U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1998
Commission File Number 0-18275
ENVIRONMENTAL REMEDIATION HOLDING CORP.
(Name of issuer in its charter)
COLORADO 88-0218499
(State of Incorporation (IRS Employer ID Number)
420 Jericho Turnpike, Suite 321
Jericho, New York 11753
(Address of principal executive office)
Registrant's telephone number, including area code: (516) 433-4730
Indicate by check mark whether the registrant(1) has filed reports required
to be filed by Section 13 of 15 (d) of the Securities Exchange Act during the
preceeding 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 _____
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of March 31, 1998 was 24,676,289.
Documents Incorporated by Reference:
NONE
Item 1.
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets .........................................................................F-2
Consolidated Statements of Operations ................................................................F-3
Consolidated Statements of Stockholders' Equity ......................................................F-4
Consolidated Statements of Cash Flows ...............................................................F-5
Notes to Consolidated Financial Statements ...........................................................F-6
F-1
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Balance Sheets
ASSETS Sep 30, 1997 Mar 31, 1998
CURRENT ASSETS (Unaudited)
Cash $ 327,743 (34,848)
Accounts receivable and other current assets 215,708 844,386
------------------- -------------------
Total Current Assets 543,451 809,538
------------------- -------------------
PROPERTY AND EQUIPMENT
Equipment (note 1b) 2,733,274 4,811,941
------------------- -------------------
Total Property and Equipment 2,733,274 4,811,941
------------------- -------------------
OTHER ASSETS
Deposits on fixed assets and prepaid expenses 136,560 273,995
Crude oil and natural gas reserves, net (note 1f) 14,335,646 14,836,201
Chevron P&A master service agreement (note 1h) 300 300
DRSTP Concession fee 0 2,008,300
------------------- -------------------
Total Other Assets 14,472,506 17,118,796
------------------- -------------------
Total Assets $ 17,749,231 22,740,275
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses and other current payable $ 111,054 794,920
Stockholder loans (note 1c) 465,094 421,185
Accrued interest 37,228 145,624
Accrued salaries (note 4) 960,000 1,529,532
Short term bank loan (note 1c) 175,000 0
------------------- -------------------
Total Current Liabilities 1,748,376 2,891,261
------------------- -------------------
LONG-TERM LIABILITIES
Mortgage 0 38,622
Convertible debt, net, (note 1c) 0 3,838,825
------------------- -------------------
Total Long-Term Liabilities 0 3,877,447
------------------- -------------------
Total Liabilities 1,748,376 6,768,708
------------------- -------------------
Common stock issued under repurchase agreement; (1,000,000
shares at 9/30/97 and 750,000 at 3/31/98) (note 7) 2,000,000 1,500,000
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value; Authorized 950,000,000 shares:
issued and outstanding 21,989,526 at September 30, 1997 and
23,926,289 issued and outstanding at March 31, 1998 (note 3) 2,199 2,393
Preferred stock, $0.0001 par value; Authorized 10,000,000 shares;
issued and outstanding 0 at Sept 30, 1997 and March 31, 1998 0 0
Additional paid in capital in excess of par 32,658,586 35,490,638
Stock subscriptions receivable (913,300) (218,750)
Deferred compensation, net (note 1d) (250,000) (187,500)
Retained earnings (deficit) (17,496,630) (20,615,214)
------------------- -------------------
Total Stockholders' Equity 14,000,855 14,471,567
------------------- -------------------
Total Liabilities and Stockholders' Equity $ 17,749,231 22,740,275
=================== ===================
The accompanying notes are an integral part of the financial statements
F-2
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Operations
6 Months ended March 31,
(Unaudited)
1997 1998
---------------------- ---------------
REVENUE
Sales - environmental remediation services $ 36,944 226,035
Sales - crude oil 0 265,302
------------------- -------------------
Total sales 36,944 491,337
------------------- -------------------
COST OF SALES
Cost of sales - environmental remediation services 23,240 31,213
Cost of sales - crude oil 0 52,283
------------------- -------------------
Total cost of sales 23,240 83,496
------------------- -------------------
Gross profit/(loss) 13,704 407,841
OPERATING EXPENSES
Advertising 0 19,716
Automotive expenses 33,614 68,282
Bank charges 96 1,763
Compensation - officers 62,500 712,500
Consultant fees 1,656,250 387,534
Depreciation 86,856 207,066
Donations 0 6,640
Dues, fees, licenses and taxes 0 4,892
Engineering fees 0 7,589
Equipment repairs, maintenance and rental 0 18,528
Insurance 103,544 95,135
Geological data and reports 0 41,932
Oil lease transfer fees 0 0
Office expenses 19,942 38,370
Oil well rework expenses 0 184,457
Professional fees 141,017 653,051
Research and development 8,000 0
Rent 7,350 75,654
Salaries 0 207,171
Telephone 0 54,056
Travel and entertainment 95,860 335,313
Utilities 0 20,738
Miscellaneous 2,639 277,308
------------------- -------------------
Total operating expenses 2,217,668 3,417,695
------------------- -------------------
Income(loss) from operations (2,203,964) (3,009,854)
Interest expense (7,236) (120,221)
Interest income 0 11,490
------------------- -------------------
Income(loss) before tax & extraordinary item (2,211,200) (3,118,585)
Extraordinary item - forgiveness of debt 6,730 0
------------------- -------------------
Income(loss) before taxes (2,204,470) (3,118,585)
Income tax expense/(benefit) 0 0
------------------- -------------------
Net income(loss) $ (2,204,470) (3,118,585)
=================== ===================
Weighted average number of shares outstanding 3,804,209 24,255,383
=================== ===================
Net loss per share $ (0.58) (0.13)
=================== ===================
The accompanying notes are an integral part of the financial statements.
F-3
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Stockholders' Equity
Number Comm Pf'd APIC Stk Subs Def Accumulated TTL S/H
of Shares Stk Stk Receiv Comp Deficit Equity
---------- ------- -------- --------------- ------------- ----------- -------------- -------------
BEGIN BALANCE,
September 30, 1996 3,239,374 $ 324 0 3,515,298 0 (427,500) (657,865) 2,430,257
2/10 - S-8 services 1,600,000 160 0 1,099,840 0 0 0 1,100,000
3/4 - oil wells/leases 300,000 30 0 4,831,293 0 0 0 4,831,323
3/5 - oil wells/leases 200,000 20 0 9,504,303 0 0 0 9,504,323
3/13 - S-8 services 300,000 30 0 374,970 0 0 0 375,000
4/5 - Chevron contract 3,000,000 300 0 0 0 0 0 300
4/5 - services 1,342,981 134 0 1,342,847 0 0 0 1,342,981
4/5 - contributed to corp (100,000) (10) 0 (99,990) 0 0 0 (100,000)
4/9 - BAPCO acquisition 4,000,000 400 0 499,600 0 0 0 500,000
5/14 - S-8 services 1,500,000 150 0 562,350 0 0 0 562,500
6/19 - services 150,000 15 0 28,110 0 0 0 28,125
7/8 - cash 800,000 80 0 399,920 0 0 0 400,000
7/25 - S-8 services 2,335,000 233 0 6,464,798 0 0 0 6,465,031
7/30 - services 1,500,000 150 0 2,249,850 0 0 0 2,250,000
7/30 - cash 147,000 15 0 146,985 0 0 0 147,000
8/8 - cash 74,000 8 0 147,992 0 0 0 148,000
9/4 - services 400,000 40 0 307,960 0 0 0 308,000
9/10 - cash stk subs recv 727,273 73 0 799,927 (800,000) 0 0 0
9/15 - cash & stk subs recv 473,898 47 0 482,533 (113,300) 0 0 369,280
Deferred comp amort - 0 0 0 0 177,500 0 177,500
Net loss - 0 0 0 0 0 (16,838,765) (16,838,765)
---------- ------ -------- --------------- ------------- ----------- ------------ ----------------
BALANCE,
September 30, 1997 21,989,526 2,199 0 32,658,586 (913,300) (250,000) (17,496,630) 14,000,855
10/97 - Stock Subs Rec'd - 0 0 0 913,300 0 0 913,300
10/8 - Uinta Acquisition 1,000,000 100 0 1,999,900 0 0 0 2,000,000
10/97-Neuces Acquisition 50,000 5 0 148,745 0 0 0 148,750
11/97 - cash ,net 176,099 18 0 167,676 0 0 0 167,694
1/98 - equity in building 24,000 2 0 61,216 0 0 0 61,218
2/98 - services 104,664 10 0 55,648 0 0 0 55,658
2/98 - cash 282,000 28 0 180,222 0 0 0 180,250
3/98 - subscription rec'v 300,000 30 0 218,720 (218,750) 0 0 0
Deferred comp amort - 0 0 0 0 62,500 0 62,500
Net loss - 0 0 0 0 0 (3,118,585) (3,118,585)
-------------- ------ -------- --------------- ------------- ----------- ------------ ----------------
BALANCE, March
31, 1998 (Unaudited) 23,926,289 $2,393 0 35,490,638 (218,750) (187,500) (20,615,214) 14,471,567
=============== ====== ======== =============== ============= =========== ============ ================
Common Stock issued under a repurchase agreement
=============== ====== ======== ===============
BEGIN BALANCE,
September 30, 1996 0 $ 0 0 0 0 0 0 0
7/15 - DRSTP data 1,000,000 100 0 1,999,900 0 0 0 2,000,000
--------------- ------ -------- --------------- ------------- ----------- ------------ ----------------
BALANCE,
September 30, 1997 1,000,000 100 0 1,999,900 0 0 0 2,000,000
12/97 - cash repurchase (250,000) (25) 0 (499,975) 0 0 0 (500,000)
--------------- ------ -------- --------------- ------------- ----------- ------------ ----------------
BALANCE, March
31, 1998 (Unaudited) 750,000 $ 75 0 1,499,925 0 0 0 1,500,000
=============== ===== ======== =============== ============= =========== ============ ================
The accompanying notes are an integral part of the financial statements.
F-4
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Consolidated Statements of Cash Flows
6 Months ended March 31,
(Unaudited)
1997 1998
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (2,204,470) (3,118,585)
Adjustments to reconcile net loss to net cash used for operating
activities:
Amortization of deferred compensation 115,000 62,500
Non-cash gain on forgiveness of debt (6,730) 0
Stock issued in exchange for services 1,725,000 55,658
Crude oil depletion 0 28,195
Depreciation 86,856 207,066
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and other assets 0 (628,678)
Increase (decrease) in accrued interest expense 7,235 108,396
Increase (decrease) in accrued expenses 0 683,866
Increase (decrease) in accrued salaries 0 569,532
------------------ ------------------
Net cash (used) provided by operating activities (277,109) (2,032,050)
CASH FLOWS FROM INVESTING ACTIVITIES:
DRSTP Concession fee payment 0 (2,008,300)
Acquisition of fixed assets 0 (208,532)
Increase in deposits on fixed assets and prepaid expenses (70,000) (137,435)
------------------ ------------------
Net cash (used) provided by investing activities (70,000) (2,354,267)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock sold for cash 0 393,970
Convertible debt issued for cash 0 3,838,825
Payments on stockholder advances (5,000) (489,730)
Funds advanced by third parties 175,000 9,840
Payments on funds advanced by third-parties 0 (175,000)
Funds advanced by stockholders 179,672 445,821
------------------ ------------------
Net cash (used) provided by financing activities 349,672 4,023,726
Net increase (decrease) in cash 2,563 (362,591)
CASH, beginning of period 0 327,743
------------------ ------------------
CASH, end of period $ 2,563 (34,848)
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid in cash $ 0 11,825
================== ==================
Non cash financing activities:
Stock issued to acquire natural gas well $ 0 148,750
================== ==================
Stock issued to acquire crude oil reserves and equipment $ 14,335,646 2,000,000
================== ==================
Stock issued to acquire equity in building $ 0 61,218
================== ==================
Mortgage payable on building assumed $ 0 28,782
================== ==================
The accompanying notes are an integral part of the financial statements.
F-5
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
March 31, 1997 and 1998
(Unaudited)
(1) Summary of Significant Accounting Policies
The Company. Environmental Remediation Holding Corporation, (ERHC), is a
Colorado chartered corporation which operates in the environmental
remediation industry and the oil and natural gas production industry
from its corporate headquarters in Jericho, New York, its operating
offices in Lafayette, Louisiana.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the dates of the statements of financial condition and revenues
and expenses for the years then ended. Actual results could differ
significantly from those estimates. The financial statements for the
six months ended March 31, 1997 and 1998 include all adjustments which
in the opinion of management are necessary for fair presentation. The
following summarize the more significant accounting and reporting
policies and practices of the Company:
a) Basis of presentation The consolidated financial statements include the
accounts of Site Services, Inc. and Bass American Petroleum Company,
its wholly owned subsidiaries. Intercompany accounts and transactions
have been eliminated in consolidation.
b) Equipment The Company has chosen to depreciate the equipment using the
straight line method over its estimated remaining useful life of ten
years and its furniture and fixtures and vehicle over its estimated
useful life of five years. Expenditures for maintenance and repairs are
charged to operations as incurred. Depreciation expense for the six
months ended March 31, 1997 and 1998 was $86,856 and $207,066.
