SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998 File No. 0-09482
COLORADO WYOMING RESERVE COMPANY
(Name of Small Business Issuer as Specified in its Charter)
WYOMING 83-0246080
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
751 HORIZON COURT, SUITE 205, GRAND JUNCTION, COLORADO 81506
(Address of Principal Executive Office)
Issuer's telephone number including area code: (970) 255-9995
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK; $.01 PAR VALUE
Title of Class
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES NO X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State Issuer's revenues for its most recent fiscal year: $32,798
As of December 16, 1998, 2,491,694 shares of common stock $.01 par value were
outstanding. The aggregate market value of voting stock held by non-affiliates
of the Registrant was $2,527,315 based on the average bid and ask price of
the Company's Common Stock of $1.531, as reported by the NASD on the OTC
Bulletin Board System on December 16, 1998.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) Business Development. Colorado Wyoming Reserve Company (formerly Mystique
Developments, Inc.) ("CWYR" or the "Company"), with its mailing address at 751
Horizon Court, Suite 205, Grand Junction, Colorado 81506, telephone number (970)
255-9995, was incorporated as a Wyoming corporation on November 7, 1979. CWYR
was organized for the purpose of engaging in oil and gas activities including
exploration for and development and production of oil and gas reserves.
(b) Business of Issuer
GENERAL
The Company is an oil and natural gas exploration and production company with a
geographical focus in the Rocky Mountain region of the western United States.
Management's primary objective is the acquisition of interests in undeveloped
oil and gas properties, and the location and development of economically
attractive accumulations of hydrocarbons in such properties through the use of a
highly-integrated, interpretive approach to the application of 3-D geophysical
data (seismic data acquired and processed to yield a three-dimensional picture
of the subsurface). The Company's acquisitions of undeveloped oil and gas
properties are accomplished primarily by the acquisition of direct mineral
leasehold interests from private, state and federal lands.
The Company is currently focusing its exploratory efforts in the central Paradox
Basin area of southeastern Utah (the "Paradox Basin Project"), having sold its
North Dakota properties in November 1998. See Item 12 - "Certain Relationships
and Related Transactions" and Note 8 to the Financial Statements "Subsequent
Events." The Paradox Basin Project will utilize geoscientists and technology
that have had previous success in the Paradox Basin, and will focus on areas
previously under-explored by conventional methodology. CWYR has access to
results of exploratory drilling in the Project area which will supply a database
of subsurface geologic information to assist the Company in determining the best
location for a 3-D seismic survey.
Currently, however, the Company has no revenue stream to finance a 3-D seismic
survey, and is continuing to incur financial obligations for general and
administrative expense items. Since it had less than $10,000 cash at December
14, 1998, the Company's development of the Paradox Basin Project and continued
existence is dependent upon its ability to raise additional capital in the
immediate future. Accordingly, the Company is considering various financing
alternatives. See Item 6 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EQUIPMENT, PRODUCTS AND RAW MATERIALS
CWYR owns no drilling rigs, and drilling, if any, will be accomplished by
independent contractors, typically on a footage or day rate basis, for which the
Company may bear the risks of fire, blowout or other catastrophe to its
property.
As of June 30, 1998, only one of the Company's oil and gas wells was producing.
As noted above, subsequent to the fiscal year end, the Company sold all of its
developed acreage and currently owns only leasehold interests in undeveloped
acreage in the Paradox Basin.
The existence of commercial oil and gas reserves is essential to the ultimate
realization of value from the Company's presently-undeveloped properties. The
acquisition, development, production and sale of oil and gas is subject to many
factors which are outside the Company's control. These factors include national
and international economic conditions, market forces, transportation
constraints, geologic anomalies, production limitations, availability of
drilling rigs, casing, pipe and other fuels, and regulation by federal and state
governmental authorities. CWYR acquires leasehold interests in oil and gas
properties from landowners, other owners of interests in such properties, or
governmental entities. For information relating to specific properties of CWYR,
see Item 2.
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<PAGE>
COMPETITION
There is significant competition for the acquisition of properties capable of
producing oil and gas, as well as for the equipment and labor required to
develop and operate such properties. Many of the Company's competitors have
financial resources and exploration and development budgets that are
substantially greater than those of the Company, which may adversely affect the
Company's ability to compete with those companies in the acquisition of
attractive oil and gas properties on terms it considers acceptable. In addition,
the Company will face competition for the sale of its oil and gas, should such
be produced, from a substantial number of companies, many of which have greater
financial or other resources than the Company.
REGULATION
If the Company is successful in developing the Paradox Basin Project, the
availability of a ready market for its oil and gas production will depend upon
numerous factors beyond the Company's control. These factors include regulation
of natural gas and oil transportation, federal and state regulations governing
environmental quality and pollution control, the amount of natural gas and oil
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
State and federal regulations generally are intended to prevent waste of natural
gas and oil, protect rights to produce natural gas and oil between owners in a
common reservoir, and control contamination of the environment.
Sales of crude oil, condensate and gas liquids are currently not subject to
federal regulation and are made at market prices. The state of Utah, in which
the Company's properties are located, regulates the production and sale of
natural gas and oil, including requirements for obtaining drilling permits, the
method of developing new fields, the spacing and operation of wells and the
prevention of waste of natural gas and other resources. Such provisions may
restrict the number of wells that may be drilled on a particular lease or in a
particular field. Recent trends indicate increased state and local regulation of
oil and gas activities and pipeline operations which may impact the Company's
operations; however, these impacts are not expected to be significant.
ENVIRONMENTAL LAWS
The Company's operations are subject to numerous laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental or cultural resource protection. These laws and regulations may
(a) require the acquisition of a permit prior to constructing a drill site,
commencing drilling or constructing pipelines; (b) restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities; (c) limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands,
culturally sensitive and other protected areas; and (d) impose substantial
liabilities for pollution resulting from the Company's operations. Moreover, the
recent trend toward stricter standards in environmental legislation and
regulations is likely to continue. Existing, as well as future legislation and
regulations, could cause additional expense, capital expenditures, restrictions
and delays in the development of properties, the extent of which cannot be
predicted. Management believes that the Company is in substantial compliance
with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse impact on
the Company. Since inception, the Company has not been required to make any
material expenditures with respect to compliance with environmental laws and
does not expect to make any material expenditures during the current and
following fiscal year.
EMPLOYEES
As of June 30, 1998, the Company had one part-time employee. The Company employs
consultants as needed.
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<PAGE>
ITEM 2. PROPERTIES
The Company's principal office is located at 751 Horizon Court, Suite 205, Grand
Junction, Colorado 81506.
PRODUCING WELLS AND ACREAGE. The following table sets forth CWYR's total gross
and net productive oil and gas wells and developed acreage:
PRODUCTIVE WELLS AND ACREAGE
JUNE 30, 1998
WELLS
-----------------------------------
ACREAGE GROSS NET
--------------- ----------------- ---------------
GROSS NET OIL GAS OIL GAS
------- ------ ------- -------- ------- ------
North Dakota 241 227 7* 0 6.30 0.00
* Only one of the seven wells is currently producing.
UNDEVELOPED ACREAGE
GROSS NET
-------- ---------
North Dakota 3,766 2,922
Utah 52,918 52,918
-------- ---------
56,684 55,840
======== =========
CWYR's oil and gas properties are in the form of mineral leases. As is customary
in the oil and gas industry, a preliminary investigation of title is made at the
time of acquisition of undeveloped properties. Title investigations are
generally completed, however, before commencement of drilling operations. CWYR
believes that its methods of investigating are consistent with practices
customary in the industry and that it has generally satisfactory title to the
leases covering its proved reserves. In connection with a financing transaction
subsequent to the fiscal year end, the Company granted an interest in all of its
remaining properties to secure the repayment of a bridge loan in the principal
amount of $120,000 from The James E. Moore Revocable Trust, u/d/t dated July 28,
1994 (the "Trust"). If the loan is not repaid by its due date of January 15,
1999 or if the Company defaults under any provision of the loan agreement, the
Trust may foreclose on all of the Company's properties and force a sale of such
properties to repay the Company's indebtedness. For additional discussion about
the terms of the bridge loan, see Note 8 to the Financial Statements "Subsequent
Events," and Item 12 - "Certain Relationships and Related Transactions."
During fiscal 1998 and 1997:
o There have been no reserve estimates filed with any other United States
federal authority or agency.
o The Company was not a party to any long-term supply or similar agreements
with foreign governments or authorities in which CWYR acted as a producer.
o The Company drilled no productive or dry exploratory or development wells.
o The Company was not (nor is it currently) obligated to provide a fixed and
determinable quantity of oil and gas pursuant to any contracts or
agreements.
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<TABLE>
<CAPTION>
AVERAGE SALES PRICE AND PRODUCTION COST
------------------------------------------------------------------------------
1998 1997
--------- ----------
<S> <C> <C>
Average sales price per equivalent barrel of oil $ 15.49 $ 19.77
Average production (lifting) cost per equivalent $ 15.96 $ 20.12
barrel of oil (1)
</TABLE>
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(1)Natural gas equivalents are determined using a ratio of six MCF of natural
gas to one BBL of crude oil.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Annual Report, no
matter was submitted to a vote of CWYR's security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock of CWYR is traded on the OTC Bulletin Board System. The
following table sets forth the high and low bid prices of the Common Stock as
reported by the NASD in the over-the-counter market for the periods indicated.
The bid prices represent prices between dealers, without retail markups,
markdowns or commissions, and may not represent actual transactions. Public
trading in the Common Stock of CWYR is minimal.
FOR THE QUARTER ENDED LOW HIGH
-------------------------- -------- --------
September 30, 1996 No Bid No Bid
December 31, 1996 $ 0.75 $2.00
March 31, 1997 $ 2.00 $4.25
June 30, 1997 $ 3.00 $3.37
September 30, 1997 $ 2.00 $3.00
December 31, 1997 $ 1.13 $2.00
March 31, 1998 $ 1.13 $3.56
June 30, 1998 $ 1.44 $3.13
The number of record holders of Common Stock of CWYR as of December 16, 1998,
was approximately 2,744. The closing price as of that date, as quoted by the
NASD OTC Bulletin Board under the symbol "CWYR," was $1.375.
Holders of Common Stock are entitled to receive dividends as may be declared by
the Board of Directors out of funds legally available therefor. No dividends
have been declared to date by CWYR, nor does CWYR anticipate declaring and
paying cash dividends in the foreseeable future.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, CWYR had no cash and, after the fiscal 1999 property sale
described below and short term financing obtained by the Company during November
1998, had less than $10,000 cash at December 14, 1998. Further, the Company
currently has no revenues and continues to incur obligations related to certain
general and administrative expense items. The Company's existence is contingent
upon its ability to raise additional capital in the very near future.
The Company is currently reviewing financing alternatives with the view to
raising that capital. Continued development of the Company's only significant
asset, the Paradox Basin Project (see below) is dependent on success of the
capital raising efforts. Since the Company has negative operating cash flow, the
capital raised must be sufficient to cover day-to-day operations as well as
development of the Paradox Basin Project. Failure to raise the capital could
lead to liquidation of the CWYR's assets on terms unfavorable to the Company. No
firm commitment from a capital source presently exists.
During the fiscal year ended June 30, 1997, the Company pursued a strategy of
identifying and acquiring Rocky Mountain natural gas producing properties with
development potential. However, relatively high Rocky Mountain natural gas
prices together with perceptions of a strong future pricing environment, created
a situation that precluded the Company from consummating a producing property
purchase on terms which would allow for an adequate return on the Company's
capital.
Given the preceding, during fiscal 1998 the Company revised its strategy and
entered into an exploration joint venture and a merger agreement. In conjunction
with the merger agreement, the Company amassed a block of exploratory acreage in
the Paradox Basin (Utah). To date, the Company has acquired a total of
approximately 53,000 acres and, subject to financing, could acquire additional
acreage. The project will require 3-D seismic surveys in order to determine if
the acreage is likely to contain hydrocarbons and whether drilling will be
economically feasible. Initially, a 26-square mile seismic shoot would be
conducted. CWYR has undertaken discussions with several seismic companies in an
effort to arrange a financing plan which would provide for the Company's
financial obligation to be conditioned upon successful identification and
definition of a well site(s). It is anticipated that the Company would have
complete access to (although not ownership of) the seismic data.
Pursuant to the joint venture mentioned in the preceding paragraph, the Company
purchased a once producing field in North Dakota from a financially distressed
entity. The purchase included seven producing wells, a saltwater disposal well
and a total of 1,300 acres. Subsequently, an additional 1,700 developmental
acres have been acquired. However, in order to raise cash for its short term
obligations, the Company sold the property subsequent to June 30, 1998. See Item
12 "Certain Relationships and Related Transactions" for additional discussion
about the sale of such property.
OPERATIONS. Increases in general and administrative expense during fiscal 1998,
combined with lower 1998 revenues, resulted in the higher 1998 deficit.
INVESTING. The asset sale proceeds realized during fiscal 1998 were derived from
the sale of the Company's undeveloped Canadian property and various producing
properties. The purchase of the Paradox Basin acreage and the North Dakota
property accounted for the fiscal 1998 property acquisition expenditures.
RESULTS OF OPERATIONS
OIL AND GAS OPERATIONS. The Company's producing properties operated at virtually
breakeven cash flow in both fiscal 1998 and 1997; at the present oil price, they
would operate at a loss. Given the marginal nature of the properties, all but
one were put up for sale during fiscal 1998 and the last property was sold
during November 1998. The fiscal 1998 exploration cost reflects the exploratory
activity undertaken by the Company during the past year.
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<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSE. Prior to the quarter ended December 31, 1996
(the second quarter of fiscal 1997), the Company's common stock had not traded
for a number of years. During fiscal 1997's second quarter, the Company raised
private equity capital and the Company's new management undertook to increase
awareness of the Company in the investment community. As a result, the Company's
shares began trading on a limited basis.
Additionally, the Company hired a president and began actively pursuing its
business strategy of developing 3-D seismic projects in the Rocky Mountain and
northern plains regions.
The effect of running a more active company is reflected in the increase in
general and administrative expense during fiscal 1998 versus fiscal 1997.
Specifically, salary expense, professional fees and management fees all were
significantly higher during fiscal 1998. The Company printed and distributed its
June 30, 1997 annual report to shareholders in conjunction with its annual
meeting held in October 1997 and negotiated and closed a merger during fiscal
1998; no comparable costs were incurred during fiscal 1997.
Equity issued as compensation totaled $792,500 and $345,000 during fiscal 1998
and 1997, respectively. The expense consisted of charges related to stock
options and warrants granted to non-employees of $755,000 and $287,000 during
fiscal 1998 and 1997, respectively, made pursuant to Statement of Financial
Accounting Standard 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Additional
amounts of $37,500 and $58,000 during fiscal 1998 and 1997, respectively, are
included in general and administrative expense. This amount represents the fair
market value of shares of the Company's common stock issued for services
rendered by consultants.
OTHER. Interest income derives from the investment of the proceeds of the
private equity offering.
YEAR 2000. The Company does not anticipate incurring any costs associated with
modifying its computer system to be year 2000 compatible. The initial design of
the system used to process the Company's accounting data and well operations
information incorporated year 2000 capability. The Company currently has no
electronic data processing systems other than the accounting/well operations
system.
Since the Company currently has no significant field operations it has no
material relationships with third parties. Accordingly, the Company has limited
exposure regarding year 2000 issues related to third party companies.
EFFECT OF CHANGES IN PRICES
The Company's results of operations and cash flow are affected by changing oil
and gas prices which are largely out of its control. Inflation has virtually no
effect on the Company and it is not possible to predict what, if any, future
effect inflation might have on the Company.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME, in June
1997. This statement, which is effective for fiscal years beginning after
December 15, 1997, establishes standards for reporting of comprehensive income
and its components. The FASB also issued SFAS No. 131, SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION, in June 1997. This statement, which is effective for
fiscal years beginning after December 15, 1997, establishes standards for the
way the public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders.
In June 1998, SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued. SFAS 133 establishes new accounting and reporting
standards for derivative instruments and for hedging activities. This statement
requires an entity to establish at the inception of a hedge the method it will
use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk. SFAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999.
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<PAGE>
The Company believes that the adoption of these statements will have no material
effect on the Company's financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included at Pages 10 through 24 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
CWYR has not had any reported or material disagreement with its accountants on
any matter of accounting principles, practices or financial statement
disclosure.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Colorado Wyoming Reserve Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Colorado
Wyoming Reserve Company and its subsidiary at June 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring negative cash flows
from operations and has no available funds. These items raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Denver, Colorado
December 23, 1998
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<PAGE>
<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 748,459
Trade accounts receivable 3,593 3,918
Related party receivable -- 11,095
----------- -----------
3,593 15,013
Assets held for sale 10,000 37,000
Prepaid expenses 5,686 850
----------- -----------
Total current assets 19,279 801,322
PROPERTY AND EQUIPMENT:
Unproved oil and gas properties 653,250 --
Proved oil and gas properties, net of accumulated
impairments of $0 and $157,509 at June 30, 1998
1997, respectively 64,460 127,513
Other property and equipment 13,645 11,346
----------- -----------
731,355 138,859
Less accumulated depreciation, depletion and
amortization:
Proved properties -- (72,301)
Other property and equipment (6,383) (2,421)
----------- -----------
(6,383) (74,722)
----------- -----------
Net property and equipment 724,972 64,137
----------- -----------
$ 744,251 $ 865,459
=========== ===========
CURRENT LIABILITIES:`
Trade accounts payable $ 67,017 $ 9,325
Bank overdrafts 19,444 --
Accrued payroll taxes -- 11,309
Other accrued liabilities 30,067 25,250
Property remediation 64,000 --
Related party payables 46,596 2,490
----------- -----------
227,124 48,374
Commitments (Note 9)
EQUITY:
Common stock, $.01 par value: authorized--
75,000,000 shares; issued and outstanding--
2,467,694 and 1,595,076 shares at June 30, 1998,
and 1997, respectively 24,677 15,951
Additional paid-in capital 4,283,320 3,175,545
Accumulated deficit (3,790,870) (2,374,411)
----------- -----------
517,127 817,085
----------- -----------
$ 744,251 $ 865,459
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
----------- ------------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 32,798 $ 62,644
Other -- 3,150
----------- ------------
Total revenues 32,798 65,794
EXPENSES:
Operation of producing properties 33,794 63,743
Production taxes 3,871 3,679
Exploration cost 28,796 --
Depreciation, depletion and amortization 3,962 20,108
Impairment expense 45,212 588,998
Bad debt expense 1,694 --
General and administrative 1,367,399 616,962
----------- ------------
Total expenses 1,484,728 1,293,490
----------- ------------
Operating loss (1,451,930) (1,227,696)
OTHER INCOME
Interest income 19,135 15,539
Gain on sale of assets 16,336 --
----------- ------------
Loss before income taxes $(1,416,459) $ (1,212,157)
----------- ------------
Provision for income taxes -- --
----------- ------------
Net loss $(1,416,459) $ (1,212,157)
=========== ============
Basic and diluted loss per share $ (0.73) $ (1.04)
=========== ============
Weighted average common shares 1,941,494 1,163,638
outstanding
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
---COMMON STOCK--- ADDITIONAL
-------------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------------ ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996 550,076 $ 5,501 $ 1,866,867 $ (1,162,254) $ 710,114
Equity issued as compensation 60,000 600 344,400 -- 345,000
Sale of common stock 985,000 9,850 964,278 -- 974,128
Net (loss) for the year ended
June 30, 1997 -- -- -- (1,212,157) (1,212,157)
------------ ----------- ------------ --------------- --------------
BALANCE, JUNE 30, 1997 1,595,076 $ 15,951 $ 3,175,545 $ (2,374,411) $ 817,085
Equity issued as compensation 25,000 250 792,250 -- 792,500
Common stock issued in merger 797,618 7,976 266,025 -- 274,001
Sale of common stock 50,000 500 49,500 -- 50,000
Net (loss) for the year ended
June 30, 1998 -- -- -- (1,416,459) (1,416,459)
------------ ----------- ------------ --------------- --------------
BALANCE, JUNE 30, 1998 2,467,694 $ 24,677 $ 4,283,320 $ (3,790,870) $ 517,127
============ =========== ============ =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
COLORADO WYOMING RESERVE COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss income $(1,416,459) $(1,212,157)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depletion, depreciation and amortization 3,962 20,108
Gain on asset sale (16,337) --
Impairment expense 45,212 588,998
Equity issued as compensation for 792,500 345,000
consulting services
Other -- (1,653)
Changes in current assets and liabilities:
Receivables 11,420 1,606
Payables 114,750 18,852
Other (4,832) (850)
----------- -----------
Net cash used in operating activities (469,784) (240,096)
Cash flows used in investing activities:
Additions to unproved properties (326,250) --
Additions to proved properties (53,460) --
Equipment purchases (2,300) (10,544)
Proceeds from asset sales 53,335 --
----------- -----------
Net cash used in investing activities (328,675) (10,544)
Cash flows from financing activities:
Sale of common stock 50,000 974,128
----------- -----------
Net cash provided by financing activities 50,000 974,128
----------- -----------
Net increase (decrease) in cash and equivalents (748,459) 723,488
Cash and equivalents at beginning of period 748,459 24,971
----------- -----------
Cash and equivalents at end of period $ -- $ 748,459
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Supplemental schedule of non-cash investing and financing activities:
FISCAL 1998
The Company issued 25,000 common shares to its management company for services
rendered. The shares issued were valued at $1.50 per share, the market price at
the date of issuance. Additionally, the Company issued 797,618 common shares
valued at $.34 per share for all of the outstanding shares of Shoreline Resource
Company, Inc.
FISCAL 1997
The Company issued 50,000 shares to a financial consulting company for services
rendered. An additional 10,000 shares were issued to a former officer in
satisfaction of an outstanding liability. In both instances, the shares issued
were valued at $1 per share, the market price at the date of issuance.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL:
The Company operates principally in the exploration, development and
production of oil and gas properties.
GOING CONCERN:
The Company currently has no funds available to pay its obligations or to
fund further exploration and development of its only significant asset,
the Paradox Basin property. The Company continues to incur obligations
with respect to certain general and administrative items. These factors
raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans with respect to these issues consist of
attempting to raise additional capital through a private placement and
looking at other financing alternatives for exploration of the Paradox
Basin property. Failure to raise additional funds could result in the
liquidation of the Company.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value
because the instruments have maturity dates of three months or less.
CONCENTRATION OF CREDIT RISK:
Substantially all of the Company's trade receivables are within the oil
and gas industry, primarily from purchasers of oil and gas and joint
venture participants, and collectibility is dependent upon the general
economic conditions of the industry. The receivables are not
collateralized.
The Company generally invests its excess cash in money market funds
having minimal credit risk.
OIL AND GAS PRODUCING ACTIVITIES:
The Company follows the successful efforts method of accounting for its
oil and gas properties. Under this method of accounting, all property
acquisition costs and costs of exploratory and development wells are
capitalized when incurred, pending determination of whether the well has
found proved reserves. If an exploratory well has not found proved
reserves, the costs of drilling the well are charged to expense. The
costs of development wells are capitalized whether productive or
nonproductive.
Geological and geophysical costs on exploratory prospects and the costs
of carrying and retaining unproved properties are expensed as incurred.
An impairment allowance is provided to the extent that capitalized costs
or unproved properties, on a property-by-property basis, are considered
to be not realizable. Depletion, depreciation and amortization ("DD&A")
of capitalized costs of proved oil and gas properties is provided on a
property-by-property basis using the units of production method based
upon proved reserves. The computation of DD&A takes into consideration
restoration, dismantlement and abandonment costs and the anticipated
proceeds from equipment salvage.
The Company tests for impairment of its producing properties by comparing
expected undiscounted future net revenues on a property-by-property basis
with the related net capitalized costs at the end of each period. When
the net capitalized costs exceed the undiscounted future net revenues,
the cost of the property is written down to "fair value," which is
estimated using discounted future net revenues from the producing
property. Gains
-14-
<PAGE>
and losses are recognized on sales of entire interests in proved and
unproved properties. Sales of partial interests are generally treated as
recoveries of costs. With regard to properties held for sale, the Company
uses the estimated net sales proceeds as its estimate of fair value.
OTHER PROPERTY AND EQUIPMENT:
Other property and equipment is depreciated using the straight line
method over the estimated useful life of the property.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiary. Inter-company transactions and
accounts are eliminated in consolidation.
INCOME TAXES:
Deferred income taxes are provided on the difference between the tax
basis of an asset or liability and its reported amount in the financial
statements. This difference will result in taxable income or deductions
in future years when the reported amount of the asset or liability is
recovered or settled, respectively.
NET LOSS ATTRIBUTABLE TO COMMON SHARES:
The Company adopted Statement of Financial Accounting Standard 128,
EARNINGS PER SHARE ("SFAS 128") during fiscal 1998. SFAS 128 requires the
presentation of basic and diluted earnings per share. Basic earnings per
share are calculated by dividing income available to common shareholders
by the weighted average number of common shares outstanding. Diluted
earnings per share is calculated by taking into account all potentially
dilutive securities. The Company has not included potentially dilutive
securities consisting of options to purchase 1.715 million shares and
1.375 million shares in 1998 and 1997, respectively, because they would
be anti-dilutive.
RECLASSIFICATIONS:
Certain amounts in the accompanying consolidated financial statements for
1997 have been reclassified to conform to the classifications used in
1998.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
The FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, in June
1997. This statement, which is effective for fiscal years beginning after
December 15, 1997, establishes standards for reporting of comprehensive
income and its components. The FASB also issued SFAS No. 131, SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, in June 1997. This statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for the way the public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
In June 1998, SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued. SFAS 133 establishes new accounting and reporting
standards for derivative instruments and for hedging activities. This
statement requires an entity to establish at the inception of a hedge,
the method it will use for assessing the effectiveness of the hedging
derivative and the measurement approach for determining the ineffective
aspect of the hedge. Those methods must be consistent with the entity's
approach to managing risk. SFAS 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999.
The Company believes that these statements will have no material effect
on the Company's financial statements.
-15-
<PAGE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
ENVIRONMENTAL LIABILITIES:
The Company estimates the costs associated with plugging and abandoning
its producing oil and gas wells and accrues such costs, net of any
expected equipment salvage value, as a liability. The cost is amortized
over the life of the wells. Liabilities of this nature are disclosed as
property remediation liabilities in the balance sheet. The Company does
not use discounting in the determination of these liabilities.
2. MERGER WITH SHORELINE RESOURCE COMPANY
On February 6, 1998, the Company entered into an Agreement and Plan of
Merger, dated as of February 6, 1998 (the "Merger Agreement") with
Shoreline Resource Company, Inc., a Colorado corporation ("Shorco"),
CWSub, Inc., a wholly-owned subsidiary of the Company, incorporated in
the state of Colorado ("CWSub") and F. Robert Tiddens, Cindy L. Stewart
and John F. Greene, the shareholders of Shorco (the "Shorco
Shareholders"). Pursuant to the terms of the Merger Agreement, CWSub was
merged with and into Shorco, with Shorco surviving the Merger and
becoming a wholly-owned subsidiary of the Company at the Merger Effective
Time (as defined in the Merger Agreement). The financial year-end of
Shorco following the Merger was June 30, 1998.
The Merger consideration consisted of issuance by the Company of 797,618
shares of its common stock, $.01 par value per share ("Common Stock") in
exchange for all of the issued and outstanding common stock of Shorco. As
a result of the Merger, the Shorco Shareholders, collectively, owned
approximately 33% of the outstanding Common Stock of the Company.
At the time of the Merger, Shorco's only assets consisted of unproved
oil, gas and mineral leasehold interests in approximately 20,300 acres in
a targeted area in southern Utah, along with a team of geo-scientists
having access to state-of-the-art "3-D" seismic processing techniques for
use in developing a "3-D" seismic exploration project in such area.
Shorco had no operating activity prior to the Merger. Accordingly, no pro
forma results of operations showing the effect on the Company of the
Shorco Merger have been prepared.
3. INCOME TAXES
No tax benefits from the losses incurred during fiscal 1998 and 1997 were
recognized due to the substantial uncertainty as to their eventual
utilization.
Effective tax rates differ from the Federal income tax rate as shown in
the following table.
-16-
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PRETAX (LOSS) INCOME
1998 1997
--------- ----------
<S> <C> <C>
Federal statutory rate (34)% (34)%
State income taxes (3)% (3)%
Change in valuation allowance 30% 27%
Expiration of prior year loss carryforwards 7% 10%
--------- ----------
Effective rate -- --
========= ==========
</TABLE>
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. The tax effect of the temporary
differences and carryforwards giving rise to the Company's deferred tax
assets and liabilities at June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred tax assets
Oil and gas properties $ -- $226,000
Net operating loss and tax credit carryforward 885,000 492,000
--------- --------
885,000 718,000
Valuation allowance (885,000) (704,000)
--------- --------
Deferred tax assets -- 14,000
Deferred tax liabilities
Depletion, depreciation and amortization of
property and equipment -- (14,000)
--------- --------
Net deferred tax assets $ -- --
========= ========
</TABLE>
SFAS No. 109 requires that a valuation allowance be provided if it is
more likely than not that some portion or all of a deferred tax asset
will not be realized. The Company's ability to realize the benefit of its
tax assets will depend on the generation of future taxable income through
profitable operations and expansion of the Company's oil and gas
producing properties. The market, capital, and environmental risks
associated with that growth requirement are considerable, resulting in
the Company's conclusion that a full valuation allowance be provided,
except to the extent that the benefit of operating loss carry forwards
can be used to offset future reversals of existing deferred tax
liabilities. The Company increased its valuation allowance by $181,000
and $348,000 during fiscal 1998 and 1997, respectively.
At June 30, 1998, the Company had tax basis net operating loss carry
forwards available to offset future taxable income of $2.3 million, which
expire from 1999 to 2012. Of that amount, approximately $956,000 can
never be used by the Company and the usage of $363,000 is limited to
certain maximum yearly amounts over a 15- year period, as a result of the
change in control occurring during fiscal 1998 and 1997.
4. MAJOR CUSTOMERS
The following are considered major customers which account for ten
percent or more of total operating revenues in 1998 and 1997.
