U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-18995
INTERLINE RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0461653
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
160 West Canyon Crest Drive, Alpine, UT 84004
(Address of principal executive offices)
Registrant's telephone number, including area code:
(801) 756-3031
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Common Stock $.005 Par Value
Title of Class
Securities registered pursuant to Section 12(g) of the Exchange
Act: None
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No____.
Check if there is no disclosure of deliquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of Issuer's knowledge,
in difinitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. X
The Issuer's revenues for the fiscal year ending December 31,
1995 were $20,405,802.
As of March 15, 1996, 13,951,052 shares of the Issuer's common
stock were issued and outstanding, 6,179,612 of which were held
by non-affiliates. As of March 25, 1996 the aggregate market
value of shares held by non-affiliates (based upon the closing
price) was approximately $29,353,157.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
General
Interline Resources Corporation (the "Company"), a Utah
corporation, is engaged in three areas of business: used oil
refining, oil and gas operations and industrial and commercial
construction.
During 1995, the Company formed three separate subsidiaries
to operate the three different areas of business. Interline
Hydrocarbon Inc., a Wyoming corporation, is the subsidiary that
owns the used oil refining technology. Interline Energy Services,
Inc., a Wyoming corporation, manages the oil and gas operations
in Utah and Wyoming. Gagon Mechanical, a Utah corporation,
participates in three areas of construction: industrial,
commercial and manufacturing.
The Company has invested substantial resources
commercializing a used oil refining technology and has signed
licensing or joint venture agreements with Quaker State Resources
(a subsidiary of Quaker State), Gadgil Western Corporation of
India, Whelan Environmental Services of England and Dukeun
Industrial Company of South Korea.
The Company's main oil and gas operations consist of natural
gas gathering, natural gas processing and oil well production.
The central areas of business are conducted at its Well Draw Gas
Plant located near Douglas, Wyoming; the Monument Butte Gathering
system located near Roosevelt, Utah; and the Roseland Wells, also
located within the Monument Butte area.
The Company is also engaged in the construction industry
through its wholly owned Gagon Mechanical Contractors subsidiary.
Gagon provides expertise and resources necessary for the
construction of refineries sold by the Company. The subsidiary
specializes in industrial and commercial construction of
mechanical systems, such as heating, air conditioning, process
piping and plumbing.
The total revenues, total assets and total stockholders'
equity for the past five years are as follows:
Year Total Revenues Total Assets Stockholders'
Equity
1995 $20,405,802 $ 18,279,147 $ 7,983,626
1994 11,091,172 13,931,218 7,115,740
1993 9,740,815 9,404,667 4,597,094
1992 8,489,768 4,603,980 2,424,653
1991 5,475,017 4,277,247 1,436,670
Interline Hydrocarbon Inc.
In 1993, the Company acquired a license to a patented
contaminated oil reprocessing technology (the "Technology") from
Petroleum Systems Inc. (PSI) for 1.5 million shares of the
Company's common stock and royalties of 2 cents per gallon of oil
processed into base oil and 1 cent per gallon of oil processed
into other products. The Technology cleans contaminated oil
products, such as used motor oil, industrial oils, refinery
bottoms and "pit oil," among others.
In January 1995, the Company signed an agreement with PSI
for the acquisition of the patent rights to the Technology by the
Company and to change the royalty to 20 percent of the future
royalties received by the Company, provided, however, the
royalties to be paid by the Company to PSI will remain the same
for the current agreements with Gadgil Western Corporation and
Quaker State Resources.
The Company, its licensees and joint venture partners intend
to use the Technology to process low-value hydrocarbon products
into high-value products, such as refining used motor oil,
containing dirt and contaminants, into clean oil without
significant effects on the environment. The contaminants removed
from the used oil in the refining process are chemically bound in
a "residuum" that can be safely used as an asphalt modifier or as
a base for roofing tar. The reprocessed oil can then be used as a
base lubricating oil stock (that could be used as a stock for
recycled motor or industrial oil) or a clean-burning industrial
fuel. The other by-product, water, can be disposed of through
minimal treatment or used as a coolant within the oil refining
plants.
