EXHIBIT 10.31
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is entered
into this 16th day of June, 2000, by and between EUROGAS,
INC. ("EuroGas"), and FINANCE & CREDIT DEVELOPMENT
CORPORATION, LTD. ("FCDC") (collectively, the "Parties").
Recitals
1. FCDC has obtained a default judgment against
EuroGas in the United States District Court for the District
of Utah in case No. 2:99CV-1042K ("Default Judgment").
2. EuroGas lacks net current assets sufficient to
satisfy the Default Judgment.
3. EuroGas contests liability, believes the
judgment is excessive, and has filed a motion to set aside
the Default Judgment.
4. EuroGas has entered into a Master Transaction
Agreement with Teton Petroleum Company ("Teton"), which
contemplates three interrelated transactions, including the
merger of Teton with and into a wholly owned subsidiary of
EuroGas.
5. The Parties believe that the completion of the
transactions contemplated in the Master Transaction
Agreement with Teton is essential to the continued viability
of EuroGas.
6. The existence and amount of the unsatisfied
Default Judgment threatens to prevent the completion of the
transactions contemplated in the Master Transaction
Agreement with Teton.
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7. The Parties wish to resolve the dispute that
gave rise to the Default Judgment and thereby eliminate the
Default Judgment as an obstacle to the completion of the
transactions contemplated in the Master Transaction
Agreement with Teton.
Points of Agreement
THEREFORE, based on the foregoing premises, the
Parties agree to settle the disputes that gave rise to the
Default Judgment on the following terms:
1. The above stated recitals are incorporated herein
by reference.
2. In exchange for valuable consideration from
EuroGas described in part below, FCDC will stipulate that
the Default Judgment be vacated and accepts the terms,
obligations, and commitments of this Agreement in full
satisfaction of the Default Judgment.
3. Simultaneously with the filing of a joint motion
by FCDC and EuroGas to vacate the Default Judgment, EuroGas
will file a notice withdrawing its Amended Motion to Set
Aside Default Judgment, filed June 12, 2000, without
prejudice.
4. EuroGas will issue to FCDC, or to no more than 5
parties FCDC may designate (which are qualified or
accredited investors under applicable securities laws),
3,700,000 shares of fully paid and nonassessable EuroGas
common stock, which shares will be registered for resale
under Rule 415 with the Securities and Exchange Commission
("SEC") by the submission of a Form S-3 no later than June
30, 2000 so that they will be fully tradable upon SEC
approval. (Hereinafter, the term FCDC shall be construed to
mean FCDC or its designee). FCDC will provide a letter to
EuroGas confirming that it owes its creditors (not including
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Slovgold Mining A.G.) principal in the amount of $2.6
million. FCDC shall sign a subscription agreement in the
usual and customary form in connection with the issuance of
such shares.
5. EuroGas will issue to FCDC, or to any party FCDC
may designate, an option for 3,000,000 shares of EuroGas
common stock (the "Option"), to be registered for resale
under Rule 415 through the same Form S-3 mentioned in the
preceding paragraph. The Option shall not be exercisable
before 1 year after the date the Option is issued and shall
have a strike price equal to 80% of the closing price of
EuroGas common stock on the signing date of this Agreement.
The Option shall expire 30 days after it becomes
exercisable.
6. EuroGas guarantees that FCDC will, no later than
1 year after the Option is issued, be able to exercise the
Option and sell the resulting freely tradable shares. If,
as a result of any act or omission on the part of EuroGas,
the shares acquired under the Option (the "Option Shares")
are not freely tradable into the public markets on the date
of any exercise of the Option, then EuroGas will pay FCDC
liquidated damages at a rate of $8,333.33 per day until such
time as EuroGas takes the necessary steps to ensure the
freely tradable condition of the Option Shares.
7. As an essential condition of the contract,
EuroGas agrees to the following mechanism designed to
guarantee that FCDC will receive cash or other consideration
equal to the difference between the strike price and $3 per
share as to the shares acquired under the option (the
"Option Shares"):
a) The exercise of the Option will be cashless if
both FCDC and EuroGas so agree; otherwise, FCDC must pay the
strike price on the date the Option is exercised (the
"Exercise Date").
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b) If the closing price of EuroGas common stock is
less than $3.00 per share on the Exercise Date, EuroGas will
pay FCDC the difference between the amount FCDC would have
received from the sale of its Option Shares at the closing
price on the Exercise Date and the amount FCDC would have
received if it had sold its Option Shares at a price of $3
per share (such difference being called the "Initial
Shortfall").
c) In order to satisfy the Initial Shortfall,
EuroGas will do one or any combination of the following
(although the choice among the following options will be in
EuroGas's sole discretion): (i) reduce the strike price that
FCDC must pay to acquire the Option Shares, with the
reduction in strike price being credited against the Initial
Shortfall as it would exist if the strike price had not been
reduced, (ii) pay FCDC the amount of the Initial Shortfall
in cash or (iii) issue to FCDC, within one month after the
Exercise Date, enough additional freely tradable shares (the
"Initial Top-Up Shares") to make up the Initial Shortfall if
sold at the closing price of the stock on the day before the
Initial Top-Up Shares are issued. To the extent the Initial
Shortfall is reduced through a change in the strike price of
the Option or through cash, that reduction will be called
the "Shortfall Credit."
