<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] 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: 0-21130
ENERGY BIOSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3078857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 Research Forest Drive
The Woodlands, Texas 77381
(address of principal executive offices) (zip code)
281-364-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of May 8, 1998, there were outstanding 12,970,112 shares of Common
Stock, par value $.01 per share, of the registrant.
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
INDEX
Page
----
<S> <C>
Statement Regarding Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 5
Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 6
Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (Unaudited) 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"anticipate", "believe", "expect", "estimate", "project" and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, believed,
expected, estimated or projected. These risks and uncertainties include
technological uncertainty and risks associated with the commercialization of the
Company's technology, the Company's history of operating losses and uncertainty
of future profitability, manufacturing risks and uncertainties, uncertainty of
market acceptance of the Company's technology, the Company's reliance on
environmental regulation, uncertainties as to the protection offered by the
Company's patents and proprietary technology, the Company's dependence on
collaborations, the Company's need for additional funds, limited marketing
experience and dependence on key personnel, government regulation, competition
and other risks and uncertainties described in the Company's filings with the
Securities and Exchange Commission. For additional discussion of such risks,
uncertainties and assumptions ("Cautionary Statements"), see "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" included elsewhere in this report
and "Item 1. Business - Risk Factors" in the Company's Annual Report on Form
10-K for the year ended December 31, 1997. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
4
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
BALANCE SHEETS
<TABLE>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,493,672 $ 9,661,310
Short term investments -- 693,279
Prepaid expenses and other current assets 521,812 1,013,872
------------ ------------
Total current assets 9,015,484 11,368,461
Furniture, equipment and leasehold improvements, net 2,363,539 2,624,332
Intangible and other assets, net 988,193 972,266
------------ ------------
Total assets $ 12,367,216 $ 14,965,059
------------ ------------
------------ ------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 554,719 $ 864,674
Deferred revenue 380,000 180,000
Obligations under capital lease 1,397 3,556
Note payable 137,010 218,606
------------ ------------
Total current liabilities 1,073,126 1,266,836
Stockholders' equity:
Series B Convertible Preferred Stock, $0.01 par value
(liquidation value $35,105,000; 760,000 and 760,000
shared authorized, 702,100 and 702,100
issued and outstanding, respectively) 34,738,310 33,853,380
Common Stock, $0.01 par value (30,000,000 shares
authorized, 12,251,434 and 12,251,434 shares issued
and outstanding, respectively) 122,514 122,514
Additional paid-in capital 35,236,026 34,926,594
Accumulated deficit (58,802,760) (55,204,265)
------------ ------------
Total stockholders' equity 11,294,090 13,698,223
------------ ------------
Total liabilities and stockholders' equity $ 12,367,216 $ 14,965,059
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Sponsored research revenues $ 168,593 $ 451,452
Interest and investment income 93,713 128,914
----------- -----------
Total revenues 262,306 580,366
----------- -----------
COSTS AND EXPENSES:
Research and development 2,524,194 2,174,714
General and administrative 546,744 602,464
----------- -----------
Total costs and expenses 3,070,938 2,777,178
----------- -----------
NET LOSS $(2,808,632) $(2,196,812)
----------- -----------
----------- -----------
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.29) $ (0.25)
----------- -----------
----------- -----------
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE 12,251,434 11,527,789
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,808,632) $(2,196,182)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 352,514 333,047
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other
current assets 492,060 (32,625)
Increase in intangible and other assets and notes
receivable (32,658) (42,563)
Decrease in accounts payable and accrued
liabilities (309,955) (147,718)
Increase (decrease) in deferred revenues 200,000 (13,500)
----------- -----------
Net cash used in operating activities (2,106,671) (2,100,171)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (74,990) (126,170)
Net sale of investments 693,279 518,644
----------- -----------
Net cash provided by investing activities 618,289 392,474
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations ( 2,159) (1,935)
Payments on notes payable, net (81,597) (92,614)
Issuance of stock, net --- 10,202,115
Issuance of warrants 404,500 ---
----------- -----------
Net cash provided by (used in) financing activities 320,744 10,107,566
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,167,638) 8,399,869
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 9,661,310 3,106,004
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,493,672 $11,505,873
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Energy BioSystems Corporation (the "Company"), formerly Environmental
BioScience Corporation, was incorporated in the State of Delaware on December
20, 1989. Since inception, the Company has devoted substantially all of its
resources to research and development. To date, all of the Company's revenues
resulted from sponsored research payments from collaborative agreements and
interest and investment income. The Company has incurred cumulative losses
since inception and expects to incur substantial losses for at least the next
several years, due primarily to the increase in its research and development
activities and acceleration of the development of its biocatalyst, fermentation
and bioreactor programs. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. The
accompanying unaudited interim financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, for the fiscal year ended
December 31, 1997.
Net Loss Per Common Share
Net loss per share has been computed by dividing the net loss, which has
been increased for periodic accretion and accrued dividends on the Series A
Convertible Preferred Stock issued in October 1994 and the Series B Convertible
Preferred Stock issued in February and March 1997, by the weighted average
number of shares of common stock outstanding during the period.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting No. 128, "Earnings Per Share." Statement 128 simplifies
the standards for computing earnings per share previously found in APB Opinion
No. 15, EARNINGS PER SHARE, and makes them comparable to international earnings
per share standards. The Statement also retroactively revises the presentation
of earnings per share in the financial statements. The Company adopted this
Standard for the year ended December 31, 1997. In all applicable years, all
common stock equivalents were antidilutive and, accordingly, were not included
in the computation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. SERIES B CONVERTIBLE PREFERRED STOCK
In February and March 1997, the Company sold an aggregate of 224,100 shares
of Series B Convertible Preferred Stock ("Series B Preferred Stock") at $50.00
per share in a private placement. The net proceeds from the offering were
approximately $10.2 million. The
8
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
placement agent for the Series B Preferred Stock received warrants to purchase
an aggregate of 20,319 shares of Series B Preferred Stock at an exercise price
of $50.00 per share of Series B Preferred Stock, in addition to customary
commissions. The warrants have been recorded at an estimated fair value of
$466,000, which was computed using the Black-Scholes option pricing model and
the following assumptions: risk free interest rate of 6.51 percent; expected
dividend yield of zero; expected life of three years, and an expected volatility
of 68 percent.
Dividends on the Series B Preferred Stock are cumulative from February 27,
1997 and payable semi-annually commencing May 1, 1997, at an annual rate equal
to (i) $4.00 per share of Series B Preferred Stock to the extent the dividend is
paid in cash and (ii) $4.50 per share of Series B Preferred Stock to the extent
the dividend is paid in common stock. Dividends on shares of Series B Preferred
Stock are payable in cash or common stock of the Company, or a combination
thereof, at the Company's option.
Shares of Series B Preferred Stock are convertible into shares of common
stock at a conversion price equal to $7.25 per share, subject to certain
adjustments. The Series B Preferred Stock may be redeemed by the Company under
certain circumstances after February 26, 1999 and is required to be redeemed,
subject to certain limitations, on February 26, 2002 at a redemption price of
$50.00 per share, plus accrued and unpaid dividends. It is the Company's intent,
however, to redeem the Series B Preferred Stock for common stock. Accordingly,
the Series B Preferred Stock is included in stockholders' equity.
The carrying amount of the Series B Preferred Stock is increased for
accrued and unpaid dividends plus periodic accretion, using the effective
interest method, such that the carrying amount will equal the redemption amount
on the Series B Preferred Stock on February 26, 2002.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in December 1989, the Company has devoted substantially
all resources to its research and development. To date, all of the Company's
revenues have resulted from interest and investment income and sponsored
research payments from collaborative agreements. The Company has incurred
cumulative net losses since inception and expects to incur substantial losses
for at least the next several years, due primarily to the increase in its
research and development activities and acceleration of the development of its
biocatalyst, fermentation and bioreactor programs. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. As of March 31, 1998, the Company's accumulated deficit was
$58,802,760.
RESULTS OF OPERATIONS
The Company had total revenues for the three months ended March 31, 1998
and 1997 of $262,306 and $580,366, respectively. The decrease in total
revenues was attributable to decreases in sponsored research revenues and in
interest and investment income. The Company had sponsored research revenues of
$168,593 during the first three months of 1998 as compared to $451,452 during
the first three months of 1997. The decrease of $282,859 in sponsored research
revenues resulted from a decrease in revenues recognized under the National
Institutes of Standards and Technology ("NIST") grant, which decrease was,
however, offset in part by sponsored research revenue received under a
Department of Energy ("DOE").
The Company had interest and investment income of $93,713 in the first
three months of 1998 as compared to $128,914 in the first three months of 1997.
The decrease of $35,201 in interest and investment income resulted primarily
because the Company's average balances of cash, cash equivalents and short-term
investments during the first quarter of 1998 were less than those during the
corresponding period of 1997.
The Company had research and development expenses for the three months
ended March 31, 1998 and 1997 of $2,524,194 and $2,174,714, respectively.
The increase in research and development expenses of $349,480 for the three
months ended March 31, 1998 as compared to the corresponding prior year
period resulted primarily from issuance of warrants to Petro Star. The
Company expects its research and development expenses to decrease during the
remainder of 1998, reflecting a reduction in the workforce at the end of the
first quarter of 1998. The Company's research and development expenses will
increase substantially if the Company elects to make the $9,000,000 payment
to exercise its option to reduce the percentage of site license fees and
adjusted gross profit payable under its agreement with Baker Petrolite
Corporation, a subsidiary of Baker-Hughes Corporation ("Petrolite"), because
the entire amount of such payment would be recorded as a research and
development expense. The Company does not presently intend to exercise the
Petrolite option.