Accumulated depreciation at March 31, 1998 is $579,492.
c) Notes payable The Company issued two notes payable to stockholders who
are also officers and directors in exchange for cash amounting to
$1,206,102. These notes carry no stated maturity date and an 8.5% rate
of interest. The Company has repaid $784,917 on these notes, including
interest on one. The remaining note is convertible into restricted
stock at 50% of the average bid price for the month in which the loan
was made. The conversion is at the option of the noteholder.
In January 1997, the Company issued a note payable to a bank in
exchange for $175,000 in cash. This note carried a maturity date of
March 15, 1997 and a 9.6875% interest rate. The Company is in default
on this note. The default interest rate is 13.6875%. The Company and
the bank had originally expected to roll this note over into a
long-term credit facility. The Company chose not to accept the
long-term facility due to the terms offered. The Company has reached an
agreement with the bank regarding repayment terms amounting to $175,000
plus accrued interest. This note was paid in full in December 1997.
In November and December 1997, the Company issued 5.5% convertible
senior subordinated secured notes due 2002 in exchange for
approximately $4,300,000 in cash. These notes are convertible into
shares of the Company's common stock at a conversion price to be
determined by so stated formula, but at a price no less than $1.25 per
share. If all of the notes are converted at the lowest possible price,
the Company would be required to issue 3,440,000 shares of common
stock. These notes also carried warrants for an additional 258,000
shares of common stock with an exercise price of $3.17 per warrant, or
total proceeds to the Company of $817,860 in the event all of the
warrants are exercised. The notes are secured by the Company's non-MIII
oil reserves in Utah.
In January 1998, the Company assumed an existing mortgage payable with
a remaining balance of $28,782 in connection with the purchase of a
small office building in Utah. This mortgage carries an interest rate
of 8% and has a remaining life of 136 months. In February 1998, the
Company purchased computer equipment and issued a five year note
payable in the amount of $9,840 carring an interest rate of 22% and
monthly payments of $212. The Company is obligated to payments of
$6,408 each year for the next five years.
d) Deferred compensation ERFC issued 755,043 shares of its common stock
into escrow in exchange for services to be rendered by a consultant
under a four year contract. These services were valued at $125,000 per
year, therefore the Company is amortizing this deferred compensation
expense at a rate of $31,250 per quarter. This consultant later became
ERFC's Chairman, President and CEO. Amortization of this deferred
compensation in the six months ended March 31, 1997 and 1998 was
$62,500 and $62,500.
e)Net loss per share Net loss per share is computed by dividing the net
loss by the number of shares outstanding during the period.
f) Crude oil and natural gas reserves In March 1997, the Company acquired
an undivided 7/8 interest in a 100 well lease located in the Gunsite
Sand Lease in Ector, Texas, in exchange for 300,000 shares of the
Company's common stock. The Company received an independent evaluation
of this field which reflected 1,000,000 barrels of proven oil reserves.
In March 1997, the Company acquired an undivided 7/8 interest in a 100
well lease located in the Woodbine Sand Lease Block in Henderson
County, Texas, in exchange for 200,000 shares of the Company's common
stock. The Company received an independent evaluation of this field
which reflected 1,500,000 barrels of proven oil reserves. These reserve
reports, as amended in March 1998, reflect values of $4,831,323 for
Gunsite and $9,504,323 for Woodbine. A separate reserve report is in
process of being prepared, which the Company will use to adjust the
valuation if the subsequent report is materially different. The Company
chose to value these acquisitions on the basis of the asset value
received rather than the value of the common stock given up as at the
time of the acquisition the stock price was highly volatile and thinly
traded.
Both acquisitions also included all existing equipment on site. The
Company has not recorded the fair market value of the equipment in
place, as all of such equipment has minimal scrap value, which is the
only valuation method available due to the non-operational status of
the wells at acquisition and for several years prior to acquisition.
The Company spent $53,000 for the year ended September 30, 1997 on well
equipment repairs and well rework, all on
F-6
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
f) Crude oil and natural gas reserves, continued the Gunsite lease. The
Company expects to capitalize and depreciate repairs which are believed
to extend the useful life of such existing equipment beyond one year,
as well as the cost of replacement equipment.
On September 29, 1997, the Company entered into an agreement to acquire
22 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah from three joint owners. The purchase agreement was closed on
October 8, 1997, at which time the the Company received the lease
assignment. The terms of the acquisition are for the Company pay
$250,000 in cash, issue 250,000 shares of the Company's common stock at
each of the following four dates: closing; December 30, 1997; March 30,
1998 and June 30, 1998. The Company also was required to guarantee that
the bid price on the date the Rule 144 restrictions lapse will be no
less than $2.00 per share or the Company is required to either issue
additional shares or to pay the difference in cash, at the Company's
option. The Company also granted the sellers a 4% gross production
receipts royalty to a maximum of $677,000. The Company is currently
evaluating the existing reserve reports and underlying data on these
leases as well as has contracted another independent appraiser to
complete new reserve reports for its use.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and
abandoned approximately 10 years ago. This agreement requires the
Company to pay the seller $150,000 and 50,000 shares of the Company's
common stock, as well as to pay the Company's proportinate share of the
costs to reenter this well. The Company is also required to carry the
seller's 1/8 proportionate share of the reentry costs until the well is
producing. The seller also owns an undivided 50% interest in the oil
and gas lease on the 49,019 acres of land contiguous to the initial
well. The agreement allows the Company to acquire a 3/8 undivided
interest in this lease by paying to the seller approximately $343,000
each April for four years. The Company received the initial lease
assignment on December 1, 1997. The Company is currently evaluating the
existing reserve reports and underlying data on these leases as well as
has contracted another independent appraiser to complete new reserve
reports for its use. The total valuation of this transaction is
$2,250,000 and is applied as $375,800 of oil and gas reserves and
$1,874,200 of equipment.
The Company expects to utilize the sucessful efforts method of
accounting for its oil and gas producing activities once it has reached
the producing stage. The Company expects to regularly assess proved oil
and gas reserves for possible impairment on an aggregate basis in
accordance with SFAS 121.
g) Depletion Depletion (including provisions for future abandonment and
restoration costs) of all capitalized costs of proved oil and gas
producing properties are expensed using the unit-of-production method
by individual fields as the proven developed reserves are produced.
Accumulated depletion and depletion expense was $28,195 for the six
months ended March 31, 1998.
h) Chevron master P&A service agreement In September 1996 Bass
Environmental Services Worldwide, Inc., (BESW), entered into a Master
Service Agreement with Chevron to plug and abandon oil wells located in
the Gulf of Mexico off the coast of Louisiana. In April 1997, BESW
assigned this contract to the Company in exchange for 3,000,000 shares
of the Company's common stock. Chevron has reissued the contract in the
Company's name. The Company valued this acquisition on the basis of the
par value of the stock issued. The Company expects to begin
commercializing the agreement in fiscal 1998.
i) Sao Tome concession payment When the Company entered into the joint
venture agreement in May 1997 with the Democratic Republic of Sao Tome
and Principe, (DRSTP), the Company was required to pay a $5,000,000
concession fee to the DRSTP goverment. In September 1997, the Company
received a Memorandum of Understanding from the DRSTP government which
allows the Company to pay this concession fee within five days after
the DRSTP files the relevant official maritime claims maps with the
United Nations and the Gulf of Guinea Commission. In December 1997, the
Company paid $2,000,000 of this concession fee to the DRSTP form the
proceeds of the convertible note offering.
(2) Income taxes The Company has a consolidated net operating loss
carry-forward amounting to $20,615,214, expiring as follows: $3,404 in
2010, $654,461 in 2011; $16,838,765 in 2012 and $3,118,585 in 2013. The
Company has a $8,246,100 deferred tax asset resulting from the loss
carry-forward, for which it has established a 100% valuation allowance.
Until the Company's current plans begin to produce earnings it is
unclear as to the ability of the Company to utilize these
carry-forwards.
(3) Stockholders' equity The Company has authorized 950,000,000 shares of
$0.0001 par value common stock and 10,000,000 shares of $0.0001 par
value preferred stock. In November 1997, the Company issued 176,099
shares of common stock under a Regulation D Rule 506 private placement
in exchange for $167,694, net, in cash.
On September 29, 1997, the Company entered into an agreement to acquire
22 oil, gas and mineral leases located in Uintah and Duchesne Counties,
Utah from three joint owners. The purchase agreement was closed on
October 8, 1997, at which time the the Company received the lease
assignment. The terms of the acquisition are for the Company pay
$250,000 in cash, issue 250,000 shares of the Company's common stock at
each of the following four dates: closing; December 30, 1997; March 30,
1998 and June 30, 1998. The Company also was required to guarantee that
the bid price on the date the Rule 144 restrictions lapse will be no
less than $2.00 per share or the Company is
F-7
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
Notes to Consolidated Financial Statements
(3) Stockholders' equity, continued required to either issue additional
shares or to pay the difference in cash, at the Company's option.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and
abandoned approximately 10 years ago. This agreement requires the
Company to pay the seller $150,000 and 50,000 shares of the Company's
common stock, as well as to pay the Company's proportinate share of the
costs to reenter this well.
In November 1997, the Company sold 176,099 shares for $167,694 in cash.
In January 1998, the Company issued 24,000 shares in exchange for the
equity in the Utah building valued at $61,218. In February 1998, the
Company issued 104,664 shares in exchange for services valued at
$55,658 which had been performed over a year earlier and the Company
has not previously issued. In February 1998, the Company issued 282,000
shares in exchange for $180,250 in cash. In March 1998, the Company
issued 300,000 shares in exchange for a stock subscription receivable
of $218,750 in cash.
The Company is contingently liable to issue up to three million shares
of restricted stock in total to three officers and directors of the
Company for their efforts in closing the Sao Tome & Principe contract.
These shares will be issued upon the joint venture oil production level
of 20,000 barrels a day being attained. The Company is contingently
liable to issue up to two million shares of restricted stock to two
officers and directors of the Company for their efforts in closing the
M III contract in Utah upon the joint venture oil production level of
4,000 barrels a day being attained. This two million shares includes
the 500,000 shares the Company is to issue to MIII. The Company is also
contingently liable to issue an additional two million shares upon the
joint venture attaining production of a total of 6,000 barrels a day.
(4) Accrued salaries At December 31, 1996 and 1997 the Company has accrued
salaries of $0 and $1,230,000, respectively, for three officers. These
officers can, at their option, convert these salaries into common stock
of the Company at the rate of one-half of the average bid price of the
Company's common stock for the months in which the salary was earned.
(5) Commitments and contingencies The Company is committed to lease
payments for 9 vehicles under operating leases totalling $52,292 and
$20,043 for the years ended September 30, 1998 and 1999, respectively.
The Company currently leases its office space and operating facilities
on a month to month basis.
(6) Segment information The Company has three distinct lines of business
through its two wholly owned subsidiaries, Site Services, Inc., (SSI),
and Bass American Petroleum Company, (BAPCO), and a joint venture
agreement. SSI operates in the environmental remediation industry and
BAPCO operates in the oil and gas production industry. SSI's principal
identifiable assets consist of $2,171,334, (net), of environmental
equipment, a barge deposit of $131,000 and the Chevron P&A master
service agreement valued at $300, (net). Revenues of $226,035 and cost
of sales of $31,213 relate to SSI. BAPCO's principal identifiable
assets consist of crude oil and natural gas reserves valued at
$15,032,000, net, and equipment valued at $2,230,490 (net). Revenues of
$265,300 and cost of sales of $52,283 relate to BAPCO. The Company also
expects to operate in the supply industry through a joint venture
agreement to supply fuel and other goods to ships transiting the Panama
Canal. No principal identifiable assets yet exist for this line of
business.
(7) Common stock repurchase In December 1997, the Company repurchased
250,000 shares of its common stock for $500,000 in cash. This was the
first 25% quarterly repurchase agreed to by the Company relating to the
1,000,000 shares issued to acquire the DRSTP geologic data.
F-8
Item 2. Management's Discussion and Analysis and Plan of Operation.
Environmental Remediation Holding Corporation is an independent oil and gas
company engaged in the exploration, development, production and sales of crude
oil and natural gas properties with current operations focused in Texas, Utah,
and the Democratic Republic of Sao Tome and Principe in West Africa.
The Company's strategy in the United States is to increase oil and natural gas
reserves, production, and cash flow through (1) the exploration of its existing
acreage position in Texas, Utah, and the Democratic Republic of Sao Tome and
Principe; (2) the acquisition of additional properties in known producing areas
that provide significant development and exploratory drilling potential; (3) the
exploration for oil and natural gas reserves; (4) the maintenance of a low
operating and cost structure; and, (5) environmental remediation as it relates
to the oil and gas industry.
The Company has acquired all of its oil and gas properties within the past year.
The Company's current development plans require substantial capital expenditures
in connection with the exploration, development and exploitation of oil and
natural gas properties. Although the Company has historically funded capital
expenditures through a combination of equity contribution and short-term
financing arrangements, the Company's ability to meet its estimated capital
expenditure in Fiscal year 1998 are dependent on the Company's ability to
realize the proceeds of the Company's contemplated public debt offering of $50
million.
Should the Company's contemplated debt offering not proceed as planned, the
Company will continue to seek alternative sources of funding to enable the
Company to meet its demands for cash to commercialize the various agreements it
has entered into. The Company has sought alternative sources of funding to
provide interim financing until such time as the anticipated debt offering can
be completed.