d) Regardless how the Initial Shortfall is
satisfied, for each successive thirty-day period commencing
on the Exercise Date (each such period being called a
"Monthly Interval"), FCDC shall be deemed to sell 400,000 of
the Option Shares-at a price (hereinafter called the
"Monthly Interval Price") equal to ninety percent of the
highest price at which EuroGas common stock traded on the
NASDAQ over-the-counter market during each Monthly
Interval-until all such shares are deemed sold. If the
amount FCDC is deemed to have received from the deemed
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aggregate sale of such Option Shares, plus any Shortfall
Credit (but not including the market value of any Initial
Top-Up Shares) is equal to or greater than the amount FCDC
would have received if it had sold its Option Shares at the
price of $3 per share, then EuroGas's remaining obligations
under this Agreement shall cease, and FCDC shall pay to
EuroGas the balance due, if any, from the exercise of the
Option.
e) If FCDC is not deemed to have received a
minimum average price of $3 per share for its Option Shares
as calculated in subparagraph 7(d) above and any Initial Top-
Up Shares have been issued, then commencing 30 days after
the end of the last Monthly Interval in which Option Shares
are deemed to be sold, for each successive Monthly Interval,
FCDC shall be deemed to sell 400,000 of the Initial Top-Up
Shares at the Monthly Interval Price until all such shares
are deemed sold.
f) Regardless whether any Initial Top-Up Shares
were issued (but after the deemed sale of such shares if any
were issued), if (i) the amount FCDC is deemed to have
received from the deemed aggregate sale of the Option Shares
and Initial Top-Up Shares (if any), plus any Shortfall
Credit, is less than (ii) the amount FCDC would have
received if it had sold its Option Shares at the price of $3
per share, then EuroGas will pay FCDC the difference between
those two amounts (such difference being called the "Second
Shortfall"). If there is no Second Shortfall, then
EuroGas's remaining obligations under this Agreement shall
cease, and FCDC shall pay to EuroGas the balance due, if
any, from the exercise of the Option.
g) In order to satisfy the Second Shortfall,
EuroGas will do one or any combination of the following
(although the choice among the following options will be in
EuroGas's sole discretion): (i) (if the exercise of the
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Option was cashless and the price has not yet been paid)
reduce the strike price that FCDC must pay to acquire the
Option Shares, with the reduction in strike price being
credited against the Second Shortfall as it would exist if
the strike price had not been reduced, (ii) pay FCDC the
amount of the Second Shortfall in cash or (iii) issue to
FCDC, within one month after the last Monthly Interval in
which Option Shares or Initial Top-Up shares (if any) are
deemed to be sold, enough additional freely tradable shares
(the "Second Top-Up Shares") to make up the Second Shortfall
if sold at the closing price of the stock on the day before
the Second Top-Up Shares are issued. To the extent the
Second Shortfall is reduced through a change in the strike
price of the Option or through cash, such reduction will be
added to and become part of the Shortfall Credit.
h) If the Second Shortfall is satisfied in whole or
in part through the issuance of Second Top-Up Shares, for
each Monthly Interval after the Second Top-Up Shares are
issued, FCDC shall be deemed to sell 400,000 of the Second
Top-Up Shares at the Monthly Interval Price until all such
shares are deemed sold. If, after those deemed sales, (i)
the amount FCDC is deemed to have received from the deemed
aggregate sale of Option Shares, Initial Top-Up Shares and
Second Top-Up Shares, plus any Shortfall Credit, is less
than (ii) the amount FCDC would have received if it had sold
its Option Shares at the price of $3 per share, then EuroGas
shall pay FCDC in cash, within 30 days, the difference
between those two amounts (such difference being called the
"Third Shortfall"). If there is no Third Shortfall, then
EuroGas's remaining obligations under this Agreement shall
cease, and FCDC shall pay to EuroGas the balance due, if
any, from the exercise of the Option.
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i) EuroGas will provide an opinion of counsel
confirming the legality of the proposed guarantee mechanism
in this paragraph 7.
8. As further security to ensure EuroGas's
performance of the obligations described in paragraphs 4
through 7 of this Agreement, and to secure payment of the
Third Shortfall, EuroGas will cause its Austrian subsidiary
EuorGas GmbH to pledge its stock in Rima Muran S.R.O., which
indirectly holds 24% of the Gemerska-Poloma talc deposit in
eastern Slovakia. If EuroGas fails to fulfill the
obligations described in paragraphs 4 through 7 or to cure
the Third Shortfall within 30 days after receiving a request
by FCDC for performance or for cure, then FCDC may sell the
pledged shares in Rima Muran S.R.O. EuroGas shall not be
liable to make up any portion of the Third Shortfall not
satisfied by the sale of the pledged shares. If EuroGas
fully performs its obligations described in paragraphs 4
through 7 and, if necessary, pays the Third Shortfall in a
timely manner, then FCDC shall release the pledge.
