U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20760
HORIZONTAL VENTURES, INC.
(Exact name of small business issuer as
specified in its charter)
Colorado 84-1091986
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
630 Fifth Avenue, Suite 1501, New York, NY 10111
(Address of principal executive office)
(212) 218-4680
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date:
Common Stock, no par value, outstanding at November 13, 1998: 1,570,981 shares
Transitional Small Business Disclosure Format (check one):
Yes No X
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet as of September 30, 1998
(Unaudited)
Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 1998
and 1997 (Unaudited)
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 (Unaudited)
Notes to Consolidated Financial Statements,
September 30, 1998 and 1997 (Unaudited)
Item 2. Management's Discussion and Analysis.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
HORIZONTAL VENTURES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
<S> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 838,547
ACCOUNTS RECEIVABLE, TRADE, NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF $74,092 12,663
INVENTORY 3,272
---------
TOTAL CURRENT ASSETS 854,482
---------
PROPERTIES AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION AND DEPLETION
OF $824,151 7,748,147
---------
DEPOSITS, PREPAYMENTS, AND DEFERRED CHARGES 325,267
---------
TOTAL ASSETS $8,927,896
=========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG TERM NOTES $ 15,771
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 57,172
OTHER CURRENT LIABILITIES 2,500
---------
TOTAL CURRENT LIABILITIES 75,443
---------
LONG TERM NOTES PAYABLE, NET OF CURRENT
MATURITIES 52,283
---------
TOTAL LIABILITIES 127,726
---------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK, NO PAR VALUE, 50,000,000 SHARES
AUTHORIZED, NO SHARES ISSUED AND OUTSTANDING -
COMMON STOCK, NO PAR VALUE, 50,000,000 SHARES
AUTHORIZED, 1,570,981 SHARES ISSUED AND
OUTSTANDING 11,672,519
ACCUMULATED DEFICIT (2,872,349)
----------
TOTAL STOCKHOLDERS' EQUITY 8,800,170
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,927,896
==========
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
<CAPTION>
HORIZONTAL VENTURES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES $ 9,704 $ 31,659 $ 129,852 $ 160,824
COST OF REVENUES 29,942 19,165 119,334 133,029
------- ------- ------- -------
GROSS MARGIN (20,238) 12,494 10,518 27,795
GENERAL AND
ADMINISTRATIVE
EXPENSES 394,967 124,423 1,270,978 296,509
------- ------- --------- -------
LOSS FROM
OPERATIONS (415,205) (111,929) (1,260,460) (268,714)
OTHER INCOME
(EXPENSES) 22,408 (8,660) 72,011 (45,025)
------- ------- --------- -------
LOSS BEFORE
INCOME TAXES (392,797) (120,589) (1,188,449) (313,739)
PROVISION FOR
INCOME TAXES - - - -
------- ------- --------- -------
NET LOSS $(392,797) $(120,589) $(1,188,449) $(313,739)
======= ======= ========= =======
NET LOSS PER
COMMON SHARE $(0.25) $(0.12) $(0.76) $(0.31)
AVERAGE SHARES
OUTSTANDING
USED FOR
COMPUTATION
OF LOSS PER
COMMON SHARE 1,570,981 1,000,018 1,570,981 1,000,018
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
HORIZONTAL VENTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(1,188,450) $(313,739)
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH USED BY OPERATING ACTIVITIES:
DEPRECIATION, DEPLETION AND
AMORTIZATION 226,225 144,273
(GAIN) LOSS ON SALE OF ASSETS - 21,062
STOCK AND PARTNERS' CAPITAL
INTEREST ISSUED FOR SERVICES - 300
CHANGE IN ACCOUNTS RECEIVABLE 7,952 40,011
CHANGE IN INVENTORY (3,272) -
CHANGE IN ACCOUNTS PAYABLE
AND ACCRUED EXPENSES (213,874) (62,589)
CHANGE IN CURRENT PORTION OF
LONG-TERM DEBT (6,011) -
CHANGE IN OTHER ASSETS (270,754) -
CHANGE IN OTHER LIABILITIES (525,000) -
--------- -------
NET CASH USED BY OPERATING ACTIVITIES (1,973,184) (170,682)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASE OF PROPERTY AND EQUIPMENT (1,180,560) (122,488)
INCREASE IN ACCOUNTS RECEIVABLE,
PETRO UNION, INC. - (9,170)
PROCEEDS FROM SALE OF PROPERTY
AND EQUIPMENT - 55,181
--------- -------
NET CASH USED BY INVESTING ACTIVITIES (1,180,560) (76,477)
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM SALE OF COMMON STOCK 84,446 600,000
INCREASE IN DUE TO RELATED PARTIES - 60,478
STOCK ISSUED FOR NET ASSETS OF LIMITED
PARTNERSHIP - 972,858
LESS, PARTNERS' PRIOR CAPITAL
CONTRIBUTIONS - (818,000)
CHANGE IN CUSTOMER PAYMENTS
RECEIVED IN ADVANCE - (30,000)
REPAYMENT OF NOTES PAYABLE (24,802) (182,614)
--------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 59,644 602,722
--------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,094,100) 355,563
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 3,932,647 6,458
--------- -------
END OF PERIOD $ 838,547 $362,021
========= =======
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
STOCK ISSUED FOR SERVICES $ - $40,300
STOCK ISSUED FOR SUBORDINATED
CONVERTIBLE DEBENTURES - 433,231
STOCK ISSUED FOR NET ASSETS OF
PARTNERSHIP - 972,858
STOCK ISSUED IN CONNECTION WITH
MERGER AND REORGANIZATION - 4,132,469
SUPPLEMENTARY CASH FLOW DATA:
INTEREST PAID $5,694 $23,601
INCOME TAXES PAID - -
</TABLE>
The accompanying notes are an integral part of these statements.
HORIZONTAL VENTURES, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(Unaudited)
NOTE 1 - THE COMPANY:
Horizontal Ventures, Inc., a Colorado corporation (the "Company"), is an
energy company engaged primarily in the business of exploiting proven
producing oil and gas reservoirs by utilizing a low cost proprietary
horizontal drilling technology to increase production rates. On July 13,
1998, the Company amended its Articles of Incorporation to change its name
from Petro Union, Inc. d/b/a Horizontal Ventures, Inc. to Horizontal Ventures,
Inc.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, HVI Cat Canyon,
Inc., a Colorado corporation ("HVI Cat Canyon"), and Calox, Inc., an Indiana
corporation. All significant intercompany accounts and transactions have been
eliminated.
The interim period financial statements presented herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The interim financial statements should be read in conjunction
with the Company's annual financial statements included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results that may be expected for future periods.
In the opinion of management, the unaudited interim financial statements
furnished reflect all adjustments necessary (which all are of a normal
recurring nature) for a fair presentation of the Company's financial condition
as of September 30, 1998, and the results of its operations and cash flows for
the interim periods ended September 30, 1998 and 1997.
The Company, then named Petro Union, Inc. ("PUI"), was a debtor in possession
under Chapter 11 of the U.S. Bankruptcy Code until August 28, 1997, at which
time the Bankruptcy Court approved its plan of reorganization. As a part of
its plan of reorganization, PUI agreed to acquire all the outstanding stock of
Horizontal Ventures, Inc., an Oklahoma corporation ("HVI-Oklahoma"). The
acquisition of HVI-Oklahoma was completed on September 9, 1997, and after the
acquisition, HVI-Oklahoma shareholders owned more than 50% of the outstanding
shares of PUI. Pursuant to the rules of the Securities and Exchange
Commission, the transaction was accounted for as a "reverse merger."
Accordingly, the accompanying consolidated statements of operations and
consolidated statements of cash flows reflect the historical operations and
cash flows of HVI-Oklahoma (including those of PUI after September 9, 1997,
the effective date of the acquisition), whereas quarterly reports filed by the
Company prior to September 9, 1997 reflected operations and cash flows of PUI.
Subsequently, HVI-Oklahoma was merged with and into the Company.
Certain reclassifications have been made to the 1997 amounts to
conform to the 1998 presentation.
NOTE 3 - CONTINGENCIES:
As of September 30, 1998, the Company was the plaintiff in a lawsuit against
David J. LaPrade, a former officer and director of HVI-Oklahoma, and Mr.
LaPrade's current employer. The Company seeks to recover losses from the
alleged breach of fiduciary duty, misappropriating confidential information
and property of the Company, using it in unfair competition with the Company,
interfering with the Company's existing and prospective relationships with its
customers, interfering with the Company's relationships with its employees,
and conversion of Company property. Mr. LaPrade has made counterclaims
against the Company for breach of his employment agreement, libel and slander,
and intentional infliction of emotional distress; he seeks actual damages in
excess of $10,000 and punitive damages in an unspecified amount. The Company
believes that the ultimate outcome of Mr. LaPrade's counterclaims will not
have a material adverse effect on the Company's financial condition, results
of operations or cash flows. The accompanying financial statements do not
include a provision for any loss which might result from Mr. LaPrade's
counterclaims, nor do they include any asset that might result from the
Company's claims against Mr. LaPrade.
NOTE 4 - SUBSEQUENT EVENTS:
Since September 30, 1998, the Company has entered into the following
transactions relating to the acquisition of securities of Saba Petroleum
Company ("Saba"), an independent energy company engaged in the acquisition,
development and exploration of oil and gas properties in the U.S. and
internationally:
On October 6, 1998, the Company entered into a Preferred Stock Transfer
Agreement (the "Preferred Stock Transfer Agreement") with RGC International
Investors, LDC ("RGC"), pursuant to which the Company acquired on October 6,
1998 690 shares of the 8,000 shares of issued and outstanding Series A
Convertible Preferred Stock of Saba (the "Saba Series A Preferred Stock") held
by RGC in exchange for cash in the amount of $750,000, of which $500,000 was
borrowed from International Publishing Holding s.a. ("IPH"), a significant
shareholder of the Company. The Company has executed a Promissory Note to
repay the $500,000 to IPH without interest on or before December 31, 1998 in
the form of cash or shares of Saba Series A Preferred Stock held by the
Company. The Promissory Note is secured by a pledge of two-thirds of the Saba
Series A Preferred Stock held by the Company. Under the Preferred Stock
Transfer Agreement, the Company was granted the exclusive right until November
6, 1998 to acquire from RGC up to an additional 6,310 shares of Saba Series A
Preferred Stock held by RGC in exchange for cash in the amount of
approximately $6,859,000, with such exclusive right subject to an extension
for an additional thirty days by the Company's payment of $500,000, which is
nonrefundable but if the option is exercised within the extended thirty day
period is applied to the acquisition price. On November 6, 1998, the Company
paid $500,000 to RGC to extend the term of the exclusive right until December
6, 1998. In addition, the Company has the exclusive right to acquire any
remaining shares of Saba Series A Preferred Stock held by RGC after RGC
converts a sufficient number of shares of Saba Series A Preferred Stock to
cover its short position with respect to 653,000 shares of Saba Common Stock.
