<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934*
(Amendment No. 1)
Foreland Corp.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
345458301
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(CUSIP Number)
Harvey H. Cody III
Petro Source Corporation
9801 Westheimer, Suite 900
Houston, Texas 77042
(713) 972-2000
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
August 11, 1998(1)
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
*The remainder of this cover page should be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 15
<PAGE> 2
CUSIP No. 345458301
- --------------------------------------------------------------------------------
(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos. of Above
Persons
Petro Source Corporation
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(2) Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
OO (2)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d) or 2(e)
[ ]
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(6) Citizenship or Place of Organization
Utah
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Number of (7) Sole Voting Power 863,602(1)
Shares Bene- ---------------------------------------------------------
ficially (8) Shared Voting Power -0-
Owned by ---------------------------------------------------------
Each Report- (9) Sole Dispositive Power 863,602(1)
ing Person ---------------------------------------------------------
With (10) Shared Dispositive Power -0-
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
863,602 (1)
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
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(13) Percent of Class Represented by Amount in Row (11)
9.16%
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(14) Type of Reporting Person (See Instructions) CO
Page 2 of 15
<PAGE> 3
CUSIP No. 345458301
- --------------------------------------------------------------------------------
(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos. of Above
Persons
Petro Source Investments, Inc.
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(2) Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
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(4) Source of Funds
OO(2)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
[ ]
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(6) Citizenship or Place of Organization
Texas
- --------------------------------------------------------------------------------
Number of (7) Sole Voting Power -0-
Shares Bene- ---------------------------------------------------------
ficially (8) Shared Voting Power 863,602(1)
Owned by ---------------------------------------------------------
Each Report- (9) Sole Dispositive Power -0-
ing Person ---------------------------------------------------------
With (10) Shared Dispositive Power 863,602(1)
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
863,602 (1)
- --------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
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(13) Percent of Class Represented by Amount in Row (11)
9.16%
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(14) Type of Reporting Person (See Instructions) CO
Page 3 of 15
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CUSIP No. 345458301
- --------------------------------------------------------------------------------
(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos. of Above
Persons
A. Howard McCollum
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(2) Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds
OO (2)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
[ ]
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(6) Citizenship or Place of Organization
Texas
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Number of (7) Sole Voting Power -0-
Shares Bene- ---------------------------------------------------------
ficially (8) Shared Voting Power 863,602(1)(3)
Owned by ---------------------------------------------------------
Each Report- (9) Sole Dispositive Power -0-
ing Person ---------------------------------------------------------
With (10) Shared Dispositive Power 863,602(1)(3)
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
863,602 (1) (3)
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
9.16%
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(14) Type of Reporting Person (See Instructions) IN
Page 4 of 15
<PAGE> 5
CUSIP No. 345458301
- --------------------------------------------------------------------------------
(1) Names of Reporting Persons S.S. or I.R.S. Identification Nos. of Above
Persons
Harvey H. Cody III
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(2) Check the Appropriate Box if a Member of a Group
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
(3) SEC Use Only
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(4) Source of Funds
OO (2)
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to
Items 2(d) or 2(e)
[ ]
- --------------------------------------------------------------------------------
(6) Citizenship or Place of Organization
Texas
- --------------------------------------------------------------------------------
Number of (7) Sole Voting Power -0-
Shares Bene- --------------------------------------------------------------
ficially (8) Shared Voting Power 863,602(1)(3)
Owned by --------------------------------------------------------------
Each Report- (9) Sole Dispositive Power -0-
ing Person --------------------------------------------------------------
With (10) Shared Dispositive Power 863,602(1)(3)
- --------------------------------------------------------------------------------
(11) Aggregate Amount Beneficially Owned by Each Reporting Person
863,602(1)(3)
- --------------------------------------------------------------------------------
(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares
[ ]
- --------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
9.16%
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(14) Type of Reporting Person (See Instructions) IN
Page 5 of 15
<PAGE> 6
This Amendment No. 1 to Schedule 13D amends the initial statement on
Schedule 13D filed on March 9, 1999 (the "Initial Statement"). This Amendment
No. 1 contains the entire text of the Initial Statement. The only change
reflected in this Amendment No. 1 is the addition of signatures to page 11 and
Exhibit A, the Joint Filing Agreement.
ITEM 1. SECURITY AND ISSUER
The class of securities to which this statement relates is common stock,
par value $.01 per share ("Common Stock"), of Foreland Corporation, a Nevada
corporation (the "Company"). The address of the principal executive offices of
the Company is 12596 West Bayund, Suite 300, Lakewood, Colorado 80228-2019.
ITEM 2. IDENTITY AND BACKGROUND
This statement on Schedule 13D is a joint filing made by Petro Source
Corporation, a Utah corporation ("PSC"), Petro Source Investments, Inc., a Texas
corporation ("PSI"), A. Howard McCollum and Harvey H. Cody III pursuant to a
Joint Filing Agreement, a copy of which is attached hereto as Exhibit A. PSC is
a wholly owned subsidiary of PSI. The principal business of PSC is hydrocarbon
and CO2 transportation and marketing and project development. The principal
business of PSI os owning stock of PSC. Information with respect to the
executive officers, directors and controlling persons of PSC and PSI, including
name, business address, present principal occupation or employment and the
organization in which such employment is conducted, and their citizenship is
listed on the schedule attached hereto as Schedule I, which is incorporated in
this Schedule 13D by reference. The address of the principal business and office
for both PSC and PSI is 9801 Westheimer, Suite 900, Houston, Texas 77042. A.
Howard McCollum and Harvey H. Cody III are each a director, officer, and
shareholder of PSI. The name, business address, present principal occupation or
employment and the organization in which such employment is conducted, and
citizenship for Messrs. McCollum and Cody is also included on Schedule I
attached hereto.
During the last five years, none of PSC, PSI, Mr. McCollum or Mr. Cody
(collectively, the "Reporting Persons"), nor, to the best of PSC's and PSI's
knowledge, any other executive officer, director or controlling person of PSC or
PSI, has been convicted in any criminal proceeding (excluding traffic violations
or similar misdemeanors) or has been a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The Reporting Persons did not use any of their own funds in the
acquisition of the Company common stock. The shares were transferred to PSC by
the Company as partial consideration for the sale of substantially all of the
assets of a wholly owned subsidiary of PSC to the Company. PSI, Mr. McCollum and
Mr. Cody are filing this statement as a result of their indirect beneficial
ownership in the Company common stock through PSI's ownership of PSC, and Mr.
McCollum's and Mr. Cody's respective ownership interests in PSI.
Page 6 of 15
<PAGE> 7
ITEM 4. PURPOSE OF TRANSACTION
PSC acquired all of the shares it owns of Company common stock as
partial consideration from the Company for the sale of certain PSC assets. PSC's
intent with respect to the common stock is to sell such shares and realize the
cash value of the assets sold in such transaction.
On December 31, 1997, PSC and the Company entered into an Option and
Purchase Agreement , a copy of which is attached hereto as Exhibit B (the
"Agreement"), respecting (a) the Company's option to purchase and (b) the
Company's purchase from PSC, of the following assets: (i) the Eagle Springs
Refinery located in Tonopah, Nevada; (ii) substantially all of PSC's assets
related to the operations of the Eagle Springs Refinery; (iii) PSC's common
carrier trucking operation conducted under the name Petrosource Transportation;
and (iv) a roofing asphalt blower and associated equipment located at Fredonia,
Arizona (collectively, the "PSC Assets"). Pursuant to the Agreement, the Company
granted to PSC 130,000 unregistered shares of Company common stock as
consideration for the option to purchase the PSC Assets (the "Purchase Option
Shares"). As of December 31, 1997, PSC held 130,000 shares of Company common
stock--approximately 1.53% of the total outstanding shares of Company common
stock as of that date.
In accordance with the provisions of the Agreement, the Company filed a
registration statement on Form S-3 (SEC file no. 333-49471) on April 6, 1998, to
register the sale of the Purchase Option Shares by PSC under the Securities Act
of 1933. During April-July, PSC sold 54,650 of the Purchase Option Shares in
open market transactions. Thereupon, PSC owned 75,350 shares Company common
stock--approximately 0.88% of the total outstanding shares of Company common
stock.
On August 11, 1998, PSC and the Company entered into an Amendment to the
Agreement, a copy of which is attached hereto as Exhibit C (the "Agreement
Amendment"). Pursuant to the Agreement Amendment, the Company exercised its
option to purchase the PSC Assets and granted to PSC an additional 863,602
unregistered shares of Company common stock as part of the purchase price for
the PSC Assets (the "Closing Shares"). As of August 11, 1998, PSC held a total
of 938,952 shares of Company common stock--approximately 9.98% of the total
outstanding shares of Company common stock. This transaction was duly reported
by the Company in a Current Report on Form 8-K filed on August 12, 1998.
On January 29, 1999, PSC sold the 75,350 remaining Purchase Option
Shares in an open market transaction. PSC owns 863,602 shares of Company common
stock, consisting solely of the Closing Shares--approximately 9.16% of the total
currently outstanding shares of Company common stock as of March 1, 1999. In
accordance with the provisions of the Agreement Amendment, the Company filed a
registration statement on Form S-3 (SEC file no. 333-69373) on December 21,
1998, to register the offer and sale of the Closing Shares by PSC under the
Securities Act of 1933. PSC expects to sell the Closing Shares in open market
transactions once the registration statement becomes effective.
Page 7 of 15
<PAGE> 8
Upon the sale of all of the Closing Shares, PSC could be entitled to
acquire additional shares of Company common stock. Pursuant to the Agreement
Amendment, if the net proceeds from the sale of all of the Closing Shares is
less than $2,676,332 plus interest at 10% per annum through December 31, 1998
and 15% per annum thereafter (the number of shares issued to PSC was based on
the approximate trading price of the Company common stock of $3.50 per share)
(the "Realizable Amount"), then, upon demand by PSC, the Company must either (i)
pay the Deficiency (as defined below) in cash or (ii) deliver to PSC such
additional shares of Company common stock as the Company estimates will yield
net proceeds equal to meet the Deficiency (the "Additional Shares"). If the
Additional Shares prove to be insufficient for PSC to realize in cash the
Realizable Amount, PSC may demand that the Company pay the remaining
uncompensated Deficiency in cash. For purposes of this Schedule 13D, the term
"Deficiency" means the difference between the Realizable Amount and the
aggregate amount received by PSC for the sale of all of the Closing Shares.
The closing price per share of the Company common stock as of March 1,
1999 was $0.8438. If PSC were to sell all the Closing Shares at that price, it
would receive gross proceeds of approximately $728,712. Upon demand, PSC would
then be entitled, at the option of the Company, to receive either (i) a cash
payment in the amount of at least approximately $1,947,620 or (ii) a grant of at
least approximately 2,308,150 Additional Shares of Company common stock--which
would equal approximately 19.68% of the total outstanding shares of Company
common stock after the grant. There can be no assurance that PSC can sell the
Closing Shares at the March 1, 1999 price. Indeed, given the high volatility of
the Company common stock price on the Nasdaq SmallCap market, the low trading
volume of the stock and recent developments affecting the Company's industry, it
is likely that any sale by PSC of a significant amount of the Closing Shares
would produce downward price pressure and thus reduce the amount received, which
could entitle PSC to receive even a greater number of Additional Shares.
The principal objective of PSC with respect to its holding of Company
common stock is to receive cash in the Realizable Amount. The Board of Directors
and management of PSC do not desire to hold any significant equity stake in the
Company and do not currently intend to effect any kind of takeover or change in
control of the Company.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
As of March 1, 1999, none of the directors or officers of PSC
individually or as a group held any shares of Company common stock. All of the
transactions in the Company common stock effected by PSC in the past 60 days are
set forth on Schedule II hereto.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER
There are no arrangements among PSC, PSI, or any of their directors and
officers respecting the shares of Company common stock owned by PSC.
Page 8 of 15
<PAGE> 9
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit A -- Joint Filing Agreement, dated as of March 5, 1999, by and
among PSC, PSI, Mr. McCollum and Mr. Harvey.
Exhibit B -- Option and Purchase Agreement dated December 31, 1997
between Petro Source Corporation and Foreland Corporation.
Exhibit C -- Amendment to Option and Purchase Agreement dated August 11,
1998 between Petro Source Corporation and Foreland
Corporation.