The Company had general and administrative expenses for the three months
ended March 31, 1998 and 1997 of $546,744 and $602,464, respectively. The
decrease of $55,720 for the three months ended March 31, 1998 as compared to the
first quarter of 1997 resulted from the departure of the Company's chief
executive officer in October 1997. The Company expects
10
<PAGE>
a slight decrease in its general and administrative expenses during the
remainder of 1998, reflecting a decrease of five administrative personnel.
LIQUIDITY AND CAPITAL RESOURCES
In February and March 1997, the Company sold an aggregate of 224,100 shares
of Series B Preferred Stock in a private placement, resulting in net cash
proceeds of approximately $10.2 million. Concurrently with the private
placement, the Company conducted an exchange offering and consent solicitation
pursuant to which 478,000 shares of its Series A Convertible Preferred Stock
("Series A Preferred Stock") were exchanged for the same number of shares of
Series B Preferred Stock. Dividends on the Series B Preferred Stock are
cumulative from the date of the initial closing, February 27, 1997, and are
payable in cash or common stock of the Company, or a combination thereof, at an
annual rate equal to (i) $4.00 per share to the extent the dividend is paid in
cash and (ii) $4.50 per share to the extent the dividend is paid in common
stock.
In October 1994, the Company sold 480,000 shares of Series A Preferred
Stock in a private placement, resulting in net cash proceeds of approximately
$22.2 million.
For the three months ended March 31, 1998, the Company used $2,106,671
of net cash in operating activities, incurred $74,990 in capital expenditures
and provided $320,744 in financing activities. At March 31, 1998, the
Company had cash, cash equivalents and short term investments totaling
$8,493,672 and working capital of $7,942,358.
The Company intends to spend approximately $425,000 during the remainder of
1998 for the purchase of laboratory and analytical instrumentation. The Company
also expects to incur substantial additional research and development expenses,
including expenses associated with biocatalyst, fermentation and bioreactor
development. The Company has funding commitments through 1998 requiring the
Company to spend approximately $25,000 under research and development
agreements. In addition, the Company is subject to cost sharing arrangements
under various collaboration agreements. The Company also expects its general
and administrative expenses to decrease slightly during the remainder of 1998 as
a result of personnel layoffs at the end of the first quarter of 1998.
To supplement its research and development budgets, the Company intends to
seek additional collaborative research and development agreements with corporate
partners. In this regard, the Company has entered into collaborative agreements
with, Petrolite, the Exploration and Production Technology Division of Texaco,
Inc., Total Raffinage Distribution S.A. ("Total"), The M. W. Kellogg Company,
Koch Refining Company and Carbide/Graphite, among others, as more fully
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
In March 1998, the Company entered into a site license agreement with Petro
Star regarding the design and installation of a biocatalytic desulfurization
("BDS") unit at Petro Star's refinery in Valdez, Alaska. The agreement involves
several stages of work, the first of which, involving the completion of scoping
economics, is currently underway. In addition, the agreement provides the
Company with certain rights to conduct development work and demonstrations of
its BDS technology at Petro Star's refinery. The agreement calls for the
payment of staged site license fees and royalties to the Company, including a
$200,000 initial site license fee which was paid upon execution of the
agreement and has been recorded as
11
<PAGE>
deferred revenue. The revenue will be recognized ratably over the completion
of the initial phase of the agreement. As is customary in such agreements in
the petroleum refining industry, the agreement provides certain approval and
termination rights to Petro Star at the completion of each stage prior to
commercialization. In connection with the execution of the agreement, the
Company issued a four-year warrant entitling Petro Star to purchase 200,000
shares of its common stock at an exercise price of $3.11 per share. The
warrants have been recorded at an estimated fair value of $404,500, which was
computed using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate of 5.37 percent; expected dividend
yield of zero; expected life of four years, and expected volatility of 75.43
percent.
In addition, the Company is continuing to develop its BDS technology in
collaboration with Total, and is continuing to conduct process simulations at
the Company's pilot plant using deeply desulfurized diesel fuel provided by
Total. The Company's objective is to commence contract negotiations with Total
regarding the installation of a pilot BDS unit at Total's European Center for
Research and Technology and the concurrent installation of a commercial BDS unit
at one of Total's refineries following the achievement of results satisfactory
to Total from pilot plant process simulations. The Company's ability to reach
agreements with Petro Star, Total or other parties with respect to commercial
applications of its BDS technology, and its ability to commercialize such
technology generally, will depend upon its ability to achieve additional
improvements in the productivity of the biocatalyst (e.g., specific activity,
production and longevity) and process engineering (e.g., bioreactor design,
separations technology and byproduct disposition), and is subject to numerous
risks and uncertainties. Although the Company has made substantial progress to
date in improving the productivity of the biocatalyst and the process
engineering used in its pilot BDS unit, no assurance can be made that the
Company will be able to achieve the improvements necessary for its BDS
technology to become commercially viable or to reach agreements with respect to
the commercial application of its technology within the time anticipated or at
all. See "Statement Regarding Forward-Looking Statements".
The Company has experienced negative cash flow from operations since its
inception and has funded its activities to date primarily from equity financings
and sponsored research revenues. The Company will continue to require
substantial funds to continue its research and development activities and to
market, sell and commercialize its technology. The Company believes that its
available cash, investments and interest income will be adequate to fund its
operations through early 1999. The Company will need to raise substantial
additional capital to fund its operations thereafter. The Company's capital
requirements will depend on many factors, including the problems, delays,
expenses and complications frequently encountered by companies developing and
commercializing new technologies; the progress of the Company's research and
development activities; timing of environmental regulations; the rate of
technological advances; determinations as to the commercial potential of the
Company's technology under development; the status of competitive technology;
the establishment of biocatalyst manufacturing capacity or third-party
manufacturing arrangements; the establishment of collaborative relationships;
the success of the Company's sales and marketing programs; the cost of filing,
prosecuting and defending and enforcing patents and intellectual property
rights; and other changes in economic, regulatory or competitive conditions in
the Company's planned business. Estimates about the adequacy of funding for the
Company's activities are based upon certain assumptions, including assumptions
that the research and development programs relating to the Company's technology
can be conducted at projected costs and that progress towards the
commercialization of its technology will be timely and successful. There can be
no assurance
12
<PAGE>
that changes in the Company's research and development plans, acquisitions or
other events will not result in accelerated or unexpected expenditures. To
satisfy its capital requirements, the Company may seek additional funding
through public or private financings, including equity financings, and
through collaborative arrangements. There can be no assurance that any such
funding will be available to the Company on favorable terms or at all. If
adequate funds are not available when needed, the Company may be required to
delay, scale back or eliminate some or all of its research and product
development programs. If the Company is successful in obtaining additional
financing, the terms of such financing may have the effect of diluting or
adversely affecting the holdings or the rights of the holders of the
Company's Common Stock.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1 Site License Agreement dated March 6, 1998, between the
Company and Petro Star Inc.
10.2 Common Stock Purchase Warrant dated March 6, 1998, issued
to Petro Star Inc.
10.3 Registration Rights Agreement dated March 6, 1998, between
the Company and Petro Star Inc.
11.1 Statement regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule.
b. Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Energy BioSystems Corporation
By:
-------------------------------------------------------------
William E. Nasser
Chairman of the Board, Chief Executive Officer and President
Date: May 14, 1998
By:
-------------------------------------------------------------
Paul G. Brown III
Vice President, Finance and Administration
Date: May 14, 1998
14
<PAGE>
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THESE OMITTED PORTIONS HAVE BEEN
MARKED WITH "***" AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION").
SITE LICENSE AGREEMENT
This Site License Agreement (the "Agreement") is made and entered into
as of the 6th day of March, 1998, by and between Energy BioSystems Corporation,
a Delaware corporation ("EBC"), and Petro Star Inc., an Alaska corporation
("Petro Star").
W I T N E S S E T H:
WHEREAS, EBC owns or has developed certain proprietary technology and
know-how related to the removal of sulfur or other compounds or substances from
fossil fuels and their derivatives using genetically engineered microbes as
catalysts ("Biocatalysts"), processing performed on fossil fuels and their
derivatives using Biocatalysts, and derivatizations of sulfur compounds using
Biocatalysts (collectively, "Biorefining");
WHEREAS, EBC desires to grant a license to Petro Star, and Petro Star
desires to obtain a license from EBC, for the use of EBC's Biorefining
technology for the removal of sulfur from diesel in a 5,000 barrel per day
biodesulfurization unit (the "BDS Unit") to be installed at Petro Star's Petro
Star Valdez Refinery located in Valdez, Alaska (the "PVSR");
WHEREAS, EBC and Petro Star desire to establish an arrangement
pursuant to which EBC and Petro Star will cooperate with respect to the
installation, start-up and operation of the BDS Unit, the continued refinement
of the BDS Unit and EBC's use of the BDS Unit for the demonstration of EBC's
biodesulfurization technology to third parties;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, terms and conditions contained herein, the parties agree as follows:
ARTICLE I
INSTALLATION AND OPERATION OF BDS UNIT
Section 1.1 COOPERATIVE EFFORTS. Petro Star and EBC will cooperate
with respect to the installation, start-up and operation of the BDS Unit, the
continued refinement of the BDS Unit and EBC's use of the BDS Unit for the
demonstration of EBC's biodesulfurization technology to third parties in
accordance with the plan attached hereto as Exhibit A (the "Installation and
Operation Plan") during the term of this Agreement. The Installation and
Operation Plan will involve the following five phases of work, which may
overlap:
(a) the phase commencing with the execution of this Agreement and
ending with the completion of scoping economics (the "Initial Phase");
Site License Agreement
<PAGE>
(b) the phase commencing with the commencement of detailed
engineering and ending at the completion of detailed engineering (the
"Engineering Phase");
(c) the phase commencing with the commencement of construction of the
BDS Unit and ending at the completion of construction of the BDS Unit (the
"Construction Phase");
(d) the phase commencing with the completion of construction of the
BDS Unit, involving the start-up of the BDS Unit and ending with the
completion of the commencement of commercial operations (the "Start-up
Phase"); and
(e) the phase commencing with the commencement of commercial
operations and extending through the remaining term of the Agreement (the
"Commercial Phase").