The 690 shares of Saba Series A Preferred Stock acquired by the Company and
the minimum of 6,310 shares of Saba Series A Preferred Stock which the Company
has the exclusive right to acquire from RGC, along with the accrued but unpaid
dividends thereon, are convertible into an estimated aggregate of 3,040,000
shares of Saba Common Stock.
On October 8, 1998 the Company entered into a Common Stock Purchase Agreement
(the "Common Stock Purchase Agreement") pursuant to which on November 6, 1998
Saba issued to the Company 333,333 shares of Saba Common Stock in exchange for
cash in the amount of $1 million. In addition, the Common Stock Purchase
Agreement provides for the issuance by Saba to the Company of an additional
2,166,667 shares of Saba Common Stock by December 4, 1998 in exchange for cash
in the amount of $6.5 million.
The $500,000 payment to RGC to extend the term of the exclusive right to
acquire a minimum of 6,310 shares of Saba Series A Preferred Stock and the $1
million payment to Saba to acquire 333,333 shares of Saba Common Stock were
financed by the Company's issuance to IPH on November 4, 1998 of a Promissory
Note payable in the amount of $1.5 million, with 6% interest, by December 31,
1998. The Promissory Note is secured by the Company's pledge of all of the
issued and outstanding shares of HVI Cat Canyon.
Pursuant to an Option Agreement dated July 22, 1998 (the "Option Agreement")
between the Company and IPH, the Company holds a call option to acquire the
500,000 shares of Saba Common Stock held by IPH at an exercise price equal to
the cost to IPH of acquiring such shares plus twenty percent, which is
estimated to be approximately $1,020,000. The Company has the option of
paying such exercise price to IPH in the form of cash or shares of the
Company's common stock.
In addition, the Company has recently acquired 80,000 shares of Saba Common
Stock in open market purchases at an aggregate cost of approximately $70,130.
To complete the purchase of the securities of Saba in the transactions
described above, the Company is currently endeavoring to obtain short-term
bridge financing in the aggregate amount of $18 million. The Company is also
considering a private placement of the Company's Series A Convertible
Preferred Stock.
Upon consummation of the above transactions, including exercise of the option
with IPH and conversion of the Saba Series A Convertible Preferred Stock into
Saba Common Stock, the Company will own approximately 37 percent of the issued
and outstanding shares of Saba Common Stock and designees of the Company will
represent three out of five members of the Saba Board of Directors. The
Company is considering other transactions to acquire additional shares of Saba
Common Stock with the purpose of gaining majority ownership of Saba.
Item 2. Management's Discussion and Analysis.
Overview
The Company is engaged in the business of exploiting proven producing oil and
gas reservoirs by utilizing a low cost proprietary horizontal drilling
technology to increase production rates. The Company's business strategy since
its emergence from bankruptcy in March 1998 has been to pursue acquisitions of
oil and gas properties particularly suited to exploitation by the Company's
horizontal drilling technology. In connection therewith, the Company has
entered into certain transactions relating to the acquisition of securities of
Saba as discussed in Note 4 of the Notes to Consolidated Financial Statements
presented elsewhere herein. The Company is considering other transactions to
acquire additional securities of Saba with the purpose of gaining majority
ownership of Saba.
Since 1997, the Company has focused on its corporate restructuring and
acquisition efforts and its investment in a horizontal drilling pilot program
in the Cat Canyon field in California. During the first nine months of 1998,
the Company drilled three horizontal wells in the Cat Canyon field, namely
UCB-09, UCB-38 and UCB-28. Each well was drilled utilizing the Company's Short
Radius horizontal drilling technology, and resulted in a 47 foot radius with a
435 foot lateral on UCB-09, a 60 foot radius with a 414 foot lateral on UCB-38
and a 50 foot radius with a 252 foot lateral on UCB-28. In view of the
Company's long-term strategy and the known sand problem in the Cat Canyon
basin, the Company completed each well with a different technique to establish
a standard. UCB-09 was completed with a standard Ace down-hole pump and a KD
system, UCB-38 was completed with a KUDU pump, and UCB-28 was completed with a
Ace Teflon-Luber Plunger down-hole pump. The kick-off point for each well was
at a depth of 2,940-3,000 feet.
The variances in the completions allowed the Company to obtain direct
experience on the production capability from each of the techniques. UCB-09
net production stabilized at 20 barrels of oil per day, UCB-38 sanded up
following a few weeks of production, while UCB-28 has net production of 65
barrels of oil per day. Each of these wells were re-entries into an abandoned
well bore in the Sisquoc formation, which is one of the two pay zones within
the Company's lease in the Cat Canyon basin. Following this drilling operation
and completion technique definition, the Company proceeded with its
discussions with Saba with the intent of applying this technique on Saba's
reserves.
The Company has primarily been focused on the Saba transactions and, as
discussed in Note 4 of the Notes to Consolidated Financial Statements
presented elsewhere herein, completed the interim closing requirements for the
current agreements regarding Saba securities on November 4, 1998.
Considerable expenses have been incurred in connection with the Saba
transactions and additional expenses are expected through the projected
closing of the current agreements on December 4, 1998.
Due to the significance to the Company of the Saba transactions, the Company's
management and staff have devoted a substantial amount of time and effort to
the acquisition. Accordingly, levels of other operational activities such as
prior contract drilling programs have declined. In connection with the Saba
transactions, the Company plans to establish and develop an extensive drilling
program on Saba's properties in California and commence such program late in
the fourth quarter of 1998.
In view of the significant differences between the Company's corporate
structure and during the three months and nine months ended September 30, 1997
and that during the comparable periods ended September 30, 1998, comparisons
of the Company's results of operations for those periods are considered by
management not to be representative of the Company's long-term potential.
This Quarterly Report on Form 10-QSB includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of
historical facts, included in this Form 10-QSB that address activities, events
or developments that the Company expects, believes or anticipates will or may
occur in the future, including such matters as future capital, development and
exploration expenditures (including the amount and nature thereof), drilling
of wells, reserve estimates (including estimates of future net revenues
associated with such reserves and the present value of such future net
revenues), future production of oil and gas, repayment of debt, business
strategies, expansion and growth of the Company's operations and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of assumptions, risks
and uncertainties, general economic and business conditions, the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company, changes in laws or regulations and other factors, many of which are
beyond the control of the Company. Readers are cautioned that any such
statements are not guarantees of future performance and that actual results or
developments may differ materially from those projected in the forward-looking
statements.
Results of Operations
Comparison of Three-Month Periods Ended September 30, 1998 and 1997
Revenues decreased from $31,659 for the third quarter of 1997 to $9,704 for
the third quarter of 1998. Third quarter 1998 revenues were from oil
production at the Cat Canyon field and reflect the decline of oil prices.
Cost of Revenues increased from $19,165 for the third quarter of 1997 to
$29,942 for the third quarter of 1998. The nature and levels of such costs are
dissimilar since third quarter 1997 costs were related to contract drilling
while third quarter 1998 costs were related to production in California as a
result of the Company's change in business strategy.
General and Administrative expenses increased from $124,423 for the third
quarter of 1997 to $394,967 for the third quarter of 1998. The increase was
primarily attributable to legal and consulting fees resulting from the
Company's acquisition and financing efforts related to the Saba transactions.
Comparison of Nine-Month Periods Ended September 30, 1998 and 1997
Revenues decreased from $160,824 for the nine months ended September 30, 1997
to $129,852 for the nine months ended September 30, 1998. Revenues for the
nine months ended September 30, 1998 were from oil production at the Cat
Canyon field. The decline in oil prices of over 50% coupled with the El Nino
storms in California that essentially shut the field down during February 1998
caused revenues to be lower than initially expected.
Cost of Revenues decreased from $133,029 for the nine months ended September
30, 1997 to $119,334 for the nine months ended September 30, 1998. Planned
pilot program drilling operations in the Cat Canyon field account for most of
the expenses during the nine months ended September 30, 1998, and such
expenses are not proportional to revenues since the three wells drilled in the
Cat Canyon field were not in production during the entire period. In
addition, the Company incurred significant repair expenses resulting from the
El Nino storms in California during February 1998.
General and Administrative expenses increased from $296,509 for the nine
months ended September 30, 1997 to $1,270,978 for the nine months ended
September 30, 1998. The increase was primarily attributable to legal and
consulting fees resulting from the Company's acquisition and financing efforts
related to the Saba transactions, the completion of the Company's bankruptcy
reorganization, and related SEC reporting requirements.
Liquidity and Capital Resources
As of September 30, 1998, the Company had current assets in the amount of
$854,482, including cash and cash equivalents of $838,547, while current
liabilities amounted to $75,443. The $2,353,895 decrease in working capital
from December 31, 1997 to September 30, 1998 was primarily attributable to the
Company's final payment on the Cat Canyon field and the drilling program
expenditures related thereto, and legal and consulting fees resulting from the
Company's acquisition and financing efforts during 1998. Long-term
liabilities as of September 30, 1998 amounted to $52,283.
To complete the purchase of the securities of Saba in the transactions
described in Note 4 of the Notes to Consolidated Financial Statements
presented elsewhere herein, the Company is currently endeavoring to obtain
short-term bridge financing in the aggregate amount of $18 million. The
Company is also considering a private placement of the Company's Series A
Convertible Preferred Stock.
The Company's net cash used by operating activities increased from $170,682
for the nine months ended September 30, 1997 to $1,973,184 for the nine months
ended September 30, 1998. This increase was primarily attributable to the Cat
Canyon drilling program expenditures and legal and consulting payments
resulting from the Company's acquisition and financing efforts during 1998.
The Company's net cash used by investing activities increased from $76,477 for
the nine months ended September 30, 1997 to $1,180,560 for the nine months
ended September 30, 1998. This increase was primarily attributable to the
payments for the Cat Canyon field and other capital expenditures related
thereto.
The Company's net cash provided by financing activities decreased from
$602,722 for the nine months ended September 30, 1997 to $59,644 for the nine
months ended September 30, 1998. Net cash provided by financing activities
for the nine months ended September 30, 1997 included the issuance of common
stock for cash in the amount of $600,000 and financing transactions related to
the acquisition of a limited partnership.
Year 2000
Computer programs or other embedded technology that have been written using
two digits (rather than four) to define the applicable year and that have
time-sensitive logic may recognize a date using "00" as the Year 1900 rather
than the Year 2000, which could result in widespread miscalculations or system
failures. Both information technology ("IT") systems and non-IT systems using
embedded technology may be affected by the Year 2000. The Company does not
utilize any proprietary computer software, but uses commercially available
software programs from vendors such as Microsoft Corporation and Peachtree.
