EXHIBIT 10.1
CONFIDENTIAL-MASTER COPY
March 18, 1998
Omimex Resources, Inc.
0000 Xxxxx
Xxxx Xxxxx, Xxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxxxxx
President and Chief
Executive Officer
Gentlemen and Ladies:
This letter, when accepted by Omimex Resources, Inc., a Delaware
corporation, ("Omimex") in the manner provided below, will establish the basic
terms for business combination between Omimex and Saba Petroleum Company, a
Delaware corporation, ("Saba") . Subject to the conditions to the obligations of
each party, the preparation and execution of mutually acceptable agreements and
the approval of our respective Boards of Directors and the shareholders of Saba,
our agreement, is as follows:
1. Each party shall use commercially reasonable efforts to forthwith
prepare or cause to be prepared a mutually acceptable set of definitive
acquisition agreements, which when executed and performed shall cause Omimex to
be merged with and into Saba, solely in exchange for shares of the common stock,
$0.001 par value, of Saba (the "Stock"). The number of shares of the Stock which
will be issued will be determined by application of the formula specified in
paragraph 3 of this agreement (the "Transaction"). On consummation of the
transaction, the name of the surviving corporation shall be changed to Omimex
Resources, Inc. and the name "Saba" and all derivations thereof, shall be owned
by and remain with Saba Petroleum, Inc. ("SPI").
2. The form of the Transaction shall be determined by the parties with
the objective of effecting the Transaction at the earliest practicable date and
reducing the number of regulatory and administrative filings required to effect
the Transaction. To the extent practicable, shareholder approval of the
Transaction shall be sought by Saba at its Annual Meeting, which is to be held
about the end of May 1998. Prior to the time that Saba is required to file its
preliminary proxy materials with the Securities and Exchange Commission (the
"Commission"), Omimex shall endeavor to seek the approval of its shareholders to
the Transaction, to the end that such approval shall be disclosed in the
definitive proxy material of Saba.
3. The Transaction shall be effected in such manner that the division
of shares among the existing shareholders of Saba and the existing shareholders
of Omimex after giving effect to the Transaction, shall be based upon the Net
Asset Values of the respective companies as at the close of business on December
31, 1997, adjusted as provided in paragraph 6 of this agreement. The parties
shall cause the Net Asset Values of each of the companies to be determined
according to the formula contained in this agreement. In the Transaction, Saba
shall issue that number of shares of Stock to the shareholders of Omimex such
that, on a primary basis, the shareholders of Saba shall retain that proportion
of shares issued and outstanding at the consummation of the Transaction as the
Net Asset Value of Saba bears to the combined Net Asset Values of Omimex and
Saba, after making the adjustment provided for in paragraph 6. Net Asset Value
means the excess of the value of assets over the value of liabilities as shown
on the Consolidated Balance Sheet of the apposite company at December 31, 1997,
with the following adjustments:
a.) The account for Oil and Gas Properties
shall be eliminated and replaced by a dollar figure
representing the sum of the following; i ) the present worth,
calculated at a ten percent discount in accordance with the
requirements of the Commission of the proved reserves of the
company, ii) the present worth, calculated at a ten percent
discount in accordance with the standards of the American
Society of Petroleum Engineers ("SPE") of the probable
reserves of the company, multipled by twenty-five percent
(25%), iii) the present worth, calculated at a ten percent
discount in accordance with the standards of the SPE of the
possible reserves of the company, multiplied by ten percent
(10%), and (iv) 200 % of the Booked Cost of exploratory oil
and gas prospects;
b.) The account for Land shall be eliminated and replaced by
the fair market value of all real estate owned by the company.