Page 9 of 15
<PAGE> 10
EXPLANATORY NOTES
(1) As of August 11, 1998, the Reporting Persons (defined herein) owned 938,952
shares of Foreland Corporation (the "Company") common stock. As of March 1,
1999, PSC owned 863,602 shares of Company common stock. The ownership history of
the Reporting Persons (defined herein) with respect to Company common stock is
more fully described under Item 4 "Purpose of Transaction."
(2) The Company common stock was obtained by PSC as partial consideration for an
asset sale. See Item 4, "Purpose of Transaction."
(3) Mr. McCollum and Mr. Cody disclaim beneficial ownership of the shares
reported in this statement.
Page 10 of 15
<PAGE> 11
After reasonable inquiry and to the best of its or his current knowledge
and belief, each of the undersigned certifies that the information set forth in
this statement is true, complete and correct.
Date: March 5, 1999
PETRO SOURCE CORPORATION
By: /s/ A. HOWARD MCCOLLUM
-----------------------------------
A. Howard McCollum
President
PETRO SOURCE INVESTMENTS, INC.
By: /s/ A. HOWARD MCCOLLUM
-----------------------------------
A. Howard McCollum
President
/s/ A. HOWARD MCCOLLUM
-----------------------------------
A. Howard McCollum
/s/ HARVEY H. CODY III
-----------------------------------
Harvey H. Cody III
Page 11 of 15
<PAGE> 12
SCHEDULE I
DIRECTORS, EXECUTIVE OFFICERS AND CONTROLLING
SHAREHOLDERS OF PETRO SOURCE CORPORATION AND PETRO SOURCE, INC.
The following table sets forth the name and principal occupation or
employment and the organization in which such employment is conducted for each
director, executive officer and controlling shareholder of Petro Source
Corporation ("PSC") and Petro Source Investments, Inc. ("PSI"). Each such person
is a citizen of the United States of America and the business address of each
such person is c/o Petro Source Corporation, 9801 Westheimer, Suite 900,
Houston, Texas 77042.
<TABLE>
<CAPTION>
Name Position with PSC Position with PSI
---- ----------------- -----------------
<S> <C> <C>
Petro Source Investments, Inc. Sole Shareholder --
A. Howard McCollum Director and President Director, President, and 28%
Shareholder
Harvey H. Cody III Director, Vice President and Director, Vice President,
Secretary Secretary, and 24% Shareholder
William L. Townsend Vice President Vice President and 5% Shareholder
James J. Burke III Director and Vice President Director, Vice President and 8%
Shareholder
</TABLE>
Page 12 of 15
<PAGE> 13
SCHEDULE II
TRANSACTIONS IN THE COMPANY'S COMMON STOCK
DURING THE PAST SIXTY DAYS
January 25, 1999 -- Pursuant to an effective registration statement (SEC file
no. 333-49471), Petro Source Corporation sold 75,350 shares
at $0.8923 per share of Company common stock in an open
market transaction.
Page 13 of 15
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit A -- Joint Filing Agreement, dated as of March 5, 1999, by and
among PSC, PSI, Mr. McCollum and Mr. Harvey.
Exhibit B -- Option and Purchase Agreement dated December 31, 1997
between Petro Source Corporation and Foreland Corporation.
Exhibit C -- Amendment to Option and Purchase Agreement dated August 11,
1998 between Petro Source Corporation and Foreland
Corporation.
</TABLE>
Page 14 of 15
<PAGE> 1
EXHIBIT A
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k)(1) of the Securities Exchange Act of 1934,
as amended, the undersigned agree to the joint filing on behalf of each of them
a Statement on Schedule 13D (including any and all amendments thereto) with
respect to the Common Stock of Foreland Corp. and further agree that this
Agreement shall be included as an Exhibit to such joint filings.
The undersigned further agree that each party hereto is responsible for
timely filing of such Statement on Schedule 13D and any amendments thereto, and
for the completeness and accuracy of the information concerning such party
contained therein; provided that no party is responsible for the completeness or
accuracy of the information concerning the other party, unless such party knows
or has reason to believe that such information is inaccurate.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original instrument, but all of such counterparts
together shall constitute but one agreement.
In evidence thereof the undersigned, being duly authorized, hereby execute
this Agreement this 5th day of March, 1999.
PETRO SOURCE CORPORATION
By: /s/ A. HOWARD McCOLLUM
---------------------------------
A. Howard McCollum
President
PETRO SOURCE INVESTMENTS, INC.
By: /s/ A. HOWARD McCOLLUM
---------------------------------
A. Howard McCollum
President
/s/ A. HOWARD McCOLLUM
---------------------------------
A. Howard McCollum
/s/ HARVEY H. CODY III
---------------------------------
Harvey H. Cody III
Page 15 of 15
<PAGE> 1
EXHIBIT B
OPTION AND PURCHASE
AGREEMENT
THIS OPTION AND PURCHASE AGREEMENT (hereinafter referred to as this
"Agreement") is entered into effective as of the 31st day of December, 1997, by
and between FORELAND CORPORATION, a Nevada corporation (hereinafter "Foreland")
on the one hand, and PETRO SOURCE CORPORATION, a Utah corporation, and PETRO
SOURCE REFINING CORPORATION, a Utah corporation, and PETROSOURCE TRANSPORTATION,
a Utah corporation, on the other (collectively, "PSC"), based on the following:
PREMISES
A. Among other things, PSC is engaged in the business of refining,
processing, and transporting crude and refined hydrocarbons and associated
products and desires to grant an option for the sale of and, if exercised, to
sell, as a going concern, substantially all of its assets and operations
associated with a crude oil refinery/asphalt manufacturing plant located in
Nevada, known as the Eagle Springs Refinery; a crude oil and/or transmix
refinery facility producing primarily diesel fuel, residual fuel oil, and/or
gasoline located in Tonopah, Nevada; a common carrier trucking operation
conducted under the name "Petrosource Transportation," consisting of truck
tractors and specialized combination trailers for hauling crude oil and refinery
products; and a roofing asphalt blower and associated equipment currently
located at Fredonia, Arizona, all as more particularly described in this
Agreement.
B. Foreland desires to obtain an option to purchase and, if it elects
to exercise such option, to acquire through a wholly owned subsidiary to be
organized for such purpose, Foreland Refining Corporation, the assets of PSC
described above for the agreed consideration and on the terms and conditions set
forth in this Agreement, and to continue to operate the businesses acquired.
AGREEMENT
NOW, THEREFORE, based on the stated premises, which are incorporated
herein by reference, and for 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:
ARTICLE I
DEFINITIONS
In this Agreement, the following terms have the meanings specified or
referred to in this Article I. Such definitions shall be equally applicable to
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"Assumed Obligations" means the obligations under the contracts,
leases, and agreements which are assumed by Foreland, all as more
particularly described in Section 3.03.
"Business" means the business, operations, and the Business Assets and
Assumed Obligations, including the tangible and intangible real and
personal property owned or leased by PSC and used in connection with
the Business Assets, excluding, however, the Excluded Assets, all as
more particularly described in Section 3.01.
<PAGE> 2
"Business Assets" means the tangible and intangible real and personal
assets of the Business as more particularly described in Section 3.01.
"Business Executive" means management and executive level salaried
employees of PSC engaged for all or substantially all of their working
time in the management and operation of the Business.
"Closing" has the meaning set forth in Section 3.07.
"Closing Date" has the meaning set forth in Section 3.07.
"Closing Exhibits" means the updated PSC Exhibits delivered by PSC at
or prior to the Closing.
"Closing Schedules" means the updated PSC Schedules delivered by PSC at
or prior to the Closing.
"Due Diligence Period" means the 30 days after the date of delivery of
the PSC Exhibits and PSC Schedules during which Foreland may inspect
such PSC Exhibits and PSC Schedules.
"EBITDA" means earnings before interest, taxes, depreciation, and
amortization, as determined in accordance with GAAP, applied
consistently with the financial statements of the Business included in
the PSC Schedules, all as determined in accordance with the calculation
methodology contained in Appendix "A," initialed by the parties for
identification, attached hereto, and incorporated herein by reference.
"Effective Time" has the meaning set forth in Section 3.08.
"Environmental Laws" means the federal, state, and local laws and
regulations governing the generation, marketing, refining, recycling,
treatment, handling, use, storage, transportation, disposal, and
cleanup of hazardous, radioactive, reactive, flammable, infectious,
toxic, or dangerous materials or the protection of public health or the
environment including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980; the
Resource Conservation and Recovery Act of 1976; the Toxic Substances
Control Act; the Clean Air Act, the Federal Water Pollution Control
Act; the Safe Drinking Water Act; the Hazardous Material Transportation
Act; the Federal Insecticide, Fungicide, Rodentcide Act; the
Occupational Safety and Health Act; and any similar state or local law,
regulation, or ordinance and all permits and regulatory approvals
issued thereunder.
"ES Production" means Eagle Springs Production Limited Liability
Company, a Nevada limited liability company and a wholly owned
subsidiary of Foreland.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder.
"Exercise Date" means the date of exercise of the Option granted
pursuant to this Agreement as set forth in Section 2.04.
"Exercise Period" has the meaning set forth in Section 2.03.
-2-
<PAGE> 3
"Exercise Period Quarter" means the successive calendar quarters ending
on March 15, June 15, September 15, and December 15, 1998.
"Foreland Stock" means shares of common stock of Foreland, par value
$0.001 per share.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Option Consideration" has the meaning set forth in Section 2.02.
"Option Period" means the period starting with the date of this
Agreement and ending at 11:59 p.m., Mountain Time, December 31, 1998,
or at the end of any Exercise Period Quarter with respect to which
Foreland has not fulfilled its obligations as set forth in Article II.
"Option Shares" has the meaning set forth in Section 2.02.
"PSC Exhibits" means the documents describing in detail the items more
particularly described in Article III.
"PSC Schedules" means the disclosures as set forth in Section 2.07.
"Purchase Price" has the meaning set forth in Section 3.05.
"Refining" means Foreland Refining Corporation, a corporation to be
organized by, and as a subsidiary of, Foreland for the purpose of
purchasing the Business and Business Assets.
"Registration Statement" means a registration statement filed under the
provisions of the Securities Act as provided in Section 2.02.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations promulgated thereunder.
"Shares" means either or both the Option Shares or Purchase Shares, as
the case may be.
ARTICLE II
OPTION TO PURCHASE
Section 2.01 Grant of Option. For and in consideration of the Crude
Oil Purchase Agreement entered into this date by and between PSC and Foreland,
the Option Consideration as set forth in Section 2.02, and the benefits to the
parties arising under this Agreement, PSC hereby grants to Foreland the
irrevocable right and option (the "Option"), exercisable at any time during the
Exercise Period set forth in Section 2.03 to purchase the Business and Business
Assets for the Purchase Price set forth in Section 3.05.
Section 2.02 Option Consideration. In consideration of this Option
granted by PSC pursuant to this Agreement, Foreland agrees to pay to PSC an
aggregate of $520,000 (the "Option Consideration") as follows:
-3-
<PAGE> 4
(a) On or before January 15, 1998, Foreland shall deliver to
Petro Source Refining Corporation ("PSRC"), an aggregate of 130,000
shares (the "Option Shares") of Foreland Stock, which shall be
registered in the name of PSRC, but held and disposed of in accordance
with the terms and conditions hereof.
(b) At the earliest practicable date, Foreland shall file,
at its sole cost, and utilize its best efforts to obtain the
effectiveness of, by acceleration, a registration on such form as
Foreland may select under the Securities Act covering the resale of the
Option Shares by and for the account of PSRC, which shall be named as a
selling shareholder in such registration statement, all as more
particularly set forth in Article IX hereof. Foreland shall utilize its
best efforts to obtain the effectiveness of such Registration Statement
at the earliest practicable date and to maintain its effectiveness
throughout the Exercise Period.
(c) On or before the expiration of each Exercise Period
Quarter, Foreland may pay the $130,000 Option Consideration installment
for such quarter in immediately available funds by wire transfer to PSC
at the following account:
Bank of America NT&SA, Concord, CA
ABA no. 121000358
Petro Source Refining Corporation Account
Account no. 12331-15325 Reference Co. 80
(d) If Foreland elects not to pay the $130,000 in cash in
accordance with the requirements of paragraph (c) above on or before
the end of any Exercise Period Quarter, and the Registration Statement
is then effective, PSC may cause to be sold, at any time and from
time-to-time and in accordance with the Registration Statement, that
number of Option Shares that yields proceeds, net of brokerage and
other usual and customary transaction costs, the amount of $130,000 as
payment in full of the Option Consideration installment for such
Exercise Period Quarter.