The Company has been advised that the software it uses is Year 2000 compliant.
The Company has not completed its assessment of Year 2000 issues, in
particular the process of verification of whether vendors, suppliers and
significant customers with which the Company has material relationships are
Year 2000 compliant. If the Company and such third parties are unable to
address Year 2000 issues in a timely manner, it could result in material
financial risk to the Company, including loss of revenue and substantial
unanticipated costs. Accordingly, the Company plans to devote all resources
necessary to resolve significant Year 2000 issues in a timely manner. In
addition, the Company plans to develop a Year 2000 contingency plan. The
Company is currently not able to determine whether the Year 2000 will have a
material effect on the Company's financial condition, results of operations or
cash flows.
Inflation
The Company does not believe that inflation will have a material impact on the
Company's future operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported in the Company's 1997 Annual Report on Form 10-KSB, on
March 11, 1997 HVI-Oklahoma commenced a lawsuit in the District Court for
Tulsa County, Oklahoma against David J. LaPrade, a former officer and director
of HVI-Oklahoma, and Mr. LaPrade's current employer. The Company seeks to
recover losses from the alleged breach of fiduciary duty, misappropriating
confidential information and property of the Company, using it in unfair
competition with the Company, interfering with the Company's existing and
prospective relationships with its customers, interfering with the Company's
relationships with its employees, and conversion of Company property. Mr.
LaPrade has made counterclaims against the Company for breach of his
employment agreement, libel and slander, and intentional infliction of
emotional distress; he seeks actual damages in excess of $10,000 and punitive
damages in an unspecified amount. As of September 30, 1998, the lawsuit was
still pending. The Company believes that the ultimate outcome of this
litigation will not have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
10.1 Preferred Stock Transfer Agreement dated October 7,
1998 between the Company and RGC.
10.2 Common Stock Purchase Agreement dated
October 8, 1998 between the Company and
Saba.
10.3 Option Agreement dated July 22, 1998
between the Company and IPH.
10.4 Promissory Note dated October 6, 1998
payable by the Company to IPH.
10.5 Pledge Agreement dated October 6, 1998
between the Company and IPH.
10.6 Promissory Note dated November 4, 1998
payable by the Company to IPH.
10.7 Pledge Agreement dated November 4,1998
between the Company and IPH.
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter for which this report is filed, the
Company did not file any Reports on Form 8-K.
SIGNATURE
In accordance with requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HORIZONTAL VENTURES, INC.
Date: November 23, 1998 By:/S/ RANDEEP S. GREWAL
_______________________
Randeep S. Grewal, Chairman
and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HORIZONTAL VENTURES, INC. FINANCIAL STATEMENTS FOR THE INTERIM YEAR TO DATE
PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 838,547
<SECURITIES> 0
<RECEIVABLES> 86,755
<ALLOWANCES> 74,092
<INVENTORY> 3,272
<CURRENT-ASSETS> 854,482
<PP&E> 8,572,298
<DEPRECIATION> 824,151
<TOTAL-ASSETS> 8,927,896
<CURRENT-LIABILITIES> 75,443
<BONDS> 52,283
0
0
<COMMON> 11,672,519
<OTHER-SE> (2,872,349)
<TOTAL-LIABILITY-AND-EQUITY> 8,927,896
<SALES> 129,852
<TOTAL-REVENUES> 129,852
<CGS> 119,334
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,270,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,188,449)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,188,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,188,449)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> (0.76)
</TABLE>
EXHIBIT 10.1
PREFERRED STOCK TRANSFER AGREEMENT
THIS PREFERRED STOCK TRANSFER AGREEMENT (this "Agreement") is
entered into as of this 7th day of October, 1998 by and between RGC
INTERNATIONAL INVESTORS, LDC ("RGC") and HORIZONTAL VENTURES, INC. ("HVI") and
consented to by SABA PETROLEUM COMPANY ("SABA").
W I T N E S S E T H:
WHEREAS, RGC owns 8,000 shares of Series A Convertible Preferred
Stock, par value $0.001 per share, of SABA (the "Series A Preferred");
WHEREAS, RGC desires to sell, and HVI desires to buy, up to 7,000
shares of the Series A Preferred (the "Preferred Shares"), in exchange for
cash in an amount equal to 104% of the stated value thereof, plus an
additional cash amount representing all accrued and unpaid dividends thereon
through the closing of the transactions contemplated hereby (which dividends
aggregated $319,890.41 through the close of business on October 5, 1998 and
will continue to accrue at the rate of $1,150.68 per day for each day
thereafter); and
WHEREAS, the shares of Series A Preferred not being sold to HVI
hereunder may be converted into Common Stock of SABA in accordance with the
terms of the Certificate of Designations, Preferences and Rights governing the
Series A Preferred (the "Certificate of Designations") subsequent to the later
to occur of (i) the approval by the shareholders of SABA of the issuance of
shares of Common Stock in excess of 20% of SABA's outstanding Common Stock
pursuant to the conversion of shares of Series A Preferred (the "Shareholder
Approval Date") and (ii) the declaration by the Securities and Exchange
Commission of the effectiveness of SABA's Registration Statement on Form S-1
covering the resale of the shares underlying such Series A Preferred (File No.
333-45023) (the "Effective Date"); provided, however, that any portion thereof
not immediately convertible as a result of the 4.9% limitation set forth in
the Certificate of Designations will be converted as soon thereafter as
practicable.
NOW, THEREFORE, in consideration of the mutual premises and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is mutually
agreed and covenanted by and between the parties to this Agreement as follows:
1. Initial Sale and Purchase of the Preferred Shares.
Subject to the terms and conditions of this Agreement, on the date
hereof, RGC hereby agrees to transfer, sell and assign to HVI, and HVI hereby
agrees to buy from RGC, the First Closing Shares (as defined herein), in
exchange for, and upon receipt of certificates representing the First Closing
Shares (as defined herein) (the "First Closing Preferred Certificates"), an
aggregate purchase price (the "First Closing Purchase Price") of $750,000.00.
The "First Closing Shares" shall mean the number of shares of Series A
Preferred equal to (i) 721.15 minus (ii) the quotient of (A) all accrued and
unpaid dividends on the First Closing Shares through the date hereof divided
by (B) 1,040; e.g. the Final Shares were 690.8 shares of Series A Preferred as
of October 5, 1998.
2. Subsequent Sale and Purchase of the Preferred Shares.
(a) On or before the thirtieth (30th) day following the First
Closing (as defined herein), HVI shall have the exclusive option to buy from
RGC all of RGC's right, title and interest in the Final Shares (as defined
herein) in exchange for, and upon receipt of certificates representing the
Final Shares (the "Final Preferred Certificates"), an aggregate purchase price
equal to $1,040.00 for each Final Share (or fraction thereof) plus all accrued
and unpaid dividends on each such Final Share (or fraction thereof) through
the date of such purchase (the "Final Purchase Price"), provided, however,
that HVI may extend the exclusive option set forth above for an additional
30-day period by paying to RGC, on or before the thirtieth (30th) day
following the First Closing, the amount of $500,000 as a nonrefundable deposit
(the "Deposit") toward the purchase of the Final Shares. In the event that
HVI elects to pay the Deposit, then, on or before the thirtieth (30th) day
following the date of such payment, HVI shall have the option to buy from RGC
all of RGC's right, title and interest in the Final Shares for an amount equal
to the Final Purchase Price, less the amount of the Deposit. The "Final
Shares" shall mean the number of shares equal to 7,000 minus the First Closing
Shares.
(b) If HVI fails to exercise its option to purchase the Final
Shares prior to the expiration of the first 30-day period or if, after payment
of the Deposit, HVI fails to exercise its option prior to the expiration of
the second 30-day period, (i) RGC shall be entitled to keep the Deposit (to
the extent such amount was paid in exchange for the additional 30-day period)
and shall be free to sell the Final Shares and the Retained Shares (as defined
below) to any third party and (ii) RGC shall have an option for 15 business
days following the expiration of any such 30-day option period to reacquire
the First Closing Shares for the First Closing Purchase Price.
(c) HVI further agrees that it will not sell or convert any of
the First Closing Shares until the earlier of (i) its purchase of the Final
Shares from RGC and (ii) in the event HVI fails to exercise its option, the
date on which RGC's option to reacquire the First Closing Shares expires.
3. Delivery of Preferred Certificates and Purchase Price.
At the closing of the transactions contemplated by Section 1 of
this Agreement (the "First Closing") and at the closing of the transactions
contemplated by Section 2(a) of this Agreement, RGC will deliver the
appropriate First Closing Preferred Certificates and the Final Preferred
Certificates, as the case may be, to HVI and HVI will deliver the First
Closing Purchase Price and the Final Purchase Price, as the case may be, to
RGC, by wire transfer to RGC's account, in accordance with RGC's written
instructions.
4. Obligation to Unwind Short Position.
RGC currently holds a short position of 653,000 shares of Common
Stock of SABA (the "Short Position"). Following the consummation of the
transactions contemplated by this Agreement, RGC will continue to own 1,000
shares of Series A Preferred (the "Retained Shares"). RGC agrees that,
following the later to occur of (i) the Shareholder Approval Date and (ii) the
Effective Date, it will use its commercially reasonable efforts to unwind the
Short Position. RGC agrees that it will only convert such number of the
Retained Shares as is necessary to unwind the Short Position. In the event
that, following the unwinding of the Short Position, RGC continues to own any
shares of Series A Preferred, HVI will have the right, exercisable within 15
business days after its receipt of written notice from RGC that RGC has
unwound the Short Position, to buy such shares of Series A Preferred for the
purchase price of $1,040 per share, plus any accrued and unpaid dividends
thereon.
5. Representations and Warranties of RGC.
(a) RGC has the power and authority to execute, deliver and
perform this Agreement. This Agreement constitutes RGC's valid and legally
binding obligation, enforceable against it in accordance with its terms,
except as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies.
(b) RGC represents and warrants to HVI that the Preferred
Shares and the Retained Shares are owned by RGC and, when sold and delivered
to HVI in accordance with the terms hereof, will be transferred free and clear
of all liens and encumbrances created by RGC; provided, however, that the
Preferred Shares and the Retained Shares are subject to (i) the terms of that
certain Securities Purchase Agreement, dated as of December 31, 1997 (the
"Purchase Agreement"), pursuant to which such shares were issued, as well as
all of the documents executed in connection therewith, and (ii) the terms of
that certain letter agreement, dated June 1, 1998, by and among RGC, SABA and
OMIMEX, INC. ("OMIMEX") regarding, among other things, the grant by RGC to
OMIMEX of the right to purchase up to 4,000 shares of Series A Preferred in
accordance with the terms thereof (the "Letter Agreement" and, collectively
with the documents referred to in (i) above, the "Series A Documentation").
