SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Under to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 6, 1998
Commission File Number: 0-14096
FORELAND CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 87-0422812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12596 W. Bayaud Avenue
Suite 300, Lakewood, Colorado 80228
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(303) 988-3122
N/A
(Former name, former address, and formal fiscal year, if changed since
last report)
ITEM 5. OTHER EVENTS
Debt Financing
Foreland Corporation (the "Company") has completed a $16.9 million debt
financing with Energy Income Fund, L.P. ("EIF"), managed by Associated Energy
Mangers, Inc., of Longmeadow, Massachusetts. The funds will be used in the
enhanced oil recovery program and development drilling in the Eagle Springs
field, 3D seismic acquisition, the drilling of 3D defined exploration targets,
the acquisition of producing properties, and to retire existing debt.
Management of the Company believes that through leveraging the Company's
existing reserves, the Company can aggressively pursue its business objectives,
including exploration, development, acquisitions, and integration.
On January 9, 1998, the Company drew down $3,585,000 of its new available
debt financing to fund the implementation of a high pressure air injection
program, including compressors and buildings, in the Company's Eagle Springs
field, the drilling and completion of one proved undeveloped well in the Eagle
Springs field, the 3D seismic program on the Company's Pine Creek property, the
retirement of existing debt and the payment of closing costs. An additional
$1,846,000 was placed into an escrow account to fund the drilling and completion
of two additional wells on locations with proved undeveloped reserves in the
Eagle Springs field and the drilling and completion of a well in the Pine Creek
area, based upon the evaluation of the 3D seismic data. The funds placed in
escrow, as well as the remaining $11,469,000 under the financing arrangement,
will be drawn down by the Company as the need for such additional funds arises.
Pursuant to the terms of the financing arrangement, the Company is
required to make payments of interest only through November 1998, after which
payments of principal and interest are required to amortize the indebtedness
generally over a 48-month period; provided, however, that the final payment of
all accrued but unpaid interest and the remaining principal balance is due on
January 1, 2002. The Company also agreed to transfer to EIF a 3% overriding
royalty interest in the Company's interest in Eagle Springs, Ghost Ranch and
Kate Springs and a 1% overriding royalty interest in the Company's interest in
Pine Creek, Hay Ranch and from wells drilled after evaluation of 3D seismic data
funded, in whole or in part, by EIF.
Amounts due under the financing arrangement are secured by the Company's
interests in Railroad Valley and Pine Valley, including the Eagle Springs, Ghost
Ranch, Hay Ranch, Pine Creek, and Kate Springs properties. The financing
documents require the Company to maintain certain financial ratios and comply
with other terms and conditions while any balance of indebtedness remains
outstanding.
The Company has issued to EIF five year warrants to purchase 750,000
shares of common stock at $6.00 per share and 250,000 shares at $10.00 per
share. The Company granted EIF the right to designate a representative for
appointment to the board of directors of the Company.
Petro Source
On December 31, 1997, the Company entered into an Option and Purchase
Agreement with Houston's Petro Source Corporation, a closely-held corporation,
pursuant to which the Company obtained an option to acquire at any time prior to
December 31, 1998, certain of the businesses and business assets of Petro Source
Refining Corporation and Petro Source Transportation. The optioned assets
include the Nevada refinery, which processes crude oil produced by the Company
and other Nevada operators, a processing facility in Tonopah, Nevada, and
rolling stock utilized by Petro Source Transportation to gather crude oil and
distribute products. The Company's management believes that the acquisition of
the Petro Source assets is an important part in the Company's strategic business
plan because, through the integration of production, processing, and marketing,
the Company may establish price protection, multiple profit centers, and
increased revenues.
The price paid by the Company for the option was 130,000 shares of common
stock, par value $0.001 per share, of the Company, subject to adjustment in
certain circumstances. Upon exercise of the option by the Company, the purchase
price for the optioned assets is $5 million or four times the annual income of
the businesses to be purchased, with certain adjustments. The purchase of the
option was the result of arm's length negotiations.
Ghost Ranch
On January 7, 1998, the Company entered into an agreement to purchase the
remaining 40% working interest in the Company's Ghost Ranch field from Barrett
Resources Corporation (NYSE: BRR). Upon completion of this acquisition, the
Company will own 100% of the 3D defined Ghost Ranch field and can continue
exploitation of this area.
The purchase price for the 40% working interest is $500,000, with
adjustments for oil sales, oil inventory, operating expenses, and accrued unpaid
property and production taxes after December 31, 1997, the effective date of the
transaction. The purchase of the working interest is the result of arm's length
negotiations.
Except for the historical information contained herein, the matters
discussed in this report are "forward-looking statements" within the meaning of
federal securities laws. Actual results or events may differ substantially from
these forward-looking statements due to numerous risks and uncertainties,
including actual results from drilling for expansion, cash flow from operations,
and other risks discussed in the Company's filings with the Securities and
Exchange Commission.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired. Not applicable.
(b) Pro forma Financial Information. Not applicable.
(c) Exhibits
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document Location
- --------- --------- ------------------------------------------------------ -----------
<S> <C> <C> <C>
Item 4 Instruments Defining the Rights of Security Holders
4.01 4 Warrant of Energy Income Fund, L.P., dated January This Filing
6, 1998, to purchase 750,000 shares of common stock
at $6.00 per share
4.02 4 Warrant of Energy Income Fund, L.P., dated January This Filing
6, 1998, to purchase 250,000 shares of common stock
at $10.00 per share
Item 10 Material Contracts
10.01 10 Financing Agreement dated as of January 6, 1998, by This Filing
and among the Company, Eagle Springs Production
Limited Liability Company and Energy Income Fund,
L.P.
10.02 10 Refinancing Note dated as of January 6, 1998, by the This Filing
Company and Eagle Springs Production Limited
Liability Company
10.03 10 Development Note dated as of January 6, 1998, by the This Filing
Company and Eagle Springs Production Limited
Liability Company
10.04 10 Acquisition Note dated as of January 6, 1998, by the
Company and Eagle Springs Production Limited This Filing
Liability Company
10.05 10 Deed of Trust, Security Agreement, Assignment of This Filing
Production and Proceeds, Financing Statement and
Fixture Filing dated as of January 6, 1998, by and
among the Company, Eagle Springs Production
Limited Liability Company, First American Title
Company of Nevada, and Energy Income Fund, L.P.
10.06 10 Assignment of Overriding Royalty Interest dated This Filing
effective as of January 1, 1998, of a 3% net revenue
interest from the Company and Eagle Springs
Production Limited Liability Company to Energy
Income Fund, L.P.
10.07 10 Assignment of Overriding Royalty Interest dated This Filing
effective as of January 1, 1998, of a 1% net revenue
interest from the Company and Eagle Springs
Production Limited Liability Company to Energy
Income Fund, L.P.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: January 23, 1998
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele, President
Number of Shares: 750,000
FORELAND CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SHARES PURCHASABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES (REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL), OR AN OPINION OF THE COMPANY'S COUNSEL, STATING THAT
SUCH SALE, TRANSFER, OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
FOR VALUE RECEIVED, Energy Income Fund, L.P., a Delaware limited
partnership (the "Holder"), is entitled to purchase from Foreland Corporation, a
Nevada corporation (the "Company"), subject to the terms and conditions herein
set forth, at any time before 5:00 p.m. Longmeadow, Massachusetts time on
January 6, 2003, or the first business day thereafter if such day is not a
business day or such other date as may be established in accordance with the
terms of this Warrant (the "Expiration Date"), Seven Hundred Fifty Thousand
(750,000) of the shares of duly authorized, validly issued, fully paid and
nonassessable Common Stock of the Company, one-tenth of a cent ($.001) par value
(the "Warrant Stock"), subject to adjustment of the number or kind of shares
constituting Warrant Stock as hereinafter provided. The Holder is entitled to
purchase the Warrant Stock for Six Dollars ($6.00) per share, subject to
adjustment as hereinafter provided (the "Exercise Price"), and is entitled also
to exercise the other appurtenant rights, powers, and privileges hereinafter set
forth.
Article 1 Definitions.
For all purposes of this Warrant, unless the context otherwise
requires, the following terms have the following meanings:
1.1 "Common Stock" means the Company's authorized common stock, par
value one-tenth of a cent ($.001) per share.
1.2 "Common Stock Equivalents" has the meaning ascribed to that term
in Section 4.5(a).
1.3 "Company" means Foreland Corporation, a corporation organized and
existing under the laws of the State of Nevada, and any successor corporation.
1.4 "Disclosure Documents" has the meaning ascribed to that term in
Section 8.5(a).
1.5 "Exercise Price" means the exercise price for the Warrant Stock
established in accordance with Article 4.
1.6 "Existing Stock" shall have the meaning ascribed to that term in
Section 4.4 hereof.
1.7 "Expiration Date" means January 6, 2003, or the first business
day thereafter if such day is not a business day, or such other date as may be
established in accordance with the terms of this Warrant.
1.8 "Fair Market Value"
1.8.1 "Fair Market Value" in reference to the Common Stock
means, (i) in the event such stock is traded on a national securities exchange
or in the over the counter market as reported by the National Association of
Securities Dealers Automated Quotation System (stock being so traded or reported
being referred to herein as "Publicly Traded"), the average closing price (or,
if no sale takes place on any day, the average bid and ask prices on such day)
of such stock on the ten (10) trading days immediately preceding the date as of
which such value is to be determined, or (ii) in the event the Common Stock is
not so traded or reported, the Fair Market Value of the Common Stock shall mean
the total of: (x) the discounted present value of the net revenues from the
proved oil and gas properties, using a discount rate of 15% and the risk
adjustments to different categories of proved reserves as follows: 100% of
proved developed producing reserves; 70% of proved developed non-producing
reserves and proved behind pipe reserves; and 50% of proved undeveloped
reserves, and product price assumptions equal to the trailing twelve (12) month
weighted average wellhead price held flat for the life of the wells as projected
in the most recent Reserve Report; plus (y) the present value of the assets of
the Company other than reserves as determined by an independent accountant,
auditor or other third party mutually chosen by the Company and Holder; minus
(z) the liabilities of the Company. In the event the Common Stock is not
Publicly Traded, Fair Market Value in reference to a share of the Common Stock
shall mean the Fair Market Value of the Company allocable to the issued Common
Stock divided by the number of shares of Common Stock that would have been
outstanding had (i) this Warrant, (ii) all options to purchase Common Stock, and
(iii) all securities convertible into Common Stock at a price per share no
greater than Fair Market Value, been exercised or converted on the date as of
which value is to be determined (with appropriate adjustment by appraisal to
reflect the proceeds of the assumed exercise or conversion of outstanding
securities).
1.8.2 "Fair Market Value of This Warrant" means the Fair Market Value
of the Common Stock subject to this Warrant minus the Exercise Price of this
Warrant established in accordance with Article 4.
1.9 "Financing Agreement" shall mean that certain Financing Agreement
dated as of January 6, 1998, as amended from time to time, between Foreland
Corporation, Eagle Springs Production Limited-Liability Company and Energy
Income Fund, L.P.
1.10 "Holder" means Energy Income Fund, L.P., a Delaware limited
partnership, and its successors or permitted assigns as holder of this Warrant.
1.11 "Loans" shall mean the loans made by Energy Income Fund, L.P. to
the Company pursuant to the terms of the Financing Agreement.
1.12 "Losses" has the meaning ascribed to that term in Section
8.5(a).
1.13 "1933 Act" means the Securities Act of 1933, as amended.
1.14 "Person" means any natural person, sole proprietorship, general
partnership, limited partnership, limited liability company, joint venture,
trust, unincorporated organization, association, corporation, institution,
private or governmental entity, or party.
1.15 "Publicly Traded" has the meaning ascribed to that term in
Section 1.8.
1.16 "Rights" has the meaning ascribed to that term in Section 4.4.
1.17 "Subscription Notice" means a written notice to the Company of
Holder's election to exercise its rights under the Warrant to purchase Common
Stock, in substantially the form appearing at the end of this Warrant.
1.18 "Warrant" means this Warrant and any warrants issued on or in
substitution for this Warrant including warrants issued in exchange for this
Warrant pursuant to Article 2 hereof.
1.19 "Warrant Stock" means the shares of Common Stock or other
securities acquired or to be acquired upon the exercise of the Warrant.
Article 2 Exercise of Warrant; Division of Warrant.
2.1 Exercise. This Warrant may be exercised in whole or in part.
In the event of a partial exercise, the Company shall execute and deliver to the
Holder (or to such other Person as shall be designated in the Subscription
Notice) a new Warrant covering the unexercised portion of the Warrant Stock. At
any time after the second anniversary of the date hereof, the Company may
require the Holder to exercise or surrender this Warrant within thirty (30) days
after receipt of a request for exercise from the Company, certifying that the
average trading price for shares of the Company's common stock during the
preceding three (3) month period, calculated based on the closing or last trade
price of each trading day, equals or exceeds two hundred percent (200%) of the
Exercise Price effective as of the date of such notice, and further certifying
that the average trading volume for such period has exceeded fifty thousand
(50,000) shares per day.
2.2 Procedure. To exercise this Warrant, the Holder shall deliver
to the Company at its principal office:
(a) a written notice, in substantially the form of the Subscription
Notice appearing at the end of this Warrant, of the Holder's election to
exercise this Warrant;
(b) a cashier's or certified check payable to the Company in the
amount of the Exercise Price; and
(c) this Warrant.
The Company shall as promptly as practicable, and in any event within
twenty (20) days after receipt of such items, execute and deliver or cause to be
executed and delivered one or more certificates representing the aggregate
number of shares of Warrant Stock to which the Holder is entitled and, if this
Warrant is exercised in part, a new Warrant as set forth in Section 2.1.
2.3 Name and Effective Date. The stock certificate(s) so
delivered shall be issued in the name of the Holder or such other name as shall
be designated in the notice specified in Section 2.2. Such certificate(s) shall
be deemed to have been issued and such Holder or any other Person so designated
to be named therein shall be deemed for all purposes to have become a holder of
record of such shares as of the date on which the Company has actually received
all of the items specified in Section 2.2.
2.4 Expenses. The Company shall pay all expenses, taxes, and
other charges payable in connection with the preparation, issue, and delivery of
such stock certificate(s), except that, in case such stock certificate(s) shall
be registered in a name or names other than the name of the Holder of this
Warrant, stock transfer taxes that are payable upon the issuance of such stock
certificate(s) shall be paid by the Holder hereof.
2.5 Legal Requirements. The Warrant Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid, and nonassessable.
2.6 No Fractional Shares. The Company shall not issue a stock
certificate representing any fraction of a share upon partial exercise by a
Holder of such Holder's rights hereunder.
2.7 Registration; Exchange of Warrant. The Company will keep at its
principal office a register in which the Company will provide for the
registration and transfer of this Warrant. The holder of this Warrant, or of
any warrant substituted therefor pursuant to the provisions of this Section 2.7,
may, at its option, in person or by duly authorized attorney, surrender the same
for exchange at such principal office of the Company and, within a reasonable
time thereafter and without expense (other than transfer taxes, if any), receive
in exchange therefor one or more duly executed warrants each evidencing the
right to receive one share of Common Stock of the Company or such other whole
number of shares as may be designated by the holder at the time of surrender.
The Company covenants and agrees to take and cause to be taken all action
necessary to effect such registrations, transfers and exchanges.
The Company and any agent of the Company may treat the person in whose
name a warrant is registered as the owner of the warrant for all purposes
hereunder and neither the Company or such agent shall be affected by notice to
the contrary.
2.8 Cashless Exercise. Notwithstanding Section 2.2 of this
Warrant or any other provision of this Warrant to the contrary, in addition to
the Holder's rights under this Warrant, the Holder may, upon full or partial
exercise of this Warrant, at its election, pay the aggregate Exercise Price
applicable to such exercise by delivering the Warrant to the Company and
receiving from the Company in return therefor the number of shares of Common
Stock having a Fair Market Value on the date of exercise equal to the "Fair
Market Value of This Warrant" as established by Section 1.8.2.
Article 3 Transfer.
3.1 Permitted Transfers. This Warrant shall be freely
transferable, in whole or in part, subject to the limitations specified in
Section 3.2 herein.
3.2 Securities Laws. Neither this Warrant nor the Warrant Stock
shall be transferable unless:
(a) either a registration statement under the Securities Act of 1933
(the "1933 Act") is in effect covering the Warrant or the Warrant Stock, as the
case may be, or the Company has received an opinion from the Company's counsel
to the effect that such registration is not required, or the Holder has
furnished to the Company an opinion of Holder's counsel, which counsel shall be
reasonably satisfactory to the Company, to the effect that such registration is
not required; and
(b) the proposed transfer complies with any applicable state
securities laws.
In the event Holder seeks an opinion from the Holder's counsel as to transfer
without registration, the Company shall provide such factual information to
Holder's counsel as Holder's counsel may reasonably request for the purpose of
rendering such opinion and such counsel may rely on the accuracy and
completeness of such information in rendering such opinion. Upon issuance at a
time when the Common Stock is not Publicly Traded, the Warrant Stock will bear a
legend describing the restrictions on transfer set forth in this Section 3.2.
3.3 Procedure. Subject to the limitations set forth in Section
3.2, the Holder may transfer this Warrant on the books of the Company by
surrendering to the Company:
(a) this Warrant;
(b) a written assignment of this Warrant, in substantially the form
of the Assignment appearing at the end of this Warrant, naming the
assignee and duly executed by the Holder; and
(c) funds sufficient to pay any stock transfer taxes payable upon the
making of such transfer.
The Company shall thereupon execute and deliver a new Warrant in the
name of the assignee specified in such instrument of assignment, and if this
Warrant is transferred in part, the Company shall also execute and deliver in
the name of the Holder a new Warrant covering the untransferred portion of this
Warrant. Upon issuance of the new Warrant or Warrants, the Warrant surrendered
for transfer shall be canceled by the Company.
3.4 Expenses. The Company shall pay all expenses, taxes (other
than transfer taxes), and other charges payable in connection with the
preparation, issue, and delivery of any new Warrant under this Article 3.
Article 4 Exercise Price and Adjustments.
4.1 Initial Exercise Price. The initial Exercise Price for the
Warrant Stock shall be Six Dollars ($6.00) per share.
4.2 Stock Splits, Stock Dividends and Reverse Stock Splits. If at
any time the Company shall subdivide (by reclassification, by the issuance of a
Common Stock dividend on Common Stock, or otherwise) its outstanding shares of
Common Stock into a greater number, the number of shares of Common Stock that
may be purchased hereunder shall be increased proportionately and the Exercise
Price per share of Common Stock shall be decreased proportionately as of the
effective date of such action. The effective date of a stock dividend shall be
the date on which the dividend is declared. Issuance of a Common Stock dividend
shall be treated as a subdivision of the whole number of shares of Common Stock
outstanding immediately before the record date for such dividend into a number
of shares equal to such whole number of shares so outstanding plus the number of
shares issued as a stock dividend. If at any time the Company shall combine (by
reclassification or otherwise) its outstanding number of shares of Common Stock
into a lesser number, the number of shares of Common Stock that may be purchased
hereunder shall be reduced proportionately and the Exercise Price per share of
Common Stock shall be increased proportionately as of the effective date of such
action.
4.3 Dividends Other than in Common Stock or Cash; Other
Distributions. If at any time while this Warrant is outstanding the Company
shall declare or make for the benefit of all holders of its Common Stock any
dividend or distribution upon its Common Stock other than ordinary cash
dividends, or distributions to which Section 4.2 or 4.4 apply (whether payable
in stock of any class or classes other than its Common Stock or payable in
evidences of indebtedness or assets or in rights, options, or warrants or
convertible or exchangeable securities), then in each such case the number of
shares of Common Stock that may be purchased hereunder shall be determined by
multiplying the number of shares of Common Stock theretofore comprising the
Warrant Stock by a fraction, the numerator of which shall be the Fair Market
Value per share of the Common Stock determined in accordance with Section 1.9 as
of the record date for such dividend or distribution and the denominator of
which shall be the Fair Market Value per share, as so determined, less the fair
value as of such date, as reasonably determined by the Board of Directors of the
Company, of the portion of such dividend or distribution applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of distribution retroactive to
the record date for the determination of shareholders entitled to receive the
distribution. In the event the Company determines that the adjustment provided
for above is unduly difficult or expensive to effect because of difficulties of
valuation, the Company may, at its option and as an alternative to the
adjustment, distribute and place in escrow for the Holder that portion of such
dividend or distribution which the Holder would have received had it exercised
this Warrant before the declaration of the dividend or the making of the
distribution. Upon exercise of this Warrant, the Holder shall receive its
portion of the dividend, distribution, or rights.
4.4 Issuance on Common Stock of Options, Warrants or Rights. If
at any time while this Warrant is outstanding the Company shall grant to all
holders of its Common Stock any rights, options or warrants (referred to in this
Section 4.4 as "Rights") entitling them to purchase shares of Common Stock at a
price per share that is lower at the record date for such issuance than the Fair
Market Value of the Common Stock on such date determined in accordance with
Section 1.8, the number of Shares of Common Stock that may be purchased
hereunder shall be determined by multiplying the number of Shares of Common
Stock theretofore purchasable upon exercise of each Warrant by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding or
subject to issuance at prices at or below the Fair Market Value of the Common
Stock on such record date (the "Existing Stock") plus the number of shares
subject to issuance pursuant to the Rights and of which the denominator shall be
the number of shares of Existing Stock plus the number of shares which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the then current Fair Market Value per share of Common
Stock. Such adjustment shall be made whenever such rights, options or warrants
are issued and shall become effective retroactively immediately after the record
date for the determination of shareholders entitled to receive such rights
options or warrants. In the event the Company determines that the adjustment
provided for above in this Section is unduly difficult or expensive to effect
because of difficulties of valuation, the Company may, at its option and as an
alternative to the adjustment, grant and convey to the Holder the Rights which
the Holder would have received had it exercised this Warrant before issuance of
the Rights.
On the expiration or termination of any of the Rights, the number of
shares of Common Stock then purchasable upon the exercise of each Warrant and
the exercise price then in effect shall be subject to readjustment and the
number of shares of Common Stock subject to the Warrants shall forthwith be
decreased and the exercise price under the Warrants shall forthwith be increased
to that which would have been in effect at the time of such expiration or
termination had such Rights, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
4.5 Anti-dilution Adjustment.
(a) Pursuant to Section 7.39 of the Financing Agreement, if during
the term of this Warrant and notwithstanding the prior repayment of Loans (as
such term is defined int he Financing Agreement), the Company issues additional
shares of Common Stock at a price of less than Six Dollars ($6) per share, the
Company shall deliver to Holder within five (5) days of such issuance an
additional warrant in the form of this Warrant for Common Stock equal to ten
percent (10%) of the shares so issued. Notwithstanding the prior repayment of
Loans, if the Company issues securities convertible or exercisable into Common
Stock at a conversion or exercise price of less than Six Dollars ($6) per share
and such securities are converted or exercised into Common Stock or repurchased
by the Company during the term of this Warrant, the Company shall deliver to
Holder within five (5) days of such conversion or exercise an additional warrant
in the form of this Warrant for Common Stock of the Company equal to ten percent
(10%) of the shares issued purusant to such conversion or exercise. The
foregoing shall not apply to securities issued pursuant to options, warrants,
calls, subscriptions, rights, agreements or commitments set forth on Schedule
5.23 of the Financing Agreement.
(b) The provisions of this Section 4.5(a) shall not apply in the
event the Company issues (i) shares of Common Stock at a price of Three Dollars
Seventy-Five Cents ($3.75) per share or less, or (ii) securities convertible or
exercisable into Common Stock at a conversion or exercise price of Three Dollars
Seventy-Five Cents ($3.75) per share or less and such securities are converted
or exercised into Common Stock or repurchased by the Company. In such instance,
the Company shall deliver to Holder within five (5) days of such issuance of
Common Stock or conversion or exercise of the convertible or exercisable
security, a warrant in the form of Warrant No. 1 and Warrant No. 2 for the
number of shares represented by Warrant No. 1 and Warrant No. 2 on such issuance
date at an exercise price equal to the sales, conversion or exercise price.
Upon issuance thereof, Holder will deliver warrant No. 1 and Warrant No. 2 to
the Company for cancellation. In addition, the foregoing provisions of this
Section shall not apply: (1) if the Company issues additional securities, the
proceeds of which are used to repay the Loans in full within thirty (30) days,
or (ii) if the Company issues equity securities in one offering with net
proceeds to the Company of Twenty Million Dollars ($20,000,000) or more.
4.6 Reorganization and Reclassification. In case of any capital
reorganization or any reclassification of the capital stock of the Company while
this Warrant remains outstanding, the Holder of this Warrant shall thereafter be
entitled to purchase pursuant to this Warrant (in lieu of the kind and number of
shares of Common Stock comprising Warrant Stock that such Holder would have been
entitled to purchase or acquire immediately before such reorganization or
reclassification) the kind and number of shares of stock of any class or classes
or other securities or property for or into which such shares of Common Stock
would have been exchanged, converted, or reclassified if the Warrant Stock had
been purchased immediately before such reorganization or reclassification. In
case of any such reorganization or reclassification, appropriate provision (as
determined by resolution of the Board of Directors of the Company) shall be made
with respect to the rights and interest thereafter of the Holder of this
Warrant, to the end that all the provisions of this Warrant (including
adjustment provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities or property.
4.7 Statement of Adjustment of Warrant Stock. Whenever the number
or kind of shares comprising Warrant Stock or the Exercise Price is adjusted
pursuant to this Article 4, the Company shall promptly give notice to the Holder
of record of the outstanding Warrant, stating that such an adjustment has been
effected and setting forth the number and kind of shares purchasable and the
amount of the then-current Exercise Price, and stating in reasonable detail the
facts requiring such adjustment and the calculation of such adjustment.
4.8 No Other Adjustments. No adjustments in the number or kind or
price of shares constituting Warrant Stock shall be made except as provided in
this Article 4.
Article 5 Covenants of the Company.
The Company covenants and agrees that:
5.1 Reservation of Shares. At all times, the Company will reserve
and set apart and have, free from preemptive rights, a sufficient number of
shares of authorized but unissued Common Stock or other securities, if
applicable, to enable it at any time to fulfill all its obligations hereunder.
5.2 Adjustment of Par Value. Before taking any action that would
cause an adjustment reducing the Exercise Price per share below the then par
value of the shares of Warrant Stock issuable upon exercise of the Warrant, the
Company will take any corporate action that may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Warrant Stock at such adjusted price.
5.3 Notice of Significant Events. In case the Company proposes:
(a) to pay any dividend, payable in stock (of any class or classes)
or in convertible securities, upon its Common Stock or to make any distribution
(other than ordinary cash dividends) to the holders of its Common Stock; or
(b) to subdivide as a whole (by reclassification, by the issuance of
a stock dividend on Common Stock, or otherwise) the number of shares of Common
Stock then outstanding into a greater number of shares of Common Stock, with or
without par value; or
(c) to grant to the holders of its Common Stock generally any rights
or options; or
(d) to effect any capital reorganization or reclassification of
capital stock of the Company; or
(e) to consolidate with, or merge into, any other corporation or
business or transfer its property as an entirety or substantially as an
entirety; or
(f) to effect the liquidation, dissolution, or winding up of the
Company; or
(g) to make any other fundamental change in respect of which the
Holder of this Warrant would have been entitled to vote, pursuant to the
corporation law of Nevada, if this Warrant had been previously exercised;
then the Company shall cause notice of any such intended action to be given to
the Holder of record of this Warrant (i) not less than thirty (30) days before
the date on which the transfer books of the Company shall close or a record be
taken for such stock dividend, distribution, granting of rights or options, or
for determining rights to vote in respect of any fundamental change, including
any capital reorganization, reclassification, consolidation, merger, transfer,
liquidation, dissolution, winding up, or any other fundamental change, and (ii)
in the case of any such capital reorganization, reclassification, consolidation,
merger, transfer, liquidation, dissolution, winding up, or other fundamental
change not less than thirty (30) days before the same shall be effective.
5.4 Obligations of the Company after the Loans are Paid in Full.
After the Loans are paid in full pursuant to the terms of the Financing
Agreement, and until the exercise or expiration of the Warrants:
(a) At any time at which the Company's Common Stock is not
Publicly Traded, the Company will provide to the Holder: (1) annual and
quarterly financial statements of the Company, and (2) annual independent
reserve reports for all properties owned or leased by the Company. The annual
financial statements shall be audited by a firm of independent certified public
accountants.
(b) The Company shall not engage in any transaction with any
Affiliate of the Company or Associate of the Company or of such Affiliate (each
as defined below), except on terms no less favorable to the Company than are
obtainable in arms-length transactions with third parties. For purposes of this
Section 6.4, the terms "Affiliate" and "Associate"shall have the meanings set
forth in Rule 405, adopted under the Securities Act of 1933, as amended.
(c) The Company shall not make, directly or indirectly, any loan,
advance or extension of credit to, or any guarantee (by way of any commitment
to fund, or commitment to satisfy in any way, any debt, liability, or other
obligation or otherwise) for, any of its officers, directors, employees,
shareholders, partners, or Affiliates, or any Affiliate or Associate of such
person or entity, except on terms no less favorable to the Company than are
obtainable in arms-length transactions with third parties.
(d) The Company shall not pay any compensation to its officers or
directors in excess of reasonable, usual and customary compensation paid to
officers or directors in companies similar to the Company in the oil and gas
industry.
Article 6 Limitation of Right or Liability.
6.1 No provision of this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent or to receive dividends
or to receive notice as a stockholder in respect of meetings of stockholders for
the election of directors of the Company or any other matter whatsoever as a
stockholder of the Company. In the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, no provision hereof shall give rise
to any liability of such Holder for the purchase price or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
Article 7 Certain Mergers; Liquidation.
7.1 Continuation of Warrant. Except as provided in Section 8.2,
in the event that the Company proposes to consolidate with, or merge into, any
other corporation or business or to transfer its property as an entirety or
substantially as an entirety, or to effect the liquidation, dissolution, or
winding up of the Company, or to change the Common Stock in any manner (other
than to change its par value), then after the Company causes notice of such
proposed action to be given to the Holder of record as provided in Section 6.3,
the Holder shall be entitled, on or before the effective date of such merger,
consolidation, transfer, liquidation, dissolution, winding up, or change, to
require the Company of the successor or purchasing entity, as the case may be,
to (a) execute with the Holder an agreement providing that the Holder shall have
the right thereafter and throughout the then remaining term of this Warrant,
upon payment of the Exercise Price per Warrant Share in effect immediately prior
to such action to purchase with respect to each share of Warrant Stock issuable
upon exercise of this Warrant the kind and amount of shares of stock and other
securities, property (including cash) or any combination thereof which the
Holder would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale, conveyance, or change had this Warrant been
exercised with respect to such share of the Warrant Stock immediately prior to
such action and (b) make effective provision in its Articles of Incorporation or
otherwise, if necessary, in order to effect such agreement. Such agreement
shall provide for adjustments which shall be as nearly equivalent as practicable
to the adjustments in Article 4 of this Warrant. The provisions of this Section
8.1 shall similarly apply to successive consolidations, mergers, sales,
conveyances, or changes.
7.2 Exception. Section 8.1 shall not apply to a consolidation or
merger with a Person in which the Company is the surviving entity.
Article 8 Registration Rights.
8.1 Piggyback Registration Rights. If, at any time on or before the
expiration of this Warrant, the Company proposes to file a registration
statement for the public sale of any of its Common Stock or Common Stock
Equivalents under the 1933 Act (other than registration statements (i) provided
for in Section 8.2 hereof or (ii) pursuant to Form S-4 and Form S-8 of the
Securities Act of 1933) the Company shall, not later than thirty (30) days prior
to the initial filing of the registration statement, deliver notice of its
intent to file such registration statement to the Holder, setting forth the
minimum and maximum proposed offering price, commissions, and discounts in
connection with the offering, and other relevant information. Within twenty
(20) days after receipt of notice of the Company's intent to file a registration
statement, the Holder shall be entitled to request that the Warrant Stock be
included in such registration statement, and the Company will use its best
efforts to cause such Warrant Stock to be included in the offering covered by
such registration statement. In the event the Warrant Stock is included in the
registration statement, the Holder may transfer this Warrant to an underwriter
or broker for exercise by such underwriter or broker in connection with a
distribution of the Warrant Stock.
The managing underwriter or underwriters in an underwritten offering,
or the holders of a majority in number of shares of Common Stock requesting
registration, may determine that the number of securities proposed to be sold in
the underwriting or offering exceeds the number that can be sold without having
a materially adverse effect on the price at which the securities could be sold.
If it or they make such a determination in good faith, then the Company may
reduce the number of shares of Common Stock to be included in the registration
to the highest number that the managing underwriter (or underwriters) or a
majority of the holders (as the case may be) determine will not have a material
adverse effect on the price of the shares to be sold. If the number of shares
of Common Stock to be sold in a registration are limited pursuant to this
paragraph, the Company will include in the registration:
(i) First, all shares the Company proposes to sell;
(ii) Second, all shares of Common Stock for which registration was
requested pursuant to rights to require the Company to register shares in the
absence of any other registration reduced, if necessary, to the maximum number
of shares consistent with the limitation required by this Section 8.1; and ;
(iii) Third, shares of Common Stock for which registration was
requested pursuant to rights to require the Company to register shares
incidental to the registration of other shares reduced pro rata according to the
number of share for which registration was requested by each person so
requesting registration, or in such other proportions as such Persons may agree.
8.2 Demand Registration Rights. The Holder shall be entitled to
request that the Warrant Stock be registered under the 1933 Act. The Holder
shall obtain an underwriter and the Company shall, as soon as practicable after
receipt of a written request for registration, file, and use its best efforts to
cause to become effective, an appropriate registration statement under the 1933
Act covering the Warrant Stock, provided that in the opinion of the Company's
counsel, no events preclude such registration. The Company may postpone for a
reasonable period of time (not to exceed 90 days) the filing of any registration
statement otherwise required to be prepared and filed by it pursuant to this
Section if, at the time it receives a request for registration:
(1) the Company is conducting or about to conduct an offering of its
securities and the Company is advised by its investment banker
that such offering would be affected adversely by the
registration so demanded and the Company shall have furnished to
the Holder seeking a demand registration a certificate signed by
the President of the Company to that effect;
(2) the Board of Directors of the Company shall determine in good
faith that such offering will interfere with a pending or
contemplated financing, merger, sale of assets, recapitalization
or other similar corporate action of the Company and the Company
shall have furnished to the Holder seeking a demand registration
a certificate signed by the President of the Company to that
effect, accompanied by a certified copy of the relevant board
resolutions; or
(3) the Board of Directors of the Company shall determine in good
faith that the disclosures required in connection with
registration of the Warrant Stock might adversely affect the
business or prospects of the Company and the Company shall have
furnished to the Holder seeking a demand registration a
certificate signed by the President of the Company to the effect,
accompanied by a certified copy of the relevant board
resolutions.
In the event that the Holder demands registration pursuant to this
Section 9.2 within the six months immediately prior to expiration of this
Warrant, and the Company, through no fault of the Holder, is unable to provide
such registration, the expiration date of this Warrant shall be extended until
the 30th day after a registration statement for the Warrant Stock is declared
effective.
The Holder's right to demand registration pursuant to this Section 9.2
may be exercised only one time prior to expiration of the Warrant; provided,
however, that the right shall not be deemed exhausted unless the registration
statement covering so much of the Warrant Stock as Holder and its assigns wish
to sell pursuant to the registration statement becomes effective.
8.3 Filing Obligations of the Company. In connection with any
registration of the Warrant Stock effected under Sections 9.1 or 9.2, the
Company shall:
(a) prepare and file the registration statement and such amendments
and supplements to the registration statement and the prospectus or offering
circular used in connection therewith as may be necessary to keep the
registration statement effective for a period of ninety (90) days and to comply
with the provisions of the 1933 Act and the rules and regulations thereunder
with respect to the disposition of the Warrant Stock covered by the registration
statement for the period required to effect the distribution thereof, but in no
event shall the Company be required to do so for a period of more than ninety
(90) days following the effective date of such registration statement;
(b) furnish to the Holder such number of copies of any prospectus or
offering circular, including a preliminary prospectus, and of a full
registration statement and exhibits in conformity with the requirements of the
1933 Act and rules and regulations thereunder, as the Holder may reasonably
request in order to facilitate the disposition of such securities;
(c) use its best efforts to register or qualify the Warrant Stock
covered by the registration statement, as the case may be, under the securities
or blue sky laws of such jurisdictions as the Holder may reasonably request, and
accomplish any and all other acts and things which may be necessary or advisable
to permit sale in such jurisdictions of such Warrant Stock; provided, however,
that the Company shall not be required to register as a dealer or to qualify as
a foreign corporation in any such jurisdictions or to escrow any shares of its
capital stock.
8.4 Expenses. All expenses incurred by the Company in connection
with any registration of the Warrant Stock effected under Sections 9.1 or 9.2,
including, without limitation, all registration or filing fees, fees and
expenses of complying with state securities and blue sky laws, printing
expenses, fees and expenses of the Company's counsel and accountants, and fees
and expenses of counsel for the Holder, shall be paid by the Company; provided,
however, that all underwriting discounts and selling commissions applicable to
the Warrant Stock shall not be borne by the Company but shall be borne by the
Holder.
8.5 Indemnification.
(a) By the Company. In connection with the filing of any
registration statements and sales of the Warrant Stock thereunder, the Company
shall indemnify and hold harmless the Holder of this Warrant, any underwriter,
and each other Person, if any, who controls the Holder or the underwriter within
the meaning of the 1933 Act, against losses, claims, damages or liabilities,
joint or several (or actions in respect thereto) ("Losses"), to which any such
Holder, underwriter, or controlling Person may become subject under the 1933 Act
or otherwise, insofar as such Losses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which the Warrant Stock was registered under the
1933 Act, any preliminary prospectus, offering circular or final prospectus
contained therein, or any amendment or supplement thereto, or any report filed
with the Securities and Exchange Commission (the "Disclosure Documents"), or
arise out of or are based upon the 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 any such Holder,
underwriter, or controlling Person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claims, excluding any amounts paid in settlement of litigation, commenced or
threatened, if such settlement is effected without the prior written consent of
the Company; provided, however, that the Company shall not be liable in any such
case to the extent that any such Losses arise out of or are based upon any
untrue statement, alleged untrue statement or omission or alleged omission made
in such Disclosure Document in reliance upon and in conformity with information
furnished to the Company in writing by or on behalf of the Holder of this
Warrant for use specifically in connection with the preparation of such
Disclosure Document.
(b) By the Holder. In connection with the filing of any registration
statement and sales of the Warrant Stock thereunder, the Holder shall indemnify
the Company, each of its directors, each of its officers who signed such
registration statement, and each other Person, if any, who controls the Company
within the meaning of the 1933 Act, against any Losses to which the Company, any
of its directors, officers, or controlling Persons may become subject under the
1933 Act or otherwise, insofar as such Losses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any of the Disclosure Documents or arise out of or are based upon the 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 any of its directors, officers, or controlling
Persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claims, excluding any amounts paid in
settlement of litigation, commenced or threatened, if such settlement is
effected without the prior written consent of the Holder; provided, however,
that such indemnification or reimbursement shall be payable in any such case
only to the extent that such statement or alleged statement or omission or
alleged omission is made in reliance on information furnished to the Company in
writing by or on behalf of the Holder for use specifically in connection with
the preparation of such Disclosure Document.
8.6 Assignability. The piggyback and demand registration rights of
the Holder under Article 8 may be assigned by Holder, subject to the transfer
limitations set forth in Article 3 and assumption by the assignee of the
corresponding obligations hereunder.
Article 9 Miscellaneous.
9.1 Governing Law. The rights of the parties arising under this
Warrant shall be construed and enforced under the laws of the Commonwealth of
Massachusetts without giving effect to any choice of law or conflict of law
rules.
9.2 Notices. Any notice or other communication required or permitted
to be given or delivered pursuant to this Warrant shall be in writing and shall
be deemed effective as of the date of receipt if delivered personally or by
facsimile transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address in the United States of
America for a party as shall be specified by like notice; provided that notices
of change of address shall be effective only upon receipt thereof):
(i) to the Holder as follows:
Energy Income Fund, L.P.
136 Dwight Road
Longmeadow, Massachusetts 01106
Attn: Robert D. Gershen
Facsimile No.: (413) 567-7926
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Russell J. Bruemmer
Facsimile No.: (202) 663-6363
(ii) to the Company as follows:
Foreland Corporation
12596 West Bayaud Avenue
Suite 300
Lakewood, CO 80228-2019
Attn: N. Thomas Steele
Facsimile No.: (303) 988-3234
with copies to:
Kruse, Landa & Maycock, L.L.C.
8th Floor, Bank One Tower
50 West Broadway (300 South)
Salt Lake City, UT 84101-2034
Attn: James R. Kruse, Esq.
Facsimile No.: (801) 531-7091
9.3 Severability. If any provision of this Warrant shall be held
invalid, such invalidity shall not affect any other provision of this Warrant
that can be given effect without the invalid provision, and to this end, the
provisions hereof are separable.
9.4 Headings. The headings in this Warrant are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Warrant.
9.5 Amendment. This Warrant cannot be amended or modified except by
a written agreement executed by the Company and the Holder.
9.6 Assignment. This Warrant shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns except that no party may assign or
transfer its rights or obligations under this Warrant to the extent explicitly
prohibited herein.
9.7 Entire Agreement. This Warrant, together with its attachments,
contains the entire understanding among the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral or
written, except as herein contained.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its President or a Vice President thereunto duly authorized.
Dated: January 6, 1998
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele
President
SUBSCRIPTION NOTICE
The undersigned, the Holder of a Common Stock Purchase Warrant issued
by [name of issuer] pursuant to a Financing Agreement dated as of [ ]
between [name of issuer] and Energy Income Fund, L.P., hereby elects to exercise
purchase rights represented by such Warrant for, and to purchase thereunder,
shares of the Common Stock covered by such Warrant and herewith makes payment in
full therefor of and requests that certificates for
such shares (and any securities or the property issuable upon such exercise) be
issued in the name of and delivered to
, whose address is
.
If said number of shares of Common Stock is less than the number of
shares of Warrant Stock purchasable hereunder, the undersigned requests that a
new Warrant representing the balance of the Warrant Stock be registered in the
name of and issued and delivered to
, whose address is
.
The undersigned hereby agrees to pay any transfer taxes on the
transfer of all or any portion of the Warrant or Warrant Stock requested herein.
The undersigned agrees that, in the absence of an effective
registration statement with respect to Common Stock issued upon this exercise,
the undersigned is acquiring such Common Stock for investment and not with a
view to distribution thereof and the certificate or certificates representing
such Common Stock may bear a legend substantially as follows: "The shares
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, and may not be transferred except as provided in
Article 3 of the Common Stock Purchase Warrant issued by [name of issuer] on
[date], a copy of which is on file at the principal office of [name of issuer]."
Signature guaranteed:
Dated:
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto [Name and Address] the rights represented by the
foregoing Common Stock Purchase Warrant issued by [name of issuer] on [date],
and appoints its attorney to transfer said
rights on the books of said corporation, with full power of substitution in the
premises.
Signature guaranteed:
Dated:
Number of Shares: 250,000
FORELAND CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS WARRANT AND THE SHARES PURCHASABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES (REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL), OR AN OPINION OF THE COMPANY'S COUNSEL, STATING THAT
SUCH SALE, TRANSFER, OR ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
FOR VALUE RECEIVED, Energy Income Fund, L.P., a Delaware limited
partnership (the "Holder"), is entitled to purchase from Foreland Corporation, a
Nevada corporation (the "Company"), subject to the terms and conditions herein
set forth, at any time before 5:00 p.m. Longmeadow, Massachusetts time on
January 6, 2003, or the first business day thereafter if such day is not a
business day or such other date as may be established in accordance with the
terms of this Warrant (the "Expiration Date"), Two Hundred Fifty Thousand
(250,000) of the shares of duly authorized, validly issued, fully paid and
nonassessable Common Stock of the Company, one-tenth of a cent ($.001) par value
(the "Warrant Stock"), subject to adjustment of the number or kind of shares
constituting Warrant Stock as hereinafter provided. The Holder is entitled to
purchase the Warrant Stock for Ten Dollars ($10.00) per share, subject to
adjustment as hereinafter provided (the "Exercise Price"), and is entitled also
to exercise the other appurtenant rights, powers, and privileges hereinafter set
forth.
Article 1 Definitions.
For all purposes of this Warrant, unless the context otherwise
requires, the following terms have the following meanings:
1.1 "Common Stock" means the Company's authorized common stock, par
value one-tenth of a cent ($.001) per share.
1.2 "Common Stock Equivalents" has the meaning ascribed to that term
in Section 4.5(a).
1.3 "Company" means Foreland Corporation, a corporation organized and
existing under the laws of the State of Nevada, and any successor corporation.