-17-
<PAGE>
1998 1997
------- ------
Conoco Oil Company 23% 60%
Penroc Oil Corporation -- 24%
Texaco Oil Company 17% 12%
Phillips Company 41% --
Duke Energy 19% --
5. RELATED PARTIES
During the fiscal year ended June 30, 1996, the Company received property
valued at $490,000 in exchange for a receivable from a company of which a
former president of the Company served as an officer. During the fiscal
year ended June 30, 1997, the Company recognized an impairment expense of
$453,000 on such property.
Effective January 1, 1998, the Company entered into an Agreement for
Administrative Services (the "Trinity Agreement") with Trinity Petroleum
Management LLC, a Colorado limited liability company ("Trinity").
Pursuant to the terms of the Trinity Agreement, Trinity performs certain
management functions for the Company for a fee of $3,000 per month and
reimbursement of third party expenses. The Trinity Agreement is for a
term of one year, continuing thereafter on a month-to-month basis,
terminable upon 60 days written notice by either party. J. Samuel Butler,
a member of the Board of Directors of the Company, currently serves as
President of Trinity and owns approximately 24 percent of Trinity through
his ownership of Butler Resources, LLC. In connection with certain
additional services provided to the Company by Trinity pursuant to the
Agreement, on January 22, 1998 the Company issued to Trinity 25,000
restricted shares of Common Stock as well as an option to purchase up to
100,000 shares of the Company's Common Stock at an exercise price of
$1.50 per share.
Effective as of January 1, 1998, the Company entered into an Agreement
for Consulting Services (the "SCI Agreement") with Sayed Consulting,
Inc., a Nevada corporation ("SCI"). Pursuant to the terms of the SCI
Agreement SCI performs certain investor and public relations functions
for the Company for a fee of $1,000 per month and reimbursement of third
party expenses. The SCI Agreement is for a term of one year, but may be
terminated by either party with or without cause upon 30 days written
notice to the other party. On January 30, 1998 in connection with the SCI
Agreement, the Company issued to SCI an option to purchase up to 200,000
shares of the Company's Common Stock at an exercise price of $1.75 per
share, which options have been repriced as of December 4, 1998 to $1.00
per share pursuant to the Bridge Loan Extension described below. Coupled
with its prior ownership of the Company's Common Stock, SCI beneficially
owns approximately 11.1 percent of the Company. Waseem A. Sayed owns 100
percent of SCI and serves as its President. Mr. Sayed's brother, Rafiq A.
Sayed, was appointed as a member of the Company's Board of Directors
effective September 4, 1998. Dr. Syed A. Daud, a recently-appointed
member of the Board of Directors, serves as Vice President of Investor
Relations & Communications for SCI.
The Company entered into a Contract Operator Agreement and Operating
Agreement, effective March 13, 1998 with ST Oil Company, a Nevada
corporation ("ST"), pursuant to which ST serves as managing agent and
attorney-in-fact for the Company, and as operator of record of the
Companies properties located in North Dakota (the "ST Agreement"). In
return for its services, ST is entitled to receive, at payout, a five
percent working interest in the leases and wells. Mr. Butler owns
approximately 52 percent of ST and serves as its President and Chief
Executive Officer. Subsequent to the fiscal year-end, however, the ST
Agreement was assigned by the Company to FM Energy, LLC in connection
with the North Dakota Agreement. See Note 8.
For related-party transactions occurring subsequent to June 30, 1998, see
Note 8.
-18-
<PAGE>
6. OPTIONS, WARRANTS AND RESERVED SHARES
On October 18, 1996 the Board of Directors of the Company adopted the
Incentive Stock Option Plan ("the ISO Plan"). On April 5, 1997 the Board
adopted the Equity Incentive Plan ("the Equity Plan"). Both plans were
approved by stockholders at the Company's 1997 annual meeting. On
February 11, 1998, the Equity Plan was amended to delete the automatic
six-month vesting requirement for options granted thereunder to allow the
Board of Directors or committee broad discretion in determining such
requirements.
The ISO Plan was established for the purpose of providing an option to
purchase the Company's common stock to one key employee of the Company,
while the Equity Plan allows option grants to various employees,
non-employees, directors, consultants and advisors.
Options under both the plans may have a term of up to ten years; the
actual term and any vesting requirements are set at the discretion of the
Board of Directors or a Committee thereof. The maximum number of shares
authorized for issuance under the ISO Plan is 500,000 shares; under the
Equity Plan the maximum is 2.5 million shares.
The following is a summary of the Company's option activity for the years
ended June 30, 1998 and June 30, 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 1,375,000 $ 1.00 -- N/A
Granted
Exercise price same as market price 200,000 $ 3.25 1,275,000 $ 1.00
Exercise price less than market price 315,000 $ 1.59 100,000 $ 1.00
Exercise price greater than market price 125,000 $ 1.50 -- --
Expired (50,000) $ 1.00 -- --
Exercised (50,000) $ 1.00 -- --
------------ -------- ----------- ----------
Options outstanding, end of year 1,915,000 $ 1.36 1,375,000 $ 1.00
============ ======== =========== ==========
Exercisable at end of year 1,690,000 $ 1.14 1,375,000 $ 1.00
============ ======== =========== ==========
</TABLE>
Exercise prices for options outstanding as of June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS
EXERCISE OUTSTANDING WEIGHTED AVERAGE OPTIONS EXERCISABLE
PRICE JUNE 30, 1998 CONTRACTUAL LIFE JUNE 30, 1998
----------- ---------------- ------------------ ---------------------
<S> <C> <C> <C>
$ 1.00 1,325,000 7.92 1,325,000
$ 1.50 175,000 9.48 150,000
$ 1.75 215,000 9.60 215,000
$ 3.25 200,000 10.00 --
---------------- ------------------ ---------------------
1,915,000 8.92 1,690,000
</TABLE>
-19-
<PAGE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This Statement establishes a fair value method
of accounting for stock-based compensation plans either through
recognition or disclosure. The Company has elected to continue following
Accounting Principles Board Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and has elected to adopt SFAS No. 123
through compliance with the disclosure requirements set forth in the
Statement. Pro forma information regarding net income and earnings per
share is required by SFAS No. 123 and has been determined as if the
Company had accounted for its employee stock options under the fair
value method of that Statement. The fair value of these options was
estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Risk free interest rate 5.9% to 6.5% 5.4% to 5.6%
Volatility factor 160% 60%
Dividend yield 0% 0%
Expected term of options 10 years 5 to 10 years
Weighted average fair value of options granted:
Exercise price equals market price $ 3.23 $ 0.54
Exercise price less than the market price $ 1.85 $ 2.57
Exercise price greater than the market price $ 1.36 --
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, it is
management's opinion that the existing models do not necessarily
provide a reliable single measure of the fair value of its employee
stock options.
Had compensation cost been determined based on the fair value at grant
dates for all stock option awards consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Net loss as reported $ (1,416,459) $ (1,212,157)
Pro forma $ (2,061,935) $ (1,870,581)
Net loss per share
as reported $ (0.73) $ (1.04)
Pro forma $ (1.06) $ (1.61)
</TABLE>
-20-
<PAGE>
7. SUPPLEMENTAL OIL AND GAS INFORMATION
Capitalized costs relating to oil and gas producing activities at
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Unproved oil and gas properties $ 653,250 $ --
Proved oil and gas properties 64,460 127,513
Less accumulated depreciation -- (72,301)
and depletion
----------- -----------
Net capitalized cost $ 717,710 $ 55,212
=========== ===========
</TABLE>
Costs incurred in oil and gas property acquisition, exploration, and
development activities for the years ended June 30, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Acquisition of unproved properties $ 653,250 $ --
Acquisition of proved properties 64,460 --
---------- -----------
Net capitalized cost $ 717,710 $ --
========== ===========
</TABLE>
Results of operations for oil and gas producing activities for the
years ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Revenues $ 32,798 $ 62,644
Production costs 37,665 67,422
Depreciation, depletion and impairments 45,212 607,361
--------- ----------
82,877 674,783
--------- ----------
Results of operations from producing
activities (excluding corporate overhead
and interest costs) $(50,079) $ (612,139)
========= ==========
</TABLE>
The following information relates to the Company's estimates of proved
reserves of oil and gas, changes in proved reserves of oil and gas,
standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves. All reserves are
located in the United States.
RESERVES (UNAUDITED)
The estimates of the Company's proved oil and gas reserves and the
changes in those reserves include only "proved developed" reserves.
Proved developed reserves are reserves which can be expected to be
recovered from existing wells using existing equipment and operating
methods.
-21-
<PAGE>
The estimates of proved reserves for 1998 and 1997 were determined by
the Company's management company. Both estimates take into account the
effect of past performance and existing economic conditions. Reserve
estimates vary from year to year because they are based upon
judgmental factors involved in interpreting and analyzing production
performance, geological and engineering data and changes in prices,
operating costs, and other economic, regulatory and operating
conditions. Changes in such factors can have a significant impact on
the estimated future recoverable reserves and estimated future net
revenue by changing the economic life of the properties.
The Company considers these reserve estimates to be reasonable in
light of past operating results and other data available. However,
there can be no assurance that actual production in the future will
not vary substantially from such estimates.
The following table shows the Company's total proved reserves, all of
which are developed, at June 30, 1998 and 1997.
1998 1997
-------------------------- ---------------------------
OIL GAS OIL GAS
------------ ----------- ------------ -----------
-- -- 31,308 6,881
As of June 30, 1998, the Company had no economically recoverable
reserves as determined using the guidelines of Statement of Financial
Accounting Standards No. 69, described below.
Changes in net proved reserves of oil and gas for the years ending
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- -----------------------
OIL GAS OIL GAS
---------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Beginning 31,308 6,881 54,600 1,366,100
Revision of previous estimate (25,277) -- (18,720) (1,356,181)
Sale of reserves (29,592) (6,881) (2,011) --
Purchase of reserves in place 25,678 -- -- --
Discoveries -- -- -- --
Production (2,117) -- (2,561) (3,038)
---------- -------- ---------- -----------
Ending -- -- 31,308 6,881
========== ======== ========== ===========
</TABLE>
STANDARDIZED MEASURE OF FUTURE NET CASH FLOWS (UNAUDITED)
Statement of Financial Accounting Standards No. 69 prescribes
guidelines for computing a standardized measure of future net cash
flows and changes therein relating to estimated proved reserves. The
Company has followed these guidelines which are briefly discussed
below.
Future cash inflows and future production and development costs are
determined by applying year-end process and costs to the estimated
quantities of oil and gas to be produced. Estimated future income
taxes are computed using current statutory income tax rates including
consideration for estimated future statutory depletion and investment
tax credits. The resulting future net cash flows are reduced to
present value amounts by applying a 10 percent annual discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such,
do not necessarily reflect the present worth. The limitations inherent
in the
-22-
<PAGE>
reserve quantity estimation process, as discussed previously, are
equally applicable to the standardized measure computations since
these estimates are the basis for the valuation process.
Standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves at June 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Future cash inflows -- $ 561,000
Future production costs -- (448,000)
--------- ----------
Future net cash flows -- 113,000
Less 10% annual discount for estimated
timing of cash flows -- (47,000)
--------- ----------
Standardized measure of discounted
future net cash flows -- $ 66,000
========= ==========
</TABLE>
No future income tax provision is made due to the Company's tax loss
carryforward.
The following are principal sources of change in the standardized
measure of discounted future net cash flows during the years ending
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
Beginning of year $ 66,000 $ 795,000
Sales of oil and gas produced, net of production 3,000 5,000
cost
Net changes in prices -- (106,000)
Extensions and discoveries less related costs -- --
Revisions of previous quantity estimates (49,000) (697,000)
Accretion of discount 7,000 79,000
Sale of reserves (37,000) (10,000)
Purchase of reserves in place 10,000 --
----------- ----------
End of year $ -- $ 66,000
=========== ==========
</TABLE>
8. SUBSEQUENT EVENTS
On September 2, 1998, the Company completed a financing transaction with
the James E. Moore Revocable Trust, u/d/t dated July 28, 1994 (the
"Trust"), by executing a Loan Agreement, dated as of August 25, 1998 (the
"Loan Agreement"), pursuant to which the Trust loaned $120,000 (the
"Bridge Loan") to the Company to be repaid on or before October 31, 1998.
In return for the Bridge Loan, the Company granted the Trust a security
interest in its properties located in the Paradox Basin of southern Utah,
and a ten-year warrant to purchase up to 180,000 shares of the Company's
Common Stock at an exercise price of $1.00 per share. In addition, Mr.
Rafiq A. Sayed was appointed to serve on the Company's Board of Directors
as a designee of the Trust in connection with the Bridge Loan. As of
September 2, 1998, the Trust beneficially owned approximately 9.4 percent
of the Company's Common Stock. However, effective as of November 23,
1998, the Trust conveyed warrants to purchase up to 150,000 shares of the
Company's Common Stock to various third parties in private transactions,
thereby reducing the Trust's beneficial ownership in the Company to
approximately four percent. The repayment date of the Bridge Loan was
subsequently extended to November 30, 1998 in connection with the North
Dakota Agreement (as defined and described herein below).
-23-
<PAGE>
Effective as of November 1, 1998, the Company accepted an Offer to
Purchase certain of its properties located in North Dakota (the "North
Dakota Agreement") submitted by FM Energy, LLC ("FM"), a California
limited liability company collectively owned by the Company's President,
Kim M. Fuerst, and the Trust. Pursuant to the North Dakota Agreement, the
Company sold its interest in certain properties located in North Dakota
in return for (a) a cash payment to the Company of $50,000; (b)
extinguishment of the Company's $50,000 obligation to Kim M. Fuerst as
compensation for his services as President of the Company for the months
of June through October 1998; and (c) an extension of the repayment date
for the Bridge Loan from October 31, 1998 to November 30, 1998. The
Company acquired the North Dakota properties during fiscal 1998 for
$113,392. See Item 6 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
On December 4, 1998, the Board of Directors of the Company approved an
agreement with the Trust to extend the repayment date for the Bridge Loan
from November 30, 1998 to January 15, 1999 (the "Bridge Loan Extension").
As partial consideration therefore, the Trust received an additional
warrant for the purchase of up to 100,000 shares of Common Stock at a
price per share of the lower of (i) $1.00 or (ii) the lowest price per
share of Common Stock or Common Stock equivalent issued by the Company in
any offering of its securities occurring prior to April 1, 1999, thereby
increasing the beneficial ownership by the Trust to approximately 7.6
percent. As additional consideration, the Bridge Loan Extension agreement
provided that the Company (a) reprice the warrants to purchase 180,000
shares of Common Stock previously granted to the Trust at $1.00 in
accordance with the price described above for the newly-granted warrants;
(b) reprice the options held by SCI from $1.75 to $1.00 per share; and
appoint Dr. Daud as a member of the Board of Directors.
9. COMMITMENTS
The Company entered into an employment contract with Mr. Fuerst on
October 1, 1996 pursuant to which Mr. Fuerst receives a salary of $10,000
per month and was granted incentive stock options to purchase up to
500,000 shares of the Company's common stock at an exercise price of
$1.00 per share. The contract is for an initial term of three years
commencing October 1, 1996 and may be terminated by Mr. Fuerst upon 90
days prior written notice to the Company, and by the Company without
prior notice to Mr. Fuerst, if for Cause (as defined in the contract).
The Company's salary obligation to Mr. Fuerst of $10,000 per month for
the months of June through October 1998 was extinguished in connection
with the purchase by FM Energy, LLC (of which Mr. Fuerst owns 50 percent
and serves as co-manager) of the Company's properties located in North
Dakota. The satisfaction of the Company's salary obligation for such
months served as partial consideration for the purchase.
-24-
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the executive
officers and the members of the Board of Directors of the Company.
NAME AGE POSITION
- ------------------------ ------------ ------------------------------------
Kim M. Fuerst........... 48 President, Chief Executive Officer,
Chief Financial Officer and Director
Faisal Chaudhary........ 26 Secretary and Director
J. Samuel Butler........ 53 Director
John F. Greene.......... 58 Director
F. Robert Tiddens....... 44 Director
Rafiq A. Sayed.......... 45 Director
Dr. Syed A. Daud........ 35 Director
KIM M. FUERST, 48, has been President, Chief Executive Officer and
Director since September 1996, and Treasurer and Chief Financial and Accounting
Officer since October 17, 1997. From 1994 to 1996 he was a Vice President and
head of the energy group of Van Kasper and Company, an investment banking firm.
From 1989 to 1994 he served in various capacities at Great Northern Gas Company
including Vice President of Finance and as a Director. From 1982 to 1990 he was
President and Chief Operating Officer of Karen Oil Company which, during this
period, drilled over 100 wells and operated those wells that were producing
wells. Over the past 25 years he has worked in a variety of energy related
positions, both as an independent producer and as an investment banker.
FAISAL CHAUDHARY, 26, has been Secretary and a Director since September
1996. He is presently President of Capco Development, Inc. in Santa Maria,
California. He is a graduate of Chapman University with a degree in Commerce,
and is working on his degree in law
J. SAMUEL BUTLER, 53, Director, formed Trinity Petroleum Management, LLC
and ST Oil Company in 1996 and serves as President and Chief Executive Officer
of both companies. During 1998, Mr. Butler was instrumental in organizing
Professional Energy Advisors, LLC, and serves on the Board of Managers thereof.
In addition, he became a member of the Board of Directors of Greystone Energy,
Inc., a Colorado corporation, in 1998. From 1989 to 1994, he served as Director,
President and Chief Executive Officer of Sterling Energy Corp. and the Chief
Executive Officer of Sheffield Exploration Company, Inc. from September 1990 to
May 1996. Also during the period of September, 1989 to December, 1994, Mr.
Butler was a founding principal in Petrie Parkman & Co., an investment banking
firm specializing in upstream energy financing. Previously, he was President and
Chief Operating Officer of Columbus Energy Corp. (Denver, Colorado) from 1985 to
1989, and today, continues to serve as a director at Columbus. Mr. Butler joined
the predecessor of Columbus, Consolidated Oil and Gas, Inc., in 1974 and held
the position of Vice President of Exploration, Senior Vice President of Oil and
Gas Operations and Executive Vice President and Chief Operating Officer. After
receiving a degree in Petroleum Engineering from the Colorado School of Mines,
Mr. Butler pursued graduate studies in the field of Mineral Economics at that
institution. He is a past Director of the Independent Petroleum Association of
America and past Director of the Independent Petroleum Association of the
Mountain States.
DR. SYED ASLAM DAUD, 35, a Director since December, 1998, is currently
Vice President, Investor Relations & Communications of Sayed Consulting Inc. in
Toronto, Ontario, Canada, a position he has held since January 1996.
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<PAGE>
During a nine-month period from December 1997 to September of 1998, Dr. Daud was
also an Investor Relations and Communications officer of Trivalence Mining
Corporation. Prior to joining Sayed Consulting, Inc., he worked from September
1990 to October 1995 in various capacities at Shoppers Drug Mart and Shoppers
Home Health Care (a division of Iamsco, Inc.), including Pharmacy System Trainer
and Corporate Manager. Since 1994, Dr. Daud has served as national President of
a non-profit youth organization. Dr. Daud received his M.B.B.S. degree in
Medicine and Surgery from Dow Medical College, University of Karachi, Pakistan.
Dr. Daud has also completed various certificate courses in computers and adult
education.
JOHN F. GREENE, 58, Director, has over 25 years experience in the oil and
gas exploration and production industry. From 1985 until his retirement in 1995,
Mr. Greene served as executive vice president of worldwide exploration and
production for the Louisiana Land and Exploration Company, where he served on
the board of directors from 1989 until his retirement. From 1981 to 1985, Mr.
Greene was president and chief executive officer for Milestone Petroleum and
then executive vice president of exploration for Meridian Oil and Gas Company
via its merger with Milestone. He began his career at Continental Oil Company
holding various positions including director of exploratory projects for onshore
and offshore offices and a division exploration manager for the western United
States. Mr. Greene has been a director of Basin Exploration, Inc. since February
1996 and a director of CWYR since February 1998.
RAFIQ A. SAYED, 45, Director since September, 1998, is a technology
executive with over 22 years of experience in the global telecommunications and
energy industries and broad based technical management experience. He has been
recognized for identifying core business needs and applying state-of-the-art
technology solutions. Presently, Mr. Sayed is consulting for Enron Energy
Services where he supports the Chief Information Officer in defining business
processes relative to deregulation. He served on the Board of Directors of
Meteor Industries, Inc., a position he held from April 1996 until September
1998. From 1981 to 1997 Mr. Sayed was with Nortel Technology in various
positions of increasing responsibility, and most recently as Senior Director
managing over 300 professionals and a budget in excess of $30 million, and where
he was the architect in charge of the design of a state-of-the-art automation
platform for large telephony switching platforms and for re-engineering of the
feature processing environment for the DM8-100. Mr. Sayed graduated from
Southbank College in London, England in 1975 with an H.N.D. in
Electrical/Electronic Engineering (equivalent of a BSEE). He also attended Essex
University in London, England where he was enrolled in an advanced computer
science program with an emphasis in Operating Systems, Software Engineering and
Programming.
F. ROBERT TIDDENS, 44, Director, has over 20 years experience in oil and
gas exploration, production and acquisition activities in all producing states
in the continental United States. Since 1995, Mr. Tiddens was President and
Chief Executive Officer of Shoreline Resource Company, Inc., a Denver based
private oil and gas exploration concern he founded and subsequently merged into
a subsidiary of the Company in February 1998, at which time he became a director
of the Company. From 1990 to 1995, Mr. Tiddens was a consultant advising client
companies in all facets relating to the oil and gas industry. Prior thereto, Mr.
Tiddens was Vice President of Land & Acquisitions for Presidio Oil Company, a
rapidly-growing American Stock Exchange Company based in Denver and New York.
Mr. Tiddens is a graduate of the University of Wisconsin with a
finance/economics degree.
All directors of the Company serve one year terms and hold office until
the annual meeting in the year in which their respective terms expire or until
their respective successors are duly elected and qualified. Mr. Sayed and Dr.
Daud were selected to serve on the Board of Directors pursuant to certain
agreements between the Company and The James E. Moore Revocable Trust, u/d/t
dated July 28, 1994 (the "Trust") in connection with a loan from the Trust to
the Company, and an extension of the repayment due date of such loan. See Item
12 "Certain Relationships and Related Transactions" for additional discussion
regarding the loan and related documents. All officers of the Company serve at
the discretion of the Board of Directors and until the next annual meeting of
directors of the Company. There are no family relationships between any
director, officer or person nominated or chosen to become a director or officer
and any other such persons.
COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1998, the Board of Directors held
five meetings. Faisal Chaudhary attended less than 75% of such meetings. The
Board of Directors of the Company has no established committees to which it has
delegated any authority.
-26-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company to the individuals serving as the Company's chief executive officers for
each of the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND POSITION(1) YEAR SALARY($) BONUS($) OTHER($)
- ------------------------------ -------- ---------- --------- ----------
Kim M. Fuerst, President & CEO 1998 110,000 0 10,000(2)
1997 90,000(3) 0 0
Dennis R. Staal, former President 1996 19,250 0 10,000(4)
- -----------------------
(1) No other executive officer of the Company received more than $100,000
during the fiscal year ended June 30, 1998.
(2) Represents extinguishment of June salary obligation of the Company to
Mr. Fuerst as partial payment for the purchase of the Company's North
Dakota properties by FM Energy, LLC, of which Mr. Fuerst owns 50 percent.
See Item 12.
(3) Represents payment for nine months of service.
(4) Represents 10,000 shares of Common Stock valued at $1.00 per share that
were issued in August 1996 for service by Mr. Staal to the Company.
OPTION GRANTS
There were no grants of stock options made during the fiscal year ended
June 30, 1998 to the Company's named executive officers.
The following table shows the number of shares covered by all exercisable
and unexercisable stock options held by the named executive officers as of June
30, 1998, as well as the value of unexercised "in the money" options at such
date. No named executive officer exercised stock options during the last fiscal
year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN THE
SHARES UNDERLYING UNEXERCISED MONEY OPTIONS/SARS AT
ACQUIRED OPTIONS/SARS AT FY-END (#) FY-END
NAME ON EXERCISE EXERCISABLE/UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ------------------------ ------------ -------------------------- ----------------------------
<S> <C> <C> <C>
Kim M. Fuerst -0- 500,000/0 $312,500/0 *
</TABLE>
- ------------------------
(*) Amount shown represents aggregated fair market value based upon the mean
of the closing bid and asked price on June 30, 1998 of $1.625 per
share less aggregate exercise price of $1.00 per share for the
unexercised in-the-money options held. These values have not been, and
may never be, realized. Actual gains, if any, on exercise will depend
on the value of the Common Stock on the date of exercise.
-27-
<PAGE>
EMPLOYMENT CONTRACTS
The Company entered into an employment contract with Mr. Fuerst on
October 1, 1996 pursuant to which Mr. Fuerst receives a salary of $10,000 per
month and was granted incentive stock options to purchase up to 500,000 shares
of the Company's common stock at an exercise price of $1.00 per share. The
contract is for an initial term of three years commencing October 1, 1996 and
may be terminated by Mr. Fuerst upon 90 days prior written notice to the
Company, and by the Company without prior notice to Mr. Fuerst, if for Cause (as
defined in the contract). The Company's salary obligation to Mr. Fuerst of
$10,000 per month for the months of June through October 1998 was extinguished
in connection with the purchase by FM Energy, LLC (of which Mr. Fuerst owns 50
percent and serves as co-manager) of the Company's properties located in North
Dakota. The satisfaction of the Company's salary obligation for such months
served as partial consideration for the purchase. See Item 12 - "Certain
Relationships and Related Transactions."
COMPENSATION OF DIRECTORS
The Directors of CWYR, who do not receive annual salaries from CWYR, may
receive reimbursement for travel expenses. Other than the director options set
forth below, no consulting fees, finder's fees or commissions were paid to
Directors of the Company during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
SECURITY GRANTS
--------------------------------------
NUMBER OF SECURITIES
NUMBER OF UNDERLYING
NAME SHARES (#) OPTIONS/SARS (#)
------------------- -------------- ----------------------
<S> <C> <C>
J. Samuel Butler -- --
Faisal Chaudhary -- --
John F. Greene -- 100,000*
F. Robert Tiddens -- 100,000*
</TABLE>
- -------------------------
* Director option to purchase common stock granted on February 11, 1998
pursuant to the Company's Equity Incentive Plan. The options are exercisable
at $3.25, the fair market value at the date of grant, and will vest on
February 11, 1999.
During fiscal 1998, the Board of Directors and Shareholders approved an
Equity Incentive Plan (the "Equity Plan") in which Directors are eligible to
participate. A total of 2,500,000 shares of Common Stock have been reserved for
issuance under the Equity Plan, subject to adjustments to reflect changes in the
Company's capitalization resulting from stock splits, stock dividends and
similar events. The Equity Plan currently is administered by the Board of
Directors, but may be administered by a committee appointed by the Board.
Options granted to directors under the Equity Plan expire ten years from
the date of grant. The option exercise price for non-statutory options is
determined by the Board of Directors and may be paid in cash or by surrendering
to the Company outstanding Common Stock already owned by the optionee, valued at
fair market value, by delivering a promissory note, or by a combination of such
means of payment, as may be determined by the Board. Options granted pursuant to
the Equity Plan may not be exercised more than three months after the option
holder ceases to be a director of the Company, except that in the event of the
death or permanent and total disability of the option holder, the option may be
exercised by the holder (or his estate, as the case may be), for a period of up
to one year after the date of death or permanent or total disability. Options
granted to directors under the Equity Plan are treated as non-statutory stock
options under the Internal Revenue Code. On February 11, 1998, the Board of
Directors amended the Equity Plan to delete the automatic six-month vesting
requirement for options granted thereunder to allow the Board of committee broad
discretion in determining such requirements.
-28-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number of
shares of Common Stock of the Company beneficially owned as of December 15,
1998, by (i) each person who is known to the Company to be the beneficial owner
of more than five percent of the Common Stock of the Company; (ii) each of the
Company's directors; (iii) the five most highly compensated executive officers,
including the Chief Executive Officer; and (iv) all of the executive officers
and directors of the Company as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such holders, have sole investment and voting
power with respect to such shares, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF BENEFICIALLY
NAME AND ADDRESS SHARES(a) OWNED(b)
- -------------------------------------------- ------------- ----------------
<S> <C> <C>
Kim M. Fuerst............................... 612,500(c) 20.4%
751 Horizon Court, Ste. 205
Grand Junction, Colorado 81506
Faisal Chaudhary............................ 612,500(d) 20.4%
151 Toby Lane
Anaheim Hills, California 92807
J. Samuel Butler............................ 325,000(e) 11.6%
1801 Broadway, Suite 600
Denver, Colorado 80202
Syed A. Daud................................ 100,000(f) 3.8%
64 Hainsworth Ct.
Markham, Ontario L3S1T5
Canada
John F. Greene.............................. 345,303(f) 13.3%
1569 Royal Buffalo Drive
Silverthorne, Colorado 80498
Rafiq A. Sayed.............................. 108,600(f) 4.1%
102 Avenue of the Estates
Cary, North Carolina 27511
F. Robert Tiddens........................... 437,030(f) 16.8%
8360 East Hinsdale Avenue
Englewood, Colorado 80112
The James E. Moore Revocable Trust,......... 200,000(g) 7.6%
u/d/t dated July 28, 1994
7827 Berger Avenue
Playa del Rey, California 90293
Cindy L. Stewart............................ 239,285 9.6%
8101 E. Dartmouth Avenue, Suite 71
Denver, Colorado 80231
Sayed Consulting, Inc....................... 300,000(h) 11.1%
11800 Central Avenue, Suite 100
Chino, California 91710-7202
All Officers and Directors as a Group
(7 persons) ............................. 2,540,933 60.6%
</TABLE>
-29-
<PAGE>
- ---------------------
(a) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table.
(b) Based on 2,491,694 shares of Common Stock outstanding at December 16,
1998.
(c) Includes 500,000 shares issuable upon exercise of stock options granted
under an Incentive Stock Option Plan.
(d) Includes 500,000 shares issuable upon exercise of stock options granted
under a Director Stock Option Plan.
(e) Includes 200,000 shares issuable upon exercise of stock options granted
under a Director Stock Option Plan; 100,000 shares issuable upon exercise
of a stock option granted to Trinity Petroleum Management LLC, of which
Mr. Butler owns approximately 24 percent and serves as the President and
CEO; and 25,000 restricted shares owned by ST Oil Company, of which
Mr. Butler owns approximately 52 percent and serves as the President and
CEO.