The Kingsbridge Equity Line of Credit Agreement:
In March 1998, the Company entered into a Private Equity Line of Credit
Agreement (the "Investment Agreement") with Kingsbridge Capital Limited, a
British Virgin Islands company ("Kingsbridge"), pursuant to which the Company
has the right to receive up to $10,000,000 in equity financing from the sale of
its Common Stock in tranches to Kingsbridge. Through the Company's exercise of
put options, Kingsbridge is required to purchase, and the Company is required to
sell, subject to certain closing conditions and limitations on the timing of
purchases and amount of Common Stock to be sold with respect to exercises of
individual put options, at least $3,000,000 in shares of Common Stock at a
purchase price equal to 79% of the average of the lowest prices of the Common
Stock on the trading day on which notice of exercise of the put option is given
and on the one trading day prior, and the two trading days following, such put
option exercise notice. The minimum market price for sales of shares is $1.00
per share. At a market price of $1.00, the maximum number of shares of Common
Stock which may be issued by the Company upon the exercise of the put options is
12,658,228 shares. Notwithstanding the foregoing, the maximum number of shares
issuable to Kingsbridge shall not exceed 19.9% of the outstanding shares of
Common Stock at the time of such exercise(s). In connection with entering into
the Investment Agreement, the Company issued to Kingsbridge a three-year warrant
to purchase 100,000 shares of Common Stock at an exercise price of $1.20 per
share (94% of the market price calculated as of March 23, 1998), exercisable
beginning on September 21, 1998 (the "Kingsbridge Warrant"). As a condition
precedent to the purchase and sale of shares pursuant to the Investment
Agreement, among others, the Company is required to register with the Commission
all of the shares of Common Stock subject to the put option, as well as those
into which the Kingsbridge Warrant is exercisable, for resale by Kingsbridge.
Although the Company filed a Form S-1/A on April 15, 1998, such filing is not
yet effective. Until such time as such filing is effective, the Company cannot
draw down on the Kingsbridge line of credit.
Bridge Loan:
In order to meet the funding need of the Company until such time as it can draw
down on the Kingsbridge line of credit, on April 9, 1998, the Company raised
proceeds of $300,000 as a bridge loan in a private placement of the Company's
(1) 12.0% convertible notes due on the earlier of January 8, 1998 or at such
time as the Company receives the first draw under the Kingsbridge line of credit
(the "Notes"), and (2) warrants to purchase shares
of Common Stock (the "Warrants") to nine (9)investors.
The shares to be issued upon conversion of the Notes and exercise of
the Warrants shall be Rule 144 restricted shares. The maximum number of shares
of Common Stock which may be issued by the Company upon the conversion of the
Notes (at a base conversion rate of $1.50 per share, (subject to certain
limitations) and the exercise of the Warrants (at an exercise price of $1.25) is
up to 200,000 shares and 210,000 respectively. The shares covered by the
conversion of the Notes and exercise of the Warrants are entitled to piggyback
registration rights which specifically exclude the Form S-1/A currently filed,
but requires inclusion, subject to a one (1) time option by the Company to
withhold registration of such shares, in any subsequent Form S-1 registration
which may be filed by the Company. The Notes are convertible at any time after
issuance, and the Warrants are exercisable at any time prior to April 8, 2001.
The Company had intended to commence work on the oil tank batteries at the
Nueces River Project in Texas in early 1998. Due to extremely wet weather in
north east Texas during January and February 1998, the Company was unable to
move designated backhoe equipment on site since the roads leading to the oil
tank batteries are dirt and were impassable until March. This equipment was
moved in late March 1998. The Company intended to commence work on this project
with a portion of the funding available under the Kingsbridge line of credit.
Until such time as the Form S-1/A is effective, the Kingsbridge funds will not
be available for this project.
The Company also intended to commence construction on two (2) additional
backhoes for the Company's projects in Utah. It intended to utilize some of the
proceeds from the Kingsbridge line of credit for this construction. At such time
as the Form S-1/A is effective, such work will
commence.
During the second quarter 1998, the Company spent its principal time in securing
performance bonds for its MIII project at the Uintah and Ouray Reservation,
Utah, general organizational matters and preparing its Form S-1/A filing so that
the Kingsbridge line of credit could be utilized.
In October 1997, the Company received a letter of intent to secure $50 million
in debt financing from Dirks & Company of New York. This transaction was not
brought to fruition for a number of reasons, but principally because certain
parties employed by such firm who would have been primarily involved with the
placement of this offering, left the firm. After several months, such parties
became employed by Security Capital Trading, Inc. During the second quarter
1998, the Company renegotiated this transaction and on May 7, 1998, Security
Capital Trading Inc. issued a letter of intent in connection with the proposed
offering of $50 million of public debt. This offering is conditioned upon filing
of a Registration Statement on Form S-1 covering the proposed debt offering. The
Company believes that until such time as its current Form S-1/A becomes
effective, that it is not in a position to file another Form S-1. Accordingly
the Company intends to proceed with the Security Capital Trading Inc. debt
offering immediately upon the effectiveness of its current Form S-1/A.
On May 7, 1998, Security Capital Trading Inc. also issued a letter of intent to
act as the placement agent for the private placement of convertible preferred
stock of the Company(the "Preferred Stock"). The offer is for the placement of a
minimum of $2,000,000 and a maximum of $5,000,000 at an anticipated offering
price per share of Preferred Stock of $10.00. This Preferred Stock shall be
offered to accredited investors pursuant to Regulation D under the Securities
Act of 1933 in units of $50,000. Each share of Preferred Stock shall have a
liquidation value of $10.00 and shall be convertible into shares of Common Stock
at a rate which is mutually acceptable to Security Capital Trading Inc. and the
Company. The Company intends to proceed with this offering.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto referred to in "Item 1. Financial
Statements.
RESULTS OF OPERATIONS
During the second quarter of fiscal 1998 the Company incurred a net loss of
$1,352,311, compared to a net loss of $334,250 in the second quarter
of fiscal 1997. In the second quarter of fiscal 1998 a total of $270,000
was accrued, but not paid in cash, as compensation to three officers of the
Company. Depreciation and amortization totaled $103,533 in the second
quarter of fiscal 1998 compared to $43,428 in the second quarter of fiscal
1997. Depletion expense was $10,977 in the second quarter of fiscal 1998
compared to $ -0- the prior year. The net cash operating loss of the Company
for the first 2 quarters of fiscal 1998 was $2,032,050 compared to $277,109 for
the first 2 quarters of fiscal 1997.
Officers compensation, professional fees, travel, consultant fees and
miscellaneous expense for the three months ended March 31, 1998 compared to the
three months ended March 31, 1997 increased dramatically because the Company had
not been funded at that time and only began its operations by December 31, 1996.
Professional fees included legal, audit and petroleum engineering and other
engineering costs.
The Company had revenues of $248,340 in second quarter of fiscal 1998 compared
to $242,997 in the first quarter of fiscal 1997. Cost of sales were $39,134
in second quarter of fiscal 1998 compared to $44,362 in second quarter of
fiscal 1997.
CAPITAL EXPENDITURES
When the Company entered into the joint venture agreement in May 1997 with the
Democratic Republic of Sao Tome and Principe, (DRSTP), the Company was required
to pay a $5,000,000 concession fee to the DRSTP government. In September 1997,
the Company received a Memorandum of Understanding from the DRSTP government
which allows the Company to pay this concession fee within five days after the
DRSTP files the relevant official maritime claims maps with the United Nations
and the Gulf of Guinea Commission. In December 1997 the Company paid $2,000,000
of this concession fee to the DRSTP from the proceeds of a convertible note
offering.
On April 15, 1998, the Company agreed to enter into a joint venture with a
privately held Delaware corporation, AMCO Montenegro, Inc. and its related ABC
Group of companies ("AMCO") to construct and operate an "Off-Shore Logistics
Center" for the oil industry in the Gulf of Guinea, on the Island of Sao Tome.
The Company is in the process of finalizing the contracts with AMCO.
This Off-Shore Logistics Center will include a dry dock facility. Currently the
oil industry in the area utilizes a dry dock in Cape Town, South Africa. The
location of a dry dock facility on San Tome its expected to be a great benefit
to the industry, including the Company's activities, as it is expected to reduce
the down time by a minimum of four (4) days due to Sao Tome's strategic
location.
AMCO and its related ABC Group of companies, including A.B.C. AeroEngineering
Ltd. have designed, developed and constructed civilian and military airports,
airport refueling and refueling stations, road construction, military
facilities, hospitals, healthcare facilities, business and warehouse facilities
and various other industrial support structures. The Company has entered into
preliminary discussions with marine transport and air support companies for the
use of this logistics center. AMCO is responsible for funding this project.
The Off-Shore Logistics Center will be an on-shore based operation on Sao Tome
which can service off-shore drilling rigs and act as the central depository,
storage and service area for the
drilling and oil production in the area. The facility will be designed to
provide services and supplies to support drilling off-shore wells, including,
pipe, casing and other tubular goods, fuel, water, drilling mud facilities and
supplies, rental tools and a dry dock facility. In addition, it is intended to
provide helicopter, fixed wing and marine facilities, such as crew and transport
boats and will encompass housing and business facilities for oil company
personnel.
In April, 1998, Jugobanks AD Podgorica of Montenegro agreed to finance
$50,000,000 for the construction the Off-Shore Logistics Center in Sao Tome. The
Company and AMCO are working with the bank on the final loan documentation.
On September 29, 1997, the Company entered into an agreement to acquire 22 oil,
gas and mineral leases located in Uintah and Duchesne Counties, Utah from three
joint owners. The purchase agreement was closed on October 8, 1997, at which
time the Company received the lease assignment. The terms of the acquisition are
for the Company to pay $250,000 in cash, issue 250,000 shares of the Company's
common stock, valued at $2,000,000, at each of the following four dates:
closing; December 30, 1997; March 30, 1998 and June 30, 1998. The Company also
was required to guarantee that the bid price on the date the Rule 144
restrictions lapse will be no less than $2.00 per share or the Company is
required to either issue additional shares or to pay the difference in cash, at
the Company's option. The Company also granted the sellers a 4% gross production
receipts royalty to a maximum of $677,000. The Company is currently evaluating
the existing reserve reports and underlying data on these leases and has
contracted another independent appraiser to complete new reserve reports for its
use.
In October 1997, the Company entered into an agreement to acquire a 3/8
undivided interest in a natural gas well that had been plugged and abandoned
approximately 10 years ago. This agreement requires the Company to pay the
seller $150,000 and 50,000 shares of the Company's common stock valued at
$148,750, as well as to pay the Company's proportionate share of the costs to
reenter this well. The Company is also required to carry the seller's 1/8
proportionate share of the reentry costs until the well is producing. The seller
also owns an undivided 50% interest in the oil and gas lease on the 49,019 acres
of land contiguous to the initial well. The agreement allows the Company to
acquire a 3/8 undivided interest in this lease by paying to the seller
approximately $343,000 each April for four years. The Company received the
initial lease assignment on December 1, 1997. The Company continues to evaluate
the existing reserve reports and underlying data on these leases and awaits
another independent appraiser to complete new reserve reports for its use.
To further penetrate the environmental remediation services market in Louisiana,
in February 1998, the Company acquired a 70% equity interest in Ven Virotek,
Inc., a Louisiana corporation ("Virotek"), from its sole shareholder, Recycling
Remedies, Inc. Virotek owns and operates a NORM solid waste disposal site in
Houma, Louisiana and holds permits from Louisiana environmental authorities to
dispose of salt water
brine and naturally occurring waste products. For the year ended December 31,
1997, Virotek had revenues, net income and total assets of approximately
$658,000, $332,000, and $1,035,000, respectively. The Company acquired its
interest in Virotek in consideration for $15,000 in cash and the assumption of a
$300,000 bank note.
In March 1998, Virotek obtained two contracts from the U.S. Department of Energy
to dispose of salt water brine from the strategic petroleum reserve located in
Houma, Louisiana. Under the contracts, it is contemplated initially that a total
of 475,000 barrels of brine will be shipped to Virotek for disposal, and Virotek
will receive $1.00 per barrel for its services.
RESERVES AND PRICING
Oil and natural gas prices fluctuate throughout the year. Generally higher
natural gas prices prevail during the winter months of September through
February. A significant decline in prices would have a material effect on the
measure of future net cash flows which, in turn, could impact the value of the
Company's oil and gas properties.
The Company's drilling and acquisition activities have increased its reserve
base and its productive capacity and, therefore, its potential cash flow. Lower
gas prices may adversely affect cash flow. The Company intends to continue to
acquire and develop oil and gas properties in its areas of activity as dictated
by market conditions and financial ability. The Company retains flexibility to
participate in oil and gas activities at a level that is supported by its cash
flow and financial ability. Management believes that the Company's borrowing
capacities and cash flow are sufficient to fund its currently anticipated
activities. The Company intends to continue to use financial leverage to fund
its operations as investment opportunities become available on terms that
management believes warrant investment of the Company's capital resources.
The Company is currently evaluating the existing reserve reports and underlying
data on all leases and has contracted with another independent appraiser to
complete new reserve reports.
The Company's non-producing proved reserves are largely "behind-pipe" in fields
which it operates. Undeveloped proved reserves are predominantly infill drilling
locations and secondary recovery projects.