9. EuroGas GmbH guarantees the performance of
EuroGas's obligations under this Agreement and will be
liable for any shortfall not satisfied by the sale of the
pledged shares described in the preceding paragraph.
EuroGas GmbH may undergo a change in structure or
reconstitution, including but not limited to the dissolution
of EuroGas GmbH, so long as all of the assets of EuroGas
GmbH are transferred to another European company which
agrees to this same guarantee.
10. FCDC agrees not to sell more than 400,000
shares of EuroGas common stock received or acquired under
this settlement agreement per month on the open market.
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11. EuroGas agrees to recommend to its board of
directors that, as Director of FCDC, Mr. Didier Colom be
considered for nomination to EuroGas's board of directors.
In the course of the negotiations on May 24, 2000, Mr. Karl
Arleth made clear EuroGas's position that members of the
EuroGas board of directors should be persons with knowledge,
skills, relationships or other assets useful to the
development of EuroGas's business. FCDC has proposed the
nomination of Mr. Colom to the EuroGas board of directors
not simply to protect FCDC's interests but to provide a
candidate who is well positioned and willing to participate
in helping EuroGas grow its business profitably.
12. EuroGas will provide FCDC with periodic
updates, at least once a month, on the progress of (a)
settlement negotiations with respect to lawsuits in which
EuroGas is a party, and (b) negotiations with Teton
Petroleum Company with respect to the transactions
contemplated in the Master Transaction Agreement.
13. EuroGas and FCDC will mutually release each
other and their respective affiliates, subsidiaries, agents,
officers, and attorneys from liability for all claims
arising either out of the Registration Rights Agreement that
is the subject matter of the litigation underlying the
Default Judgment, or out of the litigation resulting in the
Default Judgment.
14. This Agreement is not contingent upon the
resolution of any disputes or satisfaction of any
obligations between FCDC and its creditors (including
Slovgold Mining A.G., its successors or assigns), and
EuroGas specifically does not agree, nor is it agreeing, to
indemnify FCDC on FCDC's obligation to any such creditors.
15. This Agreement is subject to the approval of
the Board of Directors of EuroGas and Teton, which approval
shall be obtained within 14 days.
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16. The terms of this agreement are confidential to
the parties, their successors, assigns, officers, directors,
agents, attorneys, and shareholders. Each Party to this
Agreement agrees not to disclose the terms of this Agreement
to third parties not listed in the preceding sentence
without the written consent of the other Party, except
pursuant to court order, unless in the good faith judgment
of such party such disclosure is required by law or is
necessary in connection with endeavoring to enforce or
require performance or observance of any of the terms or
provisions of this Agreement.
17. The Parties acknowledge, represent, and
warrant that:
(i) they have carefully read and understand the effect
of this Agreement and that they have had the assistance of
legal counsel in reviewing, discussing, and considering all
the terms of this Agreement, and counsel for each of the
Parties have read and considered this Agreement and advised
such Party to execute the Agreement;
(ii) no Party's execution of this Agreement is based on
any reliance on any representation, understanding, or
agreement not expressly set forth herein, and no Party has
made any representations to any other Party other than as
expressly set forth herein;
(iii) each Party executes this Agreement as a free and
voluntary action, without any duress, coercion or undue
influence exerted by or on behalf of any other Party;
(iv) acceptance of this Agreement is in no way an
admission of any fault or liability by any of the parties;
(v) they are the sole owners of the claims or causes of
action to be released in this Agreement; none of the Parties
has conveyed or assigned any interest in any such claims or
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causes of action to any person or entity not a party hereto;
and no person or entity other than the Parties to this
Agreement is necessary to fully release all claims and
causes of action arising out of the transactions and
occurrences that are the subject of the Agreement;
(vi) each of the individuals signing this Agreement has
the full and complete authorization and power to execute the
Agreement in the capacity stated;
(vii) subject to paragraph 15 above, this Agreement is
a valid, binding and enforceable obligation of each of the
Parties and does not violate any law, rule, regulation,
contract or agreement; and
(viii) no amendment of this Agreement will be effective
unless such amendment is in writing and signed by both
Parties.
18. This Agreement shall be construed in accordance
with the laws of the State of Utah. The Parties agree that
any disputes arising under this Agreement shall be litigated
in the United States District Court for the District of
Utah, Central Division.
19. This Agreement may be executed in multiple
counterparts, each of which when signed by a party shall be
deemed an original and all of which shall constitute but one
and the same agreement.
____________________________ ________________________________
FINANCE & CREDIT DEVELOPMENT EUROGAS, INC.
CORPORATION, LTD.
By: Didier Colom, Director By: /s/ Karl Arleth
--------------------------
Karl Arleth, President
& Chief Executive Officer
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