6. Representations and Warranties of HVI.
(a) HVI has the power and authority to execute, deliver and
perform this Agreement. This Agreement constitutes HVI's valid and legally
binding obligation, enforceable against it in accordance with its terms,
except as such enforceability may be limited by general principles of equity
or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally, the enforcement of
creditors' rights and remedies.
(b) HVI is purchasing the Preferred Shares (and to the extent
any Retained Shares are purchased pursuant to Section 3 hereof, the Retained
Shares) for its own account for investment only and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the Securities Act of 1933, as
amended (the "Act").
(c) HVI is an "accredited investor," as that term is defined
in Rule 501(a) of Regulation D under the Act.
(d) HVI acknowledges that neither the Preferred Shares, the
Retained Shares nor the shares of common stock into which the Preferred
Shares and the Retained Shares are convertible have been registered under the
Act and may not be transferred or sold in the absence of an effective
registration statement or an exemption from the registration requirements
under the Act.
(e) HVI acknowledges that it has read and understands all of
the Series A Documentation, including but not limited to the Purchase
Agreement and the Registration Rights Agreement, each dated as of December 31,
1997, the Certificate of Designations and the Letter Agreement.
7. Other Agreements.
(a) HVI hereby acknowledges and agrees that, upon the
consummation of the transactions contemplated hereby, it will own the
Preferred Shares (and to the extent any Retained Shares are purchased pursuant
to Section 3 hereof, the Retained Shares) subject to the terms of the Series A
Documentation, including any rights OMIMEX may have to purchase up to 4,000
shares of Series A Preferred under the Letter Agreement.
(b) RGC agrees that, following the closing of the sale of the
Final Shares to HVI and the receipt by RGC of the Final Purchase Price (the
"Final Closing"), RGC will waive any default by SABA occurring prior to the
Final Closing under any of the provisions of the documents comprising the
Series A Documentation, provided that such waiver shall not apply to any
defaults thereunder arising after the date of the Final Closing or which are
in existence as of the Final Closing and continue thereafter.
8. Notices.
Notices under this Agreement shall be in writing and sent by
registered or certified mail, return receipt requested, postage paid, to HVI
and RGC at their respective principal offices or at such other address as each
such party shall notify the other in writing.
9. Severability.
The various provisions of this Agreement are severable from each
other and from the rest of the Agreement and, in the event that any part of
this Agreement shall be held to be invalid or unenforceable by a court of
competent jurisdiction, the remainder of this Agreement shall be fully
effective, operative and enforceable.
10. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
11. Governing Law.
This Agreement shall be construed and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania.
12. Entire Agreement.
This Agreement contains the entire agreement of the parties and
may not be changed orally but only by an agreement in writing signed by RGC
and HVI. This Agreement shall supersede all prior agreements between RGC and
HVI relating to the subject matter hereof.
13. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which shall be deemed to be
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, RGC has duly executed this Agreement on the day
and year first above written; provided, however, that RGC's execution shall be
rescinded and this Agreement shall be null, void and unenforceable against
RGC, unless HVI shall have executed this Agreement and returned a fully
executed copy hereof via facsimile to RGC at (610) 617-0570, on or before 5:00
p.m., Philadelphia time, Tuesday, October 7, 1998.
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
/s/ Wayne Block
__________________________________
By: Wayne Block
Title: Managing Director
HORIZONTAL VENTURES, INC.
/s/ Randeep S. Grewal
__________________________________
By: Randeep S. Grewal
Title: President & C.E.O.
Date: October 7, 1998
ACCEPTED AND AGREED for all purposes, evidencing SABA's right to consent
pursuant to Section 8(g) of the Purchase Agreement:
SABA PETROLEUM COMPANY
/s/ Ilyas Chaudhary
__________________________________
By: Ilyas Chaudhary
Title: President
Date: October 7, 1998
EXHIBIT 10.2
COMMON STOCK
PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (hereinafter called the "Agreement")
is entered into this 8th day of October, 1998 between Saba Petroleum Company,
a Delaware corporation (the "Company"), and Horizontal Ventures, Inc., a
Colorado corporation, hereinafter referred to as the "Purchaser" or "HVI".
RECITALS
WHEREAS, the Company intends to authorize the sale and issuance of an
aggregate of 2,500,000 Shares of its $0.001 par value common stock (the
"Common Stock") to the Purchaser; and
WHEREAS, Purchaser desires to purchase the Shares, and the Company
desires to issue and sell the Shares to the Purchaser, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
AGREEMENT TO SELL AND PURCHASE
Section 1.1 Authorization of Shares. On or prior to the Closing (as defined
in Section 2.1 below), the Company shall have authorized the sale and issuance
to the Purchaser of the Shares.
Section 1.2 Sale and Purchase. Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined) and the Interim Closing (as provided
in Section 2.2) the Company hereby agrees to issue and sell to the Purchaser,
and the Purchaser agrees to purchase from the Company an aggregate of
2,500,000 Shares of Common Stock at a purchase price of $3.00 per share of
Common Stock.
ARTICLE 2
CLOSING AND DELIVERY
Section 2.1 Closing. The final closing under this Agreement (the "Closing")
shall take place at 10:00 a.m. local time on the 4th day of December, 1998, at
the offices of Cohen Brame & Smith Professional Corporation, 1700 Lincoln
Street, Suite 1800, Denver, Colorado 80203, or at such other time or place as
the Company and the Purchaser may mutually agree (such date is hereinafter
referred to as the "Closing Date"). Should the final closing not occur on the
Closing Date, this Agreement shall then terminate without relieving a party
from responsibility for breach of covenant.
Section 2.2 Interim Closing. On or before November 6, 1998 HVI shall
deliver to the Company $1,000,000, in immediately available funds and in
exchange receive a certificate representing 333,333 Shares of the Common Stock
therefore (the "Interim Closing"). The performance by HVI of its obligations
under this Section 2.2 is a condition precedent to all further obligations of
the Company under this Agreement.
Section 2.3 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser one or more certificates
representing 2,166,667 Shares purchased at the Closing by Purchaser against
payment of the purchase price therefor by wire transfer payable to the order
of the Company in the final amount of $6,500,000.
Section 2.4 Use of Proceeds. Proceeds of the Closing shall be generally
allocated as follows: (a) approximately $4.4 million for payment of the Omimex
debt under the Termination Agreement with the Company, and (b) approximately
$3.1 million for working capital.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company. The Company
hereby represents and warrants that, except as listed on Schedule 3.1 attached
hereto or as described in filings heretofore made by the Company under the
Securities Exchange Act of 1934:
(1) Organization and Standing of the Company. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware. It has all requisite corporate power and
authority to carry on its business as now being conducted, to enter into this
Agreement and to carry out and perform the terms and provisions of this
Agreement. The Company is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the condition (financial or otherwise),
business, net worth, assets (including intangible assets), properties or
operations ("Material Adverse Effect") of the Company. The Company has no
direct or indirect interest, either by way of stock ownership or otherwise, in
any other firm, corporation, association, or business excepting partnerships,
operating agreements, farmout agreements, unitization, pooling agreements and
other customary oil and gas industry arrangements.
(2)(a) Capitalization and Indebtedness for Borrowed Moneys. At or
prior to Closing, the Company will be duly and lawfully authorized by its
Certificate of Incorporation, as amended, to issue 150 million Shares of
Common Stock of which 11,052,393 Shares are issued and outstanding as of the
date hereof. Additionally, the Company is authorized to issue 50 million
shares of preferred stock, $0.001 par value, of which 8,000 shares are
designated Series A Convertible Preferred and are issued and outstanding. The
Company has no treasury stock and no other authorized series or class of
stock. All the outstanding shares of Common Stock and Series A Convertible
Preferred Stock have been duly authorized and validly issued and are fully
paid and nonassessable and free of preemptive rights. Except as listed on
Schedule 3.1(2)(a) attached hereto, the Company is not obligated to issue any
additional common or preferred stock as a result of any options, warrants,
rights, conversion rights, obligations upon default, subscription agreement
or other obligation of any kind. All Shares to be issued pursuant to this
Agreement to the Purchaser shall be duly authorized by all other necessary
corporate action, validly issued, fully paid, nonassessable, issued in
compliance with state and federal securities laws and based upon the
representation of the Purchaser herein in compliance with the exemptions
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), and will be issued with a restrictive legend.
(b) The Company is not presently liable on account of any
indebtedness for borrowed moneys, except as reflected in the Financial
Statements (as hereinafter defined).
(3) The Company's Authority. The execution, delivery, and
performance of this Agreement shall have been duly authorized by all requisite
corporate action. This Agreement constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms (except as limited by
bankruptcy, insolvency, or other laws affecting the enforcement of creditors'
rights). The execution, delivery and performance of this Agreement will not
conflict with any provision of the Certificate of Incorporation and any
amendments thereto, Bylaws and any amendments thereto of the Company, or of
any contract to which the Company is a party or otherwise bound.
(4) Financial Statements. The Company has furnished to the
Purchaser its audited balance sheet as of December 31, 1997 and its statement
of income and retained earnings, and cash flows for each of the two years
ended December 31, 1997, and its unaudited balance sheet as of June 30, 1998
and its statements of income and retained earnings and cash flows for the
period then ended (collectively, the "Financial Statements"). All of Financial
Statements present fairly the financial position of the Company as of the
respective balance sheet dates, and the results of its operations for the
respective periods therein specified. The Financial Statements were prepared
in accordance with generally accepted accounting principles applied upon a
basis consistent with prior accounting periods.
(5) Present Status. Subject to the terms of Section 3.4, the
Company has not, since June 30, 1998 and will not prior to the Closing Date
without the prior written consent of HVI which consent shall not be
unreasonably withheld, delayed, and shall be based in part on HVI's judgment
relative to the best interests of the Company's stockholders as a whole.
(a) Incurred any obligations or liabilities, absolute,
accrued, contingent, or otherwise and whether due or to become due, except
liabilities incurred in the ordinary course of business;
(b) Enter into any agreement obligating it to issue any equity
securities except as required by this Agreement.
(c) Discharged or satisfied any liens or encumbrances, or paid
any obligation or liability, absolute, accrued, contingent, or otherwise and
whether due or to become due, other than current liabilities reflected on the
Financial Statements and current liabilities incurred since the close of
business on the date of the Financial Statements, in each case, in the
ordinary course of business;
(d) Declared or made any payment or distribution to its
stockholders or purchased or redeemed, or obligated itself to purchase or
redeem, any of its shares of Common Stock or other securities except with
respect to its Series A Preferred Stock and except as may be required by is 9
% Convertible Debentures;
(e) Voluntarily mortgaged, pledged, or subjected to lien, or
any other encumbrances or charges, any of its assets, tangible or intangible;
(f) Sold or transferred any of its material assets, or
canceled any material debt or claim;
(g) Suffered any material damage, destruction, or loss
(whether or not covered by insurance) affecting the properties of the Company,
or waived any rights of substantial value;
(h) Except with respect to this Agreement, any transaction
regarding the sale, lease or encumbrance of any asset, the settlement of any
obligation or enter into any other material transaction other than in the
ordinary course of business.