(e) If (i) the Registration Statement is not effective on or
before the date on which PSC would be able to cause Option Shares to be
sold thereunder but for its lack of effectiveness, or (ii) insufficient
Option Shares are held by PSRC such that the net proceeds therefrom
would not equal $130,000, PSRC may demand that Foreland pay in cash the
$130,000 Option Consideration installment for that quarter, in which
case Foreland shall pay such amount in cash in immediately available
funds within five days after such demand, and the Option Shares
attributable to such quarter shall be returned to Foreland.
(f) If at the end of the Option Period any Option Shares
remain unsold, such shares shall be returned to Foreland for
cancellation. If Option Shares have been sold for net proceeds in
excess of the Option Consideration due to PSC under the terms of this
Agreement, such excess proceeds shall also be delivered to Foreland.
Section 2.03 Exercise Period. The Option may be exercised at any time
on or before December 31, 1998, provided that as of the date of exercise all
Option Consideration required to have been paid as of such date in accordance
with the requirements of Section 2.02 have been paid in full.
Section 2.04 Manner of Exercise. The Option shall be exercised by
notice thereof from Foreland to PSC in the manner for giving notices as
hereinafter provided. The Exercise Date shall be the date such notice shall be
deemed to be given in accordance with Section 13.02.
Section 2.05 Effect of Exercise. On the timely exercise of the Option
by Foreland, this Agreement shall become a binding, bilateral agreement between
PSC and Foreland or, at Foreland's election, Refining, for the sale and
purchase of the Business and Business Assets on the terms and conditions
hereinafter set forth.
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Section 2.06. Access and Information; Noncompetition. During the
Option Period:
(a) PSC shall (i) afford Foreland and its respective officers,
directors, partners, managers, members, employees, accountants,
consultants, legal counsel, agents, and other representatives
(collectively, the "Foreland Representatives") reasonable access at
reasonable times, upon reasonable prior notice, to the Business and
Business Assets and the officers, directors, employees, agents, offices
and facilities of PSC and to the books and records relating to such
Business and Business Assets; and (ii) furnish promptly to Foreland and
the Foreland Representatives such information concerning the business,
properties, contracts, records, and personnel of the Business and
Business Assets and PSC insofar as related to the Business and Business
Assets (including financial, operating and other data and information)
as may be reasonably requested, from time to time, by any Foreland or
such Foreland Representatives.
(b) PSC grants to Foreland and the Foreland Representatives a
non-exclusive license to enter into and upon the Real Property (as
defined below) for the purpose of completing an environmental site
assessment, all as more particularly set forth in Section 4.07(d).
(c) Notwithstanding the foregoing provisions of this Section
2.06, PSC shall not be required to grant access or furnish information
to Foreland or the Foreland Representatives to the extent that such
access to or the furnishing of such information is prohibited by law or
a valid order by a court of competent jurisdiction. No investigation by
Foreland hereto made heretofore or hereafter shall affect the
representations and warranties of PSC which are herein contained, and
each such representation and warranty shall survive such investigation.
(d) The information received pursuant to this section shall be
deemed to be "Confidential Information." Foreland agrees that it will
treat in confidence all documents, materials and other Confidential
Information which it shall have obtained regarding the Business,
Business Assets, or PSC during the course of the negotiations leading
to the consummation of the transactions contemplated hereby (whether
obtained before or after the date of this Agreement), the investigation
provided for herein, and the preparation of this Agreement and other
related documents. Such documents, materials and other Confidential
Information shall not be communicated to any third person (other than
to counsel, accountants, financial advisors or lenders who have agreed
to treat the information as Confidential Information) and shall not be
used for any purpose to the detriment of PSC. Foreland shall not use
any Confidential Information in any manner whatsoever except solely for
the purpose of evaluating the possible business relationship with PSC.
Neither Foreland nor any Foreland Representative will, during the term
of this Agreement or at any time during the two years thereafter,
irrespective of the time, manner, or cause of termination of this
Agreement, use, disclose, copy, or assist any other person or firm in
the use, disclosure, or copying of any documents, materials or other
Confidential Information of PSC. This provision is not intended to
supercede the Confidentiality Agreement between PSC and Foreland dated
August 25, 1997, and, in addition to the convenants hereof, information
received pursuant to this section shall be deemed to be "Confidential
Information" under that agreement.
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Section 2.07 PSC Schedules and Exhibits.
(a) On or before January 15, 1998, PSC shall prepare and
deliver to Foreland a revised set of exhibits and schedules updating
the exhibits provided under the terms of Article III (the "PSC
Exhibits") and the schedules limiting the representations of PSC set
forth in Article IV or otherwise required by the terms of this
Agreement (the "PSC Schedules").
(b) Foreland shall have until 30 days after the date of
delivery of the revised PSC Exhibits and PSC Schedules (the "Due
Diligence Period") in which to inspect such PSC Exhibits and PSC
Schedules. If, within the Due Diligence Period, Foreland reasonably
determines and advises PSC in writing of respects in which the revised
PSC Exhibits or PSC Schedules are materially and adversely different
from the PSC Exhibits and Schedules attached hereto ("Objections"), PSC
shall have the right to attempt to cure all valid Objections within 30
days after the expiration of such Due Diligence Period; Foreland shall
have no obligation to cure such Objections. If PSC does undertake to
cure such Objections, such curative measures shall be set forth in
writing and shall be specifically enforceable by Foreland. If valid
Objections are not reasonably resolved within such 30 day cure period,
Foreland may void this Agreement by written notice thereof to PSC
within seven days after expiration of such cure period. If this
Agreement is voided, (i) all amounts previously paid or delivered by
the parties under the terms of this Agreement shall be returned within
ten days; and (ii) the Purchase Contract Confirmation of even date
herewith shall be null and void and the existing crude oil purchase
agreement shall be reinstated effective as of December 15, 1997, and
any overpayments shall be paid within ten days. If Foreland does not so
void this Agreement, it shall be deemed to have accepted such revised
PSC Exhibits and PSC Schedules. If, at the end of the Due Diligence
Period, Foreland has not delivered written objection to the revised PSC
Exhibits or PSC Schedules pursuant to this subsection, Foreland will be
deemed to have accepted the revised PSC Exhibits and PSC Schedules as
submitted by PSC. The revised PSC Exhibits and PSC Schedules accepted
or deemed to have been accepted by Foreland shall be attached to and
become part of this Agreement and shall be the effective PSC Exhibits
and Schedules under the provisions of Article IV and other relevant
sections of this Agreement.
Section 2.08 Affirmative Covenants of PSC. PSC hereby covenants and
agrees that during the Option Period and, if this Option is timely exercised,
then until the Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by Foreland, PSC will, insofar as it
relates to the Business or Business Assets:
(a) continue to operate the Business in the ordinary course
consistent with past practices, subject to such changes in operations
as are necessary or advisable, and consistent with prudent business
practices;
(b) use all reasonable efforts to preserve substantially
intact its business organization, maintain its material rights,
permits, and franchises, retain the services of its executives, senior
managers, and employees, and maintain its relationships with its
material customers and suppliers to the extent that a prudent business
person would do so;
(c) maintain and keep its material properties and the Business
Assets in as good repair and working condition as at present, ordinary
wear and tear excepted, and maintain supplies and inventories of
products based on its customary business practice;
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(d) continue to operate the Business and Business Assets in
compliance with all laws and regulations applicable thereto, including
all Environmental Laws;
(e) pay all obligations, taxes, and liens with respect to the
Business and Business Assets as they come due;
(f) keep adequate records and books of account with complete
entries sufficient for the preparation and auditing of financial
statements in accordance with the requirements of GAAP;
(g) timely pay its accounts payable associated with the
Business and Business Assets in the ordinary course, consistent with
prior practices;
(h) use reasonable efforts to timely collect its accounts
receivable in the ordinary course, consistent with past practices; and
(i) use all reasonable efforts to keep in full force and
effect insurance and bonds comparable in amount and scope of coverage
to that currently maintained.
Section 2.09 Negative Covenants of PSC. Except as expressly
contemplated by this Agreement or as otherwise consented to in writing by
Foreland (which consent will not be unreasonably withheld), during the Option
Period and, if the Option is timely exercised, then until the Effective Time,
PSC will not:
(a) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or encumber, or agree to do any of the foregoing
with respect to the Business or Business Assets, except for the sale of
inventory or similar dispositions in the ordinary course, consistent
with prior practice;
(b) knowingly take, or agree to commit to take, any action
that would make any representation or warranty of PSC contained herein
or in the PSC Disclosure Schedules inaccurate in any material respect
at the Closing Date, or as of any time during the Option Period and, if
the Option is timely exercised, then until the Effective Time;
(c) except in the ordinary course of business, enter into any
agreement or arrangement to extend the time covered by an agreement to
purchase crude oil, hydrocarbons, or other feedstock or supplies for
the Business and Business Assets, which agreement has a term in excess
of one year, or to increase the price paid to a supplier of such items;
(d) enter into any agreement or arrangement that is not
cancelable on 30 days' notice with respect to Petrosource
Transportation, except for the replacement of obsolete or worn
equipment and the purchase of equipment on the termination of leases,
all in accordance with past practice and prudent business;
(e) permit the presence, use, disposal, storage, or release of
hazardous materials on, in, or under the Business Assets except in the
ordinary course and in accordance with conditions that are generally
recognized as safe and appropriate and that are in strict compliance
with all Environmental Laws;
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<PAGE> 8
(f) except as provided above, make any capital expenditures to
increase or improve the Business Assets in excess of $100,000;
(g) increase the wages or salary of any employee associated
with the Business other than in the ordinary course, consistent with
past practice or enter into any collective or individual employment
bargaining process or employee agreements; or
(h) agree in writing or otherwise to do any of the foregoing
items 2.09 (a) - (g).
Section 2.10 PSC Employees.
(a) During the Option Period and with prior notice to PSC,
Foreland may discuss with management and executive level salaried
employees of PSC engaged for all or substantially all of their working
time in the management and operation of the Business (the "Business
Executives") the possible terms under which such Business Executives
may be offered employment by Foreland or Refining after the Effective
Time. If this Option is not exercised and the purchase of the Business
is not Closed as contemplated hereby, for a period of two years
subsequent to the termination of the Option Period neither Foreland nor
any affiliated entity will offer any employment or consulting position
to any Business Executive or induce or attempt to induce or persuade
any such Business Executive to terminate his or her employment
relationship with PSC or assist any other person or entity in doing the
foregoing, except that Foreland shall not be precluded from considering
and accepting unsolicited applications from such Business Executives or
applications from such Business Executives in response to a general
solicitation of employment not specifically directed to employees of
PSC. Prior to the exercise of the Option, Foreland will not offer
employment or discuss the existence of the Option with employees who
are not Business Executives without PSC's prior written consent, which
shall not be unreasonable withheld.
(b) If Foreland does exercise its Option to purchase the
Business, Foreland will offer employment to (i) each of the
Business Executives employed by PSC at the Effective Time, and (ii)
each PSC employee who devotes substantially all of his or her working
time to the Business. Such offers will provide for (iii) a salary or
hourly rate equivalent to the salary or hourly rate in effect as of the
date hereof or such higher rate approved by Foreland, (iv) employee
benefits equal to the standard employee benefit package provided by
Foreland to its other employees, and (v) past service credit under the
Foreland employee benefit plans for the time that such employee was
employed by PSC. Foreland shall not be responsible for any accrued and
unused vacation or sick leave or for any pension, retirement, or
employee benefit obligation of PSC arising prior to the Effective
Time.
Section 2.11 Non-Circumvention of Option. During the Option Period
and, if the Option is timely exercised, then until the Effective Time, PSC shall
not, directly or indirectly:
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(a) Enter into any transaction or enter into or continue
negotiations with any party other than Foreland relative to any
disposition by PSC of the Business or Business Assets;
(b) Solicit or encourage submission of inquiries, proposals,
or offers from any other party relative to any disposition by PSC of
the Business or Business Assets;
(c) Provide further information to any party other than
Foreland relating to any possible disposition by PSC of its interest in
the Business or Business Assets;
(d) Disclose to any third party, other than its attorney or
other professional advisors, or bankers or other lenders on a
confidential basis, PSC's willingness to sell the Business or Business
Assets or discuss the existence or substance of this Agreement with any
such third party; or
(e) Take any action, the reasonable and foreseeable
consequence of which would be to materially frustrate the purpose,
intent, or financial benefit to Foreland of this Agreement and the
transactions contemplated hereby.
