SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): August 12, 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 (Zip Code)
Offices)
Registrant's Telephone Number, including Area Code:
(303) 988-3122
1
N/A
(Former name, former address, and formal fiscal year, if changed since
last report)
<PAGE>
ITEM 2. ACQUISITION OR
DISPOSITION OF ASSETS
On August 12, 1998, Foreland Corporation (the "Company") completed the
purchase from Petro Source Corporation, an independent crude oil processing,
transportation, and trading firm based in Houston, Texas, of the Eagle Springs
Nevada refinery, which manufactures asphalt and ancillary products from crude
oil produced by the Company and other Nevada operators, a processing facility in
Tonopah, Nevada, and trucks and related equipment used by Petrosource
Transportation to gather crude oil and distribute products. In addition to the
$520,000 payable in Common Stock to acquire the option, the Company paid
$5,000,000 in cash and $2,676,322 in Common Stock and issued 100,000 additional
shares of Common Stock. The Company intends to integrate the operation of the
refinery and transportation assets with its oil production in Nevada to enable
it to sell finished asphalt and other hydrocarbon products. The terms of the
purchase were the result of arm's length negotiations. The purchase of the
refinery and transportation assets and related operations was effective for
accounting purposes as of June 1, 1998.
The Eagle Springs atmospheric and vacuum distillation plant processes all
of the crude oil currently produced in Nevada into asphalt, fuels, and solvents.
The Tonopah specialty fractionation plant processes transmix and other feedstock
into gasoline, diesel, and other specialty products. The refineries, with a
combined rated capacity of approximately 12,000 barrels of feedstock per day,
2
sell their finished products in bulk sales to government, mining, and paving
industry customers in five Western states and unfinished products to other West
Coast and Rocky Mountain refiners.
The transportation assets and operations acquired consist of approximately
24 truck tractors and 80 bulk crude oil gathering and finished goods delivery
tank trailers with lease operators and related maintenance and operating
facilities.
A total of 60 employees previously engaged by Petro Source in refinery and
transportation management and operations became employee of the Company
following the transaction.
The Petro Source option and purchase agreement was negotiated in December
1997 based on throughput of 1,300 barrels of crude oil per day. In anticipation
of exercising its option and significantly improving operating results, the
Company increased the refinery throughput by 1,000 barrels per day by adding
production from its own wells and securing other Nevada production. The long-
term success of these refineries will depend on the success of the Company and
others in establishing additional oil production in Nevada. The Company will
attempt to increase daily refinery throughput by development and exploration
drilling, enhanced oil recovery projects, acquisitions, and refinery feedstock
purchase contracts.
At the current throughput of 2,300 barrels of oil per day, the
Company's annualized gross revenues are expected to increase to $27 million.
The Company expects that gross refinery margins, which have historically been
$5.00 to $7.00 per barrel, will likely decline as throughput increases and a
broader range and volume of lower margin products are sold. The purchase of the
Nevada refineries will move Foreland toward fully integrated exploration,
production, and finished good marketing.
3
The Company's long-term debt financing arrangement with Energy Income Fund
was revised to draw $5,000,000 to fund the purchase of the Eagle Springs and
Tonopah asphalt refinery and transportation company and to enable the Company to
draw additional funds for refinery working capital and revised enhanced oil
recovery, development, and other corporate expenditures. The Company also
increased an outstanding warrant to purchase 250,000 shares at $10.00 per share
to 750,000 shares and reduced the exercise price to $6.00 per share. In
addition, the Company sold to Energy Income Fund for $2,000,000 a total of 2,000
shares of 1998 Series Preferred Stock convertible into an aggregate of 333,333
shares of Common Stock. As of the date of such revisions, the Common Stock
traded at approximately $3.31 per share on the Nasdaq SmallCap Market. Robert
Gershen, a manager of the general partner of Energy Income Fund, is a director
of the Company; the disinterested members of the board of directors unanimously
approved the terms of this transaction and believe them to be fair to the
Company from a financial point of view.
ITEM 5. OTHER EVENTS
On August 21, 1998, the Company announced details of its Nevada exploration
program for the balance of 1998. In addition to debt financing for the Petro
Source refining and transportation operations purchase, related capital
improvements, asphalt marketing, and Eagle Springs EOR, the $2 million preferred
stock purchase by Energy Income Fund and anticipated cash flow from operations
should permit Foreland Corporation to complete its aggressive 1998 exploration
program in Pine and Huntington Valleys, Nevada. The program includes drilling
four wells, two 3D defined prospects in the Pine Creek area, the Dixie Flat
prospect and North Humboldt prospect. An additional 24 square miles of 3D
seismic will be acquired during 1998 in the Hay Ranch area, located adjacent to
the 17 square mile Pine Creek 3D survey.
4
Foreland Corporation also announced that the Ghost Ranch 58-35R will be
plugged. The reentry and deepening of the Ghost Ranch 58-35R well was designed
to test a structure about 1,600' west of the Sand Dune 88-35 discovery as the
first offset well in the Sand Dune Field. Numerous oil and gas shows were
encountered in a 1300' interval updip to the Sand Dune discovery well. Analysis
of well logs through the zone indicates that reservoir quality was marginal.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a)Financial statements required by this item will be filed by amendment as
soon as practicable, but no later than 60 days after the filing of this
report on Form 8-K.
c) Exhibits
The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
Item 2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, or Succession
2.01 2 Option and Purchase Agreement between Incorporated by
Foreland Corporation, Petro Source Reference(1)
Corporation, Petrosource Refining
Corporation, and Petrosource
Transportation dated December 31, 1997
2.02 2 Amendment to Option and Purchase This filing
Agreement between Foreland Corporation,
Petro Source Corporation, Foreland
5
SEC
Exhibit Reference
Number Number Title of Document Location
Refining Corporation, and Petrosource
Transportation dated August 11, 1998*
Item 3 Instruments Defining the Rights of Security Holders
3.01 3 Designation of Rights, Privileges and This filing
Preferences for 1998 Series Convertible
Preferred Stock
3.02 3 Registration Rights Agreement between This filing
Energy Income Fund, L.P., and Foreland
Corporation, dated as of August 10, 1998
10.01 10 First Amendment to Financing Agreement This filing
between Foreland Corporation, Eagle
Springs Production Limited Liability
Company, Foreland Refining Corporation,
Foreland Asset Corporation, Petrosource
Transportation, and Energy Income Fund,
L.P., dated August 10, 1998*
10.02 10 Common Stock Purchase Warrant to purchase This filing
750,000 shares of common stock of
Foreland Corporation at $6.00 per share
10.03 10 Stock Purchase Agreement dated August 10, This filing
1998, between Energy Income Fund, L.P.,
and Foreland Corporation
10.04 10 First Allonge to Acquisition Note in the This filing
original principal amount of $2,327,000,
dated as of August 10, 1998
10.05 10 First Allonge to Development Note in the This filing
6
SEC
Exhibit Reference
Number Number Title of Document Location
original principal amount of
$13,893,000, dated as of August 10, 1998
10.06 10 First Allonge to Refinancing Note in the This filing
original principal amount of $680,000,
dated as of August 10, 1998
10.07 10 Environmental Indemnity Agreement between This filing
Petro Source Corporation, Petrosource
Investments, Inc., Foreland Corporation,
Foreland Refining Corporation, Foreland
Asset Corporation, and Petrosource
Transportation dated August 11, 1998
10.08 10 Second Amendment to Deed of Trust, This filing
Security Agreement, Assignment of
Production and Proceeds, Financing
Statement and Fixture Filing dated as of
August 11, 1998, by and among Foreland
Corporation, Eagle Springs Production
Limited Liability Company, First
American Title Company of Nevada, and
Energy Income Fund, L.P. *
(1) Incorporated by reference from the Company's interim report on Form 8-K
dated January 6, 1998.
* Omitted schedules and similar attachments to this exhibit that are listed
and briefly identified will be furnished supplementally to the Commission
upon request.
7
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: August 27, 1998
FORELAND CORPORATION
By /s/N. Thomas Steele, President
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AMENDMENT TO
OPTION AND PURCHASE AGREEMENT
THIS AMENDMENT TO OPTION AND PURCHASE AGREEMENT (this "Amendment") is
entered into as of this 11 day of August, 1998, by and between FORELAND
CORPORATION, a Nevada corporation ("Foreland") on the one hand, and PETRO SOURCE
CORPORATION, a Utah corporation ("Petro Source Corporation"), FORELAND REFINING
CORPORATION, a Texas corporation ("Foreland Refining"), and PETROSOURCE
TRANSPORTATION, a Utah corporation ("Petrosource Transportation"), on the other
(Petro Source Corporation, Foreland Refining, and Petrosource Transportation are
collectively referred to as "PSC"), based on the following:
PREMISES
A. Foreland, Petro Source Corporation, and Petrosource Transportation are
parties to that certain Option and Purchase Agreement dated December 31, 1997
(the "Option and Purchase Agreement"). Foreland Refining is a successor,
through merger, to Petro Source Refining Corporation, a Utah corporation ("Petro
Source Refining"), which was also a party to the Option and Purchase Agreement.
B. In May 1998, Foreland exercised its option to purchase the Business
and Business Assets as defined in the Option and Purchase Agreement, and the
parties are obligated to close that transaction.
C. The parties desire to amend the Option and Purchase Agreement in order
to modify certain provisions thereof to reflect changes and modifications that
have been agreed to since the execution of the Option and Purchase Agreement,
including the restructuring of the transaction as the acquisition of certain
assets of Foreland Refining, including the stock of Petrosource Transportation,
by a newly-formed, wholly-owned subsidiary of Foreland, Foreland Asset
Corporation ("Foreland Asset"), followed by the acquisition by Foreland of
Foreland Refining, rather than the sale of assets of Petro Source Refining and
Petrosource Transportation to Foreland as originally contemplated by the Option
and Purchase Agreement.
D. The parties desire to ratify and reaffirm all of the terms and
conditions of the Option and Purchase Agreement, except those provisions
specifically modified by the terms of this Amendment.
AGREEMENT
NOW, THEREFORE, based on the foregoing premises, and in consideration of
the mutual covenants and agreements hereinafter set forth and the mutual benefit
to the parties to be derived herefrom, it is hereby agreed as follows:
1. PSC Employees. The following provision will be added to the end of
Section 2.10 of the Option and Purchase Agreement:
(c) Foreland Refining or Petrosource Transportation will hire the PSC
employees contemplated by Section 2.10(b) as of , 1998.
Between the Closing Date and , 1998, such employees will
remain in the employment of PSC and shall be made available to Foreland
Refining or Petrosource Transportation pursuant to a Transition Services
Agreement between the parties.
2. The Purchase. Section 3.01 of the Option and Purchase Agreement is
amended to read in its entirety as follows:
Section 3.01 The Purchase. As a result of Foreland exercising its
Option as set forth in Article II of the Option and Purchase Agreement, (i)
Foreland Refining shall sell to Foreland Asset all of the issued and
outstanding stock of Petrosource Transportation and the Business Assets set
forth in subparagraphs (a), (b), (k), and (n) below that are owned by it;
and (ii) after completion of the sale of assets contemplated by
subparagraph (i) and the distribution of the proceeds from such sale to
Petro Source Corporation, Petro Source Corporation shall sell, and Foreland
shall purchase, all of the issued and outstanding stock of Foreland
Refining. References in this Agreement to the acquisition of the Business
and Business Assets shall be read to mean the acquisition of the Business
and Business Assets through the purchase of the assets to be sold to
Foreland Asset and the subsequent purchase of the issued and outstanding
stock of Foreland Refining. The Business and Business Assets shall,
subject to the Excluded Assets identified in Section 3.02, consist of the
following:
(a) (i) all tangible personal property owned by PSC and located
at, or used in connection with, the operation of the Eagle Springs
Refinery, the Tonopah Refinery (excluding the emulsifier and the two
asphalt spreader trucks and related equipment), (ii) the roofing
asphalt equipment located at the Fredonia Terminal (provided Foreland,
at its own expense, removes such equipment from PSC's property within
24 months after the Closing Date, otherwise the ownership of such
equipment shall revert to Crown Asphalt Distribution, L.L.C.), and
(iii) the rights of PSC as lessee of all tangible personal property
leased, including the equipment, tools, vehicles, furniture and
fixtures, and supplies described in Exhibit "A" (the "Tangible
Personal Property");
(b) all of PSC's rights as lessee or holder of rights-of-way to
the real property and all buildings and improvements thereon on which
the Eagle Springs Refinery and the Tonopah Refinery are located, as
more particularly described in Exhibit "B" (the "Real Property");
(c) all inventory of PSC existing as of the Effective Time which
was purchased in furtherance of the Business, as described in Exhibit
"C" (the "Inventory");
(d) all of the notes and trade and other accounts receivable
associated with the Eagle Springs Refinery, the Tonopah Refinery, or
Petrosource Transportation existing as of the Effective Time, as
described in Exhibit "D" (the "Accounts Receivable");
(e) all cash, cash equivalents, and prepaid expenses held by
Foreland Refining or Petrosource Transportation;
(f) all of PSC's rights under (i) those crude oil and transmix
purchase contracts and agreements described in Exhibit "E" which were
entered into by PSC in the ordinary course of business and are
executory, and (ii) all contracts and agreements intended to
facilitate the sale of asphalt or other refinery products manufactured
at the Eagle Springs or Tonopah refineries (together, the "Contract
Rights");
(g) lists of current and past (within the preceding two years)
customers and lists of prospective customers (i.e., persons with whom
PSC has discussed potential sales and from whom PSC has received what
PSC believes to be serious expressions of interest) of the Business
compiled by PSC including, to the extent the same is in the possession
of PSC, the name, address, contact person, and telephone number of
each such customer or prospective customer (the "Customer Lists"), set
forth on Exhibit "F";
(h) all lists of current and past (within the preceding two
years) suppliers and all files, records, and data used in connection
with the Business;
(i) those prepaid expenses, fees, deposits, letters of credit,
or bonds with respect to the Business or Business Assets, including
those set forth on Exhibit "G," (the "Prepaid Expenses");
(j) to the extent they are assignable, all federal, state, or
local licenses, permits, or approvals granted or used in connection
with the operation of the Business or the Business Assets;
(k) all of PSC's rights under warranties covering the Tangible
Personal Property being transferred hereunder to the fullest extent
permitted by such warranties;
(l) all intellectual property of PSC necessary to the operation
of the Business, including the proprietary scheduling software used in
connection with Petrosource Transportation and the right to use any
trade secrets, confidential or proprietary information, or general
processes used by PSC in the conduct of the Business, together with
the Melt PacTM License from Petro Source Asphalt Company dated as of
May 31, 1998, all as described in Exhibit "H" (the "Intellectual
Property");
(m) the current telephone number(s) used in connection with the
Business at its locations in Eagle Springs and Tonopah, Nevada, and
telephone and other directory listings used by PSC in the operation of
the Business other than the Salt Lake City numbers;
(n) to the extent permitted by the carrier without financial
assurances or continued obligation by Petro Source Corporation, all
contracts of insurance relating to the Business or Business Assets and
all claims, casualties, or other occurrences prior to the Closing Date
and prepaid premiums or deposits related thereto, which policies are
specific to and separately maintained for the Business Assets, as
described in Exhibit "I" (the "Insurance Policies");
(o) originals or copies of all accounting, operating,
management, and other business records in documentary or electronic
form relating to the Business or Business Assets (provided, however,
PSC may maintain a record copy of any such items);
(p) the rights of PSC under all confidentiality, non-
competition, or similar agreements with present or former employees,
consultants, and others associated with PSC insofar as related to the
Business;
(q) the goodwill of PSC associated with the Business, including
the right to use the name "Petrosource Transportation" but excluding
the use of the name "Petro Source Refining"; and
(r) all other assets of PSC used to carry out the Business or
part of the Business Assets not included in any specific provision of
the foregoing subsections existing as of the Effective Time which are
not excluded in section 3.02.
3. Excluded Assets. Section 3.02 is amended by adding a new subsection
(h) to immediately follow subsection (g) thereof and to read as follows:
(h) the accounts receivable of Foreland Refining that are not
included in the amount set forth in paragraph (c) of the Closing
Statement, which accounts receivable shall be, and are hereby,
assigned to Petro Source Corporation.
4. Assumed Obligations. Section 3.03 is amended to read in its entirety
as follows:
Section 3.03 Obligations. On the Closing Date, Foreland Refining
and/or Petrosource Transportation shall be obligated on or Foreland Asset
shall and does hereby assume, as the case may be, the following obligations
and liabilities with respect to the Business and Business Assets for all
periods subsequent to the Effective Time, in accordance with their
respective terms and subject to the respective conditions thereof, such
obligations and liabilities to be held or assumed by the entity identified
by the parties at the Closing:
(a) all obligations of PSC under the leases or rights-of-way set
forth on Exhibit K-1 relating to the Tangible Personal Property or the
Real Property;
(b) all current trade accounts payable and other current
liabilities as of the Effective Time, that arose in the ordinary
course of the Business, all to be set forth in Exhibit K-2 of the
Closing Exhibits;
(c) all liabilities and obligations of PSC to be paid or
performed after the Effective Time under the contracts and other
agreements set forth on Exhibit K-3 relating to the Business and
Business Assets being conveyed hereunder;
(d) all liabilities in respect of any taxes for the period
beginning on the Effective Time; and any other accrued, but unpaid
liabilities for taxes, as of the Effective Time and set forth in the
Closing Schedule (real and personal property taxes shall be prorated
between Foreland Refining and Petro Source Corporation as of the
Effective Time); and
(e) other obligations listed on Exhibit K-4.
5. Excluded Liabilities. Section 3.04 of the Option and Purchase
Agreement is amended to read in its entirety as follows:
Section 3.04. Excluded Liabilities. Unless the liability is
reflected on the Closing Statement or Adjustment Statement (as those terms
are defined in Section 3.05A), neither Foreland, Foreland Refining,
Foreland Asset, nor Petrosource Transportation shall assume or be obligated
to pay, perform, or otherwise discharge the following:
(a) any liability or obligation of PSC direct or indirect, known
or unknown, absolute or contingent not expressly assumed pursuant to
section 3.03 or otherwise pursuant to this Agreement;
(b) any liability arising out of the employer/employee
relationship between PSC and its employees prior to the hiring of such
employees by Foreland Refining or Petrosource Transportation,
including liabilities for accrued bonuses, vacation, personal leave,
or other amounts for the benefit of employees of the Business (the
"Employee Benefits"); provided, however, Foreland Refining shall be
responsible for payments to Petro Source Corporation required by the
Transition Services Agreement;
(c) taxes for any period prior to the Effective Time (real and
personal property taxes shall be prorated between Foreland Refining
and Petro Source Corporation as of the Effective Time);
(d) the accounts payable listed on Schedule 3.04; and
(e) any liability as to which Petro Source Corporation has
indemnified Foreland, Foreland Refining, Petrosource Transportation,
and/or Foreland Asset pursuant to the Environmental Indemnification
Agreement.
At the Closing, PSC shall deliver to Foreland, Foreland Asset, Foreland
Refining, and Petrosource Transportation full and complete releases from any
Excluded Liability for which they might be liable or to which the Business or
Business Assets may be subject, including releases of all financing statements
or other security documents, related to such Excluded Liability (the
"Releases").
6. Amount of Purchase Price. Section 3.05 of the Option and Purchase
Agreement is amended to read in its entirety as follows:
Section 3.05 Amount of Purchase Price. The consideration payable by
Foreland for the purchase (the "Purchase Price") of the Business and
Business Assets shall be five million dollars ($5,000,000)(the "Base
Price"), plus:
(a) the sum of the current assets (except to the extent set
forth in Section 3.02), as of May 31, 1998, as determined in
accordance with GAAP (except that finished goods inventory will be
valued at market), held by Foreland Refining and/or Petrosource
Transportation;
(b) a negative amount equal to the sum of the current
liabilities, as of May 31, 1998, as determined in accordance with
GAAP, for which Foreland Refining, Foreland Asset, and/or Petrosource
Transportation will continue to be liable subsequent to the Closing,
excluding, however, the amount of $470,604 in intercorporate advances
from Petro Source Corporation to Petrosource Transportation (which
liability shall be paid prior to the Closing Date), and further
excluding the current portion of long term liabilities or liabilities
under operating leases that are not properly attributable to the
period prior to the Effective Date in accordance with GAAP;
(c) the sum of all capital contributions made by Petro Source
Corporation to Foreland Refining and/or Petrosource Transportation
since December 31, 1997 (other than the amount of $470,604 contributed
to Petrosource Transportation by Petro Source Corporation prior to the
Closing Date to enable Petrosource Transportation to repay the same
amount in a current account payable owing to Petro Source
Corporation);
(d) a negative amount equal to all distributions, other than
distributions of Excluded Assets or the cash proceeds of the sale by
Foreland Refining of certain of its assets to Foreland Asset as
contemplated by Section 3.01, made by Foreland Refining and/or
Petrosource Transportation since May 31, 1998;
(e) a positive amount equal to capital expenditures made by
Foreland Refining's predecessor or Petrosource Transportation between
December 31, 1997, and May 31, 1998, which added to the Business or
Business Assets;
(f) a negative amount equal to the net proceeds from the sale by
Foreland Refining's predecessor or Petrosource Transportation between
December 31, 1997, and May 31, 1998, of portions of the Business or
Business Assets;
(g) any unpaid portion of the Option Consideration; and
(h) 100,000 shares of Foreland Stock (the "Original Shares"),
the resale of which by PSC shall be covered by an effective
Registration Statement in accordance with Article IX.