The reserve data set forth in this Form 10-Q represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers often vary. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revision of such
estimate. Accordingly, reserve estimates often differ from the quantities of oil
and natural gas that are ultimately recovered. the meaningfulness of such
estimates is highly dependent upon the accuracy of the assumptions upon which
they were based.
Forward-Looking Statements
This 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. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-Q which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), wells to
be drilled or reworked, oil and gas prices and demand, exploitation and
exploration prospects, development and infill potential, drilling prospects,
expansion and other development trends of the oil and gas industry, business
strategy, production of oil and gas reserves, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general economic,
market or business conditions; the business opportunities (or lack thereof) that
may be presented to and pursued by the Company; changes in laws or regulation;
and other factors, most of which are beyond the control of the Company.
Consequently all of the forward-looking statements made in this Form 10-Q are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on the Company or its business or operations.
PART II - Other Information
Item 1. Legal Proceedings.
Other than any items previously reported, the Company is not a party to any
material pending or threatened legal proceeding or claim.
Item 2. Changes in Securities
There have been no changes with respect to defining the rights of the holders of
any class of registered securities or otherwise.
The Kingsbridge Line of Credit Agreement:
In March 1998, the Company entered into a Private Equity Line of Credit
Agreement with Kingsbridge, pursuant to which the Company has the right to
receive up to $10,000,000 in equity financing from the sale of its Common Stock
in tranches to Kingsbridge. Through the Company's exercise of put options,
Kingsbridge is required to purchase, and the Company is required to sell,
subject to certain closing conditions and limitations on the timing of purchases
and amount of Common Stock to be sold with respect to exercises of individual
put options, at least $3,000,000 in shares of Common Stock at a purchase price
equal to 79% of the average of the lowest prices of the Common Stock on the
trading day on which notice of exercise of the put option is given and on the
one trading day prior, and the two trading days following, such put option
exercise notice. The minimum market price for sales of shares is $1.00 per
share. For purposes of registering the maximum number of shares of Common Stock
under this Prospectus, the market price is assumed to be $1.00. At a market
price of $1.00, the maximum number of shares of Common Stock which may be issued
by the Company upon the exercise of the put options is 12,658,228 shares.
Because the purchase price of the Common Stock is based in part on future
average trading prices of the Common Stock, the number of shares which may
actually be sold pursuant to this Prospectus could differ significantly. For
example, in the event a notice of election to exercise individual put options
were to have been received on March 26, 1998, the lowest applicable purchase
price would have been $0.98 per share, resulting in a total of 10,204,082 shares
of Common Stock offered hereby. Notwithstanding the foregoing, the maximum
number of shares issuable to Kingsbridge shall not exceed 19.9% of the
outstanding shares of Common Stock at the time of such exercise(s). In
connection with entering into the Investment Agreement, the Company issued to
Kingsbridge a three-year warrant to purchase 100,000 shares of Common Stock at
an exercise price of $1.20 per share (94% of the market price calculated as of
March 23, 1998), exercisable beginning on September 24, 1998. As a condition
precedent to the purchase and sale of shares pursuant to the Investment
Agreement, among others, the Company is required to register with the Commission
under the terms of a Registration Rights Agreement all of the shares of Common
Stock subject to the put option, as well as those into which the Kingsbridge
Warrant is exercisable, for resale by Kingsbridge. The Investment Agreement has
a term of two years, but may be terminated by Kingsbridge earlier in the event
the Common Stock subject to the put options is not, or fails to be, registered
for resale after specified time periods lapse.
Bridge Loan:
In order to meet the funding need of the Company until such time as it can draw
down on the Kingsbridge line of credit, on April 9, 1998, the Company raised
proceeds of $300,000 as a bridge loan in a private placement of the Company's
(1) 12.0% convertible notes due on the earlier of January 8, 1998 or at such
time as the Company receives the first draw under the
Kingsbridge line of credit (the "Notes"), and (2) warrants to
purchase shares of Common Stock (the "Warrants")
to nine (9) investors. The shares to be issued upon
conversation of the Notes and exercise of the Warrants shall be Rule 144
restricted shares. The maximum number of shares of Common Stock which may be
issued by the Company upon the conversion of the Notes (at a base conversion
rate of $1.50 per share, (subject to certain limitations) and the exercise of
the Warrants (at an exercise price of $1.25) is up to 200,000 shares and 210,000
respectively. The shares covered by the conversion of the Notes and exercise of
the Warrants are entitled to piggyback registration rights which specifically
exclude the Form S-1/A currently filed, but requires inclusion, subject to a one
(1) time option by the Company to withhold registration of such shares, in any
subsequent Form S-1 registration which may be filed by the Company. The Notes
are convertible at any time after issuance, and the Warrants are exercisable at
any time prior to April 8, 2001.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
* 4.1 Bridge Loan Convertible Note
* 4.2 Bridge Loan Warrant
* 4.3 Security Capital Trading Inc. Letter of Intent -
$50 Mio. Debt Offering
* 4.4 Security Capital Trading Inc. Letter of Intent -
$2 to $5 Mio. Preferred
(b) Reports on Form 8-K - One (1) report on Form 8-K has been
filed during the second quarter 1998.
Item 2 Form 8-K including financial statements of Coconimo S.M.A., Inc.
filed on April 13, 1998.
* (filed herewith)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunder duly authorized, this 19 day of May,
1998.
Environmental Remediation Holding Corporation
By: /s/ Sam L. Bass, Jr., CEO
Sam L. Bass, Jr., CEO
By: /s/ Noreen Wilson, Vice President
Noreen Wilson, Vice President
EXHIBIT INDEX
EXHIBIT DESCRIPTION
4.1 Bridge Loan Convertible Note
4.2 Bridge Loan Warrant
4.3 Security Capital Trading Inc. Letter of Intent - $50 Mio. Debt Offering
4.4 Security Capital Trading Inc. Letter of Intent - $2 to $5 Preferred
EXHIBIT 4.1
This Note has not been registered under the Securities Act of 1933, as amended.
No transfer of this Note shall be valid or effective except in accordance with
the applicable requirements of the Securities Act of 1933, as amended.
CONVERTIBLE NOTE
As of April 9, 1998
$____________ Palm Beach, Florida
FOR VALUE RECEIVED, ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION, a Colorado corporation (the "Company"), hereby promises to pay to
the order of _______________________________________________________, or any
subsequent holder of this Note (the "Payee"), at ___________________, or at such
other place as may be designated by the Payee from time to time by notice to the
Company, the principal sum of
_____________________ ($_________) Dollars, together with simple interest from
the date hereof on the unpaid principal amount hereof at an annual rate equal to
twelve percent (12.0%) per annum. Such principal and interest shall be paid in
accordance with the terms of Section I below, in cash, or by wire transfer to
such account as the Payee shall direct, in immediately available funds and in
lawful currency of the United States of America.
1. PAYMENTS.
(a) Unless previously fully converted into Common Stock of the Company as herein
provided, the unpaid principal amount of this Note shall be payable to the Payee
in cash on the earlier of (i) January 8, 1999 or (ii) at such time as the
Company receives the first draw down on an equity line of credit established by
the Company with Kingsbridge Capital Ltd. on March 23, 1998 (the "Equity Line of
Credit"), which Equity Line of Credit provides for a minimum available for draw
down equal to $3,000,000 subject to the terms and conditions of the agreement
and which agreement is incorporated herein by reference (the "Maturity Date").
(b) Interest on the unpaid principal balance of this Note at the rate of twelve
percent (12.0%) per annum shall accrue from the date hereof and shall be payable
to the Payee in cash on the Maturity Date, or until the entire unpaid principal
amount hereof shall have been paid.
(c) In the event that any payment of principal and/or interest hereunder becomes
due and payable on a Saturday, Sunday or other day on which commercial banks in
the State of New York are authorized or required by law to close, then the
maturity thereof shall be extended to the next succeeding business day; and
during any such extension, interest on principal amounts payable shall accrue
and be payable at the applicable rate.
2. RANKING OF NOTE.
Subject at all time to the subordination provisions set forth in Section 9
hereof, this Note shall constitute senior securities of the Company and, except
as provided below, shall rank pari passu with all other indebtedness for money
borrowed of the Company and senior to any other indebtedness for money borrowed
by the Company which, by its terms shall be made expressly subject and
subordinated to this Note.
3. PREPAYMENT OF NOTE.
(a) Subject at all times to the holder's right to convert all or any portion of
this Note into Common Stock pursuant to Section 4 hereof at any time on or
before the 'Prepayment Date' (as herein defined), the principal amount of this
Note may be prepaid, at the option of the Company, upon not less than thirty
(30) days' prior written notice to the holder of this Note (the "Prepayment
Notice'), in whole or in part, without premium or penalty, at any time or from
time to time from and after that date (the "Initial Prepayment Date") which
shall be the earlier to occur of (i) nine (9) months following the date of the
initial issuance of the Note (the "Issuance Date"), or (ii) the date on which
the Company shall register for resale pursuant to the Securities Act of 1933, as
amended (the "Act") all "Conversion Shares" (as herein defined) issuable upon
conversion of the entire principal amount of this Note, pursuant to a
Registration Statement
on Form S-1 declared effective by the Securities and Exchange Commission (the
"SEC").
(b) Each Prepayment Notice shall specify the principal amount of this Note to be
redeemed and the applicable Prepayment Date. Each prepayment of principal of
this Note shall be accompanied by the payment of all interest accrued and unpaid
to the prepayment date on the amount so prepaid. Each such prepayment shall be
made by wire transfer of immediately available funds or by bank cashier's check
payable to the Payee and shall be on a date (the "Prepayment Date") which shall
be not earlier than thirty (30) days following delivery of the Prepayment Notice
and not later than sixty (60) days following delivery of the Prepayment Notice.
Any partial prepayment of this Note, whether optional or mandatory, shall be
applied first to accrued and unpaid interest hereon, and then to the outstanding
principal amount of this Note in the inverse order of maturity.
(c) Notwithstanding anything to the contrary set forth in this Section 3, in the
event and to the extent that the Company shall provide the holder of this Note
with a Prepayment Notice, it shall simultaneously provide to the holder of this
Note evidence of the availability of funds to effect such prepayment; which
evidence of availability of funds shall include, without limitation, (i)
confirmation of cash or cash equivalent bank balances, (ii) an irrevocable bank
letter of credit, or (iii) a written commitment from a recognized lending
institution to effect the financing of such prepayment.
4. CONVERSION.
Subject at all times to the Company's right to prepay the Notes as provided in
Section 3 hereof, the holders of the Notes shall have the following conversion
rights (the "Conversion Rights"):
(a) Voluntary Conversion. At any time or from time to time following the
Issuance Date, the holder of this Note may elect to convert up to one hundred
(100%) percent of the original principal amount of this Note, into shares of
Common Stock of the Company, by written notice given to the Company in
accordance with the provisions of Section 4(h) hereof (the "Conversion Notice").
In no event may the holder of this Note effect a conversion of less than $10,000
principal amount of this Note. Such right of Voluntary Conversion shall be
effected by the surrender of certificates evidencing the shares of Note to be
converted to the Company at any time during normal business hours at the office
of the Company, accompanied (i) by the Conversion Notice, (ii) if so required by
the Company, by instruments of transfer, in form satisfactory to the Company,
duly executed by the registered holder or by his duly authorized attorney and
(iii) transfer tax stamps or funds therefore, if required pursuant to Section
4(g) herein.
(b) Conversion Price. Subject to adjustment from time to time as
provided in Section 4(d)below, the term "Conversion Price" shall mean$1.50 per
share of Common Stock.
(c) Adjustments of Conversion Price. The Conversion Price in effect from
time to time shall be, subject to adjustment in accordance with the provisions
of this Section 4(c).
(i) Adjustments for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Issuance Date, effect a stock split
of the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately
decreased. If the Company shall at any time or from time to time after the
Issuance Date, combine the outstanding shares of Common Stock, the applicable
Conversion Price in effect immediately prior to the combination shall be
proportionately increased. Any adjustments under this Section 4(c)(i) shall be
effective at the close of business on the date the stock split or combination
occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying, as applicable, the applicable Conversion
Price then in effect by a fraction;
(A) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(B) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the Conversion Price
shall be made and provision shall be made (by adjustments of the Conversion
Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 4(c)(iii) with
respect to the rights of the holders of the Note.
(iv) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of this Note at any time or from time to
time after the Issuance Date shall be changed into the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 4(c)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 4(c)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the holder of this
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which such Note might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all subject to
further adjustment
as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions provided for in
Section 4(c)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 4(c)(iv)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Conversion Price shall be made and provision shall be made (by adjustments
of the Conversion Price or otherwise) so that the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale, to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4(c)(v) with respect to the rights
of the holders of this Note after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 4(c)(v) (including any
adjustment in the applicable Conversion Ratio then in effect and the number of
shares of stock or other securities deliverable upon conversion of this Note)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
(d) No Impediment. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or Appropriate in order to
protect the Conversion Rights of the holders of the Note against impairment.
(e) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Note pursuant to this Section 4, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish notice to each holder of such Note, a
certificate setting forth such adjustment and readjustment, showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon written request of the holder of this Note, at any time, furnish or
cause to be furnished to such holder a like certificate setting forth such
adjustments and readjustments, the applicable Conversion Price in effect at the
time and the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon the conversion
of such Note. Notwithstanding the foregoing, the Company shall not be obligated
to deliver a certificate unless such certificate would reflect an increase or
decrease of at least one percent of such adjusted amount.