If, during the Option Period, PSC receives an offer or proposal relating to the
possible acquisition of the Business or Business Assets or any part thereof, it
will immediately notify Foreland of said offer or proposal, the identity of the
party making the offer or proposal, and the specific terms of such offer or
proposal.
ARTICLE III
PURCHASE OF ASSETS
Section 3.01 The Purchase. Foreland shall have the right to exercise
the Option at any time during the Option Period as set forth in Article II of
this Agreement. On such timely exercise, PSC shall be obligated to sell, and
Foreland shall be obligated to purchase the Business and Business Assets as set
forth in this Article III. Except as set forth in section 3.02 of this
Agreement, and on the terms and conditions contained in this Agreement, PSC
shall sell, assign, transfer, convey, set over, and deliver to Foreland, and
Foreland shall purchase from PSC, the Business and the Business Assets,
consisting 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 (including the emulsifier),
or Petrosource Transportation, (ii) the asphalt blower 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 PSC), 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 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");
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(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, and all
cash and cash equivalents in payment thereof received after the
Effective Time, as described in Exhibit "D" (the "Accounts
Receivable");
(e) 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");
(f) 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";
(g) all lists of current and past (within the preceding two
years) suppliers and all files, records, and data used in connection
with the Business;
(h) 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");
(i) all federal, state, or local licenses, permits, or
approvals granted or used in connection with the operation of the
Business or the Business Assets;
(j) all of PSC's rights under warranties covering the Tangible
Personal Property being transferred hereunder to the fullest extent
permitted by such warranties;
(k) 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 a non-exclusive right to use the process and
name "Melt Pac(TM)," to sell asphalt manufactured at either the Eagle
Springs Refinery or the Tonopah Refinery in the states of Arizona,
California, Colorado, Nevada, New Mexico and Utah only, provided
Foreland pays PSC a royalty equal to $2.00 per ton of roofing asphalt
sold in Melt Pac(TM) bags., all as described in Exhibit "H" (the
"Intellectual Property");
(l) 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;
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(m) to the extent permitted by the carrier, 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");
(n) originals or copies of all accounting, operating,
management, and other business records in documentary or electronic
form relating to the Business (provided, however, PSC may maintain a
record copy of any such items);
(o) 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;
(p) the goodwill of PSC associated with the business; and
(q) all other assets of PSC used to carry out the Business or
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.
Section 3.02 Excluded Assets. Notwithstanding the provisions of
Section 3.01, the assets conveyed hereunder shall not include the following:
(a) the two asphalt spreader trucks currently in the name of
Petrosource Transportation or Petro Source Refining Partners.
(b) the bank accounts maintained by PSC on behalf of the
Business;
(c) all corporate books and records not relating to the
Business or the Business Assets purchased hereunder, including the
minute books and stock transfer books and the corporate seal of PSC;
(d) PSC's employee benefit agreements, plans, or similar
arrangements.
(e) The office furniture and equipment used by any PSC
employee who works on Business matters, but is not hired by Foreland;
(f) Software which is not used by PSC exclusively for the
Business such as PSC's general ledger and accounting, and revenue
distribution systems; and
(g) The items listed in Exhibit J.
Section 3.03 Assumed Obligations. On the Closing Date, Foreland shall
assume and agree to discharge the following obligations and liabilities of PSC
with respect to the Business Assets, in accordance with their respective terms
and subject to the respective conditions thereof:
(a) all obligations of PSC under the leases set forth on
Exhibit K-1 relating to the Tangible Personal Property or the Real
Property;
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(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, as
of the Effective Time and set forth in the Closing Schedule. Real and
personal property taxes shall be prorated between the parties as of the
Effective Time; and
(e) other obligations listed on Exhibit K-4.
Section 3.04 Excluded Liabilities. Except to the extent that such
liabilities operate to reduce the purchase price pursuant to Section 3.05,
neither Foreland nor Refining 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 by
Foreland pursuant to section 3.03 or otherwise pursuant to this
Agreement;
(b) any liability for accrued bonuses, vacation, personal
leave, or other amounts for the benefit of employees of the Business
(the "Employee Benefits");
(c) taxes for any period prior to the Effective Time; and
(d) The accounts payable listed on Schedule 3.04.
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 the greater of either:
(a) Five million dollars ($5,000,000); or
(b) Four times the annualized Adjusted EBIDTA of the Business,
as set forth below, based on the six months preceding the month in
which the Option is exercised, as calculated in accordance with the
following formula:
(Adjusted EBIDTA for preceding six months) x 2 x 4 = Purchase Price
For purposes of the foregoing formula:
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"Adjusted YTD EBIDTA" means the earnings of the Business
before interest, taxes, depreciation, and amortization,
as determined in accordance with GAAP, based on the six
months prior to the Exercise Date, adjusted (1) to
credit the Business with an amount equal to the
difference between Amoco's Southwest Wyoming Sweet
Crude Oil posted price less $6.15 per barrel and the
amount paid per barrel for oil purchased from Foreland
that is produced from the Ghost Ranch number 48-35
currently producing well during such period by PSC
under the Crude Oil Purchase Agreement entered
contemporaneous with the execution of this Agreement as
compared to the amount that would have been paid per
barrel of oil purchased under the immediately preceding
agreement, and (2) to substitute for actual general and
administrative expenses incurred in the operation of
the Business an amount equal to $800,000 per month.
plus, in the case of either (a) or (b) above, the total of
(u) the sum of capital expenditures incurred by PSC to improve
or add to the Business Assets between the date hereof and the Effective
Time;
(v) a negative amount equal to the sum of proceeds from the
sale of any property, plant and/or equipment which is a component of
the Business Assets to a third party by PSC between the date hereof and
the Effective Time;
(w) the sum of the current assets, as determined in accordance
with GAAP (except that finished goods inventory will be valued at
market), assigned to Foreland hereunder;
(x) a negative amount equal to the sum of the current
liabilities, as determined in accordance with GAAP, assumed by Foreland
hereunder, excluding, however, the current portion of long term
liabilities or liabilities under operating leases assumed by Foreland
hereunder that is not properly attributable to the period prior to
the Effective Date in accordance with GAAP;
(y) any unpaid portion of the Option Consideration; and
(z) 100,000 shares of Foreland Stock, the resale of which by
PSC shall be covered by an effective Registration Statement in
accordance with Article IX.
Section 3.06 Payment of Purchase Price. In consideration of the
purchase of the Business Assets, at the Closing Foreland shall or shall cause
Refining to:
(a) pay to PSC the cash portion of the Purchase Price in
immediately available funds by wire transfer in accordance with Section
2.02(c); and
(b) deliver to PSC one or more stock certificate(s) registered
in the name of PSC or its designee for the 100,000 shares of Foreland
Stock constituting a portion of the Purchase Price.
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That amount of the Purchase Price consisting of the unpaid portion of the Option
consideration shall be paid in accordance with Section 2.02.
Section 3.07 Closing; Closing Date. Subject to timely exercise by
Foreland of the Option, the consummation of the sale and purchase of the
Business and Business Assets as contemplated hereby (the "Closing") shall take
place at the offices of Kruse, Landa & Mayor, L.L.C., at 50 West Broadway,
Eighth Floor, Bank One Tower, Salt Lake City, Utah 84101, or such other place as
is mutually acceptable to the parties hereto as soon as practicable within 20
days after the Effective Time, but in any event on or before December 31, 1998.
The date on which the Closing takes place shall be the "Closing Date."
Section 3.08 Effective Time. The Closing shall be effective (the
"Effective Time") as of midnight, Nevada time, on the last day of the month
during which Petro Source receives Foreland's notice of Option Exercise.
Section 3.09 Closing Events. At the Closing, each of the respective
parties hereto shall execute, acknowledge, and deliver (or shall cause to be
executed, acknowledged, and delivered) (i) the deeds, bills of sale,
assignments, and other documents and instruments of conveyance and transfer, all
in form and substance reasonably satisfactory to Foreland and its counsel,
necessary to vest, subject to any scheduled condition subsequent, marketable
title in Foreland to all the rights, interests, assets, and properties to be
acquired by Foreland pursuant to this Agreement; (ii) originals or copies of all
of PSC's agreements, contracts, and commitments assumed by Foreland hereunder;
(iii) a list of all of the customers and suppliers of PSC relevant to the
Business, including addresses and telephone numbers; (iv) all certificates,
opinions, schedules, agreements, resolutions, or other instruments required by
this Agreement to be so delivered at or prior to the Closing; and (v) such other
items as may be reasonably requested by the parties hereto and their respective
legal counsel in order to effectuate or evidence the transactions contemplated
hereby. In addition, at the Closing, Foreland shall deliver to PSC the Purchase
Price in accordance with Section 3.06.
Section 3.10 Allocation of Purchase Price. The Purchase Price shall
be allocated among the Business Assets according to the Schedule 3.11. PSC and
Foreland agree to prepare all financial reports of the transactions contemplated
herein, including all federal and state tax returns, in accordance with the
allocation of the Purchase Price set forth in such Schedule and hereby indemnify
each other against any loss which such other party may incur by reason of the
Indemnifying Party's failure to comply with this section. Upon request, each
party agrees to provide to the other photocopies of any forms filed with any
taxing authority in which the results of this transaction are reported.
Section 3.11 Further Assurances. At the Closing or at any time
thereafter, each party shall execute and deliver to the other such opinions,
certificates, consents, and other documents required herein and execute and
deliver such other documents, and take such other actions, as may be reasonably
requested to carry out the terms of this Agreement, all as the other party
hereto may reasonably require.
Section 3.12 Registration of Purchase Price Shares. Foreland will, at
its sole cost, in any registration statement filed with the SEC for the sale of
Foreland Shares after the Closing, include the Shares issued to PSC as part of
the purchase price ("Purchase Shares") and cover the resale of such Shares by
and for the account of PSRC, which shall be named as a selling shareholder in
such
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registration statement, all as more particularly set forth in Article IX hereof,
and shall use its best efforts to maintain its effectiveness throughout for at
least three months. If Foreland has not filed such a registration statement
within one year of the date of Closing, Foreland shall file, at its sole cost,
and utilize its best efforts to obtain the effectiveness of, by acceleration, a
registration on such form as Foreland may select under the Securities Act
covering the resale of the Purchase Shares by and for the account of PSRC, which
shall be named as a selling shareholder in such registration statement, all as
more particularly set forth in Article IX hereof. Foreland shall utilize its
best efforts to obtain the effectiveness of such Registration Statement at the
earliest practicable date and to maintain its effectiveness for a period of at
least three months.
Section 3.13 Covenants Not to Compete. At the time of Closing, the
parties shall enter into one or more agreements providing that: (i) PSC and its
affiliates will not compete with Foreland for (x) the refining of Nevada crude
hydrocarbons or (y) the processing of transmix in the states of California,
Utah, Arizona, or Nevada for a period of three years after the Closing Date; and
(ii) Foreland and its affiliates will not manufacture or sell emulsions in the
state of Nevada for a period of two years after the Closing Date.
ARTICLE IV
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF PSC
PSC hereby represents, covenants, and warrants to Foreland, such
representations, covenants, and warranties to be made as of the date hereof and
at and as of the Closing Date and to survive the Closing and continue in
accordance with the terms hereof (except as otherwise expressly set forth in
Article VII hereof), as follows:
Section 4.01 Organization. Petro Source Corporation, Petro Source
Refining Corporation and Petrosource Transportation are each corporations duly
organized, validly existing, and in good standing under the laws of the state of
Utah and have the corporate power and are duly authorized, qualified,
franchised, and licensed 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.
Section 4.02 Approval of Agreement. The board of directors and
shareholders of each of Petro Source Corporation, Petro Source Refining
Corporation and Petrosource Transportation have authorized the execution and
delivery of this Agreement and have approved the consummation of the
transactions contemplated hereby. This Agreement is the legal, valid, and
binding agreement of PSC enforceable between the parties in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency, or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity.