7. Closing Amounts and Payments. A new Section 3.05A shall be added to
the Option and Purchase Agreement to read in its entirety as follows:
Section 3.05A Estimated Purchase Price. The calculation of the
Purchase Price as contemplated by Section 3.05 of the Agreement shall be
based on an estimate and adjusted to actual results as follows:
(a) Closing Statement. Petro Source Corporation has prepared
and delivered to Foreland a statement (the "Closing Statement")
setting forth estimates of the items specified in subsections 3.05(a)
through (f) (the "Estimated Adjustments to Base Price"). The Closing
Statement shall contain and shall have attached thereto such
supporting documentation and other data as is reasonably necessary to
provide a basis for the Estimated Adjustments to Base Price shown
therein. The Estimated Adjustments to Base Price shall be based upon
actual information available to Petro Source Corporation at the time
of preparation of the Closing Statement and upon its good faith
estimates and assumptions. Foreland and its representatives shall be
provided access to all of PSC's books, records, computer runs and
other documents containing information on which the Estimated
Adjustments to Base Price are based for the purpose of conducting a
review as Foreland may deem appropriate.
(b) Closing Purchase Price. The Purchase Price to be used for
the purposes of Closing (the "Closing Purchase Price") shall be the
Base Price, the items described in subsections 3.05(g) and (h), and
the Estimated Adjustments to Base Price computed as follows:
(i) If the Estimated Adjustments to Base Price shown in the
Closing Statement on the Closing Date is negative, then the
Purchase Price shall be reduced by the amount of such Estimated
Adjustments to Base Price, or
(ii) If the Estimated Adjustments to Base Price shown in the
Closing Statement is positive, then the Purchase Price shall be
increased by the amount of such Estimated Adjustments to Base
Price.
(c) Non-Cash Portion of Closing Purchase Price. The Closing
Purchase Price shall be paid in cash, except as follows:
(i) The unpaid portion of the Option Consideration payable
in accordance with subparagraph 3.05(g) shall be paid through
Petro Source Corporation's continuing sale of Option Shares in
accordance with the provisions of subparagraphs (d) through (f)
of section 2.02, except that Petro Source Corporation shall not
be limited as to the number of shares that can be sold at any
time or during any period as provided in subparagraph (f) of such
section, and any Option Shares or the proceeds therefrom in
excess of the balance of the Option Consideration due shall be
returned to Foreland.
(ii) The 100,000 Original Shares of Foreland Stock
identified in subparagraph 3.05(h), which shall be registered in
the name of Petro Source Corporation and held and disposed of in
accordance with the terms and conditions of subparagraph (e) of
this section 3.05A..
(iii) The net amount of the Estimated Adjustments to
Base Price shall be paid by the delivery by Foreland to Petro
Source Corporation at the Closing of shares of
Foreland Stock (the "Closing Shares"), which shall be registered
in the name of Petro Source Corporation and held and disposed of
in accordance with the terms and conditions of subparagraph (e)
of this section 3.05A.
(d) Payments and Deliveries. Prior to 11:00 a.m. Houston time on
the Closing Date, Foreland shall (i) pay an amount equal to the Base
Price for the account of Petro Source Corporation by wire transfer of
funds to Petro Source Corporation's designated bank account, and (ii)
deliver to Petro Source Corporation one or more certificates for the
Original Shares and the Closing Shares.. Petro Source Corporation
shall deliver or cause to be delivered the Releases, as defined in
Section 6.03A, together with all conveyances, instruments, and
documents to be delivered by or on behalf of Petro Source Corporation
at Closing.
(e) Delivery and Sale of Original Shares and Closing Shares.
The Original Shares and the Closing Shares shall be issued, held, and
disposed of as follows:
(i) At the earliest practicable date, but in any event by
the earlier of the date that is (A) 10 days after the filing by
Foreland of a report containing historical and pro forma combined
financial information respecting the purchased Business and
Business Assets pursuant to section 13 of the Securities Exchange
Act of 1934, or (B) 75 days after the Closing Date, Foreland
shall file, at its sole cost, a Registration Statement on such
form as Foreland may select under the Securities Act covering the
resale of the Closing Shares and the Original Shares, by and for
the account of Petro Source Corporation, which shall be named as
a selling shareholder in the Registration Statement, all as more
particularly set forth in Article IX hereof. Foreland shall
utilize its best efforts to obtain the effectiveness of the
Registration Statement at the earliest practicable date and to
maintain its effectiveness until June 30, 1999. In the event the
registration of such shares does not become effective on or
before the 50th day following the filing of the Registration
Statement, Foreland shall pay Petro Source Corporation in cash an
amount equal to 0.0333% of the Estimated Adjustments to Base
Price for each day the effectiveness of the registration of such
shares is delayed beyond such 50 day period. Such amounts shall
be paid by Foreland to Petro Source Corporation every 30 days
beginning with the 80th day following the filing of the
Registration Statement. The amount described in the preceding
sentence shall be paid in addition to the interest Petro Source
Corporation is entitled to receive pursuant to the following
paragraph.
(ii) Petro Source Corporation may cause to be sold, at any
time and from time-to-time and in accordance with the
Registration Statement, that number of Closing Shares that yields
proceeds, net of brokerage and other usual and customary
transaction costs, the Estimated Adjustments to Base Price, plus
simple interest on the unpaid balance from the Closing Date to
the date such net proceeds from such sale are available to the
account of Petro Source Corporation at the rate of 10% per annum
(the "Realizable Amount"), provided, however, that Petro Source
Corporation shall not sell or place an order to sell in the
Nasdaq SmallCap Market that number of Closing Shares that would
yield net proceeds of more than $400,000 in any consecutive 30
day period without Foreland's prior consent. There are no
restrictions on the sale of the Original Shares of Foreland Stock
delivered to Petro Source Corporation at Closing, other than in
accordance with the Registration Statement.
(iii) If the net proceeds from the sale of Closing
Shares are less than the Realizable Amount, Petro Source
Corporation may demand that Foreland pay such deficiency, in
which case Foreland shall, within five days after such demand, at
its option, either pay such amount in cash in immediately
available funds or deliver to Petro Source Corporation such
additional shares of Common Stock as Foreland estimates will
yield net proceeds in the amount sufficient for Petro Source
Corporation to realize in cash the Realizable Amount (the
"Additional Shares"). Should the proceeds from the Additional
Shares prove to be insufficient for Petro Source Corporation to
realize in cash the Realizable Amount, Petro Source Corporation
may demand that Foreland pay such deficiency, in which case
Foreland shall, within five days after such demand, pay Petro
Source Corporation such deficiency in cash.
(iv) If any Closing Shares or Additional Shares remain
unsold after the receipt by Petro Source Corporation of the
Realizable Amount, such shares shall be returned to Foreland for
cancellation. If Closing Shares or Additional Shares have been
sold for net proceeds in excess of the Realizable Amount, such
excess proceeds shall also be delivered to Foreland. Petro
Source Corporation agrees to provide Foreland with access to the
records concerning the sales of Closing Shares and Additional
Shares in order to permit Foreland to verify the amount realized
by Petro Source Corporation on such sales.
8. Post Closing Adjustment. A new Section 3.06A shall be added to the
Option and Purchase Agreement to read in its entirety as follows:
Section 3.06A Post Closing Adjustment.
(a) Adjustment Statement. As soon as practicable but in any event
not later than 60 days following the Closing Date (the "Post Closing Date")
Petro Source Corporation shall deliver to Foreland a statement (the
"Adjustment Statement") setting forth the actual amounts of the items
specified in subsection 3.05(a) through (f) based on the best information
available to Petro Source Corporation as of the Post Closing Date. The
Adjustment Statement shall be in such detail and shall contain or have
attached thereto such supporting documentation as Foreland shall reasonably
request. Foreland and its representatives shall be provided access to all
of Petro Source Corporation's books, records, computer runs, and other
documents containing information on which the Adjustment Statement is based
for the purpose of conducting an audit thereof or such other review as
Foreland may deem appropriate.
(b) Final Determination of Adjustments. The Adjustment Statement
shall become final and binding on Petro Source Corporation and Foreland on
the twentieth business day following the date the Adjustment Statement is
received by Foreland, unless prior to such twentieth business day Foreland
shall deliver to Petro Source Corporation notice of its disagreement with
the contents of the Adjustment Statement, together with proposed changes
thereto. If Foreland has delivered a notice of disagreement, then the
Adjustment Statement will become final and binding upon written agreement
between Foreland and Petro Source Corporation resolving all disagreements
of Foreland. If the Adjustment Statement has not become final and binding
by the thirtieth business day following its receipt by Foreland, then the
Adjustment Statement shall be submitted to binding arbitration in
accordance with the commercial rules of the American Arbitration
Association, except that only one arbitrator shall be used. The fees and
expenses of such arbitration shall be borne 50% by Petro Source Corporation
and 50% by Foreland. The determination of the Adjustment Statement by such
arbitration shall be final and binding upon Foreland and Petro Source
Corporation.
(c) Adjustment Payments. On the day the Adjustment Statement becomes
final and binding, Foreland and Petro Source Corporation shall make the
following payments:
(i) If the mathematical sum of the actual amounts of the items
specified in subsections 3.05(a) through (h) as shown in the final and
binding Adjustment Statement, is less than the mathematical sum of the
items to specified in subsections 3.05(a) through (h) in the Closing
Statement, then Petro Source Corporation shall pay Foreland an amount
equal to such deficiency.
(ii) If the mathematical sum of the actual amounts of the items
specified in subsections 3.05(a) through (h) as shown in the final and
binding Adjustment Statement, exceeds the mathematical sum of the
items to specified in subsections 3.05(a) through (h) in the Closing
Statement, then Foreland shall pay Petro Source Corporation an amount
equal to such excess.
Any payments required by this Section 3.06A shall be by wire transfer to
the account designated by the party to receive such payment.
9. Representations, Covenants, and Warranties of Petro Source
Corporation. The lead-in paragraph to Article IV of the Option and Purchase
Agreement is amended by substituting "Petro Source Corporation" for "PSC."
10. Organization. Section 4.01 of the Option and Purchase Agreement is
amended to read in its entirety as follows:
Section 4.01 Organization. Petro Source Corporation and Petrosource
Transportation are each corporations duly organized, validly existing, and
in good standing under the laws of the state of Utah. Foreland Refining
Corporation is duly organized, validly existing, and in good standing under
the laws of the state of Texas. Each of the corporations has the corporate
power and are duly authorized, qualified, franchised, and licensed or shall
have applied for licenses under all applicable laws, regulations,
ordinances, and orders of public authorities to own all of their properties
and assets and to carry on their business in all material respects as it is
now being conducted. There is no jurisdiction in which any of such
companies is not so qualified in which the character and location of the
assets owned by it or the nature of the business transacted by it requires
qualification, except where failure to do so would not have a material
adverse effect on the business or properties of such company. The
execution and delivery of this Agreement does not, and the consummation of
the transactions contemplated by this Agreement in accordance with the
terms hereof will not, violate any provision of such companies' articles of
incorporation or bylaws. Each of such companies has taken all action
required by law, its articles of incorporation, its bylaws, or otherwise to
authorize the execution and delivery of this Agreement and the consummation
of the transactions herein contemplated.
11. Capitalization. A new Section 4.01A shall be added to the Option and
Purchase Agreement to read in its entirety as follows:
Section 4.01A Capitalization. The authorized capital of Foreland
Refining consists of 100,000 shares of common stock, par value $0.01, of
which 1,000 shares are issued and outstanding. All such issued and
outstanding shares are legally issued, fully paid, and nonassessable, and
not issued in violation of the pre-emptive or other right of any person.
No shares of the authorized capital of Foreland Refining are subject to any
right held by any other person or entity to require the issuance of
additional shares on the exercise or conversion of options, warrants,
convertible debentures, or any other such rights. The authorized capital
of Petrosource Transportation consists of 50,000 shares of common stock,
with no par value, of which 1,000 shares are issued and outstanding. All
such issued and outstanding shares are legally issued, fully paid, and
nonassessable and are not issued in violation of the pre-emptive or other
right of any person. Petrosource Transportation does not have any shares
subject to issuance pursuant to the exercise or conversion of options,
warrants, convertible debentures, or any other such rights held by any
other person or entity.
12. Financial Statements. A new subparagraph 4.03(a2) is added to read as
follows:
(a2) Included in Schedule 4.03 to this Agreement is also the unaudited
balance sheet of Petrosource Transportation as of March 31, 1998, and the
related unaudited income statements for the three months ended March 31,
1998, and the years ended December 31, 1997, 1996, 1995, and 1994, which
present fairly the results of operations and the financial position of
Petrosource Transportation for the periods and as of the dates indicated in
all respects which would be material to an entity consisting of Petrosource
Transportation and Foreland Refining, except, however, with respect to
matters that are customarily presented in footnotes to financial
statements. All such financial statements have been prepared in accordance
with GAAP consistently applied throughout the periods involved, except that
such financial statements have not been audited by independent outside
accountants and do not contain the footnote disclosures required by GAAP.
13. New Governmental Authorizations. A new Section 4.05A is added to the
Option and Purchase Agreement to read in its entirety as follows:
Section 4.05A New Governmental Authorizations. PSC has either
transferred to Foreland Refining, or caused Foreland Refining to apply for
and/or obtain, the licenses, franchises, permits, and other governmental
authorizations that are legally required to enable it to conduct the
Business in all material respects as it was conducted on the date of this
Agreement. No governmental agency has declined to issue any such
authorization or indicated that any such authorization may not be issued
and Petro Source Corporation is not aware of any reason that Foreland
Refining may not be able to obtain any such authorization. To the extent
not obtained prior to Closing, Petro Source Corporation represents and
warrants that Foreland Refining will, in the normal course of events, be
able to obtain all of the required authorizations material to the operation
of the Business.
14. Ownership of Stock. A new Section 4.21A is added to the Option and
Purchase Agreement to read in its entirety as follows:
Section 4.21A Ownership of Stock. Petro Source Corporation hereby
represents and warrants as follows: Petro Source Corporation is the sole
beneficial and record owner of all of the issued and outstanding equity
ownership of Foreland Refining which consists of 1,000 shares of common
stock, par value $0.01 per share (the "Foreland Refining Common Stock").
The Foreland Refining Common Stock is held solely by Petro Source
Corporation, and, upon Closing, will be free and clear of any and all
liens, encumbrances, or claims by any other person or entity. Foreland
Refining is the sole record and beneficial owner of all of the equity
interest in Petrosource Transportation, which consists of 1,000 shares of
common stock, no par value (the "Petrosource Transportation Common Stock").
The Petrosource Transportation Common Stock is held solely by Foreland
Refining and, upon Closing, will be free and clear of any and all liens,
encumbrances, or claims by any other person or entity.
15. Certain Liabilities or Contingencies. New Sections 4.21B and 4.21C are
hereby added to the Option and Purchase Agreement to read in its entirety as
follows:
Section 4.21B Undisclosed Liabilities or Contingencies. Petro Source
Corporation represents and warrants that to Petro Source Corporation's
Current Actual Knowledge, upon Closing, neither Foreland Refining nor
Petrosource Transportation have, or are liable for, any liabilities or
contingencies, whether known or unknown, other than the Assumed
Obligations, and Petro Source Corporation will indemnify and hold Foreland
Refining and Petrosource Transportation harmless from any such liabilities
or contingencies if such are discovered in the future, whether or not known
by Petro Source Corporation at the Closing Date.
Section 4.21C Certain Environmental Matters. Notwithstanding anything to
the contrary in the Option and Purchase Agreement and this Agreement and
without respect to the disclosures set forth in Schedule 4.18 or elsewhere
to the Option and Purchase Agreement, Petro Source Corporation shall
indemnify Foreland, Foreland Refining Corporation, and Petrosource
Transportation and hold them harmless from all environmental matters with
respect to the Business or Business Assets prior to the Closing Date in
accordance with the provisions of the Environmental Indemnity Agreement
executed and delivered by the parties at Closing.
16. Releases. A new Section 6.03A is hereby added to the Option and
Purchase Agreement to read in its entirety as follows:
Section 6.03A. Releases. Petro Source Corporation shall have
delivered the Releases required by Section 3.04 to Foreland, such Releases
to be in form suitable for filing and, if appropriate, recordation with the
appropriate governmental offices.
17. Closing Date Review and Deliveries. Section 6.06 of the Option and
Purchase Agreement is hereby amended to read in its entirety as follows:
Section 6.06 Closing Date Review and Deliveries. On and as of the
Closing Date, PSC shall, together with one or more representatives of
Foreland, undertake a Closing Date review of PSC's books, records, and
physical inventory. Petro Source Corporation shall provide Foreland with a
true, correct, and complete list and amount, as of the most recent
practicable date of the following items and represents that there will be
no material change in such items as of the Closing Date, except as may
occur in the ordinary course of the Business:
(a) the Inventory;
(b) the Tangible Personal Property;
(c) PSC's Accounts Receivable with respect to the Business and a
list of all shipped but unbilled shipments as of the Closing Date,
including an aging thereof;
(d) PSC's trade accounts payable, accrued current liabilities,
and the Assumed Obligations with respect to the Business;
(e) all unfilled customer orders with respect to the Business;
(f) all shipments made with respect to the Business during the
period from the date of this Agreement to the Closing Date;
(g) the Contract Rights;
(h) the Customer Lists;
(i) the Prepaid Expenses; and
(j) the federal, state, or local licenses held or applied for by
Foreland Refining or Petrosource Transportation, including a summary
of the status of all pending applications.
None of the above information shall, in Foreland's sole reasonable
judgment, be different from the information supplied by PSC in the Exhibits
and Schedules delivered to Foreland on or before January 15, 1998, to an
extent that, when all such differences are taken as a whole, result in the
value of the Business and Business Assets being materially less than the
value of such Business and Business Assets on January 15, 1998.
18. Certain Other Matters. A new Section 6.09 is hereby added to the
Option and Purchase Agreement to read in its entirety as follows:
Section 6.09 Certain Other Matters. Foreland Refining and Petro
Source Corporation have (i) entered into a transportation agreement for
product shipped from Petro Source Corporation's Fredonia, Arizona facility,
if Foreland Refining determines that it has equipment and personnel
available; and (ii) executed and delivered the Environmental
Indemnification Agreement.
19. Indemnification. Article X of the Option and Purchase Agreement is
hereby amended by substituting "Petro Source Corporation" and "Petro Source
Refining Corporation" for "PSC" in the case of each and every occurrence of
"PSC" in Article X. Subsection 10.01(b) is further amended by adding the words
"or its affiliates" immediately following the words "or obligation of the
indemnifying party."
20. Tax Election. Foreland shall timely and effectively file an election
pursuant to Internal Revenue Code Section 338(h)(10) to treat the transaction as
an asset purchase for tax purposes, and Foreland and Petro Source Corporation
shall record the transaction contemplated by this Agreement for tax purposes
consistent with such election. The parties also agree to mutually cooperate in
allocating the Purchase Price among the Business and Business Assets acquired by
Foreland and to treat the transaction consistent with such allocation for tax
purposes.
21. Ratification of Option and Purchase Agreement. Except as specifically
provided by this Amendment, the parties hereby specifically ratify, confirm, and
adopt and binding and enforceable, all of the terms and conditions of the Option
and Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
FORELAND CORPORATION
By /s/ N. Thomas Steele, President
PETRO SOURCE CORPORATION
By /s/ A. Howard McCollum, President
FORELAND REFINING CORPORATION
By /s/ N. Thomas Steele, President
PETROSOURCE TRANSPORTATION
By /s/ N. Thomas Steele, President
FORELAND CORPORATION
DESIGNATION OF RIGHTS, PRIVILEGES, AND PREFERENCES OF
1998 SERIES CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of Nevada Revised Statutes, Section 78.195, of
the corporation laws of the State of Nevada, the undersigned corporation,
Foreland Corporation (the "Corporation"), hereby adopts the following
Designation of Rights, Privileges, and Preferences of 1998 Series Convertible
Preferred Stock (the "Designation"):
FIRST: The name of the Corporation is Foreland Corporation.
SECOND: The following resolution establishing a series of preferred stock
designated as the "1998 Series Convertible Preferred Stock" consisting of 2,000
shares, par value $0.001, was duly adopted by the board of directors of the
Corporation on August , 1998, in accordance with the articles of
incorporation of the Corporation and the corporation laws of the State of
Nevada:
RESOLVED, there is hereby created a series of preferred stock of the
Corporation to be designated as the "1998 Series Convertible Preferred
Stock" consisting of 2,000 shares, par value $0.001 (referred to herein as
the "Preferred Stock"), with the following powers, preferences, rights,
qualifications, limitations, and restrictions:
1. Dividends.
1.01 The Corporation shall pay dividends to the holders of the
Preferred Stock at the times and in the amounts provided for in this
Section 1.