Currently, in the industry, most used oil is only minimally
cleaned and is burned as a low-grade industrial fuel. As a
result, harmful metals in the used oil, such as lead, arsenic,
cadmium and other metals, may be released into the air. By using
the Technology, the release of these metals into the air is
minimized or eliminated. If the refined oil is burned, it burns
clean. The metals and other physical and chemical contaminants
are chemically bound in the remaining residuum. The residuum
passes the EPA's Toxicity Characteristic Leach Process (TCLP)
test, meaning that the metals do not leach out of the residuum
into the environment. The water extracted by the process also
passes the EPA's TCLP leach test.
Based upon its research and development work, the Company
believes that the Technology has the potential to clean "pit oil"
(waste oil from drilling oil wells) in a commercially viable
manner. However the Company is not currently using the Technology
to clean pit oil.
The Technology also has the potential to upgrade low-grade
fuels, such as "refinery bottoms," into gasoline and diesel.
Gadgil Western Corporation, a licensee of the Technology from the
Company, has constructed a refinery that uses the Technology to
process these low-grade hydrocarbons. More details about this
application of the Company's technology are included in the
section that discusses the agreement with Gadgil Western.
The Company plans to receive revenues from licensees and
joint venture partners in relation to the Technology through
exclusive license fees, royalties, the manufacturing of
refineries through Gagon Mechanical and joint venture
partnerships.
The following lists the agreements the Company has signed
with companies worldwide.
Quaker State Resources - United States, Canada, and Mexico
On September 13, 1994, the Company entered into a License
and Technology Disclosure Agreement ("License Agreement" or
"License") and a Unit Purchase Agreement ("Construction
Agreement") with Q Lube, Inc., a wholly owned subsidiary of
Quaker State, Inc. During 1995, the Agreements and the exclusive
rights associated with the Agreements were assigned to Quaker
State Resources, another division of Quaker State, Inc.
These agreements provide for the licensing of the Company's
used oil refining technology to Quaker State Resources and for
the construction of facilities ("Units") at which the refining
process will be conducted by Quaker State Resources. Under the
terms of the License Agreement, the Company also agreed to sell
shares of its common stock to Quaker State Resources and issue
Common Stock Purchase Warrants which entitle Quaker State
Resources to purchase additional shares of the Company's common
stock.
License Agreement. Under the License Agreement, the Company
has granted Quaker State Resources the right to refine "Used Oil"
utilizing the Company's Technology. Used Oil is technically
defined in the License Agreement, but by way of a general
explanation, it includes Quaker State Resources' right to use the
Technology to process or refine all oils originally refined from
crude oil or synthetic oil, which were thereafter used for their
intended purpose and as a result of such use, were contaminated
by physical and/or chemical impurities. Not licensed to Quaker
State Resources, but specifically retained by the Company, is the
Company's unencumbered right to grant licenses to others for the
processing of all other unrefined crude oil, including pit crude,
rough oil, crude oil, weathered crude, heavy fuel oils produced
from the refining of crude oil, refinery tank bottoms and
refinery processed bottoms.
The License Agreement grants Quaker State Resources the
exclusive right to use the Technology to process Used Oil for all
of North America including Canada, Mexico and the 50 states of
the United States, together with their respective territories,
districts, provinces and other territorial possessions. In
consideration of the Company granting Quaker State Resources the
license for the Technology, Quaker State Resources is required to
pay to the Company (subject to the terms and conditions of the
License Agreement) certain exclusivity fees, royalty fees and a
percentage of net profits from Units operated by Quaker State
Resources.