(6) Litigation. Except as disclosed in the Financial Statements
or in Schedule 3, there are no legal actions, suits, arbitrations, or other
legal or administrative proceedings pending or threatened against the Company
which would reasonably be expected to have a material adverse effect upon it,
its properties, assets, or business; and the Company is not aware of any facts
which to its knowledge would reasonably be expected to result in any action,
suit, arbitration, or other proceeding which in turn would reasonably be
expected to result in any material adverse change in the business or condition
(financial or otherwise) of the Company or its properties or assets. The
Company is not in default of any judgment, order, or decree, of any court or,
in any material respect of any government agency or instrumentality, except as
set forth in the Financial Statements.
(7) Compliance With the Law and Other Instruments. To the best of
the Company's knowledge, the business operations of the Company have been and
are being conducted in substantial compliance with all applicable laws, rules,
and regulations of all authorities. The Company is not in violation of, or in
default under, any term or provision of its Certificate of Incorporation, as
amended, or its Bylaws, as amended, or in any material respect of any lien,
mortgage, lease, agreement, instrument, order, judgment, or decree, or subject
to any restriction, contained in any of the foregoing, of any kind or
character which materially adversely affects the business, properties, assets,
or prospects of the Company, or which would prohibit the Company from entering
into this Agreement or prevent consummation of the issuance of securities
contemplated by this Agreement.
(8) Title to Properties and Assets. The Company has good and
marketable title to all of its material properties and assets, including
without limitation those reflected in the Financial Statements and those used
or located on property controlled by the Company in its business (except
assets leased or sold in the ordinary course of business), subject to no
mortgage, pledge, lien, charge, security interest, encumbrance, or restriction
except those which (a) are disclosed in the Financial Statements as securing
specified liabilities; or (b) do not materially adversely affect the use
thereof.
(9) Contracts and Other Obligations. The Company is not a party
to or otherwise bound by, any material written or oral:
(a) Contract or agreement not made in the ordinary course of
business;
(b) Employment or consultant contract which is not terminable
at will without cost or other liability to the Company or any successor;
(c) Contract with any labor union;
(d) Bonus, pension, profit-sharing, retirement, share
purchase, stock option, hospitalization, group insurance, or similar plan
providing employee benefits;
(e) Advertising contract or contract for public relations
services;
(f) Purchase, supply, or service contracts in excess of
$100,000 each, or in the aggregate of $500,000 for all such contracts whether
below or above $100,000;
(g) Deed of trust, mortgage, conditional sales contract,
security agreement, pledge agreement, trust receipt, or any other agreement or
arrangement whereby any of the assets or properties of the Company are
subjected to a lien, encumbrance, charge, or other restriction;
(h) Material contract or other material commitment continuing
for a period of more then thirty days and which is not terminable without cost
or other liability to the Company or its successor; or
(i) Any material contract, agreement, lease or other binding
arrangement with which the Company is not in substantial compliance therewith.
(j) Nothing herein shall prohibit or restrict the Company from
making expenditures required under operating agreements, joint venture
agreements, unit, pooling, farmout agreements or expenditure necessitated by
emergency conditions to protect or preserve life or property or expenditures
required by law or administrative authority or performing its existing
commitments.
(10) Records. The books of account, minute books, stock
certificate books, and stock transfer ledgers of the Company are complete and
correct, and there have been no transactions involving the business of the
Company which properly should have been set forth in said respective books,
other than those set forth therein.
(11) Brokers or Finders. All negotiations on the part of the
Company relative to this Agreement and the transactions contemplated hereby
have been carried on by the Company without the intervention of any person or
as the result of any act of the Company in such manner as to give rise to any
valid claim for a brokerage commission, finder's fee, or other like payment.
(12) Absence of Certain Changes or Events. Since June 30, 1998,
there has not been any material adverse change in, or event or condition
materially and adversely affecting, the condition (financial or otherwise),
properties, assets, liabilities or, to the knowledge of the Company, the
business or prospects of the Company, except for conditions generally
affecting the segments of the oil and gas industry in the locales in which the
Company conducts its business.
(13) Taxes. The Company has duly filed all federal, state, county
and local income, franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those relating to social
security, withholding, unemployment insurance, and occupation (sales) and use
taxes) required to have been filed by the Company up to the date hereof. All
of the foregoing returns are true and correct in all material respects and the
Company has paid or provided for all taxes, interest and penalties shown on
such returns or reports as being due. The Company has no liability for any
material amount of taxes, interest or penalties of any nature whatsoever,
except for those taxes which may have arisen up to the Closing Date in the
ordinary course of business and are properly accrued on the books of the
Company as of the Closing Date.
(14) Environmental Matters. The Company is aware of no actions,
proceedings or investigations pending or, to the actual knowledge of the
Company, threatened before any federal or state environmental regulatory body,
or before any federal or state court, alleging noncompliance by the Company
with CERCLA or any other Environmental Laws. To the actual knowledge of the
Company: (i) there is no reasonable basis for the institution of any action,
proceeding or investigation against the Company under any Environmental Law;
(ii) the Company is not responsible under any Environmental Law for any
release by any person at or in the vicinity of real property of any hazardous
substance (as defined by CERCLA), caused by the spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing of any such hazardous substance into the environment;
(iii) the Company is not responsible for any costs of any remedial action
required by virtue of any release of any toxic or hazardous substance,
pollutant or contaminant into the environment including, without limitation,
costs arising from security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken by any
environmental regulatory body; (iv) the Company is in substantial compliance
with all applicable Environmental Laws; and (v) no real property used, owned,
managed or controlled by the Company contains any toxic or hazardous substance
including, without limitation, any asbestos, PCBs or petroleum products or
byproducts in any form, the presence, location or condition of which
(a) violates any Environmental Law, or (b) otherwise would pose any
significant health or safety risk unless remedial measures were taken.
(15) Full Disclosure. To the Company's knowledge and belief, this
Agreement, the Company's periodic reports, and any schedules and certificates
delivered by the Company in connection herewith or with the transactions
contemplated hereby, taken as a whole neither contain any untrue statement of
a material fact nor omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. To the Company's
knowledge and belief, there are no facts which (individually or in the
aggregate) materially adversely affect the business, assets, liabilities,
financial condition or operations of the Company that have not been set forth
in the Agreement, the Schedules hereto, the public reports of the Company or
in other documents delivered by the Company in connection herewith or
disclosed orally by an executive officer of the Company.
When used in this Agreement, the term "knowledge" and words of
similar import means knowledge actually possessed by an officer or director of
the Company, whether by personal discovery or communication received from a
subordinate, but does not include imputed or vicarious knowledge.
Section 3.2 Representations and Warranties by Purchaser. The Purchaser
represents and warrants to the Company as of the Closing Date as follows:
(1) Investment Representations. Purchaser understands that the
Shares have not been registered under the Securities Act. Purchaser also
understands that the Shares are being sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act. Purchaser represents
and warrants that it is acquiring the Shares with investment intent and not
with the intent of further distribution. Purchaser further understands that
the following restrictive legend will be on the certificates for all
securities received as a result of this Agreement:
The Shares represented by the certificate have not been registered
under the Securities Act of 1933 ("the Act") and are "restricted securities"
as that term is defined in Rule 144 under the Act. The Shares may not be
offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
(2) Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that he is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect his own interests. The Purchaser must bear the economic
risk of this investment. Accordingly, the Shares represent an illiquid
investment. Purchaser also understands that circumstances such as a lack of
any market for the Shares may be such that the Purchaser cannot transfer all
or any portion of the Shares in the amounts or at the times the Purchaser
might propose.
(3) Acquisition for Own Account. Purchaser is acquiring the
Shares for the Purchaser's own account and not with intent to dispose of the
Shares.
(4) Purchaser Can Protect Its Interest. Purchaser represents that
by reason of his business or financial experience, Purchaser has the capacity
to protect its own interests in connection with the transactions contemplated
in this Agreement. Further, Purchaser is aware of no publication or any
advertisement in connection with the transactions contemplated in the
Agreement.
(5) Company Information. Purchaser has received and read the
Company's 10K and 10Q's and Financial Statements and has had an opportunity to
discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity
to review the Company's operations and facilities. Purchaser has also had the
opportunity to ask questions of and receive answers from, the Company and its
management regarding the terms and conditions of this investment and Purchaser
desires no additional information with respect to the Company and this
investment.
(6) Brokers or Finders. All negotiations on the part of the
Purchaser relative to this Agreement and the transactions contemplated hereby
have been carried on by the Purchaser without the intervention of any person
or as the result of any act of the Purchaser in such manner as to give rise to
any valid claim for a brokerage commission, finder's fee, or other like
payment.
(7) Organization and Standing of the HVI. HVI is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Colorado. It has all requisite corporate power and authority to
carry on its business as now being conducted, to enter into this Agreement and
to carry out and perform the terms and provisions of this Agreement. HVI is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on
the condition (financial or otherwise), business, net worth, assets (including
intangible assets), properties or operations ("Material Adverse Effect") of
HVI. Except with respect to Calox, Inc., HVI Cat Canyon, Inc. and American
Energy Corporation, all of which are wholly owned subsidiaries, HVI has no
direct or indirect interest, either by way of stock ownership or otherwise, in
any other firm, corporation, association, or business excepting partnerships,
operating agreements, Farmout agreements, unitization, pooling agreements and
other customary oil and gas industry arrangements.
(8) HVI's Authority. The execution, delivery, and performance of
this Agreement shall have been duly authorized by all requisite corporate
action. This Agreement constitutes a valid and binding obligation of HVI
enforceable in accordance with its terms (except as limited by bankruptcy,
insolvency, or other laws affecting the enforcement of creditors' rights).
The execution, delivery and performance of this Agreement will not conflict
with any provision of the Certificate of Incorporation and any amendments
thereto, Bylaws and any amendments thereto of the Company, or of any contract
to which HVI is a party or otherwise bound.