1.02 The dividend rate for each share of the Preferred Stock shall
be 12% per annum of the $1,000 price at which each share was originally
issued by the Corporation, payable in cash quarterly when and as declared
by the Board of Directors of the Corporation. Such dividends shall be
cumulative from the date of initial issuance of such share of Preferred
Stock and shall be payable to holders of record as their names then appear
on the stock transfer books of the Corporation. Dividends payable for any
partial dividend period shall be computed on the basis of the actual number
of days elapsed over a 365 day year. The Preferred Stock shall be
nonparticipating, and holders thereof shall not be entitled to receive any
dividends thereon other than the dividends referred to in this Section 1.
1.03 No dividend or other distribution shall be declared or paid or
set apart for payment on any stock ranking, as to dividends or upon
liquidation, junior to the Preferred Stock, including, without limitation,
the shares of the Corporation's common stock, par value $0.001 per share
(the "Common Stock"), for any period unless the holders of the Preferred
Stock shall have then been or contemporaneously are paid (or declared and a
sum sufficient for the payment thereof set apart for such payment) all
dividends for all dividend payment periods terminating on or prior to the
date of payment of the distribution on such junior stock. No dividends
shall be declared on any class or series of stock ranking on a parity with
the Preferred Stock as to dividends in respect of any dividend period
unless there shall otherwise be or have been declared on the Preferred
Stock like dividends for all annual periods coinciding with or ending
before such annual period, ratably in proportion to the respective annual
dividend rates fixed therefor. If the Corporation is in default with
respect to any dividends payable on, or any obligation to retire shares of,
the Preferred Stock, the Corporation shall not declare or pay (or set apart
a sum for such payment) any dividends or make any distribution in cash or
other property on, or redeem, purchase, or otherwise acquire, any other
class or series of stock ranking junior to the Preferred Stock either as to
dividends or upon liquidation.
1.04 Any payment of dividends declared and due under this section 1
with respect to any shares of Preferred Stock shall be made by means of a
check drawn on funds immediately available for the payment thereof to the
order of the record holder of such share at the address for such record
holder shown on the stock records maintained by or for the Corporation,
which check shall be mailed by United States first class mail, postage
prepaid. Any such payment shall be deemed to have been paid by the
Corporation on the date that such payment is deposited in the United States
mail as provided above; provided, that in the event the check by which any
payment shall be made shall prove not to be immediately collectible on the
date of payment, such payment shall not be deemed to have been made until
cash in the amount of such payment shall actually be received by the person
entitled to receive such payment.
1.05 Registration of transfer of any share of Preferred Stock on the
stock records maintained by or for the Corporation to a person other than
the transferor shall constitute a transfer of any right which the
transferor may have had to receive any accrued but unpaid dividends as of
the date of transfer, whether declared or undeclared, and the Corporation
shall have no further obligation to the transferor with respect to such
accrued and unpaid dividends. Any shares of Preferred Stock represented by
a new certificate issued to a new or existing holder shall continue to
accrue dividends as provided in this Section 1.
2. Liquidation.
2.01 In the event of any voluntary or involuntary liquidation (whether
complete or partial), dissolution, or winding up of the Corporation, the
holders of the Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to its shareholders,
whether from capital, surplus, or earnings, an amount per share in cash
equal to $1,000 per share, plus all amounts to which the holders of the
Preferred Stock are entitled for unpaid dividends in accordance with
Section 1 above, whether or not previously declared, accrued thereon to the
date of final distribution subject to the priority distribution required
respecting any issued and outstanding shares of any series of preferred
stock authorized prior to the date hereof. No distribution shall be made
on any Common Stock or other subsequent series of preferred stock of the
Corporation by reason of any voluntary or involuntary liquidation (whether
complete or partial), dissolution, or winding up of the Corporation unless
each holder of any Preferred Stock shall have received all amounts to which
such holder shall be entitled under this subsection 2.01.
2.02 If on any liquidation (whether complete or partial), dissolution,
or winding up of the Corporation, the assets of the Corporation available
for distribution to holders of Preferred Stock and any other stock ranking
as to any such distribution on a parity with the Preferred Stock shall be
insufficient to pay the holders of outstanding Preferred Stock or such
other stock the full amounts to which they otherwise would be entitled
under subsection 2.01, the assets of the Corporation available for
distribution to holders of Preferred Stock or such other stock shall be
distributed to them pro rata on the basis of the full respective
preferential amounts to which they are entitled.
3. Conversion.
3.01 Each share of Preferred Stock is convertible into shares of
Common Stock at the times, in the manner, and subject to the conditions
provided in this Section 3.
3.02 Each share of Preferred Stock may be converted at any time after
the issuance thereof at the election of the holder on the presentation and
surrender at the principal office of the Corporation, of the certificate
representing the shares of Preferred Stock, duly endorsed, with written
instructions specifying the number of shares of Preferred Stock to be
converted and the name and address of the person to whom certificate(s)
representing the Common Stock issuable on conversion are to be issued.
Notwithstanding the foregoing, all of the shares of Preferred Stock shall
be automatically converted without any further action by any person upon
the completion by the Corporation of a public offering of Common Stock that
results in at least $20 million in net proceeds to the Corporation.
3.03 Each share of Preferred Stock shall be convertible into Common
Stock at the rate of 166.6665 shares of Common Stock for each share of
Preferred Stock converted (the "Conversion Rate"). The date of conversion
(the "Conversion Date") shall be the date of receipt by the Corporation of
the stock certificate(s) representing the shares of Preferred Stock being
converted with the conversion certificate thereon duly executed. The
Corporation shall, within five business days after the Conversion Date,
deliver or cause to be delivered by overnight courier a stock certificate
representing the number of shares of Common Stock into which shares of
Preferred Stock were converted in accordance herewith together with a
certificate representing the remaining number of shares of Preferred Stock
not being converted thereby, if any. The Conversion Rate shall be subject
to adjustment pursuant to subsection 3.04.
3.04 In order to prevent dilution of the rights granted hereunder, the
Conversion Rate shall be subject to adjustment from time to time in
accordance with this subsection 3.04.
(a) In the event the Corporation shall declare a stock dividend
or make any other distribution on any capital stock of the Corporation
payable in Common Stock, options to purchase Common Stock, or
securities convertible into Common Stock or the Corporation shall at
any time subdivide (other than by means of a dividend payable in
Common Stock) its outstanding shares of Common Stock into a greater
number of shares or combine such outstanding stock into a smaller
number of shares, then in each such event, the Conversion Rate in
effect immediately prior to such combination shall be adjusted so that
the holders of the Preferred Stock shall be entitled to receive the
kind and number of shares of Common Stock or other securities of the
Corporation which they would have owned or had been entitled to
receive after the happening of any of the events described above, had
such shares of Preferred Stock been converted immediately prior to the
happening of such event or any record date with respect thereto; an
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the
record date for such event.
(b) If any capital reorganization or reclassification of the
capital stock of the Corporation, consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful adequate
provisions shall be made whereby the holders of the Preferred Stock
shall thereafter have the right to acquire and receive on conversion
of the Preferred Stock such shares of stock, securities, or assets as
would have been issuable or payable (as part of the reorganization,
reclassification, consolidation, merger, or sale) with respect to or
in exchange for such number of outstanding shares of Common Stock as
would have been received on conversion of the Preferred Stock
immediately before such reorganization, reclassification,
consolidation, merger, or sale. In any such case, appropriate
provision shall be made with respect to the rights and interests of
the holders of the Preferred Stock to the end that the provisions
hereof (including without limitations provisions for adjustments of
the Conversion Rate and for the number of shares issuable on
conversion of the Preferred Stock) shall thereafter be applicable in
relation to any shares of stock, securities, or assets thereafter
deliverable on the conversion of the Preferred Stock. In the event of
a merger or consolidation of the Corporation with or into another
corporation or the sale of all or substantially all of its assets as a
result of which a number of shares of Common Stock of the surviving or
purchasing corporation greater or lesser than the number of shares of
Common Stock outstanding immediately prior to such merger,
consolidation, or purchase are issuable to holders of Common Stock,
then the Conversion Rate in effect immediately prior to such merger,
consolidation, or purchase shall be adjusted in the same manner as
though there was a subdivision or combination of the outstanding
shares of Common Stock. The Corporation will not effect any such
consolidation, merger, or sale unless prior to the consummation
thereof the successor corporation resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by
written instrument mailed or delivered to the holders of the Preferred
Stock at the last address of each such holder appearing on the books
of the Corporation, the obligation to deliver to each such holder such
shares of stock, securities, or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire on
conversion of Preferred Stock.
(c) No adjustment shall be made in the Conversion Rate of the
number of shares of Common Stock issuable on conversion of Preferred
Stock solely as a result of:
(i) The offer and sale of any shares of Preferred Stock;
(ii) The issuance of any Common Stock, securities, or assets
on conversion or redemption of shares of Preferred Stock;
(iii) The issuance of any shares of Common Stock,
securities, or assets on account of the antidilution provisions
set forth in this subsection 3.04, other than as heretofore
provided in this subsection 3.04;
(iv) The purchase or other acquisition by the Corporation of
any capital stock, evidence of its indebtedness, or other
securities of the Corporation; or
(v) The sale or exchange by the Corporation for cash or
other property of any Common Stock, evidence of its indebtedness,
or other securities of the Corporation, including securities
containing the right to subscribe for or purchase Common Stock or
preferred stock of the Corporation.
3.05 The Corporation covenants and agrees that:
(a) The shares of Common Stock, securities, or assets issuable
on any conversion of any shares of Preferred Stock shall have been
deemed to have been issued to the person on the Conversion Date, and
on the Conversion Date such person shall be deemed for all purposes to
have become the record holder of such Common Stock, securities, or
assets.
(b) All shares of Common Stock or other securities which may be
issued on any conversion of the Preferred Stock will, on issuance, be
fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issue thereof. Without limiting the
generality of the foregoing, the Corporation will from time to time
take all such action as may be requisite to assure that the par value
of the unissued Common Stock or other securities acquirable on any
conversion of the Preferred Stock is at all times sufficient to render
the Common Stock issued upon conversion as fully paid and
non-assessable.
(c) The issuance of certificates for Common Stock or other
securities on conversion of the Preferred Stock shall be made without
charge to the registered holder thereof for any issuance tax in
respect thereof or other costs incurred by the Corporation in
connection with the conversion of the Preferred Stock and the related
issuance of Common Stock or other securities.
(d) The number of shares of Common Stock issuable upon
conversion of the Preferred Stock hereunder shall at all times and
under all circumstances be fully and validly reserved from the
Corporation's authorized and unissued shares of Common Stock for
issuance therefor.
4. Voting Rights. The Preferred Stock shall be voted with the Common
Stock as a single class and shall not be entitled to vote as a separate class,
except to the extent that the consent of the holders of the Preferred Stock,
voting as a class, is specifically required by the provisions of the corporation
laws of the State of Nevada, as now existing or as hereafter amended.
Notwithstanding the foregoing, the holders of the Preferred Stock shall vote as
a separate class on any resolution proposed for adoption by the stockholders of
the Corporation which seeks to (i) authorize, create or issue, or increase the
authorized or issued amount, of any class or series of stock ranking senior to
the Preferred Stock with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Corporation or
which may be convertible into any class of shares ranking senior to the
Preferred Stock as regards to participation in dividends or the distribution of
assets on dissolution, liquidation or winding up; or (ii) amend, alter or repeal
the provisions of the Corporation's articles of incorporation or this
Designation, so as to adversely affect any right, preference, privilege or
voting power of the Preferred Stock or the holders thereof. In addition,
without the approval of holders of at least a majority of the issued and
outstanding shares of Preferred Stock, the Corporation shall not become subject
to any restriction on the Preferred Stock other than restrictions arising under
the general corporation laws of the State of Nevada or existing under the
articles of incorporation of the Corporation as in effect on June , 1998.
Each holder of Preferred Stock shall be entitled to such number of votes in
respect of each share of such stock held by him or her that would be appurtenant
to the Common Stock issuable upon conversion in respect of such stock.
5. Additional Provisions
5.01 No change in the provisions of the Preferred Stock set forth in
this Designation affecting any interests of the holders of any shares of
Preferred Stock shall be binding or effective unless such change shall have
been approved or consented to by the holders of a majority of the Preferred
Stock in the manner provided in the corporation laws of the State of
Nevada, as the same may be amended from time to time.
5.02 A share of Preferred Stock shall be transferable only on the
books of the Corporation maintained at its principal office, on delivery
thereof duly endorsed by the holder or by his duly authorized attorney or
representative or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, the
original letter of attorney, duly approved, or an official copy thereof,
duly certified, shall be deposited and remain with the Corporation. In
case of transfer by executors, administrators, guardians, or other legal
representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited and remain with the
Corporation in its discretion. On any registration or transfer, the
Corporation shall deliver a new certificate representing the share of
Preferred Stock so transferred to the person entitled thereto.
5.03 The Corporation shall not be required to issue any fractional
shares of Common Stock on the conversion of any share of Preferred Stock.
If any fraction of a share of Common Stock would, except for the provisions
of this subsection 5.03, be issuable on the conversion of any share of
Preferred Stock, the Corporation shall round the number of shares to the
nearest whole number of shares.
5.04 Any notice required or permitted to be given to the holders of
the Preferred Stock under this Designation shall be deemed to have been
duly given if mailed by first class mail, postage prepared to such holders
at their respective addresses appearing on the stock records maintained by
or for the Corporation and shall be deemed to have been given as of the
date deposited in the United States mail.
IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges, and
Preferences of 1998 Series Convertible Preferred Stock of the Corporation has
been executed this day of August, 1998.
ATTEST: FORELAND CORPORATION
By/s/ Donald Treece, Secretary By /s/ N. Thomas Steele, President
STATE OF COLORADO )
:ss
COUNTY OF JEFFERSON )
On August 11, 1998, before me, the undersigned, a notary public in and for
the above county and state, personally appeared N. Thomas Steele and Donald
Treece, who being by me duly sworn, did state, each for themselves, that he, N.
Thomas Steele, is the president, and that he, Donald Treece, is the secretary,
of Foreland Corporation, a Nevada corporation, and that the foregoing
Designation of Rights, Privileges, and Preferences of 1998 Series Convertible
Preferred Stock of Foreland Corporation was signed on behalf of such corporation
by authority of a resolution of its board of directors, and that the statements
contained therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
/s/ Notary Public
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as of
August 10, 1998 is made by and between Energy Income Fund, L.P., a Delaware
limited partnership ("EIF") and Foreland Corporation, a Nevada corporation
("Foreland"). Terms used herein and not otherwise defined have the meanings
given them in that certain Stock Purchase Agreement, of even date herewith, by
and between EIF and Foreland ("Stock Purchase Agreement").
RECITALS
WHEREAS, Foreland and EIF have entered into the Stock Purchase
Agreement pursuant to which EIF is purchasing shares of Preferred Stock of
Foreland having an aggregate liquidation preference of Two Million Dollars
($2,000,000); and
WHEREAS, in connection with the purchase and sale of such Preferred
Stock, Foreland has agreed, on the terms and conditions set forth herein, to
register shares of Foreland owned by EIF as set forth below.
NOW THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. For purposes of the Shelf Registration under Section 2 hereof, the
term "Registrable Securities" means the shares of the Company's Common Stock
together with any capital stock issued in replacement of, in exchange for or
otherwise in respect of such Common Stock, issuable or issued upon conversion of
the Series 1998 Preferred Stock (the "Preferred Stock") issued to EIF except
that shares that have been resold in a public transaction shall not constitute
"Registrable Securities" for purposes of a Shelf Registration under Section 2
hereof. The number of "Registrable Securities then outstanding" shall be
determined by the number of shares of Registrable Securities at the time of such
determination.
For purposes of a Piggyback Registration under Section 3 hereof or a
Demand Registration under Section 4 hereof, "Registrable Securities" shall have
the meaning set forth above except that shares of Common Stock obtainable on
conversion of the Preferred Stock (in whole or in part) shall also not
constitute Registrable Securities for purposes of a Piggyback Registration under
Section 3 hereof or a Demand Registration under Section 4 hereof if those shares
of Common Stock may be resold in a public transaction without registration under
the 1933 Act, including without limitation pursuant to Rule 144 under the 1933
Act.
2. Shelf Registration. (a) At any time but no later in any event than
within 2 months of the date of this Agreement, Foreland shall file a
registration statement ("Registration Statement") on Form S-3 (or other suitable
form, at Foreland's discretion but subject to the reasonable approval of EIF),
covering the resale of all shares of Registrable Securities then outstanding
including an indeterminate number of shares of Common Stock as required to
effect conversion of certain of the Registrable Securities (the "Shelf
Registration").
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
the distribution described in the Registration Statement is completed or until
all shares to be registered thereunder may be resold in a public transaction
without registration pursuant to Rule 144(k) of the 1933 Act. Foreland shall
use its best efforts to have the Registration Statement declared effective
within three (3) months of the date of this Agreement (the "Shelf Date").
(c) If the Registration Statement is not declared effective by the
Shelf Date, the Company must continue to use its best efforts to obtain a
declaration of effectiveness and shall pay EIF an amount equal to two percent
(2%) per month of the aggregate amount of Preferred Stock sold pursuant to the
Stock Purchase Agreement, compounded monthly and accruing daily, until the
Registration Statement or a registration statement filed pursuant to Section 3
or Section 4 is declared effective, payable in common stock, which common stock
shall also be deemed "Registrable Securities" for the purpose of this Agreement.
The accrual amount payable will be tolled for any periods occasioned by a delay
of a Registration Statement under Section 4 as a result of the choice of EIF to
have that Registration Statement underwritten.
(d) Foreland represents that it is presently eligible to effect the
registration contemplated hereby on Form S-3 and will use its best efforts to
continue to take such actions as are necessary to maintain such eligibility.
3. Piggyback Registration Rights. If the Registration Statement
described in Section 2 above is not effective by the Shelf Date, and if, at any
time, Foreland proposes to file a registration statement for the public sale of
any shares of the Common Stock of Foreland, any capital stock issued in
replacement of, in exchange for or otherwise in respect of such Common Stock, or
any securities or other rights convertible into Common Stock, or entitled to
receive Common Stock, or any other equity security entitled to participate with
the Common Stock in the earnings or assets of Foreland under the Securities Act
of 1933, as amended (the "1933 Act") (other than a registration statement
provided for in Sections 2 or 4 hereof) Foreland 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 EIF, 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 Foreland's intent to file a registration
statement, EIF shall be entitled to request that any Registrable Securities
owned by EIF or its assigns ("EIF Registrable Securities") be included in such
registration statement, and Foreland will use its best efforts to cause the EIF
Registrable Securities to be included in the offering covered by such
registration statement (a "Piggyback Registration").
4. Demand Registration Rights. (a) If the Registration Statement
described in Section 2 above is not effective by the Shelf Date, EIF shall be
entitled to request that any EIF Registrable Securities be registered under the
1933 Act if Foreland is already subject to, or becomes subject to, periodic
reporting requirements under the regulations of the United States Securities and
Exchange Commission. As soon as practicable after receipt by Foreland of a
written request for registration, Foreland shall file, and use its best efforts
to cause to become effective, an appropriate registration statement under the
1933 Act covering the EIF Registrable Securities, provided that in the opinion
of Foreland's counsel, no events preclude such registration. EIF shall have the
right to demand registration once pursuant to this Section 4; provided, however,
that the right shall not be deemed exhausted unless the registration statement
covering so much of the EIF Registrable Securities as EIF and its assigns wish
to sell pursuant to the registration statement becomes effective.
(b) If EIF intends to distribute the Registrable Securities covered
by its request by means of an underwriting, EIF shall so advise Foreland as a
part of its request made pursuant to this Section 4. If a registration
requested pursuant to this Section 4 is to involve an underwritten public
offering in which the obligation of the underwriters is to take all of the
securities to be sold if any are to be taken, Foreland and other holders of
securities of Foreland may include securities in such registration only if the
managing underwriter of such public offering concludes that such inclusion will
not adversely affect the successful marketing or the price of the EIF
Registrable Securities to be included in such public offering. Such other
holders of securities (together with Foreland as provided in subsection 5f)
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by EIF and reasonably
acceptable to Foreland.
5. Filing Obligations of Foreland. In connection with any registration o
the EIF Registrable Securities effected under this Agreement, Foreland 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 until the distribution described in the
registration statement is completed or until all shares to be registered
thereunder may be resold in a public transaction without registration pursuant
to Rule 144(k) of the 1933 Act and to comply with the provisions of the 1933 Act
and the rules and regulations thereunder with respect to the disposition of the
Registrable Securities covered by the registration statement for the period
required to effect the distribution thereof;
(b) furnish to EIF 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 EIF may reasonably request in
order to facilitate the disposition of such securities;
(c) use its best efforts to register or qualify such securities
covered by the registration statement, as the case may be, under the securities
or blue sky laws of such jurisdictions as EIF 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 Registrable Securities; provided,
however, that Foreland 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;
(d) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. EIF shall also enter into
and perform its obligations under such an agreement;
(e) notify EIF at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(f) furnish, at the request of EIF, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to EIF) representing
Foreland for the purposes of such registration, in form and substance as is
customarily given to underwriters in such underwritten public offering,
addressed to the underwriters, if any, and to EIF and (ii) a letter dated such
date, from the independent certified public accountants of Foreland, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to EIF;
(g) as promptly as practicable after becoming aware of such event,
notify EIF of the happening of any event of which the Company has knowledge, as
a result of which the prospectus included in the registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the registration statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to EIF;
(h) provide EIF with written notice of the date that a registration
statement registering the resale of the Registrable Securities is declared
effective by the SEC, and the date or dates when the registration statement is
no longer effective;
(i) provide EIF and their representatives the opportunity to conduct
a reasonable due diligence inquiry of Foreland's pertinent financial and other
records and make available its officers, directors and employees for questions
regarding such information as it related to information contained in the
registration statement; and
(j) provide EIF and its representatives the opportunity to review the
registration statement and all amendments thereto no later than three (3) days
prior to their filing with the SEC.