Exclusivity Fees. Subject to the terms and conditions of the
License Agreement, the Company has granted Quaker State Resources
the exclusive license to use the Licensed Technology to process
Used Oil and recover Finished Products from the Used Oil in North
American ("Continental Exclusivity"). Subject to the terms and
conditions of the License Agreement, Quaker State Resources shall
pay the Company $9,400,000 as an Exclusivity Fee for Continental
Exclusivity on the following terms:
(1) $250,000 at the time of the execution
of the License Agreement (this amount has been
paid to the Company);
(2) $250,000 not later than October 13, 1994
(this amount has been paid to the Company);
(3) $500,000 at the later of January 15,
1995 or the date on which the First Unit is
operating at full capacity (This amount has been
paid to the Company and used as part of its
investment into the Genesis Petroleum-Salt Lake
City L.L.C. joint venture company. See the section
below about the Genesis Petroleum joint venture
for more details.);
(4) $400,000 within 180 days (August 18,
1996) from the date the First Unit is "Delivered"
to Quaker State Resources; and
(5) the balance of $ 8,000,000 to be paid on
per Unit basis for each of the next 30 Units
purchased by Quaker State Resources at the rate of
$266,666 per Unit. This per Unit fee is not a
payment for the cost of the Units constructed but
is solely part of the Exclusivity Fee. The Units
order schedule is as follows:
Year Required Units
Year 1 2
Year 2 5
Year 3 5
Year 4 5
Year 5 5
Year 6 8
The First Unit. Pursuant to the License Agreement, Quaker
State Resources ordered and the Company constructed and delivered
to Quaker State Resources, the First Unit which will be used by
Quaker State Resources to test the Technology and to determine if
the Technology is satisfactory to Quaker State Resources. The
construction of the refinery was completed in January 1996 and
"Delivery" of the refinery was made on Feb. 20, 1996. The
refinery is located in Woods Cross, Utah, north of Salt Lake
City.
If Quaker State Resources determines, within 180 days
(August 18, 1996) from the date the First Unit is delivered, that
the First Unit or the Technology is unacceptable, it may
terminate the License and with such termination, its exclusivity
rights and other rights granted by the License shall also
terminate. In such event, the Company is required to refund to
Quaker State Resources 50 percent of the Exclusivity Fees
theretofore paid under the License Agreement and, at the request
of Quaker State Resources, the Company will purchase the First
Unit from Quaker State Resources at Quaker State Resources' cost.
Quaker State Resources is not obligated to maintain
Continental Exclusivity or pay all or any part of the Exclusivity
Fees for Units after the purchase of the First Unit. Therefore,
the Company is currently unable to predict the total amount it
will actually receive from Quaker State Resources as Exclusivity
Fees. However, to maintain Continental Exclusivity, Quaker State
Resources must pay the Unit Exclusivity Fees described above. For
each $266,666 Unit Exclusivity Fee paid, Quaker State Resources
receives a non-terminable, exclusive Unit Territory license. Even
if Quaker State Resources elects to discontinue Continental
Exclusivity, it has the right to retain exclusive rights to each
Unit and Unit Territory previously paid for on the $266,666 per
Unit basis.
If Quaker State Resources elects to terminate Continental
Exclusivity, the Company has the right to license to others any
and all remaining territories not then subject to any previously
Exclusive Unit License of Quaker State Resources. The Unit
Territory assigned to a Unit will be terminated by the mutual
agreement of the Company and Quaker State Resources.
Exclusive Rights to Canada and Mexico. At such time as
Quaker State Resources makes the $400,000 payment (as described
in paragraph 4 on page 4), Quaker State Resources will be deemed
to have paid in full the Exclusivity Fee for Canada and Mexico
and in such event, even if it were to thereafter elect to
terminate Continental Exclusivity, it would retain the non-
terminable Exclusive Rights for the Licensed Technology for
Canada and Mexico.
Maintaining Continental Exclusivity. Quaker State Resources'
Continental Exclusivity is for an initial term of six years
assuming all required Exclusivity Fees are paid as described
above. If, at the end of any 12 month period, commencing from the
date of delivery of the First Unit, Quaker State Resources'
annual volume of Used Oil processed using the Technology is
300,000,000 or greater, and if Quaker State Resources has paid
all Exclusivity Fees required under the License Agreement, then
the Continental Exclusivity shall continue indefinitely.