1.4 "Disclosure Documents" has the meaning ascribed to that term in
Section 8.5(a).
1.5 "Exercise Price" means the exercise price for the Warrant Stock
established in accordance with Article 4.
1.6 "Existing Stock" shall have the meaning ascribed to that term in
Section 4.4 hereof.
1.7 "Expiration Date" means January 6, 2003, or the first business
day thereafter if such day is not a business day, or such other date as may be
established in accordance with the terms of this Warrant.
1.8 "Fair Market Value"
1.8.1 "Fair Market Value" in reference to the Common Stock
means, (i) in the event such stock is traded on a national securities exchange
or in the over the counter market as reported by the National Association of
Securities Dealers Automated Quotation System (stock being so traded or reported
being referred to herein as "Publicly Traded"), the average closing price (or,
if no sale takes place on any day, the average bid and ask prices on such day)
of such stock on the ten (10) trading days immediately preceding the date as of
which such value is to be determined, or (ii) in the event the Common Stock is
not so traded or reported, the Fair Market Value of the Common Stock shall mean
the total of: (x) the discounted present value of the net revenues from the
proved oil and gas properties, using a discount rate of 15% and the risk
adjustments to different categories of proved reserves as follows: 100% of
proved developed producing reserves; 70% of proved developed non-producing
reserves and proved behind pipe reserves; and 50% of proved undeveloped
reserves, and product price assumptions equal to the trailing twelve (12) month
weighted average wellhead price held flat for the life of the wells as projected
in the most recent Reserve Report; plus (y) the present value of the assets of
the Company other than reserves as determined by an independent accountant,
auditor or other third party mutually chosen by the Company and Holder; minus
(z) the liabilities of the Company. In the event the Common Stock is not
Publicly Traded, Fair Market Value in reference to a share of the Common Stock
shall mean the Fair Market Value of the Company allocable to the issued Common
Stock divided by the number of shares of Common Stock that would have been
outstanding had (i) this Warrant, (ii) all options to purchase Common Stock, and
(iii) all securities convertible into Common Stock at a price per share no
greater than Fair Market Value, been exercised or converted on the date as of
which value is to be determined (with appropriate adjustment by appraisal to
reflect the proceeds of the assumed exercise or conversion of outstanding
securities).
1.8.2 "Fair Market Value of This Warrant" means the Fair Market Value
of the Common Stock subject to this Warrant minus the Exercise Price of this
Warrant established in accordance with Article 4.
1.9 "Financing Agreement" shall mean that certain Financing Agreement
dated as of January 6, 1998, as amended from time to time, between Foreland
Corporation, Eagle Springs Production Limited-Liability Company and Energy
Income Fund, L.P.
1.10 "Holder" means Energy Income Fund, L.P., a Delaware limited
partnership, and its successors or permitted assigns as holder of this Warrant.
1.11 "Loans" shall mean the loans made by Energy Income Fund, L.P. to
the Company pursuant to the terms of the Financing Agreement.
1.12 "Losses" has the meaning ascribed to that term in Section
8.5(a).
1.13 "1933 Act" means the Securities Act of 1933, as amended.
1.14 "Person" means any natural person, sole proprietorship, general
partnership, limited partnership, limited liability company, joint venture,
trust, unincorporated organization, association, corporation, institution,
private or governmental entity, or party.
1.15 "Publicly Traded" has the meaning ascribed to that term in
Section 1.8.
1.16 "Rights" has the meaning ascribed to that term in Section 4.4.
1.17 "Subscription Notice" means a written notice to the Company of
Holder's election to exercise its rights under the Warrant to purchase Common
Stock, in substantially the form appearing at the end of this Warrant.
1.18 "Warrant" means this Warrant and any warrants issued on or in
substitution for this Warrant including warrants issued in exchange for this
Warrant pursuant to Article 2 hereof.
1.19 "Warrant Stock" means the shares of Common Stock or other
securities acquired or to be acquired upon the exercise of the Warrant.
Article 2 Exercise of Warrant; Division of Warrant.
2.1 Exercise. This Warrant may be exercised in whole or in part.
In the event of a partial exercise, the Company shall execute and deliver to the
Holder (or to such other Person as shall be designated in the Subscription
Notice) a new Warrant covering the unexercised portion of the Warrant Stock. At
any time after the second anniversary of the date hereof, the Company may
require the Holder to exercise or surrender this Warrant within thirty (30) days
after receipt of a request for exercise from the Company, certifying that the
average trading price for shares of the Company's common stock during the
preceding three (3) month period, calculated based on the closing or last trade
price of each trading day, equals or exceeds two hundred percent (200%) of the
Exercise Price effective as of the date of such notice, and further certifying
that the average trading volume for such period has exceeded fifty thousand
(50,000) shares per day.
2.2 Procedure. To exercise this Warrant, the Holder shall deliver
to the Company at its principal office:
(a) a written notice, in substantially the form of the Subscription
Notice appearing at the end of this Warrant, of the Holder's election to
exercise this Warrant;
(b) a cashier's or certified check payable to the Company in the
amount of the Exercise Price; and
(c) this Warrant.
The Company shall as promptly as practicable, and in any event within
twenty (20) days after receipt of such items, execute and deliver or cause to be
executed and delivered one or more certificates representing the aggregate
number of shares of Warrant Stock to which the Holder is entitled and, if this
Warrant is exercised in part, a new Warrant as set forth in Section 2.1.
2.3 Name and Effective Date. The stock certificate(s) so
delivered shall be issued in the name of the Holder or such other name as shall
be designated in the notice specified in Section 2.2. Such certificate(s) shall
be deemed to have been issued and such Holder or any other Person so designated
to be named therein shall be deemed for all purposes to have become a holder of
record of such shares as of the date on which the Company has actually received
all of the items specified in Section 2.2.
2.4 Expenses. The Company shall pay all expenses, taxes, and
other charges payable in connection with the preparation, issue, and delivery of
such stock certificate(s), except that, in case such stock certificate(s) shall
be registered in a name or names other than the name of the Holder of this
Warrant, stock transfer taxes that are payable upon the issuance of such stock
certificate(s) shall be paid by the Holder hereof.
2.5 Legal Requirements. The Warrant Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid, and nonassessable.
2.6 No Fractional Shares. The Company shall not issue a stock
certificate representing any fraction of a share upon partial exercise by a
Holder of such Holder's rights hereunder.
2.7 Registration; Exchange of Warrant. The Company will keep at its
principal office a register in which the Company will provide for the
registration and transfer of this Warrant. The holder of this Warrant, or of
any warrant substituted therefor pursuant to the provisions of this Section 2.7,
may, at its option, in person or by duly authorized attorney, surrender the same
for exchange at such principal office of the Company and, within a reasonable
time thereafter and without expense (other than transfer taxes, if any), receive
in exchange therefor one or more duly executed warrants each evidencing the
right to receive one share of Common Stock of the Company or such other whole
number of shares as may be designated by the holder at the time of surrender.
The Company covenants and agrees to take and cause to be taken all action
necessary to effect such registrations, transfers and exchanges.
The Company and any agent of the Company may treat the person in whose
name a warrant is registered as the owner of the warrant for all purposes
hereunder and neither the Company or such agent shall be affected by notice to
the contrary.
2.8 Cashless Exercise. Notwithstanding Section 2.2 of this
Warrant or any other provision of this Warrant to the contrary, in addition to
the Holder's rights under this Warrant, the Holder may, upon full or partial
exercise of this Warrant, at its election, pay the aggregate Exercise Price
applicable to such exercise by delivering the Warrant to the Company and
receiving from the Company in return therefor the number of shares of Common
Stock having a Fair Market Value on the date of exercise equal to the "Fair
Market Value of This Warrant" as established by Section 1.8.2.
Article 3 Transfer.
3.1 Permitted Transfers. This Warrant shall be freely
transferable, in whole or in part, subject to the limitations specified in
Section 3.2 herein.
3.2 Securities Laws. Neither this Warrant nor the Warrant Stock
shall be transferable unless:
(a) either a registration statement under the Securities Act of 1933
(the "1933 Act") is in effect covering the Warrant or the Warrant Stock, as the
case may be, or the Company has received an opinion from the Company's counsel
to the effect that such registration is not required, or the Holder has
furnished to the Company an opinion of Holder's counsel, which counsel shall be
reasonably satisfactory to the Company, to the effect that such registration is
not required; and
(b) the proposed transfer complies with any applicable state
securities laws.
In the event Holder seeks an opinion from the Holder's counsel as to transfer
without registration, the Company shall provide such factual information to
Holder's counsel as Holder's counsel may reasonably request for the purpose of
rendering such opinion and such counsel may rely on the accuracy and
completeness of such information in rendering such opinion. Upon issuance at a
time when the Common Stock is not Publicly Traded, the Warrant Stock will bear a
legend describing the restrictions on transfer set forth in this Section 3.2.
3.3 Procedure. Subject to the limitations set forth in Section
3.2, the Holder may transfer this Warrant on the books of the Company by
surrendering to the Company:
(a) this Warrant;
(b) a written assignment of this Warrant, in substantially the form
of the Assignment appearing at the end of this Warrant, naming the
assignee and duly executed by the Holder; and
(c) funds sufficient to pay any stock transfer taxes payable upon the
making of such transfer.
The Company shall thereupon execute and deliver a new Warrant in the
name of the assignee specified in such instrument of assignment, and if this
Warrant is transferred in part, the Company shall also execute and deliver in
the name of the Holder a new Warrant covering the untransferred portion of this
Warrant. Upon issuance of the new Warrant or Warrants, the Warrant surrendered
for transfer shall be canceled by the Company.
3.4 Expenses. The Company shall pay all expenses, taxes (other
than transfer taxes), and other charges payable in connection with the
preparation, issue, and delivery of any new Warrant under this Article 3.
Article 4 Exercise Price and Adjustments.
4.1 Initial Exercise Price. The initial Exercise Price for the
Warrant Stock shall be Ten Dollars ($10.00) per share.
4.2 Stock Splits, Stock Dividends and Reverse Stock Splits. If at
any time the Company shall subdivide (by reclassification, by the issuance of a
Common Stock dividend on Common Stock, or otherwise) its outstanding shares of
Common Stock into a greater number, the number of shares of Common Stock that
may be purchased hereunder shall be increased proportionately and the Exercise
Price per share of Common Stock shall be decreased proportionately as of the
effective date of such action. The effective date of a stock dividend shall be
the date on which the dividend is declared. Issuance of a Common Stock dividend
shall be treated as a subdivision of the whole number of shares of Common Stock
outstanding immediately before the record date for such dividend into a number
of shares equal to such whole number of shares so outstanding plus the number of
shares issued as a stock dividend. If at any time the Company shall combine (by
reclassification or otherwise) its outstanding number of shares of Common Stock
into a lesser number, the number of shares of Common Stock that may be purchased
hereunder shall be reduced proportionately and the Exercise Price per share of
Common Stock shall be increased proportionately as of the effective date of such
action.
4.3 Dividends Other than in Common Stock or Cash; Other
Distributions. If at any time while this Warrant is outstanding the Company
shall declare or make for the benefit of all holders of its Common Stock any
dividend or distribution upon its Common Stock other than ordinary cash
dividends, or distributions to which Section 4.2 or 4.4 apply (whether payable
in stock of any class or classes other than its Common Stock or payable in
evidences of indebtedness or assets or in rights, options, or warrants or
convertible or exchangeable securities), then in each such case the number of
shares of Common Stock that may be purchased hereunder shall be determined by
multiplying the number of shares of Common Stock theretofore comprising the
Warrant Stock by a fraction, the numerator of which shall be the Fair Market
Value per share of the Common Stock determined in accordance with Section 1.9 as
of the record date for such dividend or distribution and the denominator of
which shall be the Fair Market Value per share, as so determined, less the fair
value as of such date, as reasonably determined by the Board of Directors of the
Company, of the portion of such dividend or distribution applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of distribution retroactive to
the record date for the determination of shareholders entitled to receive the
distribution. In the event the Company determines that the adjustment provided
for above is unduly difficult or expensive to effect because of difficulties of
valuation, the Company may, at its option and as an alternative to the
adjustment, distribute and place in escrow for the Holder that portion of such
dividend or distribution which the Holder would have received had it exercised
this Warrant before the declaration of the dividend or the making of the
distribution. Upon exercise of this Warrant, the Holder shall receive its
portion of the dividend, distribution, or rights.
4.4 Issuance on Common Stock of Options, Warrants or Rights. If
at any time while this Warrant is outstanding the Company shall grant to all
holders of its Common Stock any rights, options or warrants (referred to in this
Section 4.4 as "Rights") entitling them to purchase shares of Common Stock at a
price per share that is lower at the record date for such issuance than the Fair
Market Value of the Common Stock on such date determined in accordance with
Section 1.8, the number of Shares of Common Stock that may be purchased
hereunder shall be determined by multiplying the number of Shares of Common
Stock theretofore purchasable upon exercise of each Warrant by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding or
subject to issuance at prices at or below the Fair Market Value of the Common
Stock on such record date (the "Existing Stock") plus the number of shares
subject to issuance pursuant to the Rights and of which the denominator shall be
the number of shares of Existing Stock plus the number of shares which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the then current Fair Market Value per share of Common
Stock. Such adjustment shall be made whenever such rights, options or warrants
are issued and shall become effective retroactively immediately after the record
date for the determination of shareholders entitled to receive such rights
options or warrants. In the event the Company determines that the adjustment
provided for above in this Section is unduly difficult or expensive to effect
because of difficulties of valuation, the Company may, at its option and as an
alternative to the adjustment, grant and convey to the Holder the Rights which
the Holder would have received had it exercised this Warrant before issuance of
the Rights.
On the expiration or termination of any of the Rights, the number of
shares of Common Stock then purchasable upon the exercise of each Warrant and
the exercise price then in effect shall be subject to readjustment and the
number of shares of Common Stock subject to the Warrants shall forthwith be
decreased and the exercise price under the Warrants shall forthwith be increased
to that which would have been in effect at the time of such expiration or
termination had such Rights, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
4.5 Anti-dilution Adjustment.
(a) Pursuant to Section 7.39 of the Financing Agreement, if during
the term of this Warrant and notwithstanding the prior payment of Loans (as such
term is defined in the Financing Agreement), the Compaany issues additional
shares of Common Stock at a price between Six Dollars ($6) and Ten Dollars
($10.00) per share (inclusive), the Company shall deliver to Holder within five
(5) days of such issuance an additional warrant in the form of this Warrant for
Common Stock equal to ten percent (10%) of the shares so issued.
Notwithstanding the prior repayment of the Loans, if the Company issues
securities convertible or exercisable into Common Stock at a conversion or
exercise price between Six Dollars ($6) and Ten Dollars ($10) per share
(inclusive) and such shares are converted or exercised into Common Stock or
repurchased by the Company during the term of this Warrant, the Company shall
deliver to Holder within five (5) days of such conversion or exercise an
additional warrant in the form of this Warrant for Common Stock of the Company
equal to ten percent (10%) of the shares issued pursuant to such conversion or
exercise. The foregoing provisions of this paragraph shall not apply to
securities issued pursuant to options, warants, calls, subscriptions, rights,
agreements or commitments set forth on Schedule 5.23 of the Financing Agreement.
(b) The provisions of this Section 4.5(a) shall not apply in the
event the Company issues (i) shares of Common Stock at a price of Three Dollars
Seventy-Five Cents ($3.75) per share or less, or (ii) securities convertible or
exercisable into Common Stock at a conversion or exercise price of Three
Dollars Seventy-Five Cents ($3.75) per share or less and such securities are
converted or exercised into Common Stock or repurchased by the Company. In such
instance, the Company shall deliver to Holder within five (5) days of such
issuance of Common Stock or conversion or exercise of the convertible or
exercisable security, a warrant in the form of Warrant No. 1 and Warrant No. 2
for the number of shares represented by Warrant No. 1 and Warrant No. 2 on such
issuance date at an exercise price equal to the sales, conversion or exercise
price. Upon issuance thereof, Holder will deliver warrant No. 1 and Warrant No.
2 to the Company for cancellation. In addtion, the foregoing provisions of this
Section shall not apply: (1) if the Company issues additional securities, the
proceeds of which are used to repay the Loans in full within thirty (30) days,
or (ii) if the Company issues equity securities in one offering with net
proceeds to the Company of Twenty Million Dollars ($20,000,000) or more.
4.6 Reorganization and Reclassification. In case of any capital
reorganization or any reclassification of the capital stock of the Company while
this Warrant remains outstanding, the Holder of this Warrant shall thereafter be
entitled to purchase pursuant to this Warrant (in lieu of the kind and number of
shares of Common Stock comprising Warrant Stock that such Holder would have been
entitled to purchase or acquire immediately before such reorganization or
reclassification) the kind and number of shares of stock of any class or classes
or other securities or property for or into which such shares of Common Stock
would have been exchanged, converted, or reclassified if the Warrant Stock had
been purchased immediately before such reorganization or reclassification. In
case of any such reorganization or reclassification, appropriate provision (as
determined by resolution of the Board of Directors of the Company) shall be made
with respect to the rights and interest thereafter of the Holder of this
Warrant, to the end that all the provisions of this Warrant (including
adjustment provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities or property.
4.7 Statement of Adjustment of Warrant Stock. Whenever the number
or kind of shares comprising Warrant Stock or the Exercise Price is adjusted
pursuant to this Article 4, the Company shall promptly give notice to the Holder
of record of the outstanding Warrant, stating that such an adjustment has been
effected and setting forth the number and kind of shares purchasable and the
amount of the then-current Exercise Price, and stating in reasonable detail the
facts requiring such adjustment and the calculation of such adjustment.
4.8 No Other Adjustments. No adjustments in the number or kind or
price of shares constituting Warrant Stock shall be made except as provided in
this Article 4.
Article 5 Covenants of the Company.
The Company covenants and agrees that:
5.1 Reservation of Shares. At all times, the Company will reserve
and set apart and have, free from preemptive rights, a sufficient number of
shares of authorized but unissued Common Stock or other securities, if
applicable, to enable it at any time to fulfill all its obligations hereunder.
5.2 Adjustment of Par Value. Before taking any action that would
cause an adjustment reducing the Exercise Price per share below the then par
value of the shares of Warrant Stock issuable upon exercise of the Warrant, the
Company will take any corporate action that may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Warrant Stock at such adjusted price.
5.3 Notice of Significant Events. In case the Company proposes:
(a) to pay any dividend, payable in stock (of any class or classes)
or in convertible securities, upon its Common Stock or to make any distribution
(other than ordinary cash dividends) to the holders of its Common Stock; or
(b) to subdivide as a whole (by reclassification, by the issuance of
a stock dividend on Common Stock, or otherwise) the number of shares of Common
Stock then outstanding into a greater number of shares of Common Stock, with or
without par value; or
(c) to grant to the holders of its Common Stock generally any rights
or options; or
(d) to effect any capital reorganization or reclassification of
capital stock of the Company; or
(e) to consolidate with, or merge into, any other corporation or
business or transfer its property as an entirety or substantially as an
entirety; or
(f) to effect the liquidation, dissolution, or winding up of the
Company; or
(g) to make any other fundamental change in respect of which the
Holder of this Warrant would have been entitled to vote, pursuant to the
corporation law of Nevada, if this Warrant had been previously exercised;
then the Company shall cause notice of any such intended action to be given to
the Holder of record of this Warrant (i) not less than thirty (30) days before
the date on which the transfer books of the Company shall close or a record be
taken for such stock dividend, distribution, granting of rights or options, or
for determining rights to vote in respect of any fundamental change, including
any capital reorganization, reclassification, consolidation, merger, transfer,
liquidation, dissolution, winding up, or any other fundamental change, and (ii)
in the case of any such capital reorganization, reclassification, consolidation,
merger, transfer, liquidation, dissolution, winding up, or other fundamental
change not less than thirty (30) days before the same shall be effective.
5.4 Obligations of the Company after the Loans are Paid in Full.
After the Loans are paid in full pursuant to the terms of the Financing
Agreement, and until the exercise or expiration of the Warrants:
(a) At any time at which the Company's Common Stock is not
Publicly Traded, the Company will provide to the Holder: (1) annual and
quarterly financial statements of the Company, and (2) annual independent
reserve reports for all properties owned or leased by the Company. The annual
financial statements shall be audited by a firm of independent certified public
accountants.
(b) The Company shall not engage in any transaction with any
Affiliate of the Company or Associate of the Company or of such Affiliate (each
as defined below), except on terms no less favorable to the Company than are
obtainable in arms-length transactions with third parties. For purposes of this
Section 6.4, the terms "Affiliate" and "Associate"shall have the meanings set
forth in Rule 405, adopted under the Securities Act of 1933, as amended.
(c) The Company shall not make, directly or indirectly, any loan,
advance or extension of credit to, or any guarantee (by way of any commitment
to fund, or commitment to satisfy in any way, any debt, liability, or other
obligation or otherwise) for, any of its officers, directors, employees,
shareholders, partners, or Affiliates, or any Affiliate or Associate of such
person or entity, except on terms no less favorable to the Company than are
obtainable in arms-length transactions with third parties.
(d) The Company shall not pay any compensation to its officers or
directors in excess of reasonable, usual and customary compensation paid to
officers or directors in companies similar to the Company in the oil and gas
industry.
Article 6 Limitation of Right or Liability.
6.1 No provision of this Warrant shall be construed as conferring
upon the Holder hereof the right to vote or to consent or to receive dividends
or to receive notice as a stockholder in respect of meetings of stockholders for
the election of directors of the Company or any other matter whatsoever as a
stockholder of the Company. In the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, no provision hereof shall give rise
to any liability of such Holder for the purchase price or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
Article 7 Certain Mergers; Liquidation.
7.1 Continuation of Warrant. Except as provided in Section 8.2,
in the event that the Company proposes to consolidate with, or merge into, any
other corporation or business or to transfer its property as an entirety or
substantially as an entirety, or to effect the liquidation, dissolution, or
winding up of the Company, or to change the Common Stock in any manner (other
than to change its par value), then after the Company causes notice of such
proposed action to be given to the Holder of record as provided in Section 6.3,
the Holder shall be entitled, on or before the effective date of such merger,
consolidation, transfer, liquidation, dissolution, winding up, or change, to
require the Company of the successor or purchasing entity, as the case may be,
to (a) execute with the Holder an agreement providing that the Holder shall have
the right thereafter and throughout the then remaining term of this Warrant,
upon payment of the Exercise Price per Warrant Share in effect immediately prior
to such action to purchase with respect to each share of Warrant Stock issuable
upon exercise of this Warrant the kind and amount of shares of stock and other
securities, property (including cash) or any combination thereof which the
Holder would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale, conveyance, or change had this Warrant been
exercised with respect to such share of the Warrant Stock immediately prior to
such action and (b) make effective provision in its Articles of Incorporation or
otherwise, if necessary, in order to effect such agreement. Such agreement
shall provide for adjustments which shall be as nearly equivalent as practicable
to the adjustments in Article 4 of this Warrant. The provisions of this Section
8.1 shall similarly apply to successive consolidations, mergers, sales,
conveyances, or changes.
7.2 Exception. Section 8.1 shall not apply to a consolidation or
merger with a Person in which the Company is the surviving entity.
Article 8 Registration Rights.
8.1 Piggyback Registration Rights. If, at any time on or before the
expiration of this Warrant, the Company proposes to file a registration
statement for the public sale of any of its Common Stock or Common Stock
Equivalents under the 1933 Act (other than registration statements (i) provided
for in Section 8.2 hereof or (ii) pursuant to Form S-4 and Form S-8 of the
Securities Act of 1933) the Company shall, not later than thirty (30) days prior
to the initial filing of the registration statement, deliver notice of its
intent to file such registration statement to the Holder, setting forth the
minimum and maximum proposed offering price, commissions, and discounts in
connection with the offering, and other relevant information. Within twenty
(20) days after receipt of notice of the Company's intent to file a registration
statement, the Holder shall be entitled to request that the Warrant Stock be
included in such registration statement, and the Company will use its best
efforts to cause such Warrant Stock to be included in the offering covered by
such registration statement. In the event the Warrant Stock is included in the
registration statement, the Holder may transfer this Warrant to an underwriter
or broker for exercise by such underwriter or broker in connection with a
distribution of the Warrant Stock.
The managing underwriter or underwriters in an underwritten offering,
or the holders of a majority in number of shares of Common Stock requesting
registration, may determine that the number of securities proposed to be sold in
the underwriting or offering exceeds the number that can be sold without having
a materially adverse effect on the price at which the securities could be sold.
If it or they make such a determination in good faith, then the Company may
reduce the number of shares of Common Stock to be included in the registration
to the highest number that the managing underwriter (or underwriters) or a
majority of the holders (as the case may be) determine will not have a material
adverse effect on the price of the shares to be sold. If the number of shares
of Common Stock to be sold in a registration are limited pursuant to this
paragraph, the Company will include in the registration:
(i) First, all shares the Company proposes to sell;
(ii) Second, all shares of Common Stock for which registration was
requested pursuant to rights to require the Company to register shares in the
absence of any other registration reduced, if necessary, to the maximum number
of shares consistent with the limitation required by this Section 8.1; and
(iii) Third, shares of Common Stock for which registration was
requested pursuant to rights to require the Company to register shares
incidental to the registration of other shares reduced pro rata according to the
number of share for which registration was requested by each person so
requesting registration, or in such other proportions as such Persons may agree.
8.2 Demand Registration Rights. The Holder shall be entitled to
request that the Warrant Stock be registered under the 1933 Act. The Holder
shall obtain an underwriter and the Company shall, as soon as practicable after
receipt of a written request for registration, file, and use its best efforts to
cause to become effective, an appropriate registration statement under the 1933
Act covering the Warrant Stock, provided that in the opinion of the Company's
counsel, no events preclude such registration. The Company may postpone for a
reasonable period of time (not to exceed 90 days) the filing of any registration
statement otherwise required to be prepared and filed by it pursuant to this
Section if, at the time it receives a request for registration:
(1) the Company is conducting or about to conduct an offering of its
securities and the Company is advised by its investment banker
that such offering would be affected adversely by the
registration so demanded and the Company shall have furnished to
the Holder seeking a demand registration a certificate signed by
the President of the Company to that effect;
(2) the Board of Directors of the Company shall determine in good
faith that such offering will interfere with a pending or
contemplated financing, merger, sale of assets, recapitalization
or other similar corporate action of the Company and the Company
shall have furnished to the Holder seeking a demand registration
a certificate signed by the President of the Company to that
effect, accompanied by a certified copy of the relevant board
resolutions; or
(3) the Board of Directors of the Company shall determine in good
faith that the disclosures required in connection with
registration of the Warrant Stock might adversely affect the
business or prospects of the Company and the Company shall have
furnished to the Holder seeking a demand registration a
certificate signed by the President of the Company to the effect,
accompanied by a certified copy of the relevant board
resolutions.
In the event that the Holder demands registration pursuant to this
Section 9.2 within the six months immediately prior to expiration of this
Warrant, and the Company, through no fault of the Holder, is unable to provide
such registration, the expiration date of this Warrant shall be extended until
the 30th day after a registration statement for the Warrant Stock is declared
effective.
The Holder's right to demand registration pursuant to this Section 9.2
may be exercised only one time prior to expiration of the Warrant; provided,
however, that the right shall not be deemed exhausted unless the registration
statement covering so much of the Warrant Stock as Holder and its assigns wish
to sell pursuant to the registration statement becomes effective.
8.3 Filing Obligations of the Company. In connection with any
registration of the Warrant Stock effected under Sections 9.1 or 9.2, the
Company shall:
(a) prepare and file the registration statement and such amendments
and supplements to the registration statement and the prospectus or offering
circular used in connection therewith as may be necessary to keep the
registration statement effective for a period of ninety (90) days and to comply
with the provisions of the 1933 Act and the rules and regulations thereunder
with respect to the disposition of the Warrant Stock covered by the registration
statement for the period required to effect the distribution thereof, but in no
event shall the Company be required to do so for a period of more than ninety
(90) days following the effective date of such registration statement;
(b) furnish to the Holder such number of copies of any prospectus or
offering circular, including a preliminary prospectus, and of a full
registration statement and exhibits in conformity with the requirements of the
1933 Act and rules and regulations thereunder, as the Holder may reasonably
request in order to facilitate the disposition of such securities;
(c) use its best efforts to register or qualify the Warrant Stock
covered by the registration statement, as the case may be, under the securities
or blue sky laws of such jurisdictions as the Holder may reasonably request, and
accomplish any and all other acts and things which may be necessary or advisable
to permit sale in such jurisdictions of such Warrant Stock; provided, however,
that the Company shall not be required to register as a dealer or to qualify as
a foreign corporation in any such jurisdictions or to escrow any shares of its
capital stock.
8.4 Expenses. All expenses incurred by the Company in connection
with any registration of the Warrant Stock effected under Sections 9.1 or 9.2,
including, without limitation, all registration or filing fees, fees and
expenses of complying with state securities and blue sky laws, printing
expenses, fees and expenses of the Company's counsel and accountants, and fees
and expenses of counsel for the Holder, shall be paid by the Company; provided,
however, that all underwriting discounts and selling commissions applicable to
the Warrant Stock shall not be borne by the Company but shall be borne by the
Holder.
8.5 Indemnification.
(a) By the Company. In connection with the filing of any
registration statements and sales of the Warrant Stock thereunder, the Company
shall indemnify and hold harmless the Holder of this Warrant, any underwriter,
and each other Person, if any, who controls the Holder or the underwriter within
the meaning of the 1933 Act, against losses, claims, damages or liabilities,
joint or several (or actions in respect thereto) ("Losses"), to which any such
Holder, underwriter, or controlling Person may become subject under the 1933 Act
or otherwise, insofar as such Losses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which the Warrant Stock was registered under the
1933 Act, any preliminary prospectus, offering circular or final prospectus
contained therein, or any amendment or supplement thereto, or any report filed
with the Securities and Exchange Commission (the "Disclosure Documents"), or
arise out of or are based upon the 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 any such Holder,
underwriter, or controlling Person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claims, excluding any amounts paid in settlement of litigation, commenced or
threatened, if such settlement is effected without the prior written consent of
the Company; provided, however, that the Company shall not be liable in any such
case to the extent that any such Losses arise out of or are based upon any
untrue statement, alleged untrue statement or omission or alleged omission made
in such Disclosure Document in reliance upon and in conformity with information
furnished to the Company in writing by or on behalf of the Holder of this
Warrant for use specifically in connection with the preparation of such
Disclosure Document.
(b) By the Holder. In connection with the filing of any registration
statement and sales of the Warrant Stock thereunder, the Holder shall indemnify
the Company, each of its directors, each of its officers who signed such
registration statement, and each other Person, if any, who controls the Company
within the meaning of the 1933 Act, against any Losses to which the Company, any
of its directors, officers, or controlling Persons may become subject under the
1933 Act or otherwise, insofar as such Losses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any of the Disclosure Documents or arise out of or are based upon the 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 any of its directors, officers, or controlling
Persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claims, excluding any amounts paid in
settlement of litigation, commenced or threatened, if such settlement is
effected without the prior written consent of the Holder; provided, however,
that such indemnification or reimbursement shall be payable in any such case
only to the extent that such statement or alleged statement or omission or
alleged omission is made in reliance on information furnished to the Company in
writing by or on behalf of the Holder for use specifically in connection with
the preparation of such Disclosure Document.
8.6 Assignability. The piggyback and demand registration rights of
the Holder under Article 8 may be assigned by Holder, subject to the transfer
limitations set forth in Article 3 and assumption by the assignee of the
corresponding obligations hereunder.
Article 9 Miscellaneous.
9.1 Governing Law. The rights of the parties arising under this
Warrant shall be construed and enforced under the laws of the Commonwealth of
Massachusetts without giving effect to any choice of law or conflict of law
rules.
9.2 Notices. Any notice or other communication required or permitted
to be given or delivered pursuant to this Warrant shall be in writing and shall
be deemed effective as of the date of receipt if delivered personally or by
facsimile transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address in the United States of
America for a party as shall be specified by like notice; provided that notices
of change of address shall be effective only upon receipt thereof):
(i) to the Holder as follows:
Energy Income Fund, L.P.
136 Dwight Road
Longmeadow, Massachusetts 01106
Attn: Robert D. Gershen
Facsimile No.: (413) 567-7926
with copies to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Russell J. Bruemmer
Facsimile No.: (202) 663-6363
(ii) to the Company as follows:
Foreland Corporation
12596 West Bayaud Avenue
Suite 300
Lakewood, CO 80228-2019
Attn: N. Thomas Steele
Facsimile No.: (303) 988-3234
with copies to:
Kruse, Landa & Maycock, L.L.C.
8th Floor, Bank One Tower
50 West Broadway (300 South)
Salt Lake City, UT 84101-2034
Attn: James R. Kruse, Esq.
Facsimile No.: (801) 531-7091
9.3 Severability. If any provision of this Warrant shall be held
invalid, such invalidity shall not affect any other provision of this Warrant
that can be given effect without the invalid provision, and to this end, the
provisions hereof are separable.
9.4 Headings. The headings in this Warrant are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Warrant.
9.5 Amendment. This Warrant cannot be amended or modified except by
a written agreement executed by the Company and the Holder.
9.6 Assignment. This Warrant shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns except that no party may assign or
transfer its rights or obligations under this Warrant to the extent explicitly
prohibited herein.
9.7 Entire Agreement. This Warrant, together with its attachments,
contains the entire understanding among the parties hereto with respect to the
subject matter hereof and supersedes all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral or
written, except as herein contained.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its President or a Vice President thereunto duly authorized.
Dated: January 6, 1998
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele
President
SUBSCRIPTION NOTICE
The undersigned, the Holder of a Common Stock Purchase Warrant issued
by [name of issuer] pursuant to a Financing Agreement dated as of [ ]
between [name of issuer] and Energy Income Fund, L.P., hereby elects to exercise
purchase rights represented by such Warrant for, and to purchase thereunder,
shares of the Common Stock covered by such Warrant and herewith makes payment in
full therefor of and requests that certificates for
such shares (and any securities or the property issuable upon such exercise) be
issued in the name of and delivered to
, whose address is
.
If said number of shares of Common Stock is less than the number of
shares of Warrant Stock purchasable hereunder, the undersigned requests that a
new Warrant representing the balance of the Warrant Stock be registered in the
name of and issued and delivered to
, whose address is
.
The undersigned hereby agrees to pay any transfer taxes on the
transfer of all or any portion of the Warrant or Warrant Stock requested herein.
The undersigned agrees that, in the absence of an effective
registration statement with respect to Common Stock issued upon this exercise,
the undersigned is acquiring such Common Stock for investment and not with a
view to distribution thereof and the certificate or certificates representing
such Common Stock may bear a legend substantially as follows: "The shares
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, and may not be transferred except as provided in
Article 3 of the Common Stock Purchase Warrant issued by [name of issuer] on
[date], a copy of which is on file at the principal office of [name of issuer]."
Signature guaranteed:
Dated:
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto [Name and Address] the rights represented by the
foregoing Common Stock Purchase Warrant issued by [name of issuer] on [date],
and appoints its attorney to transfer said
rights on the books of said corporation, with full power of substitution in the
premises.
Signature guaranteed:
Dated:
FINANCING AGREEMENT
Dated as of January 6, 1998
Between
FORELAND CORPORATION,
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
and
ENERGY INCOME FUND, L.P.
THIS FINANCING AGREEMENT IS TO BE
GOVERNED BY MASSACHUSETTS LAW
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page No.
<S> <C>
FINANCING AGREEMENT..........................................................1
ARTICLE 1 - DEFINITIONS......................................................2
1.1 Definitions. ................................................2
1.2 Accounting Terms.............................................14
1.3 Petroleum Terms..............................................14
1.4 Singular and Plural..........................................14
1.5 Amendment of Defined Instruments.............................14
ARTICLE 2 - THE LOANS.......................................................15
2.1 Refinancing Loan.............................................15
2.2 Development Loan and Initial Funding.........................15
2.3 Acquisition Loan.............................................17
2.4 The Notes....................................................18
2.5 Interest.....................................................18
2.6 Interest Upon Default........................................18
2.7 Repayment of Principal and Interest on Refinancing Loan......18
2.8 Repayment of Principal and Interest on Development Loan......19
2.9 Repayment of Principal and Interest on the Acquisition Loan..19
2.10 Prepayment...................................................20
2.11 Payment Procedure............................................20
2.12 Overriding Royalty...........................................20
2.13 Collateral Reevaluation......................................21
2.14 Collateral/Indebtedness Ratio................................22
ARTICLE 3 - ADDITIONAL FINANCING RIGHT OF FIRST REFUSAL.....................23
3.1 Additional Financing Right of First Refusal..................23
3.2 Termination of Right of First Refusal........................24
ARTICLE 4 - SECURITY AND ASSIGNMENT.........................................25
4.1 Collateral...................................................25
4.2 Assignment...................................................27
4.3 Limitation on Recourse.......................................29
4.4 Definition of Collateral.....................................30
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF BORROWERS.....................31
5.1 Organization; Charter and Bylaws of Organizational Documents.31
5.2 Authority....................................................31
5.3 No Violation.................................................31
5.4 Litigation...................................................31
5.5 Financial Statements.........................................32
5.6 Compliance with Licenses and Laws............................32
5.7 Investments and Guaranties...................................32
5.8 Title to Properties..........................................32
5.9 Casualties; Taking of Properties.............................33
5.10 ERISA........................................................33
5.11 Environmental Liabilities....................................34
5.12 Taxes........................................................35
5.13 Securities Filings...........................................35
5.14 No Event of Default..........................................36
5.15 Investment Company Act.......................................36
5.16 Public Utility Holding Company Act...........................36
5.17 Location of Business and Offices.............................36
5.18 No Misstatement..............................................36
5.19 Foreign Person...............................................36
5.20 Arrangements Relating to Hydrocarbons........................36
5.21 Hydrocarbon Contracts........................................36
5.22 No Indebtedness to Shareholders, Members, Officers,
Directors, Managers or Affiliates............................37
5.23 Capitalization...............................................37
ARTICLE 6 - THE CLOSINGS; CONDITIONS PRECEDENT..............................38
6.1 Time and Place of Closings...................................38
6.2 Conditions Precedent to the Funding of Each Loan.............38
(a) Corporate Documents................................38
(c) Representations and Warranties True................39
(d) Compliance with Covenants..........................39
(e) Absence of Event of Default........................39
(f) Opinion of Borrowers' Counsel......................39
(g) Financial Condition................................40
(h) Asset Coverage.....................................40
(i) Legal Matters......................................40
(j) Access to Information; Due Diligence...............40
(k) Purchasers of Production...........................40
(l) Other Matters......................................41
6.3 Conditions Precedent to Refinancing Loan Closing, the
Development Loan Closing and the Initial Funding.............41
(a) Loan Documents.....................................41
(b) Bank Loan..........................................41
(c) Security Instruments Recorded......................42
(d) Title..............................................42
(e) No Liens...........................................42
(f) Initial Overriding Royalty Interests...............42
(g) Transfer Orders and Letters in Lieu................42
(h) Warrants...........................................42
(i) Operating Agreements for Existing Properties.......42
(j) AFEs...............................................42
(k) Seismic Data.......................................42
6.4 Conditions Precedent to Funding Subsequent Advances Under
the Development Loan.........................................43
(a) Development Plan and Budget........................43
(b) Seismic Data.......................................43
(c) Results of Prior Development.......................43
(d) Secondary Overriding Royalty Interests.............43
(e) Miscellaneous......................................43
6.5 Conditions Precedent to the Acquisition Loan.................43
(a) Development Plan and Budget........................43
(b) Results of Prior Development.......................43
(c) Purchase Agreements................................44
(d) Security Instruments Recorded......................44
(e) Title..............................................44
(f) No Liens...........................................44
(g) Transfer Orders and Letters in Lieu................44
(h) AFE................................................44
(i) Request for Escrow Disbursement....................44
6.6 Conditions Precedent to Release of Funds from Escrow
Account......................................................44
(a) AFE................................................45
(b) Request for Escrow Disbursement....................45
ARTICLE 7 - COVENANTS OF BORROWER...........................................46
7.1 Punctual Payment and Performance.............................46
7.2 Records and Accounts.........................................46
7.3 Financial Statements, Certificates and Information...........46
7.4 Existence; Maintenance of Collateral.........................48
7.5 Title to Properties..........................................48
7.6 Mineral Interests............................................48
7.7 Contract Approval............................................49
7.8 Insurance....................................................49
7.9 Taxes and Other Claims.......................................49
7.10 Securities Filings...........................................49
7.11 Inspection of Properties and Books...........................50
7.12 Compliance with Laws, Contracts, Licenses and Permits........50
7.13 Litigation...................................................50
7.14 Further Assurances...........................................50
7.15 Notices......................................................51
7.16 Use of Proceeds..............................................51
7.17 Dividends, Distributions and Redemptions.....................51
7.18 Nature of Business...........................................51
7.19 Restrictions on Liens........................................51
7.20 Collateral Sales.............................................51
7.21 Sale or Discount of Receivables..............................52
7.22 Affiliate Transactions.......................................52
7.23 Financial Covenants..........................................52
7.24 Key Employee.................................................53
7.25 Preliminary Site Assessment Inspection.......................53
7.26 Environmental Laws Compliance................................53
7.27 Corporate Name and Address...................................54
7.28 Mergers and Sales of Assets..................................54
7.29 Change of Control............................................54
7.30 Operation of Assets..........................................54
7.31 Borrower as Operator.........................................54
7.32 ERISA Compliance.............................................54
7.33 Additional Information.......................................55
7.34 No Loans or Guarantees to Officers, Directors, Managers or
Shareholders/Partners........................................56
7.35 Bonuses......................................................56
7.36 G&A Budget...................................................56
7.37 Foreclosure..................................................56
7.38 Updates to Purchasers of Production Information..............57
7.39 Warrants.....................................................57
ARTICLE 8 - EVENTS OF DEFAULT; ACCELERATION.................................58
ARTICLE 9 - INDEMNIFICATION.................................................61
9.1 Environmental Indemnity......................................61
9.2 General Indemnity............................................62
ARTICLE 10 - EXPENSES......................................................63
ARTICLE 11 - NOTICES; MISCELLANEOUS.........................................63
11.1 Notices......................................................63
11.2 Miscellaneous................................................64
(a) Entire Agreement...................................64
(b) Governing Law......................................64
(c) Headings...........................................65
(d) Parties in Interest................................65
(e) No Third Party Beneficiaries.......................65
(f) Severability.......................................65
(g) Counterparts.......................................65
(h) Renewal, Extension or Rearrangement................65
(i) Cumulative Rights..................................65
(j) Consents, Amendments, Waivers, Etc.................65
(k) Jurisdiction.......................................66
(l) Waiver of Jury Trial, Punitive Damages, Etc........66
(m) Waiver of Consumer Rights..........................66
(n) Agent for Service..................................66
EXHIBITS....................................................................68
SCHEDULES...................................................................69
</TABLE>
FINANCING AGREEMENTAGREEMENT
FINANCING AGREEMENT ("Agreement"), dated as of this 6th day of
January 1998, by and between Foreland Corporation, a Nevada corporation
("Foreland"), Eagle Springs Production Limited-Liability Company, a Nevada
limited liability company ("Eagle Springs"), (together, the "Borrowers"), and
Energy Income Fund, L.P., a Delaware limited partnership ("EIF").
R E C I T A L S
WHEREAS, Borrowers have requested EIF to make a loan to Borrowers
described herein as the "Refinancing Loan" to refinance a loan from Colorado
National Bank to Foreland;
WHEREAS, Borrowers intend: to install a high pressure air injection
system and to drill wells on its interests in the oil and gas properties located
in the Eagle Springs Area as described in Exhibit A hereto (the "Eagle Springs
Properties"); to conduct a three-dimensional seismic analysis of and drilling on
their interests in the oil and gas properties located in the Pine Creek Area as
described in Exhibit A hereto (the "Pine Creek Properties"); to drill wells on
their interests in the oil and gas properties located in the Eagle Springs Area
as described in Exhibit A hereto (the "Ghost Ranch Properties"); to explore and
drill wells on their interests in the oil and gas properties located in the
Eagle Springs Area as described in Exhibit A hereto (the "Ghost Ranch East
Properties"); and to conduct a three-dimensional seismic analysis of and
drilling on their interests in the oil and gas properties located in the Hay
Ranch Area as described in Exhibit A hereto (the "Hay Ranch Properties")
(collectively, the "Existing Properties")
WHEREAS, Borrowers have requested EIF to consider making a further
loan to Borrowers described herein as the "Development Loan" to finance certain
exploration and development costs relating to the Existing Properties;
WHEREAS, Borrowers may negotiate the purchase of certain additional
undivided interests in the oil and gas properties located in Nevada and
described in Exhibit B hereto, which interests are commonly known as the
Barrett, the Blackburn, the Crysen, the Petro Source and the Trap Springs
acquisitions (collectively, the "New Properties");
WHEREAS, Borrowers have requested EIF to consider making a further
loan to Borrowers described herein as the "Acquisition Loan" to finance a
portion of the cost of acquiring the New Properties;
WHEREAS, Borrowers have agreed to pledge all of their interests in the
Eagle Springs Properties, the Ghost Ranch Properties, the Ghost Ranch East
Properties and the Pine Creek Properties and the other assets and items
described herein as collateral for the loans; and
WHEREAS, EIF is willing to make the requested loans on the terms and
conditions hereinafter specified;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration the adequacy of which is expressly acknowledged, the
parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms shall have the meanings
set forth herein:
"Acquisition Loan" shall mean the acquisition loan made by EIF to
Borrowers pursuant to Section 2.3 of this Agreement.