6. Expenses. All expenses incurred by Foreland in connection with any
registration of the Registrable Securities effected under Sections 2, 3 or 4
hereof, 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 Foreland's counsel and accountants, and fees and
expenses of counsel for EIF, shall be paid by Foreland; provided, however, that
all underwriting discounts and selling commissions applicable to the EIF
Registrable Securities shall not be borne by Foreland but shall be borne by EIF.
7. Representations and Warranties of EIF. EIF hereby represents and
warrants to Foreland as follows: (a) EIF is duly organized, validly existing and
in good standing under the laws of Delaware; (b) EIF has the full power and
authority to enter into this Agreement; (c) the execution, delivery and
performance of this Agreement by EIF have been duly authorized by all necessary
corporate, governmental or other action; (d) this Agreement constitutes a legal,
valid and binding obligation of EIF, enforceable in accordance with its terms;
and (e) this Agreement does not violate or constitute a default under any of
EIF's organizational documents or under any indenture, mortgage, deed of trust
or other instrument, any contractual covenant or any restriction to which EIF is
a party or by which EIF or its assets are bound, nor does it violate any
provision of any law, rule, regulation, interpretation order, writ, judgment,
decree, determination, or award presently in effect having applicability to EIF.
8. Representations and Warranties of Foreland. Foreland hereby
represents and warrants to EIF as follows: (a) Foreland is duly organized,
validly existing and in good standing under the laws of Nevada; (b) Foreland has
the full power and authority to enter into this Agreement; (c) the execution,
delivery and performance of this Agreement by Foreland have been duly authorized
by all necessary corporate, governmental or other action; (d) this Agreement
constitutes a legal, valid and binding obligation of Foreland, enforceable in
accordance with its terms; (e) this Agreement does not violate or constitute a
default under any of Foreland's organizational documents or under any indenture,
mortgage, deed of trust or other instrument, any contractual covenant or any
restriction to which Foreland is a party or by which Foreland or its assets are
bound, nor does it violate any provision of any law, rule, regulation,
interpretation order, writ, judgment, decree, determination, or award presently
in effect having applicability to Foreland; and (f) there are no actions, suits,
or proceedings pending or, to the knowledge of Foreland, threatened against
Foreland or its affiliates in any court or by or before any governmental
department, agency, instrumentality, or any arbitrator, in which an adverse
decision could be reasonably expected to materially and adversely affect the
ability of Foreland or its affiliates to perform its obligations under this
Agreement.
9. Indemnification.
(a) By Foreland. In connection with the filing of any registration
statements and sales of the Registrable Securities thereunder, Foreland shall
indemnify and hold harmless EIF, its officers and directors, any underwriter,
and each other individual or entity, if any, who controls ("Control Person") EIF
or the underwriter within the meaning of the 1933 Act, against Losses to which
EIF, underwriter, or Control 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 Registrable Securities were 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 EIF, and any such
underwriter, or Control Person for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such losses,
excluding any amounts paid in settlement of litigation, commenced or threatened,
if such settlement is effected without the prior written consent of Foreland;
provided, however, that Foreland 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
Foreland in writing by or on behalf of EIF for use specifically in connection
with the preparation of such Disclosure Document.
(b) By EIF. In connection with the filing of any registration
statement and sales of the EIF Registrable Securities thereunder, EIF shall
indemnify Foreland, each of its directors, each of its officers who signed such
registration statement, and each other Control Person, against any Losses to
which Foreland, any of its directors, officers, or Control 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 Foreland, and any of its directors, officers, or Control
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 EIF; 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 Foreland in writing by or on
behalf of EIF for use specifically in connection with the preparation of such
Disclosure Document.
10. Reports under Securities Exchange Act of 1934. With a view to making
available to EIF the benefits of Rule 144 promulgated under the 1933 Act and any
other rule or regulation of the SEC that may at any time permit EIF to sell
securities of Foreland to the public without registration, Foreland agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of Foreland under the 1933 Act and the Securities Exchange
Act of 1934; and
(c) furnish to EIF, so long as EIF owns any Registrable Securities,
forthwith upon request (i) a written statement by Foreland, if true, that it has
complied with the reporting requirements of SEC Rule 144, the 1933 Act and the
Securities Exchange Act of 1934, (ii) a copy of the most recent annual or
quarterly report of Foreland and such other reports and documents so filed by
Foreland, and (iii) such other information as may be reasonably requested in
availing EIF of any rule or regulation of the SEC which permits the selling of
any such securities without registration.
11. Notices. All notices and communications required or permitted under
this Agreement shall be in writing and any communication or delivery hereunder
shall be deemed to have been duly made when personally delivered to the
individual indicated below, or if sent by telecopier or mailed, when received by
the party charged with such notice and addressed as follows:
If to EIF:
Energy Income Fund, L.P.
136 Dwight Road
Longmeadow, MA 01106
Attn: Robert D. Gershen
Facsimile No.: (413) 567-7926
If to Foreland:
Foreland Corporation
Union Terrace Office Building
12596 West Bayaud, Suite 300
Lakewood, CO 80228-2019
Attn: N. Thomas Steele
Facsimile: (303) 988-3234
Copies of all notices (other than reports or other routine
communications), which shall not constitute notice, 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
- and -
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway (300 South)
Salt Lake City, UT 84101-2034
Attn: James R. Kruse
Facsimile No.: (801) 359-3954
Any party may, by written notice so delivered to the other parties,
change the address or individual to which delivery shall thereafter be made.
12. Counterparts. This Agreement may be executed by EIF and Foreland in
any number of counterparts, no one of which need be executed by all parties
hereto, but all of which together shall constitute one and the same instrument.
13. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
15. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never constituted a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
16. Entire Agreement. This Agreement and the Stock Purchase Agreement
constitute the entire understanding among the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter.
17. Third Party Beneficiaries. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective heirs, devisees, executors, administrators,
successors and assigns; and except as provided in Section 9, nothing contained
in this Agreement, express or implied, is intended to confer upon any other
individual or entity any benefits, rights or remedies.
18. Amendments. Except for waivers specifically provided herein, this
Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the party to be charged with such amendment or
waiver and delivered by such party to the party claiming the benefit of such
amendment or waiver.
19. Nonwaiver. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of EIF shall operate as a
waiver of or otherwise prejudice EIF's rights, powers or remedies.
20. Assignability. Foreland may not assign its obligations under this
Agreement without the written consent of EIF. The registration rights of EIF
under this Agreement may be assigned by EIF without the consent of Foreland.
21. Drafting. Each party acknowledges that its legal counsel participated
in the preparation of this Agreement. The parties therefore stipulate that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement to favor any
party against the other.
22. Interpretation. Unless the context of this Agreement otherwise
requires, (a) words of any gender include all genders; (b) words using the
singular or plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby" and derivative or
similar words refer to this entire Agreement; (d) the term "Section" refers to
the specified Section of this Agreement and (e) the term "including" means
"including without limitation." Whenever this Agreement refers to a number of
days, such number shall refer to calendar days.
IN WITNESS WHEREOF, the parties hereto each has caused this Agreement
to be executed by its duly authorized officer all as of the day and year first
set forth above.
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By/s/ Robert D. Gershen
A Managing Director
FORELAND CORPORATION
By: /s/ N. Thomas Steele
President
FIRST AMENDMENT TO FINANCING AGREEMENT
First Amendment to Financing Agreement dated as of this 10th day of
August, 1998 (the "Amendment"), by and among Foreland Corporation, a Nevada
corporation ("Foreland"), Eagle Springs Production Limited-Liability Company, a
Nevada limited liability company ("Eagle Springs"), Foreland Refining
Corporation, a Texas corporation ("Foreland Refining"), Foreland Asphalt
Corporation, a Utah corporation ("Foreland Asphalt"), Foreland Asset
Corporation, a Nevada corporation ("Foreland Asset") and Petrosource
Transportation, a Utah corporation ("Transportation") (each a "Borrower" and
collectively referred to as "Borrowers"), and Energy Income Fund, L.P., a
Delaware limited partnership ("EIF"), to that certain Financing Agreement dated
as of January 6, 1998 (as amended, the "Agreement").
RECITALS
WHEREAS, pursuant to the Agreement, EIF agreed to make loans to
Foreland and Eagle Springs for the purposes and subject to the terms and
conditions set forth therein;
WHEREAS, Foreland and Eagle Springs have asked that EIF provide the
financing for the acquisition of (i) certain interests in the Ghost Ranch Field
from Plains Petroleum Operating Company, (ii) certain assets of Foreland
Refining, including all of the issued and outstanding stock of Transportation,
(iii) all of the issued and outstanding stock of Foreland Refining and (iv) a
one-third membership interest in Cowboy Asphalt Terminal, L.L.C. as more fully
described below;
WHEREAS, Foreland and Eagle Springs desire to add Foreland Refining,
Foreland Asphalt, Foreland Asset and Transportation as Borrowers under the
Financing Agreement and the Loans;
WHEREAS, Foreland wishes to issue a new series of convertible
preferred stock in order to raise capital;
WHEREAS, EIF wishes to subscribe for the entire issuance of that
certain preferred stock of Foreland in exchange for the consideration set forth
in that certain stock purchase agreement of even date herewith (the "Stock
Purchase Agreement") and in exchange for the consideration set forth herein;
WHEREAS, EIF and Foreland wish to revise the terms of Warrant No. 2 on
the terms described herein;
WHEREAS, Section 11.2(a) of the Agreement provides that the parties
thereto may amend or modify the Agreement by a written instrument duly executed
by the parties;
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. All capitalized terms used herein shall have the meanings
assigned to them in the Agreement unless expressly defined otherwise in this
Amendment.
2. Except as otherwise specifically provided herein, all terms and
conditions of the Agreement shall apply to the interpretation and enforcement of
this Amendment as if explicitly set forth herein.
3. The preamble to the Agreement is amended by adding "Foreland
Refining Corporation, a Texas corporation ("Foreland Refining"), Foreland
Asphalt, a Utah corporation ("Foreland Asphalt"), Foreland Asset Corporation, a
Nevada corporation ("Foreland Asset") and Petrosource Transportation, a Utah
corporation ("Transportation") as parties thereto and Borrowers thereunder. By
executing this Amendment, Foreland Refining, Foreland Asphalt, Foreland Asset
and Transportation agree to be bound by and expressly adopt, ratify, confirm and
restate all provisions under the Agreement as if they were original parties to
the Agreement, including but not limited to all representations and warranties,
each of which shall be deemed to have been made as of the date hereof. Prior to
the Funding of the Petro Source Acquisition Financing, Foreland, Eagle Springs,
Foreland Refining, Foreland Asphalt, Foreland Asset and Transportation shall
execute and deliver all certificates and opinions requested by EIF and its
counsel.
4. Section 1.1 of the Agreement is amended to include the following
definitions, inserted in the appropriate alphabetical order:
"Cave Valley Properties" shall mean those certain oil and gas
leasehold interests acquired by Foreland from Apollo Smith
Exploration, a Colorado general partnership, pursuant to the Purchase
and Sale Agreement between Foreland and Apollo Smith Exploration dated
June 26, 1998 and covering approximately 40,000 acres in Lincoln
County, Nevada.
"Cave Valley Prospect" shall mean that certain oil and gas
prospect operated by Conley P. Smith Operating Company and comprised
of the Cave Valley Properties.
"Closing Financing" shall have the meaning set forth in Section
2.2(a)(vii) of this Agreement.
"Cowboy Asphalt Terminal, L.L.C." shall mean Cowboy Asphalt
Terminal, L.L.C., a Utah limited liability company.
"Cowboy Improvement Financing" shall have the meaning set forth
in Section 2.3(a)(vii) of the Agreement.
"Cowboy Lease Purchase Financing" shall have the meaning set
forth in Section 2.3(a)(viii) of the Agreement.
"Eagle Springs #44-35 Well Financing" shall have the meaning set
forth in Section 2.2(a)(ii) of the Agreement.
"Eagle Springs #14-35 Well Financing" shall have the meaning set
forth in Section 2.2(a)(iii) of the Agreement.
"Eagle Springs #33-36 Well Financing" shall have the meaning set
forth in Section 2.2(a)(iv) of the Agreement.
"Eagle Springs Refinery" shall mean the refinery and related
facilities located in part in the E/2 SE/4 of Section 24, T, 9 N., R.
56E., M.D.M., County of Nye, State of Nevada.
"EOR" shall have the meaning set forth in Section 2.2(a)(i) of
the Agreement.
"EOR Equipment Financing" shall have the meaning set forth in
Section 2.2(a)(x) of the Agreement.
"EOR Financing" shall have the meaning set forth in Section
2.2(a)(i) of the Agreement.
"EOR Operating Financing" shall have the meaning set forth in
Section 2.2(a)(viii) of the Agreement.
"EOR Workover Financing" shall have the meaning set forth in
Section 2.2(a)(ix) of the Agreement.
"Flat Top Federal #27-15 Well Financing" shall have the meaning
set forth in Section 2.2(a)(xvi) of the Agreement.
"Foreland Pledge and Security Agreements" shall mean,
collectively, the Pledge and Security Agreement, dated as of August
11, 1998, from Foreland to EIF, related to the stock of Foreland
Refining, the Pledge and Security Agreement, dated as of August 11,
1998, from Foreland to EIF, related to the stock of Foreland Asset,
the Pledge and Security Agreement, dated as of August 11, 1998, from
Foreland to EIF, related to the stock of Foreland Asphalt, and the
Pledge and Security Agreement, dated as of August 11, 1998, from
Foreland Refining to EIF related to the stock of Transportation.
"Foreland Refining" shall mean Foreland Refining Corporation, a
Texas corporation.
"Foreland Security Agreements" shall mean, collectively, the
Security Agreement dated as of August 11, 1998 from Foreland Asphalt
to EIF, the Security Agreement dated as of August 11, 1998 from
Foreland Asset to EIF, the Security Agreement dated as of August 11,
1998 from Foreland Refining to EIF and the Security Agreement dated as
of August 11, 1998 from Transportation to EIF.
"Ghost Ranch Acquisition Financing" shall have the meaning set
forth in Section 2.3(a)(ii) of this Agreement.
"Hay Ranch 3-D Financing" shall have the meaning set forth in
Section 2.2(a)(xvii) of the Agreement.
"Petro Source" shall mean Petro Source Refining Corporation, a
Utah corporation.
"Petro Source Acquisition" shall mean the acquisition by Foreland
of certain assets of Foreland Refining, including the Refineries and
all of the issued and outstanding stock of Transportation and all of
the issued and outstanding stock of Foreland Refining pursuant to that
certain Option and Purchase Agreement dated December 31, 1997, as
amended by the Amendment to Option and Purchase Agreement dated August
[ ], 1998, by and between Foreland and Petro Source Corporation,
Foreland Refining Corporation, as successor through merger to Petro
Source Refining Corporation, and Transportation.
"Petro Source Acquisition Financing" shall have the meaning set
forth in Section 2.3(a)(iii) of the Agreement.
"Petro Source Capital Improvement Financing" shall have the
meaning set forth in Section 2.3(a)(v) of the Agreement.
"Petro Source Inventory Financing" shall have the meaning set
forth in Section 2.3(a)(iv) of this Agreement.
"Petro Source Letter of Credit Financing" shall have the meaning
set forth in Section 2.3(a)(i) of the Agreement.
"Petro Source Working Capital Financing" shall have the meaning
set forth in Section 2.3(a)(vi) of the Agreement.
"Pine Creek Seismic Financing" shall have the meaning set forth
in Section 2.2(a)(vi) of the Agreement.
"Pine Creek Well Financing" shall have the meaning set forth in
Section 2.2(a)(xv) of the Agreement.
"Proposed Hydrocarbon Contracts" shall have the meaning set forth
in Section 7.7 of this Agreement.
"Qualified Offering" means an offering of common stock of
Foreland in which the aggregate net proceeds to Foreland shall be at
least Four Million Dollars ($4,000,000).
"Refineries" shall mean the Eagle Springs Refinery and the
Tonopah Refinery and the real and personal properties related thereto.
"Registration Rights Agreement" shall mean that certain
registration rights agreement of even date herewith made between EIF
and Foreland and relating to shares of preferred stock of Foreland to
be purchased by EIF pursuant to the Stock Purchase Agreement.
"Sand Dune #2-21x Well Financing" shall have the meaning set
forth in Section 2.2(a)(xiii) of the Agreement.
"Sand Dune #58-35 Well Financing" shall have the meaning set
forth in Section 2.2(a)(xi) of the Agreement.
"Sand Dune #68-35 Well Financing" shall have the meaning set
forth in Section 2.2(a)(xii) of the Agreement.
"Sand Dune #88-35 Well Financing" shall have the meaning set
forth in Section 2.2(a)(v) of the Agreement.
"Sand Dune Section 1 Well Financing" shall have the meaning set
forth in Section 2.2(a)(xiv).
"Securities Laws" shall mean the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and foreign
or state securities laws.
"Software and Transition Financing" shall have the meaning set
forth in Section 2.3(a)(ix) of the Agreement.
"Tonopah Refinery" shall mean the refinery and related facilities
located in part on 63 acres within or adjacent to the Tonopah Airport,
County of Nye, State of Nevada.
"Transportation" shall mean Petrosource Transportation, a Utah
corporation.
5. Section 1.1 is further amended to delete the following
definitions, and to replace them in their entirety with the following
definitions, respectively:
"Borrower" shall mean any of Foreland, Eagle Springs, Foreland
Refining, Foreland Asphalt, Foreland Asset and Transportation.
"Borrowers" shall mean Foreland, Eagle Springs, Foreland
Refining, Foreland Asphalt, Foreland Asset and Transportation, jointly
and severally.
"Value," when used in reference to the Collateral that includes
reserves, 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. When used in reference to other Collateral,
"Value" shall mean the value of such Collateral as determined by EIF
using a twenty percent (20%) discounted cash flow valuation
methodology. In cases where operational or cash flow history of
particular Collateral 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 and sale of those assets.
"Warrant No. 2" 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 ($6.00) per share.
6. Section 1.1 is further amended to delete the following
definitions:
Phase I Eagle Springs Air Injection Financing
Phase I Eagle Springs Drilling Financing
Phase I Closing Financing
Phase I of the Development Loan
Phase I Pine Creek Drilling Financing
Phase I Pine Creek Seismic Financing
Phase II of the Development Loan
Phase II Eagle Springs Air Injection Financing
Phase II Eagle Springs Drilling Financing
Phase II Pine Creek Additional Drilling Financing
Phase II Ghost Ranch Drilling Financing
Phase II Hay Ranch Seismic Financing
Phase III of the Development Loan
Phase III Hay Ranch Seismic Financing
Phase III Eagle Springs Drilling Financing
Phase III Hay Ranch Drilling Financing
Proposed Gas Contracts
7. The definition of "Hydrocarbons" in Section 1.1 of the Agreement
is amended by adding the phrase "or from refining operations" to the end of the
definition.
8. The definition of "Requirement of Law" in Section 1.1 of the
Agreement is amended by adding the phrase "or the Securities Laws" after the
phrase "under the Environmental Laws."
9. The definition of Security Instruments" in Section 1.1 of the
Agreement is amended by adding the phrase "pledge agreements," after the phrase
"security agreements."
10. Article II is amended by deleting Sections 2.1, 2.2 and 2.3 and
replacing them with the following:
"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 Seventy-Four Thousand Two Hundred Seventy-Nine
Dollars and Thirty-Four Cents ($674,279.34) 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 Seven Million One Hundred Seventy-Five Thousand
Seven Hundred Twenty Dollars and Sixty-Six Cents ($7,175,720.66), for the
purposes set forth below.