If Quaker State Resources has not reached the 300,000,000
gallon annual volume level at the end of the initial term, but
can show the Company that it has made Reasonable Effort (as
defined in the License Agreement) to achieve said volume, then
Quaker State Resources has the right to extend Continental
Exclusivity beyond said six year period for successive one year
terms by paying the Company $1 million dollars per one year term
until the 300,000,000 gallon annual volume is reached, or until
Quaker State Resources elects not to maintain Continental
Exclusivity.
Royalty Fees. The License Agreement provides that Quaker
State Resources will pay the Company ongoing royalties for each
gallon of Finished Product (as defined in the Agreement)
processed during the entire term of the License. The per gallon
royalty is $.035 for Base Oil, and the lesser of $.035 or 10% of
the actual sales price for all other Finished Products, which
include diesel, gasoline and residuum products.
Net Profit. The Company will receive 7.5% of the Net Profits
(as defined in the License Agreement) of each Unit installed and
operated by Quaker State Resources under the License Agreement.
Revenues from certain Closed Loop User Facilities Units will not
be included in the Net Profit calculation.
Stock and Warrants. Within 90 days after delivery (May 20,
1996) of the First Unit, Quaker State Resources will purchase
from the Company and the Company will sell to Quaker State
Resources, shares of the Company's common stock for a total price
of $600,000. The total number of shares to be purchased shall be
that number which will provide Quaker State Resources with .00769
of the total shares of the Company's common stock issued and
outstanding immediately following such purchase of the Company's
shares by Quaker State Resources. As of March 26, 1996, the
Company's outstanding shares totaled 13,951,052 shares of common
stock. At the current outstanding shares, Quaker State Resources
would purchase 108,115 shares of stock at $5.55 per share.
Subject to the terms of the License Agreement, at the
closing of the $600,000 stock purchase, the Company has agreed to
grant Quaker State Resources a Warrant to purchase the greater of
(i) 750,000 shares or (ii) 5.769 percent of the outstanding
shares of the Company's common stock at the time of the purchase
of the Warrants, less the number of shares purchased for $600,000
as detailed above. The exercise price of these Warrants are a
price of $8.00 per share.
Another Warrant would also be issued that grants Quaker
State Resources a Warrant to purchase a total of the greater of
(i) 750,000 shares or (ii) 5.769 percent of the outstanding
shares of the Company's common stock at the time of the purchase
of the Warrants, less the number of shares purchased for $600,000
as detailed above and less the number of shares purchased in the
$8.00 Warrant described above . The exercise price of these
Warrants are a price of $12.00 per share.
The shares which may be purchased for $8.00 must be
purchased, if at all, not later than September 13, 1997. The
shares which may be purchased for $12.00 must be purchased, if at
all, not later than September 13, 1999.
CLUF Facilities. The parties anticipate that there will be
opportunities to process Used Oil that is internally generated by
large industrial, manufacturing, processing or refinery
facilities for reuse by the generating entity. For such Closed
Loop User Facilities ("CLUF Unit") the License Agreement provides
for a 50/50 ownership of such Units between Quaker State
Resources and the Company under terms to be agreed to at the time
a CLUF Unit is proposed.
Unit Purchase Agreement. Concurrently with executing the
License Agreement, the Company also entered into a Unit Purchase
Agreement with Quaker State Resources whereby the Company has the
right to build all Units installed under the License subject to
the terms and conditions of the Unit Purchase Agreement. The
First Unit will be constructed and installed by the Company for a
total price of $1.4 million dollars to be paid by Quaker State
Resources.
On Oct. 25, 1996, the Unit Purchase Agreement was amended to
reflect the following: On all subsequent Unit Orders the Company
has the right to prepare the Unit Specifications of each Unit,
and thereafter present Quaker State Resources with its bid to
construct and install each such Unit. The Company will present a
bid based on the sum of the following costs:
a. All Direct Costs;
b. An additional amount equal to 27.5 percent of the
Direct Costs;
c. All sales taxes, governmental fees, and utility
fees actually incurred by the Company in constructing
the Unit.