"Acquisition Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of the Acquisition Loan, as set forth in
Sections 6.2 and 6.3 of this Agreement.
"Acquisition Loan Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Acquisition Note" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Additional Loan" shall have the meaning set forth in Section 3.1(a)
of this Agreement.
"Advance Notice" shall mean, with respect to each advance to be made
under the Loans, a written request from Borrowers to EIF to fund such advance
setting forth the amount to be advanced and the purpose of the advance.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person and any other Person
that is an officer, director, or full time employee of such other Person.
"AFE" shall mean, with respect to each development and acquisition
project to be paid for by Borrowers with the proceeds of portions of the
Development and Acquisition Loans, as more fully described in Sections 2.2 and
2.3 of this Agreement, a document that is referred to as the Authority for
Expenditure. Such document must have received all required approvals of the
participating working interest owners as required by any applicable operating
agreement relating to the property to be developed or acquired.
"Agreement" shall mean this Financing Agreement, including all
exhibits and schedules attached hereto.
"Bank" shall mean Colorado National Bank located in Denver, Colorado.
"Bank Lien" shall mean those certain liens on certain of the Existing
Properties securing the Bank Loans.
"Bank Loans" shall mean that certain Promissory Note dated November
13, 1996 in the original principal amount of Ten Million Dollars ($10,000,000)
made by Borrowers to the Bank, and secured by a Mortgage, Security Agreement,
Assignment, Financing Statement and Fixture Filing dated November 13, 1996,
covering certain of the Existing Properties located in Nye County, Nevada.
"Bank Loans Financing" shall have the meaning set forth in Section 2.1
of this Agreement.
"Borrower" shall mean either of Foreland or Eagle Springs.
"Borrowers" shall mean Foreland and Eagle Springs.
"Business Day" shall mean any day on which national banking
institutions in Massachusetts are open for the transaction of banking business.
"Change of Control" shall mean any transaction that results in, or as
a consequence of which, the power to direct the management or policies, whether
through ownership of voting securities, by merger, by agreement, or otherwise of
Borrower, or Borrower is acquired directly or indirectly by any Person
("Acquiring Person"), or by any group of which such Acquiring Person is a
member. For purposes of this definition, the term "group" has the meaning
ascribed thereto under Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended. Without limiting the generality of the foregoing, the power to
direct the management or policies of Borrowers shall be deemed to include any
transaction whereby
(A) any such Acquiring Person or group in which such Acquiring
Person is a member acquires in the aggregate beneficial ownership of
more than fifty percent (50%) of the outstanding voting securities or
other ownership interests carrying voting rights of Borrowers; or
(B) any such Acquiring Person or group in which such Acquiring
Person is a member acquires the right to appoint or cause to be
appointed or elected a majority of the directors of Foreland.
"Closing" shall mean any of the Refinancing Loan Closing, the
Development Loan Closing or the Acquisition Loan Closing.
"Closing Date" shall mean any of the Refinancing Loan Closing Date,
the Development Loan Closing Date or the Acquisition Loan Closing Date.
"Closing Financing" shall mean the Phase I Closing Financing.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and published interpretations thereunder.
Section references to the Code and its regulations are to those provisions as in
effect at the date of this Agreement, together with any subsequent provisions of
the Code that amend, supplement, or replace the provisions to which reference is
made.
"Collateral" shall have the meaning set forth in Section 4.1 of this
Agreement, subject to the limitation described in Section 4.4 of this Agreement.
"Default" shall have the meaning set forth in Section 8.1 of this
Agreement.
"Default Rate" shall mean the interest rate chargeable upon default,
as described in Section 2.6 of this Agreement.
"Description of Collateral" shall mean a description of the
Collateral owned at the time in question by Borrowers, containing such
information as may be acceptable to EIF, and in legally sufficient form for
creation of an EIF Lien thereon.
"Development Loan" shall mean the exploration and development loan
made by EIF to Borrowers pursuant to Section 2.2 of this Agreement.
"Development Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of the first advance of the Development
Loan, as set forth in Sections 6.2 and 6.3 of this Agreement.
"Development Loan Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Development Note" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Development Plan and Budget" shall mean a quarterly development plan
and budget prepared by Borrowers and approved by EIF that describes each
development and acquisition project, together with the expected cost, that
Borrowers desire to finance with the Development and Acquisition Loans.
"Eagle Springs" shall mean Eagle Springs Production Limited-Liability
Company, a Nevada limited liability company.
"Eagle Springs Area" shall mean certain oil and gas properties located
in Nye County, Nevada, including the Eagle Springs Field, the Ghost Ranch Field
and the Ghost Ranch East Area.
"Eagle Springs Field" shall mean certain oil and gas properties
located in Nye County, Nevada.
"Eagle Springs Properties" shall mean the Borrowers' interests in the
oil and gas properties in the Eagle Springs Area as set forth on Exhibit A under
the heading "Eagle Springs Properties."
"EIF" shall mean Energy Income Fund, L.P., a Delaware limited
partnership.
"EIF Liens" shall mean Liens in favor of EIF securing the Loans.
"Employee Benefit Plan" shall mean any deferred compensation,
retirement, severance, health or other plan or program constituting an "employee
benefit plan" as defined in Section 3(3) of ERISA maintained or previously
maintained for employees of Borrowers or any ERISA Affiliate, or in which any
such employees participate or participated, other than a Multiemployer Plan.
"Employee Benefit Plan" shall include plans that would otherwise be exempted
from Section 3(3) of ERISA by Department of Labor Regulation Section 2510.3-3
(as plans covering only partners or other self-employed individuals).
"Environmental Complaint" shall mean any citation, complaint, demand,
order, or notice by any person, association, entity, or governmental authority
alleging, asserting or claiming that either Borrower or any of the Properties:
(i) is in material violation of applicable Environmental Laws, (ii) does not
comply in all material respects with applicable Environmental Laws, or (iii)
does not have or maintain all material permits, licenses, and/or approvals
required under applicable Environmental Laws.
"Environmental Laws" shall mean any one or more of the following: (i)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42
U.S.C. Section 9601 et seq. ("CERCLA"), (ii) the Resource Conservation and
Recovery Act, as amended by the Hazardous and Solid Waste Amendment of 1984, 42
U.S.C. Section 6901 et seq. ("RCRA"), (iii) the Clean Air Act, 42 U.S.C.
Section 7401 et seq., (iv) the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq., (v) the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., (vi) the Federal Safe Drinking Water Act, 42 U.S.C.
SectionSection 300f to 300j-11, (vii) the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 1101 et seq., (viii) the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and (ix) all other
foreign, federal, state, tribal and local laws (whether common or statutory),
rules, regulations, consent agreements, compliance schedules, and orders
directly and/or indirectly relating to public health and safety, air pollution,
water pollution, noise control, wetlands, oceans, waterways, and/or the
presence, use, generation, manufacture, transportation, processing, treatment,
handling, discharge, release, disposal, or recovery of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or materials and/or
underground storage tanks, as each of the foregoing laws, rules, regulations and
orders may be amended, supplemented, and/or reauthorized from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder. Section references to ERISA and its regulations are
to those provisions as in effect at the date of this Agreement, together with
any subsequent provisions of ERISA that amend, supplement, or replace the
provisions to which reference is made.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) that, together with either Borrower, would be treated as a single
employer under Section 4001(b) of ERISA or that would be deemed to be a member
of the same "controlled group" within the meaning of Section 414(b), (c), (m),
and (o) of the Code (provided, however, that when the subject of the provision
is a Multiemployer Plan only subsections (b) and (c) of Section 414 shall be
taken into account).
"Escrow Account" shall mean the account into which a portion of the
proceeds of the Development Loan and the Acquisition Loan is placed, as set
forth in Sections 2.2(c) and 2.3(b) of this Agreement.
"Escrow Agreement" shall mean the agreement pursuant to which a
portion of the proceeds of the Development Loan and the Acquisition Loan placed
in escrow and released to Borrowers, as set forth in Sections 2.2(c) and 2.3(b)
of this Agreement.
"Event of Default" shall have the meaning set forth in Section 8.1 of
this Agreement.
"Existing Properties" shall mean Borrowers' interests in the oil and
gas properties described in Exhibit A.
"Final Payment Date" shall mean January 1, 2002, the date on which the
final installment of principal and interest on the Loans is due and payable.
"Financial Statements" shall have the meaning set forth in Section 5.5
of this Agreement.
"Foreland" shall mean Foreland Corporation, a Nevada corporation.
"Funding" shall mean the transmittal of funds by EIF under any Loan.
"Funding Date" shall mean the date on which any Funding occurs.
"Ghost Ranch East Area" shall mean certain oil and gas properties
located in Nye County, Nevada.
"Ghost Ranch East Properties" shall mean the Borrowers' interests in
the oil and gas properties in the Eagle Springs Area as set forth on Exhibit A
under the heading "Ghost Ranch East Properties."
"Ghost Ranch Field" shall mean certain oil and gas properties located
in Nye County, Nevada.
"Ghost Ranch Properties" shall mean the Borrowers' interests in the
oil and gas properties in the Eagle Springs Area as set forth on Exhibit A under
the heading "Ghost Ranch Properties."
"Hay Ranch Area" shall mean certain oil and gas properties located in
Elko and Eureka Counties, Nevada.
"Hay Ranch Properties" shall mean the Borrowers' interests in the oil
and gas properties in the Hay Ranch Area, as set forth on Exhibit A under the
heading "Hay Ranch Properties," and any leasehold or other interests
subsequently acquired by Borrowers adjacent or contiguous to interests in the
Hay Ranch Properties (such additional interest to immediately become part of the
Hay Ranch Properties).
"Hazardous Materials" shall mean any one or more of the following
substances, wastes and materials:
(a) Any substance, waste or material defined as a "hazardous
substance," "hazardous material," "hazardous waste," "pollutant,"
"contaminant," "toxic material," or "toxic substance," in any of the
applicable Environmental Laws, or in the standards, criteria, rules
and/or regulations promulgated pursuant to any of said Environmental
Laws (including without limitation Hydrocarbons); and
(b) Any substance, waste or material, the presence of which requires
investigation or remediation under any Environmental Laws.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate and all other liquid and gaseous
hydrocarbons produced or to be produced in conjunction therewith, and all
products, by-products and all other substances derived therefrom or the
processing thereof.
"Indebtedness" shall mean, as to any Person, all items that would, in
conformity with generally accepted accounting principles, be classified as
liabilities or contingent liabilities of such Person, but in any event including
without limitation (a) all obligations under leases that have been, or under
generally accepted accounting principles are required to be, capitalized, (b)
all indebtedness endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse, and (c) all indebtedness in
effect guaranteed, directly or indirectly, by such Person.
"Indemnified Party" shall have the meaning set forth in Section 9.1 of
this Agreement.
"Initial Funding" shall mean the Funding of the Refinancing Loan and
Phase I of the Development Loan.
"Initial Overriding Royalty Interests" shall have the meaning set
forth in Section 2.12(a) of this Agreement.
"Internal Reserve Report" shall mean a report prepared by Borrowers'
internal engineers, which report shall, among other things, (a) identify the
wells covered thereby, (b) specify such engineers' estimate of the total volume
of reserves (the "available reserves") of Hydrocarbons (using the categories
"proved developed producing reserves," "proved developed nonproducing reserves,"
and "proved and undeveloped reserves") attributable to the Collateral and (c)
set forth such engineers' estimate with respect to the projected future rate of
production of the available reserves.
"Kate Springs Properties" shall mean Borrowers' interests in the oil
and gas properties set forth on Exhibit A uner the heading "Kate Springs
Properties."
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the lien or security interest arising from a mortgage, deed of trust,
lease, claim or right of a mechanic or materialman supplying materials or labor,
encumbrance, pledge, hypothecation, assignment, conditional sale, trust receipt,
deposit arrangement, charge, encumbrance, statute or other security agreement or
arrangement of any kind or nature whatsoever creating in favor of any creditor a
right in respect of any particular asset that is prior to the right of any other
creditor in respect of such asset. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property.
"Loans" shall mean the loans made by EIF to Borrowers pursuant to this
Agreement, including the Refinancing Loan, the Development Loan and the
Acquisition Loan.
"Loan Documents" shall mean this Agreement, the Notes, all Security
Instruments, all documents creating, evidencing, and perfecting the Overriding
Royalty Interests, and all other agreements, certificates, instruments, or other
documents required to be executed and delivered by Borrowers under the terms of
this Agreement.
"Mineral Interests" shall mean rights, estates, titles and interests
in and to oil, gas or other mineral (or any combination thereof) leases (and all
extensions, amendments, ratifications and subleases thereof or thereunder) and
any mineral interests, royalty and overriding royalty interests, production
payment and net profits interests, mineral fee interests and rights therein,
including, without limitation, any reversionary or carried interests relating to
the foregoing, together with rights, titles and interests created by or arising
under the terms of any unitization, communitization and pooling agreements or
arrangements, pooling designations and pooling orders, and all properties,
rights and interests covered thereby, whether arising by contract, by order or
by operation of law, which now or hereafter include all or any part of the
foregoing.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"New Properties" shall mean the interests in the oil and gas
properties described in Exhibit B.
"Notes" shall mean the Refinancing Note, the Development Loan Note,
the Acquisition Note and any other promissory note described in this Agreement.
"Overriding Royalty Interests" shall mean the Initial Overriding
Royalty Interests and the Secondary Overriding Royalty Interests.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA or other applicable
federal law.
"Permits" shall mean all governmental licenses, permits, certificates,
orders, concessions, grants, franchises, approvals and authorizations necessary
for the conduct of the business of Borrower.
"Permitted Liens" shall mean (a) Liens to secure taxes, assessments,
and other governmental charges or claims for labor, material or supplies
(including but not limited to Liens granted under operating agreements) in
respect of obligations not overdue, not delinquent or that are being diligently
contested in good faith and by appropriate proceedings, provided that Borrower
shall have set aside on its books adequate reserves therefor; (b) matters
affecting title to the Collateral disclosed in Exhibit C hereto, including, but
not limited to, easements and rights of way granted by Borrowers or any of
Borrowers' predecessors in title to the Collateral to the extent necessary to
conduct operations thereon.
"Person" shall mean any natural person, sole proprietorship,
corporation, general partnership, limited partnership, limited liability
company, union, association, court, agency, government, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
"Phase I Closing Financing" shall have the meaning set forth in
Section 2.2(a)(i)(E) of this Agreement.
"Phase I of the Development Loan" shall have the meaning set forth in
Section 2.2(a)(i) of this Agreement.
"Phase I Pine Creek Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(i)(D) of this Agreement.
"Phase I Pine Creek Seismic Financing" shall have the meaning set
forth in Section 2.2(a)(i)(C) of this Agreement.
"Phase I Eagle Springs Air Injection Financing" shall have the meaning
set forth in Section 2.2(a)(i)(A) of this Agreement.
"Phase I Eagle Springs Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(i)(B) of this Agreement.
"Phase II Ghost Ranch Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(ii)(D) of this Agreement.
"Phase II Hay Ranch Seismic Financing" shall have the meaning set
forth in Section 2.2(a)(ii)(E) of this Agreement.
"Phase II of the Development Loan" shall have the meaning set forth in
Section 2.2(a)(ii) of this Agreement.
"Phase II Pine Creek Additional Drilling Financing" shall have the
meaning set forth in Section 2.2(a)(ii)(C) of this Agreement.
"Phase II Eagle Springs Air Injection Financing" shall have the
meaning set forth in Section 2.2(a)(ii)(A) of this Agreement.
"Phase II Eagle Springs Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(ii)(B) of this Agreement.
"Phase III Hay Ranch Seismic Financing" shall have the meaning set
forth in Section 2.2(a)(iii)(A) of this Agreement.
"Phase III Hay Ranch Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(iii)(C) of this Agreement.
"Phase III of the Development Loan" shall have the meaning set forth
in Section 2.2(a)(iii) of this Agreement.
"Phase III Eagle Springs Drilling Financing" shall have the meaning
set forth in Section 2.2(a)(iii)(B) of this Agreement.
"Pine Creek Area" shall mean certain oil and gas properties, located
in the Pine Valley, Elko and Eureka Counties, Nevada.
"Pine Creek Properties" shall mean the Borrowers' interests in the oil
and gas properties in the Pine Creek Area, as set forth on Exhibit A under the
heading "Pine Creek Properties," and any leasehold or other interests
subsequently acquired by Borrowers adjacent or contiguous to interests in the
Pine Creek Properties (such additional interest to immediately become part of
the Pine Creek Properties).
"Pine Valley" shall mean that certain oil and gas producing area
located in Elko and Eureka Counties, Nevada within Township 28 North - Range 51
East, Township 28 North - Range 52 East, Township 29 North - Range 51 East, and
Township 29 North - Range 52 East.
"Proceeds of Runs" shall have the meaning set forth in Section 4.2 of
this Agreement.
"Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"Properties" shall mean the Existing Properties and the New
Properties, collectively.
"Proposed Gas Contracts" shall have the meaning set forth in Section
7.7 of this Agreement.
"Railroad Valley" shall mean that certain oil and gas producing area
located in Nye County, Nevada within Township 8 North - Range 57 East and
Township 9 North - Range 57 East.
"Refinancing Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of the Refinancing Loan, as set forth in
Section 6.1(a) of this Agreement.
"Refinancing Loan Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Refinancing Note" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Reportable Event" shall mean any event described in Section 4043(b)
of ERISA with respect to an Employee Benefit Plan subject to Title IV of ERISA,
other than those as to which the PBGC has waived the notice requirement.
"Request for Escrow Disbursement" shall mean, with respect to each
drawdown form the Escrow Account, a written request from Borrowers substantially
in the form set forth in Exhibit L.
"Requirement of Law" shall mean, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person and any law, treaty, rule or regulation, any determination of an
arbitrator or a court or other governmental authority or agency, or the terms of
any license, permit, certificate, authorization or other direction or
requirement (including, without limitation, any of the foregoing which relate to
energy regulations, drilling or production regulations, occupational, safety and
health standards or controls, and Requirements under the Environmental Laws), in
each case applicable to or binding upon such Person or to which any of its
property is subject.
"Reserve Report" shall mean a report prepared by Mohajir & Associates,
an independent engineering firm (or such other engineering firm as is mutually
agreed upon by EIF and Borrowers), on the basis of findings and data as of the
last day of each calendar year and on the basis of product price assumptions
equal to the trailing twelve (12) month weighted average wellhead price held
flat for the life of the wells, which report shall, among other things, (a)
identify the wells covered thereby, (b) specify such engineers' estimate with
respect to the total volume of reserves (the "available reserves") of
Hydrocarbons (using the terms or categories "proved developed producing
reserves," "proved developed nonproducing reserves" and "proved and undeveloped
reserves") attributable to the Collateral, (c) set forth such engineers'
estimate with respect to the present worth of the projected cash flow from such
reserves, and (d) set forth such engineers' estimate with respect to the
projected future rate of production of the available reserves.
"Secondary Overriding Royalty Interests" shall have the meaning set
forth in Section 2.12(b) of this Agreement.
"Security Instruments" shall mean such instruments or documents that
grant EIF a Lien in the Collateral, including, but not limited to, deeds of
trust or mortgages, security agreements, collateral mortgage notes, collateral
mortgages, collateral assignments, subordination agreements, financing
statements, waivers, and assignments.
"Termination Event" shall mean (i) a Reportable Event; (ii) the
withdrawal of either Borrower or any ERISA Affiliate from a Multiple Employer
Plan during a plan year in which it was a "substantial employer," as such term
is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by
either Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan; (iii) submission to a governmental
authority of a request for a waiver of minimum funding standards required by
ERISA or the Code, with respect to any Employee Benefit Plan; (iv) the existence
or likely creation of a lien under ERISA or the Code on Borrowers or any ERISA
Affiliate on account of any Employee Benefit Plan; (v) the disclosure to
affected parties of a notice of intent to terminate an Employee Benefit Plan
under Section 4041 of ERISA other than in a "standard termination" within the
meaning of Section 4041 of ERISA; (vi) the institution of proceedings by the
PBGC to terminate an Employee Benefit Plan under Section 4042 of ERISA; (vii)
any other event or condition that might reasonably constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Employee Benefit Plan; (viii) the commencement or, to the
knowledge of Borrowers, likely commencement of a proceeding against either
Borrower or any ERISA Affiliate under Section 515 of ERISA to collect a
delinquent contribution to a Multiemployer Plan; or (ix) any other event or
condition reasonably indicating that either Borrower or any ERISA Affiliate will
or may incur any liability (including any contingent or secondary liability) to
or on account of the termination of or withdrawal from an Employee
Benefit Plan or Multiemployer Plan under Section 4062, 4063, 4064, 4201, or 4204
of ERISA.
"UCC" shall mean the Uniform Commercial Code as adopted by the State
of Nevada.
"Unfunded Current Liability" of any Employee Benefit Plan shall mean
the amount, if any, by which the present value of the accrued benefits under the
plan as of the close of its most recent plan year exceeds the value, determined
in accordance with Section 412 of the Code, of the plan's assets.
"Value," when used in reference to the Collateral, shall mean the
discounted present worth of the net revenues from the proved oil and gas
properties (using a discount rate of 15% and the risk adjustments to different
categories of proved reserves as follows: 100% of proved developed producing
reserves; 70% of proved developed non-producing reserves and proved behind pipe
reserves; and 50% of proved undeveloped reserves) and product price assumptions
equal to the trailing twelve (12) month weighted average wellhead price held
flat for the life of the wells as projected in the most recent Reserve Report.
In cases where operational or cash flow history from an oil or gas property is
deemed by EIF, in its sole discretion, to be insufficient to be used as the
basis for valuation, Value shall be the acquisition cost of the Collateral at
the most recent arms length purchase of that asset.
"Warrant No. 1" shall mean a warrant issued by Foreland to EIF for
Seven Hundred Fifty Thousand (750,000) shares of common stock of Foreland with
an exercise price of Six Dollars ($6) per share.
"Warrant No. 2" shall mean a warrant issued by Foreland to EIF for Two
Hundred Fifty Thousand (250,000) shares of common stock of Foreland with an
exercise price of Ten Dollars ($10) per share.
"Warrants" shall mean Warrant No. 1 and Warrant No. 2.
"Withdrawal Liability" shall have the meaning given such term under
Part 1 of Subtitle E of Title VI of ERISA.
1.2 Accounting Terms. Accounting terms used herein and not
otherwise defined herein shall be construed in accordance with generally
accepted accounting definitions and principles consistently applied.
1.3 Petroleum Terms. As used herein, the terms "proved
reserves," "proved developed reserves," "proved developed producing reserves,"
"proved developed non-producing reserves" and "proved undeveloped reserves"
shall have the meaning given such terms from time to time and at the time
in question by the Society of Petroleum Engineers of the American Institute
of Mining Engineers.
1.4 Singular and Plural. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa.
1.5 Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement that refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize or commit
EIF to any such renewal, extension, modification, amendment or restatement.
ARTICLE 2
THE LOANS
2.1 Refinancing Loan. Subject to the terms and conditions set
forth in this Agreement, EIF agrees to make a loan (the "Refinancing Loan")
to Borrowers of up to Six Hundred Eighty Thousand Dollars ($680,000) to
refinance the outstanding principal and accrued interest due on the Bank
Loans ("Bank Loans Financing")
2.2 Development Loan and Initial Funding.
(a) Subject to the terms and conditions set forth in this
Agreement, EIF agrees to make a loan (the "Development Loan") to Borrowers
in the principal amount of up to Thirteen Million Eight Hundred Ninety-Three
Thousand Dollars ($13,893,000), for the purposes set forth below.
(i) The initial phase of the Development Loan ("Phase
I of the Development Loan") shall consist of:
(A) up to One Million Seven Hundred Eighty Thousand
Dollars ($1,780,000) to finance the implementation of the high
pressure air injection program, including the financing of
compressors and buildings, in the Eagle Springs Properties
("Phase I Eagle Springs Air Injection Financing");
(B) up to One Million Nine Hundred Fifty Thousand
Dollars ($1,950,000) to finance the drilling and completion of
three proved undeveloped wells in the Eagle Springs Properties
("Phase I Eagle Springs Drilling Financing");
(C) up to Three Hundred Twenty-Five Thousand Dollars
($325,000) to finance the three-dimensional seismic program on
the Pine Creek Properties ("Phase I Pine Creek Seismic
Financing");
(D) up to Five Hundred Forty Six Thousand Dollars
($546,000) to finance the drilling and completion of a well in
the Pine Creek Properties based upon the evaluation of the three-
dimensional seismic data ("Phase I Pine Creek Drilling
Financing"); and
(E) up to Three Hundred Thousand Dollars ($300,000) to
finance certain of EIF's costs related to the closing of the
Refinancing Loan and Phase I of the Development Loan pursuant to
Article X of this Agreement ("Phase I Closing Financing").
(ii) The second phase of the Development Loan ("Phase
II of the Development Loan") shall consist of:
(A) up to Two Million Dollars ($2,000,000) to finance
the purchase and installation of additional equipment, including
compressors and buildings, in connection with the high pressure
air injection program in the Eagle Springs Properties ("Phase II
Eagle Springs Air Injection Financing");
(B) up to One Million Three Hundred Thousand Dollars
($1,300,000) to finance the drilling and completion of two proved
undeveloped wells in the Eagle Springs Properties ("Phase II
Eagle Springs Drilling Financing");
(C) up to One Million Ninety Two Thousand Dollars
($1,092,000) to finance the drilling and completion of two
additional wells in the Pine Creek Properties ("Phase II Pine
Creek Additional Drilling Financing");
(D) up to Eight Hundred Thousand Dollars ($800,000) to
drill and complete a well in the Ghost Ranch East Properties
("Phase II Ghost Ranch Drilling Financing"); and
(E) up to Two Hundred Thousand Dollars ($200,000) to
conduct preliminary survey and archeological work for the three-
dimensional seismic program on the Hay Ranch Properties ("Phase
II Hay Ranch Seismic Financing").
(iii) The third phase of the Development Loan (Phase III
of the Development Loan") shall consist of:
(A) up to One Million Five Hundred Thousand Dollars
($1,500,000) to finance the three-dimensional seismic program on
the Hay Ranch Properties ("Phase III Hay Ranch Seismic
Financing"); and
(B) up to One Million Three Hundred Thousand Dollars
($1,300,000) to finance the drilling of two proved undeveloped
wells in the Eagle Springs Properties ("Phase III Eagle Springs
Drilling Financing");
(C) up to Eight Hundred Thousand Dollars ($800,000) to
finance the drilling and completion of a well in the Hay Ranch
Properties ("Phase III Hay Ranch Drilling Financing").
The Development Loan shall consist of advances to be made by EIF to Borrowers on
or before December 31, 1998. Borrowers shall deliver an Advance Notice to EIF
with respect to each requested advance of the Development Loan. Each Advance
Notice shall specify the amount requested (subject to the limits set forth in
this Section), which amount shall be not less than Five Hundred Thousand Dollars
($500,000) or such lesser amount as remains undisbursed under the Development
Loan. Subject to satisfaction of the conditions precedent contained in this
Agreement, each advance of the Development Loan shall be made within thirty (30)
days of EIF's receiving an Advance Notice from Borrowers.
(b) The Initial Funding shall be for Five Million Four Hundred
Twenty-Five Thousand Two Hundred Seventy-Nine and 34/100 Dollars
($5,425,279.34) and includes the proceeds for the Bank Loans Financing, the
Phase I Eagle Springs Air Injection Financing, the Phase I Eagle Springs
Drilling Financing, the Phase I Pine Creek Seismic Financing, the Phase I Pine
Creek Drilling Financing, and One Hundred Fifty Thousand Dollars ($150,000) of
the Phase I Closing Financing. The remaining One Hundred Fifty Thousand Dollars
($150,000) of the Phase I Closing Financing shall be funded at such times and in
such amounts as the parties mutually agree.
(c) The amounts funded by EIF for the Phase I Pine Creek
Drilling Financing (Five Hundred Forty-Six Thousand Dollars ($546,000)), up to
One Million Three Hundred Thousand Dollars ($1,300,000) of the Phase I Eagle
Springs Drilling Financing, Phase II of the Development Loan, and Phase III of
the Development Loan shall be subject to the limits set forth in subsection (a)
hereof and shall be deposited at the time of the related Funding into an escrow
account located at Peoples Bank, Holyoke, Massachusetts (the "Escrow Account")
pursuant to an escrow agreement (the "Escrow Agreement") substantially in the
form set forth in Exhibit D. Disbursements of the Development Loan proceeds
from the Escrow Account will be made to Borrowers in connection with the
development upon satisfaction of certain conditions set forth in the Escrow
Agreement, including without limitation execution of releases and other
documents requested by the Escrow Agent, all in form and substance satisfactory
to the Escrow Agent.
2.3 Acquisition Loan.
(a) Subject to the terms and conditions set forth in this
Agreement, EIF agrees to make a loan (the "Acquisition Loan") to Borrowers in
the principal amount of up to Two Million Three Hundred Twenty-Seven Thousand
Dollars ($ 2,327,000), for the acquisition of additional producing property
interests in Nevada subject to EIF's approval that the terms of those
acquisitions are in form and substance satisfactory to EIF.
(b) Certain Fundings of the Acquisition Loan are subject to
the limits set forth in subsection (a) hereof and may be deposited at the time
of the related Funding into the Escrow Account. Disbursements of the
Acquisition Loan proceeds from the Escrow Account will be made to Borrowers in
connection with the acquisitions upon satisfaction of certain conditions set
forth in the Escrow Agreement, including without limitation execution of
releases and other documents requested by the Escrow Agent, all in form and
substance satisfactory to the Escrow Agent. Any amounts under the Acquisition
Loan which are not funded by December 31, 1999 will be canceled effective
December 31, 1999.
2.4 The Notes. The Refinancing Loan shall be evidenced by the
promissory note of Borrowers in substantially the form of Exhibit E hereto
(the "Refinancing Note"), the Development Loan shall be evidenced by the
promissory note of Borrowers in substantially the form of Exhibit F hereto
(the "Development Note"), and the Acquisition Loan shall be evidenced by
the promissory note of Borrowers in substantially the form of Exhibit G
hereto (the "Acquisition Note"), each to be dated the date of this
Financing Agreement. Every term contained in the Notes shall be deemed
incorporated into this Agreement. To the extent any provision of the Notes
shall be deemed to be inconsistent with the provisions of this Agreement,
however, the provisions of this Agreement shall control.
2.5 Interest.
(a) The unpaid principal amounts advanced under the Loans,
plus any accrued but unpaid interest, outstanding from time to time shall bear
interest at the rate of twelve percent (12%) per annum for the actual number of
days such amount is outstanding based on a 360-day year.
(b) Nothing contained in this Agreement shall be deemed to
require the payment of interest at a rate in excess of the maximum rate
permitted by applicable law. In the event that the amounts required to be paid
hereunder for any month exceed the maximum rate permitted by law, such amount
shall be automatically reduced for such month to the maximum rate permitted by
law.
2.6 Interest Upon Default. Upon the occurrence and during the
continuation of an Event of Default, any unpaid principal amount of the Loans,
and any overdue interest, shall bear interest at a rate of fifteen percent
(15%) per annum, computed for the actual number of days such amount is
outstanding based on a 360-day year (the "Default Rate").
2.7 Repayment of Principal and Interest on Refinancing Loan. The
first payment on the funds advanced under the Refinancing Loan shall be due and
payable on February 1, 1998 (the "First Interest Only Payment Date") and shall
be a payment of interest only, the payment of which has accrued through such
date, but not principal, such payment to be the amount of interest accrued from
the date on which the Refinancing Loan is first funded until the First Interest
Only Payment Date. The next eight (8) payments on the Refinancing Loan shall
be made on the first Business Day of each of the eight (8) calendar months
following the First Interest Only Payment Date and shall be a payment of
accrued interest only and not principal. (The date on which the last of such
payments is due will be hereinafter referred to as the "Last Interest Only
Payment Date.") The principal amount of and the interest accrued on the
Refinancing Loan shall then be repaid in thirty-nine (39) monthly installments,
each payment (other than the final payment) equal to an amount set forth in a
schedule to be provided to Borrowers at the Initial Funding, sufficient to
amortize the principal amount of the Loan over forty-eight (48) months. Such
payments will be due in arrears on the first day of each month, beginning on
November 1, 1998, unless such day is not a Business Day, in which event payment
shall be due on the first Business Day thereafter, with the final payment of
interest and all outstanding principal due on January 1, 2002. All unpaid
principal and accrued and unpaid interest shall be due and payable on the
Final Payment Date.
2.8 Repayment of Principal and Interest on Development Loan.
Beginning on the first day of the calendar month following the first advance
on the Development Loan (unless such day is not a Business Day, in which event
payment shall be due on the first Business Day thereafter), interest and, with
respect to payments due after the Last Interest Only Payment Date, principal
on the Development Loan shall be repaid by Borrowers in equal monthly
installments in an amount sufficient to amortize the principal amount of the
Development Loan over the remaining term of the Refinancing Loan. Prior to
Funding each additional advance under the Development Loan, EIF shall prepare
and deliver to Borrowers a payment schedule for the Development Note cumulating
payment obligations arising by reason of the additional advance so as to
provide for the payment of interest and principal on all advances on an
interest only basis for payments due prior to and through the Last Interest
Only Payment Date, and for subsequent payments, in equal monthly installments
over the period ending January 1, 2002, with all payments other than the final
payment being in an amount sufficient to amortize the principal amount through
September 1, 2002, and the final payment being sufficient to repay all
outstanding principal and interest as of January 1, 2002. Unless Borrowers
object to the payment schedule in writing prior to the Funding of the relevant
advance, Borrowers shall be deemed to have accepted the payment schedule and
agreed to pay to EIF the monthly installments set forth therein. EIF and
Borrowers agree that, upon the Funding of the relevant advance, Borrowers
authorize EIF to affix such payment schedule to the Development Note as
evidence of (1) the amount of the Development Note then outstanding, and
(2) the schedule according to which Borrowers must pay principal and interest
on such outstanding amount, as previously agreed to by the parties. Such
payments shall be due in arrears on the first day of each month, unless
such day is not a Business Day, in which event payment shall be due on the
first Business Day thereafter.
2.9 Repayment of Principal and Interest on the Acquisition Loan.
Interest and principal on the Acquisition Loan shall be repaid by Borrowers
pursuant to a repayment schedule to be mutually agreed upon by Borrowers and
EIF, provided, however, that the Final Payment Date shall not be later than
January 1, 2002. Prior to Funding each additional advance under the
Acquisition Loan, EIF shall prepare and deliver to Borrowers a payment
schedule for the Acquisition Note cumulating payment obligations arising by
reason of the additional advance so as to provide for the payment of interest
and principal on all advances in equal monthly installments over the period
ending on the Final Payment Date. Unless Borrowers object to the payment
schedule in writing prior to the Funding of the relevant advance, Borrowers
shall be deemed to have accepted the payment schedule and agreed to pay to
EIF the monthly installments set forth therein. EIF and Borrowers agree
that, upon the Funding of the relevant advance, Borrowers authorize EIF to
affix such payment schedule to the Acquisition Note as evidence of (1) the
amount of the Acquisition Note then outstanding, and (2) the schedule
according to which Borrowers must pay principal and interest on such
outstanding amount, as previously agreed to by the parties. Such payments
shall be due in arrears on the first day of each month, unless such day is not
a Business Day, in which event payment shall be due on the first Business Day
thereafter. All unpaid principal and accrued and unpaid interest shall be due
and payable on the Final Payment Date.
2.10 Prepayment. At any time, Borrowers may prepay the Loans,
in full, (i) upon thirty (30) days written notice to EIF ("Notice Date") and
(ii) upon payment of a prepayment premium equal to the sum of interest
payments for the Loans for the twenty-four installments next following the
Notice Date as set forth on the payment schedule then in effect minus the
earnings that would be received by EIF if it reinvested the principal amount
of the Loans so prepaid on the date of prepayment, in United States Treasury
securities having principal amounts and maturities equivalent to the monthly
principal installments on the Loans for such twenty-four installments. At
EIF's option, the amount of the prepayment premium shall be used within five
(5) days from the date of prepayment (i) to exercise the warrant, in whole
or in part, or (ii) to reduce the aggregate Exercise Price of the Warrants,
applied on a per warrant basis, by the amount of the prepayment premium.
2.11 Payment Procedure. All cash payments made by Borrowers
under the Notes or this Agreement shall be made to EIF and wired to the
following account prior to 12:00 o'clock noon, Eastern time, on the date that
such payment is required or permitted to be made:
First National Bank of Boston
ABA# 011-000-390
Worldwide Custody/Canton
Energy Income Fund, L.P. - Account #8420075
Borrowers shall provide EIF with notice of Borrowers' intent to wire payments
into the above-mentioned account at least twenty-four (24) hours before such
payments are deposited into such account. Notice to EIF shall be given by
facsimile, with the notice addressed as follows:
Michael R. Ciesla
Energy Income Fund, L.P.
Facsimile No.: (413) 567-7926
Any payment received by EIF after 12:00 o'clock noon, Eastern time, on any day
shall be considered for all purposes (including the calculation of interest, to
the extent permitted by applicable law) as having been made on the next
following Business Day. Payments shall be first applied to costs and expenses
due EIF, then to accrued interest on the Notes, and then to principal.
2.12 Overriding Royalty.
(a) In consideration of EIF's agreement to make the Loans,
Borrowers at the Refinancing Loan Closing shall assign to EIF overriding royalty
interests at the royalty rate of three percent (3%) in and to the gross revenues
(calculated after payment of state severance taxes) received by Borrowers from
the sale of Hydrocarbons produced from Borrowers' net revenue interests in the
Eagle Springs Properties, the Ghost Ranch Properties, the Ghost Ranch East
Properties and the Kate Springs Properties (the "Initial Overriding Royalty
Interests"). The Initial Overriding Royalty Interests shall be effective as of
the first day of the month in which the Refinancing Loan closes at 7:00 a.m.,
local time.
(b) In consideration of EIF's agreement to make the Loans,
Borrowers shall assign to EIF overriding royalty interests at the royalty rate
of one percent (1%) in and to the gross revenues (calculated after payment of
state severance taxes) received by Borrowers from the sale of Hydrocarbons
produced from Borrowers' net revenue interests in the Pine Creek Properties, the
Hay Ranch Properties, and from wells drilled after evaluation of
three-dimensional seismic data funded, in whole or in part, by EIF (the
"Secondary Overriding Royalty Interests"). The Secondary Overriding Royalty
Interests shall be effective as of 7:00 a.m. on the earlier to occur of the
first day of the month (i) in which a three-dimensional seismic program is
funded with respect to that Property, or (ii) in which EIF funded the drilling
of a well on that Property.
(c) The Overriding Royalty Interests shall be evidenced by
appropriate instruments of conveyance in form and substance satisfactory to EIF
and its counsel. The assignment by Borrowers to EIF of the Overriding Royalty
Interests is intended to be and shall be an absolute and unconditional
assignment and not merely a pledge or creation of a lien or security interest,
and shall be perpetual and survive the payment or satisfaction of the Loans.
(d) At the request of EIF, Borrowers shall execute,
acknowledge and deliver transfer orders or letters in lieu thereof directing all
purchasers of production to make payment to EIF of proceeds attributable to the
Overriding Royalty Interests.
(e) All proceeds received by Borrowers that shall be due to
EIF shall be held by Borrowers under the terms of an express trust for the
benefit of EIF, and shall be paid to EIF at the earlier of (i) for proceeds
received before the twenty-fifth (25th) day of any calendar month, the first day
of the calendar month following the calendar month in which those proceeds were
received, and for proceeds received on or after the twenty-fifth (25th) day of
any calendar month, the first day of the second calendar month following the
calendar month in which those proceeds were received, or (ii) the date required
by applicable law. Any amounts not paid when due shall bear, and Borrowers
agree to pay, interest at the rate of fifteen percent (15%) per annum computed
for the actual number of days such amount is outstanding based on a 360-day
year, or the rate as provided under applicable law, whichever is higher.
2.13 Collateral Reevaluation. It is expressly understood and
agreed by and between EIF and Borrowers that EIF is lending money to Borrowers
pursuant to this Agreement on the condition that Borrowers' total outstanding
Indebtedness to EIF shall at no time exceed 80% of the Value of the Collateral.
In the event Borrowers shall notify EIF Borrowers wish to treat appreciation
in the Value of the Collateral as a portion of its equity contribution towards
additional advances of the Development Loan or Acquisition Loan, EIF shall, as
soon as requisite geological, geophysical and engineering data is available,
review and reevaluate the Value of the Collateral. The requisite geological,
geophysical and engineering data shall be compiled in a Reserve Report by an
independent engineering firm mutually agreeable to Borrowers and EIF, with th
cost of such Reserve Report to be paid by Borrowers. After such review and
reevaluation, EIF shall determine in EIF's sole and absolute discretion whether
it considers there to have been an appreciation in the Value of the Collateral
that could suitably be recognized as such an equity contribution. The
obligation assumed by EIF hereunder is solely to review the Value of the
Collateral in good faith. Nothing in this provision shall create any
obligation on the part of EIF to accept appreciation in the Collateral as
an equity contribution by Borrowers to support future advances of the
Development Loan or Acquisition Loan.
2.14 Collateral/Indebtedness Ratio. It is expressly understood
and agreed by and between EIF and Borrowers that EIF is lending money to
Borrowers pursuant to this Agreement on the condition that Borrowers' total
outstanding Indebtedness to EIF shall at no time exceed 80% of the Value of the
Collateral. Should EIF in its sole discretion determine at any time that the
total outstanding Indebtedness of Borrowers to EIF exceeds 80% of the Value of
the Collateral, EIF shall so notify Borrowers, and Borrowers shall, within ten
(10) Business Days of such notification, either (i) make a mandatory prepayment
of principal and interest to EIF equal to the amount necessary to cause the
total outstanding Indebtedness to be less than or equal to 80% of the Value of
the Collateral, or (ii) grant and convey to, and create in favor of, EIF,
perfected first priority EIF Liens in, to, and on all of Borrowers' right, title
and interest in additional collateral that is both satisfactory in nature and
value to EIF in its sole discretion, and sufficient in value to raise the Value
of the Collateral such that the total outstanding Indebtedness shall be less
than or equal to 80% of the Value of the Collateral or (iii) submit a plan,
reasonably acceptable to EIF, to cure such deficiency through the issuance of
equity or other means with ninety (90) days after such notification. Any
mandatory prepayment made pursuant to this Section shall not be subject to the
prepayment penalty set forth in Section 2.10 of this Agreement.
ARTICLE 3
ADDITIONAL FINANCING RIGHT OF FIRST REFUSAL
3.1 Additional Financing Right of First Refusal. Until the Loans
are paid in full, Borrowers hereby grant EIF the right of first refusal to
provide additional debt financing to Borrowers for the purpose of acquiring
additional oil and gas properties or gathering and processing assets or
developing by industry accepted methods (including infill drilling, well
deepening and recompletion of behind pipe zones) additional oil and gas
reserves on the Properties and any other properties acquired by Borrowers,
subject to the following terms and conditions:
(a) In the event that Borrowers determine, either directly
or through an Affiliate, to seek or obtain financing from any Person other than
EIF to make capital expenditures for the purposes set forth herein, it shall so
notify EIF. Any such notice shall be accompanied by relevant geological,
geophysical and engineering studies, environmental assessments, cost estimates,
and other information and data on the basis of which Borrowers propose to
proceed with such acquisition or development. EIF shall have the right, in its
sole discretion, for a period of sixty (60) days after receipt of the notice
from Borrowers, to elect by written notice to Borrowers to make loans to
Borrowers (any such loan referred to as an "Additional Loan") for eighty percent
(80%) of such acquisition and development costs (or such lesser percentage as
may be agreed to between EIF and Borrowers), provided that EIF will be required
to be in a position to advance funds within sixty (60) days after it notifies
Borrowers of its election to provide such financing.
(b) If EIF elects to make an Additional Loan, Borrowers will
accept such Additional Loan to finance eighty percent (80%) (or such lesser
percentage as may be agreed to between EIF and Borrower) of such acquisition and
development costs on terms and conditions substantially similar to the terms and
conditions set forth in this Agreement.
(c) If EIF determines not to provide the Additional Loan or
fails to notify Borrowers of its election to do so within sixty (60) days after
receipt of notice from Borrowers, Borrowers may obtain financing from other
sources.