" (i) up to Seven Hundred Eighty-Five Thousand Dollars
($785,000) to finance the implementation of the high pressure air
injection program also known as the enhanced oil recovery program (the
"EOR"), including the financing of compressors and buildings, in the
Eagle Springs Properties (the "EOR Financing");
"(ii) up to Eight Hundred Thirty Thousand Dollars
($830,000) to finance the drilling and completion of the Eagle Springs
#44-35 Well (the "Eagle Springs #44-35 Well Financing");
" (iii) up to Five Hundred Twenty-Five Thousand Dollars
($525,000) to finance the drilling and plugging of the Eagle Springs
#14-35 Well (the "Eagle Springs #14-35 Well Financing");
" (iv) up to Fourteen Thousand Dollars ($14,000) to finance
location costs associated with the Eagle Springs #33-36 Well (the
Eagle Springs #33-36 Well Financing");
" (v) up to Nine Hundred Fifty Thousand Dollars ($950,000)
to finance the drilling and completion of the Sand Dune #88-35 Well
(the "Sand Dune #88-35 Well Financing");
" (vi) up to Three Hundred Twenty-Five Thousand Dollars
($325,000) to finance the three-dimensional seismic program on the
Pine Creek Properties (the "Pine Creek Seismic Financing");
"(vii) up to Three Hundred Thousand Dollars ($300,000) to
finance certain of EIF's costs related to the closing of the
Refinancing Loan and portions of the Development and Acquisition Loans
pursuant to Article X of this Agreement (the "Closing Financing");
" (viii) up to One Hundred Thousand Dollars ($100,000) to
finance certain operating costs associated with the EOR (the "EOR
Operating Financing");
" (ix) up to One Hundred Fifty Thousand Dollars ($150,000)
to finance certain EOR workovers (the "EOR Workover Financing");
" (x) up to Four Hundred Thousand Dollars ($400,000) to
finance certain equipment associated with the EOR (the "EOR Equipment
Financing");
" (xi) up to Six Hundred Thousand Dollars ($600,000) to
finance the deepening of the Sand Dune #58-35 Well (the "Sand Dune
#58-35 Well Financing");
" (xii) up to Nine Hundred Fifty Thousand Dollars
($950,000) to finance the drilling and completion of the Sand Dune
#68-35 Well (the "Sand Dune #68-35 Well Financing");
" (xiii) up to One Hundred Forty Thousand Dollars
($140,000) to finance the deepening of the Sand Dune #2-21x Well (the
"Sand Dune #2-21x Well Financing");
" (xiv) up to Three Hundred Ten Thousand Dollars ($310,000)
to finance the drilling of the Sand Dune Section 1 Well (the "Sand
Dune Section 1 Well Financing");
" (xv) up to Three Hundred Eight Thousand One Hundred
Fifty-Three Dollars and Ninety-Eight Cents ($308,153.98) to finance
the drilling and completion of one Pine Creek Well (the "Pine Creek
Well Financing");
" (xvi) up to Two Hundred Thirty-Eight Thousand Five
Hundred Sixty-Six Dollars and Sixty-Eight Cents ($238,566.68) to
finance the drilling and completion of the Flat Top Federal #27-15
Well and associated Cave Valley Prospect leasehold acquisition (the
"Flat Top Federal #27-15 Well Financing"); and
" (xvii) up to Two Hundred Fifty Thousand Dollars
($250,000) to finance preliminary survey and archeological work
associated with the Hay Ranch three-dimensional seismic program (the
"Hay Ranch 3-D 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 Dollars and Thirty-Four Cents
($5,425,279.34) and includes the proceeds for the Bank Loans Financing, the EOR
Financing, the Eagle Springs #44-35 Well Financing, the Eagle Springs #14-35
Well Financing, the Eagle Springs #33-36 Well Financing, the Sand Dune #88-35
Well Financing, the Pine Creek Seismic Financing, One Hundred Fifty Thousand
Dollars ($150,000) of the Closing Financing, the EOR Operating Financing, the
EOR Workover Financing, the EOR Equipment Financing, Two Hundred Seventy-Two
Thousand Dollars ($272,000) of the Sand Dune #58-35 Well Financing, the Cowboy
Lease Purchase Financing and the Petro Source Letter of Credit Financing. The
remaining One Hundred Fifty Thousand Dollars ($150,000) of the Closing Financing
shall be funded at such times and in such amounts as the parties mutually agree.
" (c) Three Hundred Thirty-Five Thousand Dollars ($335,000) of the
Eagle Springs #14-35 Well Financing, the Eagle Springs #33-36 Financing
($14,000), the Pine Creek Seismic Financing ($325,000), the EOR Operating
Financing ($100,000), the EOR Workover Financing ($150,000), the EOR Equipment
Financing ($400,000), Two Hundred Seventy-Two Thousand Dollars ($272,000) of the
Sand Dune #58-35 Well Financing, the Petro Source Letter of Credit Financing and
the Cowboy Lease Purchase Financing and any future advances funded from the
Development and Acquisition Loans 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 Nine Million Fifty Thousand Dollars ($9,050,000),
for the following purposes:
" (i) up to One Hundred Fifty Thousand Dollars ($150,000)
to finance a letter of credit in connection with the Petro Source
Acquisition (the "Petro Source Letter of Credit Financing");
"(ii) up to Five Hundred Thousand Dollars ($500,000) to
finance the acquisition of certain interests in the Ghost Ranch Field
from Plains Petroleum Operating Company (the "Ghost Ranch Acquisition
Financing");
"(iii) up to Five Million Dollars ($5,000,000) to finance
the acquisition by Foreland of certain assets of Foreland Refining,
including the Refineries, plus all of the common stock of
Transportation from Foreland Refining, pursuant to that certain Option
and Purchase Agreement dated December 31, 1997, as amended, by and
between Foreland and Petro Source Corporation, Petro Source Refining
Corporation and Petrosource Transportation (the "Petro Source
Acquisition Financing");
"(iv) up to One Million Three Hundred Thousand Dollars
($1,300,000) to finance the acquisition of inventory associated with
the Petro Source Acquisition (the "Petro Source Inventory Financing");
"(v) up to Five Hundred Thousand Dollars ($500,000) to
finance certain capital improvements on the Petro Source Refineries
(the "Petro Source Capital Improvement Financing");
"(vi) up to Six Hundred Thousand Dollars ($600,000) to
finance working capital associated with the Petro Source Refineries
(the "Petro Source Working Capital Financing");
"(vii) up to Seven Hundred Thousand Dollars ($700,000) to
finance certain improvements associated with the acquisition by
Foreland Asphalt of a one-third interest in Cowboy Asphalt Terminal,
L.L.C. pursuant to that certain Operating Agreement by and between
Foreland Asphalt and Crown Asphalt Products Company, including the
development by Foreland Asphalt of storage and marketing facilities at
the Cowboy Asphalt Terminal located in Woods Cross, Utah (the "Cowboy
Improvement Financing");
"(viii) up to One Hundred Thousand Dollars ($100,000) to
finance certain lease purchase payments associated with the Cowboy
Acquisition (the "Cowboy Lease Purchase Funding"); and
"(ix) up to Two Hundred Thousand Dollars ($200,000) to
finance certain software and transition costs associated with the
Petro Source and Cowboy Acquisitions (the "Software and Transition
Financing").
" (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."
11. Article II is amended by adding the phrase "the Cave Valley
Properties" immediately after the phrase "the Hay Ranch Properties" in the first
sentence of Section 2.12(b).
12. Section 5.1 is amended by adding the phrase "or Texas" after the word
"Nevada" in the third line.
13. Article IV is amended by adding the following subsections to Section
4.1:
" (k) All of each Borrower's right, title and interest in the Refineries;
" (l) All of each Borrower's right, title and interest in the Inventory,
Equipment, Receivables, General Intangibles, Other Property and Proceeds of
Foreland Refining, Foreland Asphalt, Foreland Asset and Transportation, as those
terms are defined in the Foreland Security Agreements, as applicable;
" (m) All of each Borrower's right, title and interest in the one-third
membership interest in Cowboy Asphalt Terminal, L.L.C. purchased by Foreland
pursuant to that certain Operating Agreement by and between Foreland Asphalt and
Crown Asphalt Products Company;
" (n) All of each Borrower's right, title and interest in the issued and
outstanding stock of Foreland Refining, Foreland Asphalt, Foreland Asset and
Transportation, and all proceeds thereof, as described in the Foreland Pledge
and Security Agreements;
14. Article IV is amended by deleting the preamble to Section 4.2 and
replacing it in its entirety with the following:
"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 (i) 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, (ii) all Hydrocarbons or other products produced at the Refineries,
and (iii) all revenues and proceeds from the sale of (i) or (ii) (the "Proceeds
of Runs"), including all payments in lieu of production such as "take or pay"
payments or settlements, and all accounts, contract rights, and other general
intangibles under which such proceeds may arise and all revenues and proceeds
under agreements for refining, fractionating, manufacturing, processing and
transportation of Hydrocarbons and other products. 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:
15. Article IV is amended by deleting Sections 4.3(f) and 4.3(g) and
replacing them in their entirety with the following:
" (f) any attempt to communicate in any manner with the purchasers of
production from the Collateral including without limitation the purchasers of
Hydrocarbons and other products and by-products of the Refineries and related
assets, or the purchasers of products under refining, fractionating, processing,
manufacturing, transporting or other contracts related to assets of the
Refineries 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 or from the purchasers of Hydrocarbons and other products and by-
products of the Refineries and related assets or under agreements for refining,
fractionating, manufacturing, processing or transportation of Hydrocarbons or
other products after receipt by any such purchaser of a letter in the form of
Exhibit H.
16. Article V is amended by deleting the existing Schedule 5.11(a) and
replacing it with Schedule 5.11(a) attached hereto.
17. Section 5.20 is amended by adding the word", refining" after the word
"treating" in the second line of the provision and by adding the phrase",
including from the Refineries" after the word "Properties" in the fourth line of
the provision.
18. Section 5.23 is amended by adding the following text as four new
paragraphs at the end of the existing section:
" (a) The authorized capital of Foreland consists of (i) 50,000,000
shares of common stock, par value $0.001 per share (the "Shares"), of which
8,548,921 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 as of the date
hereof (convertible into 13,333 shares of Common Stock); 1,650,000 preferred
shares are designated as 1994 Series Convertible Redeemable Preferred Stock with
165,140 of such preferred shares issued and outstanding as of the date hereof
(convertible into 55,047 shares of Common Stock); 1,000,000 preferred shares are
designated as 1995 Series Convertible Preferred Stock with 556,667 of such
preferred shares issued and outstanding as of the date hereof (convertible into
185,556 shares of Common Stock); 1,500 preferred shares are designated as 1996
Series 6% Convertible Preferred Stock with none of such preferred shares issued
and outstanding as of the date hereof; 10,000 preferred shares are designated as
1996-2 Series 6% Convertible Preferred Stock with none of such preferred shares
issued and outstanding as of the date hereof; 6,000 preferred shares are
designated as 1996-3 Series 8% Convertible Preferred Stock with none of such
preferred shares issued and outstanding as of the date hereof; 500 preferred
shares are designated as the 1996-4 Series Preferred Stock with none of such
preferred shares issued and outstanding as of the date hereof; 50,000 preferred
shares are designated as Series A Preferred Stock with none of such preferred
shares issued and outstanding as of the date hereof; 2,000 preferred shares are
designated as 1998 Series Convertible Preferred Stock with 2,000 of such
preferred shares issued and outstanding as of the date hereof (convertible into
333,333 shares of Common Stock); and 280,000 preferred shares are not designated
(together, the "Capital Stock"). Foreland has no other shares of Capital Stock
of any class or other equity securities authorized, issued, or outstanding.
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.
" (b) The authorized capital of Foreland Asset consists of 1,000 shares
of common stock, par value $0.001 per share, of which 1,000 shares are issued
and outstanding and held by Foreland as of the date hereof;
" (c) The authorized capital of Foreland Asphalt consists of 1,000
shares of common stock, par value $0.001 per share, of which 1,000 shares are
issued and outstanding and held by Foreland as of the date hereof;
" (d) The authorized capital of Foreland Refining consists of 100,000
shares of common stock, par value $0.01 per share, of which 1,000 shares are
issued and outstanding;
" (e) The authorized capital of Petrosource Transportation consists of
50,000 shares of common stock, no par value, of which 1,000 shares are issued
and outstanding; and
" (f) The authorized capital of Cowboy Asphalt Terminal, L.L.C.,
consists of 1,000 units of membership interests, of which Foreland holds 333
units.
19. Section 7.7 is amended by adding the phrase", refining, fractioning,
processing or manufacture" after the phrase "sale and/or transportation" in line
four of the provision and by adding the phrase", including the Refineries,"
after the phrase "from the Properties" in line four of the provision.
20. Article VII is amended by deleting Section 7.25 and replacing it with
the following:
"7.25 Inspection Report. Borrowers will comply with the
recommendations set out in that certain Inspection Report dated August 10, 1998,
prepared by WZI Inc. of Bakersfield, California, by December 31, 1998.
21. Section 7.31 is amended by adding the phrase "and the Refineries" at
the end of the sentence.
22. Article VII is amended by deleting Section 7.39 and replacing it with
the following:
"7.39 Warrants.
"a. Public Offering for Eagle Springs. 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.
"b. Issuance of Shares by Foreland below $6.00. If, during the term of
either Warrant No. 1 or Warrant No. 2 or both, Foreland issues additional shares
of common stock at a price of less than Six Dollars ($6) or issues securities
convertible or exercisable into common stock of Foreland at a conversion or
exercise price of less than Six Dollars ($6) and such securities are converted
or exercised into common stock or repurchased by Foreland, the following
calculation shall be made and additional warrants shall be delivered by Foreland
to EIF in the number and manner described below.
"Effective December 31, 1998, EIF and Foreland shall jointly calculate, at
six month intervals, the number of shares issued as described in the above
paragraph. In making this determination, EIF and Foreland shall not consider
shares issued pursuant to stock options of directors and officers of Foreland
outstanding as of the date hereof as set forth on Schedule 5.23 to this
Agreement. Within 10 days of receipt of a written request from EIF for delivery
of additional warrants based on this calculation, Foreland shall deliver to EIF
additional warrants for the number of shares of common stock of Foreland equal
to 15% of the shares issued as described in the above paragraph during such six
month interval. Such warrants shall be in the form of Warrant No. 2 with an
exercise price of Six Dollars ($6) per share.
"The foregoing provisions of this Section 7.39 shall not apply to (i) each
issuance of additional securities, if any, the proceeds of which are used to
repay the Loan in full within thirty (30) days (ii) each issuance of equity
securities, if any, that is pursuant to an offering with net proceeds to
Foreland of Twenty Milllion Dollars ($20,000,000) or more or (iii) the issuance
of securities pursuant to the Stock Purchase Agreement. The occurrence of any
issuance described in (i), (ii) or (iii) above shall not in any way limit the
subsequent application of any other provision of this Section.
"c. Qualified Offering. If Foreland has not received, and delivered to
EIF, a commitment for a Qualified Offering by November 9, 1998, Foreland shall
deliver to EIF a warrant in the form of Warrant No. 2 with an exercise price of
Five Dollars ($5) per share. If Foreland has not received the net proceeds of a
Qualified Offering by February 10, 1999, Foreland shall deliver to EIF a warrant
in the form of Warrant No. 2 with an exercise price of Four Dollars ($4) per
share. The warrant issued shall be for the number of shares equal to: (i) the
shares represented by Warrant No. 1; (ii) the shares represented by Warrant No.
2 and (iii) the total number of shares represented by all warrants issued
pursuant to Section 7.39(b) of this Agreement. Upon issuance of the warrants
pursuant to this paragraph, EIF will deliver the then existing Warrant No. 1 and
Warrant No. 2 and any warrants issued pursuant to Sections 7.39(b) of this
Agreement to Foreland for cancellation.
23 Article VII is further amended by adding the following:
"7.40 Qualified Offering. Foreland shall have received the net
proceeds of a Qualified Offering no later than March 11, 1999."
24 Article VII is further amended by adding the following:
"7.41 Repayment of the Petro Source Inventory Financing. Borrowers
shall repay the Petro Source Inventory Financing withing ninety (90) days after
the Funding of the Petro Source Inventory Financing.
25 Foreland shall have executed and delivered to EIF, concurrent with the
signing hereof, a Warrant substantially in the form of Exhibit M hereto.
26 Foreland shall have executed and delivered to EIF, concurrent with the
signing hereof, allonges to the Refinancing Note, the Development Note and the
Acquisition Note, substantially in the form of Exhibit N hereto.
27 Foreland shall have executed and delivered to EIF, concurrent with the
signing hereof, the Registration Rights Agreement and the Stock Purchase
Agreement.
28 Wherever the term "Borrowers" includes Foreland, Eagle Springs, and
Foreland Refining, the remaining language in such section of the Financing
Agreement shall be interpreted to apply to each of Foreland, Eagle Springs and
Foreland Refining, as the context requires. Each place where the phrases
"either Borrower" or "either Borrower's" appears in the Financing Agreement
shall be revised to substitute the phrase "any Borrower" or "any Borrower's",
respectively.
29 THIS AMENDMENT IS TO BE CONSTRUED UNDER THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS.
30 Except as expressly amended hereby, the Agreement remains in full
force and effect. Any references to the Agreement in the Loan Documents shall
refer to the Agreement as amended hereby.
31 This Amendment shall be of no force and effect until receipt and
execution of this Amendment by EIF in its offices in Longmeadow, Massachusetts.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
FORELAND CORPORATION
By: /s/ N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
By: /s/ N. Thomas Steele
Manager
FORELAND REFINING CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASPHALT CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASSET CORPORATION
By: /s/ N. Thomas Steele
President
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By:/s/ Robert D. Gershen
A Managing Director
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.
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WCP8: 41772-5
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
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WCP8: 41772-5
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, Foreland
Refining Corporation, Foreland Asphalt Corporation, Foreland
Asset Corporation, Petrosource Transportation 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,
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WCP8: 41772-5
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 No. 1 means the warrant issued by
Foreland to EIF for Seven Hundred Fifty Thousand (750,000)
shares of Common Stock with an exercise price of Six Dollars
($6) per share.
1.20 ``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
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WCP8: 41772-5
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
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WCP8: 41772-5
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:
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WCP8: 41772-5
(a) either a registration statement under 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.
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WCP8: 41772-5
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
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WCP8: 41772-5
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.
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WCP8: 41772-5
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.
Pursuant to Section 7.39 of the Financing Agreement,
if, during the term of this Warrant or Warrant No. 1, or
both, Foreland issues additional shares of common stock at a
price of less than Six Dollars ($6) or issues securities
convertible or exercisable into common stock of Foreland at
a conversion or exercise price of less than Six Dollars ($6)
and such securities are converted or exercised into common
stock or repurchased by Foreland, the following calculation
shall be made and additional warrants shall be delivered by
Foreland to EIF in the number and manner described below.
Effective December 31, 1998, EIF and Foreland shall
jointly calculate, at six month intervals, the number of
shares issued as described in the above paragraph. In
making this determination, EIF and Foreland shall not
consider shares issued pursuant to stock options of
directors and officers of Foreland outstanding as of the
date hereof as set forth on Schedule 5.23 to this Agreement.
Within 10 days of receipt of a written request from EIF for
delivery of additional warrants based on this calculation,
Foreland shall deliver to EIF additional warrants for the
number of shares of common stock of Foreland equal to 15% of
the shares issued as described in the above paragraph during
such six month interval. Such warrants shall be in the form
of Warrant No. 2 with an exercise price of Six Dollars ($6)
per share.
The foregoing provisions of this Section shall not
apply to (i) each issuance of additional securities, if any,
the proceeds of which are used to repay the Loan in full
within thirty (30) days (ii) each issuance of equity
securities, if any, that is pursuant to an offering with net
proceeds to Foreland of Twenty Milllion Dollars
($20,000,000) or more or (iii) the issuance of securities
pursuant to the Stock Purchase Agreement. The occurrence of
any issuance described in (i), (ii) or (iii) above shall not
in any way limit the subsequent application of any other
provision of this Section.
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WCP8: 41772-5
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.
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WCP8: 41772-5
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,
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WCP8: 41772-5
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
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WCP8: 41772-5
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.
- 14 -
WCP8: 41772-5
8.1 For purposes of the Shelf Registration under
Section 8.2 hereof, the term "Warrant Stock" means the
Warrant Stock together with any capital stock issued in
replacement of, in exchange for or otherwise in respect of
such Warrant Stock. The number of shares of "Warrant Stock
then outstanding" shall be determined by the number of
shares of Warrant Stock which have been issued or are
issuable upon exercise of the Warrant at the time of such
determination other than shares of Warrant Stock that have
been resold in a public transaction.
For purposes of a Piggyback Registration under Section
8.3 hereof or a Demand Registration under Section 8.4
hereof, "Warrant Stock" shall have the meaning set forth
above except that the following shall not constitute
"Warrant Stock" for such purposes:
(i) Warrant Stock that may be resold in a public
transaction without registration under the 1933 Act,
including without limitation pursuant to Rule 144 under the
1933 Act; and
(ii) Warrant Stock that has been resold in a public
transaction.
8.2 Shelf Registration. (a) At any time but no later
in any event than within two (2) months of written notice by
the Holder of any exercise of the Warrant, as required by
Section 2.2 of the Warrant, the Company shall file a
registration statement ("Registration Statement") on Form S-
3 (or other suitable form, at the Company's discretion but
subject to the reasonable approval of the Holder), covering
the resale of all shares of Warrant Stock then outstanding
including an indeterminate number of shares of Common Stock
as required to effect exercise of the Warrant (the "Shelf
Registration").
(b) The Registration Statement shall be prepared as a
"shelf" registration statement under Rule 415, and shall be
maintained effective until the distribution described in the
Registration Statement is completed or until all shares to
be distributed thereunder may be resold in a public
transaction pursuant to Rule 144(k) of the 1933 Act. The
Company shall use its best efforts to have the Registration
Statement declared effective within three (3) months after
notification by the Holder of any exercise of the Warrant,
as described in Section 8.2(a) above (the "Shelf Date").