Section 4.03 Financial Statements.
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(a) Included in Schedule 2.03 to this Agreement are the
audited balance sheets of Petro Source Refining Partners ("PSRP") as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31,
1995 and 1996, respectively, including the notes thereto and the
reports of Deloitte & Touche. Such schedule also includes the unaudited
balance sheet of PSRP as of October 31, 1997 ("PSRP's Current Balance
Sheet"), and the related statements of operations, cash flows, and
partners' equity for the ten months ended October 31, 1997, which
present fairly the results of operations and financial position of PSC
for the periods and as of the dates indicated in all material respects.
All such financial statements have been prepared in accordance with
GAAP consistently applied throughout the periods involved as explained
in the notes to such financial statements, except that PSRP's Current
Balance Sheet does not contain all of the footnote disclosures required
by GAAP.
(b) Such financial statements, as of their respective dates,
fairly reflect in all material respects the financial position of the
Business as of such date and the results of operations for the periods
presented. Except as reflected on the most recent balance sheet, the
Business did not have any liability or obligation (absolute or
contingent) which should be reflected in a balance sheet or the notes
thereto prepared in accordance with GAAP. All assets reflected on
PSRP's Current Balance Sheet are properly reported and present fairly
in all material respects the assets of the Business in accordance with
GAAP, except that PSRP's Current Balance Sheet does not contain all of
the footnote disclosures required by GAAP.
(c) The books and records, financial and otherwise, with
respect to the Business are in all material respects complete and
correct and have been maintained in such a fashion as to permit the
preparation and audit of financial statements (at Foreland's expense)
for at least two full years in accordance with GAAP.
(d) Except as set forth on the most recent Balance Sheet or in
the Notes thereto, or Schedule 4.03, PSC has:
(i) good and marketable title to its receivables,
free of any security interests or liens and free of any
material defenses, counterclaims, and set-offs, and all of
such receivables are actual and bona fide receivables
representing obligations for the total dollar amount thereof
shown on its books; and
(ii) has no material contingent liability, direct or
indirect, matured or unmatured.
The receivables set forth on the most recent Balance Sheet
arose in the ordinary course of business and are collectable in all
material respects upon the continuation of reasonable collection
efforts by employees of the Business, without resorting to litigation.
(e) PSC represents that the financial statements of PSRP are
of limited applicablility because they pertain to a partnership that
was terminated as of the end of October 1997 when PSRC acquired all of
the partnership interest of the only other partner in PSRP, and PSRP
owned assets in addition to the Business Assets, including, but not
limited to, the Fredonia terminal and the Melt Pac(TM) patents and
licenses.
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Section 4.04 Absence of Certain Changes or Events. Except as set
forth in Schedule 4.04 to this Agreement, since the date of PSRP's Current
Balance Sheet described in Section 4.03, there has not been (i) any material
adverse change in the business, operations, properties, level of inventory,
assets, or condition of the Business or (ii) any damage, destruction, or loss to
Business Assets (whether or not covered by insurance) materially and adversely
affecting the business, operations, properties, assets, or conditions of the
Business, including any:
(a) material adverse change in the liabilities or assets of
PSC relating to the Business or Business Assets;
(b) change in the manner in which PSC carries on its business
or preserves its business organization and existing business relations,
which might affect the Business or the Business Assets in any material
way;
(c) transaction by PSC relating to the Business or Business
Assets, except in the ordinary course of business as conducted on the
date of PSRP's Current Balance Sheet;
(d) failure to maintain in full force and effect substantially
the same level and types of insurance coverage as in effect on the date
of PSRP's Current Balance Sheet or any destruction, damage to, or loss
of any of the Business Assets (whether or not covered by insurance)
materially and adversely affecting the business or prospects of PSC
relating to the Business or the Business Assets;
(e) sale, assignment, transfer of any tangible or intangible
assets of PSC associated with the Business, including any rights to
intellectual property, except in the ordinary course of business;
(f) mortgage, pledge, or other encumbrance of any tangible or
intangible assets of PSC relating to the Business; or
(g) written or oral agreement by PSC to take any of the
actions described above.
Section 4.05 Governmental Authorizations. PSC has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its businesses in all material respects as
conducted on the date of this Agreement. No authorization, approval, consent, or
order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
PSC of this Agreement and the consummation by PSC of the transactions
contemplated hereby. Schedule 4.05 sets forth a list of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary or convenient to own, lease and
operate its properties and to carry on the Business (collectively, the "Business
Permits"), and there is no action, proceeding or investigation pending or
threatened of which PSC has received actual notice regarding suspension or
cancellation of any of the Business Permits, except where the failure to
possess, or the suspension or cancellation of, such Business Permits would not
have a material adverse effect on the Business or Business Assets. PSC is not in
conflict with, or in default or violation of any law applicable to the Business
or Business Assets. PSC is not in conflict with, or in default or violation of
any law applicable to the Business or Business Assets. During
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the three-year period prior to the date of this Agreement, PSC has not received
from any governmental entity any written notification with respect to possible
conflicts, defaults or violations of Laws, except as set forth in Schedule 4.05
of the PSC Disclosure Schedule and except for written notices relating to
possible conflicts, defaults or violations that would not have a material
adverse effect on the Business or Business Assets.
Section 4.06 Accounts Receivable; Inventories. All of the Accounts
Receivable of PSC included in the Business Assets have arisen from bona fide
transactions by PSC in the ordinary course of its business and are good and
collectible in the ordinary course of business at the aggregate recorded amounts
thereof. The Inventory of PSC (including raw materials, supplies,
work-in-process, finished goods and other materials), a description of which is
included in an exhibit to this Agreement as provided above, is in good,
merchantable, resalable, and usable condition.
Section 4.07 Real Property.
(a) PSC will obtain, pay for, and deliver to Foreland, within
30 days after execution of this Agreement, a commitment for a policy of
title insurance respecting the leasehold interests in the Real Property
issued by a title insurance company reasonably acceptable to Foreland,
accompanied by a copy of all documents listed as exceptions to good and
clear marketable title in such commitment (the "Title Report"). PSC
shall pay any title commitment cancellation charge incurred in
connection with the Title Report. PSC shall also deliver to Foreland
(i) a copy of all leases affecting such Real Property not expiring
before the Closing Date, (ii) a copy of a survey of the Real Property,
if PSC has one, and (iii) a copy of each environmental assessment or
survey of any of the Real Property in the care, custody, or control of
PSC. The Title Report and the other documents and information described
above, which shall be included in Schedule 2.07 to this Agreement, are
hereinafter referred to as the "Real Property Disclosures."
(b) PSC warrants marketable title to the Real Property, save
and except for only the exceptions to title set forth in the Title
Report that are acceptable to Foreland as not impairing good and clear
marketable title together with the printed exceptions and exclusions
referred to in such Title Report; private, public, and utility
easements; roads and highways, if any; the special taxes or assessments
for improvements not yet completed; installments not yet due at the
date hereof or any special tax or assessment for improvements
heretofore completed; rights-of-way for drainage ditches, feeders and
laterals; zoning laws and ordinances; all matters, including but not
limited to encroachments which would be disclosed by an accurate survey
and/or inspection of the Real Property; and all acts or omissions of
Foreland and all governmental authorities and those acting by, through,
or under such parties.
(c) Foreland shall have until 30 calendar days after the date
of delivery of the Real Property Disclosures (the "Real Property Due
Diligence Period") in which to inspect the Real Property and the Real
Property Disclosures. If, within the Real Property Due Diligence
Period, Foreland advises PSC in writing of reasonable objections to the
status of title to or that the condition of the Real Property is in
violation of laws, ordinances, rules or regulations, PSC shall have the
right to attempt to cure such objections within 30 calendar days after
the expiration of such Real Property Due Diligence Period; Foreland
shall have no obligation to cure such objections. If PSC does undertake
to cure such objections of Foreland, such curative measures shall be
set forth in writing and shall be
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specifically enforceable by Foreland. If Foreland's objections are not
resolved to its reasonable satisfaction within such 30 calendar day
cure period, Foreland may void this Agreement by written notice thereof
to PSC within seven calendar days after expiration of such 30 day cure
period, provided, however, to the extent that the objection is in
respect to (i) title defects, or (ii) the Business Assets' conformity
to environmental laws or regulations, but such objectional condition is
of a nature that an ordinary purchaser of refining facilities would
accept such condition in light of an indemnity from a seller similar to
PSC, PSC may cure the objection by indemnifying Foreland against any
loss, cost or expense incurred by Foreland with respect to such
condition in excess of $100,000. During the Real Property Due Diligence
Period, Foreland shall have the right to terminate this Agreement if
Foreland reasonably determines PSC's representations and warranties are
false in any respect material to the transaction, taken as a whole. If,
at the end of the Due Diligence Period, this Agreement is not
terminated by Foreland in the manner provided above, or Foreland has
not delivered written objection to the PSC pursuant to this subsection,
at the Closing, if any, Foreland will be deemed to have accepted the
Real Property in "as is, where is" condition in accordance with the
provisions set forth herein.
(d) For the purposes set forth in this section, PSC hereby
grants Foreland a limited license to inspect the Real Property at
reasonable times agreeable to PSC, so long as such inspection does not
damage the improvements and other property located on the Real Property
or interfere with the ordinary conduct of PSC's business. Foreland
agrees to indemnify, defend, and hold PSC harmless from any cost,
expense, damage, liability, or claim arising out of or in connection
with the exercise by the Foreland of the rights conferred under the
provisions of this section. Notwithstanding the above or anything else
herein, if Foreland desires to have the Real Property inspected for the
presence of hazardous materials beyond a standard Phase I Environmental
Assessment or have the surface penetrated in any manner for any purpose
(such as soils tests), it shall first inform PSC in writing of such
desires. Thereafter, PSC and Foreland shall meet to discuss how and
when such inspection(s) shall be undertaken, it being understood and
agreed that PSC is concerned about the confidentiality of any such
inspection and resulting reports, if any, and potential damage to or
interference with the Real Property.
(e) The Real Property, a description of which is included in
an exhibit to this Agreement as provided above, constitutes all
interests in any real property, options to acquire any such interest,
or easements, rights of way, or similar rights with respect to real
property owned by PSC and used in or relating to the operation of the
Business. There are no leases, subleases, tenancies or other rights of
occupancy affecting such Real Property. The Real Property and
improvements owned by PSC and used in or relating to the Business are
in good operating condition and repair, are suitable for the purposes
for which they are being used, and no such improvement, or any
appurtenance thereto or equipment therein, violates any restrictive
covenant or any provisions of any federal, state or local law,
ordinance or zoning regulation, or encroaches on any property owned by
others. PSC has the right, power, and authority to transfer good and
clear marketable title in its leasehold interests in the real property
comprising the Real Property to Foreland, without the consent of any
other person or entity, as contemplated by this Agreement.
(f) At the Closing, PSC shall deliver possession of the Real
Property broom clean and free of debris and personal property not to be
conveyed pursuant hereto.
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Section 4.08 Tangible Personal Property. The list of Tangible
Personal Property, a description of which is included in an exhibit to this
Agreement as provided above, is a complete and accurate list of all machinery,
equipment, vehicles, furniture and other tangible property owned or leased by
PSC and used in or relating to the Business. Except as disclosed in Schedule
4.08, the Tangible Personal Property is in good operating condition and repair
and is suitable for the purposes for which it is being used. The Tangle Personal
Property includes all of the assets and property necessary and convenient to
operate the Business in the ordinary course in the fashion in which it has been
operated by PSC. Unless otherwise stated in such exhibit, all of such Tangible
Personal Property is located on the Real Property. All leases for tangible
property are in full force and effect, have an unexpired term as set forth in
the lease agreements, and there is no outstanding default or event that with the
passage of time or notice would constitute a default, on behalf of PSC or any
other party to the lease agreements. The remaining obligations of PSC under the
terms of each lease for Tangible Personal Property do not exceed the current
fair market value of the personal property subject to such lease. PSC has the
right, power, and authority to transfer all of the tangible and intangible
property comprising the Business Assets to Foreland, without the consent of any
other person or entity, as contemplated by this Agreement. At the Closing, PSC
will deliver possession of the Tangible Personal Property to Foreland with all
equipment and vehicles in working order.