(d) If Borrowers are prepared to accept the Additional Loan
from EIF on terms and conditions substantially similar to the terms and
conditions set forth in this Agreement and EIF declines to actually make such
Additional Loan, Borrowers may obtain financing from other sources.
(e) EIF may, at its sole discretion, assign all of its
rights under this Section 3.1 to an Affiliate of EIF.
(f) Nothing contained in this Article shall be construed to
create any obligation or commitment by EIF to make an Additional Loan. Any
Additional Loan shall be subject to the negotiation and execution of definitive
loan documentation satisfactory to EIF and Borrowers. If EIF elects to make an
Additional Loan, on the terms set forth in Section 3.1(b) of this Agreement, or
other mutually agreed terms, Borrowers shall not obtain financing from any other
source with respect to such expenditures.
3.2 Termination of Right of First Refusal. The rights granted to
EIF under Section 3.1 of this Agreement shall terminate on the date the Loans
are paid in full.
ARTICLE 4
SECURITY AND ASSIGNMENT
4.1 Collateral. To secure full and complete payment and
performance of the Loans and performance of Borrowers' obligations hereunder
and under the other Loan Documents, Borrowers hereby grant and convey to,
and creates in favor of, EIF, perfected first priority EIF Liens, in, to,
and on all of Borrowers' right, title and interest, whether now owned or
hereafter acquired, in the following items and types of property:
(a) The oil and gas leases, fee interests, Mineral
Interests, working interests, operating interests, net revenue interests,
production payment interests, Overriding Royalty Interests and any other rights,
title, estates or interests in the Properties of whatever kind or character and
any additions, replacements, or substitutions thereto; it being intended by
Borrowers and EIF to cover and affect hereby all interests Borrowers may now own
or hereinafter acquire in and to the Properties, including new leases that are
located in Railroad Valley or Pine Valley;
(b) All presently existing and future unitization,
communitization, pooling agreements and declarations of pooled units and the
units created thereby (including all units created under orders, regulations,
rules or other acts of any Federal, State or other governmental agency having
jurisdiction and any pooling agreements, units, or similar arrangement created
solely among working interest owners pursuant to operating agreements or
otherwise) which may affect all or any portion of the Properties including,
without limitation, the properties now or hereafter pooled or unitized with the
Properties;
(c) All Hydrocarbons in and under and which may be produced
and saved from or attributable to the Properties, the lands pooled or unitized
therewith, including Borrowers' interest in Hydrocarbons from time to time
located in storage or transportation facilities in or near the site of any gas
plants or in tanks or other storage facilities owned, operated or used by
Borrowers in connection with all or any portion of the Collateral and Borrowers'
interest in all rents, issues, profits, proceeds, products, revenues and other
income from or attributable to the Properties, the lands pooled or unitized
therewith and Borrowers' interests therein which are subjected or required to be
subjected to the liens and security interests of this Agreement;
(d) All tenements, hereditaments, appurtenances and
properties in anyway appertaining, belonging, affixed or incidental to the
Properties, rights, titles, interests and estates described or referred to in
paragraphs (a), (b) and (c) above, which are now owned or which may hereafter be
acquired by Borrowers, including, without limitation, any and all property, real
or personal, now owned or hereafter acquired and situated upon, used, held for
use, or useful in connection with the operating, working or development of any
of such Properties or the lands pooled or unitized therewith (excluding drilling
rigs, trucks, automotive equipment or other personal property which may be taken
to the premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, field separators, liquid extraction
plants, plant compressors, pumps, pumping units, pipelines, sales and flow
lines, gas processing plants and all compressors, scrubbers, absorbers,
dehydrators, tanks, reabsorbers, accumulators, stills, condensers, cooling
towers, regulators, meters, heaters, coolers, deethanizers, depropanizers,
debutanizers, boilers, pumps, heat exchangers, valves, controls, pipes and
lines, floating racks, heating, lighting and power plants, transmission lines,
buildings, housing and improvements, together with all other machinery,
equipment and apparatus of whatsoever character or description located on the
lands above-described or located elsewhere and used in the operation, conduct
and maintenance of such gas processing plants, all pipeline gathering systems
utilized in connection with such gas processing plants, together with all
equipment, fittings, fixtures, pipe, machinery, pumps, appliances, valves,
meters, tanks and other personal or real property appertaining to the said
pipeline gathering systems, field gathering systems, salt water disposal
facilities, tanks and tank batteries, and all other fixtures, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, equipment, appliances,
tools, implements, cables, wires, towers, casing, tubing and rods, surface
leases, rights-of-way, easements, servitudes, licenses tenements, hereditaments,
appurtenances and other surface and subsurface rights together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing properties;
(e) All operating agreements, production sales or other
contracts, farmout agreements, farm-in agreements, area of mutual interest
agreements, equipment leases and other agreements and contracts which relate to
any of the Properties or interests in the Properties or to the production, sale,
purchase, exchange, processing, handling, storage, transporting or marketing of
the Hydrocarbons from or attributable to such Properties or interests;
(f) All geological, geophysical, engineering, accounting,
legal and other information and rights therein and thereto in the possession of
Borrowers or to which Borrowers have access or has any rights therein concerning
the Properties including, without limitation, lease files, abstracts of title,
title opinions, geological and geophysical information (unless such geological
or geophysical information is restricted as to transfer or use by an existing
license or agreement concerning proprietary rights identified in this
Agreement), reserve or reservoir studies and well logs, engineering data and
reports, production records and all magnetic media and computer data relating to
the Collateral;
(g) All rights of Borrowers to liens and security interests
securing payment of proceeds from the sale of production from the Collateral;
together with Borrowers' interest in any and all renewals and extensions of any
of the Properties' rights, titles, interests or estates; Borrowers' interest in
all contracts and agreements supplemental to or amendatory of or in substitution
for the contracts and agreements described or referred to in this Agreement; and
any and all additional interests of any kind hereafter acquired by Borrowers in
and to the Properties' rights, titles, interests or estates;
(h) All accounts, contract rights, inventory, general
intangibles, insurance contracts and insurance proceeds constituting a part of,
relating to or arising out of those portions of the Collateral which are
described in paragraphs (a) through (g) above and Borrower's interest in all
proceeds and products of all such portions of the Collateral and payments in
lieu of production (such as "take or pay" payments), whether such proceeds or
payments are goods, money, documents, instruments, chattel paper, securities,
accounts, general intangibles, fixtures, real property, or other assets.
(i) All proceeds and payments attributable to all judgments
entered by courts (by agreement or otherwise), in contract or tort, arising out
of or attributable to the ownership of any of the Collateral;
(j) All of Borrowers' right, title and interest in the
Escrow Agreement and all funds deposited and held by the Escrow Agent in the
Escrow Account;
together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, any of the same, or of any instrument relating thereto, and
all rights-of-way, franchises, easements, tenements, hereditaments and
appurtenances now existing or in the future obtained in connection with any of
the aforesaid, with all reversions, remainders, rents, revenues, issues,
proceeds, earnings, incomes, products and profits thereof, and all proceeds from
the sale of any of the aforesaid, and all the estate, title, interests, rights
and claims whatsoever, at law as well as in equity, which Borrowers now have or
may hereafter acquire in and to the aforesaid, and all other interest of every
kind and character in all of the real and personal properties respectively above
described or referred to which Borrowers may now own or at any time hereafter
acquire (including, without limitation, all interests which Borrowers may now or
at any time hereafter own in the Hydrocarbons and other minerals in and under
the Properties), and all other things of value and incident thereto which
Borrowers might at any time have or be entitled to, all the aforesaid
properties, rights and interests, together with any additions thereto which may
be subjected to the lien of this instrument by means of supplements hereto, all
of the properties, interests and rights described above in this Section 4.1
being herein collectively referred to as the "Collateral."
Any additional right, title or interest which Borrowers may hereafter
acquire or become entitled to in the Collateral shall inure to the benefit of
and be covered by this Agreement and constitute "Collateral" the same as if
expressly described and conveyed herein.
4.2 Assignment. Borrowers hereby absolutely and unconditionally
TRANSFER, ASSIGN, WARRANT and CONVEY to EIF, effective as of January 6, 1998
at 7:00 a.m. local time, all of the interest of Borrowers in all Hydrocarbons
and all other minerals which are thereafter produced, saved or sold from the
Properties, or allocated thereto pursuant to pooling or unitization of oil
and gas leases or otherwise, all revenues and proceeds from the sale thereof
(the "Proceeds of Runs"), including all payments in lieu of production such
as "take or pay" payments and settlements, and all accounts, contract rights,
and other general intangibles under which such proceeds may arise. Borrowers
shall deliver to EIF signed letters in lieu of transfer order executed in
blank, substantially in the form of Exhibit H. The following terms and
conditions shall apply to the Proceeds of Runs:
(a) EIF shall have the right, exercisable anytime, and from
time to time, after an Event of Default, to give written or telegraphic notice
(in the form of a transfer order of letter in lieu signed by Borrowers or any
other form of notice signed by EIF) to all of the parties producing, purchasing,
taking, processing or receiving any Hydrocarbons and other minerals produced or
to be produced from or allocated to the Properties, or having in their
possession any such Hydrocarbons and other minerals belonging to Borrowers or
such proceeds for which they or others are accountable to EIF by virtue of the
provisions of this Section 4.2, to hold and dispose of such Hydrocarbons and
other minerals for the account of EIF and to make payment of such proceeds
directly to EIF at its principal office, and EIF shall thereafter receive,
collect and retain, as part of the Properties, all such Hydrocarbons and other
minerals, all for the benefit and further security of the Loans.
(b) In the event that, for its convenience, EIF should
elect, with respect to particular properties or contracts constituting the
Properties, not to exercise immediately upon an Event of Default its right to
receive payment to it directly of all or any portion of the assigned Proceeds of
Runs or production, then the oil or gas purchasers, or other persons obligated
to make such payment shall continue to make payment of such proceeds to
Borrowers until such time as they are notified by EIF. At such time, EIF shall
also notify Borrowers that EIF has made such written or telegraphic demand. Any
failure to notify shall not in any way waive the right of EIF to receive any
payments not theretofore paid out to Borrowers before the giving of written or
telegraphic notice. In this regard, then, if at the request of EIF, payments
are, for a period or periods of time, paid to Borrowers, EIF shall nevertheless
have the right, effective upon notice, to require that any future payments be
again made to EIF.
(c) All parties producing, purchasing or receiving any such
Hydrocarbons or other minerals, or having such, or proceeds therefrom, in their
possession for which they or others are accountable to EIF by virtue of the
provisions of this Section, are authorized and directed to treat and regard EIF
as the assignee and transferee of Borrowers and entitled in Borrowers' place and
stead to receive such Hydrocarbons and other minerals and all proceeds
therefrom; and said parties and each of them shall be fully protected in so
treating and regarding EIF, and shall be under no obligation to see to the
application by EIF of any such proceeds or payments received by it.
(d) The foregoing provisions of this Section 4.2 shall
constitute an absolute and present assignment of all of Borrowers' interest in
the Hydrocarbons. EIF grants to Borrowers a conditional license to receive and
sell such Hydrocarbons and the proceeds therefrom, and to use the same in
accordance with the terms of this Financing Agreement until EIF delivers written
notice to purchasers of production as provided hereinabove at which time such
conditional license shall terminate without further notice or action on the part
of EIF. The existence or exercise of such conditional license shall not operate
to subordinate this assignment, in whole or in part, to any subsequent
assignment by Borrowers permitted hereunder, and any such subsequent assignment
by Borrowers shall be subject to the rights of EIF hereunder.
4.3 Limitation on Recourse. The Notes shall be without recourse
to Borrowers and EIF shall look solely to the Collateral for the payment of
such principal and interest and shall not seek a deficiency or other personal
judgment against Borrowers in the event that any sale of the Collateral shall
be insufficient to satisfy the Loans. Nothing herein contained shall, however,
impair any right, remedy or security of EIF with respect to the Collateral
under any Loan Document, nor limit Borrowers' obligations to perform any of
Borrowers' other obligations hereunder, including without limitation
Borrowers' obligation to indemnify EIF as set forth in Article 9.
Notwithstanding the foregoing limitation of liability, Borrowers will remain
fully and personally liable for the Loans and all other obligations arising
under this Agreement if Borrower engages in or permits any of the following:
(a) fraud, breach of trust, or any material
misrepresentation by Borrowers in the Loan Documents or the Security
Instruments, or any other documents or instruments evidencing, securing or
relating to the Loans;
(b) waste of a material nature to any part of the Properties
caused by Borrower's gross negligence or willful and wanton neglect or abuse of
the Collateral or by failure to exert reasonable control appropriate for an
owner that is not also the operator;
(c) failure to pay taxes, insurance, assessments, charges
for labor or materials, or other charges, fees or assessments that can create or
result in liens on any portion of the Collateral or to comply with the
requirements of Section 7.6 hereof;
(d) any breaches of warranty or defects of title of the
Collateral, other than Permitted Liens;
(e) any breach of warranty or representation contained in
the Security Instruments, or failure to perform any covenant or other agreement
contained in the Security Instruments, or any indemnity contained in the
Security Instruments;
(f) any attempt to communicate in any manner with the
purchasers of production from the Collateral after the delivery to such
purchasers of a letter in the form of Exhibit H in an attempt to hinder or
interfere with the rights of EIF as stated in Section 4.2 above and as restated
in the Security Instruments; and
(g) the return of, or reimbursement for, all monies received
by Borrowers from the purchasers of production for monies attributable to
production after receipt by any such purchaser of a letter in the form of
Exhibit H.
(h) any attempt to hinder or interfere with the exercise of
the power of sale granted in any of the Security Instruments, including without
limitation the filing of a lis pendens, the initiation of any lawsuit or the
requesting of injunctive relief from any court or tribunal, having the effect of
hindering or delaying the exercise by EIF of any right or remedy under this
Agreement or any Security Instrument; and
(i) after an Event of Default, Borrowers shall fail or
refuse to execute and deliver to EIF any instrument reasonably requested by EIF
and prepared at its expense, which is necessary to fully vest title to the
Properties in EIF or the purchaser(s) of all or part of the Properties pursuant
to any sale as provided for in the Security Instruments.
Borrowers shall be fully and personally liable for all attorneys' fees and costs
and expenses incurred by EIF arising out of any of the foregoing sections (a)
through (i).
4.4 Definition of Collateral. From the time of the Initial Funding
up until the Funding of the Acquisition Loan, the term "Collateral" shall only
include the Existing Properties. After the first Funding of the Acquisition
Loan, the term "Collateral" shall include the Existing Properties, and any
other New Properties after they are acquired by Borrowers.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BORROWERS
Borrowers represent and warrant to EIF as follows:
5.1 Organization; Charter and Bylaws of Organizational Documents.
Borrowers are a corporation or a limited liability company validly existing and
in good standing under the laws of Nevada and have the requisite power to own,
lease and operate their respective properties and to carry on their business as
now being conducted. Borrowers are duly qualified to do business and are in
good standing in each jurisdiction in which the character or location of the
properties owned or leased by Borrowers or the nature of the business conducted
by Borrowers makes such qualification necessary or where the failure to so
qualify would have a material adverse effect on the assets, business, financial
condition or prospects of Borrowers.
5.2 Authority. Borrowers have the requisite power to execute,
deliver and perform the Loan Documents, and to consummate the transactions
contemplated thereby. The execution and delivery of the Loan Documents by
Borrowers and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of Borrowers. Each
of the Loan Documents has been duly executed and delivered by Borrowers and
constitutes a legal, valid and binding obligation of Borrowers and is
enforceable against Borrowers in accordance with its terms except (i) that
such enforcement may be subject to bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights and (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which
any proceedings therefor may be brought.
5.3 No Violation. The execution and delivery of the Loan
Documents by Borrowers do not, and the performance of the Loan Documents will
not, (i) conflict with or result in a breach of the articles of incorporation,
bylaws, operating agreement, articles of organization or other governing
documents of Borrowers, or (ii) violate, or conflict with, or constitute a
default under, or (except for EIF Liens created pursuant to the Loan Documents)
result in the creation or imposition of any security interest, mortgage,
pledge, lien, encumbrance, claim, restriction, or other charge upon any
property or assets of Borrowers under any mortgage, indenture or agreement to
which either Borrower is a party or by which the property or assets of either
Borrower is bound, or (iii) violate any Requirement of Law, the effect of
which violation would be material and adverse to the business, assets or
financial condition of either Borrower, or (iv) violate any permit,
concession, grant, franchise, license, or other governmental authorization
or approval necessary for the appropriate conduct of the business of either
Borrower, the effect of which violation would be material and adverse to the
business, assets or financial condition of either Borrower.
5.4 Litigation. Except as provided in Schedule 5.4 hereto, there
are no actions, suits, proceedings or governmental investigations or inquiries
pending, or to the knowledge of Borrowers threatened against either Borrower
or any of its Affiliates or their respective properties, assets, operations
or businesses (i) that might reasonably prevent or interfere with the
consummation of the transactions contemplated hereunder or (ii) that might
reasonably, either singly or in the aggregate, result in any material adverse
effect on the prospects, results of operation, properties, liabilities,
assets, financial condition or business of either Borrower. In the event
any such actions, suits, proceedings, claims or assessments arise or are
asserted prior to any Funding Date, Borrowers shall promptly notify EIF of
the same.
5.5 Financial Statements. The financial statements of Borrowers
included in filings with the Securities Exchange Commission (the "Financial
Statements") fairly represent the financial condition of Borrowers as of the
date thereof and for the periods reflected therein. Since the date of such
Financial Statements, there has been no material adverse change in the
assets, business, financial condition or prospects of Borrowers.
5.6 Compliance with Licenses and Laws. Except as disclosed in
writing to EIF by Borrowers, Borrowers possess all Permits, and Borrowers are in
compliance with the Permits and all Requirements of Law except where the failure
to possess any Permits or the failure to be in compliance with the Permits or
Requirements of Law would not, singly or in the aggregate, have a material
adverse effect on the business, assets, financial condition or operations of
Borrowers. There are no proceedings pending or, to the knowledge of either
Borrower, threatened that may result in the revocation, cancellation, or
suspension or any materially adverse modification of any of the aforementioned
Permits. Borrowers have not received any written notice to the effect that, or
otherwise been advised that, it is not in compliance with any Permit or
Requirement of Law. Except as set forth in Schedule 5.6 hereto, no consent,
approval or authorization of, or declaration, filing or registration with, any
United States federal, state, or local governmental or regulatory authority is
required to be made or obtained by either Borrower in connection with the
execution, delivery and performance of any Loan Document or the consummation by
Borrowers of the transactions contemplated thereunder.
5.7 Investments and Guaranties.Investments and Guaranties. At the
date of this Agreement, Borrowers have not made investments in, advances to or
guaranties of the obligations of any Person not otherwise disclosed on the
Financial Statements or on Schedule 5.23.
5.8 Title to Properties.
(a) At the Refinancing Loan Closing Date and at each Funding
Date, (i) Borrowers shall have full authority to create EIF Liens on the
Collateral, and (ii) all Mineral Interests that comprise a part of the
Collateral will be valid, subsisting and in full force and effect, and all
rentals, royalties and other amounts due and payable in respect thereof will
have been duly paid or accounted for.
(b) Except as specifically disclosed in Schedule 5.8(b),
at the Refinancing Loan Closing Date and at each Funding Date, Borrowers'
ownership interest in the Collateral shall consist of good and marketable
title, free and clear of all Liens except Permitted Liens.
5.9 Casualties; Taking of Properties. Since the date of the
Financial Statements, neither the businesses nor the properties of Borrowers
have been adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
5.10 ERISA. Each Employee Benefit Plan, if any, is in substantial
compliance with the applicable provisions of ERISA and the Code. Neither
Borrower nor any ERISA Affiliate maintains, contributes to or is obligated to
contribute to, nor have either Borrower or any ERISA Affiliate ever maintained,
contributed to or been obligated to contribute to, any Employee Benefit Plan
subject to Title IV. Neither Borrower nor any ERISA Affiliate maintains or
contributes to, nor have either Borrower or any ERISA Affiliate ever maintained
or contributed to, any Employee Benefit Plan subject to the funding
requirements of Section 302 of ERISA or Section 412 of the Code. No Employee
Benefit Plan provides death or medical benefits (including insured benefits)
to employees beyond their retirement or other termination of service, except
death or medical benefits required by law or death benefits under a plan
qualified under Section 401(a) of the Code.
(a) Neither Borrower nor any ERISA Affiliate maintains or
contributes to or has an obligation to contribute to, nor have either Borrower
or any ERISA Affiliate ever maintained or contributed to or had an obligation to
contribute to, any Multiemployer Plan.
(b) Neither Borrower or any ERISA Affiliate or any fiduciary
of any Employee Benefit Plan has engaged in any transaction or conduct that
could, directly or indirectly, result in any material liability of either
Borrower pursuant to Sections 409, 502(c) or 502(i) of ERISA, or Sections 4975,
4976, or 4980B of the Code.
(c) The consummation of the transactions contemplated by
this Agreement will not result in any Prohibited Transaction for which an
exemption is not available.
(d) All of the Employee Benefit Plans maintained by
Borrowers are identified on Schedule 5.10 hereto. Borrowers have not
contributed to or do not maintain any profit sharing, deferred compensation,
bonus, health, life, medical, hospitalization or other employee benefit plan or
program for the benefit of employees or partners of Borrowers, or their
dependents or beneficiaries, except for the Employee Benefit Plans disclosed on
Schedule 5.10 hereto.
(e) The Employee Benefit Plans are administered in
accordance with their respective terms. The Employee Benefit Plans and the
terms thereof conform in all material respects to all applicable laws, rules,
regulations and orders. All contributions or payments required to be made by
Borrowers under the Employee Benefit Plans have been made. There are no
unfunded obligations under the Employee Benefit Plans. Neither Borrower nor any
ERISA Affiliate has or has had any obligations under any collective bargaining
agreement. The persons classified by Borrowers as independent contractors do
satisfy and have satisfied the requirements of law to be so classified, and
Borrowers have fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
(f) Borrowers are and have been in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
tax withholding and reporting, and occupational safety and health requirements.
5.11 Environmental Liabilities.
(a) The Properties are, and to the best of Borrowers'
knowledge, at all times have been (except as set forth in Schedule 5.11(a)),
operated in compliance with all applicable Environmental Laws; and to the best
of Borrowers' knowledge, no condition exists with respect to the Collateral or
other property owned or operated by Borrowers or any Affiliate of Borrower that
would or could reasonably be expected to subject either Borrower, any Affiliate
of either Borrower, or EIF to any damages (including without limitation, actual,
consequential, exemplary and punitive damages), liability (absolute or
contingent, determined or determinable), penalties, injunctive relief or cleanup
costs under any applicable Environmental Laws, or that require or could
reasonably be expected to require cleanup, removal, remedial action or other
response by either Borrower, any Affiliate of either Borrower, or EIF pursuant
to applicable Environmental Laws.
(b) Borrowers have not received and, to the best of
Borrowers' knowledge, none of their Affiliates have received, and to the best of
Borrowers' knowledge none of Borrowers' or their Affiliates' predecessors in
title to the Properties have received, any notice from a governmental agency
asserting or alleging a violation of any Environmental Laws as they relate to
the Properties, except as set forth in Schedule 5.11(a).
(c) There are no pending or, to the best of Borrowers'
knowledge, threatened suits, actions, claims or proceedings against either
Borrower or their Affiliates or, to the best of Borrowers' knowledge, Borrowers'
or their Affiliates' predecessors in title, arising from or related to, directly
or indirectly, any Environmental Laws as they relate to the Properties.
(d) Neither Borrower, any Affiliate of either Borrower, any
part of the Properties, nor, to the best of Borrowers' knowledge, Borrowers' or
any Affiliate's predecessors is subject to any judgment, decree, order or
citation related to or arising out of any Environmental Laws, and neither
Borrower nor any Affiliate has been named or listed as a potentially responsible
party by any governmental or other entity in a matter arising under or relating,
directly or indirectly, to any Environmental Laws.
(e) Borrowers have obtained or caused to be obtained all
permits, licenses, and approvals required under all Environmental Laws to
operate the Properties.
(f) There are not now, nor to the best of Borrowers'
knowledge have there ever been except as set forth on Schedule 5.11(a),
Hazardous Materials discharged, leaked, spilled or released in, on, to, from or
at the Properties or other properties owned or operated by Borrowers or any of
their Affiliates or stored, treated, or recycled at or in tanks or other
facilities thereon or related thereto which give rise or could reasonably be
expected to give rise to liability under any Environmental Laws.
(g) The use which Borrowers make and intend to make of the
Properties will not result in: (i) the use or storage of any Hazardous
Materials on, in or in connection with the Properties, or disposal of any
Hazardous Materials from the Properties except in compliance with all applicable
Environmental Laws, or (ii) the treatment, processing, discharge or release of
any Hazardous Materials on, in, to or from the Properties except in compliance
with all applicable Environmental Laws.
(h) There are no underground storage tanks surface
impoundments, or wastewater injection wells located on or in the Properties.
5.12 Taxes. Borrowers have filed or caused to be filed within
the times and within the manner prescribed by law (including the period of
any permitted extensions), all federal, state, local and foreign tax returns
and tax reports that are required to be filed by, or with respect to,
Borrowers. Such returns and reports reflect accurately all liability for
taxes of Borrowers for the periods covered thereby, and all federal, state,
local and foreign income, profits, franchise, sales, use, occupancy, excise
and other taxes and assessments (including interest and penalties) payable
by, or due from, Borrowers have been fully paid or adequately disclosed and
fully provided for in the books and Financial Statements of Borrowers to the
extent required by generally accepted accounting principles. No examination
of any tax return of Borrowers is currently in progress, and there are no
unpaid taxes in any material amount claimed to be overdue by the taxing
authority of any jurisdiction. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of either Borrower.
5.13 Securities FilingsSecurities Filings. Borrowers have
filed or caused to be filed, within the times and within the manner
prescribed by law, all federal and state securities and blue sky filings
that are required to be filed by, or with respect to, Borrower, including
without limitation all filings required to be made pursuant to the Securities
Exchange Act of 1934, except to the extent that any claims based on such
filing is otherwise barred by the applicable statute of limitations.
5.14 No Event of Default. No Default or Event of Default has
occurred and is continuing.
5.15 Investment Company Act. Neither Borrower is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
5.16 Public Utility Holding Company Act. Neither Borrower
is a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
5.17 Location of Business and Offices. Borrowers' principal
places of business and chief executive offices are located at the addresses
indicated in Section 11.1 of this Agreement.
5.18 No Misstatement. No information, exhibit or report furnished
to EIF by Borrowers in connection with the negotiation of this Agreement
contains any material misstatement of fact or omits to state any material fact
necessary to make the statement contained therein not misleading.
5.19 Foreign Person. Neither Borrower is a non-resident alien,
foreign corporation, foreign partnership, foreign trust, foreign estate or
foreign person within the meaning of Sections 1445 or 7701 of the Internal
Revenue Code of 1986, as amended, or the regulations thereto.
5.20 Arrangements Relating to Hydrocarbons. Borrowers have
made arms-length arrangements with respect to marketing, sales, transportation,
treating and processing, and any other arrangements necessary to dispose of the
Hydrocarbons to be produced from the Properties on and immediately after the
Refinancing Loan Closing Date. Borrowers are not in breach of any such
arrangements.
5.21 Hydrocarbon Contracts. Borrowers (a) are not obligated in
any material respect by virtue of any prepayment made under any contract
containing a "take or pay" or "prepayment" provision, or under any similar
agreement to deliver Hydrocarbons produced from or allocated to any of the
Properties at some future date without receiving full payment therefor at the
time of delivery and (b) have not produced Hydrocarbons in any material amount
subject to, and neither Borrower nor any of the Properties is subject to,
balancing rights of third parties or balancing duties under Requirements of
Law, except as set forth in Schedule 5.21.
5.22 No Indebtedness to Shareholders, Members, Officers, Directors,
Managers or Affiliates. Neither Borrower owes Indebtedness to any of its
respective Affiliates, or any shareholder, member, officer, director, manager
or Affiliate of such person, except as set forth in Schedule 5.22.
5.23 Capitalization. The authorized capital of Foreland consists
of (i) 50,000,000 shares of common stock, $0.001 par value (the "Shares"),
of which 8,665,364 Shares are issued and outstanding as of the date hereof,
and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of
which 2,000,000 preferred shares are designated as 1991 Series Convertible
Preferred Stock with 40 of such preferred shares issued and outstanding
(convertible into 13,333 Shares), 1,650,000 preferred shares are designated
as 1994 Series Convertible Redeemable Preferred Stock with 165,140 of such
preferred shares issued and outstanding (convertible into 55,047 Shares),
1,000,000 preferred shares are designated as 1995 Series Convertible
Preferred Stock with 556,667 of such preferred shares issued and outstanding
(convertible into 185,556 Shares), 1,500 preferred shares are designated as
1996 Series 6% Convertible Preferred Stock with none of such preferred
shares issued and outstanding, 10,000 preferred shares are designated
as 1996-2 Series 6% Convertible Preferred Stock with none of such preferred
shares issued and outstanding, 6,000 preferred shares are designated as 1996-3
Series 8% Convertible Preferred Stock with none of such preferred shares issued
and outstanding, 500 preferred shares are designated as the 1996-4 Series
Preferred Stock with none of such preferred shares issued and outstanding, and
50,000 preferred shares are designated as Series A Preferred Stock with none of
such preferred shares issued and outstanding, and 282,000 preferred shares are
not designated (the "Capital). Foreland has no other Shares or capital stock of
any class or other equity securities or equity equivalents authorized, issued or
outstanding. Foreland has reserved a sufficient number of authorized Shares for
issuance pursuant to the Warrants. Except as set forth in Schedule 5.23, there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights, agreements or commitments of any character obligating Borrower to issue
any Shares or securities convertible into or exchangeable for or evidencing the
right to purchase or subscribe for any Capital of Borrower.
ARTICLE 6
THE CLOSINGS; CONDITIONS PRECEDENT
6.1 Time and Place of Closings.
(a) The closing of the Refinancing Loan (the "Refinancing
Loan Closing") will take place at the offices of Associated Energy Managers,
Inc., 136 Dwight Road, Longmeadow, Massachusetts on January 6, 1998 (the
"Refinancing Loan Closing Date") at 12:30 p.m. Eastern time or at such other
time and date as the parties may agree.
(b) The closing of the Development Loan (the "Development
Loan Closing") will take place at the offices of Associated Energy Managers,
Inc., 136 Dwight Road, Longmeadow, Massachusetts on January 6, 1998 (the
"Development Loan Closing Date") at 12:30 p.m. Eastern time or at such other
time and date as the parties may agree. The Initial Funding shall take place at
such time as may be specified by EIF and at such place as the parties may
mutually agree.
(c) The closing of the Acquisition Loan (the "Acquisition
Loan Closing") and the Funding of the first advance thereunder will take place
at such time as may be specified by EIF (the "Acquisition Loan Closing Date")
and at such place as the parties may mutually agree. The Funding of each
subsequent advance under the Acquisition Loan will take place at such time as
may be specified by EIF and at such place as the parties may mutually agree.
6.2 Conditions Precedent to the Funding of Each Loan. The
obligations of EIF to make the Refinancing Loan, the Development Loan, the
Acquisition Loan and any Fundings thereunder are subject to the following
conditions precedent, one or more of which may be waived by EIF with respect
to any particular Funding in EIF's sole discretion:
(a) Corporate Documents. At or prior to each Funding
Date, each Borrower shall have delivered or caused to be delivered to EIF:
(i) a certificate of the Secretary of State of the
Borrower's state of incorporation or organization dated not earlier
than the tenth (10th) day preceding the applicable Funding Date, to
the effect that such Borrower is a corporation or limited liability
company validly existing and in good standing under the laws of such
state as of such date;
(ii) a certificate of the Secretary of State of each
state where such Borrower is required to qualify to do business
(including without limitation, the states where the Collateral is
located), dated not earlier than the tenth (10th) day preceding the
applicable Funding Date, to the effect that such Borrower is a
corporation or limited liability company duly licensed or qualified to
do business in such state and is in good standing as a foreign
corporation or foreign limited liability company under the laws of
such state as of such date; and
(iii) certificates of the Secretary or Assistant
Secretary of such Borrower including (A) copies of the Articles of
Incorporation or Organization and By-laws or Operating Agreement of
such Borrower as then in effect or a certification that there has been
no change in such instruments since the last such certification
delivered to EIF pursuant to this Agreement, (B) duly enacted
resolutions of the Board of directors or consents of the Managers or
Members in form and substance satisfactory to EIF approving the Loan
Documents and authorizing officers or Managers of such Borrower to
execute and deliver instruments required to be delivered hereunder as
a condition precedent to the Funding, or a certification that there
has been no amendment or revocation of such resolutions since the last
such certification delivered to EIF pursuant to this Agreement, and
(C) specimen signatures of the officers or Managers of Borrower
authorized to sign such instruments to the extent such specimen
signatures have not previously been delivered to EIF.
(b) Representations and Warranties True. The
representations and warranties of Borrowers contained in this Agreement shall
be true on and as of each Funding Date, except for inaccuracies that are not
in the aggregate material, and Borrowers shall have delivered to EIF a
certificate signed on Borrowers' behalf by their President and Manager, or
other appropriate officer, dated as of the Funding Date to such effect.
(c) Compliance with Covenants. Borrowers shall have
performed, and be in compliance with, in all material respects, all of its
agreements and covenants under this Agreement and Borrowers shall have
delivered to EIF a certificate signed on Borrower's behalf by their President
and Manager, or other appropriate officer, dated as of the Funding Date to
such effect.
(d) Absence of Event of Default. No Default or Event
of Default shall exist, and Borrowers shall have delivered to EIF a
certificate signed on Borrowers' behalf by their President and Manager, or
other appropriate officer, dated as of the Funding Date to such effect.
(e) Opinion of Borrowers' Counsel. At or prior to each
Funding, EIF shall have received an opinion of Kruse, Landa & Maycock L.L.C.,
dated as of the relevant Funding Date, substantially in the form of Exhibit I.
(f) Financial Condition. Borrowers shall have furnished
such information concerning the financial condition and reputation of
Borrowers as EIF shall reasonably request, including without limitation, the
information requested in the form of Officer's Certificate and the Financial
Covenants Calculations set forth in Exhibit J, and such information shall be
satisfactory to EIF and its representatives. Such information shall include
evidence that there has been no adverse change in the financial condition of
Borrowers since the immediately preceding Funding Date. There shall not then
be pending against Borrowers any petition in bankruptcy, whether voluntary or
otherwise, any assignment for the benefit of creditors, any petition seeking
reorganization or arrangement under the bankruptcy, insolvency, reorganization
or similar laws of the United States or of any state thereof, or any other
action affecting the rights of creditors of Borrowers brought under the
aforesaid laws. Borrowers shall have delivered to EIF a certificate signed
on Borrowers' behalf by its President and Manager, or other appropriate officer,
dated as of the Funding Date to such effect.
(g) Asset Coverage. EIF shall be satisfied, based upon
all relevant available information including advice received by EIF from
petroleum engineers selected by EIF and EIF's own estimate of cash flows
available from all Collateral available to it under the Loans, that all
amounts outstanding under the loans shall not exceed 80% of the Value of
the Collateral.
(h) Legal Matters. All proceedings in connection with
the Loans, all documents incident thereto, and all legal matters in connection
with the transactions by Borrowers to be financed hereunder shall be
satisfactory in form and substance to EIF and EIF's counsel, and EIF shall
have received all approvals, opinions or documents that EIF or its counsel
may reasonably have requested in connection with the Funding, all in form
and substance satisfactory to EIF.
(i) Access to Information; Due Diligence. EIF and its
representatives shall have had access to such information and records of
Borrowers as EIF shall have reasonably requested, including without limitation
leases and other records relating to the Properties and all contract files
pertaining to oil and gas production from the Properties, all technical
data (including, but not limited to, logs, seismic data, drilling reports,
production reports, and test results), and all such information and records
shall be satisfactory to EIF and its representatives.
(j) Purchasers of Production. Borrowers shall furnish to
EIF at each Closing and upon each Funding if there has been a change since the
previous Funding, the following information:
(i) The name, address, telephone number and fax number
of all purchasers of production from the Collateral, including the
name of the person responsible for effecting changes of ownership at
such purchaser.
(ii) The owner number assigned to Borrowers by each
such purchaser of production.
(iii) The property number assigned by each purchaser of
production to each Property comprising the Collateral of Borrowers.
(iv) The net revenue-decimal interest of Borrowers
assigned by each purchaser of production in each Property on which the
purchaser is remitting payments to Borrowers.
(v) Copies of all division orders signed by Borrowers
with each purchaser of production.
(k) Other Matters. EIF shall have received from Borrowers
such other agreements, certificates, instruments and documents as EIF may
reasonably request to evidence or carry out the transactions contemplated by
this Agreement.
6.3 Conditions Precedent to Refinancing Loan Closing, the
Development Loan Closing and the Initial Funding. The obligations of EIF to
make the Refinancing Loan and any Fundings thereunder, and to make the
Development Loan and any Fundings thereunder are subject to the following
conditions precedent set forth in Section 6.2 of this Agreement and the
following conditions precedent:
(a) Loan Documents. EIF shall have received the following
instruments, each duly and validly executed and delivered by Borrowers:
(i) the Refinancing Note;
(ii) the Development Note;
(iii) the Acquisition Note;
(iv) the Escrow Agreement
(v) Security Instruments;
(vi) such other agreements, certificates, instruments
or other documents as EIF may reasonably request to evidence or carry
out the transactions contemplated by this Agreement.
(b) Bank Loans. Borrowers shall have provided evidence
satisfactory to EIF and its counsel that the Bank will accept payment in full
of the Bank Loans, including payoff figures, and the Bank shall have delivered
a release and cancellation of the Bank Loans and of any Liens securing the Bank
Loans, in a form acceptable to EIF and its counsel.
(c) Security Instruments Recorded. Security Instruments or
requisite evidence of the security interests created thereby, containing a
description of the Collateral, shall have been executed and delivered in such
places and in such form as may be necessary to perfect EIF's security interest
in the Collateral.
(d) Title. EIF shall have received an opinion in form and
substance satisfactory to EIF and its counsel, stating the fee, surface,
working and net revenue interests of Borrowers in the Properties and such other
information, including title abstracts and copies of all other information
available to Borrowers reasonably requested by EIF and its counsel with respect
to title to such properties, and EIF and its counsel shall be satisfied with
the state of title to such properties.
(e) No Liens. Borrowers shall have furnished evidence
satisfactory to EIF and its counsel that any Liens (other than Permitted Liens)
affecting the Collateral have been discharged, released or subordinated prior
to, or will be discharged, released or subordinated to EIF concurrently with,
the Refinancing Loan Closing.
(f) Initial Overriding Royalty Interests. Borrowers
shall have duly and validly executed and delivered to EIF all documents, in form
and substance satisfactory to EIF, and such documents shall have been filed in
such places, necessary or appropriate to effect the assignment and conveyance of
the Initial Overriding Royalty Interests.
(g) Transfer Orders and Letters in Lieu. Borrowers
shall have furnished to EIF copies of all Division Orders, Transfer Orders and
letters in lieu signed by Borrowers and stating its interest in the Hydrocarbons
comprising the Collateral.
(h) Warrants. Foreland shall have executed and delivered to
EIF the Warrants in substantially the form of Exhibit K hereto.
(i) Operating Agreements for Existing Properties. Borrowers
shall have delivered an executed copy of the operating agreements for each of
the Existing Properties.
(j) AFEs. Borrowers shall have delivered to EIF an AFE for
each development project to be completed with the proceeds of the Initial
Funding.
(k) Seismic Data. At the request of EIF, Borrowers shall
make available to EIF all three-dimensional seismic reports and data received
by Borrowers which pertain to any of the Properties.
6.4 Conditions Precedent to Funding Subsequent Advances Under the
Development Loan. The obligations of EIF to fund any advance of the
Development Loan after the Initial Funding are subject to the satisfaction the
conditions precedent set forth in Sections 6.2 and 6.3 of this Agreement and the
following additional conditions precedent:
(a) Development Plan and Budget. Borrowers shall have
delivered to EIF the Development Plan and Budget for the applicable quarter
for any development to be made with the proceeds of the Development Loan and
such budget shall be acceptable to EIF in its sole discretion.
(b) Seismic Data. At the request of EIF, Borrowers shall
make available to EIF all three-dimensional seismic reports and data received
by Borrowers which pertain to any of the Properties.
(c) Results of Prior Development. The results of the
development drilling completed with the proceeds of the previous Funding of the
Development Loan shall be satisfactory to EIF, in its sole discretion.
Borrowers shall have also provided evidence satisfactory to EIF that the
expenditures for the development pursuant to the Development Loan did not exceed
110% of the amount stated in the AFEs.
(d) Secondary Overriding Royalty Interests. Borrowers
shall have duly and validly executed and delivered to EIF, pursuant to
Section 2.12(b) of this Agreement, all documents, in form and substance
satisfactory to EIF, and such documents shall have been filed in such places,
necessary or appropriate to effect the assignment and conveyance of the
Secondary Overriding Royalty Interests.
(e) Miscellaneous. All proceedings in connection with the
Refinancing Loan, the Development Loan and all documents incident thereto shall
be satisfactory in form and substance to EIF and EIF's counsel.
6.5 Conditions Precedent to the Acquisition Loan. The obligations
of EIF to close the Acquisition Loan and to make any Fundings thereunder are
subject to the satisfaction of the conditions precedent set forth in Sections
6.2, 6.3 and 6.4 of this Agreement and the following conditions precedent:
(a) Development Plan and Budget. Borrowers shall have
delivered to EIF the Development Plan and Budget for any acquisitions and
development to be made with the proceeds of the Acquisition Loan and such
budget shall be acceptable to EIF in its sole discretion.
(b) Results of Prior Development. The results of the
development drilling completed with the proceeds of the Development Loan and
Acquisition Loan shall be satisfactory to EIF, in its sole discretion.
Borrowers shall have also provided evidence satisfactory to EIF that the
expenditures for the development pursuant to the Development Loan and did not
exceed 110% of the amount stated in their respective AFEs.
(c) Purchase Agreements. EIF and its counsel shall be
satisfied as to the form and content of any relevant purchase agreements.
(d) Security Instruments Recorded. Security Instruments
or requisite evidence of the security interests created thereby, containing a
Description of the Collateral, shall have been executed and delivered in such
places and in such form as may be necessary to perfect EIF's security interest
in the Collateral.
(e) Title. EIF shall have received an opinion from
Borrowers' counsel in form and substance satisfactory to EIF and its counsel,
stating the fee, surface, working and net revenue interests of Borrowers in
the Properties and such other information, including title abstracts and
copies of all other information available to Borrowers reasonably requested
by EIF and its counsel with respect to title to such properties, and EIF and
its counsel shall be satisfied with the state of title to such properties.
(f) No Liens. Borrowers shall have furnished evidence
satisfactory to EIF and its counsel that any Liens (other than Permitted
Liens) affecting the Collateral have been discharged, released or
subordinated prior to, or will be discharged, released or subordinated to
EIF concurrently with, the Refinancing Loan Closing.
(g) Transfer Orders and Letters in Lieu. Borrowers
shall have furnished to EIF copies of all Division Orders, Transfer Orders and
letters in lieu signed by Borrowers and stating their interest in the
Hydrocarbons comprising the Collateral.
(h) AFE. EIF shall have received an AFE for each of the
acquisition projects for which such release of funds is sought at least twenty
(20) days prior to the date proposed by Borrowers for the release of such funds
that must be in conformance with the Development Plan and Budget, or otherwise
approved by EIF. Borrowers shall not materially amend any AFE if the amendment
would cause the AFE to not conform to the Development Plan and Budget without
obtaining EIF's prior written consent.
(i) Request for Escrow Disbursement. Upon completion of
the work contemplated by the AFE, Borrowers shall submit a Request for Escrow
Disbursement, together with supporting documentation. Provided the amounts
specified in the Request for Escrow Disbursement do not exceed 110% of the
amounts set forth in the AFE, then EIF shall instruct the Escrow Agent to
disburse payments directly to Borrowers in the amounts specified by written
instructions executed by EIF.
6.6 Conditions Precedent to Release of Funds from Escrow Account.
Subject to the satisfaction of the conditions precedent provided in Sections
6.2, 6.3, 6.4 and 6.5 of this Agreement, if EIF has required any funds to be
deposited into the Escrow Account, EIF agrees to direct the Escrow Agent to
release certain funds from the Escrow Account provided that Borrowers shall
have provided the following items:
(a) AFE. EIF shall have received an AFE for each of the
development or acquisition projects for which such release of funds is sought
at least twenty (20) days prior to the date proposed by Borrowers for the
release of such funds that must be in conformance with the Development Plan
and Budget, or otherwise approved by EIF. Borrowers shall not materially amend
any AFE if the amendment would cause the AFE to not conform to the Development
Plan and Budget without obtaining EIF's prior written consent.