(f) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of
Common Stock on conversion of this Note pursuant hereto; provided, however, that
the Company shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
(g) Notices and Delivery of Shares. All notices and other communications
hereunder shall be in writing and shall be deemed given (i) on the same date, if
delivered personally or by facsimile by not later than 7:00 p.m. New York time
(provided, that a copy of such facsimile shall be simultaneously sent to Donald
F. Mintmire, Esq. at (561)832-5696, or (ii) three business days following being
mailed by certified or registered mail, postage prepaid, return-receipt
requested, addressed to the holder of record at its address appearing on the
books of the Company. Not later than five (5) Business Days following receipt of
notice of conversion as provided herein (the "Delivery Date"), the Company shall
deliver to the holders of this Note, against delivery of one or more
certificates evidencing Note surrendered for conversion, certificates evidencing
all shares of Common Stock into which this Note shall be converted.
(h) Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of the Note. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Company shall pay cash equal to the product of
such fraction multiplied by the Conversion Price of one share of the Company's
Common Stock on the applicable Conversion Date.
(i) Reservation of Common Stock. The Company shall at all times reserve and keep
available, out of its authorized but unused shares of Common Stock, solely for
the purpose of effecting the conversion of the Note, the full number of shares
deliverable upon conversion of all the Note from time to time outstanding. The
Company shall, from time to time in accordance with the Colorado General
Corporations Law, as amended, increase the authorized number of shares of Common
Stock if at any time the unused number of authorized shares shall not be
sufficient to permit the conversion of all of the Note at the time outstanding.
In such connection, the Company shall hold a special meeting of stockholders for
the purpose of authorizing additional shares of Common Stork not later than 120
days after any date in which the Company shall have insufficient shares of
Common Stock so reserved.
(j) Retirement of Note. Conversion of this Note shall be deemed to have been
effected on the applicable Conversion Date. The converting holder shall be
deemed to have become a stockholder of record of the Common Stock on the
applicable Conversion Date. Upon conversion of only a portion of this Note, the
Company shall issue and deliver to such holder at the expense of the Company,
against receipt of the original note delivered for partial cancellation, a new
Note representing the unconverted portion of this Note so surrendered.
(k) Regulatory Compliance.
(i) If any shares of Common Stock to be reserved for the purpose of
conversion of this Note require registration or listing with or approval of any
government authority, stock exchange or other regulatory body under any federal
or state law or regulation or otherwise before such shares may be validly issued
or delivered upon conversion, the Company shall, at its sole cost and expense,
in good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
(ii) The shares of Common Stock issuable upon the election to convert
shall be Rule 144 restricted shares (the "Restricted Securities"). After
issuance of the Shares, Company agrees to use its best efforts to assist holder
in registering the Restricted Securities or to register the Restricted
Securities under the Act subject to the rules, regulations, and other provisions
of said Act.
(iii) In the event the holder elects to convert into ownership of
shares of the Company Stock, at the time of such conversation, the holder of
such shares shall have the following piggyback rights with reference :
(A) At any time that the Company proposes to file a Company
registration statement on Form S-1, excluding the pending Form S-1 registration
filed on January 8, 1998, under the Act (the "Registrations Statement"), either
for its own account or for the account of a stockholder or stockholders, the
Company shall give the holder written notice of its intention to do so and of
the intended method of sale (the "Registration Notice") within a reasonable time
prior to the anticipated filing date of the Company's Registration Statement
effecting such Company registration. The holder may request inclusion of any
Restricted Securities in such Registration Statement by delivering to the
Company, within ten (10) Business Days after receipt of the Registration Notice,
a written notice (the "Piggyback Notice") stating the number of Restricted
Securities proposed to be included and that such shares are to be included in
any underwriting only on the same terms and conditions as the shares of Common
Stock otherwise being sold through underwriters under such Company Registration
Statement. The Company shall use its best efforts to cause all Restricted
Securities specified in the Piggyback Notice to be included in the Company
Registration Statement and any related offering, all to the extent requisite to
permit the sale by the holder of its Restricted Securities in accordance with
the method of sale applicable to the other shares of Common Stock included in
such Company Registration Statement; provided, however, that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the Company Registration Statement filed in
connection with such registration, the Company shall determine for any reason
not to register or to delay registration of holder's Restricted Securities, the
Company may, at its election, give written notice of such determination to
holder and, thereupon:
(1) in the ease of a determination not to register,
shall be relieved of its obligation to register holder's Restricted
Securities in connection with such registration (but not from its obligation to
pay the registration expenses in connection therewith), and
(2) in the case of a delay in registering, shall be
permitted to delay registering holder's Restricted Securities for the same
period as the delay in registering such other securities.
(B) The Company's obligation to include Restricted Securities
in a Company's Registration Statement pursuant to Section 7(a) shall be subject
to the following limitations:
(1) The Company may elect, at its sole option
and for any reason, not to register holder's Restricted Shares, provided
however, that this right is limited to one (1) time and relative to on
1) particular Company Registration Statement.
(2) The Company shall not be obligated to include any
Restricted Securities in a registration statement filed on Form S-4, Form S-8
or such other similar successor forms then in effect under the Securities Act.
(3) If a Company Registration Statement involves an
underwritten offering and the managing underwriter advises the Company in
writing that in its opinion, the number of securities requested to be included
in such Company Registration Statement exceeds the number which can be
sold in such offering without adversely affecting the offering, the
Company shall include in such Company Registration Statement the number of
such securities which the Company is so advised can be sold in such offering
without adversely affecting the offering, determined as follows:
(i) first, the securities proposed by the
Company to be sold for it own account, and
(ii) second, any Restricted Securities
requested to be included in such registration and any other securities of the
Company in accordance with the priorities, if and then existing among the
holders of such securities pro rata among the holders thereof requesting
such registration on the basis of the number of shares of such securities
requested to be included by such holders.
(4) The Company shall not be obligated to include
Restricted Securities in more than one (1) Company Registration Statement.
(C) To the extent holder's Restricted Securities are intended
to be included in a Company Registration Statement, holder may include any of
its Restricted Securities in such Company Registration Statement pursuant to
this Agreement only if holder furnishes to the Company in writing, within ten
(10) business days after receipt of a written request therefor, such information
specified in Item 507 of Regulation S-K under the Act or such other information
as the Company may reasonably request for use in connection with the Company
Registration Statement or Prospectus or preliminary Prospectus included therein
and in any application to the NASD. Holder as to which the Company Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make all information previously
furnished to the Company by holder not materially misleading.
(l) Limitations on Amount of Conversion. Notwithstanding anything contained in
this Note to the contrary, in no event shall any holder of Note be entitled or
required to convert this Note in excess of that number of shares of Note which,
upon giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates to
exceed 4.9% of the outstanding shares of the Company's Common Stock immediately
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such proviso
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) conversion of the remaining, unconverted Note
beneficially owned by such holder and its affiliates, and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including without limitation any warrants) which are beneficially
owned by the holder and its affiliates and which are subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. Any holder of Note may waive
the foregoing limitations set forth in this paragraph by written notice to the
Company upon not less than 30 days prior notice (with such waiver taking effect
only upon the expiration of such 30-day notice period).
5. EVENTS OF DEFAULT.
The occurrence and continuance of any one or more of the following events is
herein referred to as an Event of Default:
(a) If the Company shall default in converting the applicable principal amount
of this Note into Common Stock and delivering stock certificates in respect of
such conversion within ten (10) "Business Days" (defined as any days on which
national banks in the United States are open for business) from the Company's
receipt of applicable notice of conversion pursuant to the provisions hereof,
whether on the-Maturity Date or otherwise; or
(b) If the Company shall default in the payment of any installment of interest
on this Note when payable in accordance with the terms thereof for more than ten
(10) calendar days after the same shall become due; or
(c) If the Company shall not, at the time of receipt of a Conversion Notice
hereunder, have a sufficient number of authorized and unissued shares of its
Common Stock available for issuance to the holder of this Note upon conversion
of all or any portion of this Note in accordance with the terms hereof, and such
default shall not have been remedied within sixty (60) calendar days from the
date of such Conversion Notice; or
(d) If the Company shall default in the performance of or compliance with any of
its material covenants or agreements contained herein and such default shall not
have been remedied within thirty (30) calendar days after written notice thereof
shall have been delivered to the Company by the holder of this Note; or
(e) If any representation or warranty made in writing by or on behalf of the
Company in connection with the transactions contemplated thereby shall prove to
have been false or incorrect in any material respect on the date as of which
made; or
(f) If the Company or any of its Significant Subsidiaries shall make an
assignment for the benefit of creditors, or shall admit in writing its inability
to pay its debts as they become due, or shall file a voluntary petition in
bankruptcy or shall have an order for relief under the Bankruptcy Act granted
against it or them, or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file any answer admitting
or not contesting the material allegations of a petition filed against the
Company or any of its Significant Subsidiaries in any such proceeding, or shall
seek or consent to or acquiesce in the appointment of any trustee, custodian,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or any of its Significant Subsidiaries, or the
Company or its directors shall take any action looking to the dissolution or
liquidation of the Company or any of its Significant Subsidiaries. For purposes
of this Section 5(f), the term Significant Subsidiary shall mean and include
Bass American Petroleum Corp. and any other person, firm or corporation (i) more
than 50% of the common stock or equity interests of which are owned of record by
the Company or any Subsidiary of the Company, and (ii) the net income before
taxes or total assets of which represent more than 15% of the consolidated net
income before taxes or consolidated assets of the Company and all of its
Subsidiaries; of
(g) If, within sixty (60) days after the commencement of any proceeding against
the Company or any Significant Subsidiary seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceeding
shall not have been dismissed, or if, within sixty (60) days after the
appointment, without the consent or acquiescence of the Company or any
Significant Subsidiary, of any trustee, receiver or liquidator of the Company or
any Significant Subsidiary or of all or any substantial part of the properties
of the Company or any Significant Subsidiary, such appointment shall not have
been vacated.
6. REMEDIES ON DEFAULT; ACCELERATION.
Upon the occurrence and during the continuance of an Event of Default, the
entire unpaid balance of principal and accrued interest on this Note may be
accelerated and declared to be immediately due and payable by the Payee. Unless
waived by the written consent of the Payee and other holder of any of the Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein, or for
an injunction against a violation of any of the terms hereof, or in aid of the
exercise of any power granted hereby or by law. In the event of an Event of
Default, the Company agrees to pay to the holder of this Note such further
amount as shall be sufficient to cover the cost and expense of collection,
including, without limitation, reasonable attorneys' fees and expenses. No
course of dealing and no delay on the part of the holder of this Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers and remedies. No right, power
or remedy conferred hereby upon the holder hereof shall be exclusive of any
other right, power or remedy referred to herein nor now or hereafter available
at law, in equity, by statute or otherwise.
7. NOTICES.
All notices, requests, demands or other communications hereunder shall be in
writing and personally addressed or sent by telecopier or by registered or
certified mail, return receipt requested, postage pre-paid, addressed or
telecopied as follows or to such other address or telecopier number of which
notice has been given pursuant hereto:
If to the Company: Environmental Remediation Holding Corp.
3-5 Audrey Avenue
Oyster Bay, New York 11771
Attn: James A. Griffin, Secretary
Fax (516) 922-4312
-and-
Environmental Remediation Holding Corp.
Attn: Noreen Wilson, Vice President and
Chief Financial Officer
Fax (561) 624-1171
with copy to: Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Attn: Donald F. Mintmire, Esq.
Fax (561) 659-5371
If to the Holder: to such Holder at the address set forth
on the records of the
Company. In addition, copies of all such
notices or other communications shall be
concurrently delivered by the person
giving the same to each person who has
been identified to the
Company by such Holder as a person who
is to receive copies of such notices.
8. GOVERNING LAW.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Florida, without giving effect to conflict of law
principles.
9. SUBORDINATION TO SENIOR DEBT.
(a) Payment of the principal of and interest on this Note is subordinated, to
the extent and in the manner provided herein, to the prior payment of all
indebtedness of the Company and/or all Subsidiaries of the Company, for money
borrowed or other obligations which is now or may hereafter be owed
(collectively, "Senior Debt") to any bank, commercial finance company, factor,
insurance company or other institution the lending activities are regulated by
law (individually, a "Senior Lender" and collectively, "Senior Lenders"), which
may, hereafter on any one or more occasions provide financing to the Company or
any of its Subsidiaries, secured by liens on any of the assets and properties of
the Company and/or any of its Subsidiaries (individually and collectively, an
"Institutional Borrower").
(b) Upon any payment or distribution of assets or securities of the
Institutional Borrower, as the case may be, of any kind or character, whether in
cash, property or securities, upon any dissolution or winding up or total or
partial liquidation or reorganization of the Institutional Borrower, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts payable under Senior Debt shall first be paid in full
in cash, or payment provided for in cash or cash
equivalents, before the holder hereof shall be entitled to receive any payment
on account of principal of or interest on this Note. Before any payment may be
made by the Institutional Borrower of the principal of or interest on this Note
upon any such dissolution or winding up or liquidation or reorganization, any
payment or distribution of assets or securities of the Institutional Borrower of
any kind of character, whether in cash, property or securities, to which the
holder hereof would be entitled, except for the provisions of this Section 9,
shall be made by the Institutional Borrower or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, directly to the holders of Senior Debt or their representatives to
the extent necessary to pay all such Senior Debt in full after giving effect to
any concurrent payment or distribution to the holders of such Senior Debt.