If Quaker State Resources desires to seek a competing bid,
it may do so for all Units except the First, Second and Third
Units. If the Company's bid is within 7 1/2% of the competitive
bid, meaning the Company's bid is not more than 7 1/2% above the
third party bid, then Quaker State Resources will purchase the
Unit from the Company at its original bid. In the event the
Company's bid is more than 7 1/2% higher than the competitive
third-party bid, Quaker State Resources is obligated to negotiate
with the Company in good faith to reach a mutually acceptable
price.
If the Company elects to match the third-party bid, or
Quaker State Resources and the Company reach a mutually
acceptable price, Quaker State Resources will purchase the Unit
from the Company at the negotiated bid price. If Quaker State
Resources and the Company are not able to agree on a price and
the Company is not willing to match the third party bid, Quaker
State Resources may purchase the Unit from the third-party
bidder. If at any time during the term of the Unit Agreement,
Quaker State Resources awards a bid to a third-party because the
Company was unwilling to match the third party bid for any two
Unit purchases, Quaker State Resources' obligation to negotiate
with the Company terminates, and Quaker State Resources is only
obligated to award the Company bids which are within 7 1/2% of
competitive bids.
Genesis Petroleum-Salt Lake City L.L.C. Joint Venture. On
November 3, 1995, the Company announced that it had formed a
joint venture company with Quaker State Resources, called Genesis
Petroleum-Salt Lake City L.L.C. to operate the First Unit
constructed by the Company.
The Company has a 26 percent ownership in the joint venture.
As part of the joint venture the Company agreed to fund the first
$900,000 of site improvements to the First Unit site.
Gadgil Western Corporation- 10 Middle Eastern and Far Eastern
Countries
In December 1993, the Company signed an agreement with
Gadgil Western Corporation (formerly Western India Group) of New
Delhi, India, for exclusive rights to the Technology in 10 Middle
Eastern and Far Eastern countries. These countries include India,
Saudi Arabia, United Arab Emirates, Oman, Kuwait, Iran, Thailand,
Vietnam, Malaysia and Qatar. Gadgil Western plans to use the
Company's Technology to extract gasoline and diesel from these
refinery bottoms.
The first refinery in the world to used the Company's
Technology was completed in June 1995 and is still in start up
and evaluation operations. The refinery is located in Dubai,
United Arab Emirates (at the Persian Gulf), and has a capacity to
process 45,000 gallons of oil per day. Gadgil Western has not
announced any production results from the refinery, but Gadgil
Western has informed the Company that it expects to develop other
refineries. Gadgil Western is using the Dubai refinery as a
demonstration and evaluation refinery for the possibility of
building other refineries in Bahrain, Singapore and India. Gadgil
Western has also contemplated using the Dubai refinery to process
used oil.
On Dec. 8, 1996, Gadgil Western and the Company amended the
License Agreement to reflect the following:
a. the exclusive rights to use the Technology to
process used oil were given back to the Company for all
the countries except the United Arab Emirates;
b. the Company has the exclusive right to license the
Technology to process used oil in India, Saudi Arabia,
United Arab Emirates, Oman, Kuwait, Iran, Thailand,
Vietnam, Malaysia and Qatar;
c. the Company has agreed to pay a 10 percent fee to
Gadgil Corporation based on the sales price of the
battery limits of any used oil facility sold in the
countries listed in paragraph b;
d. the minimum capacity requirements have been
amended by extending Years 2 through 5 by two years
each. Therefore year 7 would require a minimum
installed or ordered capacity of 500,000 gallons per
day.
Gadgil Western Corporation has paid $1,000,000 in
exclusivity fees and will pay the Company a net royalty of 1 cent
per gallon for use of the Technology.
License for Bahrain and Singapore. In July 1995, the Company
signed an exclusive License Agreement with Gadgil Western for
Bahrain and Singapore. For the rights to use the Technology in
those two countries, Gadgil Western paid $1 million.
Whelan Environmental Services - Interline U.K.