(b) Request for Escrow Disbursement. Upon completion of
the work contemplated by the AFE, Borrowers shall submit a Request for Escrow
Disbursement, together with supporting documentation. Provided the amounts
specified in the Request for Escrow Disbursement do not exceed 110% of the
amounts set forth in the AFE, then EIF shall instruct the Escrow Agent to
disburse payments directly to Borrowers in the amounts specified by written
instructions executed by EIF.
ARTICLE 7
COVENANTS OF BORROWER
Borrowers hereby covenant and agree that, so long as the Loans are
outstanding or any party has any obligations pursuant to this Agreement or any
other Loan Document:
7.1 Punctual Payment and Performance. Borrowers shall duly
and punctually pay the principal and interest on the Loans, the overriding
royalty payments and all other amounts provided for in this Agreement, or any
other Loan Document, and shall perform all its obligations and covenants under
all Loan Documents.
7.2 Records and Accounts. Borrowers shall keep true and accurate
records and books of account in which full, true and correct entries will be
made in accordance with generally accepted accounting principles ("GAAP") and
shall maintain adequate accounts and reserves for all taxes (including income
taxes) and loan amortization.
7.3 Financial Statements, Certificates and Information. Borrowers
shall deliver to EIF:
(a) As soon as practicable, but in any event not later than
ninety (90) days (or, in the event an extension has been obtained in accordance
with the rules of the Securities Exchange Commission, one hundred five (105)
days) after the end of each fiscal year of Borrowers, the balance sheets of
Borrowers as at the end of such fiscal year, and the related statements of
income and statements of cash flow for such year, each setting forth in
comparative form the figures for the previous fiscal year, all such statements
to be in reasonable detail, prepared in accordance with GAAP, and all such
statements to be certified by independent certified public accountants
satisfactory to EIF, together with a written statement from such accountants to
the effect that they have read a copy of this Agreement, and that, in making the
examination necessary to said certification, they have obtained no knowledge of
any Default or Event of Default, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default, they shall disclose
in such statement any such Default or Event of Default; provided that such
accountants shall not be liable to EIF for failure to obtain knowledge of any
Default or Event of Default;
(b) As soon as practicable, but in any event not later than
forty-five (45) days (or, in the event an extension has been obtained in
accordance with the rules of the Securities Exchange Commission, fifty (50)
days) after the end of each calendar quarter of each fiscal year of Borrowers,
the unaudited balance sheets of Borrowers as at the end of such quarter, and the
related statements of income and statements of cash flow for the portion of
Borrowers' fiscal year then elapsed, all in reasonable detail and prepared in
accordance with GAAP, subject to year-end adjustments, together with a
certification by the principal financial or accounting officer of Borrowers that
the information contained in such financial statements is true and accurate;
(c) Simultaneously with the delivery of the financial
statements referred to in (b) above, a certification by the principal financial
or accounting officer of Foreland that (i) a review of the activities of
Borrowers has been made under such officer's supervision with a view to
determining whether Borrowers have fulfilled all obligations under the Loan
Documents; (ii) Borrowers have fulfilled all obligations under such Loan
Documents and all representations made herein or therein continue to be true and
correct (or specifying the nature of any change), or if a Borrower shall be in
Default, specifying any Default and the nature and status thereof; and (iii) to
the extent requested from time to time by EIF, Borrowers have complied with any
and all of its representations or obligations under such Loan Documents. The
certificate shall also include each Borrower's calculation of the financial
covenants set forth in Section 7.23 of this Agreement.
(d) As soon as practicable, but in any event not later than
forty-five (45) days after the end of each fiscal quarter of Borrowers, a report
(in a form reasonably satisfactory to EIF) from the principal financial or
accounting officer of each Borrower that (i) itemizes each expenditure of the
proceeds of the Loans during such fiscal quarter, on a well-by-well, project-by-
project and asset-by-asset basis, and (ii) certifies that such expenditures,
when aggregated with all prior expenditures of the proceeds of the Loans, do not
exceed one hundred ten percent (110%) of the projected acquisition and
development costs approved by EIF prior to funding the Loans. If the
development costs for any well or project shall have exceeded one hundred ten
percent (110%) of the projected development costs approved by EIF for such well
or project, then the Treasurer shall identify such well(s) or projects and shall
explain the reason(s) for such cost overruns.
(e) Within sixty (60) days after the end of any calendar
year, Borrowers shall provide information necessary for a Reserve Report to be
prepared by Mohajir & Associates, or such other independent engineering firm as
shall be mutually agreeable to EIF and Borrowers (with the cost of preparing
such report to be borne by Borrowers).
(f) Promptly after receipt by Borrowers, copies of any other
independent reserve reports with respect to the Collateral;
(g) Promptly after preparation by Borrowers, copies of any
Internal Reserve Report with respect to the Collateral;
(h) Within ninety (90) days of the close of Borrowers'
fiscal years, an annual operations report, and, within forty-five (45) days of
the close of each fiscal quarter of Borrowers, a quarterly operations statement,
each setting forth for the applicable period the production results of the
Properties on a well-by-well and asset-by-asset basis, and, within ten (10) days
of the end of any calendar month, a report describing the volumes of production
of Hydrocarbons for the most recent month for which information is available and
any other material operating developments and any other information of the type
that would be provided a working interest owner;
(i) Within forty-five (45) days of the end of any of
Borrowers' fiscal quarters, a report listing each Collateral well or Property
and Borrowers' then current decimal ownership interest therein if a change has
occurred during such fiscal quarter;
(j) Borrowers shall deliver to EIF, at least fifteen (15)
days prior to July 1 and January 1 of each calendar year, a Development Plan and
Budget acceptable to EIF in its sole discretion; and
(k) From time to time, such engineering data and other
information regarding the business, affairs, oil and gas properties, and other
assets or financial condition of Borrowers as EIF may reasonably request.
7.4 Existence; Maintenance of Collateral. Borrowers shall
do or cause to be done all things necessary to preserve and keep in full force
and effect their existence, rights and franchises, except when failure to do so
would not have a material adverse effect on Borrowers. Borrowers shall cause
all of the Collateral and their businesses to be maintained and kept, in
accordance with sound field practices, in good condition, repair and working
order and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments, and improvements
thereof.
7.5 Title to Properties. Borrowers shall maintain their good
and marketable title to the Collateral, free and clear of all Liens, except
for Permitted Liens and EIF Liens. Borrowers shall warrant and forever defend
their right, title and interest in and to the Collateral against the claims and
demands of every Person whatsoever claiming or which may claim the same or any
part thereof.
7.6 Mineral Interests. Borrowers shall continuously maintain and
perpetuate all Mineral Interests now owned or hereafter acquired by Borrowers
that are Collateral under this Agreement, in accordance with the best usage and
custom in the industry and in compliance (in all material respects) with
applicable Requirements of Law.
(a) Borrowers shall not (i) permit the surrender,
abandonment, release or termination, in whole or in part, of any Mineral
Interest now owned or hereafter acquired by Borrowers which is Collateral at
such time, unless Borrowers reasonably determine that continuation of such
Mineral Interest would not be economically prudent and gives EIF forty-five (45)
days' notice of such determination, or (ii) enter into any agreement related to,
or any amendment or modification of, any Mineral Interest now owned or hereafter
acquired by Borrower subject to this Agreement, or any operating agreement, unit
agreement, easement, license, franchise, permit or other similar contract or
agreement of any character in respect to title to or operation of such Mineral
Interests, without EIF's consent, which consent will not be unreasonably
withheld.
7.7 Contract Approval. Borrowers shall submit to EIF for its
review and approval at least ten (10) days in advance of the date Borrowers
intend to enter into a contract (including a modification or amendment of any
existing contract), each proposed contract for the sale and/or transportation
of Hydrocarbons produced from the Properties if such contract was not in effect
as of the date of this Agreement and has a term of ninety (90) days or more
("Proposed Hydrocarbon Contracts"). Borrowers shall not enter into any
Proposed Hydrocarbon Contracts that establish pricing and have a term of one
year or more or make deliveries thereunder without obtaining EIF's prior
written approval, which approval shall not be unreasonably withheld if EIF's
security position is not adversely affected thereby.
7.8 Insurance. Borrowers shall acquire and continue to maintain,
with financially sound and reputable insurers, insurance with respect to their
properties and business against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated;
provided, however, that Borrowers shall maintain liability insurance in the
amount of not less than $2,000,000 with a deductible not to exceed $500 per
claim. Borrowers shall furnish or cause to be furnished copies of binders
relating to such insurance to EIF prior to Funding and from time to time a
summary of the insurance coverage of Borrowers in form and substance
satisfactory to EIF and if requested will furnish EIF copies of the
applicable policies. In the case of any fire, accident or other casualty
causing loss or damage to the properties of Borrowers, the proceeds of such
policies shall be used (i) to repair or replace the damaged property, or (ii)
subject to EIF's prior written consent and notwithstanding any restriction on
prepayment, to prepay the Loans without premium or penalty.
7.9 Taxes and Other Claims. Borrowers shall duly pay and
discharge before the same shall become overdue all taxes, assessments and
other governmental charges imposed upon Borrowers and its properties, sales
and activities, or any part thereof, or upon the income or profits therefrom,
or burdening the Properties or Collateral, as well as all claims for labor,
materials, or supplies, including all such claims incurred in connection with
operation of the Properties or Collateral or the drilling of wells thereon or
the production, storing or marketing of gas or other Hydrocarbons therefrom,
which if unpaid might by law become a lien or charge upon any of its property;
provided, however, that any such tax, assessment, charge, levy or claim need
not be paid if the validity or amount thereof shall currently be contested by
Borrowers in good faith by appropriate proceedings and if Borrowers shall
have set aside on their books adequate reserves with respect thereto; and
provided, further, that Borrowers shall pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any material lien which may have attached as security therefor.
7.10 Securities Filings. Borrowers shall duly file or cause to
be filed, within the times and within the manner prescribed by law (including
all permitted extensions), all federal and state securities and blue sky
filings that are required to be filed by, or with respect to, Borrowers,
including without limitation all filings required to be made pursuant to the
Securities Exchange Act of 1934. Borrowers shall deliver to EIF copies of
all filings made with the Securities Exchange Commission and any state
securities commission or agency within three (3) days of such filing. If
a filing to be made by Borrowers with the Securities Exchange Commission
or a state securities commission or agency refers to EIF, preliminary
copies of such filing shall be delivered to EIF and to EIF's counsel no
later than two (2) Business Days prior to such filing with a final copy
delivered to EIF at the time of filing. Borrowers shall also deliver to EIF
copies of all press releases at the time of release; unless such release refers
to EIF, in which case advance copies shall be delivered to EIF and to EIF's
counsel no later than two (2) Business Days prior to such release.
7.11 Inspection of Properties and Books. Borrowers shall
permit EIF and its authorized representatives to (a) visit and inspect any of
its properties and to examine their books and records (and to make copies
thereof and extracts therefrom, provided that EIF will use its reasonable
efforts to preserve the confidentiality of any information derived therefrom),
and (b) discuss the affairs, finances and accounts of Borrowers with, and to be
advised as to the same by, the officers of Borrowers, independent accountants,
and independent engineers all at such reasonable times and intervals as EIF may
reasonably request.
7.12 Compliance with Laws, Contracts, Licenses and Permits.
Borrowers shall comply with (i) all Permits and Requirements of Law, (ii) the
provisions of its charter or organizational documents and bylaws operating
agreement, (iii) all agreements and instruments by which they or any of their
properties may be bound, and (iv) all applicable decrees, orders, and
judgments, except in each case where noncompliance would not have a material
adverse effect on the business, assets or financial condition of Borrowers.
If at any time while any Loan or any Note is outstanding, any authorization,
consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that Borrowers may fulfill any of its obligations hereunder, Borrowers shall
immediately take all reasonable steps within their power to obtain such
authorization, consent, approval, permit or license and furnish EIF with
evidence thereof.
7.13 Litigation. Borrowers shall promptly give EIF notice of
all legal or arbitral proceedings, and of all proceedings before any
governmental or regulatory authority or agency, to which either Borrower is
a party or which affects either Borrower and of which either Borrower is
aware, except for proceedings before any governmental or regulatory authority
or agency occurring in the ordinary course of Borrowers' business, and
that would not have a material adverse effect upon either Borrower's business or
the Collateral if determined adversely to such Borrower.
7.14 Further Assurances. Borrowers shall cooperate with EIF
and execute such further instruments and documents as EIF shall reasonably
request to carry out to EIF's satisfaction the transactions contemplated by
this Agreement or the Loan Documents, including, without limitation, curing
any defects in the Loan Documents and executing and delivering to EIF such
further instruments and documents appropriate to further evidence and more
fully describe the Collateral, to correct any omissions in the Loan Documents,
to fully state the security obligations described in this Agreement or the
Loan Documents, to perfect, protect or preserve any EIF Liens created pursuant
to any of the Loan Documents, or to make any recordings, to file any notices,
or to obtain any consents appropriate to carry out the transactions
contemplated by this Agreement or the Loan Documents.
7.15 Notices. Borrowers shall promptly after acquiring knowledge
thereof notify EIF in writing of the occurrence of any Default or Event of
Default and of any material adverse change in the business, assets or
financial condition of either Borrower. If any Person shall give any notice
or take any other action in respect of a claimed default (whether or not
constituting an Event of Default) under this Agreement or any other note,
evidence of indebtedness, indenture or other obligation to which or with
respect to which either Borrower is a party or obligor, whether as principal
or surety, Borrowers shall forthwith give written notice thereof to EIF,
describing the notice or action and the nature of the claimed default.
7.16 Use of Proceeds. Borrowers shall use the proceeds of the
Loans for the purposes set forth in Sections 2.1, 2.2 and 2.3 of this
Agreement. Borrowers shall maintain any funds that have been advanced for
such purposes, but not expended, at a depository institution satisfactory
to EIF and will deliver copies of all invoices for expenditure of such
funds to EIF. Borrowers shall not, without EIF's prior written approval,
make any expenditure of the Development Loan in an amount in excess of
110% of the amount stated in the AFE pertaining to such expenditure
that was approved by EIF.
7.17 Dividends, Distributions and Redemptions. Borrowers
shall not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, or
return any capital or make any other distribution to their stockholders
or members, except to the extent such declaration, payment, purchase,
redemption, acquisition or return is solely between the Borrowers.
7.18 Nature of Business. Borrowers shall not engage in any
business other than oil and gas exploration, development, production,
processing, transportation and marketing, and business activities
ancillary thereto.
7.19 Restrictions on Liens. Borrowers shall not create or
incur, or suffer to be created or incurred or to exist, any Lien (other
than EIF Liens or Permitted Liens) upon any of the Collateral, whether now
owned or hereafter acquired, or upon the proceeds, income or profits therefrom,
and shall pay all vendor payables and other trade payables when due.
7.20 Collateral Sales. Except as set forth in Sections 7.6 and
7.7 of this Agreement, Borrowers shall not sell, lease, assign, transfer or
otherwise dispose of any of the Collateral, except (i) for sales of
Hydrocarbons in the ordinary course of Borrowers' business and (ii) as
otherwise permitted pursuant to the Security Instruments.
7.21 Sale or Discount of Receivables. Borrowers shall not
discount or sell any of their notes receivable or accounts receivable.
7.22 Affiliate Transactions. Borrowers shall not engage in any
transaction with any of their Affiliates, except on terms no less favorable
than are obtainable in arms-length transactions with third parties.
7.23 Financial Covenants.
(a) The ratio of (i) Borrower's total liabilities to (ii)
its shareholders' equity less (A) any portion thereof attributable to preferred
stock with respect to which any sinking fund or redemption payments are required
on or before the termination of the Loans and (B) the amount of all items that
would be treated as intangible assets under generally accepted accounting
principles, shall not exceed 1 to 1.
(b) Until December 31, 1998, the ratio of Borrower's (i)
current assets to (ii) current liabilities, exclusive of any portion of the
Loans that has been classified as current, shall not be less than 1 to 1.
Effective January 1, 1999, Borrowers' current assets shall at all times be
$200,000 more than current liabilities, exclusive of any portion of the Loans
that has been classified as current.
(c) As of the last day of each fiscal quarter starting with
the second calendar quarter of 1998, the ratio of Borrower's (i) net income
before income taxes, plus interest expense, depreciation, depletion, and
amortization and other non-cash expense items used in or provided by operating
activities deducted in determining such net income to (ii) total debt service
expense, shall not be less than 1 to 1. Effective as of the first fiscal
quarter of 1999, the ratio of Borrower's (i) net income before income taxes,
plus interest expense, depreciation, depletion, and amortization and other non-
cash expense items used in or provided by operating activities deducted in
determining such net income to (ii) total debt service expense, shall not be
less than 1.2 to 1.
(d) Borrower shall not incur any additional debt including
operating or financing leases (excluding trade payables incurred in the ordinary
course of business) without the prior written consent of EIF.
(e) For the calendar year 1998, Borrower's exploration
expense and general and administrative overhead expenses will not exceed
$400,000 per fiscal quarter. For the calendar year 1999 and thereafter,
Borrower's general and administrative overhead expenses will not exceed fifteen
percent (15%) of Borrower's net income before income taxes, plus interest
expense, depreciation, depletion, amortization and other non-cash expense items
used in or provided by operating activities , and general and administrative
expenses deducted in determining such net income, calculated on the last day of
each fiscal quarter. For the calendar year 1999 and thereafter, Borrower's
exploration expenses will not exceed 15% of Borrower's net income before income
taxes, plus interest expense, depreciation, depletion, amortization, and other
non-cash expense items used in or provided by operating activities, exploration
expense and general and administrative expenses deducted in determining such net
income, calculated on the last day of each fiscal quarter.
7.24 Key Employee. Borrowers shall continue to employ N. Thomas
Steele as President of Foreland on a full-time basis with substantially the
same responsibilities as of the date of this Agreement.
7.25 Preliminary Site Assessment Inspection. Borrowers will
comply with the recommendations set out in that certain Preliminary Site
Assessment Inspection report dated December 1997, prepared by WZI Inc. of
Bakersfield, California, by April 1, 1998.
7.26 Environmental Laws Compliance. Borrowers shall:
(a) Comply with all applicable Environmental Laws as they
relate to the Properties and shall maintain and obtain, or cause to be
maintained and obtained, all permits, licenses, and approvals now or hereafter
required under all applicable Environmental Laws as they relate to the
Properties;
(b) Not do or permit anything to be done that will subject
the Properties, Borrowers or EIF to any liability under any applicable
Environmental Laws as they relate to the Properties, assuming disclosure to
governmental authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the Properties;
(c) Promptly notify EIF in writing of any Environmental
Complaint relating to the Properties which is known to Borrowers, or any other
existing, pending, or threatened investigation or inquiry by any governmental
authority relating to the Properties known to Borrowers and in connection with
any applicable Environmental Laws;
(d) Take, or cause to be taken, all steps necessary to
determine that no Hazardous Materials have been: (i) used or stored on, in or
in connection with any Properties that Borrowers acquires with any funds that
Borrowers receive from EIF in accordance with this Agreement, or disposed from
such Properties, or (ii) treated, processed, discharged, or released on, to, in
or from such Properties, except, in each case, in full compliance with all
applicable Environmental Laws;
(e) Not cause or permit: (i) the use or storage of
Hazardous Materials on, in or in any manner in connection with the Properties,
or (ii) the treatment, processing, discharge, or release of any Hazardous
Materials on, to, in or from the Properties, except, in each case, in full
compliance with all applicable Environmental Laws;
(f) Keep, or cause the Properties to be kept, free of any
and all Hazardous Materials, and shall remove the same (or if removal is
prohibited by applicable law, shall take whatever action is required by
applicable law) promptly upon discovery of such Hazardous Materials at
Borrowers' sole cost and expense, except in full compliance with all applicable
Environmental Laws; and
(g) Provide, upon EIF's reasonable request, at any time, and
from time to time inspections, tests and audits of the Properties from an
engineering or consulting firm approved by EIF indicating the presence or
absence of Hazardous Materials on the Properties and compliance with all
applicable Environmental Laws.
7.27 Corporate Name and Address. Neither Borrower shall change
its name or change the address of its principal place of business or executive
office unless it has provided not less than thirty (30) days' prior written
notice to EIF of such change.
7.28 Mergers and Sales of Assets. Without the prior written
approval of EIF, Borrowers shall not merge or consolidate with or into any
other entity unless such Borrower is the surviving entity and no Event of
Default has occurred or will occur as a result of such merger or consolidation.
Borrowers shall not lease, sell or transfer all, or substantially all, of its
property, assets or business to any other Person, or dispose of or sell any
material portion of its assets, property or business, or dispose of any equity
in any subsidiary.
7.29 Change of Control. Borrowers shall utilize their best
efforts to not permit a Change of Control to occur and shall notify EIF within
five (5) business days of obtaining information that a Change in Control may
occur or is contemplated by any Person.
7.30 Operation of Assets. Borrowers shall operate, or (if
Borrowers are not the operator thereof) shall use its best efforts to cause
the operator thereof to operate, the Properties and all wells hereafter drilled
upon or affecting the Properties continuously, in good and workmanlike manner,
in accordance with the best usages of operators of leases in the area where
the Properties are located and in accordance with the rules and regulations
of all Requirements of Law.
7.31 Borrower as Operator. Borrowers shall use their best efforts
to become and remain the operator of the New Properties.
7.32 ERISA Compliance. Borrowers will make, and, if reasonably
within its control, will cause each ERISA Affiliate to make, all payments or
contributions to the Employee Benefit Plans and Multiemployer Plans required
under the terms thereof and in accordance with the funding requirements
applicable to such plans under ERISA and the Code and applicable collective
bargaining agreements. Borrowers will cause all Employee Benefit Plans that
they sponsor, and, if reasonably within their control, will cause each ERISA
Affiliate to cause all Employee Benefit Plans that such ERISA Affiliate
sponsors, to be maintained in substantial compliance with ERISA and the Code
and, if applicable, to maintain the qualified status of each Employee Benefit
Plan under the Code. Borrowers will not engage, and, if reasonably within
their control, will not permit or suffer any ERISA Affiliate or fiduciary of
any Employee Benefit Plan to engage, in any Prohibited Transaction for which
an exemption is not available and that is likely to give rise to liability to
Borrowers or any ERISA Affiliates.
(a) Borrowers will notify EIF promptly of any Reportable
Event or Termination Event or any partial or complete withdrawal from any
Multiemployer Plan that may result in any Withdrawal Liability of Borrowers or
any ERISA Affiliate or upon learning of any insolvency, reorganization status,
or termination of a Multiemployer Plan that may result in liability of Borrowers
or any ERISA Affiliate, together with the actions proposed to be taken by
Borrowers or any ERISA Affiliate. Borrowers will furnish to EIF a copy of any
request for waiver of the minimum funding standards required by ERISA or the
Code promptly after submission thereof to a governmental authority.
(b) Borrowers covenant and agree with EIF that, so long as
this Agreement shall remain in effect, unless EIF otherwise consents in writing,
which consent shall not be unreasonably withheld, Borrowers will not:
(i) Cause any Employee Benefit Plan to become subject to
Title IV or Section 302 of ERISA or Section 412 of the Code, except those plans
to which those sections apply as of the date of this Agreement;
(ii) Adopt any new plan, fund, or other arrangement that
would be subject to Title IV or Section 302 of ERISA or Section 412 of the Code;
or
(iii) Adopt or incur any new obligation to contribute to
any Multiemployer Plan.
7.33 Additional Information. For so long as the Loans remain
outstanding, Borrowers shall permit EIF to substantially participate in, and
influence the conduct of, management of Borrowers through the exercise of any
and all of the following rights (provided, however, that EIF shall have no right
to direct the management of Borrowers):
(a) promptly provide to EIF such information as EIF shall
reasonably request regarding Borrowers' business, financial condition and
prospects;
(b) if EIF reasonably believes that financial or other
developments affecting Borrowers have impaired or are likely to impair
Borrowers' ability to perform their obligations under this Agreement, permit
EIF, upon request, reasonable access to Borrowers' management and/or Board of
Directors to present its views with respect to such developments;
(c) provide to EIF the financial information required in
Section 7.3 of this Agreement; and
(d) permit EIF to make the examinations and inspections of
properties, books and records, and to consult with Borrower's officers, as
required in Section 7.11 of this Agreement.
7.34 No Loans or Guarantees to Officers, Directors, Managers or
Shareholders/Partners. Borrowers shall not, directly or indirectly, make any
guarantee, loan, advance, extension of credit, commitment to fund, or
commitment to satisfy in any way, any debt, liability, or other obligation
to any Person (except for the other Borrower), including its officers,
directors, managers, employees, shareholders, partners or any Affiliate of
such person, including, without limitation (a) an obligation to any bank under
any letter of credit, (b) an obligation to maintain working capital or equity
capital of the business other than the initial investment, or (c) an obligation
to otherwise maintain the net worth or solvency of the business, with respect
to any business in which Borrowers are engaged other than the business
described in Section 7.18 of this Agreement. Neither Borrower shall make any
repayment on any Indebtedness owed to any of their respective Affiliates, or any
shareholder, member, officer, director, manager or Affiliate of such person,
except that repayment may be made to the individuals set forth on Schedule 5.22
for the amounts set forth on such schedule.
7.35 Bonuses. Borrowers may pay bonuses to executive officers,
general partners or managers or materially change the current compensation
arrangements so long as Borrowers are in compliance with the terms of
Section 7.23 of this Agreement.
7.36 G&A Budget. On or before March 1 of each year, Borrowers
shall submit an annual General and Administrative Budget to EIF that includes
the salaries of each officer and significant employee, together with all
consulting fees and arrangements, all of which shall be approved by EIF.
Failure to (i) comply with such budget, or (ii) submit to EIF for approval,
shall constitute an Event of Default pursuant to this Agreement. Borrowers
shall not use proceeds of any Loan to pay any salaries, consulting fees or
other arrangements, unless such proceeds are specifically allocated to such
purpose in the AFE.
7.37 Foreclosure. After an Event of Default, Borrowers agree
that they will not attempt in any way to hinder or interfere with the exercise
of the power of sale granted in any of the Security Instruments, including
without limitation the filing of a lis pendens, the initiation of any lawsuit
or the requesting of injunctive relief from any court or tribunal, or any
other action which would have the effect of hindering or delaying the
exercise by EIF of any right or remedy under this Agreement or any Security
Instrument, and Borrowers shall execute and deliver to EIF any instrument
reasonably requested by EIF and prepared at their expense, which is necessary
to fully vest title to the Properties in EIF or the purchaser(s) of all or
part of the Properties pursuant to any sale as provided for in the
Security Instruments.
7.38 Updates to Purchasers of Production Information. Borrowers
shall notify EIF in writing and within thirty (30) days of any changes to the
information provided in Section 6.2(k) of this Agreement.
7.39 Warrants. If equity securities in Eagle Springs, or any
successor thereto, are registered pursuant to the Securities Act of 1933
and/or pursuant to section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") (a "Public Company"), Borrowers shall, if EIF so elects,
cause such Public Company to issue warrants to EIF within thirty (30) days
of such election with substantially similar terms and conditions as Warrant
No. 1 and Warrant No. 2 (the "Eagle Springs Warrants") and upon issuance of the
Eagle Springs Warrants, EIF will deliver Warrant No. 1 and Warrant No. 2 to
Foreland for cancellation.
If, during the term of the Warrant No. 1, Foreland issues additional
shares of common stock at a price of less than Six Dollars ($6) per share,
Foreland shall deliver to EIF within five (5) days of such issuance an
additional warrant in the form of Warrant No. 1 for common stock of Foreland
equal to ten percent (10%) of the shares so issued. If Foreland issues
securities convertible or exercisable into common stock of Foreland at a
conversion or exercise price of less than Six Dollars ($6) per share and such
securities are converted or exercised into common stock or repurchased by
Foreland during the term of Warrant No. 1, Foreland shall deliver to EIF within
five (5) days of such conversion or exercise an additional warrant in the form
of Warrant No. 1 for common stock of Foreland equal to ten percent (10%) of the
shares issued pursuant to such conversion or exercise. If, during the term of
Warrant No. 2, Foreland issues additional shares of common stock at a price
between Six Dollars ($6) and Ten Dollars ($10) per share (inclusive), Foreland
shall deliver to EIF within five (5) days of such issuance an additional warrant
in the form of Warrant No. 2 for common stock of Foreland equal to ten percent
(10%) of the shares so issued. If Foreland issues securities convertible or
exercisable into common stock of Foreland at a conversion or exercise price
between Six Dollars ($6) and Ten Dollars ($10) per share (inclusive) and such
securities are converted or exercised into common stock or repurchased by
Foreland during the term of Warrant No. 2, Foreland shall deliver to EIF within
five (5) days of such conversion or exercise an additional warrant in the form
of Warrant No. 2 for common stock of Foreland equal to ten percent (10%) of the
shares issued pursuant to such conversion or exercise. The foregoing provisions
of this paragraph shall not apply to securities issued pursuant to options,
warrants, calls, subscriptions, rights, agreements or commitments set forth on
Schedule 5.23.
If, during the term of the Warrants, Foreland (i) issues additional
shares of common stock at a price of Three Dollars Seventy-Five Cents ($3.75)
per share or less, or (ii) issues securities convertible or exercisable into
common stock of Foreland at a conversion or exercise price of Three Dollars
Seventy-Five Cents ($3.75) per share or less and such securities are converted
or exercised into common stock or repurchased by Foreland during the term of the
Warrants, the provisions of the second paragraph of this Section shall not
apply. In such instance, Foreland shall deliver to EIF within five (5) days of
such issuance of common stock or conversion or exercise of the convertible or
exercisable security, a warrant in the form of Warrant No. 1 and Warrant No. 2
for the number of shares represented by Warrant No. 1 and Warrant No. 2 on such
issuance date at an exercise price equal to the sales, conversion price or
exercise of such issuance. Upon issuance thereof, EIF will deliver Warrant No.
1 and Warrant No. 2 to Foreland for cancellation. Further, the foregoing
provisions of this Section shall not apply: (1) if Foreland issues additional
securities, the proceeds of which, either partially or in full, are used to
repay the Loans in full within thirty (30) days, or (ii) if Foreland issues
equity securities in one offering with net proceeds to Foreland of Twenty
Million Dollars ($20,000,000) or more.
ARTICLE 8
EVENTS OF DEFAULT; ACCELERATION
8.1 If any of the following events (an "Event of Default," or, if
the giving of notice or the lapse of time or both is required, then, prior to
such notice and/or lapse of time, a "Default") shall occur:
(a) Borrowers shall fail to make any payment of principal or
interest on any Loan within five (5) Business Days after the date that such
payment is due;
(b) Borrowers shall fail to pay any fees, overriding royalty
payments or other sums due hereunder or under any Loan Document within ten (10)
days after the date that any such payment is due;
(c) Borrowers shall fail to either (i) make a prepayment to
EIF, or (ii) grant and convey to EIF additional collateral, in compliance with
the terms of Section 2.14 of this Agreement within the time period on which
Section 2.14 requires Borrowers to take such action;
(d) Borrowers shall fail to perform any other term, covenant
or agreement contained herein or in any Loan Document and such failure shall
continue for thirty (30) days after written notice of such failure has been
given to Borrower by EIF;
(e) An event of default entitling EIF to accelerate any
other loan from EIF to Borrower shall occur;
(f) Any representation or warranty of Borrowers in this
Agreement or in any document or instrument delivered pursuant to or in
connection with this Agreement or any other Loan Document shall prove to have
been false in any material respect upon the date when made;
(g) Either Borrower shall default in the payment of any
principal of or interest on any Indebtedness aggregating $25,000 or more beyond
any period of grace provided with respect thereto unless the validity or amount
of such Indebtedness shall currently be contested by such Borrowers in good
faith by appropriate proceedings and unless such Borrower shall have set aside
on its books adequate reserves with respect thereto; or any other event shall
occur which is specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness if the effect of such event is
to cause or to permit the holder or holders of such Indebtedness to cause
(assuming the giving of any notice and the lapse of any time period commencing
on the giving of notice) such Indebtedness to become due prior to its stated
maturity;
(h) Either Borrower shall: (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property; (ii) be
generally unable to pay its debts as such debts become due; (iii) make a general
assignment for the benefit of its creditors; (iv) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect); (v)
file a petition seeking to take advantage of any other law of any jurisdiction
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or readjustment of debts; (vi) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against such Borrower in
an involuntary case under the United States Bankruptcy Code; or (vii) take any
action for the purpose of effecting any of the foregoing;
(i) A proceeding or case shall be commenced, without the
application or consent of Borrowers, in any court of competent jurisdiction,
seeking (i) either Borrower's liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of either
Borrower or of all or any substantial part of such Borrower's assets, or (iii)
similar relief in respect of such Borrower under any law of any jurisdiction
relating to bankruptcy, insolvency, reorganization, winding-up, or the
composition or readjustment of its debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect for a
period of sixty (60) days; or an order for relief against either Borrower shall
be entered in an involuntary case under any bankruptcy, insolvency,
reorganization, winding-up, composition, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction; or
(j) A Change of Control of either Borrower shall occur;
(k) There shall remain in force, undischarged, unsatisfied
or unstayed, for more than sixty (60) days, any final judgment against either
Borrower that, with other outstanding final judgments, undischarged, against
Borrower exceeds in the aggregate $25,000;
(l) Any breach of a representation, warranty, or covenant
contained herein regarding any Employee Benefit Plan that, in the opinion of
EIF, could subject either Borrower to any material tax, penalty or other
liability; any Employee Benefit Plan or Multiemployer Plan shall fail to
maintain the minimum funding standard required for any plan year or part thereof
or extension of any amortization period is sought or granted under Section 412
of the Code; any Employee Benefit Plan or Multiemployer Plan is, shall have
been, or is likely to be terminated or the subject of termination proceedings
under ERISA; any Prohibited Transaction shall occur involving any Employee
Benefit Plan; any Termination Event shall occur with respect to any Employee
Benefit Plan; any Employee Benefit Plan shall have an Unfunded Current
Liability; provided that there shall result from any such event or events the
imposition of a lien upon the assets of either Borrower or any ERISA Affiliate,
the granting of a security interest, or a liability or a material risk of
incurring a liability to the PBGC or a Multiemployer Plan or an Employee Benefit
Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the
Code (or any combination thereof), which, in the opinion of EIF, will have a
material adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of either Borrower or any ERISA Affiliate.
Then, and in any such event, so long as the same may be continuing, EIF may, by
notice in writing to Borrowers, declare all amounts owing with respect to this
Agreement and the Notes to be, and they shall thereupon forthwith become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by Borrowers; provided
that in the event of any Event of Default specified in paragraphs (h) and (i)
hereof, all such amounts shall become immediately due and payable automatically
and without any requirement of notice from EIF. In addition, upon the
occurrence of an Event of Default, EIF may exercise any of its rights and
remedies under any of the Security Instruments.
ARTICLE 9
INDEMNIFICATION
9.1 Environmental Indemnity. Borrowers shall indemnify, defend,
and hold harmless EIF, its Affiliates, and their respective directors, officers,
shareholders, partners, employees, consultants and agents (herein individually
called an "Indemnified Party," and collectively called "Indemnified Parties")
from and against, and shall reimburse and pay Indemnified Parties with respect
to, any and all claims, demands, liabilities, losses, damages (including without
limitation actual, consequential, exemplary and punitive damages), causes of
action, judgments, penalties, fees, costs and expenses (including without
limitation attorneys' fees, court costs and legal expenses and consultant's and
expert's fees and expenses) of any and every kind or character, known or
unknown, fixed or contingent, that may be imposed upon, asserted against, or
incurred or paid by or on behalf of any Indemnified Party on account of, in
connection with, or arising out of (a) the breach of any representation or
warranty of Borrowers relating to Environmental Laws or Hazardous Materials, or
(b) the failure of Borrowers to perform any agreement, covenant or obligation
required to be performed by Borrowers relating to Environmental Laws or
Hazardous Materials, (c) any violation of or failure to comply with any
Environmental Law now existing or hereafter occurring, (d) the removal of
Hazardous Materials from the Properties (or if removal is prohibited by law, the
taking of whatever action is required by law), (e) any act, omission, event or
circumstance existing or occurring or resulting from or in connection with the
ownership, construction, occupancy, operation, use or maintenance of the
Properties, regardless of whether the act, omission, event or circumstance
constituted a violation of or failure to comply with any Environmental Law at
the time of its existence or occurrence, and (f) any and all claims or
proceedings (whether brought by private party or governmental agency) for bodily
injury, property damage, abatement or remediation, environmental damage, or
impairment or any other injury or damage resulting from or relating to any
Hazardous Material located upon or migrating into, on, from or through the
Properties (whether or not any or all of the foregoing was caused by Borrowers,
a prior owner of the Properties, an operator or prior operator of the
Properties, their respective tenants or subtenants, or any third party and
whether or not the alleged liability is attributable to the handling, storage,
use, treatment, processing, distribution, manufacture, generation, discharge,
transportation or disposal of such Hazardous Material or the mere presence of
such Hazardous Material on the Properties). Without limiting the generality of
the foregoing, it is the intention of Borrowers and Borrowers agree that the
foregoing indemnities shall apply to each Indemnified Party with respect to
claims, demands, liabilities, losses, damages (including without limitation
actual, consequential, exemplary and punitive damages), causes of action,
judgments, penalties, fees, costs, court costs and legal expenses and
consultant's and expert's fees and expenses, of any kind or character, known or
unknown, fixed or contingent, that in whole or in part are caused by or arise
out of the negligence of such Indemnified Party; however, such indemnities shall
not apply to any Indemnified Party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such Indemnified Party. The foregoing indemnities shall be
perpetual and shall survive the payment or satisfaction of the Loans and the
release, foreclosure or other termination of the Security Instruments. Any
amount to be paid hereunder by Borrowers to EIF or for which Borrowers have
indemnified an Indemnified Party shall be a demand obligation owing by Borrower
to EIF and shall bear interest at the Default Rate until paid, and shall
constitute a part of the obligations of Borrowers under this Agreement and shall
be indebtedness evidenced by this Agreement and secured by the Security
Instruments.
9.2 GENERAL INDEMNITY. BORROWERS AGREE TO INDEMNIFY EIF UPON
DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS
(INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS)
OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED
"LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST EIF GROWING OUT OF, RESULTING
FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN
DOCUMENTS, OR THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR
DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES
AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY
ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY EIF, PROVIDED ONLY THAT EIF
SHALL NOT BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION FOR THAT
PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY ITS
OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL
JUDGMENT. IF ANY PERSON (INCLUDING BORROWERS OR ANY OF THEIR AFFILIATES) EVER
ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY EIF, THE INDEMNIFICATION
PROVIDED FOR IN THIS SECTION SHALL NONETHELESS BE PAID UPON DEMAND, SUBJECT TO
LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS A COURT OF COMPETENT
JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF THE ALLEGED
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY AMOUNT TO BE PAID HEREUNDER BY
BORROWERS TO EIF, OR FOR WHICH BORROWERS HAVE INDEMNIFIED AN INDEMNIFIED PARTY,
SHALL BE A DEMAND OBLIGATION OWING BY BORROWERS TO EIF AND SHALL BEAR INTEREST
AT THE DEFAULT RATE UNTIL PAID, AND SHALL CONSTITUTE A PART OF THE OBLIGATIONS
OF BORROWERS UNDER THIS AGREEMENT AND SHALL BE INDEBTEDNESS EVIDENCED BY THIS
AGREEMENT AND SECURED BY THE SECURITY INSTRUMENTS. AS USED IN THIS SECTION THE
TERM "EIF" SHALL REFER NOT ONLY TO THE PERSON DESIGNATED AS SUCH IN THIS SECTION
BUT ALSO TO EACH DIRECTOR, OFFICER, PARTNER, AGENT, ATTORNEY, EMPLOYEE,
REPRESENTATIVE AND AFFILIATE OF SUCH PERSON.
ARTICLE 10
EXPENSES
10.1 Upon written request of EIF, Borrowers shall pay all
reasonable costs and expenses incurred in connection with (i) EIF's due
diligence review, and (ii) the preparation, execution and delivery,
administration, amendment, and enforcement of this Agreement, the Notes, the
Loan Documents, the Security Instruments, and any agreements or documents
prepared in connection therewith, including but not limited to the reasonable
fees and out-of-pocket expenses of EIF's attorneys and engineers.
ARTICLE 11
NOTICES; MISCELLANEOUS
11.1 Notices. All notices and other communications made or
required to be given pursuant to this Agreement or the Notes shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or mailed by registered
or certified mail (return receipt requested), postage prepaid, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall
be effective only upon receipt thereof):
(i) To Borrowers, as follows:
Foreland Corporation
12596 West Bayaud Avenue
Suite 300
Lakewood, CO 80228-2019
Attn: N. Thomas Steele
Facsimile No.: (303) 988-3234
(ii) To EIF:
Energy Income Fund, L.P.
136 Dwight Road
Longmeadow, MA 01106
Attn: Robert D. Gershen
Facsimile No.: (413) 567-7926
Copies of all notices other than reports or other routine
communications shall be delivered to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Russell J. Bruemmer
Facsimile No.: (202) 663-6363
Any notice hereunder delivered in person or by facsimile (if receipt
is confirmed by the facsimile operator of the recipient) shall be deemed given
on the date thereof, any notice by registered or certified mail shall be deemed
given three days after the date of mailing; and any notice by overnight courier
shall be deemed given two days after shipment or the date of receipt, whichever
is earlier.
11.2 Miscellaneous.
(a) ENTIRE AGREEMENTAGREEMENT. THIS AGREEMENT SUPERSEDES
ALL PRIOR AGREEMENTS BETWEEN THE PARTIES (WRITTEN OR ORAL) AND IS INTENDED AS
A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS OF THE AGREEMENT BETWEEN THE
PARTIES. THIS AGREEMENT MAY BE AMENDED OR MODIFIED ONLY BY A WRITTEN
INSTRUMENT DULY EXECUTED BY THE PARTIES.
(b) GOVERNING LAW. THIS AGREEMENT AND THE NOTES ARE
CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND TOGETHER
WITH ALL MATTERS ARISING UNDER OR GROWING OUT OF THIS AGREEMENT OR THE
NOTES SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAWS, EXCEPT AS TO ENFORCEMENT OF THE SECURITY INSTRUMENTS. IN
ADDITION, EXCEPT AS TO THE VALIDITY AND ENFORCEMENT OF THE SECURITY INSTRUMENTS:
BORROWERS AND EIF AGREE THAT THE TRANSACTIONS CONTEMPLATED HEREBY
("TRANSACTIONS") BEAR A REASONABLE RELATIONSHIP TO THE COMMONWEALTH OF
MASSACHUSETTS AND THAT THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS GOVERNS (I)
ISSUES RELATING TO THE TRANSACTIONS, INCLUDING THE VALIDITY AND ENFORCEABILITY
OF AN AGREEMENT RELATING TO SUCH TRANSACTIONS OR A PROVISION OF AN AGREEMENT,
AND (II) THE INTERPRETATION OR CONSTRUCTION OF AN AGREEMENT RELATING TO THE
TRANSACTIONS OR A PROVISION OF AN AGREEMENT.
(c) Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) Parties in Interest. All the terms of this Agreement
and the Notes shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns;
provided, that Borrowers may not assign or transfer their rights hereunder
without the express prior written consent of EIF.
(e) No Third Party Beneficiaries. Except as expressly
provided herein, nothing in this Agreement shall entitle any person other than
Borrowers or EIF or their respective successors and assigns permitted hereby
to any claim, cause of action, remedy or right of any kind.
(f) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement in such or any other jurisdiction, so
long as the purposes of this Agreement can still be accomplished in the manner
anticipated by Borrowers and EIF, or Borrowers and EIF can agree to an
acceptable modification to this Agreement. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, no one of which needs to be executed by both parties,
and this Agreement shall be binding upon both parties with the same force and
effect as if both parties had signed the same document, and each such signed
counterpart shall constitute an original of this Agreement.
(h) Renewal, Extension or Rearrangement. All provisions
of this Agreement and of any Security Instruments relating to the Notes or
Loans shall apply with equal force and effect to each and all promissory notes
hereinafter executed that in whole or in part represent a renewal, extension
for any period, increase or rearrangement of any part of the Loans originally
represented by the Notes or of any part of such other Indebtedness.
(i) Cumulative Rights. The rights and remedies of EIF
under the Notes, this Agreement, each Security Instrument and each other Loan
Document shall be cumulative, and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any
other right or remedy.
(j) Consents, Amendments, Waivers, Etc. Except as
otherwise expressly provided in this Agreement, any consent or approval
required or permitted by this Agreement to be given by EIF may be given,
and any term of this Agreement or of any other instrument related hereto
or mentioned herein may be amended, and the performance or observance by
Borrowers of any terms of this Agreement or such other instrument or the
continuance of any Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or prospectively) with, but
only with, the express written consent of EIF. No waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of EIF in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon Borrowers shall entitle
Borrowers to other or further notice or demand in similar or other
circumstances.