(f) Includes 100,000 shares issuable upon exercise of director stock options
granted under the Equity Incentive Plan.
(g) Includes 130,000 shares issuable upon exercise of warrants granted in
connection with Bridge Loan and extension thereof.
(h) Includes 200,000 shares issuable upon exercise of options granted under
the Equity Incentive Plan in connection with consulting services.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of transactions entered into between the
Company and certain of its officers, directors, and/or employees during the last
two fiscal years.
TRANSACTIONS WITH MANAGEMENT AND OTHERS. No Director or Officer of CWYR,
nominee for election as a Director, security holder who is known to CWYR to own
of record or beneficially more than five percent of any class of Company's
voting securities, or any relative or spouse of any of the foregoing persons, or
any relative of such spouse, who has the same home as such person or who is a
director or officer of any parent or subsidiary of CWYR, has had any transaction
or series of transactions exceeding $60,000 during the last two fiscal years, or
has any presently proposed transaction, to which CWYR was or is to be a party,
in which any of such persons had or is to have any direct or indirect material
interest, except the following:
The Company entered into an employment contract with Mr. Fuerst on October
1, 1996 pursuant to which Mr. Fuerst receives a salary of $10,000 per month and
was granted incentive stock options to purchase up to 500,000 shares of the
Company's common stock at an exercise price of $1.00 per share. The contract is
for an initial term of three years commencing October 1, 1996 and may be
terminated by Mr. Fuerst upon 90 days prior written notice to the Company, and
by the Company without prior notice to Mr. Fuerst, if for Cause (as defined in
the contract).
Effective January 1, 1998, the Company entered into an Agreement for
Administrative Services (the "Trinity Agreement") with Trinity Petroleum
Management LLC, a Colorado limited liability company ("Trinity"). Pursuant to
the terms of the Trinity Agreement, Trinity performs certain management
functions for the Company for a fee of $3,000 per month and reimbursement of
third party expenses. The Trinity Agreement is for a term of one year,
continuing thereafter on a month-to-month basis, terminable upon 60 days written
notice by either party. J. Samuel Butler, a member on the Board of Directors of
the Company, currently serves as President of Trinity and owns approximately 24
percent of Trinity through his ownership of Butler Resources, LLC. In connection
with certain additional services provided to the Company by Trinity pursuant to
the Agreement, on January 22, 1998 the Company issued to Trinity 25,000
restricted shares of Common Stock as well as an option to purchase of up to
100,000 shares of the Company's Common Stock at an exercise price of $1.50 per
share.
Effective as of January 1, 1998, the Company entered into an Agreement for
Consulting Services (the "SCI Agreement") with Sayed Consulting, Inc., a Nevada
corporation ("SCI"). Pursuant to the terms of the SCI Agreement SCI performs
certain investor and public relations functions for the Company for a fee of
$1,000 per month and reimbursement of third party expenses. The SCI Agreement is
for a term of one year, but may be terminated by either party with or without
cause upon 30 days written notice to the other party. On January 30, 1998 in
connection with the SCI Agreement, the Company issued to SCI an option to
purchase up to 200,000 shares of the Company's Common Stock at an exercise price
of $1.75 per share, which options have been repriced as of December 4, 1998 to
$1.00 per share pursuant
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<PAGE>
to the Bridge Loan Extension described below. Coupled with its prior ownership
of the Company's Common Stock, SCI beneficially owns approximately 11.1 percent
of the Company. Waseem A. Sayed owns 100 percent of SCI and serves as its
President. Mr. Sayed's brother, Rafiq A. Sayed, was appointed as a member of the
Company's Board of Directors effective September 4, 1998. Dr. Syed A. Daud, a
recently-appointed member of the Board of Directors, serves as Vice President of
Investor Relations & Communications for SCI.
On September 2, 1998, the Company completed a financing transaction with
the James E. Moore Revocable Trust, u/d/t dated July 28, 1994 (the "Trust"), by
executing a Loan Agreement, dated as of August 25, 1998 (the "Loan Agreement"),
pursuant to which the Trust loaned $120,000 (the "Bridge Loan") to the Company
to be repaid on or before October 31, 1998. In return for the Bridge Loan, the
Company granted the Trust a security interest in its properties located in the
Paradox Basin of southern Utah, and a ten-year warrant to purchase up to 180,000
shares of the Company's Common Stock at an exercise price of $1.00 per share. In
addition, Mr. Rafiq A. Sayed was appointed to serve on the Company's Board of
Directors as a designee of the Trust in connection with the Bridge Loan. As of
September 2, 1998, the Trust beneficially owned approximately 9.4 percent of the
Company's Common Stock. However, effective as of November 23, 1998, the Trust
conveyed warrants to purchase up to 150,000 shares of the Company's Common Stock
to various third parties in private transactions, thereby reducing the Trust's
beneficial ownership in the Company to approximately four percent. The repayment
date of the Bridge Loan was subsequently extended to November 30, 1998 in
connection with the North Dakota Agreement (as defined and described herein
below).
Effective as of November 1, 1998, the Company accepted an Offer to
Purchase certain of its properties located in North Dakota (the "North Dakota
Agreement") submitted by FM Energy, LLC ("FM"), a California limited liability
company collectively owned by the Company's President, Kim M. Fuerst, and the
Trust. Pursuant to the North Dakota Agreement, the Company sold its interest in
certain properties located in North Dakota in return for (a) a cash payment to
the Company of $50,000; (b) extinguishment of the Company's $50,000 obligation
to Kim M. Fuerst as compensation for his services as President of the Company
for the months of June through October 1998; and (c) an extension of the
repayment date for the Bridge Loan from October 31, 1998 to November 30, 1998.
The Company acquired the North Dakota properties during fiscal 1998 for
$113,392. See Item 6 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
On December 4, 1998, the Board of Directors of the Company approved an
agreement with the Trust to extend the repayment date for the Bridge Loan from
November 30, 1998 to January 15, 1999 (the "Bridge Loan Extension"). As partial
consideration therefore, the Trust received an additional warrant for the
purchase of up to 100,000 shares of Common Stock at a price per share of the
lower of (i) $1.00 or (ii) the lowest price per share of Common Stock or Common
Stock equivalent issued by the Company in any offering of its securities
occurring prior to April 1, 1999, thereby increasing the beneficial ownership by
the Trust to approximately 7.6 percent. As additional consideration, the Bridge
Loan Extension agreement provided that the Company (a) reprice the warrants to
purchase 180,000 shares of Common Stock previously granted to the Trust at $1.00
in accordance with the price described above for the newly-granted warrants; (b)
reprice the options held by SCI from $1.75 to $1.00 per share; and appoint Dr.
Daud as a member of the Board of Directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of the Exhibits required by Item 601 of Regulation S-B to be filed
as part of this report is set forth in the Index to Exhibits and is
incorporated herein by reference.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended June 30, 1998.
-31-
<PAGE>
(c) The following Financial Statements are filed as part of this Report:
PAGE
Report of Independent Accountants.......................................9
Consolidated Balance Sheets as of June 30, 1998 and 1997...............10
Consolidated Statements of Operations for the years
ended June 30, 1998 and 1997...........................................11
Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1998 and 1997.............................12
Consolidated Statements of Cash Flows for the years
ended June 30, 1998 and 1997...........................................13
Notes to Consolidated Financial Statements.............................14
All Financial Statement Schedules are omitted because they are not required, are
inapplicable or the information is included in the financial statements or notes
thereto.
-32-
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: December 23, 1998 COLORADO WYOMING RESERVE COMPANY
By /s/ Kim Fuerst
---------------------------------------
Kim Fuerst, President and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Dated: December 23, 1998 By /s/ Kim Fuerst
---------------------------------------
Kim Fuerst, President and Principal
Executive Officer, Treasurer and Chief
Financial and Accounting Officer
Dated: December 23, 1998 By /s/ Faisal Chaudhary
---------------------------------------
Faisal Chaudhary, Director and
Secretary
Dated: December 23, 1998 By /s/ J. Samuel Butler
---------------------------------------
J. Samuel Butler, Director
Dated: December 23, 1998 By /s/ John F. Greene
---------------------------------------
John F. Greene, Director
Dated: December 23, 1998 By /s/ F. Robert Tiddens
---------------------------------------
F. Robert Tiddens, Director
Dated: December 23, 1998 By /s/ Rafiq A. Sayed
---------------------------------------
Rafiq A. Sayed, Director
Dated: December 23, 1998 By /s/ Syed A. Daud
---------------------------------------
Syed A. Daud, Director
-33-
<PAGE>
INDEX TO EXHIBITS
3.1 Articles of Incorporation. (a)
3.2 Bylaws. (a)
10.1 Employment Agreement between the Company and Kim M. Fuerst, dated
October 1, 1976. (b)
10.2 Incentive Stock Option Plan, dated October 18, 1996. (b)
10.3 Incentive Stock Option Agreement between the Company and Kim M. Fuerst,
dated October 18, 1996. (b)
10.4 The Company's Equity Incentive Plan. (b)
10.5 Administrative Services Agreement between the Company and Trinity
Petroleum Management LLC, dated March 15, 1997. (c)
10.6 Warrant, dated March 31, 1997, from the Company to Trinity Petroleum
Management LLC. (c)
10.7 Consulting Agreement between the Company and Sayed Consulting, Inc.,
effective October 1, 1996. (b)
10.8 Option Agreement between the Company and Sayed Consulting, Inc., dated
November 15, 1996. (b)
10.9 Agreement for Administrative Services between the Company and Trinity
Petroleum Management, LLC, dated as of January 1, 1998.
10.10 Agreement for Consulting Services between the Company and Sayed
Consulting, Inc., dated as of January 1, 1998. (d)
10.11 Agreement and Plan of Merger, dated as of February 6, 1998, between the
Company, CW Sub, Inc., Shoreline Resource Company, Inc., F. Robert
Tiddens, John F. Greene and Cindy L. Stewart. (d)
10.12 Loan Agreement, dated as of August 25, 1998, between the Company and the
James E. Moore Revocable Trust, u/d/t dated July 28, 1994 (the "Trust").
10.13 Mortgage, Deed of Trust, Security Agreement and Financing Statement, dated
as of August 25, 1998, from the Company to James A. Holtkamp, Trustee and
the Trust.
10.14 Promissory Note, dated August 25, 1998, in the principal amount of
$120,000.00, from the Company to the Trust.
10.15 Warrant Agreement, dated as of August 25, 1998, between the Company and
the Trust.
10.16 Registration Rights Agreement, dated as of August 25, 1998, between the
Company and the Trust.
10.17 Extension, dated as of December 4, 1998, to the Bridge Loan between the
Company and the Trust.
10.18 Amendment No. 1 to Registration Rights Agreement and Promissory Note,
dated as of December 4, 1998, between the Company and the Trust.
10.19 Warrant Agreement, dated as of December 4, 1998, between the Company and
the Trust.
10.20 Offer to Purchase, dated November 2, 1998, from FM Energy, LLC to the
Company.
-34-
<PAGE>
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
- ------------------------------
(a) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended May 31, 1983.
(c) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended March 31, 1997.
(b) Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended June 30, 1997.
(d) Incorporated by reference to the Company's Form 10-QSB for the quarter
ended March 31, 1998.
-35-
AGREEMENT FOR ADMINISTRATIVE SERVICES
THIS AGREEMENT FOR ADMINISTRATIVE SERVICES ("Agreement") is made as of
the 1st day of January, 1998, by and between TRINITY PETROLEUM MANAGEMENT, LLC,
a Colorado limited liability company, 1801 Broadway, Suite 600, Denver, CO 80202
("Trinity"), and COLORADO WYOMING RESERVE COMPANY, a Wyoming corporation, 751
Horizon Court, Suite 205, Grand Junction, Colorado 81506("CWYR").
RECITALS
CWYR desires to retain the services of Trinity to manage certain oil and
gas properties, and Trinity desires to provide the services under the terms
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the parties agree as follows:
ARTICLE I.
RETENTION OF SERVICES
1.1 SERVICES RETAINED. CWYR agrees to retain Trinity to perform certain
functions relating to the management of oil and gas properties located in the
United States (the "Properties"). Said functions include accounting services
(such as rental and royalty payments, disbursement of revenues to co-owners of
oil and gas leases, and the preparation of monthly financial statements),
computer support, contract and lease administration, and day-to-day operations.
ARTICLE II.
DUTIES OF TRINITY
2.1 PERFORMANCE OF SERVICES. Trinity shall undertake to perform the
services described in Article I, above, on behalf of CWYR. In performing the
services set forth in this Agreement, Trinity shall be subject to the
supervision and control of CWYR's officers and its Board of Directors. In no
event shall Trinity incur any obligation or enter into any transaction on behalf
of CWYR without the prior approval of an officer or the Board of Directors of
CWYR. All work shall be performed in accordance with applicable laws and
industry standards of diligence and care.
2.2 INDEPENDENT CONTRACTOR. Trinity is and shall be an independent
contractor in the performance of this Agreement and is solely responsible for
all of it's employees, including labor costs and expenses arising in connection
with them. Trinity shall have no responsibility for any expense or obligation of
CWYR under this Agreement.
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ARTICLE III.
TERM
3.1 TERM. The term of this Agreement shall be for a period of one year
commencing on the date hereof, and shall continue thereafter on a month-to-month
basis, terminable upon 60 days prior written notice by either party .
ARTICLE IV.
COMPENSATION
4.1 COMPENSATION FOR SERVICES.
A) CWYR shall pay to Trinity a fee of $3,000.00 per month,
payable on the first day of each month.
B) CWYR shall pay Trinity for the actual hours billed by
Trinity personnel while providing services to, or on behalf of, CWYR, according
to the hourly rates for Trinity personnel as set forth across from their
respective names on Exhibit A attached hereto.
4.2 THIRD-PARTY EXPENSES. The compensation described in Section 4.1,
above, does not include third-party expenses of CWYR that are paid by Trinity
which may include, without limitation, annual audit fees and expenses, annual
independent reservoir engineering fees and expenses, annual tax preparation fees
and expenses, legal fees, insurance and bonding expenses and other miscellaneous
expenses. Trinity shall obtain CWYR's approval prior to incurring and paying
such expenses on behalf of CWYR.
ARTICLE V.
INDEMNITY
5.1 INDEMNITY.
A) CWYR hereby agrees to indemnify and hold harmless Trinity,
its directors, officers, employees, agents, consultants and representatives, to
the fullest extent permitted by law, from and against all losses, claims,
damages, liabilities, costs and expenses (including without limitation attorneys
fees and costs of litigation) which (1) are related to or arise out of (a)
actions taken or omitted to be taken by CWYR; or (b) actions taken or omitted by
an indemnified person pursuant to this Agreement; or (2) are otherwise related
to or arise out of Trinity's activities on behalf of CWYR under this Agreement,
and CWYR will reimburse Trinity and any other person indemnified hereunder for
all expenses
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(including attorney's fees and costs of litigation) as they are incurred by
Trinity or such other indemnified persons in connection with investigating,
preparing or defending any such action or claim, in connection with pending or
threatened litigation in which Trinity or any other indemnified person is or may
be a party; provided however, CWYR shall not be responsible for any losses,
claims, damages, liabilities, costs or expenses pursuant to this Paragraph 5.1
(A) which are finally and judicially determined to have resulted primarily from
the bad faith, gross negligence or willful misconduct of Trinity or its
directors, officers, employees, agents, consultants and representatives.
B) Trinity hereby agrees to indemnify and hold harmless CWYR,
its directors, officers, employees, agents and representatives, to the fullest
extent permitted by law, from and against all losses, claims, damages,
liabilities, costs and expenses (including without limitation attorney's fees
and costs of litigation) which (1) are related to compensation or any other
claim of Trinity employees, contractors or consultants retained to perform the
services hereunder; or (2) are finally and judicially determined to have
resulted primarily from the bad faith, gross negligence or willful misconduct of
Trinity or its directors, officers, employees, agents, consultants and
representatives.
ARTICLE VI.
MISCELLANEOUS
6.1 ENTIRE AGREEMENT. This Agreement represents the entire agreement of
the parties with respect to the transactions contemplated hereby and may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties.
6.2 COMPLIANCE WITH LAW. Trinity shall obtain such authorizations,
licenses, permits and other governmental or regulatory agency approvals as are
required for the performance of this Agreement by Trinity, and CWYR shall incur
no liability arising from Trinity's possession, or lack of possession, of such
requisite governmental authorizations and approvals, except that CWYR shall
reimburse Trinity for applicable third-party expenses as described in Section
4.2 herein.
6.3 DOCUMENTS AND OTHER PROPERTY. Upon termination of this Agreement as
set forth herein, Trinity will deliver to CWYR all documents, data, and property
of any nature pertaining to the performance of the services hereunder and will
not, without the prior written consent of CWYR, retain any documents, data or
property of any description belonging to CWYR or any reproduction or any
description containing or pertaining to any proprietary information.
6.4 ASSIGNMENT. No party may assign any of its rights or obligations
under this Agreement without the prior written consent of the other party.
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6.5 BINDING AGREEMENT. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by CWYR and Trinity and their respective
successors and permitted assigns.
6.6 NOTICES. Unless otherwise amended in writing, all notices required
or permitted hereunder shall be in writing and shall be deemed to have been
given when deposited in the United States mail, postage prepaid and addressed as
follows:
If to Trinity: Trinity Petroleum Management LLC
1801 Broadway, Suite 600
Denver, CO 80202
Attn: Sallie S. Tippie
If to CWYR: Colorado Wyoming Reserve Company
751 Horizon Court, Suite 205
Grand Junction CO 81506
Attn: Kim M. Fuerst
6.7 COLORADO LAW. This Agreement shall be governed by and construed in
accordance with Colorado law.
6.8 SEVERABILITY. The determination that any term or provision hereof is
invalid or unenforceable shall not affect or invalidate the remaining terms and
provisions of this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
shall constitute but one Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TRINITY PETROLEUM MANAGEMENT, LLC
/s/ SALLIE S. TIPPIE
-----------------------------------
Sallie S. Tippie
Vice President
COLORADO WYOMING RESERVE COMPANY
/s/ KIM M. FUERST
-----------------------------------
Kim M. Fuerst
President
LOAN AGREEMENT
This LOAN AGREEMENT is dated this 25th day of August, 1998, by and
between COLORADO WYOMING RESERVE COMPANY, a Wyoming corporation (the "Borrower")
and JAMES E. MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994, a trust with the
trustee and beneficiary residing in Playa del Rey, California (the "Lender").
WHEREAS, Borrower presently has interests in the Collateral (defined
below) as more particularly described in that certain "Mortgage, Deed of Trust,
Security Agreement and Financing Statement" dated as of the date hereof between
Borrower and Lender (the "Mortgage");
WHEREAS, Borrower has applied to Lender for a loan (the "Loan") for
the purpose of providing working capital pending completion of a private
placement of the Company's securities; and
WHEREAS, the Loan will be evidenced and by a promissory note in the
original principal sum of One Hundred Twenty Thousand Dollars ($120,000.00) (the
"Note") in the form of Exhibit 1, and secured by the Mortgage and in the Form of
Exhibit 2, each of which shall be executed by Borrower in favor of Lender
concurrently herewith.
NOW THEREFORE, in consideration of the premises and covenants
contained herein and for other good and valuable consideration the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"Agreement" means this Loan Agreement, including all exhibits.
"Closing" has the meaning set forth in Section 2.1
"Collateral" means all property in which Lender is granted a Lien
pursuant to the Mortgage.
"Common Stock" shall mean the Common Stock, par value $0.01 per
share, of Borrower.
"Due Date" means the Due Date of the Note as defined in the Note, as
such Due Date may be extended from time to time.
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"Governmental Agency" means (a) any government or municipality or
political subdivision of any government or municipality, (b) any
assessment, improvement, community facilities or other special taxing
district, (c) any governmental or quasi-governmental agency, authority,
board, bureau, commission, corporation, department, instrumentality or
public body, (d) any court, administrative tribunal, arbitrator, public
utility or regulatory body, or (e) any central bank or comparable
authority.
"Legal Opinion" means the opinion of Davis, Graham & Stubbs
LLP, counsel to the Borrower to be delivered to Lender at the Closing in
the form of Exhibit 6. "Lien" means any lien, mortgage, deed of trust,
pledge, security interest or other charge or encumbrance.
"Loan Documents" shall mean this Agreement, the Note and the Mortgage
executed by Borrower and delivered to Lender in connection with the Loan.
"Material Adverse Effect" means a material adverse effect on, or a
material adverse change in, or a group of such effects on or changes in,
the operations, financial condition, results of operations, prospects,
assets or liabilities of Borrower.
"Person" means any person or entity, whether an individual, trustee,
corporation, partnership, joint stock company, trust, unincorporated
organization, bank, business association or firm, joint venture,
Governmental Agency or otherwise.
"Property" means the real property included in the Collateral.
Registration Rights Agreement means that certain Registration Rights
Agreement between Borrower and Lender to be entered into in
conjunction with the Loan in the form of Exhibit 3 hereto.
"SEC Documents" has the meaning set forth in Section 5.10.
"Warrant Agreement" shall mean that certain Warrant Agreement
governing the Warrants and dated the date hereof by and between the
Borrower and the Lender in the form of Exhibit 4.
"Warrants" shall mean the Warrants dated the date hereof to be issued
by Borrower to the Lender in the form of Exhibit A to the Warrant
Agreement.
"Warrant Shares" means the shares of Common Stock purchasable upon
exercise of the Warrants.
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ARTICLE II
LOAN
2.1 CLOSING. The closing of the transactions contemplated herein
shall occur as soon as reasonably practical on or after the date hereof as the
parties may agree at the offices of Freshman, Marantz, Orlanski, Cooper & Klein,
9100 Wilshire Blvd., Beverly Hills, California, 90212 (the "Closing").
2.2 LOAN. On the basis of the covenants, agreements and
representations of Borrower contained herein and contained in the loan
application and other financial information heretofore sub mitted to Lender, if
any, and subject to the terms and conditions hereinafter set forth, Lender
agrees to lend to Borrower and Borrower agrees to borrow from Lender an amount
equal to $120,000.
2.3 INTEREST. The Loan shall bear interest at the rate set forth in
the Note which interest shall be due and payable as set forth therein.
2.4 SECURITY. Payment of the Note shall be secured by the Mortgage.
ARTICLE III
CONDITIONS TO CLOSING
3.1 CLOSING DOCUMENTS FROM COMPANY. At or prior to the Closing,
Borrower shall duly execute and deliver the following to Lender, which shall be
in form, content and legal effect satisfactory to Lender:
(a) The Note.
(b) The Mortgage which shall establish a first Lien on the
Collateral.
(c) The Warrant Agreement.
(d) The Warrants.
(e) The Registration Rights Agreement.
(f) Any additional documents reasonably required by Lender,
including without limitation, UCC Financing Statements
to be filed with the Secretaries of State of Colorado
and Utah.
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3.2 CLOSING DOCUMENTS FROM OTHERS. At or prior to the Closing,
Borrower shall duly cause to be delivered to Lender the following, which shall
be in form, content and legal effect satisfactory to Lender:
(a) The Legal Opinion.
(b) Any additional documents reasonably required by Lender.
ARTICLE IV
DISBURSEMENT
4.1 DISBURSEMENT. Provided that all conditions of Closing have been
met, and subject to the other terms and conditions of this Article and of this
Agreement, Lender shall make the Loan subject to the following requirements:
(a) No Event of Default as defined in Article VIII hereof shal
exist; and
(b) Lender shall have received such additional assignments,
security agreements and other documents, which Lender determines are necessary
to perfect its security interest in the Collateral.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
Borrower hereby unconditionally warrants and represents as follows:
5.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Wyoming and has all corporate power and authority required to
(a) carry on its business as presently conducted, and (b) enter into this
Agreement, the Note, Mortgage, Registration Rights Agreement and Warrant
Agreement, issue the Warrants and to consummate the transactions contemplated
hereby and thereby. Borrower is qualified to do business and is in good standing
in each jurisdiction in which the failure to so qualify would have a Material
Adverse Effect
5.2 CAPITALIZATION. As of the date of this Agreement the
capitalization of Borrower is as follows:
(a) COMMON STOCK. A total of 75,000,000 authorized shares of
Common Stock, $0.01 par value per share, of which 2,491,694 shares are issued
and outstanding as of a date hereof. All of such outstanding shares are validly
issued, fully paid and non-assessable. No such outstanding shares were issued in
violation of any preemptive right.
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(b) OPTIONS, WARRANTS, RESERVED SHARES. Schedule 5.2(b)
attached hereto sets forth a summary description of all outstanding options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from Borrower of any shares of its capital stock or
any securities convertible into or ultimately exchangeable or exercisable for
any shares of the securities Company's capital stock. No shares of Borrower's
outstanding capital stock, or stock issuable upon exercise, conversion or
exchange of any outstanding options, warrants or rights, or other stock issuable
by Borrower, are subject to any rights of first refusal or other rights to
purchase such stock (whether in favor of Borrower or any other person), pursuant
to any agreement or commitment of Borrower.
5.3 DUE AUTHORIZATION. All corporate action on the part of
Borrower, its officers, directors and shareholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
Borrower under, this Agreement, the Note, Mortgage, Registration Rights
Agreement and Warrant Agreement, and the authorization, issuance, reservation
for issuance and delivery of the Warrants and the Warrant Shares has been taken
or will be taken prior to the Closing, and this Agreement constitutes, and the
Note, Mortgage, Registration Rights Agreement, Warrant Agreement and the
Warrants when executed and delivered, will constitute, valid and legally binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as may be limited by (a) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally, (b) the effect of
rules of law governing the availability of equitable remedies and (c) applicable
law affecting the indemnification provisions of the Registration Rights
Agreement.
5.4 VALID ISSUANCE OF WARRANT SHARES.
(a) The Warrant Shares have been duly and validly reserved for
issuance and, upon issuance, sale and delivery in accordance with the terms of
the Warrants for the consideration provided for therein, will be duly and
validly issued, fully paid and nonassessable.
(b Based in part on the representations made by the Lender in
Section 6 hereof, the Warrants and (assuming no change in applicable law and no
unlawful distribution of the Warrants by the Lender or other parties) the
Warrant Shares will be issued in full compliance with the registration and
prospectus delivery requirements of the Securities Act, or in compliance with
applicable exemptions therefrom, and the registration and qualification
requirements of all applicable securities laws of the states of the United
States.
5.5 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
Borrower is required in connection with the consummation of the transactions
contemplated by this Agreement. except for the filing of such qualifications or
filings under the Securities Act and the regulations thereunder and all
applicable state securities laws as may be required in connection with issuance
of the Warrants. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law.
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5.6 NON-CONTRAVENTION. The execution, delivery and performance of
this Agreement, the Note, Mortgage, Registration Rights Agreement, Warrant
Agreement and the Warrants by Borrower, and the consummation by Borrower of the
transactions contemplated hereby and thereby, do not and will not (a) contravene
or conflict with the Certificate of Incorporation or Bylaws of Borrower; (b)
constitute a material violation of any provision of any federal, state, local or
foreign law binding upon or applicable to Borrower; or (c) constitute a default
under, give rise to any right of termination, cancellation or acceleration of,
or to a loss of any material benefit to which Borrower is entitled under, or
result in the creation or imposition of any lien, claim or encumbrance on any
material assets of Borrower under any material contract to which Borrower is a
party or any material permit, license or similar right relating to Borrower or
by which Borrower may be bound or materially affected.
5.7 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending or threatened that seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement, the
Note, Mortgage, Registration Rights Agreement, Warrant Agreement and the
Warrants
5.8 COMPLIANCE WITH LAW AND CHARTER DOCUMENTS. Borrower is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, both as amended, and except for any violations that would not, either
individually or in the aggregate, have a Material Adverse Effect. Borrower has
complied and is in compliance with all applicable statutes, laws, regulations
and executive orders of the United States of America and all states, foreign
countries or other governmental bodies and agencies having jurisdiction over
Borrower's business or properties and no default exists under any contract or
agreement to which Borrower is a party, except for failures to comply and
defaults that would not, either individually or in the aggregate, have a
Material Adverse Effect.
5.9 TITLE TO PROPERTY AND ASSETS. Except for the Collateral, the
properties and assets Borrower owns or leases, are owned or leased by Borrower,
free and clear of all mortgages, deeds of trust, liens, encumbrances and
security interests except for statutory liens for the payment of current taxes
that are not yet delinquent and liens, encumbrances and security interests which
arise in the ordinary course of business and which do not affect material
properties and assets of Borrower. The Collateral is leased by Borrower free and
clear of all mortgages, deeds of trust, liens, encumbrances and security
interests except for statutory liens for the payment of current taxes. With
respect to all property and assets it leases, including the Collateral, Borrower
is in compliance with such leases in all material respects.
5.10 SEC DOCUMENTS.
(a) Borrower has furnished to the Lender prior to the date
hereof copies of its fiscal 1997 Form 10-KSB filed with the Securities and
Exchange Commission on October 1, 1997 and all registration statements, reports
and proxy statements filed by Borrower with the Commission thereafter (such Form
10-KSB, and such other registration statements, reports and proxy statements,
are collectively referred to herein as the "SEC Documents"). Each of the SEC
Documents, as of the
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respective date thereof, does not, and each of the registration statements,
reports and proxy statements filed by Borrower with the Commission after the
date hereof and prior to the Closing will not, as of the date thereof, contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Borrower is not a
party to any material contract, agreement or other arrangement required to be
filed as an exhibit to the SEC Documents that is not so filed.
(b) Borrower has provided the Lender with its audited
financial statements (the "Audited Financial Statements") for the fiscal year
ended June 30, 1997 and its unaudited financial statements (the "Unaudited
Financial Statements") for the nine months ended March 31, 1998 (the "Balance
Sheet Date"). Since March 31, 1997, Borrower has duly filed with the Commission
all registration statements, reports and proxy statements required to be filed
by it under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act of 1933 (the "Securities Act"). The audited and
unaudited consolidated financial statements of Borrower included in the SEC
Documents filed prior to the date hereof fairly present, in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
the consolidated financial position of Borrower and its consolidated
subsidiaries as at the date thereof and the consolidated results of their
operations and cash flows for the periods then ended, provided, however, that
the unaudited financial statements are subject to normal year end audit
adjustments and may not include all footnote disclosures required under GAAP and
may be condensed or summary statements.