***
Each party shall use its respective diligent commercially reasonable efforts to
conduct the work and accomplish the goals of the Installation and Operation Plan
as contemplated thereby.
Section 1.2 COORDINATION AND COMMUNICATION. Petro Star and EBC
acknowledge that the cooperative efforts contemplated by this Agreement will
require the coordination of the respective efforts of and communication between
the two companies on an ongoing basis.
Section 1.3 MANAGEMENT COMMITTEE. Petro Star and EBC shall
establish a management committee whose members shall be responsible for managing
the respective efforts of the two companies under this Agreement (the
"Management Committee"), including but not limited to the coordination (as
between the parties) and management of the following matters:
(a) planning and implementation of efforts under the Installation
and Operation Plan;
(b) timely transfer of relevant information and progress reports in
connection with the Installation and Operation Plan;
(c) changes to the Installation and Operation Plan as may be
necessary or appropriate (which changes shall require the consensus of the
members of the Management Committee);
(d) establishment of the criteria by which the commencement and
completion of the various phases of the Installation and Operation Plan (as
contemplated by Section 1.1) are to be determined; and
(e) protection of intellectual property developed as a result of the
efforts of EBC and Petro Star under this Agreement.
Petro Star and EBC shall each appoint one member of its senior management and
one member of its senior technical staff to the Management Committee.
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-2- Site License Agreement
<PAGE>
Section 1.4 COMMITMENT OF PERSONNEL. Petro Star and EBC will
commit such personnel to the efforts contemplated by this Agreement as may be
necessary or appropriate, as determined by the Management Committee in
accordance with the Installation and Operation Plan. In addition, Petro Star
and EBC shall each assign a project coordinator (i) to act as a conduit for
timely transfer of relevant information and progress reports in connection with
the Installation and Operation Plan and (ii) to be responsible for managing its
day-to-day efforts under the Installation and Operation Plan. ***
Section 1.5 DEMONSTRATION OF BDS UNIT; EVALUATION AND TESTING.
Petro Star will permit EBC and its licensees and prospective licensees to visit
and observe the operation of the BDS Unit during normal working hours and
subject to Petro Star's standard conditions for such visits. EBC shall have the
right to employ the BDS Unit for Biorefining evaluation and testing (including,
without limitation, during the Commercial Phase)on such terms and conditions as
may be negotiated in good faith and agreed upon from time to time by EBC and
Petro Star.
Section 1.6 NO AUTHORITY TO DIRECT ACTIONS OF THE OTHER PARTY.
Although the parties acknowledge and agree that the coordination of their
respective efforts under this Agreement is essential, each party shall retain
the authority to direct, and the responsibility for, its own efforts under this
Agreement. Nothing in this Article I shall be deemed to grant the Management
Committee the authority to direct the actions of either EBC or Petro Star.
ARTICLE II
SITE LICENSE
Section 2.1 GRANT OF SITE LICENSE. Subject to the terms and
conditions of this Agreement, including Petro Star's payment of the license fees
and royalties set forth in Section 2.2, EBC hereby grants to Petro Star during
the term of this Agreement, a limited, non-exclusive license to use the
Proprietary Technology (as defined herein) in the field of Biorefining that is
owned by or licensed to EBC (the "Licensed Technology") to construct and install
the BDS Unit at the PVSR, to conduct the development efforts contemplated by the
Installation and Operation Plan, to operate the BDS Unit at the PVSR for the
removal of sulfur from up to 5,000 barrels of diesel per day, and to make and
have made, use, sell and market and otherwise commercially exploit throughout
the world products of the PVSR processed by the BDS Unit.
Section 2.2 SITE LICENSE FEES; ROYALTIES. In consideration of the
license granted herein, Petro Star shall pay EBC the following amounts:
(i) a license fee of $200,000 payable upon the commencement of the
Initial Phase;
(ii) a license fee of ***
(iii) a license fee of ***
(iv) a license fee of ***
(v) ***
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-3- Site License Agreement
<PAGE>
Section 2.3 ***
Section 2.4 ***
ARTICLE III
RIGHTS TO INTELLECTUAL PROPERTY
Section 3.1 OWNERSHIP AND DISCLOSURE OF EXISTING AND SEPARATELY
DEVELOPED PROPRIETARY TECHNOLOGY. Both during and after the term of this
Agreement, EBC and Petro Star shall each retain their respective right, title
and interest in and to, and shall be the exclusive owner (as between the
parties) of, all technology, inventions, patents, patent rights, copyrights,
trade secrets and other proprietary rights and information ("Proprietary
Technology") owned or conceived by such party prior to the date of this
Agreement ("Existing Proprietary Technology") or separately developed by such
party during the term of this Agreement ("Separately Developed Proprietary
Technology").
Section 3.2 OWNERSHIP OF JOINT PROPRIETARY TECHNOLOGY. All
Proprietary Technology jointly developed during the term of this Agreement by
EBC and Petro Star ("Joint Proprietary Technology") shall be owned jointly by
EBC and Petro Star.
Section 3.3 PATENT PROTECTION OF JOINT PROPRIETARY TECHNOLOGY. EBC
shall have the authority, in its sole discretion, to decide whether to file, or
continue prosecution of, any patent application, or to maintain any patent
application or patent regarding the Joint Proprietary Technology. If EBC
decides to take such actions with respect to any patent application or patent in
any country, EBC will pay all costs incident to such patent applications,
patents and like protection in such country regarding the Joint Proprietary
Technology, including all costs incurred for filing, prosecution, issuance and
maintenance fees, as well as any costs incurred in filing continuations,
continuations-in-part, divisionals or related applications and any
re-examination or reissue proceedings. Petro Star shall provide EBC with
reasonable assistance and cooperation with respect to the foregoing matters.
Section 3.4 EBC'S EXCLUSIVE LICENSE TO JOINT PROPRIETARY TECHNOLOGY
FOR BIOREFINING. EBC shall have and is hereby granted an exclusive, perpetual,
royalty-free, fully paid license to use all Joint Proprietary Technology in the
area of Biorefining, with rights to sublicense, and to develop, make and have
made, use, sell and market and otherwise commercially exploit products and
services throughout the world using such Joint Proprietary Technology in the
area of Biorefining.
Section 3.5 EBC'S NON-EXCLUSIVE LICENSE TO PETRO STAR'S EXISTING
PROPRIETARY TECHNOLOGY AND SEPARATELY DEVELOPED PROPRIETARY TECHNOLOGY FOR
BIOREFINING. Petro Star hereby grants to EBC both during and after the term of
this Agreement, a limited, non-exclusive, perpetual, royalty-free, fully-paid
license to use all Existing Proprietary Technology and Separately Developed
Technology of Petro Star in the area of Biorefining, with rights to sublicense,
and to develop, make and have made, use, sell and market and otherwise
commercially exploit products and services throughout the world using such
Existing Proprietary Technology and Separately Developed Proprietary Technology
in the area of Biorefining.
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-4- Site License Agreement
<PAGE>
Section 3.6 ***
Section 3.7 NO REVERSE ENGINEERING. Each party agrees that it will
not, either during or after the term of this Agreement, conduct any genetic
analysis of or otherwise attempt to reverse engineer any Existing Proprietary
Technology or Separately Developed Proprietary Technology of the other party.
ARTICLE IV
TERM AND TERMINATION
Section 4.1 TERM. Unless earlier terminated by either party in
accordance with the provisions of this Article IV, the term of this Agreement
shall commence on the date of this Agreement and shall terminate on the earlier
of (i) the expiration of the last-to-expire patent licensed hereunder and (ii)
20 years from the effective date of this Agreement.
Section 4.2 TERMINATION BY PETRO STAR. Petro Star may without
liability terminate this Agreement (i) at the conclusion of the Initial Phase or
(ii) without cause *** upon the delivery of *** advance written notice to
EBC.