(k) Jurisdiction. Any judicial proceeding brought
against any of the parties hereto, with respect to this Agreement, may
be brought in any court of competent jurisdiction in the Commonwealth of
Massachusetts, irrespective of where such party may be located at the time of
such proceeding, and by execution and delivery of this Agreement, each of the
parties hereto hereby consents to the jurisdiction of any such court and waives
any defense or opposition to such jurisdiction.
(l) WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH
PARTY HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS
OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR
AFTER MATURITY OF THE LOANS; (b) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
(m) Agent for Servicefor Service. Borrowers hereby
appoint CT Corporation as their agent to receive on their behalf service of
process in connection with this Agreement in the Commonwealth of Massachusetts
and shall pay any and all fees required by CT Corporation to act in such
capacity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement under
seal as of the date first set forth above.
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY
COMPANY
By /s/ N. Thomas Steele
N. Thomas Steele
Manager
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By /s/ Robert D. Gershen
Robert D. Gershen
A Managing Director
EXHIBITS
Exhibit A Description of Existing Properties
Exhibit B Description of New Properties
Exhibit C Description of Permitted Liens
Exhibit D Form of Escrow Agreement
Exhibit E Form of Refinancing Note
Exhibit F Form of Development Note
Exhibit G Form of Acquisition Note
Exhibit H Form of letter in lieu of transfer order
Exhibit I Form of opinion of Borrower's counsel
Exhibit J Form of Officer's Certificate and Financial Covenants
Calculations
Exhibit K Form of Warrant
Exhibit L Form of Request for Escrow Disbursement
SCHEDULES
Schedule 5.4 Description of litigation
Schedule 5.6 Description of consents, approvals, etc. required by law
Schedule 5.8(b) Description of defects and encumbrances to Borrower's title
to the Collateral
Schedule 5.10 Description of Employee Benefit Plans
Schedule 5.11(a) Description of Past Environmental Liabilities
Schedule 5.21 Description of Hydrocarbon contracts, balancing rights, and
balancing duties to which the Collateral is subject
Schedule 5.22 Description of Indebtedness to Shareholders, Members,
Officers, Directors, Managers or Affiliates
Schedule 5.23 Description of capital structure of Borrower
REFINANCING NOTE
$680,000 Longmeadow, Massachusetts
As of January 6, 1998
FOR VALUE RECEIVED, the undersigned, Foreland Corporation, a
corporation organized and existing under the laws of the State of Nevada, and
Eagle Springs Production Limited-Liability Company, a limited liability company
organized under the laws of the State of Nevada (collectively the "Borrowers"),
each promises to pay to the order of Energy Income Fund, L.P., a limited
partnership organized and existing under the laws of the State of Delaware (the
"Lender"), or its successors or assigns, the principal sum of Six Hundred Eighty
Thousand Dollars ($680,000), or such lesser amount as has been advanced by
Lender to Borrowers as part of the Refinancing Loan pursuant to the Financing
Agreement of even date herewith, between Borrowers and Lender (the "Financing
Agreement"), together with interest from the date of funding as set forth
herein. This Note is secured by and entitled to the benefits of the Security
Instruments. All capitalized terms not defined herein shall have the meanings
attributed to them in the Financing Agreement.
The principal amount advanced hereunder shall bear interest from the
date of funding at a rate equal to twelve percent (12%) per annum for the actual
number of days such amount is outstanding based on a 360-day year. Payments of
principal and interest shall be made in accordance with the Schedule of Payments
attached as Schedule A hereto.
All payments received by the Lender shall be applied first to late
charges and fees (if any), then to accrued but unpaid interest, and then to
principal.
No prepayment of this Note shall be permitted except as set forth in
the Financing Agreement.
Upon the occurrence and during the continuation of an Event of
Default, any unpaid principal amount and any overdue interest shall bear
interest at the rate of fifteen percent (15%) per annum, computed for the actual
number of days such amount is outstanding based on a 360-day year.
Nothing contained in this Note shall be deemed to require the payment
of interest at a rate in excess of the maximum rate permitted by applicable law.
In the event that the amounts required to be paid hereunder for any month exceed
the maximum rate permitted by law, such amount shall be automatically reduced
for such month to the maximum rate permitted by law.
All payments due hereunder shall be payable in lawful money of the
United States of America and paid at the place designated in the Financing
Agreement, or at such other place in the Commonwealth of Massachusetts as the
Lender or any subsequent holder of this Note may designate.
Each Borrower has executed this Note pursuant to the Financing
Agreement. All of the terms, covenants, provisions, conditions, stipulations,
and agreements contained in the Financing Agreement to be kept and performed by
Borrowers are hereby made a part of this Note to the same extent and with the
same force and effect as if they were fully set forth herein, and each Borrower
covenants and agrees to perform the same, or to cause the same to be kept and
performed, strictly in accordance with the terms and provisions thereof.
The occurrence of any Event of Default, as that term is defined in
Article 8 of the Financing Agreement, shall be an Event of Default under this
Note. If an Event of Default has occurred and if such Event of Default
continues uncorrected, the entire principal amount outstanding, together with
accrued interest thereon, and any fees due thereunder, shall at once become due
and payable at the option of the holder without further notice. If after a
default, counsel is employed to collect the indebtedness evidenced hereby or to
protect the security for such indebtedness, each Borrower agrees to pay
reasonable attorneys' fees and all other reasonable costs and expenses incurred
in connection with such collection.
Each Borrower hereby waives diligence, presentment, protest, demand
for payment, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default, or enforcement of this Note and
hereby consents to any extensions of time, renewals, releases of any party
hereto, waivers or modifications that may be granted or consented to by the
holder of this Note without notice. No delay on the part of the holder hereof
in exercising any power or right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise of any power or right hereunder preclude
other or further exercise thereof or the exercise of any other power or right.
This Note shall be binding on each Borrower and its successors and assigns. Any
term or provision of this Note that is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Note in such or any other
jurisdiction, so long as the purposes of this Note can still be accomplished in
the manner anticipated by Borrowers and Lender, or Borrowers and Lender can
agree to an acceptable modification of this Note. If any provision of this Note
is so broad as to be unenforceable, such provision shall be interpreted to be
only so broad as is enforceable.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
The obligations and liabilities of Borrowers under this Note and the
Loan Documents are joint and several and Lender may enforce its rights under
this Note and the Loan Documents, in its sole discretion, against either or both
Borrowers.
Notwithstanding anything to the contrary contained in this Note, the
Financing Agreement or any other Loan Document, neither Borrower shall have any
personal liability for payment of principal and interest on this Note, and
Lender shall look solely to the Collateral for the payment of such principal and
interest and shall not seek a deficiency or other personal judgment against
either Borrower in the event that any sale of the Collateral shall be
insufficient to satisfy this Note. Nothing herein contained shall, however,
impair any right, remedy or security of Lender with respect to the Collateral
under this Note, nor limit either Borrower's obligations to perform any of
Borrowers' other obligations under the Loan Documents, including without
limitation Borrowers' obligations to remain personally liable under Section 4.3
of the Financing Agreement and to indemnify Lender as set forth in Article 9 of
the Financing Agreement.
WITNESS the following signature.
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION
LIMITED-LIABILITY COMPANY, a
Nevada limited liability company
By /s/ N. Thomas Steele
N. Thomas Steele
Manager
DEVELOPMENT NOTE
$13,893,000 Longmeadow, Massachusetts
As of January 6, 1998
FOR VALUE RECEIVED, the undersigned, Foreland Corporation, a
corporation organized and existing under the laws of the State of Nevada, and
Eagle Springs Production Limited-Liability Company, a limited liability company
organized under the laws of the State of Nevada (collectively the "Borrowers"),
each promises to pay to the order of Energy Income Fund, L.P., a limited
partnership organized and existing under the laws of the State of Delaware (the
"Lender"), or its successors or assigns, the principal sum of Thirteen Million
Eight Hundred Ninety-Three Thousand Dollars ($13,893,000), or such lesser amount
as has been advanced by Lender to Borrowers as part of the Development Loan
pursuant to the Financing Agreement of even date herewith, between Borrowers and
Lender (the "Financing Agreement"), together with interest from the date of
funding as set forth herein. This Note is secured by and entitled to the
benefits of the Security Instruments. All capitalized terms not defined herein
shall have the meanings attributed to them in the Financing Agreement.
The principal amount advanced hereunder shall bear interest from the
date of funding at a rate equal to twelve percent (12%) per annum for the actual
number of days such amount is outstanding based on a 360-day year. Payments of
principal and interest shall be made in accordance with the Schedule of Payments
attached as Schedule A hereto.
All payments received by the Lender shall be applied first to late
charges and fees (if any), then to accrued but unpaid interest, and then to
principal.
No prepayment of this Note shall be permitted except as set forth in
the Financing Agreement.
Upon the occurrence and during the continuation of an Event of
Default, any unpaid principal amount and any overdue interest shall bear
interest at the rate of fifteen percent (15%) per annum, computed for the actual
number of days such amount is outstanding based on a 360-day year.
Nothing contained in this Note shall be deemed to require the payment
of interest at a rate in excess of the maximum rate permitted by applicable law.
In the event that the amounts required to be paid hereunder for any month exceed
the maximum rate permitted by law, such amount shall be automatically reduced
for such month to the maximum rate permitted by law.
All payments due hereunder shall be payable in lawful money of the
United States of America and paid at the place designated in the Financing
Agreement, or at such other place in the Commonwealth of Massachusetts as the
Lender or any subsequent holder of this Note may designate.
Each Borrower has executed this Note pursuant to the Financing
Agreement. All of the terms, covenants, provisions, conditions, stipulations,
and agreements contained in the Financing Agreement to be kept and performed by
Borrowers are hereby made a part of this Note to the same extent and with the
same force and effect as if they were fully set forth herein, and each Borrower
covenants and agrees to perform the same, or to cause the same to be kept and
performed, strictly in accordance with the terms and provisions thereof.
The occurrence of any Event of Default, as that term is defined in
Article 8 of the Financing Agreement, shall be an Event of Default under this
Note. If an Event of Default has occurred and if such Event of Default
continues uncorrected, the entire principal amount outstanding, together with
accrued interest thereon, and any fees due thereunder, shall at once become due
and payable at the option of the holder without further notice. If after a
default, counsel is employed to collect the indebtedness evidenced hereby or to
protect the security for such indebtedness, each Borrower agrees to pay
reasonable attorneys' fees and all other reasonable costs and expenses incurred
in connection with such collection.
Each Borrower hereby waives diligence, presentment, protest, demand
for payment, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default, or enforcement of this Note and
hereby consents to any extensions of time, renewals, releases of any party
hereto, waivers or modifications that may be granted or consented to by the
holder of this Note without notice. No delay on the part of the holder hereof
in exercising any power or right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise of any power or right hereunder preclude
other or further exercise thereof or the exercise of any other power or right.
This Note shall be binding on each Borrower and its successors and assigns. Any
term or provision of this Note that is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Note in such or any other
jurisdiction, so long as the purposes of this Note can still be accomplished in
the manner anticipated by Borrowers and Lender, or Borrowers and Lender can
agree to an acceptable modification of this Note. If any provision of this Note
is so broad as to be unenforceable, such provision shall be interpreted to be
only so broad as is enforceable.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
The obligations and liabilities of Borrowers under this Note and the
Loan Documents are joint and several and Lender may enforce its rights under
this Note and the Loan Documents, in its sole discretion, against either or both
Borrowers.
Notwithstanding anything to the contrary contained in this Note, the
Financing Agreement or any other Loan Document, neither Borrower shall have any
personal liability for payment of principal and interest on this Note, and
Lender shall look solely to the Collateral for the payment of such principal and
interest and shall not seek a deficiency or other personal judgment against
either Borrower in the event that any sale of the Collateral shall be
insufficient to satisfy this Note. Nothing herein contained shall, however,
impair any right, remedy or security of Lender with respect to the Collateral
under this Note, nor limit either Borrower's obligations to perform any of
Borrowers' other obligations under the Loan Documents, including without
limitation Borrowers' obligations to remain personally liable under Section 4.3
of the Financing Agreement and to indemnify Lender as set forth in Article 9 of
the Financing Agreement.
WITNESS the following signature.
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION
LIMITED-LIABILITY COMPANY, a
Nevada limited liability company
By /s/ N. Thomas Steele
N. Thomas Steele
Manager
ACQUISITION NOTE
$2,327,000 Longmeadow, Massachusetts
As of January 6, 1998
FOR VALUE RECEIVED, the undersigned, Foreland Corporation, a
corporation organized and existing under the laws of the State of Nevada, and
Eagle Springs Production Limited-Liability Company, a limited liability company
organized under the laws of the State of Nevada (collectively the "Borrowers"),
each promises to pay to the order of Energy Income Fund, L.P., a limited
partnership organized and existing under the laws of the State of Delaware (the
"Lender"), or its successors or assigns, the principal sum of Two Million Three
Hundred Twenty-seven Thousand Dollars ($2,327,000), or such lesser amount as has
been advanced by Lender to Borrowers as part of the Acquisition Loan pursuant to
the Financing Agreement of even date herewith, between Borrowers and Lender (the
"Financing Agreement"), together with interest from the date of funding as set
forth herein. This Note is secured by and entitled to the benefits of the
Security Instruments. All capitalized terms not defined herein shall have the
meanings attributed to them in the Financing Agreement.
The principal amount advanced hereunder shall bear interest from the
date of funding at a rate equal to twelve percent (12%) per annum for the actual
number of days such amount is outstanding based on a 360-day year. Payments of
principal and interest shall be made in accordance with the Schedule of Payments
attached as Schedule A hereto.
All payments received by the Lender shall be applied first to late
charges and fees (if any), then to accrued but unpaid interest, and then to
principal.
No prepayment of this Note shall be permitted except as set forth in
the Financing Agreement.
Upon the occurrence and during the continuation of an Event of
Default, any unpaid principal amount and any overdue interest shall bear
interest at the rate of fifteen percent (15%) per annum, computed for the actual
number of days such amount is outstanding based on a 360-day year.
Nothing contained in this Note shall be deemed to require the payment
of interest at a rate in excess of the maximum rate permitted by applicable law.
In the event that the amounts required to be paid hereunder for any month exceed
the maximum rate permitted by law, such amount shall be automatically reduced
for such month to the maximum rate permitted by law.
All payments due hereunder shall be payable in lawful money of the
United States of America and paid at the place designated in the Financing
Agreement, or at such other place in the Commonwealth of Massachusetts as the
Lender or any subsequent holder of this Note may designate.
Each Borrower has executed this Note pursuant to the Financing
Agreement. All of the terms, covenants, provisions, conditions, stipulations,
and agreements contained in the Financing Agreement to be kept and performed by
Borrowers are hereby made a part of this Note to the same extent and with the
same force and effect as if they were fully set forth herein, and each Borrower
covenants and agrees to perform the same, or to cause the same to be kept and
performed, strictly in accordance with the terms and provisions thereof.
The occurrence of any Event of Default, as that term is defined in
Article 8 of the Financing Agreement, shall be an Event of Default under this
Note. If an Event of Default has occurred and if such Event of Default
continues uncorrected, the entire principal amount outstanding, together with
accrued interest thereon, and any fees due thereunder, shall at once become due
and payable at the option of the holder without further notice. If after a
default, counsel is employed to collect the indebtedness evidenced hereby or to
protect the security for such indebtedness, each Borrower agrees to pay
reasonable attorneys' fees and all other reasonable costs and expenses incurred
in connection with such collection.
Each Borrower hereby waives diligence, presentment, protest, demand
for payment, notice of dishonor, notice of intent to accelerate, notice of
acceleration, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default, or enforcement of this Note and
hereby consents to any extensions of time, renewals, releases of any party
hereto, waivers or modifications that may be granted or consented to by the
holder of this Note without notice. No delay on the part of the holder hereof
in exercising any power or right hereunder shall operate as a waiver thereof nor
shall any single or partial exercise of any power or right hereunder preclude
other or further exercise thereof or the exercise of any other power or right.
This Note shall be binding on each Borrower and its successors and assigns. Any
term or provision of this Note that is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Note in such or any other
jurisdiction, so long as the purposes of this Note can still be accomplished in
the manner anticipated by Borrowers and Lender, or Borrowers and Lender can
agree to an acceptable modification of this Note. If any provision of this Note
is so broad as to be unenforceable, such provision shall be interpreted to be
only so broad as is enforceable.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
The obligations and liabilities of Borrowers under this Note and the
Loan Documents are joint and several and Lender may enforce its rights under
this Note and the Loan Documents, in its sole discretion, against either or both
Borrowers.
Notwithstanding anything to the contrary contained in this Note, the
Financing Agreement or any other Loan Document, neither Borrower shall have any
personal liability for payment of principal and interest on this Note, and
Lender shall look solely to the Collateral for the payment of such principal and
interest and shall not seek a deficiency or other personal judgment against
either Borrower in the event that any sale of the Collateral shall be
insufficient to satisfy this Note. Nothing herein contained shall, however,
impair any right, remedy or security of Lender with respect to the Collateral
under this Note, nor limit either Borrower's obligations to perform any of
Borrowers' other obligations under the Loan Documents, including without
limitation Borrowers' obligations to remain personally liable under Section 4.3
of the Financing Agreement and to indemnify Lender as set forth in Article 9 of
the Financing Agreement.
WITNESS the following signature.
FORELAND CORPORATION
By /s/ N. Thomas Steele
N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION
LIMITED-LIABILITY COMPANY, a
Nevada limited liability company
By /s/ N. Thomas Steele
N. Thomas Steele
Manager
WHEN RECORDED AND/OR
FILED RETURN TO:
Edward E. Abels, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION AND PROCEEDS,
FINANCING STATEMENT AND FIXTURE FILING
from
FORELAND CORPORATION (Taxpayer I.D. No. 87-0422812) and
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
(Taxpayer I.D. No. 87-0522668), AS DEBTORS
to
FIRST AMERICAN TITLE COMPANY OF NEVADA, AS TRUSTEE
and to and for the benefit of
ENERGY INCOME FUND, L.P., AS SECURED PARTY
(Taxpayer I.D. No. 04-3309082)
Dated as of January 6, 1998
THIS INSTRUMENT SHALL BE GOVERNED BY THE PROVISIONS OF SECTIONS 106.300 THROUGH
106.400 OF THE NEVADA REVISED STATUTES.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.
EXHIBIT "A" CONTAINS A LEGAL DESCRIPTION OF THE REAL ESTATE CONCERNED. DEBTORS
HAVE AN INTEREST OF RECORD IN THE REAL ESTATE. SOME OF THE PERSONAL PROPERTY
CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS TO BECOME FIXTURES RELATED TO
THE REAL ESTATE.
THIS INSTRUMENT COVERS FIXTURES AND MINERALS OR THE LIKE OR OTHER SUBSTANCES OF
VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING OIL AND GAS) AND THE
ACCOUNTS RELATING THERETO, INCLUDING ACCOUNTS RESULTING FROM THE SALE THEREOF AT
THE WELLHEAD.
THIS INSTRUMENT IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF THE COUNTY
RECORDER IN EACH COUNTY WHERE THE REAL ESTATE IS LOCATED.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. A POWER OF SALE MAY ALLOW
SECURED PARTY OR THE TRUSTEE TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO
COURT IN A FORECLOSURE ACTION.
DEED OF TRUST,
SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION AND PROCEEDS,
FINANCING STATEMENT
AND FIXTURE FILING
This Deed of Trust, Security Agreement, Assignment of Production and
Proceeds, Financing Statement and Fixture Filing (this "Instrument"), dated as
of January 6, 1998, is from FORELAND CORPORATION, a Nevada corporation and
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY (also known as Eagle Springs
Production Limited Liability Company), a Nevada limited liability company
(collectively "Debtors"), both with an address of 12596 West Bayaud, Suite 300,
Lakewood, Colorado 80228, to FIRST AMERICAN TRUST COMPANY OF NEVADA, a Nevada
corporation ("Trustee"), and to and for the benefit of ENERGY INCOME FUND, L.P.,
a Delaware limited partnership ("Secured Party"), with an address of 136 Dwight
Road, Longmeadow, Massachusetts 01106.
COLLATERAL
All of the property described in paragraphs 1 through 10 below is
herein collectively called the "Collateral":
1. The entire estates or the undivided interests therein as described
in Exhibit "A" in and to all of the mineral estates, surface estates,
leasehold estates and other estates described in Exhibit "A" and in and to
the mineral interests, royalty interests, working interests, operating
rights interest, record title interests, overriding royalty interests,
production payment interests, net profit interests and other interests
described in Exhibit "A" and in and to the leases, licenses, subleases,
sublicenses, easements, rights-of-way, farmouts, farmins, minerals
agreements, unit agreements, cooperative development agreements,
communitization agreements, unit operating agreements, pooling agreements,
joint operating agreements and other documents and instruments described in
Exhibit "A" and any other estates, property interests and rights covering or
relating to all or any part of the land described either in Exhibit "A" or
in the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit "A"
(collectively, the "Land"; the term "Land" as used herein includes, without
limitation, the land specifically described in Exhibit "A" and all land
described in or covered by the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and instruments
described in Exhibit "A" whether or not such land is specifically described
in Exhibit "A"), together with any and all other right, title and interest
of Debtors of whatever kind or character (whether now owned or hereafter
acquired by operation of law or otherwise) (which right, title and interest
of Debtors shall, for all purposes of this Instrument, be deemed to include,
without limitation, any and all right, title and interest now owned or
hereafter acquired by Debtors in any amendment, modification, supplement,
restatement, extension, renewal or replacement of any of the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and
other documents and instruments described in Exhibit "A") in, to and under
or that covers, affects or otherwise relates to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and
other documents and instruments described in Exhibit "A" or to any of the
estates, property, interests or rights described or referred to above or
herein; including, without limitation, the following:
(a) All of Debtors' right, title and interest of whatever kind or
character (whether now owned or hereafter acquired by operation of law
or otherwise) in, to and under or that covers, affects or otherwise
relates to the Land or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and
instruments described in Exhibit "A" or to any of the estates,
property, interests or rights described or referred to above or herein,
even though Debtors' interest therein may be incorrectly described in,
omitted from or not described in Exhibit "A";
(b) All of Debtors' right, title and interest (whether now owned
or hereafter acquired by operation of law or otherwise) in, to and
under all presently existing and hereafter created oil, gas or mineral
unitization, cooperative development, pooling, spacing or
communitization agreements, declarations or orders, and in and to the
lands and properties covered and the units created thereby (including,
without limitation, units formed under orders, rules, regulations or
other official acts of any federal, state, tribal, local or other
authority having jurisdiction and so called "working interest units"
created under operating and similar agreements or otherwise), that
cover, affect or otherwise relate to the Land or the leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit "A" or to any of the
estates, property, interests or rights described or referred to above
or herein;
(c) All of Debtors' right, title and interest (whether now owned
or hereafter acquired by operation of law or otherwise) in, to and
under all presently existing and hereafter created operating
agreements, equipment leases, production sales, purchase, exchange or
processing agreements, transportation or gathering agreements, farmout
or farmin agreements, disposal agreements, area of mutual interest
agreements and other contracts or agreements that cover, affect or
otherwise relate to the Land or the leases, licenses, subleases,
sublicenses, easements, rights-of-way, agreements and other documents
and instruments described in Exhibit "A" or to any of the estates,
property, interests or rights described or referred to above or herein
or the operations thereon, or the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons (as hereinafter defined) produced therefrom
or allocated or attributed thereto, including, without limitation,
those contracts and agreements listed in Exhibit "A" as the same may be
amended or supplemented from time to time; and
(d) All of Debtors' right, title and interest of whatever kind or
character (whether now owned or hereafter acquired by operation of law
or otherwise) in, to and under all presently existing or hereafter
created easements, servitudes, rights-of-way, surface leases, licenses,
permits and other surface rights used, or held for use, in connection
with the Land or any of the estates, property, interests or rights
described or referred to above or herein, or the operations thereon, or
the production, treatment, storage, gathering, transportation,
handling, processing, manufacturing, sale or marketing of Hydrocarbons
produced therefrom or allocated or attributed thereto, including,
without limitation, the easements and rights-of-way described in
Exhibit "A" as same may be amended or supplemented from time to time;
2. All of the oil, gas, drip gasoline, natural gasoline, natural gas
liquids, condensate, distillate, casinghead gas and other solid, liquid or
gaseous hydrocarbons and other associated or related substances of whatever
kind or character and in whatever form or phase (including without
limitation, gases produced from coal-bearing formations and strata such as
so-called "coal-bed gas" and "coal-bed methane"), and all products,
by-products and all other substances derived therefrom or the processing
thereof (collectively, "Hydrocarbons") in, on, under or allocated or
attributed to any of the estates, property, interests or rights described or
referred to above or herein or any other interest of Debtors (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and
under or that covers, affects or otherwise relates to the Land or to any of
the estates, property, interests or rights described or referred to above or
herein;
3. All wells (including, without limitation, the wells described in
Exhibit "A"), platforms, derricks, casing, tubing, tanks, tank batteries,
compressors, condensers, treaters, separators, rods, pumps, pumping units,
flow lines, water lines, transportation lines, gathering lines, gas lines,
machinery, pipelines, power lines and other goods and equipment, and all of
the personal property and fixtures, as defined under applicable state law,
now or hereafter located in, on, under, affixed, allocated or attributed to
or obtained or used in connection with any of the estates, property,
interests or rights described or referred to above or herein or any other
interest of Debtors (whether now owned or hereafter acquired by operation of
law or otherwise) in, to and under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein, or that are used, acquired,
purchased or otherwise held for the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons, whether located on the Land or other lands;
4. All of the accounts, contract rights and general intangibles now
or hereafter arising in connection with the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons produced from or allocated or attributed to any of
the estates, property, interests or rights described or referred to above or
herein or any other interest of Debtors (whether now owned or hereafter
acquired by operation of law or otherwise) in, to or under or that covers,
affects or otherwise relates to the Land or to any of the estates, property,
interests or rights described or referred to above or herein and all other
accounts, contract rights and general intangibles now or hereafter arising
in connection with the estates, property, interests or rights described or
referred to above or herein;
5. All of the severed and extracted Hydrocarbons produced from or
allocated or attributed to any of the estates, property, interests or rights
described or referred to above or herein or any other interest of Debtors
(whether now owned or hereafter acquired by operation of law or otherwise)
in, to and under or that covers, affects or otherwise relates to the Land or
to any of the estates, property, interests or rights described or referred
to above or herein;
6. All geological, geophysical, engineering, accounting, legal and
other information and all rights therein and thereto in the possession of
Debtors or to which Debtors have access or has any rights therein concerning
the estates, property, interests or rights described or referred to above or
herein, including, without limitation, lease files, abstracts of title,
title opinions, geological and geophysical information (unless such
geological or geophysical information is restricted as to transfer or use by
an existing license or agreement concerning proprietary rights identified in
Exhibit "A"), reserve or reservoir studies and well logs, engineering data
and reports, production records and all magnetic media and computer data
relating to the estates, property, interests or rights described or referred
to above or herein;
7. All rights of Debtors to liens and security interests securing
payment of proceeds from the sale of production from the estates, property,
interests or rights described or referred to above or herein; together with
Debtors' interest in any and all renewals and extensions of any of the
estates, property, interests or rights described or referred to above or
herein, Debtors' interest in all contracts and agreements supplemental to or
amendatory of or in substitution for the contracts and agreements described
or referred to herein, and any and all additional interests of any kind
hereafter acquired by Debtors in and to the estates, property, interests or
rights described or referred to above or herein;
8. All of Debtors' right, title and interest, whether now owned or
hereafter acquired, in and to (a) that certain Escrow Agreement, among
Debtors, as Borrower, Secured Party, as Lender, and Peoples Bank, Holyoke,
Massachusetts, as Escrow Agent, (b) all funds deposited and held by the
Escrow Agent in the escrow account established pursuant to such Escrow
Agreement, and (c) all distributions and proceeds therefrom and thereof;
9. All renewals, extensions and restatements of, modifications,
changes, amendments and supplements to, and substitutions for the estates,
property, interests and rights described or referred to in paragraphs 1
through 8 above, and all additions and accessions thereto;
10. All of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or appertaining to the
estates, property, interests and rights described or referred to in
paragraphs 1 through 9 above; and
11. All of the proceeds and products of the estates, property,
interests and rights described or referred to in paragraphs 1 through 10
above, including without limitation, condemnation awards and the proceeds of
any and all insurance policies (including title insurance policies as well
as other types of insurance policies) covering all or any part of said
estates, property, interests or rights and, to the extent they may
constitute proceeds, instruments, accounts, securities, general intangibles,
contract rights and inventory.
GRANTING CLAUSES
In consideration of ten dollars and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Debtors, and the matters hereinafter set forth, Debtors hereby irrevocably:
A. Real Property. Grant, bargain, sell, mortgage, assign, transfer
and convey to Trustee, with POWER OF SALE, for the benefit of Secured Party,
that part of the Collateral that is real property (including any fixtures
that are real property under applicable state law), subject to the
assignment of severed and extracted Hydrocarbons and the proceeds thereof
made under paragraph C below; TO HAVE AND TO HOLD all of the Collateral that
is real property (including any fixtures that are real property under
applicable state law), together with all of the rights, privileges,
benefits, hereditaments and appurtenances in any way belonging, incidental
or pertaining thereto, to Trustee and its successors and assigns, forever,
IN TRUST, NEVERTHELESS, for the security and benefit of Secured Party and
its successors and assigns, subject to all of the terms, conditions,
covenants, agreements and trusts herein set forth;
B. Personal Property. Grant to Secured Party a security interest in
that part of the Collateral that is personal property (including any
fixtures that are personal property under applicable state law); and
C. Assignment of Production. Absolutely assign, grant and transfer
to Secured Party all of the severed and extracted Hydrocarbons produced from
or allocated or attributed to any of the Collateral or any other interest of
Debtors (whether now owned or hereafter acquired by operation of law or
otherwise) in, to and under or that covers, affects or otherwise relates to
the Land or to any of the estates, property rights or other
interestsdescribed or referred to above or herein, together with all of the
proceeds, rents, income, issues and profits thereof and therefrom and
payments in lieu thereof.
ARTICLE I
Obligations
Section 1.1 Obligations Secured. This Instrument is executed,
acknowledged and delivered by Debtors to secure and enforce the following
indebtedness, liabilities and obligations (the "Obligations"):
A. Notes. All indebtedness (including principal, interest, fees
and penalties), liabilities and obligations under or pursuant to the
following described notes, and any renewals, extensions or restatements
thereof, modifications, changes, amendments or supplements thereto and
substitutions therefor (collectively, the "Notes"):
1. Refinancing Note, dated as of January 6, 1998, in the
maximum principal amount of $680,000 made by Debtors and payable to the
order of Secured Party on or before January 1, 2002, together with
interest until maturity or default at the rate of 12% per annum (the
"Standard Interest Rate"), and after maturity or default at the rate of
15% per annum (the "Default Rate");
2. Acquisition Note, dated as of January 6, 1998, in the
maximum principal amount of $2,327,000 made by Debtors and payable to
the order of Secured Party on or before January 1, 2002, together with
interest until maturity at the Standard Interest Rate, and after
maturity or default at the Default Rate; and
3. Development Note, dated as of January 6, 1998, in the
maximum principal amount of $13,893,000 made by Debtors and payable to
the order of Secured Party on or before January 1, 2002, together with
interest until maturity or default at the Standard Interest Rate, and
after maturity or default at the Default Rate;
B. Loan Agreement. All indebtedness, liabilities and
obligations of whatever kind or character, now existing or hereafter created
or arising under or pursuant to that certain Financing Agreement (the "Loan
Agreement"), dated as of January 6, 1998, as amended and as may be amended
from time to time, among Debtors and Secured Party;
Section 1.2 Maximum Indebtedness Secured. This Instrument shall be
governed by the provisions of Sections 106.300 through 106.400 of the Nevada
Revised Statutes, as may be amended from time to time. Debtors, Secured Party
and Trustee agree and acknowledge that Secured Party may elect to make
additional advances under the terms of the Notes, the Loan Agreement or
otherwise, and that any such future advances shall be subject to, and secured
by, this Instrument. Should the Obligations decrease or increase pursuant to
the terms of the Notes, the Loan Agreement or otherwise, at any time or from
time to time, this Instrument shall retain its priority position of record until
the termination of the Loan Agreement and until full, final and complete payment
of all the Obligations. The aggregate unpaid principal amount of the
Obligations outstanding at any particular time (after having given effect to all
advances and all repayments made prior to such time) which is secured by the
Collateral shall not aggregate in excess of One-Hundred Million Dollars
($100,000,000). Such amount does not in any way imply that Secured Party is
obligated to make any future advances to Debtors at any time unless specifically
so provided in the Loan Agreement or any other loan document.
Section 1.3 Recourse. Except as otherwise provided herein, in no
event shall Debtors have any personal liability for payment of principal and
interest on the Notes. Secured Party shall look solely to the Collateral for
the payment of such principal and interest and shall not seek a deficiency or
other personal judgment against Debtors for such principal and interest in the
event that any sale of the Collateral shall be insufficient to satisfy the
Notes. Nothing herein contained shall, however, impair any right, remedy or
security of Secured Party with respect to the Collateral under this Instrument,
the Notes, the Loan Agreement or any other documents or instruments evidencing,
securing or relating to the Obligations, nor limit Debtors' obligations to
perform any of Debtors' other obligations under this Instrument, the Notes, the
Loan Agreement or any other documents or instruments evidencing, securing or
relating to the Obligations, including without limitation, Debtors' obligation
to indemnify Secured Party as set forth herein and in the Loan Agreement.
Notwithstanding the foregoing limitation of recourse, Debtors will remain fully
liable for:
A. Fraud, breach of trust, or any material misrepresentation by
Debtors in this Instrument, the Notes, the Loan Agreement or any other
documents or instruments evidencing, securing or relating to the
Obligations;
B. Waste of a material nature to any part of the Collateral caused
by Debtors' gross negligence or willful and wanton neglect or abuse of the
Collateral or failure to exert reasonable control appropriate for an owner
that is not also the operator;
C. Failure to pay taxes, insurance, assessments, charges for labor
or materials, or other charges, fees or assessments that can create or
result in liens on any portion of the Collateral;
D. Any breaches of warranty or defects of title to the Collateral;
E. Any breach of a warranty or representation contained in this
Instrument or any other instrument securing the Obligations, failure to
perform any covenant or other agreement contained in this Instrument or any
other instrument securing the Obligations, or any indemnity contained in
this Instrument or any other instrument evidencing, securing or otherwise
relating to the Obligations;
F. Any attempt to communicate in any manner with the purchasers of
production from the Collateral after the delivery to such purchasers of a
Transfer Order (as defined in Section 3.1) in an attempt to hinder or
interfere with the rights of Secured Party;
G. The return of, or reimbursement for, all monies received by
Debtors from the purchasers of production for monies attributable to
production after receipt by any such purchaser of a Transfer Order;
H. Any attempt to hinder or interfere with the foreclosure of or
other realization on, the Collateral (whether by judicial action, power of
sale, trustee's sale or otherwise), including without limitation the filing
of a lis pendens, the initiation of any lawsuit or the requesting of
injunctive relief from any court or tribunal, having the effect of hindering
or delaying the exercise by Secured Party or Trustee of any right or remedy
under this Instrument or any other instrument evidencing, securing or
otherwise relating to the Obligations; and
I. After an Event of Default (as hereinafter defined), Debtors
shall fail or refuse to execute and deliver to Secured Party any instrument
reasonably requested by Secured Party and prepared at its expense, which is
necessary to fully vest title to the Collateral in Secured Party or the
purchaser(s) of all or part of the Collateral pursuant to any sale as
provided for in this Instrument or any other instrument securing the
Obligations.
Debtors shall be fully and personally liable for all attorneys' fees and
costs and expenses incurred by Secured Party arising out of any of the
foregoing paragraphs A through I.
ARTICLE II
Warranties, Representations, Covenants
and Indemnities
Section 2.1 Representations and Warranties. Debtors warrant and
represent as follows:
A. Power and Authority. Debtors have the full power and authority
to grant, bargain, sell, mortgage, assign and convey the Collateral as
provided herein.
B. Title. Unless otherwise indicated in Exhibit "A", the oil and
gas leases and licenses described in Exhibit "A" cover all of the oil, gas
and other Hydrocarbons in and under the Land. Debtors are the lawful owners
of good and marketable title to the Collateral; and Debtors have good and
marketable title to the undivided interests in the leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments as described in Exhibit "A" free and clear of all
royalties and other burdens, charges, liens, security interests,
encumbrances, agreements, contracts, assignments and other matters, except
landowner's royalties and the overriding royalties and the agreements and
contracts specifically described in Exhibit "A". The leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit "A" hereto are valid and
subsisting and are in full force and effect. All rents and royalties due
and payable under the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit "A" hereto have been paid. All wells located on the Land have been
drilled, operated and produced in conformity with all applicable laws,
rules, regulations and orders of all regulatory authorities having
jurisdiction, and are subject to no penalties on account of past production.
None of such wells are deviated from the vertical more than the maximum
permitted by applicable laws, rules, regulations and orders. Such wells are
in fact bottomed under and are producing from, and the well bores are wholly
within, the lands described in Exhibit "A". Debtors warrant and will
forever defend the title to the Collateral against the claims of all persons
claiming or to claim the same or any part thereof.
C. Working and Net Revenue Interests. (1) With respect to each
of the oil and gas leases and licenses described in Exhibit "A", Debtors'
share of development and operating costs with respect to the portion of the
Land covered thereby as described in Exhibit "A", without regard to pooling
and unitization, is not greater than the "Working Interest" or "Operating
Rights Interest" specified in Exhibit "A"; and, without giving effect to the
Override Assignments (as defined in Section 7.12 below), Debtors' share of
the gross production of Hydrocarbons produced, saved and marketed from said
Land, without regard to pooling and unitization, is no less than the "Net
Revenue Interest" specified in Exhibit "A".
(2) With respect to each of the wells described in
Exhibit "A", Debtors' share of development and operating costs with respect
thereto and the portion of the Land attributed thereto, is not greater than
the "Working Interest" or "Operating Rights Interest" specified in
Exhibit "A"; and, without giving effect to the Override Assignments,
Debtors' share of the gross production of Hydrocarbons produced, saved and
marketed from said wells and said Land is no less than the "Net Revenue
Interest" specified in Exhibit "A".
(3) With respect to each of the overriding royalty interests
described in Exhibit "A", without giving effect to the Override Assignments,
Debtors' share of the gross production of Hydrocarbons produced, saved and
marketed from the portion of the Land subject thereto as described in
Exhibit "A", is no less than the "Net Revenue Interest" specified in
Exhibit "A".
(4) With respect to each of the mineral interests described
in Exhibit "A", without giving effect to the Override Assignments, Debtors'
share of the gross production of Hydrocarbons in and under and that may be
produced, saved and marketed from the portion of the Land subject thereto as
described in Exhibit "A" is no less than the stated percentage specified in
Exhibit "A".
(5) With respect to each of the royalty interests described
in Exhibit "A", without giving effect to the Override Assignments, Debtors'
share of the gross production of Hydrocarbons produced, saved and marketed
from the portion of the Land subject thereto as described in Exhibit "A" is
no less than the percentage specified in Exhibit "A".
(6) With respect to each of the units and pools described in
Exhibit "A", Debtors' share of development and operating costs with respect
to the portion of the Land covered thereby as described in Exhibit "A" or in
the agreements creating such units and pools recorded as described in
Exhibit "A" and the wells on said Land, is no greater than the "Unit Working
Interest" specified in Exhibit "A"; and, without giving effect to the
Override Assignments, Debtors' share of the gross production of oil, gas and
other Hydrocarbons produced, saved and marketed from said Land and said
wells is no less than the "Unit Net Revenue Interest" specified in
Exhibit "A".
All such shares of development and operating costs and of gross
production are not and will not be subject to change (other than changes
that arise pursuant to nonconsent provisions of operating agreements
described in Exhibit "A" hereto in connection with operations hereafter
proposed and consented to by Secured Party) except, and only to the extent
that, such changes are reflected in Exhibit "A".
D. Operations of Oil and Gas Properties. The Collateral (and
all properties spaced, communitized, unitized or otherwise aggregated
therewith) has been maintained, operated and developed in a good and
workmanlike manner and in conformity in all material respects with all
applicable laws, rules, regulations and orders of all federal, state, tribal
and local governmental bodies, authorities and agencies and in conformity in
all material respects with the provisions of all leases, subleases or other
contracts and agreements comprising a part of the Collateral. None of the
Collateral is subject to having allowable production reduced below the full
and regular allowable (including the maximum permissible tolerance) because
of an overproduction (whether or not the same was permissible at the time)
prior to the date hereof. None of the Collateral is subject to having
production reduced below the full amount producible therefrom as result or
consequence of applicable laws, rules, regulations and orders or otherwise.
E. Sale of Production. (1) All proceeds from the sale of
Debtors' interests in Hydrocarbons from the Collateral are currently being
paid in full to Debtors by the purchaser or remitter thereof on a timely
basis and at prices and terms comparable to market prices in terms
generally available at the time such prices and terms were negotiated for
oil and gas production from producing areas situated near the Collateral,
and none of such proceeds are currently being held in suspense by such
purchaser or any other party.
(2) Neither Debtors, nor their predecessors in title, have
entered into or are subject to any agreement or arrangement (including
without limitation, "take or pay" or similar arrangements), nor is the
Collateral subject to any such agreement or arrangement, to deliver
Hydrocarbons produced or to be produced from the Collateral at some future
time without then or thereafter receiving full payment therefor.
(3) Except as previously disclosed to Secured Party in
writing, none of the Collateral is or, without the prior written consent of
Secured Party, will become subject to any contractual or other arrangement
whereby payment for production from such Collateral is to be deferred for a
substantial period after the month in which such production is delivered
(that is, in the case of oil, not in excess of 60 days, and in the case of
gas, not in excess of 90 days).
(4) None of the Collateral is or will become subject to any
contractual or other arrangement for the sale of crude oil that cannot be
canceled on 180 days' or less notice; and none of the Collateral is or will
become subject to a gas sales contract that contains terms that are not
customary in the industry.
(5) None of the Collateral is subject at the present time to
any regulatory refund obligation and, to the best of Debtors' knowledge, no
facts exist that might cause the same to be imposed.
(6) None of the Collateral is subject to a gas balancing
arrangement under which an imbalance exists with respect to which imbalance
Debtors or the Collateral is in an overproduced status and is required to
(a) permit one or more third parties to take a portion of the production
attributable to such Collateral without payment (or without full payment)
therefor, or (b) make payment in cash, in order to correct such imbalance.
F. Condition of Personal Property. The inventory, equipment,
fixtures and other tangible personal property and fixtures forming a part of
the Collateral are in good repair and condition and are adequate for the
normal operation of the Collateral in accordance with prudent industry
standards, and the Collateral includes all equipment necessary or advisable
for the proper and efficient operation of the wells and leases, licenses,
subleases, sublicenses and rights-of-way included in the Collateral. All of
such Collateral is located on the Land.
G. Consents and Preferential Rights to Purchase. There are no
preferential rights to purchase all or any portion of the Collateral, and
there are no rights of third parties to consent to the transfer of all or
any portion of the Collateral.
H. Contracts and Agreements. Exhibit "A" sets forth all
operating agreements, unit agreements, equipment leases, production sales,
purchase, exchange or processing agreements, transportation or gathering
agreements, farmout or farmin agreements, disposal agreements, area of
mutual interest agreements and other contracts and agreements that cover,
affect or otherwise relate to the Land or the leases, licenses, subleases,
sublicenses, easements, rights-of-way, agreements and other documents and
instruments described in Exhibit "A" that relate to operations thereon, or
the production, treatment, storage, gathering, transportation, handling,
processing, manufacturing, sale or marketing of Hydrocarbons produced
therefrom or allocated or attributed thereto.
I. Taxes. All ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by the
ownership of property or the production of Hydrocarbons or the receipt of
proceeds therefrom relating to the Collateral that have become due and
payable have been properly and timely paid.
J. Duly Qualified. Debtors are duly qualified to own, hold and
operate all of the leases, easements, rights-of-way, mineral agreements and
other agreements included within the Collateral, and to conduct their
business as contemplated.
K. Environmental. (1) The Collateral is, and, except as
previously disclosed to Secured Party in writing, to the best of Debtors'
knowledge, at all times has been, operated in compliance with all applicable
Environmental Laws (as hereinafter defined); and to the best of Debtors'
knowledge, no condition exists with respect to the Collateral or other
property owned or operated by Debtors or any affiliate of or party related
to Debtors that would or could reasonably be expected to subject Debtors,
any affiliate of or party related to Debtors, or Secured Party to any
damages (including without limitation, actual, consequential, exemplary and
punitive damages), material liability (absolute or contingent, determined or
determinable), penalties, injunctive relief or cleanup costs under any
applicable Environmental Laws, or that require or could reasonably be
expected to require cleanup, removal, remedial action or other response by
Debtors, any affiliate of or party related to Debtors, or Secured Party
pursuant to any applicable Environmental Laws.