Section 3.4 Certain Restrictions on Dispositions. Without the prior written
consent of Purchaser, which consent shall not be unreasonably withheld or
delayed, until the Closing Date the Company shall not enter into a processing
agreement covering its Santa Maria Refinery as presently proposed in
invitations for tenders, copies of which have been supplied to Purchaser, nor
sell or otherwise voluntarily dispose of the Refinery or any interest therein,
nor sell or otherwise voluntarily dispose of any of the material assets of
Saba Energy Company of Texas, Inc. Should the Company prior to the Interim
Closing desire to do any of the foregoing, it shall give written notice to
Purchaser of the Company's intent, which notice shall describe the salient
terms of the proposed transaction, including the consideration to be received
by the Company and the proposed closing date of the transaction. Within five
days of Purchaser's receipt of such notice should the Purchaser wish to object
to the transaction, Purchaser shall purchase the shares described in Section
2.2. Should Purchaser not complete the Interim Closing as provided in the
preceding sentence during the five day period, the Company shall be free to
enter into and consummate the proposed transaction on substantially the same
terms as described in the notice. After completion of the Interim Closing and
prior to the Closing Date, no transaction referenced herein may be completed
without the prior written approval of HVI as aforesaid.
ARTICLE 4
CONDITIONS TO CLOSING
Section 4.1 Conditions to Closing. These conditions do not apply to the
interim closing described in Section 2.2. Except as may be waived in writing
by the Parties, all of the obligations of the Parties under this Agreement are
subject to the fulfillment, prior to or at the Closing on the Closing Date, of
each of the following conditions:
(1) Representations and Warranties True. The representations and
warranties of the Company and the Purchaser set forth in Sections 3.1 and 3.2,
respectively, shall be true and correct in all material respects as of the
Closing Date, subject to any changes contemplated by this Agreement.
(2) Opinion of the Company's Counsel. The Company shall have
delivered to the Purchaser the opinion, dated the Closing Date, of the
Company's in house counsel in form the attached hereto as Schedule 4.1(2).
(3) Necessary Approvals. Consummation of the transactions
contemplated herein shall have been approved by the Board of Directors at a
meeting of the Board of Directors to be held for the purpose of obtaining such
approval or by unanimous written consent.
(4) Third-Party Consents. On or before the Closing Date, all
material consents or approvals by any third party, if any, which are required
to be obtained by the Company in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated herein shall have been obtained.
(5) Compliance with Agreements. The Company and Purchaser shall
have performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with by it prior to or on the Closing
Date.
(6) No Contracts Terminated. The Company shall not have had any
contract or contracts, which in the aggregate would materially and adversely
affect its business, terminated prior to the Closing Date, save the Processing
Agreement with PetroSource.
(7) No Damage to Assets. At the Closing Date the machinery,
equipment, inventory, or other tangible property of the Company shall not have
suffered non-insured or non-indemnified loss or damage on account of fire,
flood, accident, act of war, civil commotion, or any other cause or event
beyond the reasonable power and control of the Company (whether or not similar
to the foregoing), to an extent which substantially affects the value of the
properties and assets of the Company . Loss or damage shall be considered to
affect substantially the value of said properties and assets within the
meaning of this paragraph if the book value of such properties and assets so
lost or damaged exceeds five percent (5%) in book value of all such tangible
properties and assets.
(8) Certificate of Officer. The Company shall have delivered to
the Purchaser a certificate dated the Closing Date, executed in its corporate
name by, and verified by, the oath of its President certifying to the
fulfillment of the conditions specified in this Section 5.1.
(9) Listing on AMEX. The Company shall use its best efforts to
maintain its listing on the American Stock Exchange in good standing unless
waived by agreement of the parties to avoid the requirement of shareholder
approval.
(10) Post-Closing Board of Directors. Upon the closing, the
authorized size of the Board of Directors of the Company shall be five members
and the Board shall consist of three persons elected at the most recent
annual meeting of shareholders, Randeep Grewal shall be appointed on the date
of this agreement, and one person appointed by HVI at Closing, each of which
shall be deemed to be designees of Purchaser.
Section 4.2 Obligation to Register Common Shares. The Company shall
authorize and file a registration statement on whatever form is available to
it to register the Common Shares sold hereby and the Common Shares underlying
the Conversion rights authorized by the Series A Convertible Preferred Stock.
The Company further commits to use its commercially reasonable efforts to have
said registration statement declared effective at the earliest practicable
date and to maintain the effectiveness of said registration statement during
any period that no other exemption for the sale of unrestricted securities is
available to the Purchaser. HVI shall take over responsibility for preparing
the registration statement, which shall comport with the requirements
applicable thereto, with full and accessible assistance from the Company and
its in-house counsel. The Company agrees to execute and sign the registration
statement at such time as the Company's auditors provide their consent and
they are requested to by HVI.
Section 4.3 Authority to Permit Conversion of Series A Convertible
Preferred. If necessary or if not waived by HVI, at or before Closing, the
Company shall have filed its Proxy Statement with the Securities and Exchange
Commission seeking shareholder approval for the issuance of the Common Stock
underlying the rights of Conversion granted in the Designation of Rights and
Preferences for the Series A Convertible Preferred Stock. Additionally, to
the extent required as a result of this Stock Purchase Agreement shareholder
approval shall also have been sought.
ARTICLE 5
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
All statements of fact contained herein, any certificate or schedule
delivered by or on behalf of the Company or the Purchaser pursuant to the
terms hereof, shall be deemed representations and warranties made by the
Company and HVI, respectively, to each other under this Agreement. The
representations and warranties of the parties shall survive the Closing for a
period of one year.
ARTICLE 6
MISCELLANEOUS
Section 6.1 Announcement. The parties agree to draft an announcement
relating to this transaction and other related transactions within 48 hours of
execution which announcement shall be released as a joint announcement through
the business new wire services.
Section 6.2 Amendment. This Agreement may be amended in any manner as may be
determined in the judgment of the respective Board of Directors of the Company
and the Purchaser to be necessary, desirable, or expedient in order to clarify
the intention of the parties hereto or to effect or facilitate the purpose and
intent of this Agreement, subject to the provision herein that any amendment
shall be ineffective unless in writing and executed by the parties hereto.
Section 6.3 Counterparts and Facsimile Signatures. In order to facilitate
the execution of this Agreement, the same may be executed in any number of
counterparts and signature pages may be delivered by telefax.
Section 6.4 Waiver of Conditions. Either party may waive any condition
precedent, term or condition of this agreement in favor of such party but such
a waiver shall be ineffective unless in writing and executed by an authorized
representative of a party hereto.
Section 6.5 Assignment. Neither this Agreement nor any right created hereby
shall be assignable by the Company or the Purchaser without the prior written
consent of the other parties. Nothing in this Agreement, express or implied,
is intended to confer upon any person, other than the parties hereby and their
respective successors, assigns, heirs, executors, administrators, or personal
representatives, any rights or remedies under or by reason of this Agreement.
Section 6.6 Entire Agreement. This Agreement, the Schedules hereto, and the
other documents delivered pursuant hereby constitute the full and entire
understanding and agreement between the parties with regard to the subject
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants or agreements except as specifically
set forth herein. All prior agreements and understandings are superseded by
this Agreement and the Exhibits thereto.
Section 6.7 Governing Law. This Agreement shall be governed by the laws of
the State of Colorado, except that the Delaware General Corporate Law shall
govern as to matters of corporate law pertaining to the Company. Any action
brought to enforce this Agreement or any term thereof shall be brought in a
court of competent jurisdiction in Denver, Colorado and each party hereto
affirmatively agrees to submit to the jurisdiction in that city and state.
Section 6.8 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 6.9 Notices. Any notice, communication, request, reply, or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made or accepted by either party to the
other must be in writing and may be given by personal delivery or U.S. mail,
or confirmed telefax. If given by mail, such notice must be sent by
registered or certified mail, postage prepaid, mailed to the party at the
respective address set forth below, and shall be effective only if and when
received by the party to be notified. For purposes of notice, the addresses
of the parties shall, until changed as hereinafter provided, be as follows:
(1) If to the Purchaser:
Horizontal Ventures, Inc.
Attention: Randeep Grewal
630 Fifth Avenue, Suite 1501
New York, NY 10111
Telefax: (212) 218-4679
With a copy to:
Cohen Brame & Smith
Attention: Roger V. Davidson
1700 Lincoln Street, Suite 1800
Denver, CO 80203
Telefax: (303) 894-0475
(2) If to the Company:
Saba Petroleum Company
3201 Airport Drive, Suite 201
Santa Maria, CA 93455
Telefax: (805) 347-1072
or at such other address or telefax number as any party may have advised the
others in writing.
With a copy to:
Rodney C. Hill, Esq.
2010 Birnam Wood Drive
Santa Barbara, CA 93108
Telefax (805) 565-5884
Section 6.10 Attorney Fees. If any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret the
provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorney fees from the other party or parties, which fees
shall be in addition to any other relief which may be awarded.
IN WITNESS WHEREOF, this Agreement is hereby duly executed by each party
hereto as of the date first written above.
COMPANY:
SABA PETROLEUM COMPANY
/s/ Ilyas Chaudhury
By: ________________________________
Printed Name: Ilyas Chaudhary
Title: Chairman and CEO
PURCHASER:
HORIZONTAL VENTURES, INC.
a Colorado corporation
/s/ Randeep Grewal
By:_______________________
Printed Name: Randeep Grewal
Title: Chairman and CEO
EXHIBIT 10.3
OPTION AGREEMENT
THIS AGREEMENT entered into this 22nd day of July, 1998, by and between
International Publishing Holding s.a. ("IPH"), a Luxembourg corporation whose
offices are located at 1 Place Dargent, 1413 Luxembourg, Grand-Duchy of
Luxembourg, and Horizontal Ventures, Inc. ("HVI"), a Colorado corporation,
whose offices are at 630 Fifth Avenue, Suite 1501, New York, NY 10111, USA;
WITNESSETH:
WHEREAS, HVI has given consideration to acquiring a substantial interest in
Saba Petroleum Company ("Saba"); having its headquarters in Santa Barbara,
California, and quoted on the American Exchange ("AMEX") under the symbol SAB;
and
WHEREAS, IPH is the largest shareholder of HVI and is desirous of assisting
HVI in its efforts in purchasing shares of Saba in the open market or directly
from holders of Saba securities, and to make securities so purchased available
to HVI under the conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows:
1) Issues regarding Section 13 of the Securities Exchange Act of 1934: The
parties acknowledge that as a result of this Agreement they are acting
in concert with respect to the acquisition of the securities of Saba
and that as such they are mutually liable for any violation of Section
13 and therefore must work in close and constant communication with
regard thereto.
2) Call Option: HVI shall have the right to call for purchase from IPH all
of the Saba securities in possession of IPH at the moment of such upon
the following terms and conditions:
(2.1) Exercise: This call may be exercised at any time but no later
than June 30, 1999.
(2.2) Purchase price: HVI will pay to IPH its purchase price including
all costs of the Saba securities plus 20% (twenty percent), upon
exercise of this call at no later than December 31, 1998; or plus
30% (thirty percent) if the call is exercised after that date.