(c) Upon the happening of any default in payment of the principal of or interest
on any Senior Debt, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment in cash,
property or securities, by set-off or otherwise, shall be made or agreed to be
made by the Institutional Borrower on account of the principal of or interest on
this Note.
(d) Upon the happening of an event of default (other than under circumstances
when the terms of Section 9(c) above are applicable) with respect to any Senior
Debt pursuant to which the holder thereof is entitled under the terms of such
Senior Debt to accelerate the maturity thereof, and upon written notice thereof
given to each of the Institutional Borrower and the holder of this Note by such
holder of Senior Debt ("Payment Notice"), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no action
shall or may be taken for collection of any amounts under this Note, and no
direct or indirect payment in cash, property or securities, by set-off or
otherwise, shall be made or agreed to be made by the Institutional Borrower an
account of the principal of or interest on this Note until such Senior Debt has
been paid in full accordance with its terms.
(e) In the event than, notwithstanding the provisions of this Section 9, any
payment shall be made on account of the principal of or interest on this Note in
contravention of such provisions, then such payment shall be held for the
benefit of, and shall be paid over and delivered to, the holders of such Senior
Debt remaining unpaid to the extent necessary to pay in fall in cash or cash
equivalents the principal of and interest on such Senior Debt in accordance with
its terms after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
(f) Nothing contained in this Section 9 shall
(i) impair the conversion rights of the holder hereof referred to in
Section 4 above,
(ii) impair, as between the Company and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder hereof principal and interest as the same shall become due and payable,
or (iii) prevent the holder hereof from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, all subject to the
express limitations provided herein.
(g) Upon the occurrence of an Event of Default, if any Senior Debt shall then be
outstanding, no acceleration of the maturity of this Note shall be effective
until the earlier of (i) ten (10) days shall have passed following the date of
delivery to the Institutional Borrower by a Senior Lender(s) of written notice
of acceleration of any Senior Debt, or (ii) the maturity of any then outstanding
Senior Debt shall have been accelerated by reason of a default hereon. The
Company may pay the holder hereof any defaulted payment and all other amounts
due following any such acceleration of the maturity of this Note if this Section
9 would not prohibit such payment to be made at that time.
(h) Upon payment in full of all Senior Debt, the Payee of this Note shall be
subrogated to the rights of the holder or holders of Senior Debt to receive all
payments or distributions applicable on Senior Debt to the extent of the prior
application thereto of moneys or other assets which would have been received in
respect of this Note, but for these subordination provisions, until the
principal of, and interest on, this Note shall have been paid in full.
(i) The Payee, by accepting this Note
(i) shall be bound by all of the foregoing subordination provisions;
(ii) agrees expressly for the benefit of the present and future holders
of Senior Debt that this Note is subject to the foregoing subordination
provisions; (iii) authorizes such persons as shall be designated by all holders
of Senior Debt at any given time, on his or its benefit to execute and deliver
such agreements, assignments, proofs of claim and other documents appropriate to
effectuate the foregoing subordination provisions; and (iv) hereby appoints the
person so designated his or its attorney-in-fact for such purpose.
(j) The foregoing subordination provisions shall be for the benefit of all
holders of Senior Debt from time to time outstanding, and each of such holders
may proceed to enforce such provisions either directly against the holder hereof
or in any other manner provided by law.
(k) Notwithstanding anything to the contrary set forth in this Section 9, the
security interest of the holder of this Note (as specified in Section 10 hereof)
is subject and subordinated only to the prior first lien and security interest
of any holder of Senior Debt of the Company, unless otherwise expressly
consented to in writing by the Payee.
10. PERMITTED PAYMENTS.
Notwithstanding the provisions of Section 9 of this Note, and provided that no
default or event of default (or event which, with the passage of time or giving
of notice or both) has occurred, will occur as a result of the "Permitted
Payment" (herein defined), or will occur with the passage of time or giving of
notice or both, under any document or instrument evidencing such Senior Debt,
the Company may pay to the Payee, and the Payee may accept from the Company, the
principal payments of, and/or interest payments on, the outstanding principal
amount of this Note when due on an unaccelerated basis (herein, "Permitted
Payments"); it being understood and agreed by the Payee by accepting this Note
that neither:
(a) the payment terms set forth in Section l of this Note;
(b) the subordination provisions contained in Section 9 of this Note, nor
(c) the provisions of this Section 10 of this Note, may be modified or amended
without the prior written consent of each and every holder of Senior Debt.
11. SUCCESSORS AND ASSIGNS.
This Note shall be binding upon and inure to the benefit of the Company and the
holder hereof and their respective successors and assigns; provided, however,
that the Company may not transfer or assign any of its rights or obligations
hereunder without the prior written consent of the holder hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by its duly
authorized officers as of the date first set forth above.
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By: ______________________________________
Noreen G. Wilson , Chief Financial Officer
Attest: ___________________________________
EXHIBIT 4.2
This Warrant, and the securities issuable upon the exercise of this Warrant,
have not been registered under the Securities Act of 1933, as amended (the
"Act") or applicable state law and may not be sold, transferred or otherwise
disposed of unless registered under the Act and any applicable state act or
unless the Company is satisfied that this Warrant and the underlying securities
may be transferred without registration under the Act.
April 9, 1998
ENVIRONMENTAL REMEDIATION HOLDING
CORPORATION
Redeemable Common Stock Purchase Warrant
VOID AFTER 5:00 P.M., EASTERN TIME
April 8, 2001
FOR VALUE RECEIVED, Environmental Remediation Holding Corporation,
a Colorado corporation
(the "Company"), promises to issue in the name of, and sell and deliver to,
_____________________________, (the "Holder"), or the Holder's registered
transferee or assignee (also the "Holder"), a certificate or certificates for an
aggregate of ___________ shares (the "Shares") of Common Stock, $0.0001 par
value per share (the "Common Stock"), of the Company, at any time on or before
the later of 5:00 p.m., Eastern Time, on April 8, 2001 (the "Exercise Period"),
upon payment therefore of $1.25 per Share in lawful funds of the United States
of America.
1. Exercise of the Warrant. In case the Holder of this Warrant shall
desire to exercise this Warrant in whole or in part, the Holder shall surrender
this Warrant, with the form of exercise notice on the last page hereof duly
executed by the Holder, to the Company, accompanied by payment of the Exercise
Price of $1.25 per Warrant.
(a) This Warrant may be exercised in whole or in part but not
for fractional Shares. In case of the exercise in part only, the Company will
deliver to the Holder a new Warrant of like tenor in the name of the Holder
evidencing the right to purchase the number of Shares as to which this Warrant
has not been exercised.
(b) This Warrant may also be exercised by the Warrant Holder,
in whole or in part, at any time and from time to time and from time to time
during the Exercise Period by presentation and surrender of this Warrant to the
Company at its principal executive offices with a written notice of the Warrant
Holder's intention to effect a cashless exercise, including a calculation of the
number of shares of Common Stock to be issued upon such exercise in accordance
with the terms hereof (a "Cashless Exercise"). In the event of a Cashless
Exercise, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by
(i) multiplying the number of Shares for which this
Warrant is being exercised by the per share warrant value as defined in Section
1(c) herein; and
(ii) dividing the product by the bid price of one
share of the Common Stock on the trading day next preceding the date of exercise
as defined in Section 1(d) hereof.
In the event that the Warrant is not exercised in full, the number of Shares
shall be reduced by the number of such Shares for which this Warrant is
exercised, and the Company, at its expense, shall forthwith issue and deliver to
or upon the order of the Holder a new Warrant of like tenor in the name of the
Holder or as the Holder may request, reflecting such adjusted number of Shares.
(c) As used herein "Per Share Warrant Value" shall mean the
difference resulting from subtracting the Exercise Price from the bid price of
one share of Common Stock on the trading day next preceding the Date of
Exercise.
(d) As used herein "Date of Exercise" shall mean the date that
the advance copy of the Form of Exercise set forth herein is sent by facsimile
to the Company, provided that the original Warrant and Form of Exercise are
received by the Company within three (3) business days. If the Warrant Holder
has not sent advance notice by facsimile, the Date of Exercise shall be the date
the original Form of Exercise is received by the Company.
2. Covenants of the Company. The Company hereby covenants and
agrees that prior to the expiration of this Warrant by exercise or by its terms:
(a) The Company shall at all times reserve and keep available,
out of its authorized and unissued share capital, solely for the purpose of
providing for the exercise, forthwith upon the request of the Holder of the
Warrants then outstanding and in effect, such number of shares of Common Stock,
as shall, from time to time, be sufficient for the exercise of the Warrants. The
Company shall, from time to time, in accordance with the laws of the State of
Florida, increase the authorized amount of its share capital if at any time the
number of shares of
Common Stock remaining unissued and unreserved for other purposes shall not be
sufficient to permit the exercise of the Warrants then outstanding and in
effect.
(b) The Company covenants and agrees that all shares that may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be validly issued, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof.
3. Loss, Theft, Destruction or Mutilation. In case this Warrant shall
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or in lieu of and in
substitution for such warrant so destroyed, lost, or stolen, upon the Holder of
such Warrant filing with the Company such evidence satisfactory to it that such
Warrant has been so mutilated, defaced, destroyed, lost or stolen and of the
ownership thereof by the Holder; provided, however, that the Company shall be
entitled, as a condition to the execution and delivery of such new Warrant, to
demand indemnity satisfactory to it and payment of expenses and charges incurred
in connection with the delivery of such new Warrant, and may demand a bond from
the Holder. Any Warrant so surrendered to the Company shall be canceled.
4. Record Owner. At the time of the surrender of this Warrant, together
with the form of subscription properly executed and payment of the Exercise
Price, the person exercising this Warrant shall be deemed to be the Holder of
record of the Common Stock deliverable upon such exercise, in whole or in part,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such securities shall not then be
actually delivered to such person.
5. Mailing of Notices, etc. All notices and other communications from
the Company to the Holder of this Warrant shall be mailed by first-class
registered or certified mail, return receipt requested, potage prepaid, to the
Holder at the address set forth in the records of the Company, or to such other
address furnished to the Company in writing from time to time by the Holder of
this Warrant.
6. Registration Under the Securities Act of 1933, as amended. Neither
this Warrant nor the Shares underlying it have been registered under the
Securities Act of 1933, as amended (the "Act"). Unless and until registered
under the Act, this Warrant and all replacement Warrants shall bear the
following legend:
This Warrant, and the securities issuable upon the exercise of this
Warrant, have not been registered under the Securities Act of 1933, as
amended (the "Act") or applicable state law and may not be sold,
transferred or otherwise disposed of unless registered under the Act
and any applicable state act or unless the Company is satisfied that
this Warrant and the underling securities may be transferred without
registration under the Act.
The Shares issuable upon exercise of this Warrant shall be Rule 144
restricted shares (the "Restricted Securities"). After issuance of the Shares,
Company agrees to use its best efforts to assist Holder in registering the
Shares or to register the Shares under the Act subject to the rules,
regulations, and other provisions of said Act.
7. Piggyback Registration.
(a) At any time that the Company proposes to file a Company
registration statement on Form S-1 under the Act (the "Registrations
Statement"), either for its own account or for the account of a stockholder or
stockholders, the Company shall give the Holder written notice of its intention
to do so and of the intended method of sale (the "Registration Notice") within a
reasonable time prior to the anticipated filing date of the Company's
Registration Statement effecting such Company registration. Holder may request
inclusion of any Restricted Securities in such Registration Statement by
delivering to the Company, within ten (10) Business Days after receipt of the
Registration Notice, a written notice (the "Piggyback Notice") stating the
number of Restricted Securities proposed to be included and that such shares are
to be included in any underwriting only on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
Company Registration Statement. The Company shall use its best efforts to cause
all Restricted Securities specified in the Piggyback Notice to be included in
the Company Registration Statement and any related offering, all to the extent
requisite to permit the sale by the Holder of its Restricted Securities in
accordance with the method of sale applicable to the other shares of Common
Stock included in such Company Registration Statement; provided, however, that
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the Company Registration Statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of Holder's Restricted
Securities, the Company may, at its election, give written notice of such
determination to Holder and, thereupon:
(i) in the ease of a determination not to register,
shall be relieved of its obligation to register Holder's Restricted Securities
in connection with such registration (but not from its obligation to pay the
registration expenses in connection therewith), and
(ii) in the case of a delay in registering, shall be
permitted to delay registering Holder's Restricted Securities for the same
period as the delay in registering such other securities.
(b) The Company's obligation to include Restricted Securities
in a Company's Registration Statement pursuant to Section 7(a) shall be subject
to the following limitations:
(i) The Company may elect, at its sole option and
for any reason, not to register Holder's Restricted Shares, provided however,
that this right is limited to one (1) time and relative to one (1) particular
Company Registration Statement.
(ii) The Company shall not be obligated to include
any Restricted Securities in a registration statement filed on Form S-4,
Form S-8 or such other similar successor forms then in effect under the
Securities Act.