The fair market value shall be determined by an appraiser
selected by mutual agreement of the parties, having knowledge
of the values of land in the locale in which such land is
situate and who on a regular basis provides appraisal services
for that type of land to banks and other financial
institutions in the locale; to the extent that oil and gas
producing properties are owned in fee by a company, the fair
market value of the land shall be determined in such manner as
to reflect the fact that its use is limited by the oil and gas
operations during the period in which the Engineers have
determined that the xxxxx on such land may be economically
produced;
c.) Any good will appearing on the balance sheet shall
be eliminated;
d.) The account for accumulated depreciation, depletion and
amortization shall be eliminated; and
e.) The accounts for Commitments and Contingencies and
Stockholders Equity shall be eliminated, but if the amounts
shown thereon at March 31, 1998 are materially greater than
the amounts shown as at September 30, 1997 there shall be an
appropriate adjustment to the Net Asset Values to reflect the
increase;
f.) In the case of Saba, the asset accounts, to the extent not
adjusted in accordance with other provisions of this section,
shall be adjusted by eliminating therefrom the carrying cost
of the assets which are to be distributed to its shareholders
in accordance with paragraph 4. b.)of this agreement and the
liabilities shall be reduced by those assumed by SPI in
accordance with such paragraph.
In determining future net revenues for each of the companies, the engineers
evaluations prepared for the respective companies by Netherland, Xxxxxx &
Company (with respect to all properties save Canada) and Xxxxxxx & Associates
and Xxxxx-Xxxxx & Company (collectively, the "Engineers") as at January 1, 1998
shall be employed. It is recognized that the companies have interests in common
properties and that the valuations of such properties should be proportionate to
the interests of the companies therein, save with respect where Omimex is the
operator of one or more of such properties, in which case a reasonable
proportionate increase in the present worth of such property will exist to
reflect the value of the operator's position.
For purposes of this paragraph 3, Booked Cost shall mean the sum of all payments
made to third parties to secure, maintain or preserve a property interest,
including bonuses, geological and geophysical expense, accumulated rentals and
the cost of purchasing seismic and other geophysical and geochemical data
respecting the property, and shall include an allocation of general and
administrative expenses and the salaries and fringe benefits of employees of the
apposite company. In the case of the Aughton Prospect, such costs shall also
include drilling, testing and completion costs, unless at the date of the
Closing the apposite prospect shall have had a dry test well drilled by Saba on
such prospect, in which case all costs relating to such prospect shall be
eliminated.
4. The definitive agreements shall contain warranties and
representations and conditions to closing all of which are customary for
transactions of the nature of the Transaction. In addition, the closing of the
Transaction shall be conditioned upon:
a) Issuance of a fairness opinion to the Board of Directors of
Saba to the effect that the Transaction is fair from a
financial point of view to Saba and its shareholders, that, in
the opinion of the investment banking firm rendering such
opinion (which shall be a firm of Saba's choice) the
consummation of the Transaction will not cause an adjustment
to the conversion or exercise prices, respectively, of Saba's
6% Senior Subordinated Debentures or the Warrants issued in
connection with the issuance of such Debentures or in the
conversion price of Saba's 9% Convertible Subordinated
Debentures;
b) The divestiture, in the form of a divisive reorganization
or such other mechanism as shall be mutually acceptable
to the parties which shall accomplish the same purpose
without adverse tax consequences to either party or its
shareholders, by Saba of all of its California and Indonesian
assets, including the Behemoth Prospect and the well
drilling thereon, the Cat Canyon oil field and all of the
stock of Santa Xxxxx Refining Company, subject to the
following: i) debt associated with such assets owned to
BankOne Texas, amounting to approximately $5.9 million (with
the exact amount to be verified prior to closing), and ii)
all other liabilities, matured or contingent, directly
related to such assets; the same to occur simultaneously with
the Transaction, and the receipt by Saba of an opinion
of counsel of Saba's choice, in form and substance
satisfactory to Saba, to the effect that such divestiture will
not be treated as a dividend taxable upon receipt to the
shareholders of Saba;
c) The receipt by each of the parties of an opinion from their
respective counsel in form and substance satisfactory to such
party, to the effect that the Transaction will be treated as a
reorganization under section 368(a) of the Internal Revenue
Code and that neither corporation nor its shareholders shall
recognize income as a consequence thereof;
d) The approval of the Transaction by the shareholders of Saba;
e) The approval for listing on the American Stock Exchange, upon
official notice of issuance, of the shares of Stock to be
issued to the shareholders of Omimex in the Transaction;
f) The receipt of all material governmental approvals requisite
to the consummation of the Transaction, including the
expiration of the waiting period under the Xxxx-Xxxxx-Xxxxxx
Anti-trust Improvements Act;
g) The agreement shall include a warranty and representation from
Saba to the effect that it is then in material compliance with
the public reporting requirements under the Securities
Exchange Act of 1934, as amended; and
h) Issuance of fairness opinion to Omimex from advisors of its
choice that the transaction is fair to Omimex and satisfaction of
Omimex, by way of the fairness opinion described above that the
distribution of the assets pursuant to paragraph 5 below, will
not materially and adversely affect the ability of the merged
company to support its debt.