(c) If the Registration Statement is not declared
effective by the Shelf Date, the Company must continue to
use its best efforts to obtain a declaration of
effectiveness and shall pay the Holder an amount equal to
two percent (2%) per month of the aggregate amount of the
- 15 -
WCP8: 41772-5
Warrant, compounded monthly and accruing daily, until the
Registration Statement or a registration statement filed
pursuant to Section 8.3 or Section 8.4 is declared
effective, payable in Common Stock, which Common Stock shall
also be deemed "Warrant Stock" for the purpose of this
Agreement. The accrual amount payable will be tolled for
any periods occasioned by a delay of a registration
statement under Section 8.4 as a result of the choice of the
Holder to have that registration statement underwritten.
(d) The Company represents that it is presently
eligible to effect the registration contemplated hereby on
Form S-3 and will use its best efforts to continue to take
such actions as necessary to maintain such eligibility.
8.3 Piggyback Registration Rights. If the
registration statement described in Section 8.2 above is not
effective by the Shelf Date, and 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 8.4 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 some or all of 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 (a "Piggyback Registration"), 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 Warrant 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
- 16 -
WCP8: 41772-5
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 8.3; 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
shares for which registration was requested by each Person
so requesting registration, or in such other proportions as
such Persons may agree.
8.4 Demand Registration Rights. If the Registration
Statement described in Section 8.2 above is not effective by
the Shelf Date, the Holder shall be entitled to request that
the Warrant Stock be registered under the 1933 Act. 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
- 17 -
WCP8: 41772-5
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.
If the Holder intends to distribute the Warrant Stock
covered by its request by means of an underwriting, the
Holder shall so advise the Company as a part of its request
made pursuant to this Section. If a registration requested
pursuant to the Section is to involve an underwritten public
offering in which the obligation of the underwriters is to
take all of the securities to be sold if any are to be
taken, the Company and other holders of securities of the
Company may include securities in such registration only if
the managing underwriter of such public offering concludes
that such inclusion will not adversely affect the successful
marketing or the price of the Warrant Stock to be included
in such public offering. Such other holders of securities
(together with the Company as provided in subsection 8.5(d))
shall enter in to an underwriting agreement in customary
form with the underwriter or underwriters selected for such
underwriting by the Holder and reasonably acceptable to the
Company.
In the event that the Holder demands registration
pursuant to this Section 8.4 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 8.4 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.
8.5 Filing Obligations of the Company. In connection
with any registration of the Warrant Stock, the Company
shall:
- 18 -
WCP8: 41772-5
(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 until the Holders of the
Warrant Stock covered by such registration statement have
completed the distribution described in the registration
statement or until all shares to be distributed thereunder
may be resold in a public transaction pursuant to Rule
144(k) of the 1933 Act 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;
(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
Warrant Stock owned by such Holder;
(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;
(d) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter of such offering. The Holder shall also enter
into and perform its obligations under such an agreement;
(e) furnish, at the request of the Holder, on the date
that such Warrant Stock is delivered to the underwriters for
sale in connection with a registration pursuant to this
Agreement, if such securities are being sold through
underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration
statement with respect to such securities becomes effective,
(i) an opinion, dated such date, of the outside counsel of
recognized standing (or reasonably acceptable to the Holder)
representing the Company for the purposes of such
registration, in form and substance as is customarily given
to underwriters in such underwritten public offering,
addressed to the underwriters, if any, and to the Holder and
(ii) a letter dated such date, from the independent
- 19 -
WCP8: 41772-5
certified public accountants of the Company, in form and
substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
Holder;
(f) as promptly as practicable after becoming aware of
such event, notify the Holder of the happening of any event
of which the Company has knowledge, as a result of which the
prospectus included in the registration statement, as then
in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a
supplement or amendment to the registration statement to
correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to the
Holder;
(g) provide the Holder with written notice of the date
that a registration statement registering the resale of the
Warrant Stock is declared effective by the SEC, and the date
or dates when the registration statement is no longer
effective;
(h) provide the Holder and their representatives the
opportunity to conduct a reasonable due diligence inquiry of
the Company's pertinent financial and other records and make
available its officers, directors and employees for
questions regarding such information as it related to
information contained in the registration statement; and
(i) provide the Holder and its representatives the
opportunity to review the registration statement and all
amendments thereto no later than three (3) days prior to
their filing with the SEC.
8.6 Expenses. All expenses incurred by the Company in
connection with any registration of the Warrant Stock
effected under Sections 8.2, 8.3 or 8.4, 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.
- 20 -
WCP8: 41772-5
8.7 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, its directors and officers, 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
- 21 -
WCP8: 41772-5
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.
8.8 Reports under Securities Exchange Act of 1934 (the
"1934 Act"). With a view to making available to the Holder
the benefits of Rule 144 promulgated under the 1933 Act and
any other rule or regulation of the SEC that may at any time
permit the Holder to sell securities of the Company to the
public without registration, the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports
and other documents required of the Company under the 1933
Act and the 1934 Act; and
(c) furnish to the Holder, so long as the Holder owns
any Warrant Stock, forthwith upon request (i) a written
statement by the Company, if true, that it has complied with
the reporting requirements of SEC Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing the
Company of any rule or regulation of the SEC which permits
the selling of any such securities without registration.
8.9 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.
- 22 -
WCP8: 41772-5
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
Facsimile No.: (801) 531-7091
- 23 -
WCP8: 41772-5
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: August 10, 1998
FORELAND CORPORATION
By
N. Thomas Steele
President
- 24 -
WCP8: 41772-5
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:
- 25 -
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:
- 26 -
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of August
10, 1998, is made between Energy Income Fund, L.P., a Delaware limited
partnership ("EIF") and Foreland Corporation, a Nevada Corporation ("Foreland").
RECITALS
WHEREAS, EIF wishes to subscribe for certain convertible preferred
stock of Foreland in exchange for Two Million Dollars ($2,000,000) and Foreland
is willing to issue and sell to EIF such preferred stock on the terms described
herein;
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 I
DEFINITIONS
I.1 Defined Terms. The following terms shall have the meanings set
forth herein:
"Affiliate", anAffiliate, anAffiliate, anAffiliate, an{tc \l 2
"Affiliate, an"} "affiliate of", or a Person "affiliated" with, a specified
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
"Business Day" shall mean any day other than a (i) Saturday, (ii)
Sunday, or (iii) any day on which commercial banking institutions in New York,
New York are authorized or obligated to close, provided that if four (4)
consecutive days are not Business Days, the next day shall be deemed a Business
Day whether or not banks located in New York are authorized or obligated to
close.
"Closing Date" shall mean the date when Closing actually occurs.
"Common Stock" shall mean the common stock, par value $.001 per share,
of Foreland.
"Eagle Springs" shall mean Eagle Springs Production Limited-Liability
Company, a Nevada limited liability company.
"Financing Agreement" shall mean that certain Financing Agreement
dated January 6, 1998 by and between EIF, Foreland, Eagle Springs, Foreland
Refining, Foreland Asphalt, Foreland Asset and Transportation as amended from
time to time.
"Foreland Asphalt" shall mean Foreland Asphalt Corporation, a Utah
corporation.
"Foreland Asset" shall mean Foreland Asset Corporation, a Nevada
corporation.
"Foreland Refining" shall mean Foreland Refining Corporation, a Texas
corporation.
"Lien" shall mean any mortgage, security interest, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge, preference, priority or other security agreement, option,
warrant, attachment, right of first refusal, preemptive, conversion, put, call
or other claim or right, restriction on transfer (other than restrictions
imposed by federal and state securities laws), or preferential arrangement of
any kind or nature whatsoever (including any restriction on the transfer of any
assets, any conditional sale or other title retention agreement, any financing
lease involving substantially the same economic effect as any of the foregoing
and the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction).
"Loan Documents" shall have the meaning given to it in the Financing
Agreement.
"Losses" shall mean losses, damages, claims, demands, suits, costs,
expenses, liabilities and sanctions of every kind and character, including
without limitation reasonable attorneys' fees, court costs and costs of
investigation.
"Person" shall mean any natural person, sole proprietorship,
corporation, general partnership, limited partnership, limited liability
company, union, association, court, agency, agreement, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
"Properties" shall mean those certain oil and gas properties pledged
by Foreland, Eagle Springs, Foreland Refining, Foreland Asphalt, Foreland Asset
and Transportation to EIF pursuant the Financing Agreement and the Loan
Documents.
"Qualified Offering" means an offering of the Common Stock in which
the aggregate net proceeds to Foreland shall be at least Four Million Dollars
($4,000,000).
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement, of even date herewith, by and between EIF and Foreland.
"Shareholder" shall mean any holder of Shares.
"Shares" shall mean any and all issued and outstanding shares of
capital stock of Foreland, including, without limitation, the Common Stock and
the Preferred Stock.
"Transportation" shall mean Petrosource Transportation, a Utah
Corporation.
In addition, the following terms are defined elsewhere in the
Agreement:
"Closing" Section 2.1
"Effective Time" Section 2.3
"EIF" Introductory paragraph
"Final Payment Date" Section 3.1(b)
"Indemnified Party" Section 6.3
"Indemnifying Party" Section 6.3
"Indemnity Obligation" Section 6.3
"Liability" Section 4.1(h)
"Preferred Stock" Section 2.1
"Purchase Price" Section 2.2
I.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.
I.3 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.
ARTICLE II
PURCHASE AND SALE
II.1 Description of the Preferred Stock. The preferred stock shall
consist of 2,000 shares of convertible preferred stock of Foreland, bearing the
rights and characteristics set forth in Annex A hereto (the "Preferred Stock"),
representing one hundred percent (100%) of the total issued and outstanding
Preferred Stock of Foreland on a fully diluted basis.
II.2 Subscription and Sale. Pursuant to the terms and subject to
the conditions hereof, on the Closing Date, but effective as of the Effective
Time, Foreland shall offer for subscription and issue to EIF the Preferred Stock
for the Purchase Price (defined below) and EIF shall subscribe and pay for such
Preferred Stock in accordance with Section 2.4.
II.3 Effective Time. The subscription of the Preferred Stock shall
be effective as of August [ ], 1998, at 7 a.m. EST(the "Effective Time");
provided however, that this Agreement shall be of no force and effect until
receipt by EIF and execution of this Agreement by EIF in Massachusetts.
II.4 Purchase Price. The Purchase Price for the Preferred Stock
shall be Two Million Dollars ($2,000,000).
II.5 Payment of Purchase Price. The amount set forth in Section
2.4 shall be paid by EIF by wire transfer or other delivery of immediately
available funds at the Closing to the credit of such account as Foreland shall
designate.
ARTICLE III
THE CLOSING
III.1 Date of Closing. Subject to the conditions stated in this
Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall be held on or before August 11, 1998, or such other date as is
mutually satisfactory to the parties hereto.
III.2 Place of Closing. The Closing shall be held at such place as
the parties hereto may agree in writing.
III.3 Conditions to Foreland's Closing. The obligations of Foreland
hereunder are subject to the following conditions, each of which must be
satisfied or waived by Foreland prior to Closing:
(a) Delivery of Purchase Price. At the Closing, Foreland shall
have received the Purchase Price as set forth in Article II.
(b) Other Deliveries. EIF shall have delivered such documents,
certificates and/or instructions as may be reasonably necessary or
advisable to carry out EIF's obligations under, and to fulfill the purpose
of, this Agreement.
(c) Representations and Warranties True. Foreland shall be
satisfied that all representations and warranties of EIF contained in this
Agreement are true in all material respects at and as of the Closing as if
such representations and warranties were made at and as of the Closing, and
that EIF shall have performed and satisfied all material agreements in all
material respects as required by this Agreement to be performed and
satisfied by EIF at or prior to the Closing.
III.4 Conditions to EIF's Closing. The obligations of EIF hereunder
are subject to the following conditions, each of which must be satisfied or
waived by EIF prior to closing:
(a) Resolutions. Prior to or at Closing, EIF shall have received
resolutions of the Board of Directors and/or Shareholders of Foreland, as
required by law and Foreland's By-laws, authorizing and approving the
transactions contemplated by this Agreement, certified by the respective
Secretary or Assistant Secretary of Foreland, together with certified
copies of Foreland's Articles of Incorporation and By-laws and a good-
standing certificate with respect to Foreland from the State of Nevada.
(b) Stock Certificates. At the closing, Foreland shall deliver to
EIF a certificate representing the Preferred Stock, with all necessary
transfer taxes paid or other revenue stamps affixed thereto.
(c) Opinion of Counsel. Prior to or at Closing, EIF shall have
received an opinion of Kruse, Landa & Maycock, L.L.C. in form and substance
reasonably acceptable to EIF.
(d) Registration Rights Agreement. Prior to or at Closing,
Foreland shall deliver the Registration Rights Agreement to EIF, executed
by Foreland.
(e) Other Deliveries. Foreland shall have delivered such
additional instruments, as may be reasonably necessary or advisable to
carry out EIF's obligations under, and to fulfill the purpose of, this
Agreement and any other document, certificate or other instructions
delivered pursuant hereto.
(f) Representations and Warranties True. EIF shall be satisfied
that all representations and warranties of Foreland contained in this
Agreement shall be true in all material respects as at and as of the
Closing as if such representations and warranties were made at and as of
the Closing, and that Foreland have performed and satisfied all material
agreements in all material respects as required by this Agreement to be
performed and satisfied by Foreland at or prior to the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
IV.1 Representations and Warranties of Foreland. Foreland represents
and warrants as of the date hereof and as of the Closing Date as follows:
(a) Organization. Foreland is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada and is
duly qualified to carry on its business as now being conducted.
(b) Capital Stock. On the date hereof, the authorized capital of
Foreland consists of (i) 50,000,000 shares of Common Stock, par value
$0.001 per share, of which 8,548,921 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:
(A) 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 of
Common Stock);
(B) 1,650,000 preferred shares are designated as 1994
Series Convertible Redeemable Preferred Stock with 153,140 of
such preferred shares issued and outstanding (convertible into
51,047 shares of Common Stock);
(C) 1,000,000 preferred shares are designated as 1995
Series Convertible Preferred Stock with 361,103 of such preferred
shares issued and outstanding (convertible into 120,368 shares of
Common Stock);
(D) 50,000 preferred shares are designated as Series A
Preferred Stock with none of such preferred shares issued and
outstanding;
(E) 2,000 preferred shares are designated as 1998 Series
Convertible Preferred Stock with all of such preferred shares to
be issued and outstanding in connection with the transactions
contemplated by this Agreement; and
(F) 298,000 preferred shares are not designated.
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 of Common
Stock for issuance pursuant to the Warrants and for conversion of the
Preferred Stock. Except as set forth in Schedule 4.1, there are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
agreements or commitments of any character obligating Foreland to issue any
Shares or securities convertible into or exchangeable for or evidencing the
right to purchase or subscribe for any capital stock of Foreland. All
issued and outstanding shares of the capital stock of Foreland (i) are, or
shall be upon the Closing, duly authorized, validly issued, fully-paid and
nonassessable, (ii) are, shall be and have been free of any preemptive
rights, (iii) were not, and shall not be, issued in violation of the terms
of any contract, agreement, lease, plan, instrument or other document
binding on Foreland, and (iv) were and shall be issued in compliance with
all applicable charter documents of Foreland and all applicable federal and
state securities or "blue sky" laws and regulations.
(c) Transfer of the Preferred Stock. Upon the consummation of the
transactions contemplated hereby, EIF will acquire title to the Preferred
Stock, free and clear of any and all Liens. The Preferred Stock has been,
or will be prior to the Closing, duly authorized and, when issued and
delivered to EIF as provided in this Agreement, will be validly issued,
fully paid, and nonassessable, and the issuance of such shares will not be
subject to any agreement or restriction of any kind and will not violate or
contravene the terms of any contract, agreement, note, bond, mortgage,
indenture, deed or trust, license, franchise, permit, lease, plan,
instrument, or other document binding on Foreland.
(d) No Conflict. Foreland has all requisite power and authority to
carry on its business as presently conducted, to enter into this Agreement
and to perform its obligations hereunder. The consummation of the
transactions contemplated by this Agreement will not violate, or be in
conflict with, any material provision of the certificate of incorporation
of Foreland or any material provision of any agreement or instrument to
which Foreland is a party or by which it is bound (except for any provision
in any agreement relating to required consents to transfer) noncompliance
with which would have a materially adverse effect upon EIF, upon EIF's
ownership of the Preferred Stock after the Closing Date or upon any of the
transactions contemplated by this Agreement or, to the knowledge of
Foreland, any judgment, decree, order, statute, rule or regulation
applicable to Foreland (subject to required approvals of Federal, state or
other governmental agencies).
(e) Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite action on the part of Foreland.
(f) Enforceability. This Agreement has been duly executed and
delivered on behalf of Foreland. This Agreement constitutes legal, valid
and binding obligations of Foreland enforceable in accordance with their
respective terms.
(g) Proceedings. There are no actions, suits, proceedings or
governmental investigations or inquiries pending, or, to the knowledge of
Foreland, threatened against Foreland or any of its Affiliates, or their
respective properties, assets, operations or businesses, which would,
singly or in the aggregate, have a material adverse effect on the business
of Foreland.
(h) Financial Statements. The financial statements of Foreland dated
as of March 31, 1998 and identified on Schedule 4.1(i) hereto, (i) fairly
present the assets, liabilities, and financial condition of Foreland as of
the dates thereof and the results of operations of Foreland for the
respective periods ended on such dates, (ii) have been prepared from the
books and records of Foreland in accordance with generally accepted
accounting principles consistently applied, and (iii) include all
adjustments that are necessary for a fair presentation of the information
shown and do not contain any items of a special or nonrecurring nature that
are not identified as such. Foreland has no direct or indirect liability,
indebtedness, obligation, expense, claim, deficiency, guaranty, or
endorsement of or by any Person (other than endorsements of notes, bills,
and checks presented to banks for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute, contingent,
matured, unmatured, or otherwise ("Liability") other than Liabilities that
are reflected, accrued or reserved for in the Financial Statements or arise
in the ordinary course of Foreland's business consistent with past
practice. The Financial Statements do not contain as of the date hereof
any misstatement of material fact and does not fail to state any facts
necessary (in lights of the circumstances in which they were made) to make
the statements therein not misleading. Since the date of such Financial
Statements, there has been no material adverse change in the assets,
business, financial condition or prospects of Foreland.
(i) Compliance with Law. Foreland is not in violation of any order,
injunction, judgment, ruling, law, or regulation of any court or
governmental authority applicable to the property or business of Foreland,
which violation or violations in the aggregate would have a material
adverse effect on Foreland. The licenses, permits and other governmental
authorizations held by Foreland are valid and sufficient for the conduct of
Foreland's businesses as currently conducted, except where the failure to
hold such licenses, permits, and other governmental authorizations would
not have a material adverse effect.
(j) Fees. Foreland has not incurred any liability, contingent or
otherwise, for brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which EIF or Foreland shall have any
responsibility whatsoever.
IV.2 Representations and Warranties of EIF. EIF represents and
warrants to Foreland as of the date hereof and as of the Closing Date as
follows:
(a) Organization. EIF is a limited partnership duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to carry on its business as currently
conducted.
(b) No Conflict. EIF has all requisite power and authority to carry
on its business as presently conducted, to enter into this Agreement, to
purchase the Preferred Stock on the terms described in this Agreement and
to perform its other obligations under this Agreement. The consummation of
the transactions contemplated by this Agreement will not violate, or be in
conflict with, any material provision of the limited partnership or
partnership agreement of EIF or any agreement or instrument to which EIF is
a party or by which it is bound, noncompliance with which would have a
materially adverse effect upon Foreland or upon EIF's acquisition or
ownership of the Preferred Stock or upon any of the transactions
contemplated by this Agreement, or, to the knowledge of EIF, any judgment,
decree, order, statute, rule or regulation applicable to EIF (subject to
required approvals of Federal, state or other governmental agencies).
(c) Accredited Investor. EIF is an Accredited Investor as defined by
Regulation D of the Securities Act of 1933, as amended.
(d) Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and
validly authorized by all requisite action on the part of EIF.
(e) Enforceability. This Agreement has been duly executed and
delivered on behalf of EIF. This Agreement constitutes legal, valid and
binding obligations of EIF, enforceable in accordance with their respective
terms.
(f) Investment Intent. EIF acknowledges that the Preferred Stock has
not been registered under the Securities Act of 1933, as amended, or
applicable state securities laws and that the certificates representing
such shares will bear a legend to such effect. EIF is acquiring the
Preferred Stock hereunder for investment purposes only and not with a view
to, or for resale in connection with, the distribution thereof and with no
intention of distributing or selling any thereof except in compliance with
federal or state securities laws, and will make no sale or other transfer
of the Preferred Stock except in compliance with federal or state
securities laws.
(g) Fees. EIF has incurred no liability, contingent or otherwise,
for brokers' or finders' fees relating to the transactions contemplated by
this Agreement for which Foreland shall have any responsibility whatsoever.