Section 4.09 Intellectual Property. The list of Intellectual
Property, a description of which is included in an exhibit to this Agreement as
provided above, is a complete and accurate list of all of the trade secrets,
technology, know-how, tradenames, trademarks, servicemarks, and other
proprietary information owned by or used in connection with the business of PSC,
including all copyrights, patents, patent applications, registrations, and
applications with respect. Except as set forth in the above referenced exhibit,
PSC owns the entire right, title, and interest in and to such Intellectual
Property, and such Intellectual Property is not subject to the payment of
royalties or any other obligation to any other person or entity. Except as set
forth in the above referenced exhibit, none of the employees of PSC owns,
directly or indirectly, any right, title, or interest in or to the Intellectual
Property. To the best knowledge of PSC, none of the Intellectual Property is
subject to any order, decree, judgment, stipulation, settlement, encumbrance, or
attachment. There are no pending or threatened proceedings, litigation, or other
adverse claims of which PSC is aware affecting or with respect to the
Intellectual Property. The Intellectual Property does not infringe on the
copyright, patent, trade secret, know-how, or other proprietary right of any
other person or entity and comprises all such rights necessary to permit the
operation of the business of PSC as now being conducted.
Section 4.10 Employees and Related Agreements; ERISA.
(a) Schedule 4.10 contains a description of each "employee
pension benefit plan" (as such term is defined in Section 3(2) of
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
or "welfare benefit plan" (as such term is defined in Section 3(1) of
ERISA), maintained by PSC, or with respect to which PSC is required to
contribute, on behalf of any employees of PSC. Each of the plans
described in such schedule which is intended to qualify under Section
401(a) of the Internal Revenue Code (the "Code"), other than any
"multiemployer plan" (as such term is defined in Section 3(37) of
ERISA) has received a favorable determination letter from the IRS, and
no event has occurred which would cause any such plan to cease being so
qualified. Each of the plans described on such schedule (other than any
multiemployer plans) complies in form in all material respects in
accordance with the requirements of ERISA and, where applicable, the
Code. To the best knowledge of PSC, each
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multiemployer plan is qualified under Section 401(a) of the Code and
complies in form in all material respects and has been administered in
all material respects in accordance with the requirements of ERISA and,
where applicable, the Code.
(b) None of PSC's employee plans subject to Title IV of ERISA
has terminated; no proceeding has been initiated to terminate any such
plan; and there has been no "reportable event" (within the meaning of
Section 4043(b) of ERISA). PSC has not incurred any liability on
account of a "partial withdrawal" or a "complete withdrawal" (within
the meaning of Sections 4203 and 4205, respectively, of ERISA) from any
multiemployer plan, and PSC is not aware of any events which could
result in any such partial or complete withdrawal. None of PSC's
employee plans which is a defined benefit plan has incurred any
"accumulated funding deficiency" (within the meaning of Section 412 of
the Code), whether or not waived. Assuming that each of PSC's employee
plans which is subject to Title IV of ERISA (other than multiemployer
plans) were terminated as of the Closing Date, PSC would not have any
liability under Title IV of ERISA as a result of such termination. The
PSC has no obligations under any of PSC's employee plans or otherwise
to provide health benefits to former employees of PSC, except as
specifically required by law.
(c) Except as to multiemployer plans (as to which this
representation and warranty is made to the best knowledge of PSC),
neither PSC nor, to the best knowledge of PSC, any other "disqualified
person" (within the meaning of Section 4975 of the Code) or "party in
interest" (within the meaning of Section 3(14) of ERISA) has engaged in
any "prohibited transaction" (within the meaning of Section 4975 of the
Code or Section 406 of ERISA) with respect to any of PSC's employee
plans which could subject any such plan (or its related trust) or PSC,
or any officer, director or employee of PSC to the penalty or tax under
Section 402(i) of ERISA or Section 4975 of the Code.
(d) There is no pending or, to the best knowledge of PSC,
threatened claim which alleges any violation of ERISA or any other law
(i) by or on behalf of any of PSC's plans or (ii) by any employee of
PSC or any plan participant or beneficiary against any such plan.
Section 4.11. Employee Relations. The PSC has complied in respect of
the Business in all material respects with all applicable laws, rules and
regulations that relate to prices, wages, hours, harassment, disabled access,
and discrimination in employment and collective bargaining and to the operation
of its business and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. PSC believes that its
relations with the employees of PSC are satisfactory.
Section 4.12 Litigation and Proceedings. Except as set forth on
Schedule 4.12, there are no actions, suits, or proceedings pending or, to the
knowledge of PSC, threatened by or against, or affecting the Business or
Business Assets, at law or in equity, before any court or other governmental
agency or instrumentality, domestic or foreign, or before any arbitrator of any
kind; PSC does not have any knowledge of any default on its part with respect to
any judgment, order, writ, injunction, decree, award, rule, or regulation of any
court, arbitrator, or governmental agency or instrumentality.
Section 4.13 Material Contract Defaults. PSC is not in default in any
respect under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business,
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operations, properties, assets, or condition of PSC, and there is no event of
default or other event which, with notice or lapse of time or both, would
constitute a default in any material respect under any such contract, agreement,
lease, or other commitment in respect of which PSC has not taken adequate steps
to prevent such a default from occurring.
Section 4.14 Taxes. All federal, state, local, and foreign tax
returns and tax reports required to be filed by or on behalf of PSC have been
filed with the appropriate governmental agency and all jurisdictions in which
such reports are required to be filed and all taxes which have become due
pursuant to such tax returns or to any assessment which has become payable have
been paid. Proper and accurate amounts of taxes have been withheld by or on
behalf of PSC with respect to all compensation paid to employees of PSC for all
periods ending on or before the date hereof, and all deposits required with
respect to compensation paid to such employees have been made, in complete
compliance with the provisions of all applicable federal, state, and local tax
and other laws.
Section 4.15 Third-Party Consents. Except as set forth in Schedule
Section 4.15, no contract, agreement, lease, or other commitment, written or
oral, to which PSC is a party or to which any of its properties or assets are
subject require the consent of the other party in order to consummate the
transactions herein contemplated, except where the failure to obtain such
consent would not have a material adverse effect on the Business Assets. In the
event a supply or sales contracts may not be assigned without the consent of the
other party to the agreement, which consent cannot be obtained before Closing,
PSC will remain the party to the contract, and purchase products from Foreland
with respect to sales contracts, and sell products to Foreland with respect to
purchase contracts, in either case at PSC's cost so as to maintain the economic
value of the contract. PSC will remain a party to such contracts as nominee for
the account of Foreland, and Foreland will otherwise fulfill all obligations
with respect to such contracts and will hold PSC harmless from any loss, cost or
expense with respect thereto. The failure to obtain a consent in such a case
will not be considered a material adverse event, or otherwise give Foreland the
right to terminate this Agreement.
Section 4.16 No Conflict With Other Instruments. The execution of
this Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which PSC is a
party or to which any of its properties or operations are subject, except where
such breach or default would not have a material adverse effect on the assets
transferred pursuant hereto.
Section 4.17 Compliance With Laws and Regulations. PSC has complied
with all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or condition of PSC or except to the extent that noncompliance would not
result in the incurrence of any material liability for PSC.
Section 4.18 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no
information that would give PSC current actual knowledge of
the inaccuracy of any statements has come to the
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attention of PSC's officers and directors; however, no special
or independent investigation has been undertaken to determine
the accuracy of such statements.
(ii) "Environment" shall mean soil, surface waters,
groundwaters, land, stream sediments, surface or subsurface
strata, ambient air, and any environmental medium.
(iii) "Environmental Law" shall mean any
environmental related law, regulation, rule, ordinance, or
bylaw at the federal, state, or local level, existing as of
the date hereof.
(iv) "Hazardous Material" shall mean any pollutant,
toxic substance, hazardous waste, hazardous material,
hazardous substance, or oil as currently defined in the
Resource Conservation and Recovery Act, as amended; the
Comprehensive Environmental Response, Compensation, and
Liability Act, as amended; the Federal Clean Water Act, as
amended; or any other federal, state, or local environmental
law, regulation, ordinance, rule, or bylaw, existing as of the
date hereof.
(v) "Permit" shall mean environmental permit,
license, approval, consent, or authorization issued by a
federal, state, or local governmental entity.
(vi) "Premises" shall mean the real property owned or
leased by PSC on which it currently conducts the business of
PSC.
(vii) "Release" shall mean any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing, or dumping into the
Environment.
(viii) "Threat of Release" shall mean a substantial
likelihood of a Release which requires action to prevent or
mitigate damage to the Environment which may result from such
Release.
(b) Except as set forth on Schedule 4.18, to PSC's Current
Actual Knowledge, (i)PSC has no liability under any Environmental Law
applicable to the Premises and the facilities and operations thereon,
and (ii) there are not currently any violations of Environmental Laws
existing on the Premises or with respect to any facilities or
operations thereon.
(c) Except as set forth on Schedule 4.18, to PSC's Current
Actual Knowledge, PSC has not violated and is in compliance with all
Environmental Laws applicable to the Premises and the facilities and
operations thereon and has not generated, manufactured, refined,
transported, treated, stored, handled, disposed, transferred, produced,
processed, or Released any Hazardous Material on the Premises, except
in compliance with such Environmental Laws, and has no Current Actual
Knowledge of the Release or Threat of Release of any Hazardous Material
on the Premises in violations of such Environmental Laws.
(d) Except as set forth on Schedule 4.18, within the last
three years, PSC has not:
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(i) Entered into or been subject to any consent
decree, compliance, order, or administrative order with
respect to the Premises or any facilities or operations
thereon;
(ii) Received notice under the citizen suit provision
of any violation of any Environmental Law in connection with
the Premises or any facilities or operations thereon;
(iii) Received any request for information, notice,
demand letter, administrative inquiry, or claim with respect
to a violation of any Environmental Law relating to the
Premises or any facilities or operations thereon;
(iv) Been subject to or threatened with any
governmental or citizen enforcement action with respect to a
violation of any Environmental Law on the Premises or at any
facilities or operations thereon; or
(v) Received notice of any civil action with respect
to any damages claimed to result from a Release of any
Hazardous Material on the Premises.
Section 4.19 Insurance. The list of Insurance Policies, a description
of which is included as an exhibit to this Agreement as provided above, is a
complete and accurate description (including nature of coverage, limits,
deductibles, premiums and the loss experience for the most recent five years
with respect to each type of coverage) of all policies of insurance maintained,
owned or held by PSC on the date hereof with respect to the Business Assets or
the business of PSC. All of the insurable properties of PSC are insured for the
benefit of PSC in the amount of their full replacement value (subject to
reasonable deductibles) against losses due to fire and other casualty, with
extended coverage, and other risks customarily insured against by persons
operating similar properties in the localities where such properties are located
and under valid and enforceable policies issued by insurers of recognized
responsibility. Such policy or policies containing substantially equivalent
coverage will be outstanding and in full force at the Closing Date, as
hereinafter defined. PSC makes no representation, warranty, or covenant as to
whether any of the Insurance Policies or the benefits thereof may be conveyed to
Foreland. In the event any such insurance policy cannot be assigned, either by
the express terms of such policy or the governing practices or policies of the
issuer thereof, PSC shall convey to Foreland any premium or deposit refund
received as a result of the termination or cancellation of such policy.
Section 4.20 Customers and Suppliers. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship of PSC with any customer or group of
customers of PSC, or whose purchases individually or in the aggregate are
material to the operations of the business of PSC, or with any supplier or group
of suppliers of PSC, or whose sales individually or in the aggregate are
material to the operations of the business of PSC, and there exists no present
or future condition or state of facts or circumstances involving customers,
suppliers or sales representatives which PSC can now reasonably foresee would
materially adversely affect the business of PSC or prevent the conduct of such
business after the consummation of the transactions contemplated by this
Agreement in essentially the same manner in which it has heretofore been
conducted.
Section 4.21 Broker's Fees. The PSC has not engaged or entered into
any agreement with any broker or finder in connection with any of the
transactions contemplated by this Agreement requiring the payment of any fee or
compensation.
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Section 4.22 PSC Schedules. PSC has delivered to Foreland the
following disclosure schedules, which are collectively referred to as the "PSC
Schedules":
(a) A schedule required by Section 4.03 with respect to
balance sheet;
(b) A schedule required by Section 4.04 with respect to
material changes;
(c) A schedule required by Section 4.05 with respect to
governmental authorizations;
(d) A schedule required by Section 4.10 with respect to
employee plans;
(e) A schedule required by Section 4.12 with respect to
litigation; and
(f) A schedule required by Section 4.15 with respect to real
property.