(c) Except as and to the extent reflected or reserved against
in Borrower's Audited Financial Statements (including the notes thereto) or the
Unaudited Financial Statements, to the best knowledge of Borrower, Borrower has
no material liabilities (whether accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined or determinable) other than: (i)
liabilities incurred in the ordinary course of business since the Balance Sheet
Date that are consistent with Borrower's past practices, (ii) liabilities with
respect to agreements to which the Lender is a party, and (iii) other
liabilities that either individually or in the aggregate would not result in a
Material Adverse Effect.
5.11 ABSENCE OF CERTAIN CHANGES SINCE BALANCE SHEET DATE. Since the
Balance Sheet Date, the business and operations of Borrower have been conducted
in the ordinary course consistent with past practice, and there has not been:
(a) any declaration setting aside or payment of any dividend
or other distribution of the assets of Borrower with respect to any shares of
capital stock of Borrower, or any repurchase, redemption or other acquisition by
Borrower or any subsidiary of Borrower of any outstanding shares of Borrower's
capital stock;
(b) any damage, destruction or loss, whether or not covered by
insurance, except for such occurrences that have not resulted, and are not
expected to result, in a Material Adverse Effect;
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(c) any waiver by Borrower of a valuable right or of a
material debt owed to it, except for such waivers that have not resulted, and
are not expected to result, in a Material Adverse Effect;
(d) any material change or amendment to, or any waiver of any
material rights under, a material contract or arrangement by which Borrower or
any of its assets or properties is bound or subject, except for changes,
amendments or waivers which are expressly provided for or disclosed in this
Agreement or that have not resulted, and are not expected to result, in a
Material Adverse Effect;
(e) any change by Borrower in its accounting principles,
methods or practices or in the manner it keeps its accounting books and records,
except any such change required by a change in GAAP; and
(f) to Borrower's knowledge, any other event or condition of
any character, except for such events and conditions that have not resulted, and
are not expected to result, in a Material Adverse Effect.
5.12 NO OFFSETS ON OTHER PROJECTS. Borrower has no claims, defenses
or offsets against Lender in connection with any other indebtedness owed by
Borrower to Lender, and should any such claims, defenses or offsets exist, they
are hereby waived in consideration of Lender making the Loan.
5.13 INDEBTEDNESS OF BORROWER. Borrower has no indebtedness other
than trade payables and certain loans from officers and directors of Borrower.
5.14 FULL DISCLOSURE. The information contained in this Agreement
and the Schedule of Exceptions with respect to the assets, results of
operations, and financial condition of Borrower and the transactions
contemplated by this Agreement, the Note, Mortgage, Registration Rights
Agreement, Warrant Agreement and the Warrants are true and complete in all
material respects and do not omit to state any material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender hereby represents and warrants to Borrower, and agrees that:
6. AUTHORIZATION. All action on the part of the Lender, necessary
for the authorization, execution, delivery of and the performance of all
obligations of Lender under, this Agreement has been taken or will be taken
prior to the Closing. This Agreement constitutes and, when executed and
delivered, will constitute, the Lender's valid and legally binding obligations,
enforceable in accordance with the terms except as may be limited by (a)
applicable bankruptcy, insolvency, reorganization or other laws of general
application relating to or affecting the
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enforcement of creditors' rights generally and (b) the effect of rules of law
governing the availability of equitable remedies. The Lender has full power and
authority to enter into this Agreement.
6.2 PURCHASE FOR INVESTMENT. The Warrants to be acquired by the
Lender hereunder will be acquired for investment and not with a view to the
public resale or distribution thereof within the meaning of the Securities Act.
The Lender also represents that it has not been formed for the specific purpose
of acquiring the Warrants.
6.3 DISCLOSURE OF INFORMATION. The Lender has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Warrants to be purchased by
the Lender under this Agreement. The Lender further has had an opportunity to
ask questions and receive answers from Borrower regarding the terms and
conditions of the offering of the Warrants and the Warrant Shares and to obtain
additional information (to the extent Borrower possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Lender or to which the Lender had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by Borrower in Section 5.
6.4 INVESTMENT EXPERIENCE. The Lender understands that the
acquisition of the Warrants involves substantial risk. The Lender has experience
as an investor in securities of companies and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment in the Warrants
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of this investment in the Warrants
and protecting its own interests in connection with this investment.
6.5 ACCREDITED INVESTOR STATUS; LOCATION AND RESIDENCY. The Lender
is an "accredited investor" within the meaning of Regulation D promulgated under
the Securities Act. The Lender is located, and its sole trustee and beneficiary
reside in, the State of California.
6.6 RESTRICTED SECURITIES. The Lender understands that the
Warrants to be purchased by the Lender hereunder, and any Warrant Shares to be
purchased by the Lender upon exercise of the Warrants, are characterized as
"restricted securities" under the Securities Act inasmuch as they are being
acquired from Borrower in a transaction not involving a public offering and that
under the Securities Act and applicable regulations thereunder such securities
may be resold without registration under the Securities Act only in certain
limited circumstances. The Lender is familiar with Rule 144 of the SEC, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. The Lender understands that Borrower is under no
obligation to register any of the securities sold hereunder except as provided
in the Registration Rights Agreement.
6.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, the Lender further agrees not to make any
disposition of all or any portion of the Warrants or the Warrant Shares unless
and until:
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(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement; or
(b) the Lender has notified Borrower of the proposed
disposition and has furnished Borrower with a statement of the
circumstances surrounding the proposed disposition, and the
Lender has furnished Borrower, at the expense of the Borrower,
with an opinion of counsel, reasonably satisfactory to
Borrower, that such disposition will not require registration
of such securities under the Securities Act.
Notwithstanding the provisions of paragraphs (a) and (b) of this Section
6.7 no such registration statement or opinion of counsel will be required for
any transfer of any Warrants or any Warrant Shares in compliance with SEC Rule
144, Rule 144A or Rule 145(d), or any successor or additional similar rule, or
if such transfer otherwise is exempt, in the view of Borrower's legal counsel,
from the registration requirements of the Securities Act, provided that, in the
case of any transfer that is otherwise exempt, the transferee agrees in writing
to be subject to the terms of this Section 6.7 to the same extent as if the
transferee were the original Lender hereunder.
6.8 LEGENDS. Certificates evidencing the Warrant Shares, when
issued, will bear each of the legends set forth below and the Warrants will bear
the legends set forth in (i) and (ii) below:
(i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
(ii) Any legends required by any applicable state securities laws.
The legends set forth in Section 6.8 hereof will be removed by Borrower from any
certificate evidencing the Warrant Shares upon the effectiveness of a
registration statement under the Securities Act or upon delivery to Borrower of
an opinion by counsel, reasonably satisfactory to Borrower, that such security
may be freely transferred in a public sale without such a registration statement
being in effect and that such transfer will not jeopardize the exemption or
exemptions from registration pursuant to which Borrower issued the Warrants or
the Warrant Shares.
ARTICLE VII
ADDITIONAL COVENANTS OF BORROWER
In addition to the covenants of Borrower contained elsewhere herein,
and in the Note, the Mortgage and other Loan Documents, Borrower agrees as
follows:
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7.1 PROCEEDINGS. If any proceedings are filed seeking to enjoin or
otherwise prevent or declare invalid or unlawful the extraction of oil, gas or
other minerals on the Property or any portion thereof, Borrower will give prompt
written notice thereof to Lender and will cause such pro ceedings to be
vigorously contested in good faith and, in the event of an adverse ruling or
decision, prosecute all allowable appeals.
7.2 COMPLIANCE WITH APPLICABLE LAWS. All extraction of oil, gas or
other minerals on the Property shall be performed in material compliance with
all laws, rules, regulations and orders applicable to its business operations,
properties, assets, and services (including rules and regulations relating to
work-place safety and environmental clean-up) and all necessary permits,
licenses and other authorizations have been obtained for the extraction of oil,
gas or other minerals on the Property.
7.3 FURTHER DOCUMENTS. Borrower will, at the request of Lender,
execute, deliver and furnish such documents or take such further action as
Lender may reasonably deem necessary or desirable to evidence the Loan, or
perfect the security therefor.
7.4 RESTRICTIVE COVENANTS. Borrower shall not impose any
restrictive covenants or encumbrances upon the Property.
7.5 LIENS. If at any time an encumbrance, lien or charge is placed
or claimed upon the Property, Borrower shall satisfy and remove such
encumbrance, lien or charge by bonding or by other method satisfactory to
Lender.
7.6 NOTICES. Borrower shall comply and promptly furnish to Lender
true and complete copies of any notices pertaining to the Property by any
Governmental Agency. Borrower shall promptly notify Lender of any fire or other
casualty or any notice of taking or eminent domain pro ceeding affecting the
Property.
7.9 BOOKS AND RECORDS. Borrower shall keep, at its principal place
of business, the records and books of accounting relating to royalties received
on account of the extraction of oil, gas and other minerals from the Property.
Lender shall be entitled, at any reasonable time, to inspect the Property, all
records relating thereto, and the books and other financial records of Borrower
including, but not limited to, all permits, licenses, consents and approvals of
all Governmental Agencies having jurisdiction over Borrower and the Property.
Borrower shall cooperate with Lender in enabling Lender to accomplish such
inspection and permit Lender to make such copies as Lender may request.
7.10 DESIGNATION OF DIRECTOR. Lender will have the right to
designate one person to Borrower's board of directors and upon such designation
Borrower will appoint and thereafter nominate and use its best efforts to cause
the election of such person to its Board at any shareholder's meeting in which
directors are to be elected. Lender may vary its designee from time to time. All
benefits currently provided to other directors will be provided to this director
and the director will receive from Borrower warrants/options to purchase 100,000
shares of Borrower's Common Stock
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<PAGE>
at $1.00 per share. All reasonable expenses of this board member will be
reimbursed by Borrower. At the request of the designated director, a director
liability insurance policy satisfactory to this director will be purchased and
kept in full force at Company expense.
7.11 RESTRICTIONS ON DERIVATIVE SECURITIES. Except for the Warrants
and options and warrants granted or sold in connection with the a private
placement of Borrower's securities seeking to raise up to $2,000,000 by October
31, 1998 and thereby repay the Note and options and warrants granted to the new
director designated by Lender pursuant to Section 7.10, Borrower shall not grant
or issue options, warrants, convertible securities or other rights to subscribe
for any shares of common stock or securities convertible to common stock to any
officer, director or other affiliate of the Company in excess of 50,000 shares
of common stock in the aggregate for a period of one year from the effective
date of the registration statement covering the Registrable Securities (as
defined in the Registration Rights Agreement). Borrower shall not pay cash
bonuses or loan holders funds for exercise of any outstanding options or
warrants of the Borrower.
7.12 RESTRICTION ON PAYMENT OF OTHER INDEBTEDNESS. Until repayment
of the Loan is made in full, Borrower shall make no payment of or on any
indebtedness of Borrower to any of its officers or directors, including the
indebtedness to its officers and directors mentioned in Section 5.13.
7.13 FILINGS. At Borrower's expense, Borrower will prepare and file
on Lenders behalf all necessary forms and documents, including Schedules 13D or
13G and Form 3s, 4s and 5s, that may required of Lender as a 5% or 10% or
greater beneficial owner of Borrower's Common Stock. At its expense, Borrower
will arrange for any necessary legal opinions permitting transfer of Borrower's
securities pursuant to Rule 144 when applicable.
ARTICLE VIII
DEFAULT
8.1 EVENTS OF DEFAULT. Any of the following shall constitute an
event of default ("Event of Default") hereunder:
(a) The failure of Borrower to make any payment required under
the Note.
(b) The false or misleading nature of any representation or
warranty of Borrower contained herein or in any representation to Lender
concerning the financial condition or credit standing of Borrower or the
reasonable determination by Lender of a material threat to its security by
reason of a material adverse change in the financial condition or credit
standing of Borrower;
(c) The failure of Borrower to fully perform any and all
covenants and agreements hereunder or under the Note, Mortgage, Registration
Rights Agreement, Warrant
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Agreement and the Warrants and such failure, if remedial, continues unremedied
for 15 days after notice thereof from the Lender;
(d) An event of default shall occur under the Note or
Mortgage.
8.2 ACCELERATION. Upon the occurrence of an Event of Default, the
entire unpaid balance of the Note including all accrued interest shall at the
option of Lender, become immediately due and payable and Lender shall have such
rights of enforcement as may be afforded hereunder or under the Note, Mortgage
and any of the other Loan Documents, and in law or equity.
ARTICLE IX
REMEDIES
9.1 REMEDIES ARE CUMULATIVE. All remedies of Lender provided for
herein are cumulative and shall be in addition to any and all other rights and
remedies provided in the Note, the Mortgage or any of the other Loan Documents
or by law. The exercise of any rights of Lender hereunder shall not in any way
constitute a cure or waiver of a default hereunder or elsewhere, or invalidate
any act done pursuant to any notice of default, or prejudice Lender in the
exercise of any of its other rights hereunder or elsewhere unless, in the
exercise of said rights, Lender realizes all amounts owed to it hereunder and
under the Note.
9.2 RIGHT OF CONTEST. Borrower shall have the right to contest in
good faith any claim, demand, levy, or assessment by a third party, the
assertion of which would constitute a default here under. Any such contest shall
be prosecuted diligently and in a manner not prejudicial to Lender or the rights
of Lender hereunder. Upon demand by Lender, Borrower shall deposit funds with
Lender or obtain and record a bond satisfactory to Lender in an amount
sufficient to cover any amounts which may be owing in the event the contest may
be unsuccessful. Borrower shall make such deposit or obtain and record such
bond, as the case may be, within five (5) days after demand therefor and, if
made by payment of funds to Lender, the amount so deposited shall be disbursed
in accordance with the resolution of the contest to Borrower or the adverse
claimant.
ARTICLE X
MISCELLANEOUS
10.1 NO WAIVER. No waiver of any default or breach by Borrower
hereunder shall be implied from any omission by Lender to take action on account
of such default, and no express waiver shall affect any default other than the
default specified in the waiver and the waiver shall be operative only for the
time and to the extent therein stated. Waivers of any covenant, term or
condition contained herein shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
Lender to or of any act by Borrower requiring further consent or approval shall
not be deemed to waive or render unnecessary the consent or approval to or of
any subsequent similar act.
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10.2 THIRD PARTIES BENEFITTED. Except with respect to the rights of
the director designated under Section 7.10 (which are intended to benefit, and
may be enforced directly by, such director, this Agreement is made and entered
into for the sole protection and benefit of Lender and Borrower.
10.3 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given (a) upon personal delivery to
the party notified, (b) one day after deposit with a nationally recognized air
courier service such as DHL or Federal Express for next day delivery, or (c) on
the day of facsimile transmission, with confirmed transmission, to the facsimile
number shown below (or to such other facsimile number as the party to be
notified may indicate by ten (10) days advance written notice to the other party
in the manner herein provided), provided that notice is also given under clauses
(a) or (b) above, in any such case addressed to the party to be notified at the
address indicated below for that party, or at such other address as that party
may indicate by ten (10) days advance written notice to the other party in the
manner herein provided.
If to Lender:
James E. Moore, Trustee
James E. Moore Revocable Trust u/d/t dated
July 28, 1994
7827 Berger Avenue
Playa del Rey CA 90293
Facsimile:(310) 822-1533
If to Borrower:
COLORADO WYOMING RESERVE COMPANY
751 Horizon Court, Suite 205
Grand Junction, Colorado 81506
Facsimile:(970) 255-9238
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Agreement and in the Note, Mortgage,
Registration Rights Agreement, Warrant Agreement and the Warrants and any of the
other Loan Documents shall survive the repayment of the Loan.
10.5 ATTORNEYS' FEES. In the event that an attorney be employed or
expense be incurred to compel payment of the Loan or any portion thereof or in
connection with any default here under or under the Note, Mortgage, Registration
Rights Agreement, Warrant Agreement, the Warrants or any other Loan Document,
whether or not any action or proceeding is commenced by Lender, Borrower
promises to pay all such reasonable expenses and attorneys' fees, including, but
not limited to, attorneys' fees incurred in any bankruptcy or judicial or
nonjudicial foreclosure proceedings.
10.6 ENTIRE AGREEMENT. Borrower agrees that the terms hereof, and
the Note, Mortgage, Registration Rights Agreement, Warrant Agreement, the
Warrants and the other Loan Documents, constitute the complete, exclusive and
final expression of its agreement relating to the
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specific subject matter hereof and thereof. In this regard, Borrower represents
and warrants that it intends the literal words of this Agreement and of the Loan
Documents, and that all prior or contemporaneous negotiations, drafts,
agreements, and other extrinsic communications shall have no significance or
evidentiary effect, and may not be used to contradict the terms hereof. Borrower
affirms that its counsel has been specifically advised Borrower concerning the
meaning of the provisions of this Agreement, including, but not limited to the
provisions of this Section 10.6.
10.7 AUTHORITY TO FILE NOTICES. Borrower irrevocably appoints,
designates, and authorizes Lender as its agent (said agency being coupled with
an interest) to file for record any notices of completion, cessation of labor,
or any other notice that Lender deems necessary or desirable to protect its
interest hereunder or under the Note, Mortgage, or any of the other Loan
Documents. Such authorization by Borrower shall not create any obligation on the
part of Lender.
10.8 EXPENSES. Borrower shall pay promptly all reasonable costs,
charges, and expenses incurred by Lender in connection with Loan including but
not limited to reasonable legal fees and expenses in connection with the
preparation of this Agreement, the Note, Mortgage, Registration Rights
Agreement, Warrant Agreement and the Warrants and Lenders travel and related
expenses of due diligence in connection with Borrower. All such fees and
expenses shall be paid at the Closing.
10.9 ACTIONS. Lender shall have the right to commence, appear in or
defend any action or proceeding purporting to affect the rights, duties, or
liabilities of the parties hereunder. In connection therewith, Lender may incur
and pay costs and expenses, including reasonable attorneys' fees. Borrower shall
pay to Lender on demand all such costs and expenses.
10.10 GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the State Colorado. All
judicial proceedings arising out of or relating to this Agreement may be brought
in any state or federal court of competent jurisdiction in the State of
California, and by execution and delivery of this Agreement, the Company accepts
for itself generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts and waives any defense of forum non convenience and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement.
10.11 HEIRS, SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the heirs, successors, assigns and personal
representatives of the parties hereto; provided, however, that Borrower shall
not assign its rights hereunder in whole or in part without the prior written
consent of Lender, which such consent may be granted or withheld in the sole and
absolute discretion of Lender. Any such assignment without said consent shall be
void. Lender shall have the right at any time and from time to time to assign to
others all or certain of its rights hereunder.
10.12 TIME. Time is of the essence of this Agreement, and each and
every provision hereof and in the Note, Mortgage, Registration Rights Agreement,
Warrant Agreement and the Warrants and any of the other Loan Documents in which
time is an element.
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10.13 JOINT VENTURER. Lender shall not be deemed to be a partner or
joint venturer with Borrower in connection with the Loan or any action taken
under this Agreement and Borrower shall indemnify, hold Lender harmless and
defend Lender from and against any and all loss, cost, damage, expense or
liability, including reasonable attorneys' fees, arising out of or resulting
from such a construction of the parties and their relationship or resulting from
any act or failure to act of Borrower, or from the negligence of Borrower with
respect to any activity contemplated herein, or under the in the Note, Mortgage
any of the other Loan Documents or other documents executed in connection
herewith. The provisions of this paragraph shall survive repayment of the Loan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
"Borrower"
COLORADO WYOMING RESERVE COMPANY
By: /s/ KIM M. FUERST
----------------------------------
Kim M. Fuerst
Title: President
"Lender"
JAMES E. MOORE REVOCABLE TRUST U/D/T
DATED JULY 28, 1994
By: /s/ JAMES E. MOORE
----------------------------------
James E. Moore , Trustee
16
MORTGAGE, DEED OF TRUST,
SECURITY AGREEMENT AND FINANCING STATEMENT
(OIL AND GAS)
FROM
COLORADO WYOMING RESERVE COMPANY
TAXPAYER I.D. NO. 83-0246080
TO
JAMES A. HOLTKAMP, TRUSTEE
AND
JAMES E. MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994
SSN: ###-##-####
DATED AS OF AUGUST 25, 1998
================================================================================
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
THIS INSTRUMENT SECURES FUTURE ADVANCES.
THE OIL AND GAS INTERESTS INCLUDED IN THE MORTGAGED PROPERTY WILL BE FINANCED AT
THE WELLHEADS OF THE WELLS LOCATED ON THE PROPERTY DESCRIBED IN EXHIBIT A
HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER
PLACES, IN THE REAL ESTATE RECORDS OF THE COUNTY RECORDER.
THE SECURED PARTY IS NOT A SELLER OR PURCHASE MONEY LENDER OF THE COLLATERAL
COVERED BY THIS INSTRUMENT.
================================================================================
THIS DOCUMENT WAS PREPARED BY
AND WHEN RECORDED AND/OR FILED
SHOULD BE RETURNED TO:
Brian T. Dolan, Esq.
Davis, Graham & Stubbs LLP
P. 0. Box 185
Denver, Colorado 80201
<PAGE>
MORTGAGE, DEED OF TRUST,
SECURITY AGREEMENT AND FINANCING STATEMENT
This Mortgage, Deed of Trust, Security Agreement and Financing Statement
is entered into by and among the undersigned Colorado Wyoming Reserve Company
(herein called "Mortgagor"), a Wyoming corporation, whose address is 751 Horizon
Court, Suite 205, Grand Junction, Colorado 81506, James A. Holtkamp (herein
called "Trustee"), whose address is Suite 1000, 136 S. Main Street, Salt Lake
City, Utah 84101-1685, and James E. Moore Revocable Trust u/d/t dated July 28,
1994 (herein called "Mortgagee"), having an address at 7827 Berger Avenue, Playa
del Rey, California 90293.
The parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1 DEFINED TERMS. For the purposes of this instrument:
(a) Collateral" includes Fixture Collateral, Personalty
Collateral and Realty Collateral as hereinafter defined.
(b) Dollars" and "US$" mean lawful money of the United States of
America.
(c) "Effective Date" means August 25, 1998.
(d) "Fixture Collateral" means all of Mortgagor's interest in and
to all Operating Equipment which is or becomes so related to the Oil and Gas
Property or any part thereof that an interest in the Operating Equipment arises
under the real property law of the State in which it is situated.
(e) "Hydrocarbons" means oil, gas and other liquid or gaseous
hydrocarbons.
(f) "Obligations" means the aggregate of:
(i) all amounts payable pursuant to a promissory note, dated
August 25, 1998, payable in full on or before October 31, 1998 executed by
Mortgagor, payable to the order of the Mortgagee, in the principal face amount
of One Hundred Twenty Thousand Dollars ($120,000) (referred to herein as the
"Note");
(ii) any and all other or additional indebtedness or
liabilities for which Mortgagor is now or may become liable to Mortgagee in any
manner, whether under this instrument or otherwise, either primarily or
secondarily, absolutely or contingently, directly or indirectly, jointly,
severally, or jointly and severally, and whether matured or unmatured,
regardless of the manner in which the indebtedness or liability may have been or
may be
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acquired by Mortgagee and whether or not created after payment in full of the
Obligations if this instrument shall not have been released of record by
Mortgagee;
(iii) all sums advanced and costs and expenses incurred by the
Trustee or the Mortgagee, including without limitation all legal, accounting,
engineering, management, consulting or like fees, made and incurred in
connection with the Obligations described in paragraphs (i) and (ii) above or
any part thereof, any renewal, extension or modification of, or substitution
for, the foregoing Obligations or any part thereof, or the acquisition,
perfection or maintenance and preservation of the security therefor, whether
such advances, costs or expenses shall have been made and incurred at the
request of Mortgagor, Mortgagee or Trustee; and
(iv) any and all extensions and renewals of, substitutions
for, or modifications or amendments of any of the foregoing Obligations or any
part thereof.
(g) "Oil and Gas Property" means the oil and gas leasehold
interests and estates and other interests of Mortgagor in the lands described in
EXHIBIT A attached hereto and made a part hereof, whether now owned or hereafter
acquired, by operation of law or otherwise, together with all of Mortgagor's
interests of any nature whatsoever now or hereafter incident or appurtenant
thereto, including, but not limited to, fee mineral and surface interests in
said lands, royalty interests therein, all unsevered and unextracted
Hydrocarbons in, under or attributable to Mortgagor's interests in said lands,
oil and gas (or oil, gas and mineral) leases, subleases, farmin agreements,
farmout agreements, bottom hole agreements, other participation agreements of
any kind, royalties, overriding royalties, net profits interests, production
payments, licenses, servitudes, orders, acreage contribution agreements,
processing agreements, options and similar interests, and all rights of way,
surface leases, and easements affecting the foregoing interests of Mortgagor or
useful or appropriate in exploring and/or drilling for, producing, processing,
treating, handling, storing, transporting or marketing Hydrocarbons therefrom or
the disposal of water, Hydrocarbons or associated substances from said lands.
(h) "Operating Equipment" means all surface or subsurface
machinery, equipment, facilities, supplies or other property of whatsoever kind
or nature and any replacements thereof, substitutions therefor or accessions
thereto (including leases of equipment), now or hereafter located in, on or
under, affixed or attributable to or obtained or used in connection with any of
the Oil and Gas Property or any portion thereof or interest therein, including,
without limiting the generality of the foregoing, goods which are or are to
become fixtures on the Oil and Gas Property, oil wells, gas wells, water wells,
injection wells, casing, tubing, rods, pumps, pumping units and engines,
Christmas trees, derricks, separators, gun barrels, flow lines, tanks, gas
systems (for gathering, treatment, compression and transmission), chemicals,
solutions, water systems (for treating, disposal and injection), power plants,
boilers, poles, lines, transformers, starters and controllers, valves, meters,
measuring devices, machine shops, tools, storage yards and equipment stored
therein, buildings and camps, secondary and other recovery equipment, systems
and processes, plans, drawings, specifications, surveys, engineering, geological
and geophysical studies and reports, well logs, reports and related data,
seismographic studies, reports and information, office and personnel books,
files, records and correspondence, computer output and data files, maps, plats,
abstracts of title, lease files, unit files, production marketing files, title
curative opinions, title
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<PAGE>
files and title records, division orders and division order records, ownership
maps, warranties and guarantees of manufacturers and others, telegraph,
telephone and other communication systems, roads, loading docks, shipping
facilities and building and construction materials.
(i) "Personalty Collateral" means all of Mortgagor's interest now
owned or hereafter acquired in and to: (i) all Operating Equipment, all
Hydrocarbons extracted from or attributable to the Oil and Gas Property, all
Production Sales Contracts and all accounts, contract rights and general
intangibles now existing or hereafter arising in connection with the exploration
or drilling for, production, processing, treatment, storage, transportation,
manufacture or sale of Hydrocarbons from the Oil and Gas Property, and (ii)
personal property, movable and immovable, tangible or intangible, of whatsoever
nature and kind, wherever located, including, without limitation, all accounts,
contract rights, general intangibles, Hydrocarbons, equipment, inventory, goods,
chattel paper, permits, authorizations, seismic or other data, title
information, title abstracts and maps, now owned or existing or hereafter
acquired or arising in connection with the conduct by Mortgagor of any activity
other than the exploration for, production, processing, treatment, storage,
transportation, manufacture, or sale of Hydrocarbons from the Oil and Gas
Property.
(j) "Proceeds" includes whatever is received upon the sale,
exchange, collection or other disposition of the Collateral and insurance
payable or damages or other payments by reason of loss or damage to the
Collateral, and all additions thereto, substitutions and replacements thereof or
accessions thereto.
(k) "Production Sales Contract" means each contract now in effect
or hereafter entered into by Mortgagor or Mortgagor's predecessors in title for
the sale, purchase, exchange or processing of Hydrocarbons extracted from or
attributable to the Oil and Gas Property.
(l) "Realty Collateral" means all of Mortgagor's interest in and
to the Oil and Gas Property, including, but not limited to, the interests of
Mortgagor described or specified in EXHIBIT A hereto.
ARTICLE 2 - CREATION OF SECURITY
Section 2.1 GRANT. In consideration of the Mortgagee's advancing or
extending the funds or credit constituting the Obligations, and in consideration
of the mutual covenants contained herein, and for the purpose of securing
payment of the Obligations, Mortgagor hereby grants, bargains, sells, warrants,
mortgages, assigns, transfers and conveys the Realty Collateral and Fixture
Collateral to the Trustee, with power of sale, for the benefit of Mortgagee; to
have and to hold the Realty Collateral and Fixture Collateral, together with all
and singular the rights, privileges, contracts, and appurtenances now or
hereafter at any time before the foreclosure or release hereof, in any way
appertaining or belonging thereto, unto the Trustee and to his substitutes or
successors, forever, in trust, upon the terms and conditions herein set forth;
and Mortgagor hereby binds and obligates Mortgagor and Mortgagor's successors
and assigns, to warrant and to defend, all and singular, title to the Collateral
unto the Trustee, his substitutes or successors, forever, against the claims of
any and all persons whomsoever claiming any part thereof.
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<PAGE>
Section 2.2 CREATION OF SECURITY INTEREST. In addition to the grant
contained in SECTION 2.1, and for the same consideration and purpose, Mortgagor
hereby grants to the Mortgagee, a first and prior security interest in all
Personalty Collateral, now owned or hereafter acquired by the Mortgagor, and in
all Proceeds. Without limiting the foregoing provisions of this SECTION 2.2,
Mortgagor stipulates that the grant made by this SECTION 2.2 includes a grant of
a security interest in Hydrocarbons extracted from or attributable to the Oil
and Gas Property and in the Proceeds resulting from sale of such Hydrocarbons
(including, but not limited to, sales at the wellhead), such security interest
to attach to such Hydrocarbons as extracted and to the accounts resulting from
such sales.
Section 2.3 PROCEEDS. The security interest of Mortgagee hereunder in
the Proceeds shall not be construed to mean that Mortgagee consents to the sale
or other disposition of any part of the Collateral other than Hydrocarbons
extracted from or attributable to the Oil and Gas Property and sold in the
ordinary course of business.