Section 4.3 TERMINATION BY EITHER PARTY FOR CAUSE. Either party
may terminate this Agreement upon the occurrence of any of the following events:
(i) the insolvency of the other party, or the making of an assignment
for the benefit of creditors by the other party, the institution of
voluntary or involuntary bankruptcy proceedings on behalf of or against the
other party or the appointment of a trustee or receiver with respect to a
substantial portion of the other party's assets;
(ii) the failure by the other party to protect and maintain the
confidentiality of Confidential Information as required by Article VI;
(iii) the failure by the other party to submit to any inspection or
audit or the repeated failure by a party to provide any information or
report as required by Section 2.2 or 2.4;
(iv) the repeated failure of the other party to take such actions
over a *** period (prior to the Commercial Phase) as are consistent with
the terms of this Agreement and are commercially reasonable for such party
to take and are required to facilitate the success of the Installation and
Operation Plan, following the receipt of notice from the other party
specifying in detail the nature of such actions; or
(v) the other party materially defaults in the performance of any
material agreement, condition, covenant, representation or warranty of this
Agreement, and such default or noncompliance shall not have been remedied,
or steps initiated to remedy the same to the terminating party's reasonable
satisfaction, within *** after receipt by the defaulting party of a
written notice thereof from the terminating party.
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-5- Site License Agreement
<PAGE>
Section 4.4 SURVIVAL. Except to the extent expressly provided to
the contrary, the following provisions shall survive the termination of this
Agreement: ***, the audit rights set forth in Sections 2.2 ***, Articles III,
IV, V, VI, VIII, IX, X and XI. Any rights of EBC or Petro Star to payments
accrued through termination shall remain in effect following termination.
ARTICLE V
COSTS
Except as provided on Article II of this Agreement, each party shall
each bear its own costs and expenses incurred in connection with the performance
of its obligations under this Agreement.
ARTICLE VI
CONFIDENTIALITY
Section 6.1 CONFIDENTIAL INFORMATION. For the purposes of this
Agreement, "Confidential Information" of a party shall mean (i) all Existing
Proprietary Technology of such party, (ii) all Separately Developed Proprietary
Technology of such party, and (iii) all other information, whether written, oral
or otherwise, containing or otherwise reflecting information directly or
indirectly concerning such party which such party will provide or has previously
provided to the other party to this Agreement. In addition, the term
"Confidential Information" shall mean and include all Joint Proprietary
Technology, which shall be deemed to be Confidential Information of both parties
to this Agreement. Notwithstanding the foregoing, without granting any right or
license, the following will not constitute "Confidential Information" for
purposes of this Agreement:
(a) Information which is obtained by a party from a third person who
is not prohibited from transmitting the information to such party by a
contractual, legal or fiduciary obligation to or on behalf of the other
party to this Agreement or its affiliates;
(b) Information which is or becomes generally available to the
public other than as a result of disclosure in violation of a contractual,
legal or fiduciary obligation of a party to this Agreement, its employees,
agents or representatives;
(c) Information other than Joint Proprietary Technology which was
in possession of a party prior to the disclosure thereof by the other
party, its employees, agents or representatives; and
(d) Information developed by an employee or consultant of the
receiving party who did not have access to the Confidential Information of
the disclosing party.
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-6- Site License Agreement
<PAGE>
Section 6.2 TREATMENT OF CONFIDENTIAL INFORMATION. All
Confidential Information of a party shall be held and treated by the other party
in confidence and shall not, except as hereinafter provided, without the prior
written consent of the party providing such Confidential Information, be
disclosed by it in any manner whatsoever, in whole or in part, and will not be
used by it other than as provided by or as contemplated in this Agreement.
Moreover, each of EBC and Petro Star agree (i) to disclose Confidential
Information only to its employees who need to know the Confidential Information
for the purpose of assisting it in carrying out the purposes and intent of this
Agreement and who agree to keep such information confidential and to be bound by
the terms of this Agreement to the same extent as if they were parties hereto,
(ii) that it will use its diligent efforts to cause all of such persons to act
in accordance herewith and be bound by this Agreement and (iii) that, in any
event, with respect to any such person that has not agreed in writing to be
bound by the terms of this Agreement, it shall be responsible for actions by any
such person that would constitute a breach of this Agreement to the same extent
as if such person were a party to this Agreement.
Section 6.3 REQUIRED DISCLOSURE. In the event that either party to
this Agreement is requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
other process) to disclose any Confidential Information, such party will provide
the other party to this Agreement with immediate written notice of any such
request or requirement so that the other party to this Agreement at its own
expense may seek an appropriate protective order, seek the cooperation of the
party from which Confidential Information is requested or required to narrow the
request or requirement or waive compliance with the provisions of this
Agreement. If, failing the entry of a protective order or the receipt of a
waiver hereunder, the party from which Confidential Information is requested or
required is, in the opinion of its counsel, compelled to disclose Confidential
Information, it may disclose only that portion of the Confidential Information
which its counsel advises it in writing that it is compelled to disclose and it
will exercise its diligent efforts to obtain assurance that confidential
treatment will be accorded such Confidential Information. In any event, it will
not oppose action by the other party to obtain an appropriate protective order
or other reliable assurance that confidential treatment will be accorded the
Confidential Information.
Section 6.4 RETURN OF CONFIDENTIAL INFORMATION. In the event that
this Agreement is terminated for any reason and in any event within 30 days
after being so requested by the other party to this Agreement, each party shall
return to the other party all Confidential Information of the other party,
except for the portion of the Confidential Information which such party is
entitled to use under a continuing license under Article IV hereof or that may
be found in analyses, compilations, studies or other documents prepared by the
party required to return the Confidential Information. That portion of the
Confidential Information which such party is entitled to use under a continuing
license under Article III hereof or that may be found in analyses, compilations,
studies or other documents prepared by such party and oral Confidential
Information will be held by such party in confidence in accordance with the
provisions of this Article VI. Upon request by a party to this Agreement, an
authorized officer of such party may supervise such destruction.
Section 6.5 REMEDIES FOR BREACH. Each party acknowledges and
agrees that due to the unique nature of the other party's Confidential
Information, there can be no adequate remedy at law for any breach of its
obligations hereunder, that any such breach may allow the breaching party or
third parties to unfairly compete with such other party. Accordingly, upon any
breach or any threat thereof with respect to the obligations of a party
hereunder with respect to the Confidential Information of the other party, such
other party shall be entitled to appropriate equitable relief in addition to
whatever remedies it might have at law and to be indemnified from any loss or
harm, including, without limitation, attorneys' fees, in connection with any
breach or enforcement of such party's obligation hereunder or the unauthorized
use or release of any such Confidential Information.
-7- Site License Agreement
<PAGE>
Section 6.6 DURATION OF CONFIDENTIALITY OBLIGATIONS. The
obligations of the parties under this Article VI shall survive the termination
of this Agreement for a period of ***; PROVIDED that the termination of such
obligations shall not be deemed to constitute the license of any Confidential
Information.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 REPRESENTATIONS AND WARRANTIES OF EBC. EBC represents
and warrants to Petro Star as follows:
(a) EBC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) EBC has the full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement have been duly and
validly authorized by EBC, and upon execution and delivery, this Agreement
will constitute a valid and binding agreement of EBC.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby does or will violate,
conflict with, result in a breach of any material provision of, constitute
a default under, or accelerate the performance required on the part of EBC
by the terms of any judgment, order, decree or agreement, instrument or
contract to or by which EBC or any of its assets is subject or bound.
(d) The execution and delivery of this Agreement does not require
EBC to obtain any permits, authorizations or consents from any governmental
body or from any other person, firm or corporation which have not been
obtained, and such execution and delivery will not result in the breach of
or give rise to any termination of any agreement or contract to which EBC
may be a party. The consummation of the transactions contemplated
hereunder will not result in the breach of or give rise to any termination
of any agreement or contract to which EBC may be a party.
Section 7.2 REPRESENTATIONS AND WARRANTIES OF PETRO STAR. Petro
Star represents and warrants to EBC as follows:
(a) Petro Star is a corporation duly organized, validly existing and
in good standing under the laws of the State of Alaska.
(b) Petro Star has the full corporate power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement have
been duly and validly authorized by Petro Star, and upon execution and
delivery, this Agreement will constitute a valid and binding agreement of
Petro Star.
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-8- Site License Agreement
<PAGE>
(c) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby does or will violate,
conflict with, result in a breach of any material provision of, constitute
a default under, or accelerate the performance required on the part of
Petro Star by the terms of any judgment, order, decree or agreement,
instrument or contract to or by which Petro Star or any of its assets is
subject or bound.
(d) The execution and delivery of this Agreement does not require
Petro Star to obtain any permits, authorizations or consents from any
governmental body or from any other person, firm or corporation which have
not been obtained, and such execution and delivery will not result in the
breach of or give rise to any termination of any agreement or contract to
which Petro Star may be a party. The consummation of the transactions
contemplated hereunder will not result in the breach of or give rise to any
termination of any agreement or contract to which Petro Star may be a
party.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Each party shall indemnify, defend and hold harmless the other party and its
officers, directors and employees from and against any and all liabilities,
obligations, fees, including attorneys' fees and costs, expenses and losses
resulting from any breach of any representation or warranty or nonfulfillment of
any covenant on the part of the indemnifying party contained in this Agreement
or other instrument furnished or to be furnished by the indemnifying party
pursuant to this Agreement.
Section 8.2 ACTIONS AND OMISSIONS. Each party shall indemnify,
defend and hold harmless the other party and its officers, directors and
employees from and against any and all liabilities, obligations, fees, including
attorneys' fees and costs, expenses and losses incurred in connection with a
claim against the indemnified party based on any action or omission of the
indemnifying party or its agents or employees related to the obligations of the
indemnifying party under this Agreement.
Section 8.3 INJURY AND DEATH. Each party shall indemnify, defend
and hold harmless the other party and its officers, directors and employees from
and against any and all liabilities, obligations, fees, including attorney's
fees and costs, expenses and losses arising, or claimed to arise out of, or
which resulted from, or are claimed to result from any alleged injury or death,
or damage to property arising from or claimed to arise from, or which resulted
from, or are claimed to result from products and services of the indemnifying
party that incorporate or use Joint Proprietary Technology.