ARTICLE V
OBLIGATIONS AFTER CLOSING
V.1 Use of Proceeds. The Purchase Price shall be used for general
corporate purposes as approved by the Board of Foreland.
V.2 Transfer Taxes. Foreland shall pay all transfer, documentary,
sales, use, registration, excise or similar taxes in connection with the
transactions contemplated by this Agreement.
V.3 Financial Information. Foreland shall prepare financial
statements in accordance with generally accepted accounting principles
consistently applied as of each March 31, June 30, September 30, and December 31
for the periods then ended. Quarterly statements shall contain consolidated
financial statements including a balance sheet, statement of income, and
statements of the source and application of cash flow for the period then ended.
Annual statements prepared as of each December 31 and for the year period then
ended shall be audited and accompanied by an opinion from an independent
certified public accountant. Copies of the financial statements required by
this subsection shall be furnished to EIF within 45 days after the end of each
fiscal period except for the annual statements, copies of which shall be
furnished within 90 days after the end of the fiscal period to which they
relate.
(a) Foreland shall, within five days after the same are sent,
furnish to EIF all financial documents and reports sent or furnished to any
of its lenders, or to any other security holders or creditors of Foreland,
and to any state or federal governmental authority.
(b) EIF acknowledges that, while the Financing Agreement is in
place, delivery of such financial information as is required pursuant to
the Financing Agreement will satisfy Foreland's obligation under this
Section 5.3.
V.4 Registration. In addition to any and all rights set forth in
this Agreement, EIF shall have registration rights as set forth in the
Registration Rights Agreement.
V.5 Preemptive RightsV.5 Preemptive RightsV.5 Preemptive
Rights. EIF shall cause Foreland not toissue any Shares, or enter into any
agreement in respect of such issuance unless
(a) the issuance has been approved as contemplated by the Articles of
Incorporation and Bylaws of Foreland and this Agreement and (b) such issuance
offers to EIF the right to participate proportionately, according to EIF's pro
rata share, in such proposed issuance. Foreland shall provide prompt written
notice of any such proposed issuance to EIF and EIF may elect to exercise the
rights granted pursuant to the preceding sentence by providing written notice to
Foreland within thirty (30) days after delivery to EIF of such written notice of
the proposed issuance. If EIF elects to exercise its rights pursuant to this
Section 5.5, EIF shall have the right, at its option, to receive its proportion
of the new issuance in the form of additional shares of any class of stock of
Foreland that EIF possesses or any other Shares as are being issued at such
time. If EIF fails to deliver in writing an election to so exercise such rights
to Foreland within the thirty (30)-day notice period, such failure shall be
deemed to be a rejection of the right of EIF to participate in the subscription
and purchase of the Shares to be issued. Notwithstanding anything to the
contrary in this section, EIF shall not have any rights under this Section 5.5
to subscribe to shares issued (i) pursuant to options for capital stock of
Foreland existing as of the Closing Date, (ii) in connection with the Qualified
Offering, (iii) in connection with a registration of any Shares in accordance
with the Registration Rights Agreement, or (iv) pursuant to transactions falling
within Rule 145(a) of the 1933 Act; provided that, as to (iv), such transactions
are fair value transactions conducted at arms' length.
V.6 Future Financings. EIF may, in its discretion, elect to
finance acquisitions by Foreland of properties subject to EIF's normal terms and
conditions.
V.7 Further Assurances. After Closing, Foreland and EIF shall each
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered such instruments and take such other action as may be necessary or
advisable to assure to the other the rights, titles, interests, estates, and
privileges intended to be assigned, delivered, or reserved to such party and to
consummate the transactions and to carry out their obligations under this
Agreement and under any document, certificate, or other instrument delivered
pursuant hereto.
ARTICLE VI
INDEMNIFICATION
VI.1 Indemnification by EIF. From and after the Closing Date, EIF
shall defend, indemnify and save and hold harmless Foreland, its directors,
officers, employees and agents against all Losses arising out of or resulting
from any breach of any representation, warranty, covenant or agreement of EIF
under this Agreement (including the Schedules and the Exhibits hereto or
thereto).
VI.2 Indemnification by Foreland. From and after the Closing Date,
Foreland shall defend, indemnify and save and hold harmless EIF, its directors,
officers, employees and agents against all Losses (a) arising out of or
resulting from any breach of any representation, warranty, covenant or agreement
of Foreland under this Agreement (including the Schedules and the Exhibits
hereto or thereto); (b) that relate to claims or other demands by third parties
with respect to any violation by Foreland of any federal or state securities
laws in connection with the transactions contemplated by this Agreement; or (c)
in connection with the operating of the Properties from the Closing Date.
VI.3 Procedures. The parties hereto agree promptly to notify the
other party of the making of any demand, the assertion of any claim, or the
commencement of any suit, action or proceeding by any third party for which
indemnity may be sought under this Agreement (an "Indemnity Obligation") prior
to expending or committing to expend funds for which indemnity may be sought.
The party from whom indemnification is sought (the "Indemnifying Party") shall
have the right, but not the obligation, to assume the defense or settlement of
any Indemnity Obligation of which the party seeking indemnification (the
"Indemnified Party") gives notice; provided, however, that if the Indemnifying
Party does not elect to assume such defense or settlement, the Indemnified Party
shall have the right, but not the obligation, to assume such defense or
settlement but shall not thereby waive any right to indemnity therefor by the
Indemnifying Party pursuant to this Agreement, and the Indemnifying Party shall
at all times have the right, at its option and expense, to participate fully
therein. Each party shall have reasonable access to the books, records and
personnel in the possession or control of the other party which are pertinent to
the defense or settlement of any Indemnity Obligation. The parties shall
cooperate in the defense or settlement of any Indemnity Obligation, but the
party electing to assume such defense or settlement shall have full authority to
determine all action to be taken with respect thereto and the terms of the
settlement; provided, however, that without the consent of the Indemnified
Party, no settlement shall be entered into that does not include as an
unconditional term thereof the giving by the Person asserting such claims of an
unconditional release of the Indemnified Party from all personal liability with
respect to such claim. The Indemnified Party may join the Indemnifying Party in
any suit, action or proceeding to which any such right of indemnity created by
this Agreement would or might apply, for the purpose of enforcing any such
right.
ARTICLE VII
MISCELLANEOUS
VII.1 Survival. The representations, warranties, covenants,
agreements and indemnities set forth in this Agreement shall survive the
Closing; provided, however, that any claim or demand for breach of a
representation or warranty under Sections 6.1 or 6.2(a) and any claim or demand
under Section 6.2 must be asserted in writing on or before the one (1) year
anniversary date of the Closing Date, after which date such indemnities shall
expire except to the extent this Agreement expressly provides that any such
provision shall survive for a longer period. If the Closing occurs, all
conditions of Closing shall be deemed to have been satisfied or waived, and,
after the Closing, neither party shall have any liability whatsoever to the
other arising out of, resulting from or attributable to any such conditions of
Closing, regardless of whether such conditions of Closing were, in fact,
satisfied or waived.
VII.2 Exhibit and Schedules. The Exhibit and Schedules referred
to in this Agreement are hereby incorporated in this Agreement by reference and
constitute a part of this Agreement. Each party to this Agreement and its
counsel has received a copy of the Exhibits and Schedules prior to and as of the
execution of this Agreement.
VII.3 Expenses. Foreland shall be responsible for payment of all
expenses, including legal fees, incurred by Foreland and EIF to negotiate,
document, and close the transactions contemplated hereby.
VII.4 Notices. All notices and communications required or
permitted under this Agreement shall be in writing and any communication or
delivery hereunder shall be deemed to have been duly made when personally
delivered to the individual indicated below, or if sent by telecopier or mailed,
when received by the party charged with such notice and addressed as follows:
If to EIF:
Energy Income Fund, L.P.
136 Dwight Road
Longmeadow, MA 01106
Attn: Robert D. Gershen
Facsimile No.: (413) 567-7926
If to Foreland:
Foreland Corporation
12596 West Bayaud Avenue
Suite 300
Lakewood, CO 80228-2019
Attn: N. Thomas Steele
Facsimile No.: (303) 988-3234
Copies of all notices (other than reports or other routine communications),
which shall not constitute notice hereunder, 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
- and -
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway (300 South)
Salt Lake City, UT 84101-2034
Attn: James R. Kruse, Esq.
Facsimile No.: (801) 359-3954
Any party may, by written notice so delivered to the other parties, change
the address or individual to which delivery shall thereafter be made.
VII.5 Amendments. Except for waivers specifically provided herein,
this Agreement may not be amended nor any rights hereunder waived except by an
instrument in writing signed by the party to be charged with such amendment or
waiver and delivered by such party to the party claiming the benefit of such
amendment or waiver.
VII.6 Limitation of Remedies. In no event shall either party to this
Agreement be entitled to recover special or consequential damages from the other
party as a result of a breach of this Agreement by such other party, including,
without limitation, special damages in the nature of lost or future profits.
VII.7 Counterparts. This Agreement may be executed by EIF and Foreland
in any number of counterparts, no one of which need be executed by all parties
hereto, but all of which together shall constitute one and the same instrument.
VII.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
VII.9 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto and all other agreements executed in connection herewith)
constitutes the entire understanding among the parties with respect to the
subject matter hereof, superseding all negotiations, prior discussions and prior
agreements and understandings relating to such subject matter.
VII.10 Parties in Interest. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective heirs, devisees, executors, administrators,
successors and assigns; and except as provided in this Article VII, which is
also intended to benefit and be enforceable by the Indemnified Parties, nothing
contained in this Agreement, express or implied, is intended to confer upon any
other Person any benefits, rights or remedies.
VII.11 Nonwaiver. No course of dealing or any delay or failure to
exercise any right, power or remedy hereunder on the part of EIF shall operate
as a waiver of or otherwise prejudice EIF's rights, powers or remedies.
VII.12 Drafting. Each Party acknowledges that its legal counsel
participated in the preparation of this Agreement. The Parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any Party against the other.
IN WITNESS WHEREOF, the parties hereto each has caused this Agreement to
be executed by its duly authorized officer all as of the day and year first set
forth above.
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By:
Robert D. Gershen
A Managing Director
FORELAND CORPORATION
By:
N. Thomas Steele
President
SCHEDULE 4.1
The following schedule sets forth the number of shares of common stock issuable
pursuant to outstanding options, warrants, calls, subscriptions, rights,
agreements or commitments of any character obligating Foreland to issue any
Shares or securities convertible into or exchangeable for or evidencing the
right to purchase or subscribe for any Capital Stock of Foreland:
Shares
Reason for Potential Issuable
Issuance
Preferred Stock
1991 Series 13,333
1994 Series 51,047
1995 Series 120,368
Options 1,755,000
Warrants 1,630,025
Warrants to Purchase 90,541
Preferred Stock
TOTAL ISSUABLE 3,660,314
The foregoing schedule does not include the 1998 Series Convertible Preferred
Stock being sold pursuant to the Stock Purchase Agreement, warrants to purchase
500,000 shares of common stock to be granted to Energy Income Fund, L.P.,
pursuant to that certain First Amendment to Financing Agreement or shares
issuable to Petro Source Corporation pursuant to that certain Amendment to
Option and Purchase Agreement. The schedule also does not include shares that
may be issuable pursuant to applicable anti-dilution provisions respecting the
foregoing.
FIRST ALLONGE TO ACQUISITION NOTE
THIS FIRST ALLONGE TO THE ACQUISITION NOTE (the "First Allonge"),
dated as of August 10, 1998, is to become affixed to, modify and become a part
of that certain promissory note (the "Acquisition Note") in the original
principal sum of Two Million Three Hundred Twenty-Seven Thousand Dollars
($2,327,000), dated as of January 6, 1998, made originally by 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"), and payable to the order of ENERGY INCOME FUND, L.P., a
Delaware limited partnership ("Lender").
Lender and Borrowers have agreed that the Acquisition Note should be
amended and modified as follows:
1. The first full paragraph of the Acquisition Note is amended by
adding "Foreland Refining Corporation, a corporation organized and existing
under the laws of the State of Texas, Foreland Asphalt Corporation, a
corporation organized and existing under the laws of the State of Utah, Foreland
Asset Corporation, a corporation organized and existing under the laws of the
State of Nevada and Petrosource Transportation, a corporation organized and
existing under the laws of the State of Utah" as Borrowers. By executing this
First Allonge, Foreland Refining Corporation ("Foreland Refining"), Foreland
Asphalt Corporation ("Foreland Asphalt"), Foreland Asset Corporation ("Foreland
Asset") and Petrosource Transportation ("Transportation") agree to be bound by
and expressly adopt, ratify, confirm and restate all provisions under the
Acquisition Note as if they were original parties to the Acquisition Note,
including but not limited to all representations and warranties, each of which
shall be deemed to have been made as of the date hereof by Foreland Refining,
Foreland Asphalt, Foreland Asset and Transportation.
2.The first full paragraph of the Acquisition Note is further amended
by inserting the phrase ", as amended" immediately prior to the parenthetical
"(the "Financing Agreement")" in the first sentence of the paragraph.
3.The first full paragraph of the Acquisition Note is further amended
by deleting the principal sum of the Acquisition Note and replacing it with
"Nine Million Fifty Thousand Dollars ($9,050,000)."
4.The last two full paragraphs of the Acquisition Note are amended by
deleting them and replacing with the following:
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 any or all Borrowers.
Notwithstanding anything to the contrary contained in this Note,
the Financing Agreement or any other Loan Document, no 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 any 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 any Borrower's obligations to perform any of Borrowers' other
obligations under the Loan Documents, including without limitation
Borrowers' obligation to pay damages as set forth in Section 4.3 and
to indemnify Lender as set forth in Article 9 of the Financing
Agreement.
5.This First Allonge shall effect the amendments and modifications to
the Acquisition Note described in paragraphs 1-4 above.
6.All terms and conditions of the Acquisition Note shall, except as
herein modified, remain in full force and effect and all rights, duties,
obligations and responsibilities of Borrowers and Lender shall be governed and
determined by the Acquisition Note as the same has been modified by this First
Allonge.
7.Wherever the term "Borrowers" includes Foreland, Eagle Springs,
Foreland Refining, Foreland Asphalt, Foreland Asset or Transportation, the
remaining language in such paragraph shall be interpreted to apply to each of
Foreland, Eagle Springs, Foreland Refining, Foreland Asphalt, Foreland Asset or
Transportation, as the context requires.
8.THIS FIRST ALLONGE IS TO BE CONSTRUED UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
9.This First Allonge shall be of no force and effect until receipt
and execution of it by Lender at its offices in Longmeadow, Massachusetts.
IN WITNESS WHEREOF, each of the undersigned has executed and delivered
this First Allonge to Acquisition Note as of the date first written above.
FORELAND CORPORATION
By: /s/ N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
By: /s/ N. Thomas Steele
Manager
FORELAND REFINING CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASPHALT CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASSET CORPORATION
By: /s/ N. Thomas Steele
President
PETROSOURCE TRANSPORTATION
By: /s/ N. Thomas Steele
President
CONSENTED AND AGREED TO:
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By: /s/ Steven P. McDonald
Vice President
FIRST ALLONGE TO DEVELOPMENT NOTE
THIS FIRST ALLONGE TO THE DEVELOPMENT NOTE (the "First Allonge"),
dated as of August 10, 1998, is to become affixed to, modify and become a part
of that certain promissory note (the "Development Note") in the original
principal sum of Thirteen Million Eight Hundred Ninety-Three Thousand Dollars
($13,893,000), dated as of January 6, 1998, made originally by 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"), and payable to the order of ENERGY INCOME FUND, L.P., a
Delaware limited partnership ("Lender").
Lender and Borrowers have agreed that the Development Note should be
amended and modified as follows:
1. The first full paragraph of the Development Note is amended by
adding "Foreland Refining Corporation, a corporation organized and existing
under the laws of the State of Texas, Foreland Asphalt Corporation, a
corporation organized and existing under the laws of the State of Utah, Foreland
Asset Corporation, a corporation organized and existing under the laws of the
State of Nevada and Petrosource Transportation, a corporation organized and
existing under the laws of the State of Utah" as Borrowers. By executing this
First Allonge, Foreland Refining Corporation ("Foreland Refining"), Foreland
Asphalt Corporation ("Foreland Asphalt"), Foreland Asset Corporation ("Foreland
Asset") and Petrosource Transportation ("Transportation") agree to be bound by
and expressly adopt, ratify, confirm and restate all provisions under the
Development Note as if they were original parties to the Development Note,
including but not limited to all representations and warranties, each of which
shall be deemed to have been made as of the date hereof by Foreland Refining,
Foreland Asphalt, Foreland Asset and Transportation.
2.The first full paragraph of the Development Note is further amended
by inserting the phrase ", as amended" immediately prior to the parenthetical
"(the "Financing Agreement")" in the first sentence of the paragraph.
3.The first full paragraph of the Development Note is further amended
by deleting the principal sum of the Development Note and replacing it with
"Seven Million One Hundred Seventy-Five Thousand Seven Hundred Twenty Dollars
and Sixty-Six Cents ($7,175,720.66)."
4.The last two full paragraphs of the Development Note are amended by
deleting them and replacing with the following:
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 any or all Borrowers.
Notwithstanding anything to the contrary contained in this Note,
the Financing Agreement or any other Loan Document, no 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 any 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 any Borrower's obligations to perform any of Borrowers' other
obligations under the Loan Documents, including without limitation
Borrowers' obligation to pay damages as set forth in Section 4.3 and
to indemnify Lender as set forth in Article 9 of the Financing
Agreement.
5.This First Allonge shall effect the amendments and modifications to
the Development Note described in paragraphs 1-4 above.
6.All terms and conditions of the Development Note shall, except as
herein modified, remain in full force and effect and all rights, duties,
obligations and responsibilities of Borrowers and Lender shall be governed and
determined by the Development Note as the same has been modified by this First
Allonge.
7.Wherever the term "Borrowers" includes Foreland, Eagle Springs,
Foreland Refining, Foreland Asphalt, Foreland Asset or Transportation, the
remaining language in such paragraph shall be interpreted to apply to each of
Foreland, Eagle Springs, Foreland Refining, Foreland Asphalt, Foreland Asset or
Transportation, as the context requires.
8.THIS FIRST ALLONGE IS TO BE CONSTRUED UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
9.This First Allonge shall be of no force and effect until receipt
and execution of it by Lender at its offices in Longmeadow, Massachusetts.
IN WITNESS WHEREOF, each of the undersigned has executed and delivered
this First Allonge to Development Note as of the date first written above.
FORELAND CORPORATION
By: /s/ N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
By: /s/ N. Thomas Steele
Manager
FORELAND REFINING CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASPHALT CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASSET CORPORATION
By: /s/ N. Thomas Steele
President
PETROSOURCE TRANSPORTATION
By: /s/ N. Thomas Steele
President
CONSENTED AND AGREED TO:
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By: /s/ Steven P. McDonald
Vice President
FIRST ALLONGE TO REFINANCING NOTE
THIS FIRST ALLONGE TO THE REFINANCING NOTE (the "First Allonge"),
dated as of August 10, 1998, is to become affixed to, modify and become a part
of that certain promissory note (the "Refinancing Note") in the original
principal sum of Six Hundred Eighty Thousand Dollars ($680,000), dated as of
January 6, 1998, made originally by 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"), and
payable to the order of ENERGY INCOME FUND, L.P., a Delaware limited partnership
("Lender").
Lender and Borrowers have agreed that the Refinancing Note should be
amended and modified as follows:
1. The first full paragraph of the Refinancing Note is amended by
adding "Foreland Refining Corporation, a corporation organized and existing
under the laws of the State of Texas, Foreland Asphalt Corporation, a
corporation organized and existing under the laws of the State of Utah, Foreland
Asset Corporation, a corporation organized and existing under the laws of the
State of Nevada and Petrosource Transportation, a corporation organized and
existing under the laws of the State of Utah" as Borrowers. By executing this
First Allonge, Foreland Refining Corporation ("Foreland Refining"), Foreland
Asphalt Corporation ("Foreland Asphalt"), Foreland Asset Corporation ("Foreland
Asset") and Petrosource Transportation ("Transportation") agree to be bound by
and expressly adopt, ratify, confirm and restate all provisions under the
Refinancing Note as if they were original parties to the Refinancing Note,
including but not limited to all representations and warranties, each of which
shall be deemed to have been made as of the date hereof by Foreland Refining,
Foreland Asphalt, Foreland Asset and Transportation.
2.The first full paragraph of the Refinancing Note is further amended
by inserting the phrase ", as amended" immediately prior to the parenthetical
"(the "Financing Agreement")" in the first sentence of the paragraph.
3.The first full paragraph of the Refinancing Note is further amended
by deleting the principal sum of the Refinancing Note and replacing it with "Six
Hundred Seventy-Four Thousand Two Hundred Seventy-Nine Dollars and Thirty-Four
Cents ($674,279.34)."
4.The last two full paragraphs of the Refinancing Note are amended by
deleting them and replacing with the following:
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 any or all Borrowers.