(2) Debtors have not received and, to the best of Debtors'
knowledge, none of their affiliates have received, and none of Debtors' or
their affiliates' or related parties' predecessors in title to the
Collateral have received, any notice from a governmental agency asserting or
alleging a violation of any Environmental Laws as they relate to the
Collateral.
(3) There are no pending or threatened suits, actions,
claims or proceedings against Debtors or its affiliates or related parties
or, to the best of Debtors' knowledge, Debtors' or their affiliates'
predecessors in title, arising from or related to, directly or indirectly,
any Environmental Laws as they relate to the Collateral.
(4) Neither Debtors, any affiliate of or party related to
Debtors, any part of the Collateral, nor, to the best of Debtors' knowledge,
Debtors' or any affiliate's or related parties' predecessors are subject to
any judgment, decree, order or citation related to or arising out of any
Environmental Laws, and neither Debtors nor any affiliate or party related
to Debtors have been named or listed as a potentially responsible party by
any governmental or other entity in a matter arising under or relating,
directly or indirectly, to any Environmental Laws.
(5) Debtors have obtained or caused to be obtained all
permits, licenses, and approvals required under all Environmental Laws to
operate the Collateral.
(6) There are not now, nor to the best of Debtors' knowledge
have there ever been, Hazardous Materials (as hereinafter defined)
discharged, leaked, spilled or released in, on, to, from or at the
Collateral or other properties owned or operated by Debtors or any of their
affiliates or stored, treated, or recycled at or in tanks or other
facilities thereon or related thereto which give rise or could reasonably be
expected to give rise to material liability under any Environmental Laws.
(7) The use which Debtors make and intend to make of the
Collateral will not result in: (a) the use or storage of any Hazardous
Materials on, in or in connection with the Collateral, or disposal of any
Hazardous Materials from the Collateral except in compliance with all
applicable Environmental Laws, or (b) the treatment, processing, discharge
or release of any Hazardous Materials on, in, to or from the Collateral
except in compliance with all applicable Environmental Laws.
(8) There are no underground storage tanks, surface
impoundments, or wastewater injection wells located on or in the Collateral.
As used herein, the term "Environmental Laws" shall mean any one
or more of the following: (i) the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund
Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601 et seq.
("CERCLA"); (ii) the Resource Conservation and Recovery Act, as amended by
the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C. Section 6901
et seq. ("RCRA"); (iii) the Clean Air Act, 42 U.S.C. Section 7401 et seq.;
(iv) the Federal Water Pollution Control Act, 33 U.S.C. Section 1251
et seq.; (v) the Toxic Substances Control Act, 15 U.S.C. Section 2601
et seq.; (vi) the Federal Safe Drinking Water Act, 42 U.S.C.
Sections 300f to 300j-11; (vii) the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 1101 et seq.; (viii) the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.; and
(ix) all other foreign, federal, state, tribal and local laws (whether
common or statutory), rules, regulations, consent agreements, compliance
schedules, and orders directly and/or indirectly relating to public health
and safety, air pollution, water pollution, noise control, wetlands, oceans,
waterways, and/or the presence, use, generation, manufacture,
transportation, processing, treatment, handling, discharge, release,
disposal, or recovery of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or materials and/or underground storage tanks,
including, without limitation, all rules, regulations and orders of all
state and local governmental bodies, authorities and agencies pertaining or
relating to the exploration, development, regulation and conservation of oil
and gas resources, as each of the foregoing laws, rules, regulations,
consent agreements, compliance schedules and orders may be enacted, amended,
supplemented, or reauthorized from time to time.
As used herein, the term "Hazardous Materials" shall mean any one
or more of the following substances, wastes and materials: (i) any
substance, waste or material defined as a "hazardous substance," "hazardous
material," "hazardous waste," "pollutant," "contaminant," "toxic material,"
or "toxic substance," in any of the applicable Environmental Laws, or in the
standards, criteria, rules and/or regulations promulgated pursuant to any of
said Environmental Laws (including without limitation Hydrocarbons); and
(ii) any substance, waste or material, the presence of which requires
investigation or remediation under any Environmental Laws.
L. Non-Foreign Person Status. Debtors are not "foreign persons"
within the meaning of the Internal Revenue Code of 1986, as amended (the
"Code"), Sections 1445 and 7701; that is, Debtors are not nonresident
aliens, foreign corporations, foreign partnerships, foreign trusts or
foreign estates as those terms are defined in the Code and any regulations
promulgated thereunder.
Section 2.2 Covenants. Debtors covenant and agree as follows:
A. Obligations. Debtors shall pay when due and perform the
Obligations in accordance with the terms thereof and hereof.
B. Recording and Filing. Debtors shall (1) promptly and at
Debtors' own expense, file or cause to be filed in such offices, at such
times and as often as may be necessary, this Instrument and every other
instrument in addition or supplemental hereto, including applicable
financing statements, as may be necessary to create, perfect, maintain and
preserve the first priority of the liens and security interests intended to
be created hereby and the rights and remedies of Secured Party and Trustee
hereunder; (2) promptly furnish to Secured Party evidence satisfactory to
Secured Party of all such filings; and (3) otherwise do all things necessary
or expedient to be done effectively to create, perfect, maintain and
preserve the priority of the liens and security interests intended to be
created hereby as a first lien on real property and fixtures and a first
priority security interest in personal property and fixtures.
C. Modifications and Dispositions. Without the prior written
consent of Secured Party, Debtors shall not (1) amend, modify or otherwise
revise any lease, license or other agreement described in Exhibit "A";
(2) release, surrender, abandon or forfeit the Collateral or any part
thereof; (3) sell, convey, assign, lease, sublease, alienate, mortgage or
grant security interests in or otherwise dispose of or encumber the
Collateral or any part thereof, except to the extent explicitly permitted by
the Loan Agreement and except sales of severed Hydrocarbons in the ordinary
course of Debtors' business and for fair consideration, and except for the
liens and security interests created by this Instrument and liens for taxes,
assessments and governmental charges not delinquent; or (4) consent to,
permit or authorize any such act by another party with respect to the Land,
the Collateral or any part thereof.
D. Maintenance of Collateral. Debtors shall, at Debtors' own
expense, (1) keep in full force and effect all of the leases, licenses and
other agreements described in Exhibit "A" and all rights-of-way, easements
and privileges necessary or appropriate for the proper operation of such
leases, licenses and agreements, by the proper payment of all rentals,
royalties and other sums due thereunder and the proper performance of all
obligations and other acts required thereunder; (2) cause the Collateral to
be properly maintained, developed and continuously operated for the
production of Hydrocarbons and protected against drainage and damage in a
good and workmanlike manner as a prudent operator would in accordance with
good oil field practice and all applicable federal, state, tribal and local
laws, rules, regulations and orders; (3) pay or cause to be paid when due
all expenses incurred in connection with such maintenance, development,
operation and protection of the Collateral; (4) keep all goods, including
equipment, inventory and fixtures included in the Collateral in good and
effective repair, working order and operating condition and make all
repairs, renewals, replacements, substitutions, additions and improvements
thereto and thereof as are necessary and proper; (5) comply with all
applicable laws, rules, regulations and orders of all federal, state, tribal
and local governmental bodies, authorities and agencies in all material
respects; (6) permit Secured Party, and its respective agents, employees,
contractors, designees and consultants, at reasonable times and upon prior
notice to enter upon the Collateral for the purpose of investigating and
inspecting the condition and operation of the Collateral, and do all things
necessary or proper to enable Secured Party to exercise this right whenever
Secured Party so desires; and (7) do all other things necessary to keep
unimpaired Secured Party's and Trustee's interests in the Collateral.
E. Notification of Breach. Debtors shall promptly notify
Secured Party (1) if any representation or warranty of Debtors contained in
this Agreement is discovered to be or becomes untrue, or (2) if Debtors fail
to perform or comply with any covenant or agreement contained in this
Agreement or it is reasonably anticipated that Debtors will be unable to
perform or comply with any covenant or agreement contained in this
Agreement. Debtors shall cause all the representations and warranties of
Debtors contained in this Agreement to be true and correct in all material
respects from time to time and all times.
F. Defense of Title. If the title or interest of Debtors,
Trustee or Secured Party to the Collateral or any part thereof, or the lien
or encumbrance created by this Instrument, or the rights or powers of
Secured Party or Trustee hereunder, shall be attacked, either directly or
indirectly, or if any legal proceedings are commenced against Debtors,
Secured Party or Trustee of the Collateral, Debtors shall promptly give
written notice thereof to Secured Party and at Debtors' own expense shall
take all reasonable steps diligently to defend against any such attack or
proceedings, employing attorneys reasonably acceptable to Secured Party.
Secured Party and Trustee may take such independent action in connection
therewith as they may in their reasonable discretion deem advisable, and all
costs and expenses, including without limitation, attorneys' fees and legal
expenses, incurred by or on behalf of Secured Party and by Trustee in
connection therewith shall be a demand obligation owing by Debtors to
Secured Party and shall bear interest at the Default Rate until paid, and
shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument.
G. Environmental. (1) Debtors shall comply with all applicable
Environmental Laws as they relate to the Collateral and shall maintain and
obtain, or cause to be maintained and obtained, all permits, licenses, and
approvals now or hereafter required under all applicable Environmental Laws
as they relate to the Collateral.
(2) Debtors shall not do or permit anything to be done that
will subject the Collateral, Debtors or Secured Party to any material
liability under any applicable Environmental Laws as they relate to the
Collateral, assuming disclosure to governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Collateral.
(3) Debtors shall promptly notify Secured Party in writing
of any citation, complaint, demand, order or notice relating to the
Collateral which is known to Debtors, or any other existing, pending or
threatened investigation or inquiry by any governmental authority relating
to the Collateral known to Debtors and in connection with any applicable
Environmental Laws.
(4) Debtors shall take, or cause to be taken, all steps
necessary to determine that no Hazardous Materials have been: (a) used or
stored on, in or in connection with any Collateral that Debtors acquire with
funds that Debtors receive from Secured Party in accordance with the Loan
Agreement, or disposed from such Collateral, or (b) treated, processed,
discharged or released on, to, in or from such Collateral, except, in each
case, in full compliance with all applicable Environmental Laws.
(5) Debtors shall not cause or permit: (a) the use or
storage of Hazardous Materials on, in or in any manner in connection with
the Collateral, or (b) the treatment, processing, discharge or release of
any Hazardous Materials on, to, in or from the Collateral, except in each
case, in full compliance with all Environmental Laws.
(6) Except in full compliance with all applicable
Environmental Laws, Debtors shall not keep, or cause or allow to be kept,
Hazardous Materials in, on or under the Collateral, and shall remove the
same (or if removal is prohibited by applicable law, shall take whatever
action is required by applicable law) promptly upon discovery of such
Hazardous Materials, all at Debtors' sole cost and expense.
(7) Debtors shall provide, upon Secured Party's reasonable
request, at any time, and from time to time (but not more often than once a
year), inspections, tests and audits of the Collateral from an engineering
or consulting firm approved by Secured Party indicating the presence or
absence of Hazardous Materials on the Collateral and compliance with all
applicable Environmental Laws. The cost of all inspections, tests and
audits of the Collateral performed pursuant to this Section shall be shared
equally by Debtors and Secured Party. Nothing contained herein shall
relieve Debtors from conducting its own inspections, tests and audits or
taking any other steps necessary to comply with all Environmental Laws, nor
shall anything contained herein be construed to imply or impose any duty on
Secured Party concerning Debtors' compliance or noncompliance therewith.
H. Further Assurances. Debtors shall execute, acknowledge and
deliver, or cause to be executed, acknowledged or delivered, to Secured
Party such other and further instruments and do such other acts as in the
reasonable opinion of Secured Party may be necessary or desirable to effect
the intent of this Instrument, promptly upon request of Secured Party and at
Debtors' expense.
Section 2.3 Costs, Expenses and Indemnities. Debtors agree to
reimburse, pay, indemnify, defend and hold harmless Secured Party and Trustee as
follows:
A. Costs and Expenses. Debtors shall reimburse and pay Secured
Party for all fees, costs and expenses (including without limitation,
reasonable attorneys' fees, court costs and legal expenses and consultant's
and expert's fees and expenses), incurred or expended by Secured Party or
Trustee in connection with (1) the breach by Debtors of any representation
or warranty contained in this Instrument, the Loan Agreement, the Notes or
any other documents and instruments evidencing, securing or otherwise
relating to the Obligations, (2) the failure by Debtors to perform any
agreement, covenant, condition, indemnity or obligation contained in this
Instrument, the Loan Agreement, the Notes or any other documents and
instruments evidencing, securing or otherwise relating to the Obligations,
(3) Secured Party's or Trustee's exercise of any of its rights and remedies
under this Instrument, the Loan Agreement, the Notes and the other documents
and instruments evidencing, securing or otherwise relating to the
Obligations, or (4) the protection of the Collateral and the liens thereon
and security interests therein. All such fees, costs and expenses shall be
a demand obligation owing by Debtors to Secured Party and shall bear
interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this Instrument.
The foregoing agreements shall be perpetual and shall survive the payment or
satisfaction of the Obligations and the release, reconveyance, foreclosure
or other termination of this Instrument.
B. Environmental Indemnity. Debtors agree to indemnify, defend,
and hold harmless Secured Party, its affiliates and related parties, and
their respective directors, officers, shareholders, partners, members,
employees, consultants and agents (individually, an "Indemnified Party," and
collectively, "Indemnified Parties") from and against, and shall reimburse
and pay Indemnified Parties with respect to, any and all claims, demands,
liabilities, losses, damages (including without limitation actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including without limitation attorneys'
fees, court costs and legal expenses and consultant's and expert's fees and
expenses) of any and every kind or character, known or unknown, fixed or
contingent, that may be imposed upon, asserted against, or incurred or paid
by or on behalf of any Indemnified Party on account of, in connection with,
or arising out of (1) the breach of any representation or warranty of
Debtors relating to Environmental Laws or Hazardous Materials, or (2) the
failure of Debtors to perform any agreement, covenant or obligation required
to be performed by Debtors relating to Environmental Laws or Hazardous
Materials, (3) any violation of or failure to comply with any Environmental
Law now existing or hereafter occurring, (4) the removal of Hazardous
Materials from the Collateral (or if removal is prohibited by law, the
taking of whatever action is required by law), (5) any act, omission, event
or circumstance existing or occurring or resulting from or in connection
with the ownership, construction, occupancy, operation, use or maintenance
of the Collateral, regardless of whether the act, omission, event or
circumstance constituted a violation of or failure to comply with any
Environmental Law at the time of its existence or occurrence, and (6) any
and all claims or proceedings (whether brought by private party or
governmental agency) for bodily injury, property damage, abatement or
remediation, environmental damage, or impairment or any other injury or
damage resulting from or relating to any Hazardous Material located upon or
migrating into, on, from or through the Collateral (whether or not any or
all of the foregoing was caused by Debtors, a prior owner of the Collateral,
an operator or prior operator of the Collateral, their respective tenants or
subtenants, or any third party and whether or not the alleged liability is
attributable to the handling, storage, use, treatment, processing,
distribution, manufacture, generation, discharge, transportation or disposal
of such Hazardous Material or the mere presence of such Hazardous Material
on the Collateral). Without limiting the generality of the foregoing, it is
the intention of Debtors and Debtors agree that the foregoing indemnities
shall apply to each Indemnified Party with respect to claims, demands,
liabilities, losses, damages (including without limitation actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs, court costs and legal expenses and consultant's and
expert's fees and expenses, of any kind or character, known or unknown,
fixed or contingent, that in whole or in part are caused by or arise out of
the negligence of such Indemnified Party; however, such indemnities shall
not apply to any Indemnified Party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or
willful misconduct of such Indemnified Party. Any amount to be paid
hereunder by Debtors to Secured Party or for which Debtors have indemnified
an Indemnified Party shall be a demand obligation owing by Debtors to
Secured Party and shall bear interest at the Default Rate until paid, and
shall constitute a part of the Obligations and shall be indebtedness secured
and evidenced by this Instrument. The foregoing agreements shall be
perpetual and shall survive the payment or satisfaction of the Obligations
and the release, reconveyance, foreclosure or other termination of this
Instrument.
C. General Indemnity. Debtors agree to indemnify, defend and
hold harmless Secured Party upon demand, from and against any and all
liabilities, obligations, penalties, actions, judgments, suits, settlements,
costs, expenses or disbursements (including reasonable fees of attorneys,
accountants, experts and advisors) of any kind or nature whatsoever (in this
Subsection, collectively called "liabilities and costs") which to any extent
(in whole or in part) may be imposed on, incurred by, or asserted against
Secured Party growing out of, resulting from or in any other way associated
with any of the Collateral, this Instrument, the Notes, the Loan Agreement
or any other documents or instruments evidencing, securing or relating to
the Obligations, or the transactions and events (including the enforcement
or defense thereof) at any time associated therewith or provided for
therein. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN
PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY SECURED PARTY,
provided only the Secured Party shall not be entitled under this Subsection
to receive indemnification for that portion, if any, of any liabilities and
costs which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment. If any person or
entity (including Debtors or any of their affiliates or related parties)
ever alleges such gross negligence or willful misconduct by Secured Party,
the indemnification provided for in this Subsection shall nonetheless be
paid upon demand, subject to later adjustment or reimbursement, until such
time as a court of competent jurisdiction enters a final judgment as to the
extent and effect of the alleged gross negligence or willful misconduct.
Any amount to be paid hereunder by Debtors to Secured Party or for which
Debtors have indemnified any person or entity hereunder shall be a demand
obligation owing by Debtors to Security Party and shall bear interest at the
Default Rate until paid, and shall constitute a part of the Obligations and
the indebtedness secured and evidenced by this Instrument. As used in this
Subsection the term "Secured Party" shall refer not only to the entity
defined as such in the Preamble to this Instrument but also to each
director, officer, partner, member, agent, attorney, employee,
representative and affiliate of, and person or entity related to, such
entity. The foregoing agreements shall be perpetual and shall survive the
payment or satisfaction of the Obligations and the release, reconveyance,
foreclosure or other termination of this Instrument.
Section 2.4 Performance by Secured Party. Debtors agree that, if
Debtors fail to perform any act which Debtors are required to perform hereunder,
Secured Party and Trustee may, but shall not be obligated to, perform or cause
to be performed such act, and any expense so incurred by Secured Party or by
Trustee in connection therewith shall be a demand obligation owing by Debtors to
Secured Party and shall bear interest at the Default Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument, and Secured Party shall be subrogated to all of the rights
of the party receiving such payment. Debtors hereby irrevocably appoint Secured
Party as Debtors' attorney-in-fact and proxy, with full authority in the place
and stead of Debtors and in the name of Debtors or otherwise, from time to time
to take any action and to execute any instrument which Secured Party may deem
necessary or advisable to accomplish the foregoing and the other purposes of
this Instrument. Such appointment is coupled with an interest and shall be
irrevocable from the date hereof and so long as any part of the Obligations is
outstanding.
ARTICLE III
Collection of Proceeds of Production
Section 3.1 Assignment of Proceeds. Pursuant to Paragraph C of the
Granting Clauses of this Instrument, Secured Party is absolutely assigned,
granted and transferred and entitled to receive all of the severed and extracted
Hydrocarbons produced from or allocated or attributed to all of the Collateral,
together with all of the proceeds, rents, income, issues and profits thereof and
therefrom and payments in lieu thereof, such as "take or pay" or similar
payments. Debtors acknowledge and agree that said assignment is intended to be
an absolute and unconditional assignment and not merely a pledge of or creation
of a security interest in said Hydrocarbons and proceeds or an assignment as
additional security. Debtors shall execute, acknowledge and deliver or cause to
be executed, acknowledged and delivered, transfer orders or letters-in-lieu
thereof ("Transfer Orders") directing all pipeline companies or other purchasers
of Hydrocarbons to make payments directly to Secured Party. All parties
producing, purchasing, receiving or having in their possession any such
Hydrocarbons or proceeds are hereby authorized and directed by Debtors to treat
and regard Secured Party as the party entitled in Debtors' place and stead to
receive such Hydrocarbons and proceeds; and said parties shall be fully
protected in so treating and regarding Secured Party and shall be under no
obligation to see to the application by Secured Party of any such proceeds
received by it. For its convenience, Secured Party may, with respect to any or
all such Hydrocarbons or proceeds, permit Debtors to receive such Hydrocarbons
or proceeds until such time as Secured Party shall have made written demand
therefor. Such election by Secured Party shall not in any way waive the right
of Secured Party to demand and receive such Hydrocarbons and proceeds thereafter
allocated or attributed to the Collateral and shall not in any way diminish the
absolute and unconditional right of Secured Party to receive all of such
Hydrocarbons and proceeds and cash proceeds not theretofore expended or
distributed by Debtors. Any such Hydrocarbons or proceeds received by Debtors
shall, when received, constitute trust funds in Debtors' hands and shall be held
by Debtors upon an express trust for the benefit of Secured Party. Debtors
hereby agrees that upon the first to occur of either (i) written demand of
Secured Party, or (ii) the occurrence of any event which constitutes an Event of
Default (as hereinafter defined) or which upon the giving (or receiving) of
notice or lapse of time, or both, would constitute such an Event of Default, all
cash, proceeds, instruments and other property, of whatever kind or character,
received by Debtors on account of the Collateral, whether received by Debtors in
the exercise of its collection rights hereunder or otherwise, shall, in
accordance with instructions then given by Secured Party, be remitted to Secured
Party or deposited to an account designated by Secured Party, in the form
received (properly assigned or endorsed to the order of Secured Party or for
collection and in accordance with Secured Party's instructions) not later than
the first banking business day following the day of receipt, to be applied as
provided in Section 3.2 hereof and, until so applied, may be held by Secured
Party in a separate account on which Debtors may not draw. Debtors agree not to
commingle any such property with any of its other funds or property and agrees
to hold the same upon an express trust for Secured Party until remitted to
Secured Party.
Section 3.2 Application of Proceeds. Secured Party shall apply all of
the proceeds received pursuant to Section 3.1 hereof in satisfaction of the
Obligations as provided below, unless otherwise agreed to by Secured Party and
Debtors. All such proceeds received and to be applied by Secured Party up to
the close of business on the last day of each calendar month shall be applied by
Secured Party on or before the fifth business day of the next succeeding
calendar month as follows (with any balance remaining after such application to
be paid to Debtors):
A. First, to the payment to Secured Party and Trustee of all
outstanding or unreimbursed fees, costs and expenses incurred by Secured
Party or Trustee pursuant hereto, and any part of the Obligations not
evidenced by written instrument, including without limitation, all charges
and penalties, including interest thereon, due Secured Party;
B. Second, to the payment or prepayment of all interest accrued
on the Obligations; and
C. Third, to the payment or prepayment of the principal of the
Obligations in any order the Secured Party may elect from time to time.
If any date of application specified above shall be a Saturday, Sunday or legal
holiday, the proceeds to be applied by Secured Party pursuant to this Section
3.2 shall be applied on the business day next succeeding such date which is not
a Saturday, Sunday or legal holiday, and the amount to be applied as described
above shall be the amount accrued up to such date. If the proceeds received by
Secured Party pursuant to Section 3.1 during any month are not sufficient to
make the minimum payments of principal of and interest on the Obligations
required by the terms of the Loan Agreement or the Notes, then Debtors on or
before the due date shall make payment to Secured Party of an amount sufficient
when added to such proceeds received to make the minimum required payments of
principal and interest of the Obligations.
Section 3.3 Inclusion in Sale. Upon any sale of any of the Collateral
pursuant to Article V hereof and expiration of any mandatory redemption periods,
the Hydrocarbons thereafter produced from or attributed to the part of the
Collateral so sold, and the proceeds thereof, shall be included in such sale and
shall pass to the purchaser free and clear of the provisions of this Article
III.
Section 3.4 No Liability in Secured Party. Secured Party is hereby
absolved from all liability for failure to enforce collection of any such
proceeds and from all other responsibility in connection therewith, except the
responsibility to account to Debtors for proceeds actually received.
Section 3.5 Indemnity. Debtors shall indemnify Secured Party against
all claims, actions, liabilities, judgments, costs, reasonable attorneys' fees
or other charges of every kind or nature (herein called "Claims") made against
or incurred by Secured Party as a consequence of the assertion, either before or
after the payment in full of the Obligations, that Secured Party received
Hydrocarbons or proceeds pursuant to this Article III which were claimed by
third persons. Secured Party shall have the right to employ attorneys and to
defend against any Claims, and unless furnished with reasonable indemnity,
Secured Party shall have the right to pay or compromise and adjust all Claims.
Debtors shall indemnify and pay to Secured Party all such amounts as may be paid
with respect thereto or as may be successfully adjudicated against Secured
Party, and such amounts shall be a demand obligation owing by Debtors to Secured
Party and shall bear interest at the Default Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument. The foregoing shall survive the payment or satisfaction of
the Obligations and the release, reconveyance, foreclosure or other termination
of this Instrument.
Section 3.6 Rights of Secured Party. Secured Party shall have the
immediate and continuing right to demand, collect, receive and receipt for all
production, proceeds and payments assigned hereunder, and Secured Party is
hereby appointed agent and attorney-in-fact of Debtors (which appointment is
coupled with an interest and is irrevocable) for the purpose of executing any
release, receipt, division order, transfer order, relinquishment or other
instrument that Secured Party deems necessary in order for Secured Party to
collect and receive such production, proceeds and payments. In addition,
Debtors agree that, upon the request of Secured Party, they will promptly
execute and deliver to Secured Party such transfer orders, payment orders,
division orders and other instruments as Secured Party may deem necessary,
convenient or appropriate in connection with the payment and delivery directly
to Secured Party of all proceeds, production, and payments assigned hereunder.
Debtors hereby authorize and direct that, upon the request of Secured Party, all
pipeline companies, purchasers, transporters and other parties now or hereafter
purchasing Hydrocarbons produced from or allocated or attributed to the
Collateral or any other interest of Debtors (whether now owned or hereafter
acquired by operation of law or otherwise), in, to or relating to the Land or to
any of the estates, property, rights or other interests included in the
Collateral, or any part thereof, or now or hereafter having in their possession
or control any production from or allocated to the Collateral or any other
interest of Debtors (whether now owned or hereafter acquired by operation of law
or otherwise), in, to or relating to the Land or to any of the estates,
property, rights or other interests included in the Collateral, or any part
thereof, or the proceeds therefrom, or now or hereafter otherwise owing monies
to Debtors under contracts and agreements herein assigned, shall, until Secured
Party directs otherwise, pay and deliver such proceeds, production or amounts
directly to Secured Party at Secured Party's address set forth in the
introduction to this Instrument, or in such other manner as Secured Party may
direct such parties in writing, and this authorization shall continue until the
assignment of production and proceeds contained herein is released and
reassigned. Debtors agree that all division orders, transfer orders, receipts
and other instruments that Secured Party may from time to time execute and
deliver for the purpose of collecting and receipting for such proceeds,
production or payments may be relied upon in all respects, and that the same
shall be binding upon Debtors and their successors and assigns. No payor making
payments to Secured Party at its request under the assignment of production and
proceeds contained herein shall have any responsibility to see to the
application of any of such funds, and any party paying or delivering proceeds,
production or amounts to Secured Party under such assignments shall be released
thereby from any and all liability to Debtors to the full extent and amount of
all payments, production or proceeds so delivered. Debtors agrees to indemnify
and hold harmless any and all parties making payments to Secured Party, at the
request of the Secured Party under the assignment of production and proceeds
contained herein, against any and all liabilities, actions, claims, judgments,
costs, charges and attorneys' fees and legal expenses resulting from the
delivery of such payments to Secured Party. The indemnity agreement contained
in the previous sentence is made for the direct benefit of and shall be
enforceable by all such persons and shall survive the termination of this
Instrument. Should Secured Party bring suit against any third party for
collection of any amounts or sums included within the assignment of production
and proceeds contained herein (and Secured Party shall have the right to bring
any such suit), it may sue either in its own name or in the name of Debtors, or
both.
Section 3.7 Change of Connection. Should any purchaser taking the
production from the Collateral or any other interest of Debtors (whether now
owned or hereafter acquired by operation of law or otherwise), in, to or
relating to the Land or to any of the estates, property, rights or other
interests included in the Collateral, or any part thereof, fail to make any
payment promptly to Secured Party, in accordance with the assignment of
production and proceeds herein made, then Secured Party, to the fullest extent
permissible under applicable law, shall have the right to demand a change of
connection and to designate another purchaser with whom a new connection may be
made, without any liability on the part of Secured Party in making such
selection; and failure of Debtors to consent to and promptly effect such change
of connection shall constitute an Event of Default under Article V below.
Section 3.8 No Delegation or Assumption. Nothing in this Instrument
shall be deemed or construed to create a delegation to or assumption by Secured
Party, of the duties and obligations of Debtors under any agreement or contract
relating to the Collateral or any portion thereof, and all of the parties to any
such contract shall continue to look to Debtors for performance of all covenants
and other obligations and the satisfaction of all representations, warranties,
covenants, indemnities and other agreements of Debtors thereunder,
notwithstanding the assignment of production and proceeds contained herein or
the exercise by Secured Party, prior to foreclosure, of any of its rights
hereunder or under applicable law.
Section 3.9 Cumulative. The assignment of production and proceeds
contained herein shall not be construed to limit in any way the other rights and
remedies of Secured Party hereunder, including without limitation, its right to
accelerate the indebtedness evidenced by the Obligations upon an Event of
Default and the other rights and remedies herein conferred, conferred in the
other documents and instruments evidencing, securing or relating to the
Obligations, or conferred by operation of law. Monies received under the
assignment of production and proceeds contained herein shall not be deemed to
have been applied in payment of the Obligations unless and until such monies
actually are applied thereto by Secured Party.
ARTICLE IV
Termination and Release
Section 4.1 Release Upon Termination. If all of the Obligations shall
be paid in full and otherwise satisfied pursuant to the terms and conditions of
this Instrument and the other documents and instruments evidencing, securing or
relating to the Obligations, and if Debtors shall have well and truly performed
all of the covenants and agreements herein contained, and if Secured Party has
no further obligation to advance any amounts to Debtors, then all of the
Collateral shall revert to Debtors, the liens and security interests created by
this Instrument shall terminate and Secured Party or Trustee, or both, as
required by applicable law, shall, promptly after the request of Debtors or as
otherwise required by applicable law, execute, acknowledge and deliver to
Debtors a release or reconveyance of this Instrument and such other instruments
as may be necessary to evidence the termination of the liens and security
interests created by this Instrument.
Section 4.2 Partial Release. No partial release or reconveyance from
the liens and security interests created by this Instrument of any part of the
Collateral by Trustee or Secured Party shall in any way alter, vary or diminish
the force or effect of this Instrument or impair, release or subordinate the
liens and security interests created by this Instrument on the remainder of the
Collateral. Except as specifically provided in any such partial release or
reconveyance (i) this Instrument and liens and security interests created hereby
shall remain in full force and effect, (ii) such partial release or reconveyance
will not modify or affect the terms, conditions or provisions of this
Instrument, and (iii) nothing contained in any such partial release or
reconveyance shall be deemed to be, or construed as, a waiver of any such terms,
conditions or provisions or as a waiver of any other term, condition or
provision.
Section 4.3 Execution. Except as may be required by applicable law,
Secured Party shall have full power and authority to execute, acknowledge and
deliver any release or reconveyance of this Instrument without the joinder
therein or execution thereof by Trustee, and any such release or reconveyance
shall be binding upon Secured Party and Trustee. All releases and reconveyances
executed in connection with this Instrument shall be without warranty of any
kind, express, implied or statutory.
Section 4.4 Costs, Expenses and Effect. Debtors shall pay all legal
fees and other fees, costs and expenses incurred by Secured Party and Trustee
for preparing and reviewing instruments of termination and release or
reconveyance and the execution and delivery thereof and Secured Party may
require payment of the same prior to delivery of such instruments. The release
and reconveyance of this Instrument and the termination of the liens and
security interests created by this Instrument, in whole or in part, shall not
terminate or otherwise affect Secured Party's right or ability to exercise any
right, power or remedy relating to any claim for breach of warranty or
representation, for failure to perform any covenant or other agreement, under
any indemnity or for fraud, deceit or other misrepresentation or omission.
ARTICLE V
Default
Section 5.1 Events of Default. The occurrence of any of the following
events shall constitute an event of default ("Event of Default") and upon the
occurrence thereof the liens and security interests created hereby shall be
subject to foreclosure in any manner provided for herein or provided for by
applicable law:
A. Failure of Debtors to pay any fee or other amount due Secured
Party or Trustee under this Instrument within 10 days after the date that
any such payment is due;
B. Failure of Debtors to perform or observe any covenant,
agreement, indemnity, condition or provision in this Instrument and such
failure shall continue for 30 days after written notice of such failure has
been given to Debtor;
C. Any of Debtors' representations or warranties made in this
Instrument or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in
any material respect as of the date made or deemed made; or
D. An "Event of Default" as defined in the Loan Agreement shall
occur.
Section 5.2 Treatment of Fixtures. Upon the occurrence of any Event
of Default, or at any time thereafter, if deemed appropriate by Secured Party or
if required by applicable law, Secured Party may elect to treat the fixtures
included in the Collateral either as real property or as personal property, or
both, and proceed to exercise such rights as apply to the type of property
selected.
Section 5.3 Foreclosure. Upon the occurrence of any Event of Default,
or at any time thereafter, in addition to any other rights, powers and remedies
herein conferred or conferred by operation of law, Secured Party and Trustee
shall have all of the rights, powers and remedies of a secured party, a
beneficiary under a deed of trust, and a trustee under a deed of trust granted
under applicable law. Secured Party may, without notice, demand or declaration
of default, which are hereby waived by Debtors to the extent such waiver is not
prohibited by applicable law, declare all indebtedness secured hereby due and
payable, and whether or not Secured Party exercises such option, it may, at its
option and in its sole discretion, without any prior notice to or demand upon
Debtors, proceed by one or more actions in equity or at law for the seizure and
sale of the Collateral or any portion thereof, for the foreclosure or sale of
the Collateral or any portion thereof by judicial foreclosure by appropriate
proceedings in any court of competent jurisdiction, by the power of sale granted
herein, by a trustee's sale, or in any other manner then permitted by law, for
the specific performance of any covenant or agreement of Debtors herein
contained or in aid of the execution of any right, power or remedy herein
granted, or for the enforcement of any other appropriate equitable or legal
remedy and to recover judgment against Debtors. In furtherance, and not in
limitation, thereof:
A. Deed of Trust. This Instrument shall constitute a trust deed
under applicable law, as amended and as may be amended from time to time, or
any future law containing provisions under which the sale of property
securing debts is authorized or permitted; and upon an Event of Default, or
any time thereafter, Trustee shall, whenever requested by Secured Party,
cause the Collateral to be sold in accordance with the provisions thereof
and hereof. In addition, upon the occurrence of an Event of Default, or at
any time thereafter, this Instrument may be foreclosed as to any of the
Collateral by judicial action or in any manner then permitted by applicable
law.
B. Election. In the event a sale of the Collateral under the
power of sale shall be commenced by Trustee, Secured Party may at any time
before the sale of the Collateral, elect to abandon the sale, and Secured
Party may then institute a suit for the collection of the Obligations and
for the foreclosure of this Instrument by judicial action. It is agreed
that if Secured Party should institute a suit for the foreclosure of this
Instrument by judicial action, Secured Party may at any time before the
entry of a final judgment, dismiss such suit, and then sell, cause to be
sold or direct Trustee to sell, the Collateral under the power of sale
herein granted in accordance with the provisions of this Instrument.
C. Additional Actions. This Instrument shall also constitute
and may be enforced from time to time as an assignment, chattel mortgage,
contract, deed of trust, financing statement and security agreement, and
from time to time as any one or more thereof as appropriate under applicable
law. Secured Party shall be entitled to all of the rights, remedies and
benefits of a secured party and a beneficiary granted under applicable law;
and, to the fullest extent of such law, shall be entitled to enforce such
rights, remedies and benefits. Debtors intend and hereby grant to Secured
Party all rights, powers and remedies accorded a secured party and a
beneficiary under applicable law whether or not such rights, powers and
remedies are expressly granted or reserved herein.
D. Notice, Place and Manner of Sale. Any sale of the Collateral
under this Article V shall take place 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 Secured Party may deem appropriate.
Debtors expressly agree that, except as may be required by applicable law,
Secured Party or Trustee may offer the Collateral as a whole or in such
parcels or lots as Secured Party or Trustee elects, regardless of the manner
in which the Collateral may be described.
E. Postponement of Sale. Any sale of the Collateral conducted
under this Article V may be postponed from time to time as provided by
applicable law; or, in the absence of any such provisions, Secured Party may
postpone the sale of 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
Collateral will not exhaust the power of sale, and sales may be made from
time to time until all Collateral is sold or the Obligations are paid in
full.
F. Secured Party's Right to Purchase. Secured Party shall have
the right to bid or to become the purchaser at any sale made pursuant to the
provisions of this Article V, and shall have the right to credit upon the
amount of the bid made therefor the amount payable to it out of the net
proceeds of such sale.
G. Conveyance to Purchaser. Any deed, bill of sale or other
conveyance executed by or on behalf of Trustee, Secured Party, the sheriff
or other official or party responsible for conducting the sale shall be
prima facie evidence of the compliance with all statutory requirements for
the sale and execution of such deed, bill of sale or other conveyance and
will conclusively establish the truth and accuracy of the recitals and other
matters stated therein, including, without limitation, nonpayment or
nonperformance of the Obligations, violation of the terms and covenants
contained herein, and the advertisement and conduct of such sale in the
manner provided herein or as provided by applicable law. Debtors do hereby
ratify and confirm all legal acts that Trustee and Secured Party may do in
carrying out the provisions of this Instrument. Any sale of the Collateral
or any portion thereof pursuant to the provisions of this Article V will
operate to divest all right, title, interest, claim and demand of Debtors in
and to the property sold and will be a perpetual bar against Debtors and
shall, subject to applicable law, vest title in the purchaser free and clear
of all liens, security interests and encumbrances, including without
limitation, liens, security interests and encumbrances junior or subordinate
to the liens, security interests and encumbrances created by this
Instrument. Upon any sale of the Collateral or any portion thereof pursuant
to the provisions of this Article V, the receipt by Secured Party, Trustee,
the sheriff or other official or party responsible for conducting the sale,
shall 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 shall
not, after paying such purchase money and receiving such receipt of Secured
Party, Trustee, the sheriff or such other official or party, be obliged to
see to the application thereof or be in anywise answerable for any loss,
misapplication or nonapplication thereof. Any purchaser at a sale will,
subject to mandatory redemption periods, if any, receive immediate
possession of the Collateral purchased, and Debtors agree that if Debtors
retain possession of the Collateral or any part thereof subsequent to such
sale, Debtors will be considered a tenant at sufferance of the purchaser,
and will, if Debtors remains in possession after demand to remove, be guilty
of forcible detainer, and will be subject to eviction and removal, forcible
or otherwise, with or without process of law and all damages to Debtors by
reason thereof are hereby expressly waived by Debtors.
H. Federal Transfers. Upon a sale conducted pursuant to this
Article V of all or any portion of the Collateral consisting of interests
(the "Federal Interests") in leases, easements, rights-of-way, agreements or
other documents and instruments covering, affecting or otherwise relating to
federal lands (including, without limitation, leases, easements and rights-
of-way issued by the Bureau of Land Management); Debtors agree to take all
action and execute all instruments necessary or advisable to transfer the
Federal Interests to the purchaser at such sale, including without
limitation, to execute, acknowledge and deliver assignments of the Federal
Interests on officially approved forms in sufficient counterparts to satisfy
applicable statutory and regulatory requirements, to seek and request
approval thereof and to take all other action necessary or advisable in
connection therewith. Debtors hereby irrevocably appoint Secured Party as
Debtors' attorney-in-fact and proxy, with full power and authority in the
place and steed of Debtors, in the name of Debtors or otherwise, to take any
such action and to execute any such instruments on behalf of Debtors that
Secured Party may deem necessary or advisable to so transfer the Federal
Interests, including without limitation, the power and authority to execute,
acknowledge and deliver such assignments, to seek and request approval
thereof and to take all other action deemed necessary or advisable by
Secured Party in connection therewith; and Debtors hereby adopt, ratify and
confirm all such actions and instruments. By separate instruments Debtor
has also irrevocably appointed Secured Party as Debtor's attorney-in-fact
and proxy, with full power and authority in the place and steed of Debtor,
in the name of Debtor or otherwise, to take any such action and to execute
any such instruments on behalf of Debtor that Secured Party may deem
necessary or advisable to so transfer the Federal Interests, including
without limitation, the power and authority to execute, acknowledge and
deliver such assignments, to seek and request approval thereof and to take
all other action deemed necessary to advisable by Secured Party in
connection therewith; and by such separate instruments Debtor has adopted,
ratified and confirmed all such actions and instruments. Such powers of
attorney and proxies are coupled with an interest, shall survive the
dissolution, termination, reorganization or other incapacity of Debtors and
shall be irrevocable. No action taken by Secured Party shall constitute
acknowledgment of, or assumption of liabilities relating to, the Federal
Interests, and neither Debtors nor any other party may claim that Secured
Party is bound, directly or indirectly, by any such action.
Section 5.4 Personal Property. Upon the occurrence of any Event of
Default, or at any time thereafter, in addition to all other rights, powers and
remedies herein conferred or conferred by operation of law, Secured Party shall
have all of the rights and remedies of an assignee and secured party granted by
applicable law, including without limitation, the applicable Uniform Commercial
Code as then in effect, and shall, to the extent permitted by applicable law,
have the right and power, but not the obligation, to take possession of the
personal property included in the Collateral and any proceeds thereof wherever
located, and for that purpose Secured Party may enter upon any premises on which
any or all of such personal property is located and take possession of and
operate such personal property or remove the same therefrom. Secured Party may
require Debtors to assemble such personal property and make it available to
Secured Party at a place to be designated by Secured Party that is reasonably
convenient to both parties. The following presumptions shall exist and shall be
deemed conclusive with regard to the exercise by Secured Party of any of its
remedies with respect to personal property:
A. If notice is required by applicable law, Debtors agree that
five days' prior written notice of the time and place of any public sale or
of the time after which any private sale or any other intended disposition
thereof is to be made shall be deemed reasonable notice to Debtors. No such
notice is necessary if such property is perishable, threatens to decline
speedily in value or is of a type customarily sold on a recognized market.
B. If Secured Party 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 such property, Secured
Party may sell such property privately or in any other manner deemed
advisable by Secured Party at such price or prices as Secured Party
determines in its sole discretion. Debtors recognize that such prohibition
or restriction may cause such property to have less value than it otherwise
would have and that, consequently, such sale or disposition by Secured Party
may result in a lower sales price than if the sale were otherwise held.
Section 5.5 Possession. Upon the occurrence of any Event of Default,
or at any time thereafter, in addition to all other rights, powers and remedies
herein conferred or conferred by operation of law, Secured Party shall, to the
extent not prohibited by applicable law, have the right and power, but not the
obligation, to enter upon and take immediate possession of the Collateral or any
portion thereof, to exclude Debtors therefrom, to hold, use, operate, manage,
enjoy and control such Collateral, to make all such repairs, replacements,
alterations, additions and improvements to the same as Secured Party may deem
proper or expedient, to sell all of the severed and extracted Hydrocarbons
included in the same subject to the provisions of Article III hereof, to demand,
collect and retain all other earnings, rents, issues, profits, proceeds and
other sums due or to become due with respect to such Collateral accounting for
and applying to the payment of the Obligations only the net earnings arising
therefrom after charging against the receipts therefrom all fees, costs,
expenses, charges, damages and losses incurred by reason thereof plus interest
thereon at the Default Rate without any liability to Debtors in connection
therewith. Such possession shall at once be delivered to Secured Party upon
request, and on refusal or failure to so deliver possession, the delivery of
such possession may be enforced by Secured Party by any appropriate civil suit,
proceeding or other action.