-9- Site License Agreement
<PAGE>
ARTICLE IX
ARBITRATION
In the event of any allegation of breach or question of interpretation
relating to this Agreement, EBC and Petro Star shall meet and negotiate in a
good faith effort to settle the matter amicably. If the parties are unable to
settle the matter within *** after their first meeting, then upon the demand of
either EBC or Petro Star the matter shall be submitted to binding arbitration
with a single arbitrator, who shall be qualified in the subject matter of the
dispute. The arbitration proceeding shall be governed by the rules of
arbitration promulgated by the American Arbitration Association and shall be
held in San Francisco, California.
ARTICLE X
NOTICES
Any communication, notice, request, consent, demand or statement
required or permitted hereunder shall be in writing and be given in person, by
express courier service or by means of telex, facsimile, or other wire
transmission (with request for assurance of receipt in a manner typical with
respect to communications of that type), and shall be deemed to have been given
(a) on delivery (if given in person or by express delivery) or (b) on the date
of transmission, if sent by telex, facsimile or other wire transmission,
addressed to a party at its address set forth below:
In the case of EBC:
President
Energy BioSystems Corporation
4200 Research Forest Drive
The Woodlands, Texas 77381
In the case of Petro Star:
James F. Boltz
Petro Star Inc.
201 Arctic Slope Avenue #200
Anchorage, Alaska 99518
Each party hereto may change such address by giving prior written notice to the
other party as provided herein.
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-10- Site License Agreement
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1 ASSIGNMENT; SUCCESSORS AND ASSIGNS. Neither party
shall assign this Agreement in whole or in part except in connection with the
transfer of all or substantially all of the stock or assets of such party or, in
the case of Petro Star, in connection with the transfer of a majority interest
in Petro Star Valdez, Inc. or the PVSR. Any assignment made or attempted in
violation of this Section 11.1 shall be void and of no effect. This Agreement
shall be binding on, and shall inure to the benefit of, all successors and
assigns of the parties.
Section 11.2 GOVERNING LAW. This Agreement shall be construed,
governed, interpreted and applied in accordance with the substantive, procedural
and arbitration laws of the State of Texas, without regard to the conflicts of
law principles thereof.
Section 11.3 HEADINGS. The titles and headings given to Articles
and Sections of this Agreement are provided only for convenience and shall not
be used in interpreting this Agreement.
Section 11.4 ENTIRE AGREEMENT. The parties acknowledge that this
Agreement sets forth the entire Agreement and understanding of the parties as to
the subject matter hereof, and shall not be subject to any change or
modification except by the execution of a written instrument subscribed to by
the parties. All other previous or currently existing agreements and
understandings or other arrangements of any kind with respect to the said
subject matter shall be canceled and superseded completely by this Agreement as
of the date hereof.
Section 11.5 WAIVER. The failure of either party to assert a right
hereunder or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other party.
Section 11.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which, when so executed and delivered, shall be
deemed to be an original, but all of such counterparts shall together constitute
one and the same instrument.
Section 11.7 SEVERABILITY. If any clause, paragraph, section,
article or part of this Agreement is held or declared to be void, invalid, or
illegal for any reason by any court of competent jurisdiction, the
ineffectiveness of such provision shall not in any way invalidate or affect any
other clause, paragraph, section, article or part of this Agreement, and this
Agreement shall be reformed consistent with the original objectives as stated
herein or therein.
Section 11.8 NO AGENCY, PARTNERSHIP, ETC. This Agreement shall
not constitute either party as a legal representative, joint venturer or agent
of the other, nor shall any party have the right or authority to assume, create
or incur any liability or any obligation of any kind, expressed or implied,
against or in the name or on behalf of any other party, unless otherwise
expressly permitted by the other party.
Section 11.9 FURTHER ASSURANCES. Each party hereto agrees to
execute, acknowledge and deliver such further instruments, and to do all such
other acts, as may be necessary or appropriate in order to carry out the
purposes and intent of this Agreement.
-11- Site License Agreement
<PAGE>
Section 11.10 PUBLIC STATEMENTS. The parties shall consult with
each other prior to issuing any press release or any written public statement
with respect to this Agreement, and shall not issue any such press release or
written public statement prior to such consultation.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year set forth above.
ENERGY BIOSYSTEMS CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PETRO STAR INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-12- Site License Agreement
<PAGE>
EXHIBIT A
Installation and Operation Plan
***
*** This portion has been omitted based on a request for confidential treatment
pursuant to Rule 24b-2 of the Exchange Act. The omitted portion has been
separately filed with the Commission.
-13- Site License Agreement
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF UNLESS PURSUANT TO A REGISTERED OFFERING OR BY
TRANSFER EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS.
ENERGY BIOSYSTEMS CORPORATION
COMMON STOCK PURCHASE WARRANT
No. W-1
This certifies that, for value received, PetroStar Inc. or registered
assigns (the "holder"), upon due exercise of this Warrant, is entitled to
purchase from Energy BioSystems Corporation, a Delaware corporation (the
"Company"), at any time on or after September 6, 1999 (the "Initial Exercise
Date"), and before the close of business on March 6, 2002, or if not a
trading date on the New York Stock Exchange, the next following trading date
(the "Expiration Date"), all or any part of 200,000 fully paid and
nonassessable Shares (the "Warrant Shares") of the Common Stock, par value
$0.01 per share, of the Company ("Common Stock"), at a purchase price of
$3.11 per share (the "Purchase Price"), both the Purchase Price and the
number of Warrant Shares issuable upon exercise of this Warrant being subject
to possible adjustment as provided below.
This Warrant is hereinafter called the "Warrant." The holder hereof and
all subsequent holders of this Warrant shall be entitled to all rights and
benefits provided to the holder or holders hereof pursuant to the terms of
this Warrant.
SECTION 1. EXERCISE OF WARRANT. The holder of this Warrant may, at any
time on or after the Initial Exercise Date and on or before the Expiration
Date, exercise this Warrant in whole at any time or in part from time to time
for the purchase of the Warrant Shares or other securities which such holder
is then entitled to purchase hereunder ("Warrant Securities") at the Purchase
Price (as hereinafter defined). In order to exercise this Warrant in whole
or in part, the holder hereof shall deliver to the Company (i) a written
notice of such holder's election to exercise this Warrant, which notice shall
specify the number of Warrant Shares to be purchased, (ii) payment of the
aggregate purchase price of the Warrant Shares being purchased by certified
or bank cashier's check, and (iii) this Warrant, provided that, if such
Warrant Shares or other Warrant Securities have not then been registered
under the Securities Act or applicable state securities laws, the Company may
require that such holder furnish to the Company a written statement that such
holder is purchasing such Warrant Shares or other Warrant Securities for such
holder's own account for investment and not with a view to the distribution
thereof, that none of such shares will be offered or sold in violation of the
provisions of the Securities Act and applicable state securities laws and as
to such other matters relating to the holder as the Company may reasonably
request to permit the issuance of such Warrant Shares or other Warrant
Securities without registration under the Securities Act and applicable state
securities laws. Upon receipt thereof, the Company shall, as promptly as
practicable, execute or cause to be executed and deliver to such holder a
certificate or certificates representing the aggregate number of Warrant
Shares (or if applicable, other Warrant Securities) specified in said notice.
The stock certificate or certificates so delivered shall be in the
denomination of 100 shares each or such
<PAGE>
other denominations as may be specified in said notice and shall be
registered in the name of such holder or such other name as shall be
designated in said notice.
No fractional Warrant Shares are to be issued upon the exercise of this
Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to
the same fraction of the fair market value per share of the Warrant Shares on
the day of exercise, as reasonably determined by the Company. If this
Warrant shall have been exercised only in part, the Company shall, at the
time of delivery of said certificate or certificates, deliver to such holder
a new Warrant evidencing the rights of such holder to purchase the remaining
Warrant Shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant, or, at the request of such
holder, appropriate notation may be made on this Warrant and same returned to
such holder. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, execution and delivery of share
certificates under this Section, except that, if such share certificates are
requested to be registered in a name or names other than the name of the
holder of this Warrant, funds sufficient to pay all stock transfer taxes
which shall be payable upon the execution and delivery of such share
certificates shall be paid by the holder hereof at the time of delivering the
notice of exercise mentioned above.
The Company represents, warrants and agrees that all Warrant Shares
issuable upon any exercise of this Warrant in accordance herewith shall be
validly authorized and issued, fully paid and nonassessable.
This Warrant shall not entitle the holder hereof to any of the rights of
a stockholder of the Company prior to exercise in the manner herein provided.
SECTION 2. TRANSFER, DIVISION AND COMBINATION. The Company shall keep
at its principal executive office a register for the registration and
registration of transfers of Warrants. The name and address of each holder
of one or more Warrants, each transfer thereof and the name and address of
each transferee of one or more Warrants shall be registered in such register.
Prior to due presentment for registration of transfer, the person in whose
name any Warrants shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not
be affected by any notice or knowledge to the contrary. The Company shall
give to any holder of a Warrant promptly upon request therefor, a complete
and correct copy of the names and addresses of all registered holders of
Warrants.