(iii) If a Company Registration Statement involves an
underwritten offering and the managing underwriter
advises the Company in writing that in its opinion, the
number of securities requested to be included in such Company Registration
Statement exceeds the number which can be sold in such offering without
adversely affecting the offering, the Company shall include in such Company
Registration Statement the number of such securities which the Company is so
advised can be sold in such offering without adversely affecting the offering,
determined as follows:
(A) first, the securities proposed by the
Company to be sold for it own account, and
(B) second, any Restricted Securities
requested to be included in such
registration and any other securities of the Company in accordance with the
priorities, if and then existing among the holders of such securities pro rata
among the holders thereof requesting such registration on the basis of the
number of shares of such securities requested to be included by such holders.
(iv) The Company shall not be obligated to include
Restricted Securities in more than one (1) Company Registration Statement.
(c) To the extent Holder's Restricted Securities are
intended to be included in a Company
Registration Statement, Holder may include any of its Restricted Securities in
such Company Registration Statement pursuant to this Agreement only if Holder
furnishes to the Company in writing, within ten (10) business days after receipt
of a written request therefor, such information specified in Item 507 of
Regulation S-K under the Act or such other information as the Company may
reasonably request for use in connection with the Company Registration Statement
or Prospectus or preliminary Prospectus included therein and in any application
to the NASD. Holder as to which the Company Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make all information previously furnished to the
Company by Holder not materially misleading.
8. Antidilution Provision. The Exercise Price in effect from time
to time shall be, subject to adjustment in accordance with the provisions of
this Section 8.
(a) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date hereof, effect a
stock split of the outstanding Common Stock, the applicable Exercise Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Company shall at any time or from time to time after the date hereof,
combine the outstanding shares of Common Stock, the applicable Exercise Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 8(a) shall be effective at the close of
business on the date the stock split or combination occurs.
(b) Adjustments for Certain Dividends and Distributions. If
the Company shall at any time or from time after the date hereof, make or issue
or set a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Exercise Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such a record date shall have been fixed, as of the close of business
on such record date, by multiplying, as applicable, the applicable Exercise
Price then in effect by a fraction;
(i) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(ii) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
(c) Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the date hereof, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
Exercise Price shall be made and provision shall be made (by adjustments of the
Exercise Price or otherwise) so that the holder of this Note shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the date hereof, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 8(c) with respect
to the rights of the holders of the Warrant.
(d) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of this Warrant at
any time or from time to time after the date hereof shall be changed into the
same or different number of shares of any class or classes of stock, whether by
reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 8(a), (b) and (c), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
8(e), then, and in each event, an appropriate revision to the Exercise Price
shall by made and provisions shall be made (by adjustments of the Exercise Price
of otherwise) so that the holder of this Warrant shall have the right thereafter
to convert such Warrant into the kind and amount of shares of stock and other
securities receivable upon reclassification, exchange, substitution or other
change, by holders of the number of shares of Common Stock into which such
Warrant might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.
(e) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the date hereof there
shall be a capital reorganization of the Company (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 8(a), (b), and (c), or a reclassification, exchange or substitution
of shares provided for in Section 8(d), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Exercise Price shall be made and provision shall be made (by adjustments of
the Exercise Price or otherwise) so that the holder of this Warrant shall have
the right thereafter to convert this Warrant into the kind and amount of shares
of stock and other securities or property of the Company or any successor
corporation resulting from such reorganization, merger, consolidation, or sale,
to which a holder of Common Stock deliverable upon conversion of such shares
would have been entitled upon such reorganization, merger, consolidation, or
sale, to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 8(e) with respect to the rights of
the holders of this Warrant after the reorganization, merger, consolidation, or
sale to the end that the provisions of this Section 8(e) (including any
adjustment in the applicable conversion ratio then in effect and the number of
shares of stock or other securities deliverable upon conversion of this Warrant)
shall be applied after that event in as nearly an equivalent manner as may be
practicable.
9. Laws of the State of Florida. This Warrant shall be governed by,
interpreted under and construed in all respects in accordance with, the laws of
the State of Florida, irrespective of the place of domicile or residence of any
party.
10. Entire Agreement and Modification. The Company and the Holder of
this Warrant hereby represent and warrant that this Warrant is intended to and
does contain and embody all of the understandings and agreements, both written
and oral, of the parties hereto with respect to the subject matter of this
Warrant, and that there exists no oral agreement or understanding, express or
implied, whereby the absolute, final and unconditional character and nature of
this Warrant shall be in any way invalidated, empowered or affected. A
modification or waiver of any of the terms, conditions or provisions of this
Warrant shall be effective only if made in writing and executed with the same
formality as this Warrant.
11. Controlling Document. Notwithstanding anything contained herein, in
the event of conflict between any provision contained herein and those contained
in a certain note of even date simultaneously delivered to Holder (the "Note"),
which Notes is incorporated herein by reference, the provisions contained in the
Note shall control.
This Warrant will become wholly void and of no effect and the rights
evidenced hereby will terminate unless exercised in accordance with the terms
and provisions hereof at or before 5:00 p.m., Eastern Time, on the Expiration
Date.
FORM OF EXERCISE
The undersigned hereby irrevocably elects to exercise the purchase
rights represented by this Warrant for, and to purchase thereunder,
_________________ Shares of Common Stock, $0.0001 par value per share, of
Environmental Remediation Holding Corporation, and herewith makes payment of
$1.25 per Share, or a total of $____________________ therefore, and request that
such Shares be issued to:
(print name)
- ---------------------------------
(address)
- ---------------------------------
(social security number)
Dated:
(signature must conform in all respects to name
of Holder as specified on the face of this Warrant)
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto __________________________________________ the right represented
by this Warrant to purchase _________________ Shares of Common Stock, $0.0001
par value per Share of Environmental Remediation Holding Corporation to which
this Warrant relates, and appoints ___________________________________, attorney
to transfer said right on the books of the Company with full power of
substitution in the premises.
Dated:
(signature must conform in all respects to name
of Holder as specified on the face of this Warrant)
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this Warrant this 9th day of April, 1998.
Attest: Environmental Remediation
Holding Corporation
____________________________ By: ______________________________
Noreen Wilson CFO and
Vice President
(CORPORATE SEAL)
EXHIBIT 4.3
EXHIBIT 4.4
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor, New York, New York 10022 - (212)338-2000 - Fax
(212)338-2020
May 7, 1998
Mr. Sam L. Bass, Jr.
President and C.E.O.
Environmental Remediation Holding Corp.
1686 General Mouton
Lafayette, LA 70508
Dear Mr. Bass:
This will confirm Security Capital Trading, Inc.'s intent to act as the
Managing Underwriter (the "Representative")in connection with the proposed
public offering of $50,000,000principal amount of 10% Subordinated Convertible
Debentures (the "Convertible Debentures") of Environmental Remediation Holding
Corp. (the "Company"). It is contemplated that the Representative shall
underwrite the Convertible Debentures on a firm commitment basis. The
Convertible Debentures shall mature 7 years after issuance and shall be
initially convertible into shares of Common Stock at a price equivalent to 120%
of the closing bid price of a share of Common Stock on the effective date of the
Registration Statement hereinafter referred to (the "Conversion Price"). The
holders thereof shall be entitled to receive interest at the rate of 10% per
annum, payable semi-annually. The Convertible Debentures may be redeemed at its
option of the Company at any time and from time to time commencing thirty-six
(36) months after the effective date of the Registration Statement at a
redemption price equal to face amount, plus all accrued and unpaid interest,
provided that the Convertible Debentures may not be redeemed unless the closing
bid price for the 20 consecutive trading days prior to the date of notice of
redemption has equaled or exceeded 150% of the closing price of the Common
Stock, subject to certain adjustments. The Representative acting as Managing
Underwriter shall be subject to the following general terms and qualifications:
1. The Company will, as soon as practicable, file with the Securities and
Exchange Commission a Registration Statement on Form S-1 (or other appropriate
form) covering the proposed public offering which shall include all audited and
unaudited financial statements for such periods as may be required by the
Registration Statement. Such Registration Statement, at the time it becomes
effective, shall be in form and substance satisfactory to the Representative and
to the Company and to their representative counsel.
2. On or about the effective date of the Registration Statement, it is
contemplated that the Representative shall enter into an Underwriting Agreement
with the Company in form and in substance satisfactory to counsel for the
Representative and the Company. The Underwriting Agreement will provide that the
Representative shall purchase on a firm, and not on any other basis, the
Convertible Debentures at a discount equaling 7.5% of the public offering price
thereof. Said Underwriting
Agreement will further provide that the Representative will have an option
to purchase all or part of an additional fifteen (15) percent of the Convertible
Debentures from the Company to cover any over-allotments for a period of
forty-five (45) days from the effective date of the Registration Statement upon
the same terms and conditions and shall contain such other terms and conditions
as are customary in such agreements.
3. It shall be the Company's obligation, wither or not the offering is
consummated, to bear all expenses in connection with the proposed offering,
including, but not limited to, the following: filing fees, printing costs, due
diligence expenses, including experts, expense of tombstone advertisements,
advertising costs and expenses, including, but not limited to, costs and
expenses in connection with the "road show", information meetings and
presentations, registrar, indenture trustee fees and expenses, transfer agent
fees, postage and mailing expenses with respect to the transmission of
prospectuses, Company counsel and accounting fees, issue and transfer taxes, if
any, and Blue Sky counsel fees and expenses. It is agreed that the
Representative's counsel shall perform the required Blue Sky legal services. In
this connection, Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Representative provided that such
states and jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
4. In addition to the compensation paid pursuant to Paragraph 2, the
Company agrees to pay the Representative a non-accountable expense allowance
equal to 2.5% of the gross proceeds of the proposed public offering. It is
understood that the Company has previously paid a $30,000 Engagement Fee to
another underwriter who has subsequently withdrawn from financing commitments.
The Company will use its best efforts to recover this fee and such amount
recovered will be paid to the Placement Agent as an advance against costs
incurred. In addition, the Company will pay the Placement Agent an additional
$20,000 which is payable upon the initial filing of the Company's Registration
Statement. The difference between the combined Engagement Fee of $40,kl000 and
the 2.5% non-accountable expense allowance shall be paid at Closing.
If the Representative does not or fails to enter into the proposed
Underwriting Agreement, and the reasons therefor are reasonably related to a
material adverse change in the business or financial results, prospects or
condition of the Company, or a material adverse change in market conditions or
if the proposed public offering is not completed because of the Company's
actions or failure to take such actions as are reasonably required hereunder and
the Representative is prepared to perform in accordance with the terms herein,
then, in any such case, the Company agrees to promptly pay the Representative
its actual out-of-pocket expenses (on an accountable basis), provided that the
advanced referred to in paragraph 4 above shall be first offset against such
expenses. In addition, the Company shall remain liable for all Blue Sky counsel
fees and expenses and Blue Sky filing fees.
5. The Company shall issue and sell, at the closing of the proposed
underwriting, to the Representative and/or its designee, five (5 ) year warrants
to purchase such number of shares of Common Stocks as shall equal ten percent
(10%) of the aggregate principal amount of Convertible Debentures (excluding the
over-allotment option) being underwritten for the account of the Company divided
by the Conversion price per share at a price of $.0001 per warrant (the
"Warrants"). The Warrants shall be exercisable at any time during a period of
four(4) years commencing at the beginning of the second year after their
issuance and sale at a price equaling 120% of the Conversion Price. The Company
agrees that, for a period of seven (7) years from the date of the closing of the
public offering (the "Closing"), if the Company intends to file a Registration
Statement or Statements for the public sale of securities for cash (other than a
Form S-8, S-4 or comparable Registration Statement), it will notify all of the
holders of the Warrants and/or underlying securities and if so requested, it
will include therein material to permit a public offering of the securities
underlying said Warrants at the expense of the Company (excluding fees and
expenses of the holder's counsel and any underwriting or selling commissions).
In addition, for a period of five (5)years from such date, upon the written
demand of holder(s) representing a majority of the Warrants, the Company agrees,
on one occasion, to promptly register the underlying securities at the expense
of the Company (excluding fees and expenses of the holder's counsel and any
underwriting or selling commissions).
6. Except upon the consent of the Company and Representative, all officers
and directors and holders of 5% or more of the shares of Common Stock, and
securities exercisable, convertible or exchangeable for shares of Common Stock,
shall agree not to, directly or indirectly, offer, sell, transfer, pledge,
assign, hypothecate or otherwise encumber any shares or convertible securities
whether or not owned, or otherwise dispose of any interest therein under Rule
144 or otherwise, for a period of not less than twelve (12) months following the
effective date of the Registration Statement. An appropriate legend shall be
marked on the face of stock certificates representing all of such shares of
Common Stock. In addition, without the consent of the Representative, the
Company shall not sell or offer for sale any of its securities commencing on the
date hereof and for a period of twelve (12) months following the effective date
of the Registration Statement, except pursuant to options existing on the date
hereof.
7. On the effective date of the Registration Statement, the Company shall
have an authorization of capital stock reasonably satisfactory to the
Representative. In this connection, on the effective date, there shall not be
any more than twenty-five million (25,000,000) shares of Common Stock
outstanding (including securities with equivalent rights as the Common Stock and
shares of Common Stock or such equivalent securities issuable upon exercise of
any and all options, warrants and other contract rights and securities, directly
or indirectly, into shares of Common Stock or such equivalent securities).