PSC shall cause the exhibits to this Agreement, the PSC's Schedules, and the
other documents, instruments, and data delivered to Foreland hereunder to be
updated after the date hereof and prior to the Closing Date.
ARTICLE V
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF FORELAND
Foreland hereby represents, warrants, and covenants to PSC, as follows:
Section 5.01 Organization, Standing and Power of Foreland. Foreland
is a corporation duly organized, validly existing, and in good standing under
the laws of the state of Utah and has the power and is duly authorized,
qualified, franchised, and licensed under all applicable laws, regulations,
ordinances, and orders of public authorities to own all of its properties and
assets and to carry on its business in all material respects as it is now being
conducted and is proposed to be conducted immediately following the Closing.
Section 5.02 Reports; Financial Statements.
(a) Since March 31, 1991, Foreland and its subsidiaries have
filed all forms, reports, statements and other documents required to be
filed with (A) the Securities and Exchange Commission (the "SEC")
including (1) all Annual Reports on Form 10-K, (2) all Quarterly
Reports on Form 10-Q, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Current Reports on
Form 8-K and (5) all other reports, schedules, registration statements
or other documents and (B) any applicable state securities authorities
and all forms, reports, statements and other documents required to be
filed with any other applicable federal or state regulatory
authorities, except where the failure to file any such forms, reports,
statements or other documents would not have a material adverse effect
(all such forms, reports, statements and other documents in clauses (i)
and (ii) of this Section 5.02(a)
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being referred to herein, collectively, as the "Foreland Reports"). The
Foreland Reports, including all Surgical Reports filed after the date
of this Agreement and prior to the Effective Time, (x) were or will be
prepared in accordance with the requirements of applicable Law
(including the Securities Act and the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Foreland Reports) and (y) did not at the time they were filed, or will
not at the time they are filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in Foreland Reports
filed prior to the Effective Time, have been or will be prepared in
accordance with the published rules and regulations of the SEC and
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except (a) to the extent required by
changes in generally accepted accounting principles; (b) with respect
to Foreland Reports filed prior to the date of this Agreement, as may
be indicated in the notes thereto; and (c) with respect to interim
financial statements as may be permitted by Article 10 of Regulation
S-X) and fairly present or will fairly present the consolidated
financial position of Surgical and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and
cash flows for the periods indicated (including reasonable estimates of
normal and recurring year-end adjustments), except that (x) any
unaudited interim financial statements were or will be subject to
normal and recurring year-end adjustments and (y) any pro forma
financial statements contained in such consolidated financial
statements are not necessarily indicative of the consolidated financial
position of Surgical and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for
the periods indicated. [The foregoing are intended as factual
disclosures in connection with the issuance of securities. The
obligations under this Agreement are Foreland's, with the assets
conveyed to Refining for operating purposes.]
Section 5.03 Authority. The execution, delivery, and performance of
this Agreement has been duly and validly authorized and approved by Foreland's
board of directors and shareholder(s). The execution of and delivery of this
Agreement do not, and the consummation of the transactions described herein will
not, result in or constitute a default, breach or violation of Foreland's
articles of incorporation or bylaws or any other agreement to which Foreland is
a party.
Section 5.04 Broker's Fees. Foreland has not engaged or entered into
any agreement with any broker or finder in connection with any of the
transactions contemplated by this Agreement requiring the payment of any fee or
compensation.
Section 5.05 Material Misstatements or Omissions. To the best of
Foreland's knowledge and belief, no representation, warranty, or statement of
Foreland in this Agreement or in any document, certificate, or exhibit furnished
under this Agreement or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained therein not misleading.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FORELAND
The obligation of Foreland to purchase the Business Assets and assume
the Obligations is subject to the satisfaction, at or before Closing, of each of
the conditions set out below except for any condition which has been waived in a
writing signed by Foreland at or prior to the Closing.
Section 6.01 Performance by PSC. PSC shall have substantially
performed all conditions of this Agreement unless the requirement has been
waived in writing by Foreland.
Section 6.02 Corporate Approval. The board of directors and
shareholders of PSC shall have approved the transactions described in this
Agreement and resolutions setting forth those approvals shall have been
certified to Foreland by an officer of PSC.
Section 6.03 Satisfaction of Condition of Title to Real Property.
Foreland shall not have timely terminated this Agreement pursuant to the
provisions of Section 4.07.
Section 6.04 No Material Adverse Change Through the Closing Date.
There shall not have been any material adverse change in the financial condition
or in the results of operations of the Business, and there shall not have been
any material loss or damage to the Business Assets or Business, whether or not
insured, materially affecting PSC's ability to conduct a material part of the
Business.
Section 6.05 Absence of Litigation. No action, suit, or proceeding
before any court or any governmental body or authority pertaining to the
acquisition of the Business Assets or Business by Foreland or materially
affecting the Business Assets or Business shall have been instituted or
threatened on or before the Closing.
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.
The PSC shall have provided Foreland with a true, correct, and complete list and
amount, as of Closing Date, of:
(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;
and
(f) all shipments made with respect to the Business during the
period from the date of this Agreement to the Closing Date;
none of which information shall, in Foreland's sole reasonable discretion, be
materially different from the information supplied by PSC in the Exhibits and
Schedules delivered to Foreland on or before January 15, 1998.
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Section 6.07 Closing Date Prorations. Foreland and PSC shall prorate,
as of the Closing Date, all charges and items of expense (including those
charges and items of expense that were prepaid and are unamortized) with respect
to the Business Assets that Foreland has either expressly assumed or is
otherwise obligated to pay in accordance with the terms of this Agreement, with
PSC bearing the proportionate expense attributable to the period prior to the
Closing Date in accordance with the terms of this Agreement. Within 30 days
after the Closing Date, Foreland and PSC shall jointly prepare or cause to be
prepared a schedule of prorations in accordance with this Agreement showing the
net amount due to Foreland or PSC, as the case may be. The net amount shown on
such schedule shall be paid to the party entitled thereto within 60 days after
the Closing Date. Any amounts subject to proration determined more than 30 days
after the Closing Date shall be prorated, as set forth above, by the end of each
calendar month and paid within 15 days thereafter.
Section 6.08 Third Party Consents. Subject to the provisions of
Section 4.15, PSC shall have obtained consents of all third parties whose
consent is required to the transfer of any Business Assets or Business described
herein, including any consents reasonably requested by Foreland.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PSC
The obligation of PSC to sell the Business Assets is subject to
Foreland's satisfaction, at the time of Closing, of the conditions set out
below, except for any condition which has been waived in writing by PSC at or
prior to the Closing.
Section 7.01 Performance by Foreland. Foreland shall have
substantially performed all the conditions of this Agreement, unless the
requirement has been waived in writing by PSC.
Section 7.02 Corporate Approval. The board of directors and
shareholder(s) of Foreland shall have approved the transactions described in
this Agreement and resolutions setting forth those approvals shall have been
certified to PSC by an officer of Foreland.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in Articles IV and V shall be
continuing and shall survive the Closing, but shall expire 24 months after the
Closing Date; provided, however, that if a claim for indemnification has been
asserted pursuant to Article VII prior to or as of the expiration date of such
24- month period, such representations and warranties shall remain in full force
and effect until full and complete resolution of such claim. Notwithstanding the
foregoing, however, the time for making a claim based upon such representation
or warranty shall expire 24 months after the Closing Date.
ARTICLE IX
REGISTRATION OF SHARES
Section 9.01 Obligations of Foreland. Whenever, in accordance with
the terms of this Agreement, Foreland is required to file a Registrable
Statement, it shall proceed diligently and in good faith to:
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(a) Prepare and file with the SEC a Registration Statement
with respect to such securities and use commercially reasonable best
efforts to cause such Registration Statement to become effective, and
keep such Registration Statement effective until all Option
Consideration has been received by PSC from the sale of Shares or until
the sale of such securities is no longer required to be registered by
reason of rule 144(k) adopted under the Securities Act.
(b) Use commercially reasonable best efforts to prepare and
file with the SEC such amendments and supplements to such Registration
Statement and the prospectus used in connection with such Registration
Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Shares during the
period that Foreland is obligated to keep the Registration Statement
effective.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they
may reasonably request in order to facilitate the disposition of Shares
on their behalf.
(d) Use commercially reasonable best efforts to register and
qualify the securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions as shall
be reasonably requested by the Holders; provided that, Foreland is not
required in connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) Notify PSC at any time when a prospectus relating to the
resale of the Shares is required to be delivered under the Securities
Act, of the happening of any event that limits PSC's ability to rely on
such Registration Statement, including any event that results in the
prospectus included in such Registration Statement, as then in effect,
containing an untrue statement of a material fact or omitting to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing; any stop order issued by the SEC or any state securities
agency; or the suspension or limitation of any preemption or exemption
from state registration or other qualification on which Foreland and
PSC are relying. In any such event, Foreland shall use commercially
reasonable best efforts to file an amendment to update the Registration
Statement to the extent necessary or to take other remedial action.
(f) Cause all such Shares registered hereunder to be listed on
each securities exchange on which similar securities issued by Foreland
are then listed.
Section 9.02. Cooperation by PSC.
(a) PSC shall furnish to Foreland in writing such information
and affidavits as Foreland may reasonably require from PSC in
connection with any registration, qualification, or compliance with
respect to such Shares. It shall be a condition precedent to the
obligations of Foreland to take any action pursuant to this Agreement
with respect to the Shares of any selling Holder that PSC shall furnish
to Foreland such information regarding PSC, the Shares and other
securities in Foreland held, and the intended method of disposition of
such securities as shall be required to effect the registration of
PSC's Shares.
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(b) PSC, upon receipt of any notice from Foreland of the
happening of any event of the kind described in paragraph (f) of
section 3, will forthwith discontinue disposition of the Shares until
PSC's receipt of the copies of the supplemented or amended prospectus
contemplated by paragraph (f) of section 3 or until it is advised in
writing by Foreland that the use of such prospectus may be resumed, and
has received copies of any additional or supplemental filings that are
incorporated by reference in such prospectus, and if so directed by
Foreland, PSC will, or will request the managing underwriter or
underwriters, if any, to, deliver to Foreland all copies, other than
permanent file copies then in PSC's possession, of the prospectus
covering such Shares current at the time of receipt of such notice.
(c) At the end of any periods during which Foreland is
obligated to keep any Registration Statement current and effective as
provided herein, PSC shall discontinue sales of securities pursuant to
such Registration Statement upon receipt of notice from Foreland of its
intention to remove from registration the securities covered by such
Registration Statement which remain unsold, and PSC shall notify
Foreland of the number of securities registered which remain unsold
promptly after receipt of such notice from Foreland.
(d) PSC acknowledges that the registration of the sale of the
Shares or the availability of an exemption from registration in certain
states may impose certain limitations and conditions on the manner and
nature of such sales. Foreland shall advise PSC in writing of such
registration or exemption and the related limitations and conditions
from time to time. PSC shall be solely responsible for PSC's own
compliance with such limitations and conditions.
Section 9.03 Expenses of Registration. All expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications, including (without limitation) all
registration, filing and qualification fees, printer's and accounting fees, and
fees and disbursements of counsel for Foreland, shall be borne by Foreland.
Section 9.04. Delay of Registration. PSC shall not have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
Section 9.05. Indemnification. In the event any Shares are included
in a Registration Statement in which PSC is included as a Selling Shareholder is
filed:
(a) To the extent permitted by law, Foreland will indemnify
and hold harmless PSC, whose Shares are included in a Registration
Statement, any underwriter (as defined in the Securities Act) for PSC,
and each person, if any, who controls PSC or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities to which they may become subject under
the Securities Act, insofar as such losses, claims, damages, or
liabilities arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto,
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(ii) 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, or (iii) any Violation or alleged violation by
Foreland of the Securities Act or any rule or regulation promulgated
under the Securities Act; and Foreland will pay to each PSC,
underwriter or controlling person, any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of Foreland (which
consent shall not be unreasonably withheld), nor shall Foreland be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any PSC, underwriter, or controlling person.