In February 1995, the Company entered into a joint venture
agreement with Whelan Environmental Services, Ltd. of Birmingham,
England, to construct a used oil refinery in Stoke, England. The
agreement provides that the Company will own 40 percent of the
venture and will receive an additional 6 cent gross royalty per
gallon of oil processed. The joint venture company is called
Interline (UK) Limited.
In October 1995, Interline (UK) was approved for 1.8 million
British pounds (about $2.7 million) in financing for the
construction and installation of the refinery. The loan is
secured by assets owned by Whelan. The Company signed a Guarantee
for the loan for 1.2 million pounds. As of Dec. 31, 1995, the
joint venture has funded 700,000 British pounds toward
construction.
The refinery has been constructed at Gagon Mechanical's site
and, as of March 1996, was en route to England. The Company
anticipates the refinery will be operational by June 1996. The
refinery is designed to process 24,000 gallons of used oil per
day. The joint venture currently intends to sell the processed
used oil as a lubricating base oil or for other industrial uses.
Interline (UK) is also the marketing agent for the Company
for joint ventures which the Company is seeking in Spain,
Belgium, Portugal and the Netherlands.
Dukeun Industrial Company - South Korea
In April 1995, the Company signed an agreement with Dukeun
Industrial Company, Ltd. of Seoul, South Korea, to build a used
oil refinery in Seoul. The refinery will be owned by Dukeun and
will have a capacity to process 24,000 gallons of used oil per
day. Dukeun plans to sell the processed base oil as lubricating
base stock.
The refinery is in construction and expected to be shipped
to the site in South Korea by May 1996. The refinery is expected
to be completed and operational by August 1996.
Under the License Agreement, Interline will receive a gross
royalty of 7 cents per gallon for the first four years of
operation of the Unit, 6 cents per gallon for years five to seven
and 5 cents per gallon for years eight to ten.
Any additional refineries built after the first unit will be
constructed for a joint venture company called Dukeun-Interline
Refining Company, of which the Company has the option to own up
to 50 percent of the joint venture company. The joint venture
company will have an option to buy the first refinery.
Interline Energy Services - Oil and Gas Division
The Company has facilities for natural gas gathering and
processing, and crude oil gathering and production in eastern
Utah and east-central Wyoming, as well as truck transportation of
natural gas liquids and retail propane sales in Wyoming.
Well Draw Gas Plant
The Company's Well Draw Gas Plant is located near Douglas,
Wyoming. As part of the Plant system, the Company owns a
gathering and mainline pipeline system consisting of 60 miles of
high pressure discharge lines, 120 miles of low pressure
gathering lines and 90 miles of low pressure fuel return lines.
The pipeline's effective gathering area is a 70-by-40 mile area
in the Powder River Basin. The gathering system is connected to
approximately 150 wells. The pipeline is connected to the
Company's Well Draw Gas Plant. The Well Draw Gas Plant (the
"Plant") is a natural gas liquids (NGLs) processing plant which
has the capacity to process approximately 150,000 gallons of NGLs
a day. Currently, the Plant processes the liquids into propane,
butane and natural gasoline. Liquids for the Plant originate from
the Company's pipeline and from liquids that are trucked into the
Plant from outside sources.
Amoco Contract
During 1994, the Company entered into a contract with Amoco
Production Company to process about 25 million gallons of NGLs
per year, ending the year 2000 (based on an average of 70,000
gallons processed per day). The Amoco agreement is the largest
liquids contract the Company has entered into since it purchased
the Plant and the connected pipeline in 1990. To fulfill the
contract, the Company made modifications to the Well Draw Gas
Plant to increase its processing capacity from about 90,000 to
approximately 150,000 gallons per day. The Company also
constructed an amine treating unit to reduce sulfur
concentrations of the NGLs at Amoco's Bairoil, Wyoming, plant
where the NGLs are collected. In 1995, the Company processed an
average of 53,000 gallons per day of NGLs because of the Amoco
contract, which totals 64 percent of the total NGLs processed by
the Plant. The Well Draw Gas Plant processed an average of 83,000
per day of NGLs for 1995, including outside sources and liquids
from the pipeline.