(2.3) Payment: HVI will pay IPH the purchase price in cash or at the
option of HVI, partly or in whole in newly to be issued common
shares of HVI calculated at a price per share equivalent to the
average of the closing price of HVI shares on the Nasdaq Small
Cap Market during the thirty trading days preceding the date of
exercise by HVI of this Call Option, but in any case at no more
than USD 15 (fifteen United States dollars) per share of HVI.
(2.4) Additional condition: HVI may only exercise this call if in so
acquiring the Saba securities purchased by IPH, it will realize
the purpose of this Agreement, i.e. to obtain a substantial
interest in Saba.
3) Put Option: As of April 1, 1999, and no later than June 30, 1999, IPH
has the right to sell the Saba securities purchased by it under this
Agreement to HVI for the same purchase price and for the same form of
payment to be elected by HVI, as agreed to in Article 2 above.
4) Procedures for Executing Options: Exercise of the Call Option can only
be done for the total number of Saba securities that IPH will have in
its possession at the time of exercise. If HVI wishes to exercise its
rights under this Call Option, it shall give IPH both a verbal and a
faxed written notice at the place for notices set forth hereinafter.
Subsequent to the receipt of the faxed notice, IPH will instruct its
custodian(s) holding the Saba securities bought by IPH under this
Agreement to deliver these securities to HVI, at an account so directed
by HVI against simultaneous payment by HVI, in cash or in common shares
of HVI, to that custodian or at any other account directed by IPH. IPH
shall give HVI both a verbal and a faxed written notice of its wish to
sell the Saba securities held by it to HVI at the place for notices set
forth hereinafter. Subsequent to the receipt of the faxed notice, HVI
shall arrange that it can receive such shares in an account directed by
it in such a way that against delivery by IPH of the Saba securities
simultaneously payment in the way elected by HVI under this Agreement
will be executed. Upon exercise of the Call Option by HVI or the Put
Option by IPH, HVI should give immediately notice to IPH which form of
payment it has elected, i.e. shares or cash or a combination and, if in
shares, the number thereof and the computation of the value thereof.
5) Registration Rights: Subject to the provisions of this article 5, IPH
agrees to take and hold any shares of HVI received from HVI under
Articles 2 and 3 for investment and not with a view to distribution
within the meaning of the Securities Act of 1933, as amended. HVI
hereby commits to amend its S-3 Registration Statement on file with the
Securities and Exchange Commission within thirty days of executing one
of the above referenced options, if payment in shares of HVI is
elected, to provide for the registration of the shares issued to IPH in
exchange for the Saba shares and to have said amendment declared
effective at the earliest practicable date subsequent to the amendment.
If such registration through amendment appears impossible, HVI is
obliged to obtain the same effect in favor of IPH by any other manner
of registration permitted by applicable law.
6) Relief from Delivery Requirements under Certain Circumstances: HVI
shall be relieved from delivery of its shares to IPH under this Option
Agreement only if such delivery would violate the Nasdaq rules without
shareholder approval. Under such circumstances HVI shall deliver that
number of shares that it is able to deliver immediately and register
all shares including those that it may not deliver without shareholder
approval in accordance with the above mentioned registration rights
clause. If shareholder approval is required for any of the certificates
to be issued to IPH, HVI shall conscientiously prepare a proxy
statement therefor, file same with the Securities and Exchange
Commission and obtain necessary clearance for holding the shareholders'
meeting at the earliest practicable date. Additionally, HVI shall
authorize the transfer agent to issue the shares in IPH's name for
deliver immediately upon receipt of shareholder approval and HVI shall
use diligence in obtaining the required shareholder approval therefor.
To the extent that HVI elects to pay any portion of the purchase price
for the Saba securities in shares of HVI (the "Non-Cash Portion"), at
the closing, HVI will deliver a full recourse promissory note to IPH,
dated the closing date and payable within 180 days thereafter, in an
amount equal to the Non-Cash Portion. The amount outstanding under the
promissory note will bear interest (payable in monthly installments on
the first date of each month) at an annual interest rate equal to 2%
over Libor, in effect on the date of closing. Such note will be
surrendered to HVI against the delivery to IPH of the HVI shares in
payment of the Non-Cash Portion, which at that moment must be
registered and such registration been declared effective, as agreed in
Section 5 above.
7) Notices: All notices under this Option Agreement will be issued to (a)
IPH: Attn: Reink H. Kamer, P.O. Box 84019, 2508 AA The Hague, The
Netherlands, telephone (31) 70 3588322, facsimile (31) 70 3586664, and
(b) HVI: Attn: Randeep S. Grewal, Chairman and CEO, 630 Fifth Avenue,
Suite 1501, New York, NY 10111, telephone (1) 212-2184680, facsimile
(1) 212-2184679.
8) This Agreement: (i) constitutes the entire agreement of the parties
relating to the subject matter hereto and supersedes all prior
agreements, understandings and arrangements; (ii) shall be governed by
New York law; (iii) may not be amended or discharged except in writing;
and (iv) may be executed in counterparts.
Dated this 22nd day of July, 1998.
International Publishing Holding s.a.
/s/ Reink H. Kamer
_____________________________________
By: Reink H. Kamer, Head of Investments
Horizontal Ventures Inc.
/s/ Randeep Grewal
_____________________________________
By: Randeep S. Grewal, Chairman & CEO
EXHIBIT 10.4
PROMISSORY NOTE
$500,000 October 6, 1998
Payment. FOR VALUE RECEIVED, the undersigned, Horizontal
Ventures, Inc., a Colorado corporation ("Maker"), hereby promises to pay to
the order of International Publishing Holding, S.A., a Luxembourg corporation,
or its designee ("Holder"), at 1, Place Dargent, L-1413 Luxembourg, Grand
Duchy of Luxembourg, the principal sum of Five Hundred Thousand and No/100
Dollars ($500,000.00), without interest, on December 31, 1998 ("Maturity
Date") as follows: (i) if Maker receives adequate financing proceeds to
acquire all outstanding shares of Series A Convertible Preferred Stock of Saba
Petroleum Company (the "Series A Stock") on or before the Maturity Date, then
Maker shall pay the principal amount of this Promissory Note in cash or (ii)
if Maker does not receive such financing proceeds on or before the Maturity
Date, then Maker shall pay the principal amount of this Promissory Note in the
form of $500,000 worth of Series A Stock, which shares shall be valued for
such purpose at the purchase price paid for such shares by Maker on the date
hereof. All payments (whether in cash or stock) shall be delivered to Holder
at the address set forth above or at such other place as Holder shall
hereafter designate in writing.
Security. Maker's obligation to pay Holder under this Promissory
Note is secured by a pledge of certain shares of Series A Stock in accordance
with the Pledge Agreement of even date herewith between Maker and Holder. In
the event of a default by Maker under the Pledge Agreement, Holder may, at its
option, declare all or part of the principal under this Promissory Note
immediately due and payable; provided, however, that if this Promissory Note
is in default and Maker has filed for bankruptcy protection, Holder shall be
deemed to have declared this Promissory Note to be immediately due and payable
without further action.
Prepayment. Maker may prepay any or all of the amounts due under
this Promissory Note at any time, and from time to time, without penalty.
Attorneys' Fees. Maker shall promptly reimburse Holder for all
costs and expenses, including reasonable attorneys' fees and court costs,
incurred to enforce this Promissory Note.
No Waiver. No failure on the part of Holder to exercise, and no
delay in exercising any right hereunder shall operate as a waiver of such
right; nor shall any single or partial exercise by Holder of any right
hereunder preclude the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law or
in equity.
Waiver. Maker hereby waives presentment, demand for payment,
protest for nonpayment, notice of dishonor, diligence in collection, and all
other indulgences.
New York Law. This Promissory Note shall be governed by and
interpreted in accordance with the laws of the State of New York.
General Provisions. This Promissory Note may not be amended,
modified, or changed unless set forth in an instrument in writing and signed
by Holder and Maker. Whenever used herein, the words "Maker" and "Holder"
shall be deemed to include their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned has duly executed this
Promissory Note as of the day and year first above written.
MAKER:
HORIZONTAL VENTURES, INC.
a Colorado corporation
/s/ Randeep Grewal
BY: __________________________
Randeep Grewal, Chairman and
Chief Executive Officer
EXHIBIT 10.5
PLEDGE AGREEMENT
This Pledge Agreement ("Agreement") is dated this 6th day of October,
1998 by and between Horizontal Ventures, Inc., a Colorado corporation
("Pledgor"), and International Publishing Holding, S.A., a Luxembourg
corporation ("Lender").
RECITALS
A. Pledgor is indebted to Lender in the amount of $500,000 pursuant to
a Promissory Note of even date herewith (the "Note") made by Pledgor to
Lender. The obligations of Pledgor under the Note, including any extensions,
renewals, amendments and replacements thereof are hereinafter referred to as
the "Obligations."
B. As security for the Obligations, Pledgor has agreed to pledge two-
thirds of the shares of Series A Convertible Preferred Stock of Saba Petroleum
Company (the "Shares") owned by it, pursuant to the terms and conditions of
this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Pledge. Pledgor hereby delivers, deposits and pledges the Shares to
Lender and hereby grants and conveys to Lender a continuing security interest
in the Shares. Pledgor will duly endorse, in blank, each and every instrument
constituting the Shares by signing a separate assignment or other documents of
transfer, if and when required by Lender, and will at all times hereafter
perform such other acts as Lender may request to establish, maintain, perfect
and enforce Lender's security interest in the Shares and rights under this
Agreement.
2. Ownership and Liens. Pledgor represents and warrants to Lender that
it has good title to and will at all times keep the Shares free of all liens
and encumbrances, except the security interest created hereby and any
restrictive legend appearing on any instrument constituting the Shares, and
Pledgor has full power and authority to execute this Agreement and perform
Pledgor's obligations hereunder.
3. Voting Rights. Pledgor shall have the right to exercise any and all
voting rights with respect to the Shares prior to the occurrence of an Event
of Default (hereinafter defined), and from and after the occurrence of an
Event of Default, Lender shall have the right to exercise any voting rights
with respect to the Shares.
4. Dividends and Distributions. Pledgor shall have the right to
receive any and all dividends and distributions with respect to the Shares
prior to the occurrence of an Event of Default, and from and after the
occurrence of an Event of Default, Lender shall have the right to receive all
such dividends and distributions.
<PAGE>
5. Lender's Obligations. Lender's duty of care with respect to the
Shares in its possession shall be deemed fulfilled if Lender exercises
reasonable care in physically safekeeping such Shares or, in the case of
Shares in the custody or possession of a bailee or other third party,
exercises reasonable care in the selection of the bailee or other third party,
and Lender need not otherwise preserve, protect, insure or care for the
Shares. Lender shall not be obligated to preserve any rights which Pledgor
may have against prior parties or to realize on the Shares at all or in any
particular manner or order.