Section 2.4 SUBSTITUTION OF MORTGAGEE FOR TRUSTEE. This instrument shall
be effective, at the Mortgagee's option and as allowed by applicable law, as a
mortgage as well as a deed of trust, and every grant herein to the Trustee of
interests, powers, rights and remedies shall likewise be a grant of the same
interests, powers, rights and remedies to the Mortgagee, as mortgagee. Subject
to applicable law, Mortgagee shall in all instances, and in its sole discretion,
elect whether this instrument shall be effective as a mortgage or as a deed of
trust.
ARTICLE 3 - MORTGAGOR'S WARRANTIES AND COVENANTS
Section 3.1 PAYMENT OF OBLIGATIONS. Mortgagor covenants that it will pay
all Obligations when due and otherwise faithfully and strictly perform all
obligations of Mortgagor under the Note and any other instrument or document
executed and delivered in connection with the Obligations. If any part of the
Obligations is not evidenced by a writing specifying a due date, Mortgagor
agrees to pay the same upon demand. All Obligations are payable to Mortgagee at
the address shown above.
Section 3.2 WARRANTIES AND COVENANTS.
(a) Mortgagor warrants and covenants that:
(i) Mortgagor, to the extent of the interests of Mortgagor
in EXHIBIT A, has good and marketable title to each property right or interest
constituting the Collateral, free of any adverse claim, burden, mortgage, lien,
security interest, pledge, charge, encumbrance or interest of or in favor of any
third party other than as stated in EXHIBIT A, except as previously disclosed to
Mortgagee in writing or as permitted by the Note; except for any financing
statement in favor of Mortgagee, or as previously disclosed to Mortgagee, no
financing statement covering any of the Collateral in favor of any third party
is on file in any public office; Mortgagor has the operating interests and the
net revenue interests in the Oil and Gas Property described in EXHIBIT A; and
Mortgagor has a good and legal right and full authority to grant and convey same
to Mortgagee pursuant to this instrument;
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<PAGE>
(ii) the oil and gas (or oil, gas and mineral) leases
included in the Oil and Gas Property are valid and subsisting and all rentals
and royalties due under each of them have been properly and timely paid, and all
conditions and obligations necessary to keep them in force have been fully
satisfied and performed; and all producing wells located on the Oil and Gas
Property or properties unitized therewith have been drilled, operated and
produced in conformity with all applicable laws and rules, regulations and
orders of all governmental authorities having jurisdiction and are subject to no
penalties on account of past production;
(iii) no approval or consent of any regulatory or
administrative commission or authority or of any other governmental body or any
other party is necessary to authorize the execution and delivery of this
instrument or of any other written instrument constituting or evidencing the
Obligations, or to authorize the observance or performance by Mortgagor of the
covenants contained in the instruments constituting or evidencing the
Obligations, or to authorize the observance or performance by Mortgagor of the
covenants contained in this instrument or in the other written instruments
constituting or evidencing the Obligations or to enable the Mortgagee to
exercise its rights hereunder;
(iv) Mortgagor is a corporation organized under the laws of
the State of Wyoming, is qualified to do business in each state where such is
required by the conduct of its business and is in good standing in all of said
states, and will maintain its corporate existence and form and maintain its
status as qualified to do business in each of said states until the Obligations
are paid in full; and
(v) Mortgagor has taken all proper corporate action to
authorize the execution and delivery of the Note secured hereby and of this
instrument and to make the Note and this instrument the legal, valid and binding
obligations of Mortgagor.
(b) All of the warranties and representations of Mortgagor
contained in this instrument are and will be in all respects true and correct
both as of the date of execution of this instrument and the Effective Date and
as of the date of each extension of credit by Mortgagee to Mortgagor, and the
warranties contained in SECTION 3.2(A)(IV) also shall be in all respects true
and correct when any item such as referred to therein is furnished to Mortgagee.
(c) Mortgagor warrants and shall forever defend (at Mortgagor's
expense) the Collateral against every person whomsoever lawfully claiming the
same or any part thereof, and Mortgagor shall maintain and preserve the lien and
security interest herein created until this instrument has been terminated as
provided herein.
Section 3.3 OPERATION OF MORTGAGED PROPERTY. As long as this instrument
has not been terminated, and whether or not Mortgagor is the operator of all or
any part of the Oil and Gas Property, Mortgagor shall, at Mortgagor's own
expense:
(a) comply fully with all of the terms and conditions of all
leases and other instruments of title described in EXHIBIT A and all
rights-of-way, easements and privileges necessary
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for the proper operation of such leases and instruments, and otherwise do all
things necessary to keep Mortgagor's rights and Mortgagee's interest in the
Collateral unimpaired;
(b) cause the Oil and Gas Property to be maintained, developed
and protected against drainage and continuously operated for the production of
Hydrocarbons in a good and work manlike manner as a prudent operator would in
accordance with generally accepted practices, applicable operating agreements
and all applicable federal, state and local laws, rules, regulations and orders;
(c) promptly pay or cause to be paid when due and owing all
rentals and royalties payable in respect of the Oil and Gas Property; all
expenses incurred in or arising from the operation or development of the
Collateral; and all taxes, assessments and governmental charges imposed upon the
Collateral or Mortgagor;
(d) cause the Collateral to be kept free and clear of liens,
charges, security interests, encumbrances, adverse claims and title defects of
every character other than (i) the lien and security interest created by this
instrument, (ii) taxes constituting a lien but not due and payable, (iii)
defects or irregularities in title which are not such as to interfere materially
with the development, operation or value of the Collateral and not such as to
materially affect title thereto, (iv) those set forth or referred to in EXHIBIT
A hereto, (v) those being contested in good faith by Mortgagor and which do not,
in the judgment of Mortgagee, jeopardize the Trustee's or Mortgagee's rights in
and to the Collateral, and (vi) those consented to in writing by Mortgagee;
PROVIDED, HOWEVER, that Mortgagee may take such independent action in connection
with any such matters affecting the Collateral as it deems advisable, and all
costs and expenses thereof, including, without limitation, attorneys' fees
incurred by Mortgagee in taking such action, shall be part of the Obligations
hereunder; and
(e) execute, acknowledge and deliver to Mortgagee such other and
further instruments and do such other acts as in the opinion of Mortgagee are
necessary or desirable to effect the intent of this instrument or otherwise
protect and preserve the interests of Mortgagee hereunder, promptly upon request
of Mortgagee.
Section 3.4 RECORDING AND FILING. Mortgagor shall pay all costs of
filing, registering and recording this and every other instrument in addition or
supplemental hereto and all financing statements Mortgagee may require, in such
offices and places and at such times and as often as may be, in the judgment of
Mortgagee, necessary to preserve, protect and renew the lien and security
interest herein created as a first lien and prior security interest on and in
the Collateral and otherwise do and perform all matters or things necessary or
expedient to be done or observed by reason of any law or regulation of any State
or of the United States or of any other competent authority for the purpose of
effectively creating, maintaining and preserving the lien and security interest
created herein and on the Collateral and the first and prior priority thereof.
Mortgagor shall also pay the costs of obtaining reports from appropriate filing
officers concerning financing statement filings in respect of any of the
Collateral in which a security interest is granted herein.
Section 3.5 TRUSTEE'S OR MORTGAGEE'S RIGHT TO PERFORM MORTGAGOR'S
OBLIGATIONS. Mortgagor agrees that, if Mortgagor fails to perform any act which
Mortgagor is required to perform under this
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instrument, Mortgagee or the Trustee or any receiver appointed hereunder may,
but shall not be obligated to, perform or cause to be performed such act, and
any expense incurred by Mortgagee or the Trustee in so doing shall be a demand
obligation owing by Mortgagor to Mortgagee, shall bear interest at an annual
rate equal to the maximum interest rate provided in the Note until paid and
shall be a part of the Obligations, and Mortgagee, the Trustee or any receiver
shall be subrogated to all of the rights of the party receiving the benefit of
such performance. The undertaking of such performance by Mortgagee, the Trustee
or any receiver as aforesaid shall not obligate such person to continue such
performance or to engage in such performance or performance of any other act in
the future, shall not relieve Mortgagor from the observance or performance of
any covenant, warranty or agreement contained in this instrument or constitute a
waiver of default hereunder and shall not affect the right of Mortgagee to
accelerate the payment of all indebtedness and other sums secured hereby or to
resort to any other of its rights or remedies hereunder or under applicable law.
In the event the Mortgagee, the Trustee or any receiver appointed hereunder
undertakes any such action, no such party shall have any liability to the
Mortgagor in the absence of a showing of gross negligence or willful misconduct
of such party, and in all events no party other than the acting party shall be
liable to Mortgagor.
ARTICLE 4 - DEFAULT
Section 4.1 EVENTS OF DEFAULT. The term "Event of Default" means the
occurrence of any of the following events or the existence of any of the
following conditions:
(a) failure to make any payment when due under the terms of the
Note;
(b) failure by Mortgagor to make any payment when due of any of
the Obligations or other failure to keep, punctually perform or observe any of
the covenants, obligations or prohibitions contained herein, in any other
written instrument evidencing any of the Obligations or in any other agreement
with Mortgagee (whether now existing or entered into hereafter) or the
occurrence of any other event which is, or is deemed to be, an Event of Default
under and as that term is defined in any such other written instrument or
agreement, including, without limitation, the Note;
(c) any warranty, information, representation or statement by
Mortgagor made or furnished to Mortgagee by or on behalf of Mortgagor in
connection with the Obligations is determined by Mortgagee to be untrue or
misleading in any material respect;
(d) the assertion (except by the owner of an encumbrance
expressly excepted from Mortgagor's warranty of title herein) of any claim of
priority over this instrument, by title, lien or otherwise, unless Mortgagor
within 30 days after such assertion either causes the assertion to be withdrawn
or provides Mortgagee with such security as Mortgagee may require to protect
Mortgagee against all loss, damage, or expense, including attorneys' fees, which
Mortgagee may incur in the event such assertion is upheld; or
(e) the dissolution, termination, or liquidation of Mortgagor or
of any other person or entity directly or indirectly liable for the Obligations,
or the making by any such person
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of any assignment for the benefit of creditors, or the appointment of a
receiver, liquidator, or trustee of the property of any such person, or the
filing of any petition for the bankruptcy, reorganization, or arrangement of any
such person pursuant to the Federal Bankruptcy Code or any similar state or
federal statute, or the adjudication of any such person as bankrupt or
insolvent.
Section 4.2 ACCELERATION UPON DEFAULT. Upon the occurrence of any Event
of Default, or at any time thereafter, Mortgagee may, at its option, by notice
to Mortgagor, declare the entire unpaid principal of and the interest accrued on
the Obligations to be due and payable forthwith without any further notice,
presentment or demand of any kind, all of which are hereby expressly waived.
Section 4.3 POSSESSION AND OPERATION OF PROPERTY. Upon the occurrence of
any Event of Default, or at any time thereafter, and in addition to all other
rights therein conferred on the Trustee or the Mortgagee, the Trustee, the
Mortgagee or any person, firm or corporation designated by Mortgagee, will have
the right and power, but will not be obligated, to have an audit performed, at
Mortgagor's expense, of the books and records of Mortgagor, and to enter upon
and take possession of all or any part of the Collateral, to exclude Mortgagor
therefrom, and to hold, use, administer, manage and operate the same to the
extent that Mortgagor could do so. The Trustee, the Mortgagee or any person,
firm or corporation designated by the Mortgagee, may operate and develop the
Collateral, or any portion thereof, without any liability to Mortgagor in
connection with the operations except with respect to willful misconduct; and
the Trustee, the Mortgagee or any person, firm or corporation designated by
Mortgagee will have the right to collect, receive and receipt for all
Hydrocarbons produced and sold from the Oil and Gas Property, to make repairs,
to purchase machinery and equipment, to conduct workover operations, to drill
additional wells, and to exercise every power, right and privilege of Mortgagor
with respect to the Collateral. Providing there has been no foreclosure sale,
when and if the expenses of the operation and development (including costs of
unsuccessful workover operations or additional wells) have been paid and the
Obligations paid in full, the remaining Collateral shall be returned to the
Mortgagor.
Section 4.4 ANCILLARY RIGHTS. Upon the occurrence of an Event of
Default, or at any time thereafter, and in addition to all other rights of
Mortgagee hereunder, Mortgagee may, without notice, demand or declaration of
default, all of which are hereby expressly waived by Mortgagor, proceed by a
suit or suits in equity or at law (i) for the seizure and sale of the Collateral
or any part thereof, (ii) for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, (iii) for the foreclosure or sale of the Collateral or any part thereof
under the judgment or decree of any court of competent jurisdiction, (iv)
without regard to the solvency or insolvency of any person, and without regard
to the value of the Collateral, and without notice to Mortgagor (notice being
hereby expressly waived), for the appointment of a receiver in accordance with
law to serve pending any foreclosure or sale hereunder, or (v) for the
enforcement of any other appropriate legal or equitable remedy.
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ARTICLE 5 - MORTGAGEE'S RIGHTS AS TO REALTY COLLATERAL
UPON DEFAULT
Section 5.1 JUDICIAL FORECLOSURE. This instrument shall be effective as
a mortgage as well as a deed of trust and upon the occurrence of an Event of
Default, or at any time thereafter, in lieu of the exercise of the non-judicial
power of sale hereafter given, Mortgagee may, subject to any mandatory
requirement of applicable law, proceed by suit to foreclose its lien hereunder
and to sell or have sold the Realty Collateral or any part thereof at one or
more sales, as an entirety or in parcels, at such place or places and otherwise,
in such manner and upon such notice as may be required by law, or, in the
absence of any such requirement, as Mortgagee may deem appropriate, and
Mortgagee shall thereafter make or cause to be made a conveyance to the
purchaser or purchasers thereof. Mortgagee may postpone the sale of the real
property included in the Collateral or any part thereof by public announcement
at the time and place of such sale, and from time to time thereafter may further
postpone such sale by public announcement made at the time of sale fixed by the
preceding postponement. Sale of a part of the real property included in the
Collateral will not exhaust the power of sale, and sales may be made from time
to time until all such property is sold or the Obligations are paid in full.
Section 5.2 NON-JUDICIAL FORECLOSURE. If the Note or other Obligations
are not paid when due, whether by acceleration or otherwise, the Trustee is
hereby authorized and empowered, and it shall be his duty, upon request of
Mortgagee, and to the extent permitted by applicable law, to sell any part of
the Realty Collateral at one or more sales, as an entirety or in parcels, at
such place or places and otherwise in such manner and upon such notice as may be
required by applicable law, or in the absence of any such requirement, as
Trustee and/or Mortgagee may deem appropriate, and to make conveyance to the
purchaser or purchasers thereof. Any sale shall be made to the highest bidder
for cash at the door of the county courthouse of, or in such other place as may
be required or permitted by applicable law in, the county in the state where the
Realty Collateral or any part thereof is situated; provided that and if the
Realty Collateral lies in more than one county, such part of the Realty
Collateral may be sold at the courthouse door of any one of such counties, and
the notice so posted shall designate in which county such property shall be
sold. Any such sale shall be made at public outcry, on the day of any month,
during the hours of such day and after such written notices thereof have been
publicly posted in such places and for such time periods and after all persons
entitled to notice thereof have been sent such notice, all as required by
applicable law in effect at the time of such sale. The affidavit of any person
having knowledge of the facts to the effect that such a service was completed
shall be PRIMA FACIE evidence of the fact of service. The Mortgagor agrees that
no notice of any sale, other than as required by applicable law, need be given
by the Trustee, the Mortgagee or any other person. The Mortgagor hereby
designates as its address for the purposes of such notice the address set out on
page two hereof; and agrees that such address shall be changed only by
depositing notice of such change enclosed in a postpaid wrapper in a post office
or official depository under the care and custody of the United States Postal
Service, certified mail, postage prepaid, return receipt requested, addressed to
the Mortgagee or other holder of the Obligations at the address for the
Mortgagee set out herein (or to such other address as the Mortgagee or other
holder of the Obligations may have designated by notice given as above provided
to the Mortgagor and such other debtors). Any such notice or change of address
of the Mortgagor or other debtors or of the Mortgagee or of other holder of the
Obligations shall be effective upon receipt. The Mortgagor authorizes and
empowers the Trustee to sell the Realty
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Collateral in lots or parcels or in its entirety as the Trustee shall deem
expedient; and to execute and deliver to the purchaser or purchasers thereof
good and sufficient deeds of conveyance thereto by fee simple title, with
evidence of general warranty by the Mortgagor, and the title of such purchaser
or purchasers when so made by the Trustee, the Mortgagor binds itself to warrant
and forever defend. Where portions of the Realty Collateral lie in different
counties, sales in such counties may be conducted in any order that the Trustee
may deem expedient; and one or more such sales may be conducted in the same
month, or in successive or different months as the Trustee may deem expedient.
ARTICLE 6 - MORTGAGEE'S RIGHTS AS TO PERSONALTY AND FIXTURE
COLLATERAL UPON DEFAULT
Section 6.1 PERSONALTY COLLATERAL. Upon the occurrence of an Event of
Default, or at any time thereafter, Mortgagee may, without notice to Mortgagor,
exercise its rights to declare all of the Obligations to be immediately due and
payable, in which case Mortgagee will have all rights and remedies granted by
law, and particularly by the Uniform Commercial Code, including, but not limited
to, the right to take possession of the Personalty Collateral, and for this
purpose Mortgagee may enter upon any premises on which any or all of the
Personalty Collateral is situated and take possession of and operate the
Personalty Collateral or remove it therefrom. Mortgagee may require Mortgagor to
assemble the Personalty Collateral and make it available to Mortgagee or the
Trustee at a place to be designated by Mortgagee which is reasonably convenient
to all parties. Unless the Personalty Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Mortgagee will give Mortgagor reasonable notice of the time and place of
any public sale or of the time after which any private sale or other disposition
of the Personalty Collateral is to be made. This requirement of sending
reasonable notice will be met if the notice is mailed, postage prepaid, to
Mortgagor at the address designated above at least five days before the time of
the sale or disposition.
Section 6.2 SALE WITH REALTY COLLATERAL. In the event of foreclosure,
whether judicial or non-judicial, at Mortgagee's option it may proceed under the
Uniform Commercial Code as to the Personalty Collateral or it may proceed as to
both Realty Collateral and Personalty Collateral in accordance with its rights
and remedies in respect of the Realty Collateral.
Section 6.3 FIXTURE COLLATERAL. Upon the occurrence of an Event of
Default, or at any time thereafter, Mortgagee may elect to treat the Fixture
Collateral as either Realty Collateral or as Personalty Collateral and proceed
to exercise such rights as apply to the type of Collateral selected.
Section 6.4 PRIVATE SALE. If Mortgagee in good faith believes that the
Securities Act of 1933 or any other State or Federal law prohibits or restricts
the customary manner of sale or distribution of any of the Personalty
Collateral, or if Mortgagee determines that there is any other restraint or
restriction limiting the timely sale or distribution of any such property in
accordance with the customary manner of sale or distribution, Mortgagee may sell
or may cause the Trustee to sell such property privately or in any other manner
it deems advisable at such price or prices as it determines in its sole
discretion and without any liability whatsoever to Mortgagor in connection
therewith. Mortgagor recognizes and agrees that such prohibition or restriction
may cause such property to
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have less value than it otherwise would have and that, consequently, such sale
or disposition by Mortgagee may result in a lower sales price than if the sale
were otherwise held.
ARTICLE 7 - OTHER PROVISIONS CONCERNING FORECLOSURE
Section 7.1 POSSESSION AND DELIVERY OF COLLATERAL. It shall not be
necessary for Mortgagee or the Trustee to have physically present or
constructively in its possession any of the Collateral at any foreclosure sale,
and Mortgagor shall deliver to the purchasers at such sale on the date of sale
the Collateral purchased by such purchasers at such sale, and if it should be
impossible or impracticable for any of such purchasers to take actual delivery
of the Collateral, then the title and right of possession to the Collateral
shall pass to the purchaser at such sale as completely as if the same had been
actually present and delivered.
Section 7.2 MORTGAGEE AS PURCHASER. Mortgagee will have the right to
become the purchaser at any foreclosure sale, and it will have the right to
credit upon the amount of the bid the amount payable to it out of the net
proceeds of sale.
Section 7.3 RECITALS CONCLUSIVE; WARRANTY DEED; RATIFICATION. Recitals
contained in any conveyance to any purchaser at any sale made hereunder will
conclusively establish the truth and accuracy of the matters therein stated,
including, without limiting the generality of the foregoing, nonpayment of the
unpaid principal sum of, and the interest accrued on, the written instruments
constituting part or all of the Obligations after the same have become due and
payable, nonpayment of any other of the Obligations or advertisement and conduct
of the sale in the manner provided herein, and appointment of any successor
Trustee hereunder. Mortgagor ratifies and confirms all legal acts that Mortgagee
and/or Trustee may do in carrying out the provisions of this instrument.
Section 7.4 EFFECT OF SALE. Any sale or sales of the Collateral or any
part thereof will operate to divest all right, title, interest, claim and demand
whatsoever, either at law or in equity, of Mortgagor in and to the premises and
the property sold, and will be a perpetual bar, both at law and in equity,
against Mortgagor, Mortgagor's successors or assigns and against any and all
persons claiming or who shall thereafter claim all or any of the property sold
from, through or under Mortgagor, or Mortgagor's successors or assigns. The
purchaser or purchasers at the foreclosure sale will receive immediate
possession of the property purchased; and if Mortgagor retains possession of the
Realty Collateral, or any part thereof, subsequent to sale, Mortgagor will be
considered a tenant at sufferance of the purchaser or purchasers, and if
Mortgagor remains in such possession after demand of the purchaser or purchasers
to remove, Mortgagor will be guilty of forcible detainer and will be subject to
eviction and removal, forcible or otherwise, with or without process of law, and
without any right to damages arising out of such removal.
Section 7.5 APPLICATION OF PROCEEDS. The proceeds of any sale of the
Collateral or any part thereof will be applied as follows:
(a) first, to the payment of all expenses incurred by the Trustee
and Mortgagee in connection therewith, including, without limiting the
generality of the foregoing, court costs, legal fees and expenses, fees of
accountants, engineers, consultants, agents or managers and expenses of
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any entry or taking of possession, holding, valuing, preparing for sale,
advertising, selling and conveying;
(b) second, to the payment of the Obligations; and
(c) third, any surplus thereafter remaining to Mortgagor or
Mortgagor's successors or assigns, as their interests may be established to
Mortgagee's reasonable satisfaction.
Section 7.6 DEFICIENCY. Mortgagor will remain liable for any deficiency
owing to Mortgagee after application of the net proceeds of any foreclosure
sale.
Section 7.7 MORTGAGOR'S WAIVER OF APPRAISEMENT, MARSHALLING, ETC.
Mortgagor agrees that Mortgagor will not at any time insist upon or plead or in
any manner whatsoever claim the benefit of any appraisement, valuation, stay,
extension or redemption law now or hereafter in force, in order to prevent or
hinder the enforcement or foreclosure of this instrument, the absolute sale of
the Collateral or the possession thereof by any purchaser at any sale made
pursuant to this instrument or pursuant to the decree of any court of competent
jurisdiction. Mortgagor, for Mortgagor and all who may claim through or under
Mortgagor, hereby waives the benefit of all such laws and to the extent that
Mortgagor may lawfully do so under applicable state law, waives any and all
right to have the Realty Collateral marshalled upon any foreclosure of the lien
hereof or sold in inverse order of alienation, and Mortgagor agrees that the
Trustee may sell the Realty Collateral as an entirety.
ARTICLE 8 - MISCELLANEOUS
Section 8.1 DISCHARGE OF PURCHASER. Upon any sale made under the powers
of sale herein granted and conferred, the receipt of Mortgagee will be
sufficient discharge to the purchaser or purchasers at any sale for the purchase
money, and such purchaser or purchasers and the heirs, devisees, personal
representatives, successors and assigns thereof will not, after paying such
purchase money and receiving such receipt of Mortgagee, be obliged to see to the
application thereof or be in anywise answerable for any loss, misapplication or
nonapplication thereof.
Section 8.2 INDEBTEDNESS OF OBLIGATIONS ABSOLUTE. Nothing herein
contained shall be construed as limiting Mortgagee to the collection of any
indebtedness of Mortgagor to Mortgagee only out of the income, revenue, rents,
issues and profits from the Collateral or as obligating Mortgagee to delay or
withhold action upon any default which may be occasioned by failure of such
income or revenue to be sufficient to retire the principal or interest when due
on the indebtedness secured hereby. It is expressly understood between Mortgagee
and Mortgagor that any indebtedness of Mortgagor to Mortgagee secured hereby
shall constitute an absolute, unconditional obligation of Mortgagor to pay as
provided herein or therein in accordance with the terms of the instrument
evidencing such indebtedness in the amount therein specified at the maturity
date or at the respective maturity dates of the installments thereof, whether by
acceleration or otherwise.
Section 8.3 DEFENSE OF CLAIMS. Mortgagor will promptly notify the
Trustee and Mortgagee in writing of the commencement of any legal proceedings
affecting Mortgagee's interest in the Collateral, or any part thereof, and shall
take such action, employing attorneys acceptable to
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Mortgagee, as may be necessary to preserve Mortgagor's, the Trustee's and
Mortgagee's rights affected thereby; and should Mortgagor fail or refuse to take
any such action, the Trustee or Mortgagee may take the action on behalf of and
in the name of Mortgagor and at Mortgagor's expense. Moreover, Mortgagee or the
Trustee on behalf of Mortgagee may take independent action in connection
therewith as they may in their discretion deem proper, and Mortgagor hereby
agrees to make reimbursement for all sums advanced and all expenses incurred in
such actions plus interest at a rate equal to the maximum interest rate provided
in the Note.
Section 8.4 TERMINATION. If all the Obligations are paid in full and the
covenants herein contained are well and truly performed, and if Mortgagor, the
Trustee and Mortgagee intend at such time that this instrument not secure any
obligation of Mortgagor thereafter arising, then the Trustee and Mortgagee
shall, upon the request of Mortgagor and at Mortgagor's cost and expense,
deliver to Mortgagor proper instruments executed by the Trustee and Mortgagee
evidencing the release of this instrument. Until such delivery, this instrument
shall remain and continue in full force and effect.
Section 8.5 RENEWALS, AMENDMENTS AND OTHER SECURITY. Renewals and
extensions of the Obligations may be given at any time, amendments may be made
to the agreements relating to any part of the Obligations or the Collateral, and
Mortgagee may take or hold other security for the Obligations without notice to
or consent of Mortgagor. The Trustee or Mortgagee may resort first to other
security or any part thereof, or first to the security herein given or any part
thereof, or from time to time to either or both, even to the partial or complete
abandonment of either security, and such action will not be a waiver of any
rights conferred by this instrument.
Section 8.6 SUCCESSOR TRUSTEES. The Trustee may resign in writing
addressed to Mortgagee or be removed at any time with or without cause by an
instrument in writing duly executed by Mortgagee. In case of the death,
resignation or removal of the Trustee, a successor Trustee may be appointed by
Mortgagee by instrument of substitution complying with any applicable
requirements of law, and in the absence of any such requirement, without other
formality than an appointment and designation in writing. Any appointment and
designation will be full evidence of the right and authority to make the same
and of all facts therein recited. Upon the making of any appointment and
designation, all the estate and title of the trustee in all of the Realty
Collateral will vest in the named successor Trustee, and the successor will
thereupon succeed to all the rights, powers, privileges, immunities and duties
hereby conferred upon the Trustee. All references herein to the Trustee will be
deemed to refer to the Trustee from time to time acting hereunder.
Section 8.7 LIMITATIONS ON INTEREST. No provision of the Note or other
instrument constituting or evidencing any of the Obligations or any other
agreement between the parties shall require the payment or permit the collection
of interest in excess of the maximum non-usurious rate which Mortgagor may agree
to pay under applicable laws. The intention of the parties being to conform
strictly to applicable usury laws now in force, the interest on the principal
amount of the Note and the interest on other amounts due under and/or secured by
this instrument shall be held to be subject to reduction to the amount allowed
under said applicable usury laws as now or hereafter construed by the courts
having jurisdiction, and any excess interest paid shall be credited to
Mortgagor.
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Section 8.8 EFFECT OF INSTRUMENT. This instrument shall be deemed and
construed to be, and may be enforced as, an assignment, chattel mortgage or
security agreement, contract, deed of trust, financing statement, financing
statement filed as a fixture filing, and real estate mortgage, and as any one or
more of them if appropriate under applicable state law. This instrument shall be
effective as a financing statement filed as a fixture filing with respect to all
Fixture Collateral and is to be filed for record in the Office of the County
Clerk or other appropriate office of each county where any part of the
Collateral, including Fixture Collateral, is situated. This instrument shall
also be effective as a financing statement covering minerals or the like
(including oil and gas) and accounts subject to Section 9-103(5) (or
corresponding provision) of the Uniform Commercial Code as enacted in the
appropriate jurisdiction and is to be filed for record in the Office of the
County Clerk or other appropriate office of each county where any part of the
collateral is situated. A carbon, photographic, or other reproduction of this
Mortgage or of any financing statement relating to this Mortgage shall be
sufficient as a financing statement.
Section 8.9 UNENFORCEABLE OR INAPPLICABLE PROVISIONS. If any provision
hereof or of any of the written instruments constituting part or all of the
Obligations is invalid or unenforceable in any jurisdiction, whether with
respect to all parties hereto or with respect to less than all of such parties,
the other provisions hereof and of the written instruments will remain in full
force and effect in that jurisdiction with respect to the parties as to which
such provision is valid and enforceable, and the remaining provisions hereof
will be liberally construed in favor of Mortgagee in order to carry out the
provisions hereof. The invalidity of any provision of this instrument in any
jurisdiction will not affect the validity or enforceability of any provision in
any other jurisdiction.
Section 8.10 RIGHTS CUMULATIVE. Each and every right, power and remedy
given to Mortgagee herein or in any other written instrument relating to the
Obligations will be cumulative and not exclusive; and each and every right,
power and remedy whether specifically given herein or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by Mortgagee, and the exercise, or the beginning of the exercise, of
any such right, power or remedy will not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or remedy. A
waiver by Mortgagee of any right or remedy hereunder or under applicable law on
any occasion will not be a bar to the exercise of any right or remedy on any
subsequent occasion.