Notwithstanding anything to the contrary contained in this Note,
the Financing Agreement or any other Loan Document, no 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 any 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 any Borrower's obligations to perform any of Borrowers' other
obligations under the Loan Documents, including without limitation
Borrowers' obligation to pay damages as set forth in Section 4.3 and
to indemnify Lender as set forth in Article 9 of the Financing
Agreement.
5.This First Allonge shall effect the amendments and modifications to
the Refinancing Note described in paragraphs 1-4 above.
6.All terms and conditions of the Refinancing Note shall, except as
herein modified, remain in full force and effect and all rights, duties,
obligations and responsibilities of Borrowers and Lender shall be governed and
determined by the Refinancing Note as the same has been modified by this First
Allonge.
7.Wherever the term "Borrowers" includes Foreland, Eagle Springs,
Foreland Refining, Foreland Asphalt, Foreland Asset or Transportation, the
remaining language in such paragraph shall be interpreted to apply to each of
Foreland, Eagle Springs, Foreland Refining, Foreland Asphalt, Foreland Asset or
Transportation, as the context requires.
8.THIS FIRST ALLONGE IS TO BE CONSTRUED UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
9.This First Allonge shall be of no force and effect until receipt
and execution of it by Lender at its offices in Longmeadow, Massachusetts.
IN WITNESS WHEREOF, each of the undersigned has executed and delivered
this First Allonge to Refinancing Note as of the date first written above.
FORELAND CORPORATION
By: /s/ N. Thomas Steele
President
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY COMPANY
By: /s/ N. Thomas Steele
Manager
FORELAND REFINING CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASPHALT CORPORATION
By: /s/ N. Thomas Steele
President
FORELAND ASSET CORPORATION
By: /s/ N. Thomas Steele
President
PETROSOURCE TRANSPORTATION
By: /s/ N. Thomas Steele
President
CONSENTED AND AGREED TO:
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By: /s/ Steven P. McDonald
Vice President
ENVIRONMENTAL INDEMNITY AGREEMENT
This Environmental Indemnity Agreement (this "Agreement"), dated as of
August 11, 1998, is among PETRO SOURCE CORPORATION, a Utah corporation ("Petro
Source Corp."), and Petro Source Investments, Inc., a Delaware corporation
("Petro Source Parent") (Petro Source Corp. and Petro Source Parent shall be
referred to collectively as the "Petro Source Group"), and FORELAND CORPORATION,
a Nevada corporation ("Foreland Corp."), FORELAND REFINING CORPORATION, a Texas
corporation ("Foreland Refining"), FORELAND Asset Corporation, a Nevada
corporation ("Foreland Asset"), and PETROSOURCE TRANSPORTATION, a Utah
corporation ("Transportation") (Foreland Corp., Foreland Refining, Foreland
Asset and Transportation shall be referred to collectively as, the "Foreland
Group").
RECITALS
A. By Option and Purchase Agreement, dated effective as of December 31,
1997, among Foreland Corp., Petro Source Corp., Petro Source Refining
Corporation ("Petro Source Refining"), and Transportation, as amended by
Amendment to Option and Purchase Agreement, dated as of , 1998, by
and between Foreland Corp., Foreland Refining (as successor in interest to Petro
Source Refining), Petro Source Corp. and Transportation (as amended, the
Purchase Agreement"), Foreland Corp. agreed to acquire, directly or indirectly,
certain properties, interests and rights generally described as: (i) all of the
issued and outstanding stock of Transportation, which owns various rolling stock
and other properties, (ii) the properties owned by Foreland Refining, including,
without limitation, two refineries known as the Tonopah Refinery and the Eagle
Springs Refinery and related properties, and (iii) all of the issued and
outstanding stock of Foreland Refining, all as more particularly described in
the Purchase Agreement. Such properties, including, without limitation, the
Tonopah Refinery and the Eagle Springs Refinery and related properties, and the
properties owned by Transportation shall be referred to collectively as the
"Acquired Properties." All other properties at any time owned by any member of
the Petro Source Group, Petro Source Refining, Foreland Refining, Transportation
or any predecessor in interest to the Acquired Properties shall be referred to
collectively as the "Other Properties." The Acquired Properties and the Other
Properties shall be referred to collectively as the "Properties."
B. Petro Source Corp. is the wholly owned subsidiary of Petro Source
Parent.
C. It is a condition precedent to Foreland Corp. proceeding with the
closing of the transactions provided for by the Purchase Agreement, that the
Petro Source Group execute and agree as provided herein.
AGREEMENT
In consideration of Foreland Corp. proceeding with the closing under the
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Petro Source Group and the
Foreland Group agree as follows:
1. Definitions. As used herein, the following items shall have the
following meanings:
Hazardous Materials. The term "Hazardous Materials" shall mean
(i) any oil, flammable substances, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes, wastes or substances or any other materials
or pollutants which (A) pose a hazard to the Properties or to persons on or
about the Properties, or (B) cause the Properties to be in violation of any
federal, state, tribal or local laws, rules, ordinances, regulations, orders or
policies relating to the environment, health and safety, or to industrial
hygiene or the environmental conditions on, under or about the Premises,
including, without limitation, soil and groundwater conditions; (ii) asbestos in
any form which is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing levels
of polychlorinated biphenyls in excess of fifty (50) parts per million; and
(iii) any chemical, material or substance defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," or "toxic
substances" or words of similar import under any applicable local, state or
federal laws or the regulations adopted or publications promulgated pursuant
thereto.
Hazardous Materials Claims. The term "Hazardous Materials Claims"
shall mean any and all enforcement, clean-up, removal, remedial or other
governmental or regulatory actions or orders threatened, instituted or completed
pursuant to any Hazardous Materials Laws, together with any and all claims made
or threatened by any third party against the Foreland Group or the Properties
relating to damage, contribution, cost recovery compensation, loss or injury
resulting, from any Hazardous Materials.
Hazardous Materials Laws. The term "Hazardous Materials Laws" shall
mean any federal, state, tribal or local laws, rules, ordinances, regulations,
orders or policies relating to the environment, health and safety, any Hazardous
Materials (including, without limitation, the use, handling, transportation,
production, disposal, discharge, storage, clean-up or remedy of contamination
thereof) or to industrial hygiene or the environmental conditions in, on, under,
about or otherwise relating to the Properties, including, without limitation,
soil, groundwater and indoor and ambient air conditions.
2. Indemnity. The Petro Source Group shall protect, indemnify, defend
and hold harmless each of the Foreland Group and its lenders and its and their
directors, officers, members, employees, agents and shareholders from and
against any and all actual or potential claims, liabilities, damages, losses,
fines, penalties, judgments, awards, costs and expenses (including without
limitation, attorneys' fees and costs and expenses of investigation)
(collectively, the "Claims and Expenses") which are reasonably incurred and
arise out of or relate in any way to any use, handling, production,
transportation, disposal, transportation or storage of any Hazardous Materials
in, on, under or through or migrating into, on, from or through the Acquired
Properties on or prior to the date the closing occurs under the Purchase
Agreement (the "Closing Date") and the Other Properties on, prior to or after
the Closing Date, including, without limitation: (i) all foreseeable and all
unforeseeable damages (specifically including, but not limited to, consequential
damages) directly or indirectly arising out of (A) the use, generation, storage,
discharge or disposal of Hazardous Materials by any person or entity, or (B) any
residual contamination affecting any natural resource or the environment; and
(ii) the reasonably incurred costs of any required or necessary repair, cleanup,
or detoxification of the Properties and the preparation of any closure or other
required plans; provided, however, that the Petro Source Group agrees that in
the event any Hazardous Material is caused to be removed from the Properties by
any member of the Petro Source Group, the Foreland Group or any other person,
the number assigned by the Environmental Protection Agency or any other agency
to such Hazardous Material shall, to the extent such matter is within the Petro
Source Group's control, be solely in the name of a member of Petro Source Group
and the Petro Source Group understands and agrees that its liability to the
aforementioned indemnified parties shall arise from the earlier to occur of
(a) discovery of any Hazardous Materials in, on, under or about the Properties,
or (b) the institution of any Hazardous Material Claim, and not upon the
realization of loss or damage; and the Petro Source Group agrees to pay to the
Foreland Group from time to time, immediately upon request, an amount equal to
such Claims or Expenses, as reasonably determined by the Foreland Group.
3. Survivability. The obligation of the Petro Source Group shall survive
any transfer of title to the Properties by the Foreland Group through a
foreclosure, deed in lieu of foreclosure or otherwise as part of a remedy
exercised by an entity providing the Foreland Group with financing, but not
otherwise, and shall inure to the benefit of any transferee of the Acquired
Properties as well as the Foreland Group after any such transfer. Such
obligation shall not be affected by any investigation by or on behalf of or by
any information which the Foreland Group may have obtained with respect to the
matters indemnified against by the Petro Source Group hereunder; provided that
the Foreland Group, upon written request from the Petro Source Group, will
provide the Petro Source Group with copies of any such written materials or
information. The Petro Source Group hereby waives the right to assert any
statute of limitations as a defense to the obligations under this Agreement to
the fullest extent permitted by applicable law. The obligations of the Petro
Source Group under this Agreement shall be joint and severable.
4. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be valid and enforceable to the
fullest extent permitted by applicable law. If any provision of this Agreement,
or the application of any such provision to any person or circumstance, shall,
to any extent, be held to be invalid, illegal or unenforceable under applicable
law, the remainder of this Agreement, or the application of such provision to
persons or circumstances other than those as to which it is invalid, illegal or
unenforceable, shall not be affected thereby.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of Nevada.
6. Section Titles. The section titles contained in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning or interpretation of any provision of this Agreement.
7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
8. Amendments and Waivers. No provision of this Agreement may be amended
or terminated except by an instrument in writing setting forth the terms of such
amendment or termination and signed by the party against whom enforcement is
sought. No waiver of any provision of this Agreement nor consent to any
departure by either party therefrom shall in any event be effective unless the
same shall be in writing and signed by the other party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on either party shall in any
case entitle it to any other or further notice or demand in similar or other
circumstances. No failure on the part of either party to exercise and no delay
in exercising any right or remedy hereunder, at law or in equity, shall operate
as a waiver thereof; nor shall either party be estopped to exercise any such
right or remedy at any future time because of any such failure to delay; nor
shall any single or partial exercise of any such right or remedy preclude any
other or further exercise thereof or the exercise of any other right or remedy.
9. Attorneys' Fees. In the event of any litigation between the parties
hereto to enforce any of the provisions of this Agreement or any right of either
party hereto, the unsuccessful party to such litigation hereby agrees to pay any
and all costs and expenses (including, without limitation, reasonable attorneys'
fees) incurred by the successful party in enforcing any rights or remedies under
this Agreement.
10. Notice. Any notice, demand, request, consent, approval, or
communication that any party desires, or is required, to give to any other party
or any other personal shall be in writing and either served personally or sent
by prepaid, first-class mail to the other party at the following address:
To Petro Source Group: Petro Source Corporation
9801 Westheimer, Suite 900
Houston, Texas 77042
Attention: A. Howard McCallum, President
With copies to: Petro Source Corporation
9801 Westheimer, Suite 900
Houston, Texas 77042
Attention: Harvey H. Cody III, General Counsel
To Foreland Group: Foreland Corporation
12596 West Bayaud, Suite 300
Lakewood, Colorado 80226
Attention: N. Thomas Steele, President
With copies to: James R. Kruse, Esq.
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway (300 South)
Salt Lake City, Utah 84101
Any party may change its address by so notifying the other party of
the change of address.
11. Successors. This Agreement shall be binding on, and inure to the
benefit of, the parties hereto and, to the extent specified in Section 3 hereof,
their respective successors and assigns, including, without limitation, the
successors to the Foreland Group.
12. Construction. Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular and the singular the
plural. The word "or" is not exclusive. The words "hereof," "herein,"
"hereunder" and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. In the event of a
conflict between the Purchase Agreement and this Agreement, this Agreement shall
control.
The parties hereto have executed and delivered this Agreement as of the
date first written above.
PETROSOURCE GROUP:
Petro Source Corporation, a
Utah corporation
By /s/ Howard McCollum
President
Petro Source Investments, Inc., a
Delaware corporation
By /s/ Howard McCollum
President
FORELAND GROUP:
Foreland Corporation, a
Nevada corporation
By /s/ N. Thomas Steele
President
Foreland Refining Corporation, a
Texas corporation
By /s/ N. Thomas Steele
President
Foreland Asset Corporation, a
Nevada corporation
By /s/ N. Thomas Steele
President
Petrosource Transportation, a
Utah corporation
By /s/ N. Thomas Steele
President
WHEN RECORDED AND/OR
FILED RETURN TO:
Peter O. Hansen, Esq.
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
SECOND AMENDMENT
TO
DEED OF TRUST,
SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION AND PROCEEDS,
FINANCING STATEMENT,
AND
FIXTURE FILING
This Second Amendment to Deed of Trust, Security Agreement, Assignment
of Production and Proceeds, Financing Statement and Fixture Filing (this "Second
Amendment to Deed of Trust"), dated as of August 11, 1998, is among FORELAND
CORPORATION, a Nevada corporation, 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, and ENERGY INCOME
FUND, L.P., a Delaware limited partnership ("Secured Party"), with an address of
136 Dwight Road, Longmeadow, Massachusetts 01106.
RECITALS
A. By Deed of Trust, Security Agreement, Assignment of Production and
Proceeds, Financing Statement and Fixture Filing, dated as of January 6, 1998
(the "Original Deed of Trust"), Debtors granted to Secured Party and to First
American Title Company of Nevada, a Nevada corporation, as Trustee for the
benefit of Secured Party, liens on and security interests in certain property,
interests and rights as more specifically described therein.
B. The Original Deed of Trust was recorded in the real property
records of Elko, Eureka and Nye Counties, Nevada as follows:
County Date Recording Data
Elko 2/6/98 Book 1031 -- Page 458
No. 422281
Eureka 1/13/98 Book 317 -- Page 157
No. 169580
Nye 1/16/98 No. 435893
C. By First Amendment to Deed of Trust, Security Agreement,
Assignment of Production and Proceeds, Financing Statement, and Fixture Filing,
dated as of February 2, 1998, (the "First Amendment to Deed of Trust"), Debtors
and Secured party amended the Original Deed of Trust to confirm that additional
interests acquired by Debtors in a portion of oil and gas properties subject to
the Original Deed of Trust and located in Nye County, Nevada were subject to the
Original Deed of Trust. The Original Deed of Trust as amended by the First
Amendment shall be referred to as the "Deed of Trust." Capitalized terms used
herein without definition shall have the meaning ascribed thereto in the Deed of
Trust.
D. The First Amendment to Deed of Trust was recorded in the real
property records of Nye County, Nevada as follows:
County Date Recording Data
Nye 2/11/98 No. 437922
The First Amendment to Deed of Trust was recorded only in Nye County, Nevada,
because it affected real property located only in Nye County, Nevada.
E. Secured Party is the owner of the indebtedness evidenced and
created by the Notes, and Debtors are the legal owners of the Collateral, and
all of the Collateral remains subject to the terms of the Deed of Trust.
F. The Debtors, Foreland Refining Corporation, a Texas corporation
("Foreland Refining"), Foreland Asset Corporation, a Nevada corporation
("Foreland Asset"), Foreland Asphalt Corporation, a Utah corporation ("Foreland
Asphalt"), and Petrosource Transportation, a Utah corporation ("Transportation")
and Secured Party have amended the Loan Agreement by Amendment to Financing
Agreement, dated as of August 10, 1998, in part to add Foreland Refining,
Foreland Asset, Foreland Asphalt and Transportation as borrowers thereunder, and
have amended the Notes by Allonges thereto which added Foreland Refining,
Foreland Asset, Foreland Asphalt and Transportation as makers and obligors
thereunder.
G. This Second Amendment to Deed of Trust is executed to amend the
Deed of Trust as provided herein.
AMENDMENT
In consideration of the mutual promises contained herein, the benefits
to be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to Definition of Obligations. The definition of
"Obligations" contained in the Deed of Trust is hereby amended such that
Section 1.1 of the Deed of Trust shall read in its entirety as follows:
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"), as amended and supplemented by First Allonge to
Refinancing Note, dated as of August 10, 1998, and executed by
Debtors, Foreland Refining Corporation, a Texas corporation
("Foreland Refining"), Foreland Asset Corporation, a Nevada
corporation ("Foreland Asset"), Foreland Asphalt Corporation, a
Utah corporation ("Foreland Asphalt") and Petrosource
Transportation, a Utah corporation ("Transportation")
(collectively, the "Foreland Group"), which added Foreland
Refining, Foreland Asset, Foreland Asphalt and Transportation as
makers and obligors and decreased the principal amount to
$674,279.34;
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,
as amended and supplemented by First Allonge to Acquisition Note,
dated as of August 10, 1998, and executed by the Foreland Group,
which added Foreland Refining, Foreland Asset, Foreland Asphalt
and Transportation as makers and obligors and increased the
principal amount to $9,050,000.00; 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, as amended and supplemented by First Allonge to
Development Note, dated as of August 10, 1998 and executed by the
Foreland Group, which added Foreland Refining, Foreland Asset,
Foreland Asphalt and Transportation as makers and obligors and
decreased the principal amount to $7,175,720.66;
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, among
Debtors and Secured Party, as amended by First Amendment to Financing
Agreement, dated as of August 10, 1998, among the Foreland Group and
Secured Party, as amended and as may be amended from time to time;
C. This Instrument. All indebtedness, liabilities and
obligations of Debtors to Secured Party of whatever kind or character,
now existing or hereafter created or arising under or pursuant to this
Instrument, including, without limitation, those arising under or
pursuant to the representations, warranties, covenants and indemnities
contained herein and any and all amounts advanced to protect the liens
and security interests herein granted and all reasonable attorneys
fees, court costs, and expenses of whatever kind or character now
existing or hereafter created or arising, incident thereto or to the
collection of the indebtedness, liabilities and obligations hereby
secured and enforcement of the liens and security interests herein
granted and created;
D. Other Obligations. All other indebtedness, liabilities
and obligations of Debtors and the other members of the Foreland Group
to Secured Party of whatever kind or character now existing or
hereafter created or arising, whether fixed, absolute or contingent,
direct or indirect, primary or secondary, joint, several or joint and
several, due or to become due, and however evidenced whether by note,
open account, overdraft, endorsement, surety agreement, guarantee or
otherwise, it being contemplated that Debtors and the other members of
the Foreland Group may hereafter become indebted to Secured Party in
such further sum or sums; and
E. Renewals, Extensions and Amendments. All indebtedness,
liabilities and obligations of whatever kind or character, now existing
or hereafter created or arising under or pursuant to all renewals,
extensions and restatements of, modifications, changes, amendments and
supplements to and substitutions for, all or any part of the foregoing.
2. Incorporation and References. This Second Amendment to Deed of
Trust shall be considered as an amendment and supplement to the Deed of Trust.
References in the Deed of Trust to "this Instrument" shall be deemed to be
references to the Deed of Trust as amended by this Second Amendment to Deed of
Trust. When used in this Second Amendment to Deed of Trust or in the Deed of
Trust, each reference to a term defined in the Deed of Trust which is amended by
this Second Amendment to Deed of Trust, shall be deemed to be the term as
amended by this Second Amendment to Deed of Trust, including without limitation,
references to the "Obligations" shall be deemed to be references to the
"Obligations" as such definition is amended herein, references to the "Notes"
shall be deemed to be references to the "Notes" as such definition is amended
herein and references to the "Loan Agreement" shall be references to the "Loan
Agreement" as such definition is amended herein.
3. Confirmation. Debtors hereby adopt, ratify, approve and confirm
in every respect the Deed of Trust as amended by this Second Amendment to Deed
of Trust, and hereby specifically reaffirm their obligations under the
warranties, representations, covenants, agreements and indemnities and other
provisions contained in the Deed of Trust as amended by this Second Amendment to
Deed of Trust. To the extent necessary to confirm such amendments, Debtors
hereby:
A. Real Property. Grant, bargain, sell, 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 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 set forth in the Deed of Trust as Amended by this
Second Amendment to Deed of Trust;
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 interests described 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.
4. Miscellaneous. This Second Amendment to Deed of Trust shall
bind Debtors and inure to the benefit of Secured Party and their respective
successors and assignees. Except as specifically provided for in this Second
Amendment to Deed of Trust (a) the Deed of Trust and the liens and security
interests created thereby shall remain in full force and effect, (b) this Second
Amendment to Deed of Trust does not modify or affect the terms, conditions or
provisions of the Deed of Trust, and (c) nothing contained in this Second
Amendment to Deed of Trust 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.
Executed as of the date first set forth above.
DEBTORS:
FORELAND CORPORATION, a
Nevada corporation
By: /s/ 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,
Manager
Tax I.D. No. 87-0522668
SECURED PARTY:
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,
Vice President
Tax I.D. No. 04-3309082
ACKNOWLEDGMENT CERTIFICATES
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
This instrument was acknowledged before me on August , 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/ Notary Public
My commission expires:
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
This instrument was acknowledged before me on August , 1998, by
N. THOMAS STEELE, as President of FORELAND CORPORATION, a Nevada corporation.
/s/ Notary Public
My commission expires:
(NOTARIAL SEAL)
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
This instrument was acknowledged before me on August , 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/ Notary Public
My commission expires:
(NOTARIAL SEAL)