(b) To the extent permitted by law, PSC will indemnify and
hold harmless Foreland, each of its directors, each of its officers who
has signed the Registration Statement, each person, if any, who
controls Foreland within the meaning of the Securities Act, any
underwriter, any other Selling Shareholder selling securities in such
Registration Statement and any controlling person of any such
underwriter or other Selling Shareholder, against any losses, claims,
damages, or liabilities to which any of the foregoing persons may
become subject under the Securities Act or the Exchange Act, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by
PSC expressly for use in connection with such registration; and PSC
will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of PSC, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing
provision, PSC's indemnification obligation under this subparagraph
shall not exceed the amount received by PSC on the sale of securities
pursuant to the Registration Statement.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this paragraph, deliver to
the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have
the right to retain one separate counsel, with the fees and expenses to
be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interest
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action,
shall relieve
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such indemnifying party of any liability to the indemnified party under
this paragraph, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this paragraph.
(d) If the indemnification provided for in this section is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage,
or expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability,
claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing provision, the contribution obligation of
PSC shall not exceed the amount received by PSC from the sale of
securities pursuant to the Registration Statement.
(e) The obligations of Foreland and PSC under this paragraph
shall survive the completion of any offering of Shares pursuant to a
Registration Statement.
ARTICLE X
INDEMNIFICATION
Section 10.01 By Foreland and PSC. Foreland, on the one hand, and PSC
on the other hand, each hereby agrees to indemnify and hold harmless the other
party against all claims, damages, losses, liabilities, costs, and expenses
(including settlement costs and any legal, accounting, or other expenses for
investigating or defending any actions or threatened actions) reasonably
incurred by the indemnified party in connection with each and all of the
following:
(a) any breach by the indemnifying party of any representation
or warranty in this Agreement;
(b) any breach of any covenant, agreement, or obligation of
the indemnifying party contained in this Agreement or any other
agreement, instrument, or document contemplated by this Agreement; and
(c) any misrepresentation contained in any statement, exhibit,
certificate, or schedule furnished by the indemnifying party pursuant
to this Agreement or in connection with the transactions contemplated
by this Agreement.
Section 10.02 By PSC. The PSC agrees to indemnify and hold harmless
Foreland from any and all claims, damages, liabilities, costs, and expenses
(including settlement costs and any legal, accounting, or other expenses for
investigating or defending any actions or threatened actions) reasonably
incurred by the indemnified party in connection with each and all of the
following:
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(a) any claims against, or liabilities or obligations of, PSC
or against the Business or Business Assets not specifically assumed by
Foreland pursuant to this Agreement which, in the aggregate, exceed
$100,000; and
(b) any and all claims, damages, losses, liabilities, costs,
and expenses including settlement costs and any legal, accounting, or
other expenses for investigating or defending any actions or threatened
actions) reasonably incurred by Foreland in connection with any
warranty claim or product liability claim relating to (i) products
manufactured or sold by PSC prior to the Closing Date, or (ii) PSC's
business or operations prior to the Closing Date.
Section 10.03 Claims for Indemnification. Whenever any claim shall
arise for indemnification hereunder, the party seeking indemnification (the
"Indemnified Party"), shall promptly notify, in writing, the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the event of any such
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by any party, the notice to the Indemnifying Party
shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, when shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control of
such suit after notification thereof as provided in section 10.04 hereof.
Section 10.04 Defense by Indemnifying Party. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out any claim
or legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party, at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate (but not control) the defense
of any such action, with its counsel and at its own expense. If the Indemnifying
Party does not assume the defense of any such claim or litigation resulting
therefrom within 30 days after the date such claim is made:
(a) the Indemnified Party may defend against such claim or
litigation in such manner as it may deem appropriate, including, but
not limited to, settling such claim or litigation, after giving notice
of the same to the Indemnifying Party, on such terms as the Indemnified
Party may deem appropriate; and
(b) the Indemnifying Party shall be entitled to participate in
(but not control) the defense of such action, with its counsel and at
its own expense. If the Indemnifying Party thereafter seeks to question
the manner in which the Indemnified Party defended such third party
claim or the amount or nature of any such settlement, the Indemnifying
Party shall have the burden to prove by a preponderance of the evidence
that the Indemnified Party did not defend or settle such third party
claim in a reasonably prudent manner.
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ARTICLE XI
SPECIAL COVENANTS
Section 11.01 Obligations After Closing. For a period of 18 months
following the Closing Date, Foreland shall have access to and the right to copy
all business records necessary to permit the preparation and audit of the
financial statements required by the Securities Act and/or the Exchange Act with
respect to the Business. The officers, directors, and employees will cooperate,
to the extent necessary, to assist in the preparation and audit of such
financial statements. In addition, PSC and Foreland shall have access to and the
right to copy all of the records of each other relative to the Business as maybe
necessary for preparation of employee or corporate tax returns, employee tax
reports, and customary accounting functions. Additionally, PSC and Foreland
shall agree to make available to the other, at reasonable times and upon
reasonable advance notice, relevant records and personnel in connection with the
preparation of a defense or the participation in a defense, participation in the
prosecution of claim or litigation, and negotiation of a settlement relating to
any pending, future, or threatened litigation, or government agency proceeding
(including a tax audit) involving the conduct of the Business before or after
the Closing, as the case may be, or in the perfection, registration, or
transferring of any copyright, trademark right, or other proprietary information
or right acquired by Foreland hereunder.
Section 11.02 Waiver of Bulk Sale. Foreland hereby waives compliance
by PSC with the provisions of the Nevada Commercial Code applicable to bulk
transfers.
Section 11.03 Financial Statements Respecting the Business. PSC shall
utilize its best efforts to make available to Foreland PSC's financial
statements, related information, and access to PSC's accountants and auditors,
at Foreland's expense, to the extent reasonably required for Foreland to meet
the requirements under applicable securities laws for providing financial
statements on acquired businesses.
ARTICLE XII
SPECIFIC PERFORMANCE
The parties hereto agree the failure of any party to perform any
obligation or duty which each has agreed to perform shall cause irreparable harm
to the parties willing to perform the obligations and duties herein, which harm
cannot be adequately compensated for by money damages. It is further agreed by
the parties hereto an order of specific performance against a party in default
under the terms of this Agreement would be equitable and would not work a
hardship on the defaulting party. Accordingly, in the event of default by any
party hereto, the non-defaulting party, in addition to whatever other remedies
are available at law or in equity, shall have the right to compel specific
performance by the defaulting party of any obligation or duty herein.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 Costs. Foreland and PSC shall each pay all of their own
costs and expenses incurred or to be incurred by each in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 13.02 Notices. Any notice, demand, request, or other
communication under this Agreement shall be in writing and shall be deemed to
have been given on the date of service if personally served or by facsimile
transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or on the third day after
mailing if mailed by certified mail, return receipt requested, addressed as
follows:
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If to PSC, to: A. Howard McCollum
President and CEO
Petro Source Refining Corporation
9801 Westheimer, Suite 900
Houston, Texas 77042
Telecopy: (713) 972-2035
With copies to: Harvey H. Cody, III
Vice-President, General Counsel and Secretary
Petro Source Refining Corporation
9801 Westheimer, Suite 900
Houston, Texas 77042
Telecopy: (713) 972-2035
If to Foreland, to: Foreland Corporation
Attn: N. Thomas Steele, President
12596 West Bayaud, Suite 300
Lakewood, Colorado 80226
Telecopy: (303) 988-3234
With copies to: James R. Kruse
Kruse, Landa & Maycock, L.L.C.
Eighth Floor, Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101
Telecopy: (801) 531-7091
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder, and any such notice,
demand, request, or other communication shall be deemed to have been given as of
the date so delivered or sent by facsimile transmission (if receipt is confirmed
by the facsimile operator of the recipient), three days after the date so
mailed, or one day after the date so sent by overnight delivery.
Section 13.03 Governing Law. This Agreement shall be governed by,
enforced and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
the state of Utah. Venue for all actions regarding this Agreement shall be in
Salt Lake County, Utah. The parties hereby submit to the personal jurisdiction
of such court for the purpose of resolving any dispute arising under this
Agreement.
Section 13.04 Attorneys' Fees. In the event that any party institutes
any action or suit to enforce this Agreement or to secure relief from any
default hereunder or breach hereof, the breaching party or parties shall
reimburse the nonbreaching party or parties for all costs, including reasonable
attorneys' fees, incurred in connection therewith and in enforcing or collecting
any judgment rendered therein.
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Section 13.05 Schedules and Exhibits; Knowledge. Whenever in any
section of this Agreement reference is made to information set forth in the
exhibits or the PSC Schedules, such reference is to information specifically set
forth in such exhibits or schedules and clearly marked to identify the section
of this Agreement to which the information relates. Whenever any representation
is made to the "knowledge" of any party, it shall be deemed to be a
representation that no officer or director of such party, after reasonable
investigation, has any knowledge of such matters.
Section 13.06 Entire Agreement. This Agreement, together with the
documents to be delivered pursuant hereto, represent the entire agreement
between the parties relating to the subject matter hereof. There are no other
courses of dealing, understanding, agreements, representations, or warranties,
written or oral, except as set forth herein.
Section 13.07 Survival; Termination. The representations, warranties,
and covenants of the respective parties shall survive the Closing.
Section 13.08 Form of Execution; Counterparts. A valid and binding
signature hereto or any notice or demand hereunder may be in the form of a
manual execution or a true copy made by photographic, xerographic, or other
electronic process that provides similar copy accuracy of a document that has
been executed. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall be but a
single instrument.
Section 13.09 Amendment or Waiver. Every right and remedy provided
herein shall be cumulative with every other right and remedy, whether conferred
herein, at law, or in equity, and may be enforced concurrently herewith, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance thereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.
Section 13.10 Waiver of Jury Trial. Each party hereby (a) knowingly,
voluntarily, intentionally, and irrevocably waives, to the maximum extent not
prohibited by law, any right it may have to a trial by jury in respect of any
litigation based hereon, or directly or indirectly at any time arising out of,
under, or in connection with this Agreement or any transaction contemplated
hereby or associated herewith; and (b) acknowledges that it has been induced to
enter into this Agreement and the transactions contemplated hereby by, among
other things, the mutual waivers and certifications contained in this section.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FORELAND CORPORATION
By /s/ N. THOMAS STEELE
------------------------------
N. Thomas Steele, President
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<PAGE> 37
PETRO SOURCE CORPORATION
By /s/ HARVEY H. CODY III
--------------------------------
Harvey H. Cody III
Vice President
PETRO SOURCE REFINING CORPORATION
By /s/ HARVEY H. CODY III
--------------------------------
Harvey H. Cody III
Vice President
PETROSOURCE TRANSPORTATION
By /s/ HARVEY H. CODY III
--------------------------------
Harvey H. Cody III
Vice President
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<PAGE> 38
EXHIBIT AND SCHEDULES OMITTED
<PAGE> 1
EXHIBIT C
AMENDMENT TO
OPTION AND PURCHASE AGREEMENT
THIS AMENDMENT TO OPTION AND PURCHASE AGREEMENT (this "Amendment") is
entered into as of this 11th 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 August 15,
1998. Between the Closing Date and August
<PAGE> 2
14, 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
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<PAGE> 3
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 Pac(TM) 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;
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<PAGE> 4
(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:
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<PAGE> 5
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;
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<PAGE> 6
(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
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<PAGE> 7
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 763,602 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
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<PAGE> 8
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 that all of the Closing Shares are not
sold by Petro Source Corporation under the
Registration Statement on or before December 31,
1998, Foreland shall pay interest to Petro Source
Corporation in cash equal to 5.0% per annum
multiplied by the difference between (i) the
Estimated Adjustments to Base Price less (ii) the
net proceeds realized by Petro Source Corporation
from the sale of such Closing Shares. Such amounts
shall be paid by Foreland to Petro Source
Corporation on the last day of each month beginning
with the last day of January 1999. 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.
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<PAGE> 9
(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.
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(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.
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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
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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;
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(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. Payment of Cost of Survey. On or before ten days following the
Closing, Foreland shall reimburse Petro Source Corporation for the cost incurred
by Petro Source Corporation in obtaining a survey of the properties pursuant to
the Option and purchase Agreement.
22. 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.
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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/ A Howard McCollum, President
PETROSOURCE TRANSPORTATION
By /s/ A. Howard McCollum, President
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