Section 8.11 NON-WAIVER. No act, delay, omission or course of dealing
between Mortgagee and Mortgagor will be a waiver of any of Mortgagee's rights or
remedies hereunder or under applicable law. No waiver, change or modification in
whole or in part of this instrument or any other written instrument will be
effective unless in a writing signed by Mortgagee.
Section 8.12 MORTGAGEE'S EXPENSES. Mortgagor agrees to pay in full all
expenses and reasonable attorneys' fees of Mortgagee which may have been or may
be incurred by Mortgagee in connection with the collection of the Obligations
and the enforcement of any of Mortgagor's obligations hereunder and under any
documents executed in connection with the Obligations.
Section 8.13 SALE OF OIL AND GAS PROPERTY. In the event Mortgagor
sells for monetary consideration or otherwise any portion of the Oil and Gas
Property, Mortgagor shall pay all amounts
-15-
<PAGE>
owing under the Note whether or not then due. Payments shall be applied first to
accrued interest and the balance to principal.
Section 8.14 SUBROGATION. This instrument is made with full substitution
and subrogation of Mortgagee and Trustee in and to all covenants and warranties
by others heretofore given or made in respect of the Collateral or any part
thereof.
Section 8.15 NOTICE. All notices and deliveries of information hereunder
shall be deemed to have been duly given if actually delivered or mailed by
registered or certified mail, postage prepaid, addressed to the parties hereto
at the addresses set forth above on page 2; if by mail, then as of the date of
such mailing. Each party may, by written notice so delivered to the others,
change the address to which delivery shall thereafter be made.
Section 8.16 SUCCESSORS. This instrument shall bind and inure to the
benefit of the respective successors and assigns of the parties.
Section 8.17 INTERPRETATION.
(a) Article and section headings used in this instrument are
intended for convenience only and shall be given no significance whatever in
interpreting and construing the provisions of this instrument.
(b) As used in this instrument, "Mortgagee" includes his
successors and assigns; "Mortgagor" includes its permitted successors and
assigns. Unless context otherwise requires, words in the singular number include
the plural and in the plural number include the singular. Words of the masculine
gender include the feminine and neuter gender and words of the neuter gender may
refer to any gender.
Section 8.18 INCONSISTENCIES WITH RELATED DOCUMENTS. To the extent, if
any, the provisions hereof are inconsistent with the provisions of the Note,
such inconsistencies shall be resolved by giving controlling effect to the Note.
Section 8.19 COUNTERPARTS. This instrument may be executed in any number
of counterparts, each of which will for all purposes be deemed to be an
original, and all of which are identical except that to facilitate recordation,
in particular counterparts hereof, portions of EXHIBIT A hereto which describe
properties situated in counties other than the county in which the counterpart
is to be recorded have been omitted.
-16-
<PAGE>
Executed as of the Effective Date.
MORTGAGOR:
COLORADO WYOMING RESERVE COMPANY
ATTEST:
[Corporate Seal] By: /s/ KIM M. FUERST
-------------------------------
Kim M. Fuerst, President
- -----------------------------
- -----------------------------
(Name and Title)
Signed and Acknowledged in
the presence of:
- ----------------------------- ----------------------------------
SECURED PARTIES:
TRUSTEE:
/s/ JAMES A. HOLTKAMP
----------------------------------
James A. Holtkamp, Trustee
MORTGAGEE:
JAMES E. MOORE REVOCABLE TRUST u/d/t
dated July 28, 1994
/s/ JAMES E. MOORE
----------------------------------
James E. Moore, Trustee
-17-
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF MESA )
----------------
The foregoing instrument was acknowledged before me this 26
----
day of August, 1998, by Kim M. Fuerst, as President of Colorado Wyoming Reserve
Company, a Wyoming corporation.
Witness my hand and official seal.
My commission expires 10/25/2000
----------------------------.
/S/ MINDY S. PRINSTEN
----------------------------------
Notary Public
[Seal]
STATE OF UTAH )
) ss.
COUNTY OF )
---------------
The foregoing instrument was acknowledged before me this
-----
day of August, 1998, by James A. Holtkamp as Trustee under this instrument.
Witness my hand and official seal.
My commission expires
----------------------------.
----------------------------------
Notary Public
[Seal]
-18-
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
--------------
The foregoing instrument was acknowledged before me this 27th
------
day of August, 1998, by James E. Moore as Trustee of James E. Moore Revocable
Trust u/d/t dated July 28, 1994.
Witness my hand and official seal.
My commission expires 4/11/2000
----------------------------.
/s/ LYNDA KAREN DOYLE
----------------------------------
Notary Public
[Seal]
-19-
<PAGE>
EXHIBIT A
TO MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PROCEEDS,
SECURITY AGREEMENT AND FINANCING STATEMENT OF
AUGUST 25, 1998
COUNTY:
-----------------------
STATE:
-----------------------
WELL NAME
AND LOCATION:
----------------------------
<TABLE>
<CAPTION>
RECORDING DATA
NET
LEGAL WORKING REVENUE
LESSOR LESSEE DATE BOOK PAGE DESCRIPTION INTEREST INTEREST
- ------------- ------------- ---------- ---------- ---------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
-1-
PROMISSORY NOTE
$120,000.00 Date: August 25, 1998
For value received, the undersigned COLORADO WYOMING RESERVE COMPANY ("the
Borrower"), with an address at 751 Horizon Court, Suite 205, Grand Junction,
Colorado 81506, promises to pay to the order of James E. Moore Revocable Trust
u/d/t/ dated July 28, 1994 (the "Lender"), at 7827 Berger Avenue, Playa del Rey,
California 90293 (or at such other place as the Lender may designate in
writing), the sum of $120,000.00, together with interest from the date of the
advance of the principal amount of this Note to the Borrower, on the unpaid
principal at the rate of 6.00% per annum.
The unpaid principal and accrued interest shall be payable in full on the
earlier of (i) the receipt by the Borrower of any proceeds from public or
private sale of any its capital stock or other securities or (ii) October 31,
1998 (the "Due Date").
All payments on this Note shall be applied first in payment of accrued interest
and any remainder in payment of principal.
The Borrower reserves the right to prepay this Note (in whole or in part) prior
to the due date with no prepayment penalty.
If any payment obligation under this Note is not paid when due, the Borrower
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
This Note is made pursuant to the Loan Agreement dated as of August 25, 1998
between Lender and Borrower. To the extent of any conflict between this Note and
the Loan Agreement, the provisions of this Note shall be controlling.
This Note is secured by a Mortgage, Deed of Trust, Security Agreement and
Financing Statement dated as of August 25, 1998. The Lender is not required to
rely on the above security for the payment of this Note in the case of default,
but may proceed directly against the Borrower.
If any of the following events of default occur, this Note and any other
obligations of the Borrower to the Lender, shall become due immediately, without
demand or notice:
1) the failure of the Borrower to pay the principal and any accrued
interest in full on or before the Due Date;
2) the filing of bankruptcy proceedings involving the Borrower as a
debtor;
3) the application for appointment of a receiver for the Borrower;
4) the making of a general assignment for the benefit of the
Borrower's creditors;
1
<PAGE>
5) the insolvency of the Borrower; or
6) the misrepresentation by the Borrower to the Lender for the
purpose of obtaining or extending credit.
In addition, the Borrower shall be in default if (a) there is a sale, transfer,
assignment, or any other disposition (a "Transfer") of any assets pledged as
security for the payment of this Note other than a Transfer at the fair market
value of the assets for cash with all cash proceeds of such Transfer being
immediately paid to Lender on account of this Note, (b) Borrower makes any
payment on any other loan, advance or indebtedness except to trade creditors, or
(c) if there is a default in any security agreement which secures this Note.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Borrower waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Lender
under this Note, or assignment by Lender of this Note shall affect the liability
of the Borrower. All rights of the Lender under this Note are cumulative and may
be exercised concurrently or consecutively at the Lender's option.
This Note shall be construed in accordance with the laws of the State of
Colorado. All judicial proceedings arising out of or relating to this Note may
be brought in any state or federal court of competent jurisdiction in the State
of California, and by execution and delivery of this Note, the Borrower accepts
for itself and in connection with its properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non convenience and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Note.
Signed this day of August, 1998, at Beverly Hills, California.
-----
Borrower:
COLORADO WYOMING RESERVE COMPANY
By: /s/ KIM M. FUERST
----------------------------------------------------
Kim M. Fuerst, President
By: -------------------------------------------------------
------------------------------------------------
2
<PAGE>
ASSIGNMENT
For value received, the above Note is assigned and transferred to
, ("Assignee") of
- --------------------------------------------
- -------------------------, -------------------------,
(City) (State/province)
- ------------------------.
(Country)
3
COLORADO WYOMING RESERVE COMPANY
and
JAMES E. MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994
------------------------------
WARRANT AGREEMENT
Dated as of August 25, 1998
<PAGE>
WARRANT AGREEMENT dated as of August 25, 1998 between COLORADO
WYOMING RESERVE COMPANY, a Wyoming corporation (the "Company"), and JAMES E.
MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994 (the "Holder").
WHEREAS, the Company proposes to sell Common Stock Purchase
Warrants, as hereinafter described (the "Warrants"), for a purchase price of
$0.001 per Warrant, to purchase up to an aggregate of 180,000 shares of Common
Stock, par value $0.01 per share (the "Common Stock"), of the Company (the
Common Stock issuable on exercise of the Warrants being referred to herein as
the "Warrant Shares"), each Warrant entitling the holder thereof to purchase one
Warrant Share.
NOW, THEREFORE, in consideration of the premises and the payment by
Holder of $180.00, receipt of which is hereby acknowledged by the Company, and
the mutual agreements herein set forth, the parties hereto agree as follows:
SECTION 1. WARRANT CERTIFICATES. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be in registered form only and shall be substantially in the form set
forth in Exhibit A attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATES. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board or its
President or a Vice President and by its Secretary or an Assistant Secretary
under its corporate seal. Each such signature upon the Warrant Certificates may
be in the form of a facsimile signature of the present or any future Chairman of
the Board, President, Vice President, Secretary or Assistant Secretary and may
be imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be countersigned and delivered or disposed of he shall have
ceased to hold such office. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificates.
Any Warrant Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Warrant Certificate,
shall be a proper officer of the Company to sign such Warrant Certificate,
although at the date of the execution of this Warrant Agreement any such person
was not such officer.
SECTION 3. REGISTRATION. The Company shall number and register the
Warrant Certificates in a corporate registry as they are issued by the Company.
The Company may deem and treat the registered holder(s) of the Warrant
Certificates as the absolute owner(s) thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for all purposes, and the
Company shall not be affected by any notice to the contrary.
SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES. Subject to the
provisions of Section 20 hereof, the Company shall from time to time register
the transfer of any outstanding Warrant Certificates upon the records to be
maintained by it for that purpose, upon surrender thereof accompanied (if so
required by it) by a written instrument or instruments of transfer duly executed
by the registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
<PAGE>
transferee(s) and the surrendered Warrant Certificate shall be canceled by the
Company. Canceled Warrant Certificates shall thereafter be disposed of in a
manner satisfactory to the Company.
The Holder agrees that each certificate representing Warrant Shares
will bear the following legend:
"The securities evidenced or constituted hereby have been
acquired for investment and have not been registered under
the Securities Act of 1933, as amended. Such securities may
not be sold, transferred, pledged or hypothecated unless the
registration provisions of said Act have been complied with
or unless the Company has received an opinion of counsel
reasonably satisfactory to the Company that such
registration is not required."
Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Company at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled by the Company.
SECTION 5. TERMS OF WARRANTS, EXERCISE OF WARRANTS. Subject to the terms
of this Agreement, the Warrant holder shall have the right, which may be
exercised commencing at the opening of business on August 25, 1998 and until
5:00 p.m., Pacific time on August 24, 2008 to receive from the Company the
number of fully paid and nonassessable Warrant Shares which the Warrant holder
may at the time be entitled to receive on exercise of such Warrants and payment
of the Exercise Price then in effect for such Warrant Shares. In the
alternative, the Warrant holder may exercise its right, during the Exercise
Period, to receive Warrant Shares on a net basis, such that, without the
exchange of any funds, the Warrant holder receives that number of Warrant Shares
otherwise issuable (or payable) upon exercise of its Warrants less that number
of Warrant Shares having an aggregate fair market value (as defined below) at
the time of exercise equal to the aggregate Exercise Price that would otherwise
have been paid by the Warrant holder. For purposes of the foregoing sentence,
"fair market value" of the Warrant Shares shall mean (i) if the Common Stock is
in the over-the-counter market and not in The Nasdaq National Market nor on any
national securities exchange, the average of the per share closing bid price on
the 30 consecutive trading days immediately preceding the date in question, as
reported by The Nasdaq Small Cap Market (or an equivalent generally accepted
reporting service if quotations are not reported on The Nasdaq Small Cap
Market), or (ii) if the Common Stock is traded in The Nasdaq National Market or
on a national securities exchange, the average for the 30 consecutive trading
days immediately preceding the date in question of the daily per share closing
prices in The Nasdaq National Market or on the principal stock exchange on which
it is listed, as the case may be. For purposes of clause (i) above, if trading
in the Common Stock is not reported by The Nasdaq Small Cap Market, the
applicable bid price referred to in said clause shall be the lowest bid price as
reported on the OTC Electronic Bulletin Board of the National Association of
Securities Dealers, Inc. or, if not reported thereon, as reported in the "pink
sheets" published by National Quotation Bureau, Incorporated, and, if such
securities are not so reported, shall be the price of a share of Common Stock
determined by the Company's Board of Directors in good faith. The closing price
referred to in clause (ii) above shall be the last reported sale price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices, in either case in The Nasdaq National Market or on
the national securities exchange on which the Common Stock is then listed.. Each
Warrant not exercised prior to 5:00 p.m., Pacific time, on August 24, 2008 shall
become void and all rights
2
<PAGE>
thereunder and all rights in respect thereof under this agreement shall cease as
of such time. No adjustments as to dividends will be made upon exercise of the
Warrants.
A Warrant may be exercised upon surrender to the Company at its
principal office of the certificate or certificates evidencing the Warrants to
be exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the exercise price (the
'Exercise Price") which is set forth in the form of Warrant Certificate attached
hereto as Exhibit A as adjusted as herein provided, for the number of Warrant
Shares in respect of which such Warrants are then exercised. Payment of the
aggregate Exercise Price shall be made (i) in cash or by certified or official
bank check payable to the order of the Company, or (ii) in the manner provided
in the first paragraph of this Section 5.
Upon such surrender of Warrants and payment of the Exercise Price
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Warrant holder and in the name of the
Warrant holder, or, upon satisfaction of the transfer requirements in Section 4,
such other names as the holder may designate, a certificate or certificates for
the number of full Warrant Shares issuable upon the exercise of such Warrants
together with cash as provided in Section 11; PROVIDED, HOWEVER, that if any
consolidation, merger or lease or sale of assets is proposed to be effected by
the Company as described in subsection (m) of Section 10 hereof, or a tender
offer or an exchange offer for shares of Common Stock of the Company shall be
made, upon such surrender of Warrants and payment of the Exercise Price as
aforesaid, the Company shall, as soon as possible, but in any event not later
than five business days thereafter, issue and cause to be delivered the full
number of Warrant Shares issuable upon the exercise of such Warrants in the
manner described in this sentence together with cash as provided in Section 11.
Such certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Warrant Shares as of the date of the surrender of such
Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued pursuant to the provisions of this Section.
All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled by the Company. Such canceled Warrant Certificates shall then be
disposed of by the Company.
SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue in
3
<PAGE>
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also
satisfactory to them. Applicants for such substitute Warrant Certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES. The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Company will supply such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 11. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each holder pursuant to Section 12
hereof.
Before taking any action which would cause an adjustment pursuant to
Section 10 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issuance thereof other than liens, charges or
security interests created or suffered by the holder thereof.
SECTION 9. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES ISSUABLE. The Exercise Price and the number of Warrant Shares issuable
upon the exercise of each Warrant are subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 10. For purposes of
this Section 10, "Common Stock" means shares now or hereafter authorized of any
class of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
4
<PAGE>
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK.
If the Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if such
Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it may
receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) ADJUSTMENT FOR RIGHTS ISSUE.
If the Company distributes any rights, options or warrants to all
holders of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to purchase shares of Common Stock at a
price per share less than the current market price per share on that record
date, the Exercise Price shall be adjusted in accordance with the formula:
O + N X P
-----
E' = E x M
-------------
O + N
5
<PAGE>
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) ADJUSTMENT FOR OTHER DISTRIBUTIONS.
If the Company distributes to all holders of its Common Stock any of
its assets or debt securities or any rights or warrants to purchase debt
securities, assets or other securities of the Company, the Exercise Price shall
be adjusted in accordance with the formula:
E' = E x M - F
---------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the current market price per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of Common
Stock. The Board of Directors shall determine the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
6
<PAGE>
This subsection (c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company prepared in accordance with generally accepted
accounting principles. Also, this subsection does not apply to rights, options
or warrants referred to in subsection (b) of this Section 10.
(d) ADJUSTMENT FOR COMMON STOCK ISSUE.
If the Company issues shares of Common Stock for a consideration per
share less than the current market price per share on the date the Company fixes
the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the formula:
P
-
E' = E x O + M
--------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance
of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the current market price per share on the date of issuance of such
additional shares.
A = the number of shares outstanding immediately after the issuance of
such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b) and
(c) of this Section 10,
(2) the exercise of Warrants, or the conversion or exchange of
other securities convertible or exchangeable for Common Stock,
(3) Common Stock issued to the Company's employees under bona
fide employee benefit plans adopted by the Board of Directors and approved
by the holders of Common Stock when required by law, if such Common Stock
would otherwise be covered by this subsection (d) (but only to the extent
that the aggregate number of shares excluded hereby and issued after the
date of this Warrant Agreement shall not exceed 5% of the Common Stock
7
<PAGE>
outstanding at the time of the adoption of each such plan, exclusive of
antidilution adjustments thereunder),
(4) Common Stock upon the exercise of rights or warrants
issued to the holders of Common Stock,
(5) Common Stock issued to (A) shareholders of any person
which merges into the Company in proportion to their stock holdings of
such person immediately prior to such merger, upon such merger or (B)
the seller of all or substantially all the assets of another business
upon the closing of such acquisition,
(6) Common Stock issued in a bona fide public offering
pursuant to a firm commitment or best efforts underwriting (provided,
however, in the case of a best efforts underwriting, it is conducted
through a broker-dealer which is a member firm of the National Association
of Securities Dealers, Inc.), or
(7) Common Stock issued in a bona fide private placement
through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any
discount from the current market price attributable to restrictions on
transferability of the Common Stock, as determined in good faith by the
Board of Directors and described in a Board resolution which shall be
filed with the Holder, shall exceed 20%).
(e) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE.
If the Company issues any securities convertible into or
exchangeable for Common Stock (other than securities issued in transactions
described in subsections (b) and (c) of this Section 10) for a consideration per
share of Common Stock initially deliverable upon conversion or exchange of such
securities less than the current market price per share on the date of issuance
of such convertible securities, the Exercise Price shall be adjusted in
accordance with this formula:
P
-
E' = E x O + M
---------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance
of such convertible securities.
P = the aggregate consideration received for the issuance of such
convertible securities.
M = the current market price per share on the date of issuance of such
convertible securities.
8
<PAGE>
D = the maximum number of shares deliverable upon conversion or in
exchange for such convertible securities at the initial conversion
or exchange rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange
of such convertible securities have not been issued when such convertible
securities are no longer outstanding, then the Exercise Price shall promptly be
readjusted to the Exercise Price which would then be in effect had the
adjustment upon the issuance of such convertible securities been made on the
basis of the actual number of shares of Common Stock issued upon conversion or
exchange of such convertible securities.
This subsection (e) does not apply to:
(1) convertible securities issued to (A) shareholders of any
person which merges into the Company, or with a subsidiary of the Company,
in proportion to their stock holdings of such person immediately prior to
such merger, upon such merger or (B) the seller of all or substantially
all the assets of another business upon the closing of such acquisition,
(2) convertible securities issued in a bona fide public
offering pursuant to a or best efforts underwriting (provided, however, in
the case of a best efforts underwriting, it is conducted through a
broker-dealer which is a member firm of the National Association of
Securities Dealers, Inc.), or
(3) convertible securities issued in a bona fide private
placement through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any
discount from the current market price attributable to restrictions on
transferability of Common Stock issuable upon conversion, as determined in
good faith by the Board of Directors and described in a Board resolution
which shall be filed with the Holder, shall exceed 20% of the then current
market price).
(f) CURRENT MARKET PRICE.
In subsections (b), (c), (d) and (e) of this Section 10 the current
market price per share of Common Stock on any date shall be the fair market
value per Warrant Share as determined in accordance with the first paragraph of
Section 5 of this Agreement.
(g) CONSIDERATION RECEIVED.
For purposes of any computation respecting consideration received
pursuant to subsections (d) and (e) of this Section 10, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts,
placement fees or other expenses incurred by the Company for any
underwriting or placement of the securities or otherwise in connection
therewith;
9
<PAGE>
(2) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors (irrespective of the
accounting treatment thereof), whose determination shall be conclusive,
and described in a Board resolution, a copy of which shall be mailed to
each holder; and
(3) in the case of the issuance of securities convertible into
or exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(h) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED.
No adjustment in the Exercise Price need be made unless the
adjustment would require an increase or decrease of at least 1% in the Exercise
Price. Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
(i) WHEN NO ADJUSTMENT REQUIRED.
No adjustment need be made for a transaction referred to in
subsections (a), (b), (c), (d) or (e) of this Section 10 if Warrant holders are
to participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no par
value of the Common Stock.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
(j) NOTICE OF ADJUSTMENT.
Whenever the Exercise Price is adjusted, the Company shall provide
the notices required by Section 12 hereof.
(k) VOLUNTARY REDUCTION.
The Company from time to time may reduce the Exercise Price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period;
10
<PAGE>
PROVIDED, HOWEVER, that in no event may the Exercise Price be less than the par
value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period it will be in
effect.
A reduction of the Exercise Price does not change or adjust the
Exercise Price otherwise in effect for purposes of subsections (a) through (l)
of this Section 10.
(l) NOTICE OF CERTAIN TRANSACTIONS.
If:
(1) the Company takes any action that would require an
adjustment in the Exercise Price pursuant to subsections (a), (b), (c),
(d) or (e) of this Section 10 and if the Company does not arrange for
Warrant holders to participate pursuant to subsection (i) of this Section
10;
(2) the Company takes any action that would require a
supplemental Warrant Agreement pursuant to subsection (m) of this Section
10; or
(3) there is a liquidation or dissolution of the Company, the
Company shall mail to Warrant holders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger,
transfer, lease, liquidation or dissolution. The Company shall mail the
notice at least 15 days before such date. Failure to mail the notice or
any defect in it shall not affect the validity of the transaction.
(m) REORGANIZATION OF COMPANY.
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with the consummation of such
transaction, the corporation formed by or surviving any such consolidation or
merger if other than the Company, or the person to which such sale or conveyance
shall have been made, shall enter into a supplemental Warrant Agreement so
providing and further providing for adjustments which shall be as nearly
equivalent as may be practical to the adjustments provided for in this Section.
The successor Company shall mail to Warrant holders a notice describing the
supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.
11
<PAGE>
If this subsection (m) applies, subsections (a), (b), (c), (d) and
(e) of this Section 10 do not apply.
(n) WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED.
In any case in which this Section 10 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the holder of any Warrant exercised after such record date
the Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 11; PROVIDED, HOWEVER, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional Warrant Shares, other capital stock and cash
upon the occurrence of the event requiring such adjustment.
(o) ADJUSTMENT IN NUMBER OF SHARES.
Upon each adjustment of the Exercise Price pursuant to this Section
10, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment of
the adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
N' = N x E
------
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(p) FORM OF WARRANTS.
Irrespective of any adjustments in the Exercise Price or the number
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
SECTION 11. FRACTIONAL INTERESTS. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon
12
<PAGE>
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 11,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall pay an amount in cash equal to the Exercise Price on the day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such fraction.
SECTION 12. NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
Exercise Price pursuant to Section 10, the Company shall promptly thereafter (i)
cause to be given to each of the registered holders of the Warrant Certificates
at his address appearing on the Warrant register a certificate of the Principal
Financial Officer and Principal Accounting Officer of the Company setting forth
the Exercise Price after such adjustment and setting forth in reasonable detail
the method of calculation and the facts upon which such calculations are based
and setting forth the number of Warrant Shares (or portion thereof) issuable
after such adjustment in the Exercise Price, upon exercise of a Warrant and
payment of the adjusted Exercise Price, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein, by first-class
mail, postage prepaid. Where appropriate, such notice may be given in advance
and included as a part of the notice required to be mailed under the other
provisions of this Section 12.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in shares of Common Stock or distributions
referred to in subsection (a) of Section 10 hereof); or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Common Stock issuable
upon exercise of the Warrants (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for shares of
Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action (other than actions of
the character described in Section 10(a)) which would require an adjustment of
the Exercise Price pursuant to Section 10; then the Company shall cause to be
given to each of the registered holders of the Warrant Certificates at his
address appearing on the Warrant register, at least 20 days (or 10 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first-class mail, postage prepaid, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights, options, warrants or distribution are to be
determined, or (ii) the initial expiration date set forth in
13
<PAGE>
any tender offer or exchange offer for shares of Common Stock, or (iii) the date
on which any such consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated, and
the date as of which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up. The failure to
give the notice required by this Section 12 or any defect therein shall not
affect the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to consent or to receive notice as shareholders in respect of the
meetings of shareholders or the election of Directors of the Company or any
other matter, or any rights whatsoever as shareholders of the Company.
SECTION 13. NOTICES TO COMPANY. Any notice or demand authorized by
this Agreement to be given or made by the Company or by the registered holder of
any Warrant Certificate to or on the Company shall be sufficiently given or made
when and if deposited in the mail, first class or registered, postage prepaid,
addressed (until another address is filed in writing by the Company), as
follows:
COLORADO WYOMING RESERVE COMPANY
751 Horizon Court, Suite 205
Grand Junction, Colorado 81506
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Transfer Agent.
SECTION 14. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
holders may from time to time supplement or amend this Agreement with the
approval of all holders of Warrant Certificates.
SECTION 15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors and assigns hereunder.
SECTION 16. TERMINATION. This Agreement shall terminate at 5:00
p.m., Pacific time on August 24, 2008. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date if all Warrants have been
exercised.
SECTION 17. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of Colorado and for all purposes shall be
construed in accordance with the internal laws of said State, provided, however,
that if, as a result of the Company's incorporation in the State of Wyoming, the
laws of that State should govern a particular issue, the internal laws of the
State of Wyoming shall govern that issue.
14
<PAGE>
All judicial proceedings arising out of or relating to this
Agreement and each Warrant Certificate issued hereunder may be brought in any
state or federal court of competent jurisdiction in the State of California, and
by execution and delivery of this Agreement, the Company accepts for itself
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non convenience and irrevocably agrees to
be bound by any judgment rendered thereby in connection with this Agreement or
any Warrant Certificate issued hereunder.
SECTION 18. TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. The
Warrants may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee. Subject to compliance with such laws and the
provisions of Section 20, title to the Warrants may be transferred by
endorsement (by the Holder executing the Assignment Form annexed to the Warrant
Certificate) and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.
SECTION 19. EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of the
Warrant Certificate for exchange, properly endorsed on the Assignment Form and
subject to the provisions of this Agreement with respect to compliance with
applicable securities laws and with the limitations on assignments and transfers
and contained in Section 18, the Company at its expense shall issue to or on the
order of the Holder a new Warrant Certificate of like tenor, in the name of the
Holder or as the Holder may direct, for the number of shares issuable upon
exercise hereof.
SECTION 20. COMPLIANCE WITH SECURITIES LAWS. The Holder agrees that
the Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Common Stock to be issued upon exercise hereof except under
circumstances that will not result in a violation of the federal or any state
securities laws. Prior to any proposed transfer of this Warrant (other than a
proposed transfer pursuant to an effective registration statement under the
Securities Act of 1933), the holder thereof shall give written notice to the
Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company (it
being agreed that Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, shall be satisfactory) to the effect that the proposed transfer may
be effected without registration under the Securities Act, whereupon the holder
shall be entitled to transfer this Warrant in accordance with the terms of its
notice; provided, however, that no such opinion of counsel shall be required for
a transfer to one or more partners of the transferor (in the case of a
transferor that is a partnership) or to an affiliated corporation (in the case
of a transferor that is a corporation). Each Warrant transferred as above
provided shall bear the legend set forth at the beginning of the form Warrant
Certificate annexed hereto as Exhibit A.
SECTION 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Holder and the registered holders of the Warrant Certificates any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Holder and the
registered holders of the Warrant Certificates.
SECTION 22. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
COLORADO WYOMING RESERVE COMPANY
By: /s/ Kim M. Fuerst
-----------------------------------------
Kim M. Fuerst
Title: President
[Seal]
Attest:
------------------
Secretary
JAMES E. MOORE REVOCABLE TRUST U/D/T DATED
JULY 28, 1994,
BY: /s/ James E. Moore
--------------------------------
JAMES E. MOORE, Trustee
16
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
EXERCISABLE ON OR BEFORE August 24, 2008
No. 1 180,000 Warrants
Warrant Certificate
COLORADO WYOMING RESERVE COMPANY
This Warrant Certificate certifies that JAMES E. MOORE REVOCABLE
TRUST U/D/T DATED JULY 28, 1994, or registered assigns, is the registered holder
of Warrants expiring August 24, 2008 (the "Warrants") to purchase Common Stock,
par value $0.01 per share (the "Common Stock"), of COLORADO WYOMING RESERVE
COMPANY, a Wyoming corporation (the "Company"). Each Warrant entitles the holder
upon exercise to receive from the Company on or before 5:00 p.m. Pacific Time on
August 24, 2008, one fully paid and nonassessable share of Common Stock (a
"Warrant Share") at the initial exercise price (the "Exercise Price") of $1.00
payable in lawful money of the United States of America upon surrender of this
Warrant Certificate and payment of the Exercise Price at the office of the
Company, but only subject to the conditions set forth herein and in the Warrant
Agreement referred to herein. Notwithstanding the foregoing, Warrants may be
exercised without the exchange of funds pursuant to the net exercise provisions
of Section 5 of the Warrant Agreement. The Exercise Price and number of Warrant
Shares issuable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., Pacific Time on August
24, 2008, and to the extent not exercised by such time such Warrants shall
become void.