Subject to the provisions of Section 3, upon surrender of any Warrant at
the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by
the registered holder of such Warrant or his attorney duly authorized in
writing and accompanied by the address for notices of each transferee of such
Warrant or part thereof), the Company shall execute and deliver, at the
Company's expense, one or more new Warrants (as requested by the holder
thereof) in exchange therefor, exercisable for an aggregate number of Warrant
Shares equal to the number of shares for which the surrendered Warrant is
-2-
<PAGE>
exercisable and issued to such person or persons as such holder may request,
which Warrant or Warrants shall in all other respects be identical with this
Warrant.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any
Warrant, and (a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Warrant
is, or is a nominee for, an original holder, such person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or (b) in the
case of mutilation, upon surrender and cancellation thereof, the Company at
its own expense shall execute and deliver, in lieu thereof, a new Warrant
identical in all respects to such lost, stolen, destroyed or mutilated
Warrant.
SECTION 3. COMPLIANCE WITH SECURITIES ACT; RESTRICTIONS ON TRANSFER.
(a) Each certificate for Warrant Shares (or other Warrant Securities)
initially issued upon the exercise of this Warrant and each certificate for
Warrant Shares (or other Warrant Securities) issued to subsequent transferees
of any such certificate shall (unless otherwise permitted by this Section 3)
be stamped or otherwise imprinted with legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE SOLD OR OTHERWISE DISPOSED OF UNLESS PURSUANT TO
A REGISTERED OFFERING OR BY TRANSFER EXEMPT FROM REGISTRATION UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS."
(b) The holder understands that it may be entitled to certain
registration rights pursuant to the Registration Rights Agreement dated as of
March 6, 1998 which are applicable to its Warrant Shares (and, if applicable,
other Warrant Securities).
SECTION 4. ADJUSTMENT OF PURCHASE PRICE.
(a) The Purchase Price and the number of Warrant Shares and the number
or amount of any other securities and property as hereinafter provided for
which this Warrant may be exercisable shall be subject to adjustment from
time to time effective upon each occurrence of any of the following events.
(b) If the Company shall declare or pay any dividend with respect to
its Common Stock payable in shares of Common Stock, subdivide the outstanding
Common Stock into a greater number of shares of Common Stock, or reduce the
number of shares of Common Stock outstanding (by stock split, reverse stock
split, reclassification or otherwise than by repurchase of its Common Stock)
(any of such events being hereinafter called a "Stock Split"), the Purchase
Price and number of Warrant Shares issuable upon exercise of this Warrant
shall be appropriately adjusted so as to entitle the holder hereof to receive
upon exercise of this Warrant, for the same aggregate consideration provided
herein, the same number of shares of Common Stock (plus cash in lieu of
-3-
<PAGE>
fractional shares) as the holder would have received as a result of such
Stock Split had such holder exercised this Warrant in full immediately prior
to such Stock Split.
(c) If the Company shall merge or consolidate with or into one or more
corporations or partnerships and the Company is the sole surviving
corporation, or the Company shall adopt a plan of recapitalization or
reorganization in which the Common Stock is exchanged for or changed into
another class of stock or other security or property of the Company, the
holder of this Warrant shall, for the same aggregate consideration provided
herein, be entitled upon exercise of this Warrant to receive in lieu of the
number of shares of Common Stock as to which this Warrant would otherwise be
exercisable, the number of shares of Common Stock or other securities (plus
cash in lieu of fractional shares) or property to which such holder would
have been entitled pursuant to the terms of the agreement or plan of merger,
consolidation, recapitalization or reorganization had such holder exercised
this Warrant in full immediately prior to such merger, consolidation,
recapitalization or reorganization.
(d) If the Company is merged or consolidated with or into one or more
corporations or partnerships under circumstances in which the Company is not
the sole surviving corporation, or if the Company sells or otherwise disposes
of substantially all its assets, and in connection with any such merger,
consolidation or sale the holders of Common Stock receive stock or other
securities convertible into equity of the surviving or acquiring corporations
or entities, or other securities or property after the effective date of such
merger, consolidation or sale, as the case may be, the holder of this Warrant
shall, for the same aggregate consideration provided herein, be entitled upon
exercise of this Warrant to receive, in lieu of the shares of Common Stock as
to which this Warrant would otherwise be exercisable, shares of such stock or
other securities (plus cash in lieu of fractional shares) or property as the
holder of this Warrant would have received pursuant to the terms of the
merger, consolidation or sale had such holder exercised this Warrant in full
immediately prior to such merger, consolidation or sale. In the event of any
consolidation, merger or sale as described in this Section 4(d), provision
shall be made in connection therewith for the surviving or acquiring
corporations or partnerships to assume all obligations and duties of the
Company hereunder or to issue substitute warrants in lieu of this Warrant
with all such changes and adjustments in the number or kind of shares of
stock or securities or property thereafter subject to this Warrant or in the
Purchase Price as shall be required in connection with this Section 4(d).
(e) If the Company (other than in connection with a sale described in
Section 4(d)) proposes to liquidate and dissolve, the Company shall give
notice thereof as provided in Section 5(b) hereof and shall permit the holder
of this Warrant to exercise any unexercised portion hereof at any time within
the 10 day period following delivery of such notice, if such holder should
elect to do so, and participate as a stockholder of the Company in connection
with such dissolution.
(f) Whenever any adjustment is made as provided in any provision of
this Section 4:
(i) the Company shall compute the adjustments in accordance with
this Section 4 and shall prepare a certificate signed by an officer of
the Company setting forth the adjusted number of shares or other
securities or property and Purchase
-4-
<PAGE>
Price, as applicable, and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith
be filed with the Company or its designee; and
(ii) a notice setting forth the adjusted number of shares or
other securities or property and the Purchase Price, as applicable,
shall forthwith be required, and as soon as practicable after it is
prepared, such notice shall be delivered by the Company to the holder
of record of each Warrant.
(g) If at any time, as a result of any adjustment made pursuant to this
Section 4, the holder of this Warrant shall become entitled, upon exercise
hereof, to receive any shares other than shares of Common Stock or to receive
any other securities, the number of such other shares or securities so
receivable upon exercise of this Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions contained in this Section 4 with respect to the Common Stock.
SECTION 5. SPECIAL AGREEMENTS OF THE COMPANY.
(a) The Company covenants and agrees that it will reserve and set apart
and have at all times a number of shares of authorized but unissued Common
Stock (and, if applicable, other Warrant Securities) then deliverable upon
the exercise of the Warrants or any other rights or privileges provided for
therein sufficient to enable it at any time to fulfill all its obligations
thereunder; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the exercise of this
Warrant at the Purchase Price then in effect, the Company will take such
corporate action as may, in the reasonable opinion of its counsel, be
necessary to increase its authorized shares but unissued shares of Common
Stock (and, if applicable, other Warrant Securities) to such number of shares
as shall be sufficient for such purposes.
(b) In case the Company proposes
(i) to pay any dividend upon the Common Stock or make any
distribution or offer any subscription or other rights to the holders
of Common Stock, or
(ii) to effect any capital reorganization or reclassification
of capital stock of the Company, or
(iii) to effect the consolidation, merger, sale of all or
substantially all of the assets, liquidation, dissolution or winding
up of the Company,
then the Company shall cause notice of any such intended action to be given
to each holder of the Warrants not less than 15 nor more than 60 days prior
to the date on which the transfer books of the Company shall close or a
record be taken for such dividend or distribution, or the date when such
capital reorganization, reclassification, consolidation, merger, sale,
liquidation, dissolution or winding up shall be effected, or the date of such
other event, as the case may be.
-5-
<PAGE>
SECTION 6. NOTICES. Any notice or other document required or permitted
to be given or delivered to holders of Warrants and holders of Common Stock
(or other Warrant Securities) shall be in writing and sent (a) by telecopy if
the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), or (b) by registered
or certified mail with return receipt requested (postage prepaid) or (c) by a
recognized overnight delivery service (with charges prepaid).
(i) if to the Company, at Energy BioSystems Corporation, 4200
Research Forest Drive, The Woodlands, Texas 77381, Telecopy No.:
(281) 364-6110, or such other address as it shall have specified to the
holders of Warrants in writing; or
(ii) if to a holder, at its address set forth below, or such other
address as it shall have specified to the Company in writing.
Notices given under this Section 6 shall be deemed given only when actually
received.
SECTION 7. AMENDMENT. This Warrant may not be amended, modified or
otherwise altered in any respect except by the written consent of the
registered holder of this Warrant and the Company.
SECTION 8. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon
and inure to the benefit of the Company and the holder of this Warrant and
their respective successors and permitted assigns.
SECTION 9. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to the conflicts of law principles thereof.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed in its name by its duly authorized officers and accepted by the holder
of this Warrant this 6th day of March, 1998.
ATTEST: ENERGY BIOSYSTEMS CORPORATION
By: By:
----------------------------- --------------------------------
Name: Paul G. Brown, III Name:
Title: Secretary ------------------------------
Title:
-----------------------------
HOLDER:
- --------------------------------
Address for Notices:
James F. Boltz
Petro Star Inc.
201 Arctic Slope Avenue #200
Anchorage, Alaska 99518
-7-
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT
DESIRES TO TRANSFER THE WARRANT
FOR VALUE RECEIVED, ___________ hereby sells, assigns and transfers
unto _____________________________ the right to purchase ________________
shares of ___________________ stock, evidenced by the within Warrant, and
does hereby irrevocably constitute and appoint ____________________________
Attorney to transfer the said Warrant on the books of the Company, with full
power and substitution.