8. The Company represents that consummation of the transactions
contemplated herein
will not as of the effective date of the Registration Statement result in a
material breach of any of the terms, provisions or conditions of any written
agreement to which it is a party.
9. The Company's financial and operational history, its present condition,
financial and otherwise, and its prospects shall be substantially as represented
to us. The Company shall supply the Representative with such financial
statements, contracts and other corporate records and documents as the
Representative shall deem necessary and it shall supply counsel for the
Representative with all financial statements, contracts, documents and other
corporate papers as may be requested by them. In addition, the Representative
shall be fully informed of any events that might have a material effect on the
financial condition of the Company. If, in the reasonable opinion of the
Representative, the condition of the Company, financial or otherwise, and its
prospects do not fulfill its expectations, the Representative shall have the
sole discretion to review and determine its continued interest in the proposed
underwriting. In this connection, we expect that, prior to the initial filing of
the Registration Statement, the Company shall have entered into employment
agreements with such individuals as we shall request and purchased "key man"
life insurance on such individuals, all on terms and conditions reasonably
satisfactory to the Representative.
10. It is understood that the Representative may enter into other
agreements with broker/dealers who shall act as co-underwriters and/or dealers
in connection with the proposed public offering contemplated herein, but the
Company shall have no liability to such persons for fees and expenses incurred
in connection with their participation in such offering.
11. The Representative shall not be responsible for any expense of the
Company or others for any charges or claims related to the proposed financing or
otherwise if the sale of Convertible Debentures contemplated by this letter is
not consummated.
12. The Company agrees that as of the effective date of the Registration
Statement, there will be no claims or payments for services in the nature of a
finder's fee with respect to the proposed public offering or any other
arrangements, agreements or understandings that may affect the Representative's
compensation, as determined by the National Association of Securities Dealers,
Inc.
13. On the effective date of the Registration Statement, the Company shall
have engaged an indenture trustee reasonably acceptable to the Representative.
14. The Underwriting Agreement shall further provide that the
Representative shall have the right to designate for election one person to the
Company's Board of Directors for a period of five (5) years after the effective
date of the Registration Statement. In the event the Representative elects not
to exercise such right, then it may designate one person to attend Board of
Directors meetings. Such personal shall be entitled to
attend all such meetings and to receive all notices and other
correspondence and communications sent by the Company to members of the Board of
Directors. The Company shall so reimburse designees of the Representative for
their out-of-pocket expenses incurred in connection with their attendance of the
Company's Board of Directors meetings.
As long as the Representative is proceeding in good faith, the Company
covenants and agrees not to negotiate with any other underwriter or other person
relating to a possible public offering of securities pending the completion of
the public offering contemplated herein. Please affix your signature in the
place designated and by doing so, the Company will confirm our general
understanding in connection with the proposed public offering referred to
herein, subject to the execution of an Underwriting Agreement. This letter shall
serve as an indication of our mutual intention as regards to the proposed public
offering stated herein and shall not bind either party except to the
responsibilities referred to in paragraphs 4 and 11 herein. No binding
commitment upon either party to proceed with the offering will arise until the
execution of the Underwriting Agreement.
Very truly yours,
SECURITY CAPITAL TRADING, INC.
By: /S/ Ronald M. Heineman
Ronald M. Heineman
President
The arrangements in the foregoing letter is satisfactory to us:
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By: /S/James A. Griffin
James A. Griffin, Esq.
Secretary/Treasurer
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor, New York, New York 10022 - (212)338-2000 - Fax
(212)338-2020
May 7, 1998
Mr. Sam L. Bass, Jr.
President and C.E.O.
Environmental Remediation Holding Corp.
1686 General Mouton
Lafayette, LA 70508
Dear Mr. Bass:
This will confirm Security Capital Trading, Inc.'s intent to act as the
placement agent (the "Placement Agent") of connection with the proposed private
placement (the "Private Placement") of convertible preferred stock (the
"Preferred Stock") of Environmental Remediation Holding Corp. (the "Company").
It is contemplated that the Placement Agent shall place, on a "best efforts
basis", such number of shares of Preferred Stock, subject to market and other
conditions at the time of the offering, resulting in gross proceeds of a minimum
of $2,000,000 and a maximum of $5,000,000 at an anticipated offering price per
share of Preferred Stock of $10.00. The Preferred Stock shall be offered to
"accredited investors" pursuant to Regulation D of the General Rules and
Regulations under the Securities Act of 1933, as amended, in units of $50,000
subject to Placement Agent's discretion. Each share of Preferred Stock shall
have a liquidation value equal to $10.00 per share and shall be convertible into
shares of Common Stock at a rate that is mutually acceptable to the Company and
the Placement Agent.
The proceeds of the Private Placement contemplated hereby shall be held
in escrow until a minimum of $2,000,000 shall have been received in which event
proceeds, less the Placement Agent's commission and non-accountable expense
allowance as hereinafter referred to shall be paid to the Company against
delivery of the appropriate amount of Units. In the event that less than
$2,000,000 is received during the Offering Period (as defined herein) (and any
extensions thereof), such amount shall be returned to the subscribers without
interest or deduction. The Placement Agent acting as placement agent shall be
subject to the following general terms and qualifications:
1. The Company will, as soon as practicable, prepare offering materials
covering the proposed offering which shall include an executive summary and
audited financial statements for such periods as may be required. Such offering
material shall be in the form and substance satisfactory to the Placement Agent,
the Company and their respective counsel and shall provide that the Company and
the Placement Agent shall have the right, in each of their sole discretion, to
accept or resist any subscriptions.
2. It is contemplated that the Placement Agent shall enter into a placement
agreement (the "Placement Agreement") with the Company in form and in substance
satisfactory to counsel for the Placement Agent and the Company. The Placement
Agreement will provide that the Placement Agent shall act as placement agent for
the
Company in connection with the offer and sale of the Units on a "best
efforts basis" and that the Placement Agent shall receive a commission equaling
ten percent (10%) of the purchase price of the Units sold. The Placement
Agreement, which shall be entered into upon completion of and delivery to the
Placement Agent of final offering material, shall provide for an offering period
(the "Offering Period") of up to ninety (90) days which may be extended by
agreement between the Company and the Placement Agent for an additional period
of up to thirty (30) days.
3. It shall be the Company's obligation, whether or not the offering is
consummated, to bear all expenses in connection with the proposed offering,
including, but not limited to, the following: filing fees, printing costs,
experts, expense of tombstone advertisements, advertising costs and expenses,
including, but not limited to, costs and expenses in connection with the "road
show", information meetings and presentations, registrar, warrant and transfer
agent fees, postage and mailing expenses with respect to the transmission of
prospectuses, Company counsel and accounting fees, due diligence fees, issue and
transfer taxes, if any, and Blue Sky counsel fees and expenses. It is agreed
that the Placement Agent's counsel shall perform the required Blue Sky legal
services. In this connection, Blue Sky applications shall be made in such states
and jurisdictions as shall be requested by the Placement Agent provided that
such states and jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
4. In addition to the compensation paid pursuant to Paragraph 2, the
Company agrees to pay the Placement Agent a non-accountable expense allowance
equal to three percent (3%) of the gross proceeds of the proposed offering, it
is understood that the Company has previously paid a $30,000 engagement fee in
connection with an aborted initial Public Offering. The Company will use its
best efforts to recover this fee and such amount recovered will be paid to the
Placement Agent as an advance against costs incurred. The difference between the
previously paid $30,000 and the 3% non-accountable expense allowance will be
paid at closing./
5. The Company shall also issue and sell at the closing or closings, as the
case may be, of the proposed private placement, to the Placement Agent and/or
its designees, five (5) year warrants to purchase such number of shares of
Preferred Stock as shall equal ten percent (10%) of the number of shares sold
for the account of the Company, at a price of $.0001 per warrant (the "Placement
Agent Warrants"). The Placement Agent Warrants shall be exercisable at any time
during a period of four (4) years commencing at the beginning of the second year
after their issuance and sale at a price of $10.00 per share. The Company agrees
that, for a period of five (5) years from the Closing Date, if the Company
intends to file a Registration Statement or Statements for the public sale of
securities for cash (other than a Form S-8, S-4 or comparable Registration
Statement), it will notify all of the registered holders of the Placement Agent
Warrants and/or underlying securities and if so requested, it will include
therein material to permit a public offering of the Common Stock into which the
Preferred Stock underlying said Placement Agent Warrants is convertible at the
expense of the Company (excluding fees and expenses of such requesting
holder's counsel and any underwriting or selling commissions). In addition, for
a period of five (5) years, upon written demand of holder(s) representing a
majority of the Placement Agent Warrants, the Company agrees, so long as the
Company is at such time public, on one occasion, to promptly register the
underlying shares of Common Stock at the expense of the Company (excluding fees
and expenses of the holder's counsel and any underwriting or selling
commissions). The purchasers of Preferred Stock in the proposed private
placement shall have unlimited "piggy back" registration rights and a single
demand registration right (at the Company's cost) with respect to the Common
Stock underlying the underlying the Preferred Stock.
6. On Closing Date, the Company shall have a capitalization reasonably
satisfactory to the Placement Agent.
7. The Company represents that consummation of the transactions
contemplated herein will not as of the Closing Date result in a material breach
of any of the terms, provisions or conditions of any written agreement to which
it is a party.
8. The Company's financial and operational history, its present condition,
financial and otherwise, and its prospects shall be substantially as represented
to us. The Company shall supply the Placement Agent with such financial
statements, contracts and other corporate records and documents as the Placement
Agent shall deem necessary and it shall supply counsel for the Placement Agent
with all financial statements, contracts, documents and other corporate papers
as may be requested by them. In addition, the Placement Agent shall be fully
informed of any events, which might have a material effect on the financial
condition of the Company. If, in the opinion of the Placement Agent, the
condition of the Company, financial or otherwise, and its prospects do not
fulfill its expectations, the Placement Agent shall have the sole discretion to
review and determine its continued interest in the proposed Private Placement.
In this connection, the Placement Agent expects that, prior to the execution of
the Placement Agreement, the Company shall have entered into an employment
agreement with such individuals as the Placement Agent shall request and
purchase "key man" life insurance on such individuals as the Placement Agent
shall request, of which the Company shall be sole beneficiary, all on terms and
conditions reasonably satisfactory to the Placement Agent.
9. The Placement Agent shall not be responsible for any expense of the
Company or others for any charges or claims related to the Private Placement or
otherwise if the sale of the securities contemplated by this letter is not
consummated.
10. The Company agrees that as of the Closing Date, there will be no claims
or payments for services in the nature of a finder's fee with respect to the
proposed public offering or any other arrangements, agreements or understandings
that may affect the Placement Agent's compensation, as determined by the
National Association of Securities Dealers, Inc.
11. The Company's use of proceeds from the proposed private placement shall
be reasonably satisfactory to the Placement Agent.
12. The Placement Agent shall further provide that the Placement Agent may
designate for election one person to the Company's Board of Directors for a
period of five (5) years from the Closing Date. In the event the Placement Agent
elects not to exercise the right as set forth in this paragraph, then the
Placement Agent may designate one person to attend meetings of the Company's
Board of Directors. Such designee shall be entitled to attend all such meetings
of the Board of Directors and to receive all notices and other correspondence
and communications sent by the Company to members of its Board of Directors. The
Company shall reimburse designees of the Placement Agent for their out-of-pocket
expenses incurred in connection with their attendance at meetings of the
Company's Board of Directors.
13. The Placement Agent shall also provide that he Company and its
affiliates and subsidiaries will grant to the Placement Agent a right of first
refusal for a period of three (3) years after the Closing Date for any sales of
securities to be made by the Company or any of its present or future affiliates
or subsidiaries.
As long as the Placement Agent is proceeding in good faith, the Company
covenants and agrees not to negotiate with any other entity or person relating
to a possible offering of securities pending the completion of the Private
Placement contemplated herein. Please affix your signature in the place
designated and by doing so, the Company will confirm our general understanding
in connection with the private placement referred to herein, subject to the
execution of Placement Agreement. This letter shall serve as an indication of
our mutual intention as regards to the proposed offering stated herein and shall
not bind either party except to the responsibilities referred to in paragraphs 4
and 9 herein. No binding commitment upon either party to proceed with the
offering will arise until the execution of the Placement Agreement.
Very truly yours,
SECURITY CAPITAL TRADING, INC.
By: /S/Ronald M. Heineman
Ronald M. Heineman
President
The arrangements in the foregoing letter is satisfactory to us:
ENVIRONMENTAL REMEDIATION HOLDING CORP.
By: /S/James A. Griffin
James A. Griffin, Esq.
Secretary/Treasurer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 13, 1998 (October 8,
1997)
ENVIRONMENTAL REMEDIATION HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 0-17325 88-0218499
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification No.)
3-5 Audrey Avenue
Oyster Bay, NY 11771
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 92-4170
Item 5. Other Events
Environmental Remediation Holding Corp. acquired certain assets of Unita
Oil & Gas, Inc., a subsidiary of Coconimo S.M.A., Inc. Attached as an exhibit
are the audited financial statements of Coconimo S.M.A., Inc. as of May 31,
1997.
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 hereunto duly authorized.
Environmental Remediation Holding Corporation
(Registrant)
Dated: April 13, 1998
By: /s/ Noreen G. Wilson
Noreen G. Wilson
Vice President