Section 5.6 Appointment of Receiver. Upon the occurrence of any Event
of Default, or at any time thereafter, in addition to all other rights, powers
and remedies herein conferred or conferred by operation of law, Secured Party
shall be entitled to the appointment of a receiver of the Collateral without the
necessity of the posting of a bond or notice; and shall, to the extent not
prohibited by applicable law, be entitled to such receiver as a matter of right,
without regard to the solvency or insolvency of Debtors, the value or adequacy
of the Collateral or the Collateral being in danger of being materially injured
or reduced in value as security by removal, destruction, deterioration,
accumulation of prior liens or otherwise; and such receiver may be appointed by
any court of competent jurisdiction upon ex parte application, and without
notice, notice being expressly waived by Debtors to the extent such waiver is
not prohibited by applicable law. Debtors do hereby consent to the appointment
of such receiver or receivers, waive any and all defenses to such appointment,
and agree not to oppose any application therefor by Secured Party, and agrees
that such appointment shall in no manner impair, prejudice or otherwise affect
the rights of Secured Party under this Article V. Nothing herein is to be
construed to deprive Secured Party of any other right, remedy or privilege it
may now or hereafter have under law to have a receiver appointed. Any money
advanced by Secured Party in connection with any such receivership shall be a
demand obligation owing by Debtors to Secured Party and shall bear interest,
from the date of making such advancement until paid, at the Default Rate. Any
such receiver shall have all powers conferred by the court appointing such
receiver, which powers shall, to the extent not prohibited by applicable law
include, without limitation, the right to enter upon and take immediate
possession of the Collateral or any part thereof, to exclude Debtors therefrom,
to hold, use, operate, manage and control such Collateral, to make all such
repairs, replacements, alterations, additions and improvements to the same as
such receiver or Secured Party may deem proper or expedient, to sell all of the
severed and extracted Hydrocarbons included in the same subject to the
provisions of Article III hereof, to demand and collect all of the other
earnings, rents, issues, profits, proceeds and other sums due or to become due
with respect to such Collateral, accounting for only the net earnings arising
therefrom after charging against the receipts therefrom all fees, costs,
expenses, charges, damages and losses incurred by reason thereof plus interest
thereon at the Default Rate without any liability to Debtors in connection
therewith which net earnings shall be turned over by such receiver to Secured
Party to be applied by Secured Party to the payment of the Obligations in the
order set forth in Section 5.10.
Section 5.7 Waiver by Debtors. To the extent not prohibited by
applicable law, Debtors agree that Debtors shall not at any time have, invoke,
utilize or assert any right under any laws pertaining to the marshaling of
assets or liens, the sale of property in the inverse order of alienation, the
exemption of homesteads, the administration of estates of decedents,
appraisement, moratorium, valuation, stay, extension or redemption now or
hereafter in force, and Debtors hereby waives the benefit of all such laws to
the fullest extent not prohibited by applicable law.
Section 5.8 Remedies Cumulative. All rights, powers and remedies
herein conferred are cumulative, and not exclusive, of (a) any and all other
rights and remedies herein conferred, (b) any and all rights, powers and
remedies existing at law or in equity, and (c) any and all other rights, powers
and remedies provided for in any other documents or instruments evidencing,
securing or relating to the Obligations, and Secured Party shall, in addition to
the rights, powers and remedies herein conferred, be entitled to avail itself of
all such other rights, powers and remedies as may now or hereafter exist at law
or in equity for the collection of and enforcement of the Obligations and the
enforcement of the warranties, representations, covenants, indemnities and other
agreements contained in this Instrument and the other documents and instruments
evidencing, securing or relating to the Obligations and the foreclosure of the
liens and security interests created by this Instrument. Each and every such
right, power and remedy may be exercised from time to time and as often and in
such order as may be deemed expedient by Secured Party and the exercise of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or remedy. No
delay or omission by Secured Party or by Trustee, the sheriff or other official
or person in the exercise of any right, power or remedy will impair any such
right, power or remedy or operate as a waiver thereof or of any other right,
power or remedy then or thereafter existing.
Section 5.9 Costs and Expenses. All fees, costs and expenses
(including, without limitation, reasonable attorneys' fees and legal expenses,
court costs, filing fees, and mortgage, transfer, stamp and other excise taxes,
inspection fees, appraisers' fees, outlays for documentary and expert evidence,
stenographers' charges, publication, notice and advertising costs, postage,
photocopies, telephone charges and costs of procuring all abstracts of title,
title searches and examinations, title opinions, title insurance policies and
similar title data and assurances as Secured Party or Trustee may deem
appropriate either to prosecute such suit or to evidence to bidders at the sales
that may be had pursuant to such proceeding the condition of the title to or the
value of the Collateral, trustee's fees and expenses, sheriff's fees and
expenses, receiver's fees and expenses, and fees and expenses of agents of
Secured Party and Trustee, costs and expenses of defending, protecting and
maintaining the Collateral and Secured Party's and Trustee's interest therein
including repair and maintenance costs and expenses and costs and expenses of
protecting and securing the Collateral including insurance costs and all other
fees, costs and expenses provided for or authorized by applicable law), incurred
by or on behalf of Secured Party or Trustee in protecting and enforcing their
rights hereunder or incident to the enforcement of this Instrument and the liens
and security interests created hereby, shall be a demand obligation owing by
Debtors to Secured Party and shall bear interest at the Default Rate until paid,
and shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument.
Section 5.10 Application of Proceeds. The proceeds of any sale of the
Collateral or any part thereof made pursuant to this Article V shall be applied
as may be required by applicable law, or, in the absence of any such
requirements, as follows:
A. First, to the payment of all fees, costs and expenses
incident to the enforcement of this Instrument and the liens and security
interests created hereby, including without limitation, the fees, costs and
expenses described in Section 5.9 hereof;
B. Second, to the payment or prepayment of accrued interest
remaining unpaid on the Notes;
C. Third, to the payment or prepayment of principal remaining
unpaid on the Notes in such order as Secured Party may elect;
D. Fourth, to the payment or prepayment of the Obligations other
than the Obligations evidenced by the Notes in such order as Secured Party
may elect; and
E. Fifth, the remainder, if any, shall be paid to Debtors or
such other person or persons as may be legally entitled thereto.
Section 5.11 Waiver of Statute of Limitations. Debtors hereby waive
the right to assert any statute of limitations as a defense to the Obligations
(including, without limitation, the indebtedness, liabilities and obligations
under and pursuant to this Instrument, the Notes, the Loan Agreement and any
other instrument evidencing, securing or otherwise relating to the Obligations),
to the fullest extent permitted by applicable law.
Section 5.12 Limitation on Rights and Waivers. All rights, powers and
remedies herein conferred shall be exercisable by Trustee and Secured Party only
to the extent not prohibited by applicable law; and all waivers and
relinquishments of rights and similar matters shall only be effective to the
extent such waivers or relinquishments are not prohibited by applicable law.
ARTICLE VI
Trustee
Section 6.1 Resignation and Removal of Trustee. Trustee may resign in
writing addressed to Secured Party, or be removed at any time with or without
cause by an instrument in writing duly executed by Secured Party, and such
resignation or removal shall be effective upon the appointment of a successor
Trustee. In case of the death, resignation or removal of Trustee, a successor
Trustee may be appointed by Secured Party as may be required by applicable law
or, in the absence of any such requirement, by Secured Party without formality
other than an appointment and designation in writing. Such appointment and
designation will be full evidence of the right and authority to make the same
and of all facts therein recited, and upon the making of any such appointment
and designation, this Instrument will vest in the named successor trustee all
the right, title and interest of Trustee in and to all of the Collateral, and
said successor will thereupon succeed to all the rights, powers, privileges,
immunities and duties hereby conferred upon Trustee. All references herein to
Trustee shall be deemed to refer to the Trustee from time to time acting
hereunder.
Section 6.2 Substitute Trustees and Agents. To the extent not
prohibited by applicable law, Trustee may appoint or delegate any one or more
persons as agents to perform any act or acts of Trustee under this Instrument in
the name and on behalf of Trustee, including any act or acts necessary or
incident to any sale conducted by Trustee. If Trustee shall have given notice
of sale hereunder, any successor trustee may complete the sale and the
conveyance of the Collateral pursuant thereto as if such notice had been given
by the successor trustee conducting the sale. To facilitate the administration
of the Trustees' duties under this Instrument, Secured Party may appoint
multiple trustees to serve in such capacity or in such jurisdictions as Secured
Party may designate.
Section 6.3 Liability of Trustee. Trustee shall not be liable for any
error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever, except for
Trustee's gross negligence, willful misconduct or bad faith. Trustee shall have
the right to rely on any instrument, document or signature authorizing or
supporting any action taken or proposed to be taken by Trustee hereunder,
believed by Trustee in good faith to be genuine. All monies received by Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received but need not be segregated in any manner
from any other monies except to the extent required by law, and Trustee shall be
under no liability for interest on any monies received by Trustee hereunder
except as may be provided by applicable law. Debtors hereby ratify and confirm
any and all acts Trustee shall do lawfully by virtue hereof.
Section 6.4 Indemnification of Trustee. Debtors shall reimburse
Trustee for, and save Trustee harmless against, any and all liability and
expenses which may be incurred by Trustee in the performance of Trustee's
duties, except to the extent attributable to Trustee's gross negligence, willful
misconduct or bad faith. In addition, Debtors shall indemnify Trustee against
any and all claims, actions, liabilities, judgments, costs, expenses, attorneys'
fees or other charges of whatsoever kind or nature made against or incurred by
Trustee, and arising out of, or in any way relating to, Trustee performing the
duties of Trustee hereunder, except to the extent attributable to Trustee's
gross negligence, willful misconduct or bad faith.
ARTICLE VII
Miscellaneous Provisions
Section 7.1 Waiver. Any and all covenants of Debtors in this
Instrument may from time to time, be waived by Secured Party by an instrument in
writing signed by Secured Party to such extent and in such manner as Secured
Party may desire, but no such waiver will ever affect or impair Secured Party's
rights hereunder, except to the extent specifically stated in such written
instrument. All changes to, amendments and modifications of this Instrument
must be in writing and signed by Secured Party.
Section 7.2 Severability. If any provision of this Instrument or of
any of the instruments and documents evidencing, securing or relating to the
Obligations is invalid or unenforceable in any jurisdiction, such provision
shall be fully severable from this Instrument and the other provisions hereof
and of said instruments and documents shall remain in full force and effect in
such jurisdiction and the remaining provisions hereof shall be liberally
construed in favor of Secured Party and Trustee in order to carry out the
provisions and intent hereof. The invalidity of any provision of this
Instrument in any jurisdiction shall not affect the validity or enforceability
of any such provision in any other jurisdiction.
Section 7.3 Subrogation. This Instrument is made with full
substitution and subrogation of Secured Party and Trustee in and to all
covenants and warranties by others heretofore given or made with respect to the
Collateral or any part thereof.
Section 7.4 Financing Statement. This Instrument shall be deemed to
be and may be enforced from time to time as an assignment, contract, deed of
trust, financing statement or security agreement, and from time to time as any
one or more thereof is appropriate under applicable state law. A carbon,
photographic or other reproduction of this Instrument or of any financing
statement in connection herewith shall be sufficient as a financing statement
for any and all purposes.
Section 7.5 Rate of Interest. All interest required hereunder and
under the Obligations shall be calculated on the basis of a year of 360 days.
Section 7.6 Recording. All recording references in Exhibit "A" are to
the official real property records of the county in which the affected Land is
located and in which records such documents are or in the past have been
customarily recorded, whether real estate records, deed records, oil and gas
records, oil and gas lease records or other records. The references in this
Instrument and in Exhibit "A" to liens, encumbrances and other burdens are for
the purposes of defining the nature and extent of Debtors' warranties and shall
not be deemed to ratify, recognize or create any rights in third parties.
Section 7.7 Execution in Counterparts. This Instrument may be
executed in one or more original counterparts. To facilitate filing and
recording, there may be omitted from any counterpart the parts of Exhibit "A"
containing specific descriptions of the Collateral that relate to land located
in counties other than the county in which the particular counterpart is to be
filed or recorded. Each counterpart shall be deemed to be an original for all
purposes, and all counterparts shall together constitute but one and the same
instrument.
Section 7.8 Notices. All notices and other communications made or
required to be given pursuant to this Instrument shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (if receipt
is confirmed by the facsimile operator of the recipient), or delivered by
overnight courier service or mailed by registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice;
provided that notices of a change of address shall be effective only upon
receipt thereof):
To Debtors:
Foreland Corporation
Eagle Springs Production Limited Liability Corporation
12596 West Bayaud, Suite 300
Lakewood, CO 80228
Attn: N. Thomas Steele
Facsimile No. (303) 988-3234
To Secured Party:
Energy Income Fund, L.P.
136 Dwight Road
Longmeadow, Massachusetts 01106
Attn: Robert D. Gershen
Facsimile No.: (713) 567-7926
Any notice hereunder delivered in person or by facsimile (if receipt is
confirmed by the facsimile operator of the recipient) shall be deemed given on
the date thereof, any notice by registered or certified mail shall be deemed
given three days after the date of mailing; and any notice by overnight courier
shall be deemed given two days after shipment or the date of receipt, whichever
is earlier.
Section 7.9 Binding Effect. This Instrument shall bind and inure to
the benefit of the respective successors and assigns of Debtors, Secured Party
and Trustee. Notwithstanding any other provision of this Instrument, if any
right, interest or estate in property granted by this Instrument or pursuant
hereto does not vest upon the date hereof, such right, interest or estate shall
vest, if at all, within 21 years less 1 day after the death of the last
surviving descendant of Joseph P. Kennedy, father of John F. Kennedy, former
President of the United States of America, who is living on the date of the
execution of this Instrument by Debtors or the effective date hereof, whichever
is earlier.
Section 7.10 References. All references in this Instrument to
Exhibits, Articles, Sections, Subsections, paragraphs, subparagraphs and other
subdivisions refer to the Exhibits, Articles, Sections, Subsections, paragraphs,
subparagraphs and other subdivisions of this Instrument unless expressly
provided otherwise. Titles and headings appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any such
subdivision and shall be disregarded in construing the language contained in
this Instrument. The words "this Instrument," "herein," "hereof," "hereby,"
"hereunder" and words of similar import refer to this Instrument as a whole and
not to any particular subdivision unless expressly so limited. The phrases
"this Section," "this Subsection" "this paragraph," "this subparagraph" and
similar phrases refer only to the Sections, Subsections, paragraphs or
subparagraphs hereof in which the phrase occurs. Capitalized terms used herein
without definition shall have the meanings ascribed thereto in the Loan
Agreement. The word "or" is not exclusive. All references to days are to
calendar days unless otherwise specifically stated. Pronouns in masculine,
feminine and neuter gender shall be construed to include any other gender.
Words in the singular form shall be construed to include the plural and words in
the plural form shall be construed to include the singular, unless the context
otherwise requires.
Section 7.11 Filing. Some of the above described goods are or are to
become fixtures on the Land described in Exhibit "A". This Instrument is to be
filed for record in, among other places, the real estate records of each county
identified in Exhibit "A". This Instrument covers fixtures and minerals or the
like or other substances of value which may be extricated from the earth
(including oil and gas) and the accounts relating thereto, including accounts
resulting from the sale thereof at the wellhead. Debtors are the owner of an
interest of record in the real estate concerned.
Section 7.12 Override Assignments. By instruments entitled Assignment
of Overriding Royalty Interests (the "Override Assignments"), dated effective as
of January 1, 1998, at 7:00 A.M. local time and executed as of the date of this
Instrument, Debtors assigned to Secured Party certain overriding royalty
interests covering and related to the Land as more specifically described
therein. The Override Assignments were executed and delivered immediately prior
to the execution and delivery of this Instrument, and are intended to be and
shall be an absolute, unconditional, indefeasible and perpetual assignments and
transfers from Debtors to Secured Party.
Section 7.13 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. DEBTORS
HEREBY: (A) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE, TO
THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT
ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS INSTRUMENT, THE NOTES,
THE LOAN AGREEMENT OR ANY OTHER DOCUMENTS AND INSTRUMENTS EVIDENCING, SECURING
OR RELATING TO THE OBLIGATIONS OR ANY TRANSACTION PROVIDED FOR THEREIN OR
ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (B) IRREVOCABLY WAIVE, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THEY MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(D) ACKNOWLEDGES THAT THEY HAVE BEEN INDUCED TO ENTER INTO THIS INSTRUMENT, THE
NOTES, THE LOAN AGREEMENT AND ANY OTHER DOCUMENTS AND INSTRUMENTS EVIDENCING,
SECURING OR RELATING TO THE OBLIGATIONS AND THE TRANSACTIONS PROVIDED FOR HEREIN
AND THEREIN, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN
THIS SECTION.
Section 7.14 USURY SAVINGS. IT IS THE INTENTION OF THE PARTIES HERETO
TO COMPLY WITH ALL APPLICABLE USURY LAWS; ACCORDINGLY, IT IS AGREED THAT
NOTWITHSTANDING ANY PROVISIONS TO THE CONTRARY IN THIS INSTRUMENT, THE NOTES,
THE LOAN AGREEMENT OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR
OTHERWISE RELATING TO THE OBLIGATIONS, IN NO EVENT SHALL SUCH DOCUMENTS OR
INSTRUMENTS REQUIRE THE PAYMENT OR PERMIT THE COLLECTION OF INTEREST (WHICH
TERM, FOR PURPOSES HEREOF, SHALL INCLUDE ANY AMOUNT WHICH, UNDER APPLICABLE LAW,
IS DEEMED TO BE INTEREST, WHETHER OR NOT SUCH AMOUNT IS CHARACTERIZED BY THE
PARTIES AS INTEREST) IN EXCESS OF THE MAXIMUM AMOUNT PERMITTED BY SUCH LAWS. IF
ANY EXCESS INTEREST IS UNINTENTIONALLY CONTRACTED FOR, CHARGED OR RECEIVED UNDER
THE NOTES OR UNDER THE TERMS OF THIS INSTRUMENT, THE LOAN AGREEMENT OR ANY OTHER
DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS, OR
IN THE EVENT THE MATURITY OF THE INDEBTEDNESS EVIDENCED BY THE NOTES IS
ACCELERATED IN WHOLE OR IN PART, OR IN THE EVENT THAT ALL OR PART OF THE
PRINCIPAL OR INTEREST OF THE NOTES SHALL BE PREPAID, SO THAT THE AMOUNT OF
INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE AMOUNT OF INTEREST
CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTES OR UNDER THIS INSTRUMENT,
THE LOAN AGREEMENT OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR
RELATING TO THE OBLIGATIONS, ON THE AMOUNT OF PRINCIPAL ACTUALLY OUTSTANDING
FROM TIME TO TIME UNDER THE NOTES SHALL EXCEED THE MAXIMUM AMOUNT OF INTEREST
PERMITTED BY THE APPLICABLE USURY LAWS, THEN IN ANY SUCH EVENT (A) THE
PROVISIONS OF THIS SECTION SHALL GOVERN AND CONTROL, (B) NEITHER DEBTORS NOR ANY
OTHER PERSON OR ENTITY NOW OR HEREAFTER LIABLE FOR THE PAYMENT THEREOF, SHALL BE
OBLIGATED TO PAY THE AMOUNT OF SUCH INTEREST TO THE EXTENT THAT IT IS IN EXCESS
OF THE MAXIMUM AMOUNT OF INTEREST PERMITTED BY SUCH APPLICABLE USURY LAWS,
(C) ANY SUCH EXCESS WHICH MAY HAVE BEEN COLLECTED SHALL BE EITHER APPLIED AS A
CREDIT AGAINST THE THEN UNPAID PRINCIPAL AMOUNT THEREOF OR REFUNDED TO DEBTORS
AT SECURED PARTY'S OPTION, AND (D) THE EFFECTIVE RATE OF INTEREST SHALL BE
AUTOMATICALLY REDUCED TO THE MAXIMUM LAWFUL RATE OF INTEREST ALLOWED UNDER THE
APPLICABLE USURY LAWS AS NOW OR HEREAFTER CONSTRUED BY THE COURTS HAVING
JURISDICTION THEREOF. IT IS FURTHER AGREED THAT WITHOUT LIMITATION OF THE
FOREGOING, ALL CALCULATIONS OF THE RATE OF INTEREST CONTRACTED FOR, CHARGED OR
RECEIVED UNDER THE NOTES OR UNDER THIS INSTRUMENT, THE LOAN AGREEMENT OR ANY
OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE
OBLIGATIONS WHICH ARE MADE FOR THE PURPOSE OF DETERMINING WHETHER SUCH RATE
EXCEEDS THE MAXIMUM LAWFUL RATE OF INTEREST, SHALL BE MADE, TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAWS, BY AMORTIZING, PRORATING, ALLOCATING AND
SPREADING IN EQUAL PARTS DURING THE PERIOD OF THE FULL STATED TERM OF THE
OBLIGATIONS EVIDENCED THEREBY, ALL INTEREST AT ANY TIME CONTRACTED FOR, CHARGED
OR RECEIVED FROM DEBTORS OR OTHERWISE BY SECURED PARTY IN CONNECTION WITH THE
OBLIGATIONS.
Section 7.15 GOVERNING LAW. THIS INSTRUMENT AND ALL MATTERS ARISING
UNDER OR GROWING OUT HEREOF SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO
ITS PRINCIPLES OF CONFLICTS OF LAWS, AND THE LAWS OF THE UNITED STATES OF
AMERICA, EXCEPT THAT THE LAW OF THE STATE OF NEVADA SHALL GOVERN WITH RESPECT TO
PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO THE VALIDITY, CREATION,
PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND
REMEDIES OF THIS INSTRUMENT GRANTED HEREIN AS TO THAT PORTION OF THE COLLATERAL
LOCATED IN THE STATE OF NEVADA. EXCEPT AS TO THE VALIDITY, CREATION, PERFECTION
AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED HEREBY, DEBTORS AND
SECURED PARTY AGREE THAT THE TRANSACTIONS PROVIDED FOR HEREIN BEAR A REASONABLE
RELATIONSHIP TO THE COMMONWEALTH OF MASSACHUSETTS AND THAT THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS GOVERNS (A) ISSUES RELATING TO THE TRANSACTIONS
PROVIDED FOR HEREIN, INCLUDING THE VALIDITY AND ENFORCEABILITY OF AN AGREEMENT
RELATING TO SUCH TRANSACTIONS OR A PROVISION OF AN AGREEMENT, AND (B) THE
INTERPRETATION OR CONSTRUCTION OF AN AGREEMENT RELATING TO SUCH TRANSACTIONS OR
A PROVISION OF AN AGREEMENT.
Executed as of the date first above written.
DEBTORS:
FORELAND CORPORATION,
a Nevada corporation
By /s/ N. Thomas Steele
N. Thomas Steele, President
Tax I.D. No. 87-0422812
EAGLE SPRINGS PRODUCTION
LIMITED-LIABILITY COMPANY (also
known as Eagle Springs Production Limited
Liability Company), a Nevada limited liability
company
By /s/ N. Thomas Steele
N. Thomas Steele, Manager
Tax I.D. No. 87-0522668
ACKNOWLEDGMENT CERTIFICATES
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by N.
THOMAS STEELE, Manager of EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
(also known as Eagle Springs Production Limited Liability Company), a Nevada
limited liability company.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by N.
THOMAS STEELE, as President of FORELAND CORPORATION, a Nevada corporation.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
ASSIGNMENT OF OVERRIDING ROYALTY INTERESTS
This Assignment of Overriding Royalty Interests (this "Assignment"),
dated effective as of January 1, 1998, at 7:00 a.m. local time (the "Effective
Time"), is from FORELAND CORPORATION, a Nevada corporation, and EAGLE SPRINGS
PRODUCTION LIMITED-LIABILITY COMPANY (also known as Eagle Springs Production
Limited Liability Company), a Nevada limited liability company (collectively
"Assignors"), both with an address of 12596 West Bayaud, Suite 300, Lakewood,
Colorado 80228, to ENERGY INCOME FUND, L.P., a Delaware limited partnership
("Assignee"), with an address of 136 Dwight Road, Longmeadow, Massachusetts
01106.
For ten dollars and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by Assignors, Assignors hereby
grant, sell, assign, transfer and set over to Assignee, and its successors and
assigns, overriding royalty interests in the amounts set forth below in and to
all oil, gas and other hydrocarbons and minerals (collectively "Hydrocarbons")
produced, saved and marketed from the Land (as hereinafter defined) under and
pursuant to the terms and provisions of the Leases (as hereinafter defined).
The amount of the overriding royalty interests with respect to each portion of
the Land shall equal an undivided three percent (3%) of Assignors' net revenue
interest (that is, Assignors' share of all Hydrocarbons produced, saved and
marketed from such portion of the Land prior to giving effect to this
Assignment) in production from such portion of the Land, whether such net
revenue interest is attributable to a working interest, record title interest,
operating rights interest, overriding royalty interest or other interest owned
by Assignors. If Assignors hereafter acquire additional interests in the
leasehold estates created by any of the Leases, overriding royalty interests or
other interests, in any portion of the Land that entitles Assignors to an
additional net revenue interest, then the overriding royalty interests herein
created and assigned in that portion of the Land shall automatically burden,
attach and be applied to, and payable out of and from, such additional interest
in the same proportion as set forth herein.
In this Assignment, the oil and gas leases and other documents and
instruments described in Exhibit "A" hereto and any extensions, renewals or
replacements of such leases, documents and instruments shall be referred to
collectively as the "Leases," and individually as a "Lease." In this
Assignment, the land specifically described in Exhibit "A" and all other land
(including, without limitation, all depths, horizons, formations and zones)
described in or covered by the Leases whether or not such land is specifically
described in Exhibit "A" shall be referred to as the "Land."
Except as otherwise provided in this Assignment, the overriding royalty
interests herein created and assigned shall be treated, computed, calculated and
paid or delivered to Assignee in a same manner and under the same terms and
conditions as the royalties reserved to the lessors under the Leases. The
overriding royalty interests herein created and assigned shall be free and clear
of any and all costs and expenses of drilling, development, production,
operation and marketing thereof (including costs and expenses of dehydrating,
treating, transporting, boosting, compressing or otherwise processing
Hydrocarbons in order to make the same marketable), except taxes applicable to
said overriding royalty interests and the production of income therefrom.
The overriding royalty interests herein created and assigned shall
cover any and all oil, gas and other hydrocarbons and minerals of whatever kind
or character produced under the terms of the Leases, and all such substances
shall be included in the term "Hydrocarbons" for the purposes of this
Assignment. The overriding royalty interests herein created and assigned shall
automatically burden, attach and be applied to and payable out of and from and
encumber any new lease or any extension, renewal or replacement of the Leases
covering the Land. Assignee and its partners and its and their respective
directors, officers, partners, members, employees, agents, representatives,
consultants and designees shall have access to each and all of the Leases and
the Land and all operations thereon at all reasonable times, upon prior notice
to Assignors.
Assignors shall maintain books and records sufficient to determine the
amounts payable hereunder, and such books and records shall be open for
inspection by Assignee during normal business hours.
Assignee may elect to have its share of production attributable to the
overriding royalty interests herein created and assigned delivered to Assignee
in value or in kind, or otherwise separately dispose thereof. If Assignee
elects to take in kind or separately dispose of its share of production,
Assignee shall be entitled to use all surface and other facilities for such
purpose without cost or expense to Assignee, all of which shall be borne by
Assignors.
With the prior written consent of Assignee, which consent shall not be
unreasonably withheld, Assignors shall have the right and power at any time and
from time to time to pool or unitize the Leases and the Land, or any portion
thereof, with other leases and land into voluntary units or into units
established by any governmental authority having jurisdiction; and, if the
Leases or the Land, or any portion thereof, are so pooled or unitized, then the
overriding royalty interests herein created and assigned insofar as they relate
to said Leases and said Land shall be reduced in the proportion that the acreage
burdened by said overriding royalty interests bears to the total acreage
included within the pooled or unitized area.
Assignors shall, subject to prudent practice in the oil and gas
industry, (i) keep in full force and effect all of the Leases and all rights-of-
way, easements and privileges necessary or appropriate for the proper operation
of the Leases by the proper payment of all rentals, royalties and other sums due
thereunder and the proper performance of all obligations and other acts required
thereunder; (ii) cause the Land and Leases to be properly maintained, developed
and continuously operated for the production of oil, gas and other hydrocarbons
and protected against drainage and damage in a good and workmanlike manner as a
prudent operator would in accordance with good oil field practice and applicable
federal, state, tribal and local laws, rules, regulations and orders; (iii) pay
or cause to be paid when due all expenses incurred in connection with such
maintenance, development, operation and protection of the Land and the Leases,
other than those being contested in good faith; (iv) keep all goods, including
equipment, inventory and fixtures necessary for the operation of the Land and
the Leases in good and effective repair, working order and operating condition
and make all repairs, renewals, replacements, substitutions, additions and
improvements as are necessary and proper; (v) use its best efforts to market the
Hydrocarbons at the best prices and terms; and (vi) do all other things
necessary to keep Assignee's interest in the Land and the Leases unimpaired.
This Assignment is intended to be and shall be an absolute,
unconditional and indefeasible perpetual assignment and transfer and not merely
a pledge or creation of a lien or security interest.
Assignors shall execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered, transfer orders or letters in lieu thereof
directing all pipeline companies or other purchasers of oil, gas or other
production from the Land or the Leases to make payment directly to Assignee for
all proceeds of production attributable to the overriding royalty interests
herein created and assigned after the Effective Time. Any proceeds received by
Assignors attributable to the overriding royalty interests herein created and
assigned shall, when received, constitute trust funds in Assignors' hands and
shall be held by Assignors upon an express trust for Assignee in a segregated
account until remitted to Assignee. Assignee hereby agrees to execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered any
and all corrections or supplemental assignments as shall be necessary in the
opinion of Assignee to more correctly state and describe the overriding royalty
interests created and assigned herein.
Assignors agree to warrant and forever defend the title of Assignee to
the overriding royalty interests herein created and assigned from and against
any and all liens, security interests, encumbrances, defects, burdens and
claims. Assignee shall have full right of substitution and subrogation in and
to all covenants of warranty heretofore given or made with respect to the Leases
and Land by parties other than Assignors. If the title or interest of Assignors
or Assignee to the Land or the Leases or any part thereof, or the rights or
powers of Assignee hereunder, shall be attacked, either directly or indirectly,
or if any legal proceedings are commenced against Assignors, Assignee or the
Land or the Leases or any part thereof, Assignors shall promptly give written
notice thereof to Assignee and at Assignors' own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings,
employing attorneys reasonably acceptable to Assignee. Assignee may take such
independent action in connection therewith as it may in its reasonable
discretion deem advisable, and all costs and expenses, including, without
limitation, attorneys' fees and legal expenses, incurred by or on behalf of
Assignee, shall be the obligation of Assignors. Any references herein or in
Exhibit "A" to liens, encumbrances and other burdens are for the purposes of
defining the nature and extent of Assignors' warranties and shall not be deemed
to ratify, recognize or create any rights in third parties.
Assignors shall comply with all laws, rules, regulations, ordinances
and orders of all local, tribal, state and federal governmental bodies,
authorities and agencies, including, without limitation, all laws, rules,
regulations, ordinances and orders pertaining to health, safety, pollution and
the environment; and Assignors agree to indemnify, defend, save and hold
Assignee harmless from and against any and all claims, demands, liabilities,
losses, damages, causes of action, judgments, penalties, fees (including
reasonable attorneys' fees), costs and expenses of any kind or character, known
or unknown, fixed or contingent, in any way relating thereto or arising
therefrom.
Assignee is executing this Assignment for the purpose of confirming and
acknowledging that, unless otherwise specifically set forth in an instrument
duly executed by Assignee, or its successors or assigns, and recorded in the
real property records of the counties in which the Land is located, no portion
of the overriding royalty interests herein created and assigned to Assignee
shall merge with or into any other interests in the Land or the Leases owned by
Assignee (including, without limitation, any liens or security interests created
for the benefit of Assignee or any leasehold, royalty, overriding royalty,
production payment, net profit or other interests acquired pursuant to
foreclosure of any such liens or security interests, conveyance or deed in lieu
of foreclosure or otherwise), or be otherwise affected by reason of the
contemporaneous ownership of any interests in the Land or the Leases by
Assignee, or its successors or assigns, and that the overriding royalty
interests herein created and assigned to Assignee shall constitute interests in
the Land burdening the Leases that shall be held and maintained by Assignee
separately from any other interests in the Land or the Leases.
If any right, interest or estate in property granted by this Assignment
or pursuant hereto does not vest upon the date hereof, such right, interest or
estate shall vest, if at all, within twenty-one years less one day after the
death of the last surviving decedent of Joseph P. Kennedy, father of John F.
Kennedy, former President of the United States of America, who is living on the
date of the execution of this Assignment by Assignors or the Effective Time,
whichever is earlier.
This Assignment and the covenants, agreements, representations,
warranties and indemnities contained herein shall run with the land and shall
bind Assignors and shall inure to the benefit of Assignee, and their respective
successors and assigns.
Executed as of January 6, 1998, to be effective for all purposes as of
the Effective Time.
ASSIGNORS:
FORELAND CORPORATION, a
Nevada corporation
By /s/ N. Thomas Steele
N. Thomas Steele,
President
Tax I.D. No. 87-0422812
EAGLE SPRINGS PRODUCTION
LIMITED-LIABILITY COMPANY (also
known as Eagle Springs Production Limited
Liability Company), a Nevada limited liability
company
By /s/ N. Thomas Steele
N. Thomas Steele,
Manager
Tax I.D. No. 87-0522668
ASSIGNEE:
ENERGY INCOME FUND, L.P., a Delaware limited
partnership
By: EIF GENERAL PARTNER, L.L.C., a Delaware
limited liability company, its General
Partner
By /s/ Steven P. McDonald
Steven P. McDonald,
Vice President
Tax I.D. No. 04-3309082
ACKNOWLEDGMENT CERTIFICATES
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by
N. THOMAS STEELE, Manager of EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
(also known as Eagle Springs Production Limited Liability Company), a Nevada
limited liability company.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by
N. THOMAS STEELE, as President of FORELAND CORPORATION, a Nevada corporation.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by
STEVEN P. McDONALD, Vice President of EIF GENERAL PARTNER, L.L.C., a Delaware
limited liability company, the General Partner of ENERGY INCOME FUND, L.P., a
Delaware limited partnership.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
ASSIGNMENT OF OVERRIDING ROYALTY INTERESTS
This Assignment of Overriding Royalty Interests (this "Assignment"),
dated effective as of January 1, 1998, at 7:00 a.m. local time (the "Effective
Time"), is from FORLAND CORPORATION, a Nevada corporation, and EAGLE SPRINGS
PRODUCTION LIMITED-LIABILITY COMPANY (also known as Eagle Springs Production
Limited Liability Company), a Nevada limited liability company (collectively
"Assignors"), both with an address of 12596 West Bayaud, Suite 300, Lakewood,
Colorado 80228, to ENERGY INCOME FUND, L.P., a Delaware limited partnership
("Assignee"), with an address of 136 Dwight Road, Longmeadow, Massachusetts
01106.
For ten dollars and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by Assignors, Assignors hereby
grant, sell, assign, transfer and set over to Assignee, and its successors and
assigns, overriding royalty interests in the amounts set forth below in and to
all oil, gas and other hydrocarbons and minerals (collectively "Hydrocarbons")
produced, saved and marketed from the Land (as hereinafter defined) under and
pursuant to the terms and provisions of the Leases (as hereinafter defined).
The amount of the overriding royalty interests with respect to each portion of
the Land shall equal an undivided one percent (1%) of Assignors' net revenue
interest (that is, Assignors' share of all Hydrocarbons produced, saved and
marketed from such portion of the Land prior to giving effect to this
Assignment) in production from such portion of the Land, whether such net
revenue interest is attributable to a working interest, record title interest,
operating rights interest, overriding royalty interest or other interest owned
by Assignors. If Assignors hereafter acquire additional interests in the
leasehold estates created by any of the Leases, overriding royalty interests or
other interests, in any portion of the Land that entitles Assignors to an
additional net revenue interest, then the overriding royalty interests herein
created and assigned in that portion of the Land shall automatically burden,
attach and be applied to, and payable out of and from, such additional interest
in the same proportion as set forth herein.
In this Assignment, the oil and gas leases and other documents and
instruments described in Exhibit "A" hereto and any extensions, renewals or
replacements of such leases, documents and instruments shall be referred to
collectively as the "Leases," and individually as a "Lease." In this
Assignment, the land specifically described in Exhibit "A" and all other land
(including, without limitation, all depths, horizons, formations and zones)
described in or covered by the Leases whether or not such land is specifically
described in Exhibit "A" shall be referred to as the "Land."
Except as otherwise provided in this Assignment, the overriding royalty
interests herein created and assigned shall be treated, computed, calculated and
paid or delivered to Assignee in a same manner and under the same terms and
conditions as the royalties reserved to the lessors under the Leases. The
overriding royalty interests herein created and assigned shall be free and clear
of any and all costs and expenses of drilling, development, production,
operation and marketing thereof (including costs and expenses of dehydrating,
treating, transporting, boosting, compressing or otherwise processing
Hydrocarbons in order to make the same marketable), except taxes applicable to
said overriding royalty interests and the production of income therefrom.
The overriding royalty interests herein created and assigned shall
cover any and all oil, gas and other hydrocarbons and minerals of whatever kind
or character produced under the terms of the Leases, and all such substances
shall be included in the term "Hydrocarbons" for the purposes of this
Assignment. The overriding royalty interests herein created and assigned shall
automatically burden, attach and be applied to and payable out of and from and
encumber any new lease or any extension, renewal or replacement of the Leases
covering the Land. Assignee and its partners and its and their respective
directors, officers, partners, members, employees, agents, representatives,
consultants and designees shall have access to each and all of the Leases and
the Land and all operations thereon at all reasonable times, upon prior notice
to Assignors.
Assignors shall maintain books and records sufficient to determine the
amounts payable hereunder, and such books and records shall be open for
inspection by Assignee during normal business hours.
Assignee may elect to have its share of production attributable to the
overriding royalty interests herein created and assigned delivered to Assignee
in value or in kind, or otherwise separately dispose thereof. If Assignee
elects to take in kind or separately dispose of its share of production,
Assignee shall be entitled to use all surface and other facilities for such
purpose without cost or expense to Assignee, all of which shall be borne by
Assignors.
With the prior written consent of Assignee, which consent shall not be
unreasonably withheld, Assignors shall have the right and power at any time and
from time to time to pool or unitize the Leases and the Land, or any portion
thereof, with other leases and land into voluntary units or into units
established by any governmental authority having jurisdiction; and, if the
Leases or the Land, or any portion thereof, are so pooled or unitized, then the
overriding royalty interests herein created and assigned insofar as they relate
to said Leases and said Land shall be reduced in the proportion that the acreage
burdened by said overriding royalty interests bears to the total acreage
included within the pooled or unitized area.
Assignors shall, subject to prudent practice in the oil and gas
industry, (i) keep in full force and effect all of the Leases and all rights-of-
way, easements and privileges necessary or appropriate for the proper operation
of the Leases by the proper payment of all rentals, royalties and other sums due
thereunder and the proper performance of all obligations and other acts required
thereunder; (ii) cause the Land and Leases to be properly maintained, developed
and continuously operated for the production of oil, gas and other hydrocarbons
and protected against drainage and damage in a good and workmanlike manner as a
prudent operator would in accordance with good oil field practice and applicable
federal, state, tribal and local laws, rules, regulations and orders; (iii) pay
or cause to be paid when due all expenses incurred in connection with such
maintenance, development, operation and protection of the Land and the Leases,
other than those being contested in good faith; (iv) keep all goods, including
equipment, inventory and fixtures necessary for the operation of the Land and
the Leases in good and effective repair, working order and operating condition
and make all repairs, renewals, replacements, substitutions, additions and
improvements as are necessary and proper; (v) use its best efforts to market the
Hydrocarbons at the best prices and terms; and (vi) do all other things
necessary to keep Assignee's interest in the Land and the Leases unimpaired.
This Assignment is intended to be and shall be an absolute,
unconditional and indefeasible perpetual assignment and transfer and not merely
a pledge or creation of a lien or security interest.
Assignors shall execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered, transfer orders or letters in lieu thereof
directing all pipeline companies or other purchasers of oil, gas or other
production from the Land or the Leases to make payment directly to Assignee for
all proceeds of production attributable to the overriding royalty interests
herein created and assigned after the Effective Time. Any proceeds received by
Assignors attributable to the overriding royalty interests herein created and
assigned shall, when received, constitute trust funds in Assignors' hands and
shall be held by Assignors upon an express trust for Assignee in a segregated
account until remitted to Assignee. Assignee hereby agrees to execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered any
and all corrections or supplemental assignments as shall be necessary in the
opinion of Assignee to more correctly state and describe the overriding royalty
interests created and assigned herein.
Assignors agree to warrant and forever defend the title of Assignee to
the overriding royalty interests herein created and assigned from and against
any and all liens, security interests, encumbrances, defects, burdens and
claims. Assignee shall have full right of substitution and subrogation in and
to all covenants of warranty heretofore given or made with respect to the Leases
and Land by parties other than Assignors. If the title or interest of Assignors
or Assignee to the Land or the Leases or any part thereof, or the rights or
powers of Assignee hereunder, shall be attacked, either directly or indirectly,
or if any legal proceedings are commenced against Assignors, Assignee or the
Land or the Leases or any part thereof, Assignors shall promptly give written
notice thereof to Assignee and at Assignors' own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings,
employing attorneys reasonably acceptable to Assignee. Assignee may take such
independent action in connection therewith as it may in its reasonable
discretion deem advisable, and all costs and expenses, including, without
limitation, attorneys' fees and legal expenses, incurred by or on behalf of
Assignee, shall be the obligation of Assignors. Any references herein or in
Exhibit "A" to liens, encumbrances and other burdens are for the purposes of
defining the nature and extent of Assignors' warranties and shall not be deemed
to ratify, recognize or create any rights in third parties.
Assignors shall comply with all laws, rules, regulations, ordinances
and orders of all local, tribal, state and federal governmental bodies,
authorities and agencies, including, without limitation, all laws, rules,
regulations, ordinances and orders pertaining to health, safety, pollution and
the environment; and Assignors agree to indemnify, defend, save and hold
Assignee harmless from and against any and all claims, demands, liabilities,
losses, damages, causes of action, judgments, penalties, fees (including
reasonable attorneys' fees), costs and expenses of any kind or character, known
or unknown, fixed or contingent, in any way relating thereto or arising
therefrom.
Assignee is executing this Assignment for the purpose of confirming and
acknowledging that, unless otherwise specifically set forth in an instrument
duly executed by Assignee, or its successors or assigns, and recorded in the
real property records of the counties in which the Land is located, no portion
of the overriding royalty interests herein created and assigned to Assignee
shall merge with or into any other interests in the Land or the Leases owned by
Assignee (including, without limitation, any liens or security interests created
for the benefit of Assignee or any leasehold, royalty, overriding royalty,
production payment, net profit or other interests acquired pursuant to
foreclosure of any such liens or security interests, conveyance or deed in lieu
of foreclosure or otherwise), or be otherwise affected by reason of the
contemporaneous ownership of any interests in the Land or the Leases by
Assignee, or its successors or assigns, and that the overriding royalty
interests herein created and assigned to Assignee shall constitute interests in
the Land burdening the Leases that shall be held and maintained by Assignee
separately from any other interests in the Land or the Leases.
If any right, interest or estate in property granted by this Assignment
or pursuant hereto does not vest upon the date hereof, such right, interest or
estate shall vest, if at all, within twenty-one years less one day after the
death of the last surviving decedent of Joseph P. Kennedy, father of John F.
Kennedy, former President of the United States of America, who is living on the
date of the execution of this Assignment by Assignors or the Effective Time,
whichever is earlier.
This Assignment and the covenants, agreements, representations,
warranties and indemnities contained herein shall run with the land and shall
bind Assignors and shall inure to the benefit of Assignee, and their respective
successors and assigns.
Executed as of January 6, 1998, to be effective for all purposes as of
the Effective Time.
ASSIGNORS:
FORELAND CORPORATION, a
Nevada corporation
By /s/ N. Thomas Steele
N. Thomas Steele,
President
Tax I.D. No. 87-0422812
EAGLE SPRINGS PRODUCTION
LIMITED-LIABILITY COMPANY, (also
known as Eagle Springs Production Limited
Liability Company), a Nevada limited liability
company
By /s/ N. Thomas Steele
N. Thomas Steele,
Manager
Tax I.D. No. 87-0522668
ASSIGNEE:
ENERGY INCOME FUND, L.P., a Delaware limited
partnership
By: EIF GENERAL PARTNER, L.L.C., a Delaware
limited liability company, its General
Partner
By /s/ Steven P. McDonald
Steven P. McDonald,
Vice President
Tax I.D. No. 04-3309082
ACKNOWLEDGMENT CERTIFICATES
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by
N. THOMAS STEELE, Manager of EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
(also known as Eagle Springs Production Limited Liability Company), a Nevada
limited liability company.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by
N. THOMAS STEELE, as President of FORELAND CORPORATION, a Nevada corporation.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
This instrument was acknowledged before me on January 8, 1998, by
STEVEN P. McDONALD, Vice President of EIF GENERAL PARTNER, L.L.C., a Delaware
limited liability company, the General Partner of ENERGY INCOME FUND, L.P., a
Delaware limited partnership.
/s/ Judith J. Bulanowski
Notary Public
My commission expires: 10/14/2001
(NOTARIAL SEAL)