----------------------------------
Signature
----------------------------------
----------------------------------
Address
Dated: _________________, 19____.
In the presence of:
- ---------------------------------
NOTICE
The signature of the foregoing Assignment must correspond to the
name as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
-8-
<PAGE>
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT
DESIRES TO EXERCISE THE WARRANT
The undersigned hereby exercises the right to purchase ____________
shares of stock covered by this Warrant according to the conditions thereof
and herewith makes payment of the Purchase Price of such shares in full.
----------------------------------
Signature
----------------------------------
Name
----------------------------------
----------------------------------
Address
Dated: _________________, 19____.
-9-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of March 6, 1998 (this
"Agreement"), is entered into by and between Energy BioSystems Corporation, a
Delaware corporation (the "Company"), and Petro Star Inc., an Alaska
corporation ("Petro Star").
W I T N E S S E T H:
WHEREAS, the Company issued a Warrant dated March 6, 1998 (the
"Warrant") to Petro Star entitling Petro Star to purchase 200,000 shares of
the Common Stock, par value $0.01 per share ("Common Stock"), of the Company;
and
WHEREAS, the Company has agreed to grant certain registration
rights in connection with the issuance of the Warrant;
NOW, THEREFORE, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
(a) "COMMERCIALLY REASONABLE EFFORTS," when used with respect to
an obligation to be performed or term or provision to be observed hereunder,
shall mean such efforts as a prudent person seeking the benefits of such
performance or action would make, use, apply or exercise to preserve, protect
or advance its rights or interests, PROVIDED that such efforts do not require
such person to incur a material financial cost or a substantial risk of
material liability unless such cost or liability (i) would customarily be
incurred in the course of performance or observance of the relevant
obligation, term, or provision, (ii) is caused by or results from the
wrongful act or negligence of the person whose performance or observance is
required hereunder or (iii) is not excessive or unreasonable in view of the
rights or interests to be preserved, protected or advanced. Such efforts may
include, without limitation, (A) the expenditure of such funds and retention
by such person of such accountants, attorneys or other experts or advisors as
may be necessary or appropriate to effect the relevant action, (B) the
undertaking of any special audit or internal investigation that may be
necessary or appropriate to effect the relevant action and (C) the
commencement, termination or settlement of any action, suit or proceeding
involving such person to the extent necessary or appropriate to effect the
relevant action.
(b) "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(c) "COMPANY" shall have the meaning set forth in the initial
paragraph of this Agreement.
(d) "COMMON STOCK" shall have the meaning set forth in the recitals
of this Agreement.
(e) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to
time.
<PAGE>
(f) "HOLDER" shall mean Petro Star and any holder of Registrable
Securities to whom the registration rights conferred by this Agreement have
been transferred in compliance with Section 9 hereof.
(g) "INITIATING HOLDERS" shall mean any Holder or Holders who in the
aggregate hold not less than all of the outstanding Registrable Securities.
(h) The terms "REGISTER," "REGISTERED" and "REGISTRATION" shall refer
to a registration effected by preparing and filing a registration statement
in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(i) "REGISTRABLE SECURITIES" shall mean (i) the shares of Common
Stock issued or issuable upon exercise of the Warrant and (ii) any Common
Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of such shares or other securities,
PROVIDED, HOWEVER, that Registrable Securities shall not include any shares
of Common Stock which have previously been registered under the Securities
Act, which have been sold or otherwise transferred under Rule 144 or which
may be sold without restriction pursuant to Rule 144(k).
(j) "REGISTRATION EXPENSES" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include
Selling Expenses and fees and disbursements of counsel for the Holders (and
shall not include the compensation of regular employees of the Company,
which shall be paid in any event by the Company).
(k) "RULE 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or
any similar successor rule that may be promulgated by the Commission.
(l) "RULE 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or
any similar successor rule that may be promulgated by the Commission.
(m) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to
time.
(n) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses or paid by
the Company pursuant to Section 4).
-2-
<PAGE>
2. DEMAND REGISTRATION.
2.1 REQUEST FOR REGISTRATION. (a) If the Company shall receive
from Initiating Holders, at any time or times not earlier than the date on
which the Warrant first becomes exercisable, a written request that the
Company effect any registration with respect to all of the Registrable
Securities, the Company will as soon as practicable, use Commercially
Reasonable Efforts to effect such registration (including, without
limitation, filing a registration statement and any appropriate pre-effective
or post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance with the
Securities Act) so as to permit or facilitate the sale and distribution of
all of the Registrable Securities as specified in such request.
(b) The Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 2:
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(ii) prior to the expiration of a period of six months after the
Company has initiated any previous registration pursuant to this Section
2.1, or after the Company has initiated a total of three such registrations
pursuant to this Section 2.1, PROVIDED that a registration initiated
pursuant to this Section 2.1 and subsequently withdrawn by the Holders
registering shares therein shall not be counted as a requested registration
pursuant to this clause (ii) if such withdrawal is based upon material
adverse information relating to the Company that is not known by the
Initiating Holders at the time of their request for registration pursuant
to this Section 2.1 or if the Holders bear the Registration Expenses for
such registration;
(iii) during the period starting with the date 60 days prior to
the Company's good faith estimate of the date of filing of, and ending on a
date 180 days after the effective date of, a Company-initiated
registration, PROVIDED that the Company is actively employing in good faith
all Commercially Reasonable Efforts to cause such registration statement to
become effective;
(iv) if the Initiating Holders do not request that such offering be
firmly underwritten by underwriters selected by a majority in interest of
the Initiating Holders (subject to the consent of the Company, which
consent will not be unreasonably withheld);
(v) if the Company and the Initiating Holders are unable to obtain
the commitment of the underwriters described in clause (iv) above to firmly
underwrite the offer; or
(vi) if, within 14 days after its receipt of a written request to
effect such registration, the Company causes to be delivered to the
Initiating Holders an opinion of counsel reasonably acceptable to the
Initiating Holders to the effect that the proposed disposition of
Registrable Securities by the Initiating Holders will not require
registration or qualification under the Securities Act, it being
specifically understood and agreed that the Initiating Holders will
promptly furnish to the Company and such counsel all information such
counsel may reasonably request in order to enable such counsel to determine
whether it would be able to render such opinion.
-3-
<PAGE>
2.2 RIGHT TO DEFER REGISTRATION. Subject to the provisions of
Section 2.1(b), the Company shall use Commercially Reasonable Efforts to file
a registration statement covering the Registrable Securities so requested to
be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders; PROVIDED, HOWEVER, that if (i) in the good faith
judgment of the Board of Directors of the Company, such registration would be
seriously detrimental to the Company and the Board of Directors of the
Company concludes, as a result, that it is essential to defer the filing of
such registration statement at such time, and (ii) the Company shall furnish
to such Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company for such registration statement
to be filed in the near future and that it is, therefore, essential to defer
the filing of such registration statement, then the Company shall have the
right to defer such filing for the period during which such disclosure would
be seriously detrimental, PROVIDED that (except as provided in Section
2.1(b)(iii) above) the Company may not defer the filing for a period of more
than 90 days after receipt of the request of the Initiating Holders, and,
PROVIDED FURTHER, that the Company shall not defer its obligation in this
manner more than once in any twelve-month period.
2.3 UNDERWRITING. (a) The right of any Holder to registration
pursuant to Section 2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting (together
with the Company and other holders of securities of the Company exercising
registration rights with respect to such registration) shall enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by a majority in interest of the
Initiating Holders, subject to the consent of the Company, which consent
shall not be unreasonably withheld.
(b) Notwithstanding any other provision of this Section 2, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 10 hereof. If a
person who has requested inclusion in such registration as provided above
does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
Initiating Holders. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall also be withdrawn from such
registration. If shares are so withdrawn from the registration and if the
number of shares to be included in such registration was previously reduced
as a result of marketing factors pursuant to this Section 2.3, then the
Company shall offer to all Holders who have retained rights to include
securities in the registration the right to include additional securities in
the registration in an aggregate amount equal to the number of shares so
withdrawn, with such shares to be allocated among such Holders requesting
additional inclusion in accordance with Section 10 hereof.
3. PIGGYBACK REGISTRATION.
3.1 NOTICE OF REGISTRATION. If the Company shall determine to
register any of its securities either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights (other than pursuant to Section 2 hereof), other than a registration
relating solely to employee benefit plans, a registration relating solely to
a Rule 145 transaction, or a registration on any registration form that does
not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
-4-
<PAGE>
(ii) use Commercially Reasonable Efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 3.2 below, and in any
underwriting involved therein, all the Registrable Securities specified in
a written request or requests, made by any Holder within 20 days after the
written notice from the Company described in clause (i) above is given.
Such written request may specify all or a part of a Holder's Registrable
Securities.
3.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 3 prior to the effectiveness of such registration whether or not any
Holder has elected to include Registrable Securities in such registration.
3.3 UNDERWRITING. (a) If the registration of which the Company
gives notice is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1 above. In such event, the right of any Holder to
registration pursuant to this Section 3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting (together with the Company and such other holders of securities
of the Company exercising registration rights with respect to such
registration) shall enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected by the
Company or the security holders initiating such registration, as the case may
be.
(b) Notwithstanding any other provision of this Section 3, if the
representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting.