This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of Colorado, provided, however,
that if, as a result of the Company's incorporation in the State of Wyoming, the
laws of that State should govern a particular issue, the internal laws of the
State of Wyoming shall govern that issue.
All judicial proceedings arising out of or relating to this Warrant
Certificate may be brought in any state or federal court of competent
jurisdiction in the State of California, and by execution and delivery of this
Agreement, the Company accepts for itself generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non convenience and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Warrant Certificate.
A-1
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring August 24, 2008 entitling the holder
on exercise to receive shares of Common Stock, and are issued or to be issued
pursuant to a Warrant Agreement dated as of August 25,1998 (the "Warrant
Agreement"), duly executed and delivered by the Company to James E. Moore
Revocable Trust U/D/T dated July 28, 1994 (the "Holder"), which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company, the
Holder and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder and any transferee of the registered Holder) of the
Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof
upon written request to the Company.
Warrants may be exercised at any time on or before August 24, 2008.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Exercise Price in cash at the office of the Company. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the holder hereof or his assignee a new Warrant Certificate evidencing the
number of Warrants not exercised. No adjustment shall be made for any dividends
on any Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company
by the registered holder thereof may be exchanged, in the manner and subject to
the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
A-2
<PAGE>
IN WITNESS WHEREOF, COLORADO WYOMING RESERVE COMPANY has
caused this Warrant Certificate to be signed by its President and by its
Secretary, and has caused its corporate seal to be affixed hereunto or imprinted
hereon.
Dated: August 25, 1998
COLORADO WYOMING RESERVE COMPANY
By
------------------------------------------
President
By
------------------------------------------
Secretary
A-3
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive shares of Common
--------
Stock and herewith tenders payment for such shares to the order of COLORADO
WYOMING RESERVE COMPANY in the amount of $ in accordance with the terms
-------
hereof, unless the holder is exercising Warrants pursuant to the net exercise
provisions of Section 5 of the Warrant Agreement. The undersigned requests that
a certificate for such shares be registered in the name of ,
---------------
whose address is and that
---------------------------------------------------
such shares be delivered to whose address is . If said
--------------------
number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of ,
--------------
whose address is and that such Warrant
---------------------------------------
Certificate be delivered to , whose address is
---------------------- ------------
- -----------------.
Signature:
Date:
A-4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into
as of August 25, 1998 by and between COLORADO WYOMING RESERVE COMPANY a Wyoming
corporation, having its principal place of business in Grand Junction, Colorado
(the "Company"), and JAMES E. MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994, a
trust with the trustee and beneficiary residing in Playa del Rey, California
(the "Investor").
RECITALS:
A. Contemporaneously with the execution and delivery hereof, the Investor
is loaning to the Company the sum of $120,000 and purchasing from the Company,
and the Company is selling to the Investor, the Warrants (as defined in Section
1 below).
B. In connection with the Investor's loan to the Company and acquisition
of the Warrants, the Investor and the Company are entering into this
Registration Rights Agreement to provide for certain rights and obligations with
respect to the Common Stock (as defined in Section 1 below) underlying the
Warrants and otherwise beneficially owned by the Investor.
SECTION 1
DEFINITIONS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following term
shall have the meanings set forth below:
"Affiliate" shall have the meaning specified in Rule 12b-2 under the
Exchange Act, as such rule is currently in effect.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
of the Company.
"Due Date" shall have the meaning set forth in the Note.
"Loan Agreement" shall mean that certain Loan Agreement dated as of
August 25, 1998 by and between the Company and the Investor.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"Holder" shall mean the Investor, so long as the Investor holds
Registrable Securities, and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 3 hereof.
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"Other Shareholders" shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their securities
in certain registrations.
"Note" shall mean that certain Promissory Note dated the date hereof in
the amount of $120,000 by the Company as borrower in favor of Investor as
lender.
"Registrable Securities" shall mean (i) shares of Common Stock now owned
or hereafter acquired by the Investor from the Company, (ii) any shares of
Common Stock issued or then issuable upon complete or partial exercise of the
Warrants, and (iii) any shares of Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) and (ii) above, provided, however, that Registrable Securities
shall not include any shares of Common Stock which have previously been
registered or which have been sold to the public.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and expenses of any regular or special audits incident to or required by any
such registration and fees and disbursements of counsel for the Holders, but
shall not include Selling Expenses.
"Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Rule 415" shall mean Rule 415 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
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"Voting Securities" shall mean any securities of the Company (unless the
context specifically contemplates another issuer) having the ordinary power to
vote, in the absence of contingencies, in the election of directors of the
Company and any securities convertible, exchangeable or exercisable for such
securities (whether or not presently so convertible, exchangeable or
exercisable).
"Warrant Agreement" shall mean that certain Warrant Agreement dated the
date hereof by and between the Company and the Investor and governing the
Warrants.
"Warrants" shall mean the Warrants dated the date hereof issued by the
Company to the Investor pursuant to the Warrant Agreement.
SECTION 2
REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION.
(a) DEMAND FOR REGISTRATION. If the Company shall receive from the
Holders of at least 50% of the Registrable Securities at any time (the "Demand
Date") not earlier than sixty (60) days following the Due Date, a written
request that the Company effect any registration with respect to the resale of
all or a part of the Registrable Securities then, if the Commission has not
prior to the Demand Date declared effective a shelf registration statement
pursuant to Rule 415 with respect to all of the Registrable Securities (a "Shelf
Registration Statement") which is effective as of the Demand Date, the Company
will, as soon as practicable, use its best efforts to effect such registration
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Securities Act) and as would permit or
facilitate the resale and distribution of all or such portion of such
Registrable Securities as are specified in such request. The Company shall not
be obligated to effect, or to take any action to effect, any such registration
pursuant to this Section 2.1(a):
(i) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) After the Holder has initiated two (2) such registrations
pursuant to this Section 2.1(a) and the Registration Statement filed for such
registration has been declared effective by the Commission;
(iii) If on or prior to December 31, 1998, the Company has filed
with the Commission a Shelf Registration Statement covering the Registrable
Securities which is being diligently pursued by the Company with the Commission.
(b) DEFERRAL. Subject to the foregoing clauses (i) through (iii) of
Section 2.1(a) above, the Company shall file a registration statement covering
the Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Holders; provided,
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however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to the Holder a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing for the period during which such disclosure would be
seriously detrimental, provided that the Company may not defer the filing for a
period of more than forty-five (45) days after receipt of the request of the
Holder, and, provided further, that the Company shall not defer its obligation
in this manner more than once in any twelve-month period. The registration
statement filed pursuant to the request of the Holder may, subject to the
provisions of Section 2.1(c) hereof, include other securities of the Company.
2.2 PIGGYBACK REGISTRATION.
(a) PARTICIPATION IN REGISTRATION. If the Company shall propose, at any
time to register any of its securities under the Securities Act for sale for
cash for its own account or for the account of investors exercising their
respective registration rights (otherwise than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act), or a
registration is requested by other holders of securities issued by the Company
exercising their respective registration rights, the Company shall give the
Holder notice of such proposed registration at least 20 days prior to, the
filing of a registration statement. At the written request of the Holder
delivered to the Company within 10 business days after the receipt of the notice
from the Company, which request shall state the number of Registrable Securities
that the Holder wishes to sell or distribute publicly under the registration
statement proposed to be filed by the Company, the Company shall use its best
efforts, subject to Section 2.3 hereof, to register under the Securities Act
such Registrable Securities (the "Piggyback Registration"). The Company shall
not be obligated to so use its best efforts pursuant to this Agreement more than
two (2) times.
(b) PROCEDURES AND CUTBACKS. If a Piggyback Registration is to be an
underwritten offering, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 2.2(a). In such event, the right of the
Holder to registration pursuant to Section 2.2(a) shall be conditioned upon the
Holder's participation in such underwriting and the inclusion of the Holder's
Registrable Securities in the underwriting to the extent provided herein. If the
Holder intends to distribute its securities through such underwriting, the
Holder shall (together with the Company, if participating in the offering, and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities though such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company. Notwithstanding any
other provision of this Section 2.1, if the representative of the underwriters
advises the Holder in writing that marketing factors require a limitation on the
number of shares to be underwritten, the number of shares to be included in the
underwriting or registration shall be allocated as set forth in Section 2.3
hereof
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2.3 ALLOCATION OF REGISTRATION OPPORTUNITIES.
(a) If a registration is to be an underwritten registration and the
managing underwriters thereof advise the Company in writing that in their
opinion the number of securities requested to be included in the registration
(including all shares desired to be included by the Company or by any other
party holding demand or piggyback registration rights) exceeds the number which
can be sold in the offering, then:
(1) if the registration is initiated by the Holder under
Section 2.1(a) hereof, then the Company shall include in the
registration (x) first, any securities the Company proposes to
sell; and (y) second, the Registrable Securities the Holder
proposes to sell, together as one group with any securities
proposed to be sold by any other party then having piggyback
registration rights but not any demand registration rights, pro
rata according to the total number of Voting Securities owned by
each such party (provided, however, that if as a result of the
Company's registration of any securities the Company proposes to
sell, the Holder is unable to register all of the Registrable
Securities the Holder, proposes to sell pursuant to the notice by
which such registration was initiated, then the Holder shall have
the right to initiate an additional registration under Section
2.1(a) hereof); and (z) third, the shares proposed to be sold by
any other party having piggyback registration rights, together as
one group pro rata according to the total Voting Securities owned
by each; or
(2) if the registration is initiated by the Company, then
the Company shall include in the registration (y) first, the
securities the Company proposes to sell and (z) second, the
shares proposed to be sold by the Holder and any other party
having piggyback registration rights, together as one group pro
rata according to the total Voting Securities owned by each; or
(3) if the registration is initiated by a party other than
the Holder or the Company, then the Company shall include in the
registration (x) first, any securities the Company proposes to
sell, and (y) second, the shares proposed to be sold by the party
exercising its demand registration right, together as one group
with any shares proposed to be sold by any party then having
piggyback registration rights but not any demand registration
rights, pro rata according to the total number of Voting
Securities owned by each such party, and (z) third, any shares
proposed to be sold by the Holder and any other party having
registration rights, pro rata according to the total number of
Voting Securities owned by each such party.
(b) Registrable Securities not included in a registration pursuant to
the foregoing provisions of this Section 2.3 shall be withdrawn therefrom, and
the Company shall have no obligation to register such Registrable Securities.
2.4 EXPENSES OF REGISTRATION. All Registration expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2.1, 2.2 and 2.5 hereof, and the reasonable fees of one counsel for all
Holders of Registrable Securities participating in the registration shall be
borne by the Company.
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2.5 SHELF REGISTRATION. The Company shall use its best efforts to qualify
for registration on Form S-3 or any comparable or successor form or forms.
Promptly after the Company has qualified for the use of Form S-3, the Company
shall use its best efforts to file with the Commission and make and keep
effective until all Registrable Securities have been sold by the Holder a shelf
registration statement pursuant to Rule 415 with respect to all of the
Registrable Securities. Unless otherwise requested in writing by the Holder, the
Company shall include the Registrable Securities in the first registration
statement on Form S-3 filed by the Company with the Commission following the
date hereof.
2.6 Registration Procedures. In the case of a registration effected by the
Company pursuant to Section 2.1, 2.2 or 2.5, the Company will keep the Holder
advised in writing as, to the initiation of the registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 145 or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post effective amendment permit, in lieu of filing a
post-effective amendment that (i) includes any prospectus required by Section
10(a)(3) of the Securities Act or (ii) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of, information required to be
included in (i) and (ii) above to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as the
Holder from time to time may reasonably request;
(d) Notify the Holder at any time when a prospectus relating to
Registrable Securities being sold is required to be delivered under the
Securities Act of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing, and at the request
of the Holder, prepare and furnish to the Holder a
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reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder
to be listed on each securities exchange on which similar securities issued by
the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration; and
(g) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2.1 or 2.2 hereof, the Company
will enter into an underwriting agreement reasonably necessary to effect the
offer and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
2.7 INDEMNIFICATION.
(a) The Company will indemnify the Holder, each of its officers,
directors and partners, legal counsel, and accountants and each person
controlling the Holder within the within the meaning of Section 15 of the
Securities Act (as applicable), with respect to which registration,
qualification, or compliance has been effected pursuant to this Section 2, and
each underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses, claims,
losses, damages, and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular, or other document including any related registration statement,
notification, or the like) incident to any such registration, qualification, or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act,
the Securities Exchange Act of 1934 or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification, or compliance,
and will reimburse the Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling the Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by the Holder or underwriter and stated to be specifically for use
therein, It is agreed that the indemnity agreement contained in this Section
2.7(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the prior
written consent of the Company (which consent has not been unreasonably
withheld).
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(b) The Holder will, if, Registrable Securities are included in the
securities as to which such registration, qualification, or compliance is being
effected, indemnify the Company, each of its directors, officers, partners,
legal counsel, and accountants and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each Other Shareholder, and each of their officers, directors,
and partners, and each person controlling such Other Shareholder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such Other
Shareholders, directors, officers, partners, legal counsel, and accountants,
persons, underwriters, or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but only
to the extent, that such-untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by the Holder and
stated to be specifically for use therein; provided, however, that the
obligations of the Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the prior written
consent of the Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 2.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.7, to the extent such
failure is not prejudicial to the Indemnifying Party. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant, or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the Indemnification provided for in this Section 2.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party
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on the other in connection with the statements or omissions that resulted in
such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control as among the parties to the underwriting agreement.
2.8 INFORMATION BY HOLDER. The Holder shall furnish to the Company such
information regarding the Holder and the distribution proposed by the Holder as
the Company may reasonably request in writing and as shall be, reasonably
required in connection with any registration, qualification, or compliance
referred to in this Section 2.
2.9 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as the Holder owns any Restricted Securities, the Company
shall provide Holder a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed with the Commission as
the Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing the Holder to sell any such securities without
registration.
2.11 EXPIRATION OF RIGHTS. All rights of the Investor under this Section 2
shall expire on the earlier of (a) the tenth anniversary of the date hereof or
(b) when all of the Registrable Securities held by the Holder could be sold
under Rule 144 within a three-month period.
SECTION 3
TRANSFER OF SHARES
If, at any time, the Holder sells or otherwise transfers the Warrants,
or if, after the expiration of the period provided in Section 2 hereof, the
Holder sells or otherwise transfers shares of Common Stock, then, in connection
therewith, the Holder may also transfer or assign the rights to cause the
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Company to register securities under Section 2 hereof, provided that the Company
is given written notice prior to or at the time of such transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of the Holder under this Agreement.
SECTION 4
MISCELLANEOUS
4.1 GOVERNING LAW AND JURISDICTION. This Agreement shall be governed in all
respects by the laws of the State of Colorado. All judicial proceedings arising
out of or relating to this Agreement may be brought in any state or federal
court of competent jurisdiction in the State of California, and by execution and
delivery of this Agreement, the Company accepts for itself generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
waives any defense of forum non convenience and irrevocably agrees to be bound
by any judgment rendered thereby in connection with this Agreement.
4.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.3 ENTIRE AGREEMENT, AMENDMENT, WAIVER. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instrument signed
by the Company and the holders of all of the Registrable Securities and any such
amendment, waiver, discharge or termination shall be binding on all such
holders, but in no event shall the obligation of any such holder hereunder be
materially increased except upon the written consent of such holder.
4.4 NOTICES, ETC. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given (a) upon personal delivery to the
party notified, (b) one day after deposit with a nationally recognized air
courier service such as DHL or Federal Express for next day delivery, or (c) on
the day of facsimile transmission, with confirmed transmission, to the facsimile
number shown below (or to such other facsimile number as the party to be
notified may indicate by ten (10) days advance written notice to the other party
in the manner herein provided), provided that notice is also given under clauses
(a), (b) or (c) above, in any such case addressed to the party to be notified at
the address indicated below for that party, or at such other address as that
party may indicate by ten (10) days advance written notice to the other party in
the manner herein provided.
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If to Investor:
James E. Moore, Trustee
James E. Moore Revocable Trust u/d/t dated
July 28, 1994
7827 Berger Avenue
Playa del Rey CA 90293
Facsimile:(310) 822-1533
If to the Company:
COLORADO WYOMING RESERVE COMPANY
751 Horizon Court, Suite 205
Grand Junction, Colorado
81506 Facsimile:(970) 255-9238
4.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to the Holder, upon any breach or default of the Company
under this Agreement shall impair any such right, power or remedy of the Holder
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default therefore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of the
Holder of any breach or default under this Agreement or any waiver on the part
of the Holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to the Holder, shall be cumulative and not alternative.
4.6 RIGHTS; SEPARABILITY. Unless otherwise expressly provided herein, the
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining-provisions shall not in any way be affected or impaired thereby.
4.7 INFORMATION RIGHTS. The Company shall, so long as the Investor holds the
Warrants, or shares issued pursuant to the exercise of the Warrants, furnish the
Investor with a copy of all reports (including annual reports on Form 10-K and
quarterly reports on Form 10-Q) filed under the Exchange Act or otherwise mailed
to shareholders generally.
4.8 INFORMATION CONFIDENTIAL. The Holder and the Company each acknowledge to
the other that the Information received from the other party pursuant hereto may
be confidential and for the use of the recipient only. Unless and until such
information is made available to the public generally, the recipient will not
use such confidential information in violation of the Exchange Act or reproduce,
disclose or disseminate such information to any other person (other than its
employees or agents having a need to know the contents of such information, and
its attorneys), except (a) as required by the Securities Act or otherwise
required by law or (b) in connection with the exercise of rights under this
Agreement, disclosure of such information is required by law or legal process,
in which event the party required to disclose such information shall notify the
other party in advance of such disclosure and shall cooperate to give the other
party a reasonable opportunity to seek a
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protective order or a designation of "confidential treatment" or other action or
designation whereby such information will not be disclosed to the public
generally.
4.9 TITLES AND SUBTITLES. The titles of the paragraphs and subparagraphs of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instruments.
IN WITNESS WHEREOF, the parties hereto have executed this REGISTRATION RIGHTS
AGREEMENT effective as of the day and year first above written.
COLORADO WYOMING RESERVE COMPANY
By: /s/ KIM M. FUERST
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Kim M. Fuerst
Title: President
By:
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Title:
-------------------
JAMES E. MOORE REVOCABLE TRUST U/D/T
DATED JULY 28, 1994
By: /s/ JAMES E. MOORE
------------------------------
James E. Moore, Trustee
12
Memo To: Kim Fuerst
From: Jim Moore
Date: November 21, 1998
Dear Kim:
The following is a possible structure I would consider to extend my bridge loan
to CWYR beyond the current date due of November 30, 1998.
1. I will extend the due date of the bridge loan (principal amount of
$120,000) to January 15, 1999.
2. For this extension, I will be issued additional warrants to purchase
100,000 shares of stock under essentially the same terms as the warrants
issued for the bridge loan. An exception would be that the warrants
would be exercisable at the price the stock is sold in the private
placement discussed below (proposed to be $0.75 per share), but in no
case greater than $1.00 per share. All shares underlying these warrants
would have immediate registration rights on the same terms as set forth
in the Registration Rights Agreement that was previously executed
between CWYR and me.
3. I am in the process of transferring most of the warrants from the
initial bridge loan to transferees of my choice. This needs to be
completed prior to issuing me the new warrants discussed above. The
exercise price of the warrants issued in the bridge loan, including
those I transfer, will be decreased in the same manner as the new
warrants discussed above.
4. My understanding, and a requirement to extend the bridge loan, is that
the archeological study ("arc") has started and will be completed as
soon as reasonably possible.
5. CWYR provides me with a right of first refusal to purchase the
properties in the Paradox Basin on the same terms as a bona-fide third
party would pay. If the company decides to sell these properties and I
exercise the right of first refusal, I will receive credit against the
purchase price for the principal and accrued interest the company owes
me under the bridge loan.
<PAGE>
6. All lease rental payments will be continue to be paid in a timely manner
by someone other than me.
7. Dr. Syed Aslam Daud will be elected as a new member of the company's
board of directors under essentially the same terms and conditions,
including being issued 100,000 of options/warrants, as Rafiq Sayed was
elected.
8. The exercise price of Waseem Sayed's existing options will be decreased
from $1.75 to $1.00. I believe Waseem's involvement is critical to the
success of the private placement.
9. As soon as possible, CWYR will begin to raise $1,300,000 - $1,500,000
through a private placement of common stock and warrants, proceeds of
which would payoff my bridge loan. I believe the valuation for the
common stock in a private placement should range from $0.60 - 0.75 per
share. I suggest trying at $0.75 per share with 2-year warrants to
purchase 1/2 share of common stock at $2.00 per share for every share
purchased.
10. I will be reimbursed immediately for my reasonable expenses, including
legal expenses, for this transaction.
11. For me to proceed with all of the above, I will require a unanimous vote
of the board and documentation satisfactory to me.
As always, this memo to you is only for discussion purposes and does not
constitute an offer. Please let me know your thoughts.
Sincerely,
/s/ JIM MOORE
Jim Moore
2
<PAGE>
Fax To: Kim Fuerst
Sam Butler
From: Jim Moore
Date: December 4, 1998
Dear Kim and Sam:
It appears that I received an incorrect draft of the Unanimous Written Consent
Minutes for Colorado Wyoming Reserve Company, which caused the confusion earlier
this morning. I trust that a corrected draft has been developed accurately
reflecting the terms and conditions set forth in my letter of November 21, 1998.
I hereby approve the attached November 21, 1998 letter subject to the company's
unanimous board approval of all the terms and conditions in this letter as
evidenced by signing and returning this letter to me via fax. I approve it with
the following change to item #4 requested by Sam --
4. My understanding, and a requirement to extend the bridge loan, is that
the archeological study ("arc") has started and/or will start and be
completed as soon as reasonably possible.
If the company's board has unanimously approved all the terms and conditions in
this letter including the change shown above, please sign this letter below and
return it to me.
Sincerely,
/s/ JIM MOORE
James E. Moore
AGREED TO AND ACCEPTED BY:
/s/ KIM M. FUERST
Kim M. Fuerst, Chairman and CEO of Colorado Wyoming Reserve Company
AMENDMENT NO. 1
TO
REGISTRATION RIGHTS AGREEMENT
AND
PROMISSORY NOTE
THIS AMENDMENT NO 1. TO REGISTRATION RIGHTS AGREEMENT AND PROMISSORY NOTE (this
"Amendment") is made and entered into as of December 4, 1998 by and between
COLORADO WYOMING RESERVE COMPANY a Wyoming corporation, having its principal
place of business in Grand Junction, Colorado (the "Company"), and JAMES E.
MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994, a trust with the trustee and
beneficiary residing in Playa del Rey, California (the "Investor").
RECITALS:
A. Contemporaneously with the execution and delivery hereof, the Investor is
extending repayment of its loan to the Company in the principal amount of
$120,000, as evidenced by that certain promissory note in favor of Investor
dated August 25, 1998 in the original principal sum of One Hundred Twenty
Thousand Dollars ($120,000.00) (the "Note"), until January 15, 1999 (the
"Extension") and purchasing from the Company, and the Company is selling to the
Investor, the December Warrants (as defined below).
B. In connection with the Extension, the Investor and the Company desire to
amend that certain Registration Rights Agreement entered into between the
Company and the Investor as of August 25, 1998 (the "Registration Rights
Agreement") to extend the registration rights and obligations with respect to
the Common Stock (as defined in Section 1 of the Registration Rights Agreement)
underlying the December Warrants.
NOW, THEREFORE, it is agreed:
1. The Registration Rights Agreement shall be amended as follows:
a. The following provisions shall be added to Section 1.1 of the
Registration Rights Agreement:
"December Warrant Agreement" shall mean that certain Warrant
Agreement dated December 4, 1998 by and between the Company and the
Investor and governing the December Warrants.
"December Warrants" shall mean the Warrants issued by the Company
pursuant to the December Warrant Agreement.
b. The following provisions of Section 1.1 of the Registration Rights
Agreement shall amended and shall replace the corresponding
provisions of Section 1.1 of the Registration Rights Agreement:
"Registrable Securities" shall mean (i) shares of Common Stock now
owned or hereafter acquired by the Investor from the Company, (ii) any
shares of Common Stock issued or then issuable upon complete or partial
exercise of the Warrants or the December
1
<PAGE>
Warrants, and (iii) any shares of Common Stock issued as a dividend or
other distribution with respect to or in exchange for or in replacement of
the shares referenced in (i) and (ii) above, provided, however, that
Registrable Securities shall not include any shares of Common Stock which
have previously been registered or which have been sold to the public.
"Warrant Agreement" shall mean that certain Warrant Agreement dated
August 25, 1998 by and between the Company and the Investor and governing
the Warrants.
"Warrants" shall mean the Warrants issued by the Company pursuant to
the Warrant Agreement.
3. The first sentence of Section 2.1 (a) of the Registration Rights
Agreement shall be amended to read:
If the Company shall receive from the Holders of at least 50% of the
Registrable Securities at any time (the "Demand Date") not earlier than
December 31, 1998, a written request that the Company effect any
registration with respect to the resale of all or a part of the
Registrable Securities then, if the Commission has not prior to the Demand
Date declared effective a shelf registration statement pursuant to Rule
415 with respect to all of the Registrable Securities (a "Shelf
Registration Statement") which is effective as of the Demand Date, the
Company will, as soon as practicable, use its best efforts to effect such
registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act)
and as would permit or facilitate the resale and distribution of all or
such portion of such Registrable Securities as are specified in such
request.
4. Article III of the Registration Rights Agreement shall be amended
and restated to read:
III
TRANSFER OF SHARES
If, at any time, the Holder sells or otherwise transfers the
Warrants or the December Warrants, or if, after the expiration of the
period provided in Section 2.11 hereof, the Holder sells or otherwise
transfers shares of Common Stock, then, in connection therewith, the
Holder shall also be deemed to automatically transfer or assign the rights
to cause the Company to register the Registrable Securities so transferred
under Section 2 hereof, provided that the Company is given written notice
prior to or at the time of such transfer or assignment, stating the name
and address of the transferee or assignee. The Company shall not be
obligated to register securities of any such transferee or assignee unless
such transferee or assignee performs the obligations of a Holder under
this Agreement.
2
<PAGE>
2. The second paragraph of the Note shall be amended to read as follows:
The unpaid principal and accrued interest shall be payable in full on the
earlier of (i) the receipt by the Borrower of any proceeds from public or
private sale of any its capital stock or other securities or (ii) January
15, 1999 (the "Due Date").
3. The Company acknowledges that Investor has transferred 120,000 of the
150,000 Warrants issued to Investor under the Warrant Agreement to certain
transferees ("the Transferees") and that Investor has also transferred to
the Transferees the registration rights applicable to such transferred
Warrants. The Company and Investor agree that the registration rights
conferred by the Registration Rights Agreement have been transferred in
compliance with Section 3 of the Registration Rights Agreement and the
Company waives any defect with respect to such transfer.
4. The Company represents and warrants to Investor that (a) the execution,
delivery and performance of this Amendment are within its powers, have been
duly authorized and are not in contravention with any law, with the
Company's charter or bylaws, or any undertaking to which it is a party or
by which it is bound; (b) this Amendment is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms; (c) after giving effect to the amendments herein contained
and except as set forth in the last sentence of paragraph 5 of this
Amendment, each of the representations and warrants of the Company in that
certain Loan Agreement dated as of August 25, 1998 between the Company and
Investor (the "Loan Agreement") are true and correct on and as of the date
hereof with the same force and effect as if made on and as of the date
hereof; and (d) except as set forth in the last sentence of paragraph 5 of
this Amendment, no Event of Default (as defined in the Loan Agreement)
exists or has occurred and is continuing as of the date hereof.
5. Investor represents and warrants to the Company that each of the
representations and warranties it made to the Company in Article VI of the
Loan Agreement with respect to the Warrants and the Warrant Shares are true
and correct on and as of the date hereof with the same force and effect as
if made on and as of the date hereof with respect to the December Warrants
and the shares of Common Stock underlying the December Warrants. The
Investor acknowledges that it is aware that the Company has not complied
with its filing requirements under the Securities Exchange Act of 1934 in
that the Company has not, as of the date hereof, filed (a) its annual
report on Form 10-KSB for the fiscal year ended June 30, 1998, or (b) its
quarterly report on Form 10-QSB for the period ended September 30, 1998.
6. The Company agrees to pay, and to indemnify and hold Investor harmless for
the payment of, all costs and expenses arising in connection with this
Amendment, including the reasonable fees of counsel to Investor in
connection with preparing this Amendment and the related amendment.
7. The Company acknowledges and agrees that Investor has fully performed all
of its obligations under the Loan Agreement and all documents executed in
connection therewith and all actions which have been taken by Investor have
been reasonable and appropriate under the circumstances and within its
rights under the Loan Agreement and the Note and in that certain "Mortgage,
Deed of Trust, Security Agreement and Financing Statement" dated as of
August 25, 1998 between the Company, as Borrower, and Investor, as Lender.
3
<PAGE>
8. Except as expressly amended hereby, the Company agrees that the Note and
the Registration Rights Agreement and all other documents and agreements
executed by the Company in connection with the Loan Agreement in favor of
Investor are ratified and confirmed and shall remain in full force and
effect, enforceable against the Company in accordance with their respective
terms, and that it has no set off, counterclaim or defense with respect to
any of the foregoing.
9. Terms used but not defined herein shall have the respective meanings
ascribed thereto in the Loan Agreement or December Warrant Agreement, as
the case may be.
10. This Amendment may be signed in any number of counterparts with the same
effect as if the signatures thereto and hereto were upon the same
instrument.
11. This Amendment shall be deemed to be a contract made under the laws of the
State of Colorado and for all purposes shall be construed in accordance
with the internal laws of said State, provided, however, that if, as a
result of the Company's incorporation in the State of Wyoming, the laws of
that State should govern a particular issue, the internal laws of the State
of Wyoming shall govern that issue.
12. All judicial proceedings arising out of or relating to this Amendment may
be brought in any state or federal court of competent jurisdiction in the
State of California, and by execution and delivery of this Agreement, the
Company accepts for itself generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
convenience and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT AND PROMISSORY NOTE effective as of the day and
year first above written.