6. Defense of Collateral. Lender in the name of Pledgor or otherwise,
whether or not an Event of Default has occurred, shall have the authority (but
shall not be obligated) to settle, prosecute and discontinue any suits or
proceedings in respect to any or all of the Shares; take any action which
Lender may deem necessary or desirable in order to realize on the Shares,
including, without limitation, the power to perform any contract; to transfer
any of the Shares into its name or out of its nominee; and to apply any
proceeds of any Shares against the Obligations, all at the expense of Pledgor.
7. Events of Default. The occurrence of any of the following events
shall constitute an event of default ("Event of Default") under this
Agreement: (a) failure of Pledgor, or any co-maker, endorser, surety or
guarantor to pay when due any of the Obligations; (b) failure to perform any
agreement of Pledgor contained herein; (c) any statement, representation or
warranty of Pledgor made herein or at any time furnished in writing to Lender
is untrue in any material respect as of the date made; or (d) the occurrence
of any default or event of default under the Note or under any other document
or instrument evidencing or securing all or any portion of the Obligations.
8. Acceleration. Whenever an Event of Default shall exist, Lender may,
at its option, declare all or any part of the Obligations immediately due and
payable, and Lender may exercise, in addition to the rights and remedies
granted hereby, all rights and remedies of a secured party under the Uniform
Commercial Code or any other applicable law, including the right (but not the
obligation) to exercise all voting and other rights as a holder of the Shares
and the right to offer and sell the Shares privately to purchasers who will
agree to take the Shares for investment and not with a view to distribution
and who will agree to the imposition of restrictive legends on the
certificates representing the Shares, and the right to arrange for a sale
which would otherwise qualify as exempt from registration under the Securities
Act of 1933, as amended.
9. Miscellaneous. Pledgor may not assign its rights or obligations
under this Agreement without the written consent of Lender. This Agreement
shall be binding upon and inure to the benefit of Pledgor and Lender and the
respective successors and permitted assigns. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York and,
unless the context otherwise requires, all terms used herein which are defined
in the Uniform Commercial Code, as in effect in New York, shall have the
meanings therein stated.
PLEDGOR:
HORIZONTAL VENTURES, INC.
/s/ Randeep Grewal
By: ________________________________
Randeep Grewal, Chairman and
Chief Executive Officer
LENDER:
INTERNATIONAL PUBLISHING HOLDING, S.A.
By: _________________________________
Title: ______________________________
EXHIBIT 10.6
PROMISSORY NOTE
$1,500,000 November ____, 1998
Payment. FOR VALUE RECEIVED, the undersigned, Horizontal Ventures,
Inc., a Colorado corporation ("Maker"), hereby promises to pay to the order of
International Publishing Holding, S.A., a Luxembourg corporation, or its
designee ("Holder"), at 1, Place Dargent, L-1413 Luxembourg, Grand Duchy of
Luxembourg, the principal sum of One Million Five Hundred Thousand and No/100
Dollars ($1,500,000), with interest at the rate of 6% per annum, on December
31, 1998 ("Maturity Date"). All payments shall be delivered to Holder at the
address set forth above or at such other place as Holder shall hereafter
designate in writing.
Security. Maker's obligation to pay Holder under this Promissory
Note is secured by a pledge of all of the issued and outstanding shares of HVI
Cat Canyon, Inc. ("HVICCI") owned by Maker in accordance with the Pledge
Agreement of even date herewith between Maker and Holder. In the event of a
default by Maker under the Pledge Agreement, Holder may, at its option,
declare all or part of the principal under this Promissory Note immediately
due and payable; provided, however, that if this Promissory Note is in default
and Maker, HVICCI or any other party on their behalf has filed for bankruptcy
protection, Holder shall be deemed to have declared this Promissory Note to be
immediately due and payable without further action.
Prepayment. Maker may prepay any or all of the amounts due under
this Promissory Note at any time, and from time to time, without penalty.
Maker shall prepay this Note and that Promissory Note in the amount of
$500,000 dated October 6, 1998 by and between the Maker and the Holder on the
date Maker closes its private placement being managed by Jefferies & Company,
Inc.
Attorneys' Fees. Maker shall promptly reimburse Holder for all
costs and expenses, including reasonable attorneys' fees and court costs,
incurred to enforce this Promissory Note.
No Waiver. No failure on the part of Holder to exercise, and no
delay in exercising any right hereunder shall operate as a waiver of such
right; nor shall any single or partial exercise by Holder of any right
hereunder preclude the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law or
in equity.
Waiver. Maker hereby waives presentment, demand for payment,
protest for nonpayment, notice of dishonor, diligence in collection, and all
other indulgences.
New York Law. This Promissory Note shall be governed by and
interpreted in accordance with the laws of the State of New York.
General Provisions. This Promissory Note may not be amended,
modified, or changed unless set forth in an instrument in writing and signed
by Holder and Maker. Whenever used herein, the words "Maker" and "Holder"
shall be deemed to include their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned has duly executed this
Promissory Note as of the day and year first above written.
MAKER:
HORIZONTAL VENTURES, INC.
a Colorado corporation
By: __________________________
Randeep Grewal, Chairman and
Chief Executive Officer
EXHIBIT 10.7
PLEDGE AGREEMENT
This Pledge Agreement ("Agreement") is dated this 2nd day of November,
1998 by and between Horizontal Ventures, Inc., a Colorado corporation
("Pledgor"), and International Publishing Holding, S.A., a Luxembourg
corporation ("Lender").
RECITALS
A. Pledgor is indebted to Lender in the amount of $1,500,000 pursuant
to a Promissory Note of even date herewith (the "Note") made by Pledgor to
Lender. The obligations of Pledgor under the Note, including any extensions,
renewals, amendments and replacements thereof are hereinafter referred to as
the "Obligations."
B. As security for the Obligations, Pledgor has agreed to pledge 1,000
shares of HVI Cat Canyon, Inc. ("HVICCI") (the "Shares") owned by it, pursuant
to the terms and conditions of this Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Pledge. Pledgor hereby delivers, deposits and pledges the Shares
and all rights to any dividends in cash or stock, recapitalizations,
combination, shares issued as a result of splits or reorganizations or share
exchanges and any other rights which may occur as a result of status as a
shareholder to Lender and hereby grants and conveys to Lender a continuing
security interest in the Shares and the proceeds thereof. Pledgor will duly
endorse, in blank, each and every instrument constituting the Shares by
signing a separate assignment or other documents of transfer, if and when
required by Lender, and will at all times hereafter perform such other acts as
Lender may request to establish, maintain, perfect and enforce Lender's
security interest in the Shares and rights under this Agreement.
2. Ownership and Liens. Pledgor represents and warrants to Lender that
(i) it has good title to and will at all times keep the Shares free of all
liens and encumbrances, except the security interest created hereby and any
restrictive legend appearing on any instrument constituting the Shares, (ii)
that these shares represent all of the issued and outstanding shares of HVI
Cat Canyon, Inc., (iii) no additional shares will be issued without Lender's
consent, (iv) that there are no liens or encumbrances against HVICCI or its
properties and none will be granted without lender's consent and (v) Pledgor
has full power and authority to execute this Agreement and perform Pledgor's
obligations hereunder.
3. Voting Rights. Pledgor shall have the right to exercise any and all
voting rights with respect to the Shares prior to the occurrence of an Event
of Default (hereinafter defined), and from and after the occurrence of an
Event of Default, Lender shall have the right to exercise any voting rights
with respect to the Shares.
4. Dividends and Distributions. Lender shall have the right to receive
any and all dividends and distributions with respect to the Shares which shall
be held by Lender or applied to the payment of principal and interest to the
extent such dividend or distribution is paid in cash.
5. Lender's Obligations. Lender's duty of care with respect to the
Shares in its possession shall be deemed fulfilled if Lender exercises
reasonable care in physically safekeeping such Shares or, in the case of
Shares in the custody or possession of a bailee or other third party,
exercises reasonable care in the selection of the bailee or other third party,
and Lender need not otherwise preserve, protect, insure or care for the
Shares. Lender shall not be obligated to preserve any rights which Pledgor
may have against prior parties or to realize on the Shares at all or in any
particular manner or order.
6. Defense of Collateral. Lender in the name of Pledgor or otherwise,
whether or not an Event of Default has occurred, shall have the authority (but
shall not be obligated) to settle, prosecute and discontinue any suits or
proceedings in respect to any or all of the Shares; take any action which
Lender may deem necessary or desirable in order to realize on the Shares,
including, without limitation, the power to perform any contract; to transfer
any of the Shares into its name or out of its nominee; and to apply any
proceeds of any Shares against the Obligations, all at the expense of Pledgor.
7. Events of Default. The occurrence of any of the following events
shall constitute an event of default ("Event of Default") under this
Agreement: (a) any bankruptcy event with respect to Pledgor or HVICCI; (b)
failure of Pledgor, or any co-maker, endorser, surety or guarantor to pay when
due any of the Obligations; (c) failure to perform any agreement of Pledgor
contained herein; (d) any statement, representation or warranty of Pledgor
made herein or at any time furnished in writing to Lender is untrue in any
material respect as of the date made; or (e) the occurrence of any default or
event of default under the Note or under any other document or instrument
evidencing or securing all or any portion of the Obligations.
8. Acceleration. Whenever an Event of Default shall exist, Lender may,
at its option, declare all or any part of the Obligations immediately due and
payable, and Lender may exercise, in addition to the rights and remedies
granted hereby, all rights and remedies of a secured party under the Uniform
Commercial Code or any other applicable law, including the right (but not the
obligation) to exercise all voting and other rights as a holder of the Shares
and the right to offer and sell the Shares privately to purchasers who will
agree to take the Shares for investment and not with a view to distribution
and who will agree to the imposition of restrictive legends on the
certificates representing the Shares, and the right to arrange for a sale
which would otherwise qualify as exempt from registration under the Securities
Act of 1933, as amended.
9. Miscellaneous. Pledgor may not assign its rights or obligations
under this Agreement without the written consent of Lender. Lender may assign
this Agreement without the consent of Pledgor to an entity or person
controlled by or under common control with the Lender. This Agreement shall
be binding upon and inure to the benefit of Pledgor and Lender and the
respective successors and permitted assigns. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York and,
unless the context otherwise requires, all terms used herein which are defined
in the Uniform Commercial Code, as in effect in New York, shall have the
meanings therein stated.
PLEDGOR:
HORIZONTAL VENTURES, INC.
By: ________________________________
Randeep Grewal, Chairman and
Chief Executive Officer
LENDER:
INTERNATIONAL PUBLISHING HOLDING, S.A.
By:_________________________________
Title: _____________________________