The Company shall so advise all holders of securities requesting
registration, and the amount of securities that are entitled to be included
in the registration and underwriting shall be allocated first to the Company
for securities being sold for its own account and thereafter as set forth in
Section 10 hereof. If any person does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by written notice from
the Company or the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
4. EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
Section 3 hereof, and all Registration Expenses and reasonable fees of one
counsel for the selling stockholders in the case of the first registration
pursuant to Section 2, shall be borne by the Company. All Registration
Expenses and expenses of counsel for the selling stockholders in any
subsequent registration pursuant to Section 2 shall be borne by the holders
of the securities so registered pro rata on the basis of the number of shares
of securities so registered on their behalf. All Selling Expenses relating
to securities so registered shall be borne by the holders of such securities
pro rata on the basis of the number of shares of securities so registered on
their behalf.
5. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep
each Holder advised in writing as to the initiation of each registration and
as to the completion thereof. At its expense (except, as otherwise provided
herein), the Company will use Commercially Reasonable Efforts to:
(a) keep such registration effective for a period of 120 days or
until the Holder or Holders have completed the distribution described in
the registration statement relating thereto,
-5-
<PAGE>
whichever first occurs; PROVIDED, HOWEVER, that such 120-day period
shall be extended for a period of time equal to the period after the
effectiveness of such requirements that the Holder refrains from
selling any securities included in such registration at the request of
an underwriter of Common Stock (or other securities) of the Company;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement;
(c) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
Holder from time to time may reasonably request;
(d) notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
then existing, not misleading, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances then existing,
not misleading;
(e) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed;
(f) provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration; and
(g) comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the
first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 2 hereof, the Company will enter into an
underwriting agreement reasonably necessary to effect the offer and sale of
Common Stock, PROVIDED such underwriting agreement contains customary
underwriting provisions.
6. INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities
Act, if Registrable Securities of such Holder are included in the securities
with respect to which registration, qualification, or compliance has been
effected pursuant to this Agreement, and
-6-
<PAGE>
each underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses,
claims, losses, damages, and liabilities (or actions, proceedings, or
settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required by the Company in connection with any such registration,
qualification, or compliance, and will reimburse each such Holder, each of
its officers, directors, partners, legal counsel, and accountants and each
person controlling such Holder, each such underwriter, and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action, PROVIDED that
the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability, or expense arises out of or is based on any
untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
6(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the
consent of the Company (which consent has not been unreasonably withheld).
(b) Each Holder (an "Indemnifying Holder") will, if Registrable
Securities held by the Indemnifying Holder are included in the securities as
to which such registration, qualification, or compliance is being effected,
indemnify the Company, each of its directors, officers, partners, legal
counsel, and accountants and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder (an "Indemnified Holder"), and each of
their officers, directors, and partners, and each person controlling such
Indemnified Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular, or other document, or
any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Indemnified Holders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by the
Indemnifying Holder and stated to be specifically for use therein; PROVIDED,
HOWEVER, that the obligations of the Indemnifying Holder hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages, or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld); and PROVIDED FURTHER that the liability of an Indemnifying Holder
pursuant to this Section 6(b) in connection with a registration shall be
limited to the net proceeds from the sale of the Registrable Securities of
such Indemnifying Holder pursuant to such registration.
(c) Each party entitled to indemnification under this Section 6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and, except as provided in the following sentence, shall permit the
Indemnifying Party to assume the defense of such claim or any litigation
resulting therefrom; PROVIDED that counsel for the Indemnifying Party, who
shall
-7-
<PAGE>
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld); PROVIDED FURTHER that the Indemnified Party may
participate in such defense at its own expense; and PROVIDED FURTHER that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, to
the extent such failure is not materially prejudicial. After the Indemnifying
Party assumes the defense of such claim or litigation, the Indemnifying Party
shall not be liable to the Indemnified Party under this Section 6 for any
legal or other expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof, other than reasonable costs of
investigation, unless the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and the Indemnifying
Party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with
defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 6 is held
by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred
to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and
of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
7. INFORMATION BY HOLDER. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Agreement.
8. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission that may permit
the sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information regarding the Company available
as those terms are understood and defined in Rule 144 under the Securities
Act, at all times;
-8-
<PAGE>
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act at any time after it has become subject to such reporting requirements;
and
(c) so long as a Holder owns any restricted Registrable Securities,
furnish to the Holder forthwith upon written request a written statement by
the Company as to its compliance with the reporting requirements of Rule
144, and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports
and documents so filed as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
9. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to Petro Star by the Company
under this Agreement may be transferred or assigned by Petro Star with the
related securities only to a transferee or assignee of not less than all of
the Registrable Securities representing no less than 50% of the aggregate
number of shares of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) issued or issuable
pursuant to the Warrant. Any transfer or assignment of the registration
rights granted under this Agreement shall be conditioned upon (i) the
Company's being given written notice at the time of or within a reasonable
time after said transfer or assignment, stating the name and address of the
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned and (ii) the
assumption in writing by the transferee or assignee of the obligations of a
Holder under this Agreement.
10. ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance
in which all of the Registrable Securities requested to be included in a
registration on behalf of the Holders cannot be so included as a result of
limitations of the aggregate number of shares of Registrable Securities that
may be so included, the number of shares of Registrable Securities that may
be so included shall be allocated among the Holders requesting inclusion of
shares pro rata on the basis of the number of shares of Registrable
Securities held by such Holders. The Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by stockholders with no
registration rights or, with respect to registrations under Section 2 hereof,
in order to include in such registration securities registered for the
Company's own account or securities other than Registrable Securities.
11. DELAY OF REGISTRATION. No Holder shall have any right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Agreement.
12. TERMINATION OF REGISTRATION RIGHTS. The right of any Holder
to request registration or inclusion in any registration pursuant to Section
2 or 3 hereof shall terminate on such date as all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
immediately be sold under Rule 144(k).
13. MISCELLANEOUS.
13.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the internal laws of the State of Delaware, without reference to
the conflicts of law principles thereof.
-9-
<PAGE>
13.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto.
13.3 ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof.
13.4 NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by registered
or certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, including Federal Express or similar courier services, addressed
(a) if to a Holder, to Petro Star Inc., 201 Arctic Slope Avenue #200,
Anchorage, Alaska 99518, Attn: President, or at such other address as such
Holder shall have furnished to the Company in writing, or (b) if to the
Company, to 4200 Research Forest Drive, The Woodlands, Texas, Attn:
President, or at such other address as the Company shall have furnished to
the Holders. Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered
if delivered personally, or, if sent by mail or courier, at the earlier of
its receipt or 48 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed
and mailed as aforesaid.
13.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Holders,
each of which shall be enforceable against the parties actually executing
such counterparts, and all of which together shall constitute one instrument.
13.6 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect such provision in any other jurisdiction, and this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provisions had never been contained herein.
13.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
13.8 AMENDMENT. Except as expressly provided herein, this
Agreement may be amended only upon the written consent of the Company and the
Holders of at least seventy-five percent (75%) of the Registrable Securities
then subject to this Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed effective as
of the date first set forth above.
COMPANY:
ENERGY BIOSYSTEMS CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
PETRO STAR:
PETRO STAR INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-11-
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The following schedules reflect the information used in
calculating the number of shares in the computation of net loss per share for
each of the periods set forth in the Statements of Operations.
15
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED MARCH 31, 1998
WEIGHTED AVERAGE SHARES OUTSTANDING:
<TABLE>
<S> <C> <C>
TOTAL # DAYS
SHARES OUTSTANDING
----------------------------------
12,251,434 x 90 = 1,102,629,060
----- -------------
90 = 1,102,629,060
1,102,629,060 / 90 = 12,251,434
----------
----------
</TABLE>
LOSS PER SHARE:
<TABLE>
<S> <C> <C>
Net Loss plus dividend accrual
plus accretion of offering costs ($3,598,495) = ($0.29)
-------------------------------- ------------ ----------
----------
Weighted Avg. Shares 12,251,434
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED MARCH 31, 1997
WEIGHTED AVERAGE SHARES OUTSTANDING:
<TABLE>
<S> <C> <C> <C>
TOTAL # DAYS
SHARES OUTSTANDING
----------------------------------
11,497,135 x 15 = 172,457,025
11,502,135 x 1 = 11,502,135
11,502,235 x 7 = 80,515,645
11,502,395 x 18 = 207,043,110
11,505,395 x 8 = 92,043,160
11,506,053 x 13 = 149,578,689
11,507,163 x 6 = 69,042,978
11,605,377 x 22 = 255,318,294
------ -------------
90 = 1,037,501,036
1,037,501,036 = 11,527,789
----------
----------
</TABLE>
LOSS PER SHARE:
<TABLE>
<S> <C> <C>
Net Loss plus dividend accrual
plus accretion of offering costs ($2,870,560) = ($0.25)
- -------------------------------- ------------ -------
-------
Weighted Avg. Shares 11,527,789
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,493,671
<SECURITIES> 0
<RECEIVABLES> 307,374
<ALLOWANCES> 0
<INVENTORY> 6,501
<CURRENT-ASSETS> 9,015,484
<PP&E> 6,907,730
<DEPRECIATION> 4,544,191
<TOTAL-ASSETS> 12,367,216
<CURRENT-LIABILITIES> 1,073,125
<BONDS> 0
0
34,738,310
<COMMON> 122,514
<OTHER-SE> 35,236,026
<TOTAL-LIABILITY-AND-EQUITY> 12,367,216
<SALES> 0
<TOTAL-REVENUES> 262,306
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,070,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,808,632)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,808,632)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,808,632)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