5. The Transaction shall be structured in such a manner as to avoid the
recognition of income or loss to any party or its shareholders and to create
operational efficiencies for each of the parties. To such end, at the
consummation of the transaction, all of the California and Indonesian assets of
Saba shall be transferred, subject to liabilities, to SPI. and the shares of
such corporation distributed to the shareholders of Saba as at the record date
selected by Saba or, if counsel advises that the same cannot be accomplished
without incurring adverse tax consequences, the Transaction shall be modified in
such manner as shall be mutually acceptable to both parties and which shall
achieve the same objective without incurring adverse tax consequences. In
structuring the transaction, recognition shall be given to the fact that Omimex,
as a business matter, has chosen not to operate in the State of California or
the Republic of Indonesia and that the reason for the requirement of the
distribution of the stock of SPI to shareholders of Saba is Omimex's refusal to
consummate the transaction if California and Indonesian operations are included.
Omimex presently holds an interest in the California properties listed on
Exhibit A to this agreement which it shall dispose of prior to the consummation
of the Transaction.
6. The effective date of the Transaction shall be March 31, 1998 or
such other date as the parties shall mutually agree. The Net Asset Values of the
companies shall be adjusted to the effective date. Such adjustment shall be made
in accordance with customary practices, except that the Net Asset Values of oil
and gas properties shall be adjusted by reducing the volumes of oil and gas
produced to such date multiplied by the assumed price employed by the Engineers
in their respective reserve studies. Saba presently has outstanding its Series A
Convertible Preferred Stock (the "Preferred Stock"), which is convertible and
redeemable at 115% of stated value, which is $10 million. An adjustment to
Saba's Net Asset Value to reflect the existence of the Preferred Stock in the
amount of $11.5 million shall be made to treat the Preferred Stock as if it were
debt.. At closing, there shall be a further adjustment to Saba's Net Asset Value
to reflect any conversions of the Preferred Stock by crediting Saba's Net Asset
Value with 115% of the stated value of any Preferred Stock then converted. A
similar adjustment shall be made to reflect the conversion of any of Saba's 9%
Convertible Subordinated Debentures. In addition, Saba's Net Asset Value shall
be increased to reflect its acquisition subsequent to December 31, 1997 of
additional interests in its Potash Dome and Manila Village properties. Each
party shall bear its own legal and accounting costs in respect of the
Transaction and the Net Assets Values of each shall be adjusted based upon
reasonable estimates thereof. The costs of CIBC-Xxxxxxxxxxx, which has been
retained by Saba, shall be charged against the Net Asset Values of Saba to the
extent that such charges are for brokerage or financial advisory services; the
costs of such firm in respect of rendering a fairness opinion shall be borne by
the merged company and shall not result in an adjustment of Net Asset Values.
7. Pending the Closing, each party shall conduct its business in the
ordinary course and not make or commit to make any expenditures in excess of
$50,000 in a single or related series of transactions without the consent of the
other party, which consent will not be unreasonably withheld. The foregoing
shall not prevent any party from fulfilling contractual obligations presently
existing requiring the expenditure of sums in excess of such amounts. Pending
the Closing, neither party will dispose of any material assets, declare, set
aside or pay any dividends, enter into any partnerships, joint ventures or other
arrangements not in the ordinary course of business. No party without the
consent of the other shall issue or commit to issue any material amount of
capital stock or securities convertible into capital stock, except that Saba
shall be permitted to incur straight debt not in excess of $75 million, either
publicly, institutionally or a combination on such terms as its Board of
Directors may approve and may fulfill outstanding commitments. Any costs
incurred in obtaining such debt shall be the responsibility of Saba, unless the
Transaction is consummated, in which case the same shall be the obligation of
the merged company.
