any representation or warranty relating to any environmental liability
or claim.
9.4 Limitations on Amount. Indemnitors hereunder will have no liability
---------------------
(for indemnification or otherwise) with respect to the matters described in this
Article IX until the total of all Damages with respect to such matters exceeds
$10,000, and then only for the amount by which such amounts for which
Indemnitors would otherwise be liable exceed $10,000. However, this Section 9.4
will not apply to any breach of any representations and warranties of which the
Indemnifying Party or any Related Person had knowledge at any time prior to the
date on which such representation and warranty is made or any intentional breach
by the Indemnitor or, in the case of the Acquiror, Shapansky, of any covenant or
obligation, and Indemnitors will be liable for all damages with respect to such
breaches.
9.5 Remedies. The provisions of this Article IX shall not limit or impair
--------
any right or remedy arising from any breach of this Agreement. In addition to
any other remedy provided by law or equity, injunctive relief may be obtained to
enjoin the breach, or threatened breach, of any provision of this Agreement and
each party shall be entitled to the specific performance by the other of its
obligations hereunder. All remedies, whether under this Agreement, or by law or
as may otherwise be afforded to the Acquiror, Transferors or the Company, as the
case may be, shall be cumulative.
ARTICLE X
Miscellaneous
-------------
10.1 Communications. All notices or other communications hereunder
--------------
shall be in writing and shall be given by registered or certified mail (postage
prepaid and return receipt requested), by an overnight courier service which
obtains a receipt to evidence delivery, or by telex or facsimile transmission
(provided that written confirmation of receipt is provided), addressed as set
forth below:
27
<PAGE>
If to the Company and/or Transferors:
Heater Specialists, Inc.
3171 N. Toledo Ave.,
Tulsa, OK 74115
Primenergy, Inc.
3172 N. Toledo Ave.,
Tulsa, OK 74115
With a copy to:
Lynnwood R. Moore, Jr., Esq.
Conner & Winters
A Professional Corporation
3700 First Place Tower
15 East Fifth Street
Tulsa, Oklahoma 74103
If to Acquiror:
Omega Development, Inc.
9422 South College Place, Suite 222
Tulsa, Oklahoma 74137
or such other address as any party may designate to the other in accordance with
the aforesaid procedure. All notices and other communications sent by overnight
courier service shall be deemed to have been given as of the next business day
after delivery thereof to such courier service, those given by telex or
facsimile transmission shall be deemed given when sent, and all notices and
other communications sent by mail shall be deemed given as of the third business
day after the date of deposit in the United States mail.
10.2 Amendments and Waivers. Neither this Agreement nor any term
----------------------
hereof may be changed or waived (either generally or in a particular instance
and either retroactively or prospectively) without a writing among the parties.
10.3 Delays or Omissions; Waiver. No delay or omission to exercise
---------------------------
any right, power, or remedy accruing to Transferors, the Company, or the
Acquiror upon any breach or default by the other under this Agreement shall
impair any such right, power, or remedy nor shall it be construed to be a waiver
of any such breach or default, or any acquiescence therein or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring.
10.4 Entire Agreement. This Agreement (together with the exhibits
----------------
attached hereto) contains the entire understanding of the parties with respect
to their respective subject matter and all prior
28
<PAGE>
negotiations, discussions, commitments, and understandings heretofore had
between them with respect thereto are merged herein and therein.
10.5 Headings. All article and section headings herein are inserted
--------
for convenience only and shall not modify or affect the construction or
interpretation of any provision of this Agreement.
10.6 Counterparts; Governing Law. 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. This Agreement
shall be governed by, and construed in accordance with, the laws of the State of
Oklahoma, without giving effect to conflict of laws.
10.7 Further Actions. At any time and from time to time, each party
---------------
agrees, without further consideration, to take such actions and to execute and
deliver such documents as may be reasonably necessary to effectuate the purposes
of this Agreement.
10.8 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Acquiror will not incur any
expenses in connection with this Agreement in excess of $5,000.00. Any expenses
of Acquiror in excess of such amount shall be paid by Shapansky and/or other
persons who are shareholders of the Company prior to Closing without any right
of reimbursement or recovery from Acquiror after the Closing. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
10.9 Confidentiality. Between the date of this Agreement and the
---------------
Closing Date, the parties hereto will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of HSI, Primenergy and
Acquiror to maintain in confidence, and not use to the detriment of another
party or HSI or Primenergy any written, oral, or other information obtained in
confidence from another party or HSI or Primenergy in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings.
29
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
hereinabove set forth.
Acquiror:
OMEGA DEVELOPMENT, INC., a
Nevada corporation
By /s/A. Paul Shapansky
-------------------------
A. Paul Shapansky, President
Transferors:
Don R. Mellott Trust UID 22/nd/ day of May, 1995
By: /s/Don Mellott
-------------------------
Name: Don Mellott
-------------------------
Title: Trustee
-------------------------
Janet K. Mellott Trust UID 22/nd/ day of May, 1995
By: /s/Janet Mellott
-------------------------
Name: Janet Mellott
-------------------------
Title: Trustee
-------------------------
Don Hartman Little Revocable Living Trust UTA Dated January 16/th/, 1996
By: /s/Don Little
-------------------------
Name: Don Little
-------------------------
Title: Trustee
-------------------------
30
<PAGE>
Wanza Lavoyce Little Revocable Living Trust UTA Dated January 16/th/, 1996
By: /s/Lavoyce Little
-------------------------
Name: Lavoyce Little
-------------------------
Title: Trustee
-------------------------
/s/William Alan Jackson
- --------------------------------------
William Alan Jackson, an individual
/s/Seth Anderson
- --------------------------------------
Seth Anderson, an individual
/s/Darrell L. Raymond
- --------------------------------------
Darrell L. Raymond, an individual
/s/James H. Dorough
- --------------------------------------
James H. Dorough, an individual
/s/A. Paul Shapansky
- --------------------------------------
Paul Shapansky, an individual (joining in this agreement for the purposes of
Article IX hereof only)
31
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 492
<PP&E> 39,708
<DEPRECIATION> 18,511
<TOTAL-ASSETS> 21,689
<CURRENT-LIABILITIES> 49,110
<BONDS> 0
0
0
<COMMON> 15,000
<OTHER-SE> (42,421)
<TOTAL-LIABILITY-AND-EQUITY> 21,689
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (32,148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (32,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,148)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