COLORADO WYOMING RESERVE COMPANY
By: /s/Kim M. Fuerst
-------------------------------------------
Kim M. Fuerst
Title: President
JAMES E. MOORE REVOCABLE TRUST U/D/T
DATED JULY 28, 1994
By: /s/James E. Moore
-------------------------------------------
James E. Moore , Trustee
4
COLORADO WYOMING RESERVE COMPANY
and
JAMES E. MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994
-----------------------------------------
WARRANT AGREEMENT
Dated as of December 4, 1998
<PAGE>
WARRANT AGREEMENT dated as of December 4, 1998 between COLORADO
WYOMING RESERVE COMPANY, a Wyoming corporation (the "Company"), and JAMES E.
MOORE REVOCABLE TRUST U/D/T DATED JULY 28, 1994 (the "Holder").
WHEREAS, the Company proposes to sell Common Stock Purchase
Warrants, as hereinafter described (the "Warrants"), for $0.001, to purchase up
to an aggregate of 100,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock"), of the Company (the Common Stock issuable on exercise of
the Warrants being referred to herein as the "Warrant Shares"), each Warrant
entitling the holder thereof to purchase one Warrant Share.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration and the payment by Holder of $100.00, receipt of which is
hereby acknowledge by the Company, and the mutual agreements herein set forth,
the parties hereto agree as follows:
SECTION 1. WARRANT CERTIFICATES. The certificates evidencing the
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be in registered form only and shall be substantially in the form set
forth in Exhibit A attached hereto.
SECTION 2. EXECUTION OF WARRANT CERTIFICATES. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board or its
President or a Vice President and by its Secretary or an Assistant Secretary
under its corporate seal. Each such signature upon the Warrant Certificates may
be in the form of a facsimile signature of the present or any future Chairman of
the Board, President, Vice President, Secretary or Assistant Secretary and may
be imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be countersigned and delivered or disposed of he shall have
ceased to hold such office. The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Warrant Certificates.
Any Warrant Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Warrant Certificate,
shall be a proper officer of the Company to sign such Warrant Certificate,
although at the date of the execution of this Warrant Agreement any such person
was not such officer.
SECTION 3. REGISTRATION. The Company shall number and register the
Warrant Certificates in a register as they are issued by the Company. The
Company may deem and treat the registered holder(s) of the Warrant Certificates
as the absolute owner(s) thereof (notwithstanding any notation of ownership or
other writing thereon made by anyone), for all purposes, and the Company shall
not be affected by any notice to the contrary.
SECTION 4. REGISTRATION OF TRANSFERS AND EXCHANGES. The Company
shall from time to time register the transfer of any outstanding Warrant
Certificates upon the records to be maintained by it
<PAGE>
for that purpose, upon surrender thereof accompanied (if so required by it) by a
written instrument or instruments of transfer duly executed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee(s) and the surrendered
Warrant Certificate shall be canceled by the Company. Canceled Warrant
Certificates shall thereafter be disposed of in a manner satisfactory to the
Company.
The Holder agrees that each certificate representing Warrant Shares
will bear the following legend:
"The securities evidenced or constituted hereby have been acquired
for investment and have not been registered under the Securities Act
of 1933, as amended. Such securities may not be sold, transferred,
pledged or hypothecated unless the registration provisions of said
Act have been complied with or unless the Company has received an
opinion of counsel reasonably satisfactory to the Company that such
registration is not required."
Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Company at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled by the Company.
SECTION 5. TERMS OF WARRANTS, EXERCISE OF WARRANTS. Subject to the terms
of this Agreement, the Warrant holder shall have the right, which may be
exercised commencing at the opening of business on December 4, 1998 and until 5:
00 p.m., Pacific time on December 3, 2008 to receive from the Company the number
of fully paid and nonassessable Warrant Shares which the Warrant holder may at
the time be entitled to receive on exercise of such Warrants and payment of the
Exercise Price then in effect for such Warrant Shares. In the alternative, the
Warrant holder may exercise its right, during the Exercise Period, to receive
Warrant Shares on a net basis, such that, without the exchange of any funds, the
Warrant holder receives that number of Warrant Shares otherwise issuable (or
payable) upon exercise of its Warrants less that number of Warrant Shares having
an aggregate fair market value (as defined below) at the time of exercise equal
to the aggregate Exercise Price that would otherwise have been paid by the
Warrant holder. For purposes of the foregoing sentence, "fair market value" of
the Warrant Shares shall mean (i) if the Common Stock is in the over-the-counter
market and not in The Nasdaq National Market nor on any national securities
exchange, the average of the per share closing bid price on the 30 consecutive
trading days immediately preceding the date in question, as reported by The
Nasdaq Small Cap Market (or an equivalent generally accepted reporting service
if quotations are not reported on The Nasdaq Small Cap Market), or (ii) if the
Common Stock is traded in The Nasdaq National Market or on a national securities
exchange, the average for the 30 consecutive trading days immediately preceding
the date in question of the daily per share closing prices in The Nasdaq
National Market or on the principal stock exchange on which it is listed, as the
case may be. For purposes of clause (i) above, if trading in the Common Stock is
not reported by The Nasdaq Small Cap Market, the applicable bid price referred
to in said clause shall be
2
<PAGE>
the lowest bid price as reported on the OTC Electronic Bulletin Board of the
National Association of Securities Dealers, Inc. or, if not reported thereon, as
reported in the "pink sheets" published by National Quotation Bureau,
Incorporated, and, if such securities are not so reported, shall be the price of
a share of Common Stock determined by the Company's Board of Directors in good
faith. The closing price referred to in clause (ii) above shall be the last
reported sale price or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices, in either case in The
Nasdaq National Market or on the national securities exchange on which the
Common Stock is then listed.. Each Warrant not exercised prior to 5:00 p.m.,
Pacific time, on December 3, 2008 shall become void and all rights thereunder
and all rights in respect thereof under this agreement shall cease as of such
time. No adjustments as to dividends will be made upon exercise of the Warrants.
A Warrant may be exercised upon surrender to the Company at its
principal office of the certificate or certificates evidencing the Warrants to
be exercised with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Company of the exercise price (the
'Exercise Price") which is set forth in the form of Warrant Certificate attached
hereto as Exhibit A as adjusted as herein provided, for the number of Warrant
Shares in respect of which such Warrants are then exercised. Payment of the
aggregate Exercise Price shall be made (i) in cash or by certified or official
bank check payable to the order of the Company, or (ii) in the manner provided
in the first paragraph of this Section 5.
Upon such surrender of Warrants and payment of the Exercise Price
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the Warrant holder and in such name or names as
the holder may designate, a certificate or certificates for the number of full
Warrant Shares issuable upon the exercise of such Warrants together with cash as
provided in Section 11; PROVIDED, HOWEVER, that if any consolidation, merger or
lease or sale of assets is proposed to be effected by the Company as described
in subsection (m) of Section 10 hereof, or a tender offer or an exchange offer
for shares of Common Stock of the Company shall be made, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Company shall, as
soon as possible, but in any event not later than two business days thereafter,
issue and cause to be delivered the full number of Warrant Shares issuable upon
the exercise of such Warrants in the manner described in this sentence together
with cash as provided in Section 11. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable, at the election of the holders
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing Warrants is exercised in respect of fewer than all of the
Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrants, a new certificate evidencing the remaining Warrant
or Warrants will be issued pursuant to the provisions of this Section.
All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled by the Company. Such canceled Warrant Certificates shall then be
disposed of by the Company.
3
<PAGE>
SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of Warrants; PROVIDED, HOWEVER, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 7. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence satisfactory to the Company of such
loss, theft or destruction of such Warrant Certificate and indemnity, if
requested, also satisfactory to them. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 8. RESERVATION OF WARRANT SHARES. The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The Company or, if appointed, the transfer agent for the Common
Stock (the "Transfer Agent") and every subsequent transfer agent for any shares
of the Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Company will supply such Transfer Agent with
duly executed certificates for such purposes and will provide or otherwise make
available any cash which may be payable as provided in Section 11. The Company
will furnish such Transfer Agent a copy of all notices of adjustments and
certificates related thereto, transmitted to each holder pursuant to Section 12
hereof.
Before taking any action which would cause an adjustment pursuant to
Section 10 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
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<PAGE>
The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants will, upon issue, be fully paid, nonassessable, free
of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issue thereof.
SECTION 9. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock are then listed.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES ISSUABLE. The Exercise Price and the number of Warrant Shares issuable
upon the exercise of each Warrant are subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 10. For purposes of
this Section 10, "Common Stock" means shares now or hereafter authorized of any
class of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK.
If the Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares
of its capital stock; then the Exercise Price in effect immediately prior
to such action shall be proportionately adjusted so that the holder of any
Warrant thereafter exercised may receive the aggregate number and kind of
shares of capital stock of the Company which he would have owned
immediately following such action if such Warrant had been exercised
immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
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<PAGE>
If after an adjustment a holder of a Warrant upon exercise of it may
receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) ADJUSTMENT FOR RIGHTS ISSUE.
If the Company distributes any rights, options or warrants to all
holders of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to purchase shares of Common Stock at a
price per share less than the current market price per share on that record
date, the Exercise Price shall be adjusted in accordance with the formula:
O + N x P
E' = E x M
------------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) ADJUSTMENT FOR OTHER DISTRIBUTIONS.
6
<PAGE>
If the Company distributes to all holders of its Common Stock any of
its assets or debt securities or any rights or warrants to purchase debt
securities, assets or other securities of the Company, the Exercise Price shall
be adjusted in accordance with the formula:
E' = E x M - F
-----------
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the current market price per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of Common
Stock. The Board of Directors shall determine the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection (c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company prepared in accordance with generally accepted
accounting principles. Also, this subsection does not apply to rights, options
or warrants referred to in subsection (b) of this Section 10.
(d) ADJUSTMENT FOR COMMON STOCK ISSUE.
If the Company issues shares of Common Stock for a consideration per
share less than the current market price per share on the date the Company fixes
the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the formula:
P
--
E' = E x O + M
---------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
7
<PAGE>
O = the number of shares outstanding immediately prior to the issuance
of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the current market price per share on the date of issuance of such
additional shares.
A = the number of shares outstanding immediately after the issuance of
such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (b)
and (c) of this Section 10,
(2) the exercise of Warrants, or the conversion or exchange of
other securities convertible or exchangeable for Common Stock,
(3) Common Stock issued to the Company's employees under bona
fide employee benefit plans adopted by the Board of Directors and approved
by the holders of Common Stock when required by law, if such Common Stock
would otherwise be covered by this subsection (d) (but only to the extent
that the aggregate number of shares excluded hereby and issued after the
date of this Warrant Agreement shall not exceed 5% of the Common Stock
outstanding at the time of the adoption of each such plan, exclusive of
antidilution adjustments thereunder),
(4) Common Stock upon the exercise of rights or warrants
issued to the holders of Common Stock,
(5) Common Stock issued to shareholders of any person which
merges into the Company in proportion to their stock holdings of such
person immediately prior to such merger, upon such merger,
(6) Common Stock issued in a bona fide public offering
pursuant to a firm commitment underwriting or
(7) Common Stock issued in a bona fide private placement
through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any
discount from the current market price attributable to restrictions on
transferability of the Common Stock, as determined in good faith by the
Board of Directors and described in a Board resolution which shall be
filed with the Trustee, shall exceed 20%).
8
<PAGE>
(e) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE.
If the Company issues any securities convertible into or
exchangeable for Common Stock (other than securities issued in transactions
described in subsections (b) and (c) of this Section 10) for a consideration per
share of Common Stock initially deliverable upon conversion or exchange of such
securities less than the current market price per share on the date of issuance
of such securities, the Exercise Price shall be adjusted in accordance with this
formula:
P
---
E' = E x O + M
----------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the issuance of
such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the current market price per share on the date of issuance of such
securities.
D = the maximum number of shares deliverable upon conversion or in
exchange for such securities at the initial conversion or exchange
rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange
of such securities have not been issued when such securities are no longer
outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such securities.
This subsection (e) does not apply to:
(1) convertible securities issued to shareholders of any
person which merges into the Company, or with a subsidiary of the Company,
in proportion to their stock holdings of such person immediately prior to
such merger, upon such merger,
9
<PAGE>
(2) convertible securities issued in a bona fide public
offering pursuant to a firm commitment underwriting, or
(3) convertible securities issued in a bona fide private
placement through a placement agent which is a member firm of the National
Association of Securities Dealers, Inc. (except to the extent that any
discount from the current market price attributable to restrictions on
transferability of Common Stock issuable upon conversion, as determined in
good faith by the Board of Directors and described in a Board resolution
which shall be filed with the Trustee, shall exceed 20% of the then
current market price).
(f) CURRENT MARKET PRICE.
In subsections (b), (c), (d) and (e) of this Section 10 the current
market price per share of Common Stock on any date shall be the fair market
value per Warrant Share as determined in accordance with the first paragraph of
Section 5 of this Agreement.
(g) CONSIDERATION RECEIVED.
For purposes of any computation respecting consideration received
pursuant to subsections (d) and (e) of this Section 10, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in
no case shall any deduction be made for any commissions, discounts or
other expenses incurred by the Company for any underwriting of the issue
or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors (irrespective of the
accounting treatment thereof), whose determination shall be conclusive,
and described in a Board resolution, a copy of which shall be mailed to
each holder; and
(3) in the case of the issuance of securities convertible into
or exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
(h) WHEN DE MINIMIS ADJUSTMENT MAY BE DEFERRED.
10
<PAGE>
No adjustment in the Exercise Price need be made unless the
adjustment would require an increase or decrease of at least 1% in the Exercise
Price. Any adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this Section shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
(i) WHEN NO ADJUSTMENT REQUIRED.
No adjustment need be made for a transaction referred to in
subsections (a), (b), (c), (d) or (e) of this Section 10 if Warrant holders are
to participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no par
value of the Common Stock.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
(j) NOTICE OF ADJUSTMENT.
Whenever the Exercise Price is adjusted, the Company shall provide
the notices required by Section 12 hereof.
(k) VOLUNTARY REDUCTION.
The Company from time to time may reduce the Exercise Price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period; PROVIDED, HOWEVER, that in no event
may the Exercise Price be less than the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period it will be in
effect.
A reduction of the Exercise Price does not change or adjust the
Exercise Price otherwise in effect for purposes of subsections (a), (b), (c),
(d) and (e) of this Section 10.
11
<PAGE>
(l) NOTICE OF CERTAIN TRANSACTIONS.
If:
(1) the Company takes any action that would require an
adjustment in the Exercise Price pursuant to subsections (a), (b), (c),
(d) or (e) of this Section 10 and if the Company does not arrange for
Warrant holders to participate pursuant to subsection (i) of this Section
10;
(2) the Company takes any action that would require a
supplemental Warrant Agreement pursuant to subsection (m) of this Section
10; or
(3) there is a liquidation or dissolution of the Company, the
Company shall mail to Warrant holders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger,
transfer, lease, liquidation or dissolution. The Company shall mail the
notice at least 15 days before such date. Failure to mail the notice or
any defect in it shall not affect the validity of the transaction.
(m) REORGANIZATION OF COMPANY.
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised the Warrant immediately before the
effective date of the transaction. Concurrently with the consummation of such
transaction, the corporation formed by or surviving any such consolidation or
merger if other than the Company, or the person to which such sale or conveyance
shall have been made, shall enter into a supplemental Warrant Agreement so
providing and further providing for adjustments which shall be as nearly
equivalent as may be practical to the adjustments provided for in this Section.
The successor Company shall mail to Warrant holders a notice describing the
supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.
If this subsection (m) applies, subsections (a), (b), (c), (d) and
(e) of this Section 10 do not apply.
(n) WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED.
In any case in which this Section 10 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the holder of any Warrant exercised after such record date
the
12
<PAGE>
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 11; PROVIDED, HOWEVER, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional Warrant Shares, other capital stock and cash
upon the occurrence of the event requiring such adjustment.
(o) ADJUSTMENT IN NUMBER OF SHARES.
Upon each adjustment of the Exercise Price pursuant to this Section
10, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment of
the adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
N' = N x E
--------
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of a
Warrant by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise of
a Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(p) FORM OF WARRANTS.
Irrespective of any adjustments in the Exercise Price or the number
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
SECTION 11. FRACTIONAL INTERESTS. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 11,
be issuable on the exercise of any Warrants (or specified portion thereof), the
13
<PAGE>
Company shall pay an amount in cash equal to the Exercise Price on the day
immediately preceding the date the Warrant is presented for exercise, multiplied
by such fraction.
SECTION 12. NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
Exercise Price pursuant to Section 10, the Company shall promptly thereafter (i)
cause to be given to each of the registered holders of the Warrant Certificates
at his address appearing on the Warrant register a certificate of a firm of
independent public accountants of recognized standing selected by the Board of
Directors of the Company (who may be the regular auditors of the Company)
setting forth the Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, by first-class mail, postage prepaid. Where appropriate, such
notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 12.
In case:
(a) the Company shall authorize the issuance to all holders of
shares of Common Stock of rights, options or warrants to subscribe for or
purchase shares of Common Stock or of any other subscription rights or warrants;
or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in shares of Common Stock or distributions
referred to in subsection (a) of Section 10 hereof); or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any reclassification or change of Common Stock issuable
upon exercise of the Warrants (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange offer for shares of
Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action (other than actions of
the character described in Section 10(a)) which would require an adjustment of
the Exercise Price pursuant to Section 10; then the Company shall cause to be
given to each of the registered holders of the Warrant Certificates at his
address appearing on the Warrant register, at least 20 days (or 10 days in any
case specified in clauses (a) or (b) above) prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first-class mail, postage prepaid, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights,
14
<PAGE>
options, warrants or distribution are to be determined, or (ii) the initial
expiration date set forth in any tender offer or exchange offer for shares of
Common Stock, or (iii) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 12 or any defect therein shall not affect the legality or validity of
any distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to consent or to receive notice as shareholders in respect of the
meetings of shareholders or the election of Directors of the Company or any
other matter, or any rights whatsoever as shareholders of the Company.
SECTION 13. NOTICES TO COMPANY. Any notice or demand authorized by
this Agreement to be given or made by the Company or by the registered holder of
any Warrant Certificate to or on the Company shall be sufficiently given or made
when and if deposited in the mail, first class or registered, postage prepaid,
addressed (until another address is filed in writing by the Company), as
follows:
COLORADO WYOMING RESERVE COMPANY
751 Horizon Court, Suite 205
Grand Junction, Colorado 81506
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Transfer Agent.
SECTION 14. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
holders may from time to time supplement or amend this Agreement with the
approval of all holders of Warrant Certificates.
SECTION 15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors and assigns hereunder.
SECTION 16. TERMINATION. This Agreement shall terminate at
5:00 p.m., Pacific time on December 3, 2008. Notwithstanding the foregoing,
this Agreement will terminate on any earlier date if all Warrants have been
exercised.
SECTION 17. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of Colorado and for all purposes shall be
construed in accordance with the internal laws of said State, provided,
15
<PAGE>
however, that if, as a result of the Company's incorporation in the State of
Wyoming, the laws of that State should govern a particular issue, the internal
laws of the State of Wyoming shall govern that issue.
All judicial proceedings arising out of or relating to this
Agreement and each Warrant Certificate issued hereunder may be brought in any
state or federal court of competent jurisdiction in the State of California, and
by execution and delivery of this Agreement, the Company accepts for itself
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non convenience and irrevocably agrees to
be bound by any judgment rendered thereby in connection with this Agreement or
any Warrant Certificate issued hereunder.
SECTION 18. TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. The
Warrants may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee. Subject to compliance with such laws, title to
the Warrants may be transferred by endorsement (by the Holder executing the
Assignment Form annexed to the Warrant Certificate) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
SECTION 19. EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of
the Warrant Certicate for exchange, properly endorsed on the Assignment Form and
subject to the provisions of this Agreement with respect to compliance with
applicable securities laws and with the limitations on assignments and transfers
and contained in Section 18, the Company at its expense shall issue to or on the
order of the Holder a new Warrant Certificate of like tenor, in the name of the
Holder or as the Holder may direct, for the number of shares issuable upon
exercise hereof.
SECTION 20. COMPLIANCE WITH SECURITIES LAWS. The Holder agrees that
the Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Common Stock to be issued upon exercise hereof except under
circumstances that will not result in a violation of the federal or any state
securities laws. Prior to any proposed transfer of this Warrant, the holder
thereof shall give written notice to the Company of its intention to effect such
transfer. Each such notice shall describe the manner of the proposed transfer
and, if requested by the Company, shall be accompanied by an opinion of counsel
satisfactory to the Company (it being agreed that Freshman, Marantz, Orlanski,
Cooper & Klein, a law corporation, shall be satisfactory) to the effect that the
proposed transfer may be effected without registration under the Securities Act,
whereupon the holder shall be entitled to transfer this Warrant in accordance
with the terms of its notice; provided, however, that no such opinion of counsel
shall be required for a transfer to one or more partners of the transferor (in
the case of a transferor that is a partnership) or to an affiliated corporation
(in the case of a transferor that is a corporation). Each Warrant transferred as
above provided shall bear the legend set forth at the beginning of the form
Warrant Certificate annexed hereto as Exhibit A.
SECTION 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Holder and the registered holders of the Warrant Certificates any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Holder and the
registered holders of the Warrant Certificates.
16
<PAGE>
SECTION 22. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
COLORADO WYOMING RESERVE COMPANY
By: /s/Kim M. Fuerst
--------------------------------------------
Kim M. Fuerst
Title: President
JAMES E. MOORE REVOCABLE TRUST U/D/T DATED
JULY 28, 1994,
By: /s/James E. Moore
--------------------------------------------
JAMES E. MOORE, Trustee
17
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
EXERCISABLE ON OR BEFORE DECEMBER 3, 2008
No. 100,000 Warrants
-----
Warrant Certificate
COLORADO WYOMING RESERVE COMPANY
This Warrant Certificate certifies that JAMES E. MOORE REVOCABLE
TRUST U/D/T DATED JULY 28, 1994, or registered assigns, is the registered holder
of Warrants expiring December 3, 2008 (the "Warrants") to purchase Common Stock,
par value $0.01 per share (the "Common Stock"), of COLORADO WYOMING RESERVE
COMPANY, a Wyoming corporation (the "Company"). Each Warrant entitles the holder
upon exercise to receive from the Company on or before 5:00 p.m. Pacific Time on
December 3, 2008, one fully paid and nonassessable share of Common Stock (a
"Warrant Share") at the initial exercise price (the "Exercise Price") of the
lower of (a) $1.00 or (b) the lowest price per share of common stock or price
per share common stock equivalent issued by the Company in any offering of its
securities occurring prior to April 1, 1999, payable in lawful money of the
United States of America upon surrender of this Warrant Certificate and payment
of the Exercise Price at the office of the Company, but only subject to the
conditions set forth herein and in the Warrant Agreement referred to herein.
Notwithstanding the foregoing, Warrants may be exercised without the exchange of
funds pursuant to the net exercise provisions of Section 5 of the Warrant
Agreement. The Exercise Price and number of Warrant Shares issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement. As used herein, "price per
share of common stock equivalent" shall mean the effective price per share of
common stock issuable upon exercise of any warrant or other right to purchase
common stock or issuable upon conversion of any security convertible into common
stock, as the case may be.
No Warrant may be exercised after 5:00 p.m., Pacific Time on
December 3, 2008, and to the extent not exercised by such time such Warrants
shall become void.
A-1
<PAGE>
This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of Colorado, provided, however,
that if, as a result of the Company's incorporation in the State of Wyoming, the
laws of that State should govern a particular issue, the internal laws of the
State of Wyoming shall govern that issue.
All judicial proceedings arising out of or relating to this Warrant
Certificate may be brought in any state or federal court of competent
jurisdiction in the State of California, and by execution and delivery of this
Agreement, the Company accepts for itself generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non convenience and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Warrant Certificate.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring December 3, 2008 entitling the holder
on exercise to receive shares of Common Stock, par value $0.01 per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement dated as of December 4,1998 (the "Warrant Agreement"), duly
executed and delivered by the Company to James E. Moore (the "Holder"), which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company, the
Holder and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder and any transferee of the registered Holder) of the
Warrants. A copy of the Warrant Agreement may be obtained by the holder hereof
upon written request to the Company.
Warrants may be exercised at any time on or before December 3, 2008.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Exercise Price in cash at the office of the Company. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the holder hereof or his assignee a new Warrant Certificate evidencing the
number of Warrants not exercised. No adjustment shall be made for any dividends
on any Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of any Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
A-2
<PAGE>
Warrant Certificates, when surrendered at the office of the Company
by the registered holder thereof may be exchanged, in the manner and subject to
the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
IN WITNESS WHEREOF, COLORADO WYOMING RESERVE COMPANY has
caused this Warrant Certificate to be signed by its President and by its
Secretary, and has caused its corporate seal to be affixed hereunto or imprinted
hereon.
Dated: December 4, 1998
COLORADO WYOMING RESERVE COMPANY
By
---------------------------------------------
President
A-3
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive shares of Common
--------
Stock and herewith tenders payment for such shares to the order of COLORADO
WYOMING RESERVE COMPANY in the amount of $ in accordance with the terms
-------
hereof, unless the holder is exercising Warrants pursuant to the net exercise
provisions of Section 5 of the Warrant Agreement. The undersigned requests that
a certificate for such shares be registered in the name of ,
---------------
whose address is and that such
----------------------------------------
shares be delivered to whose address is .
----------------- -------------------
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
, whose address is and that such Warrant Certificate
- ---------------------------
be delivered to , whose address is
--------------------- ----------------------.
Signature:
Date:
A-4
FM ENERGY LLC
7827 BERGER AVE
PLAYA DEL RAY, CA 90298
(310) 823-7495
November 2, 1998
Board of Directors
Colorado Wyoming Reserve Company
1801 Broadway, Suite 600
Denver, CO 80202
Re: Offer to Purchase
Lake Darling Prospect
Renville Co., ND
Gentlemen:
FM Energy LLC ("FM LLC") hereby offers to purchase all of Colorado Wyoming
Reserve Company's ("CWRC") one hundred percent (100%) interest in and to the
Mustang Oil Company and CRWC properties including the leasehold, wells,
fixtures, personal property and equipment located on the leasehold or used in
connection with the operation of any well, including any other rights and
interests appurtenant or incident to the foregoing (hereinafter referred to as
"Properties"), further described on Exhibit "A" Attached hereto.
As consideration for the Properties, FM LLC shall deliver the following to CWRC:
(1) Fifty thousand dollars ($50,000.00) in the form of a cashiers check
or a wire transfer to presented to CWRC at the time of closing.
(2) All past due compensation to Kim Fuerst for his services as
President of CWRC for the months of June, July, August, September and October,
1998, totaling Fifty Thousand Dollars ($50,000.00) shall be considered paid in
full to Kim Fuerst.
<PAGE>
Colorado Wyoming Reserve Company
Page 2
November 2, 1998
(3) An extension past the previously due date of October 31, 1998, until
November 30, 1998, of the loan repayment date for the "Bridge Loan" granted by
Jim Moore to CWRC in the amount of $120,000.00.
Additionally, FM LLC agrees to make the purchase subject to the following:
(1) That certain Contract Operator Agreement and Operating Agreement
entered into March 13, 1998 between CWRC and S T Oil Company ("STOC"), which
appoints STOC as its managing agent and attorney-in-fact to act in CWRC's name
and to serve as operator of record of the Properties, and which entitles STOC to
a Five Percent (5.00%) working interest in the Leases and Wells, at payout,
being further defined in the referenced Contract Operator Agreement.
(2) STOC's approval of the assignment of CRWC's rights and obligations
created in the aforementioned Contract Operator Agreement and Operating
Agreement dated March 13, 1998.
(3) That certain Consulting Agreement dated October 16, 1997, between
CWRC and Trinity Petroleum Exploration, Inc. ("TPE") whereby TPE is entitled to
a ten percent (10%) leasehold working interest in and to all the Properties,
said interest to be free of the costs of drilling, plugging and abandoning or
completing any wells drilled thereon through the tanks, which interest shall
automatically increase to an undivided twenty percent (20%) leasehold working
interest at Payout, being further defined in the referenced agreement.
(4) CWRC shall not warrant title nor fitness of the equipment. The
Properties shall be delivered in their "as is, where is" condition, including
environmental liabilities, known or unknown.
(5) Following closing, FM LLC agrees to assume responsibility for and
indemnify CWRC against all claims relating to the Properties, including without
limitation, all claims relating to the plugging, abandonment and reclamation of
all Wells.
(6) Following acceptance of this letter by the parties hereto, FM LLC
and CRWC enter into a mutually acceptable Sale and Purchase
Agreement, more particularly setting forth the terms and
conditions of this transaction.
<PAGE>
Colorado Wyoming Reserve Company
Page 3
November 2, 1998
If the foregoing is acceptable to you, please so indicate by executing
below.
Very truly yours,
FM Energy LLC
By: /S/ KIM FUERST By: /S/ JAMES E. MOORE
--------------------------------- --------------------------------
Kim Fuerst James E. Moore
Co-Chairman Co-Chairman
Agreed to and accepted by
COLORADO WYOMING RESERVE COMPANY
By /S/ FAISAL CHAUDHARY
----------------------------------
Faisal Chaudhary
Secretary and Director
[PricewaterhouseCoopers Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Colorado Wyoming Reserve Company on Form S-8 (File No. 333-39979) of our report
dated December 23, 1998, on our audits of the consolidated financial statements
of Colorado Wyoming Reserve Company as of June 30, 1998 and 1997, and for the
years then ended, which report is incorporated by reference in this Annual
Report on Form 10-KSB.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
December 23, 1998
Denver, Colorado
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000318852
<NAME> COLORADO WYOMING RESERVE COMPANY
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,279
<PP&E> 731,355
<DEPRECIATION> 0
<TOTAL-ASSETS> 744,251
<CURRENT-LIABILITIES> 277,124
<BONDS> 0
0
0
<COMMON> 24,677
<OTHER-SE> 492,450
<TOTAL-LIABILITY-AND-EQUITY> 744,251
<SALES> 32,798
<TOTAL-REVENUES> 68,269
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,484,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,416,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,416,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,416,459)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