8. Pending execution of definitive agreements, neither party will make
any public announcement respecting the matters contained herein without the
prior written consent of the other, save any announcement which, upon the
written advice of counsel, is required of a party to comply with the
requirements of federal securities laws or the regulations of a national
securities exchange or market system.
9. This agreement and the definitive agreements shall be subject to the
approval of the Boards of Directors of each of Saba and Omimex, which each party
shall seek to obtain no later than March 17, 1998 and as soon as practicable
after agreement has been reached on definitive agreements, respectively. Each of
such agreements shall be governed by the laws of the State of California
relating to contracts executed and to be performed within such state, except
that with respect to matters relating to corporate governance, the laws of the
respective state of incorporation shall apply. No action shall be maintained on
or with respect to this letter in any court other than a federal or state court
siting in the Southern District of California or the County of Santa Xxxxxxx,
respectively, it being the agreement of the parties that such courts shall have
exclusive jurisdiction over any disputes arising under or with respect to this
letter. The parties agree to arbitrate any disputes arising hereunder in
accordance with the rules of commercial arbitration of the American Arbitration
Association, such arbitration shall be shared by the parties equally. An
arbitral award shall be subject to judicial review and the arbitrator shall have
no authority to award other than compensatory damages. The arbitrator shall have
no authority to modify the terms of this agreement.
10. The definitive agreements shall provide a reasonable period of time
for the parties and their respective consultants to conduct and satisfy itself
with the results of a due diligence of the other, its assets and liabilities and
to ensure that the warranties and representations made by such party shall be
true as at the Closing. The Closing shall be held at the offices of Saba in
Santa Maria, California or at such other place as shall be mutually agreeable.
All warranties and representations shall expire on the Closing.
11. The definitive agreements shall further provide that the executive
offices of the merged company upon consummation of the Transaction shall be
located in Fort Worth, Texas, that Xx. Xxxxxx X. Xxxxxxxx shall be the President
and Chief Executive Officer, and that the members of the Board shall be five,
two of which shall be nominated by the present shareholders of Saba and three of
which shall be nominated by the present shareholders of Omimex.
12. If definitive agreements shall not have been agreed upon and
executed by April 15, 1998, this agreement shall then terminate and neither
party that has acted reasonably and in good faith in an effort to achieve a
mutually agreeable set of definitive agreement consistent with the terms hereof
shall have any liability or obligation to the other by reason of such failure to
agree; provided that the Board of Saba in the exercise of its fiduciary duties
may receive and consider offers, solicited and unsolicited, competitive with
this agreement and may in the exercise of such duty accept one or more of such
offers and discontinue efforts to reach a definitive agreement.
13. A party may terminate this agreement and any obligation to further
negotiate or perform it obligations hereunder or under the definitive
agreements, without incurring any liability to the other party should the number
of shares of Stock to be issued to the shareholders of Omimex in the Transaction
be less than fifty-five percent (55%) or more than sixty percent (60%) of the
shares outstanding immediately after consummation of the Transaction.
14. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective twp days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to Saba:
Saba Petroleum Company
0000 Xxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
If to Omimex:
Omimex Resources, Inc.
5608 Xxxxx
Xxxx Xxxxx, Xxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
15.The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
If the foregoing provides an accurate recapitulation of our
understanding and a binding agreement on the part of Omimex, kindly so indicate
by signing and returning on copy of this letter prior to March 16, 1998, after
which this letter may no longer be accepted and will terminate if not
theretofore accepted.
Very truly yours,
SABA PETROLEUM COMPANY
By/s/
Xxxxx Xxxxxxxxx, President
ACCEPTED AND AGREED TO
ON THIS DAY OF MARCH 1998
OMIMEX RESOURCES, INC.
By/s/
Xxxxxx Xxxxxxxx,
President and Chief Executive Officer