Conoco Pipeline Purchase
In January 1995, the Company purchased 180 miles of crude
oil gathering and trunk pipelines, together with pumping stations
and storage tanks from Conoco Pipeline Company. The pipeline
transports the oil from oil producing fields in Converse County,
Wyoming, to Conoco's Lance Creek Station, where it connects with
an interstate crude oil pipeline system. The pipeline gathers and
transports approximately 350,000 barrels of crude oil per year.
Oil Well Production
The Company owns interests in 17 producing oil and gas wells
in Wyoming and eastern Utah.
Utah Operations
The Company owns and operates a natural gas gathering system
in the greater Monument Butte Field of the Uintah Basin in
eastern Utah. This system consists of 28 miles of main trunk line
and 40 miles of lateral lines connecting 109 wells, as well as
five compressors. As a result of increased drilling activity, the
Company connected 29 new wells to the gathering system during
1995, and as a consequence, total gas sales from this system
increased to an average of 3,400 MMBtu per day for the year. In
comparison 1994 average sales were 2,700 MMBtu per day.
NRG Fuels
In June of 1995, the Company formed a new subsidiary called
NRG Fuels, Inc. to market propane to retail and commercial
customers in east-central Wyoming. By the end of 1995, this
subsidiary had placed 135 tanks with customers, totaling 112,663
gallons of propane storage. The principal goal of NRG Fuels is to
provide a stable end-use market for the Company's share of
propane at its Well Draw Processing Plant.
Interline Transportation
The Company in the last three years has greatly increased
its transportation of NGLs and finished product in the Rocky
Mountain region. In the last three years, Interline has
quadrupled its trucking activity. Three years ago, Interline had
one truck and two drivers. Today, Interline has four trucks and
eight drivers. Collectively, these trucks travel about 700,000
miles per year, carrying a total of 85 million gallons of raw and
finished product.
Interline trucks transport NGLs, propane and butane and
natural gasoline to and from the Well Draw Gas Plant. The trucks
travel as far away as Nebraska, Montana, Utah and Colorado.
Gagon Mechanical Contractors - Industrial and Commercial
Construction
Gagon Mechanical Contractors, a wholly owned subsidiary of
the Company, was purchased by the Company on Dec. 31, 1993 to
provide expertise and resources necessary for construction of
used oil refineries. Gagon specializes in mechanical system
construction, such as heating, ventilation, air conditioning,
process piping and plumbing, including piping and controls for
hydrocarbon and chemical products.
Gagon has been in operation since 1971 and is organized into
three divisions: industrial construction, commercial construction
and manufacturing.
Industrial and Commercial Construction. Industrial
construction projects have included sulfuric acid plants, copper
ore smelters, burner oxygen lines, hydrocarbon refineries, amine
systems, lime storage facilities, above and below ground fueling
stations, water treatment plants, missile silos and conveyor
systems.
Commercial work includes such projects as hospitals,
laboratories, prisons, colleges and schools, hotels, airport
terminals and office buildings.
Gagon's work includes certified pressure vessel design and
construction under regulated American Society of Mechanical
Engineers (ASME) "U" and "R" stamps. Boiler piping work is done
under ASME "PP" stamp regulations. Teams specialize in piping,
structural steel, pressure vessels, instrumentation and controls,
insulation and electrical work.
Manufacturing. Part of Gagon's construction revenues include
the manufacture of refineries for Interline Hydrocarbon. Gagon
has the ability to build each refinery from design and
engineering to start up and operation. Gagon supervised the
construction of the Dubai refinery and has built and installed
the Genesis refinery in Salt Lake City, and has manufactured and
shipped a refinery for Interline (UK). Currently, Gagon is
manufacturing a refinery for Dukeun Industrial Company and
installing the Interline (UK) refinery.
The Company also provides services to integrate the design,
engineering, installation, start up, operation and maintenance of
the refineries.
Some of Gagon's clients include the following companies:
Kennecott Utah Copper, Geneva Steel, Amoco, Quaker State
Resources, Gadgil Western Corporation, Interline (UK), Dukeun
Industrial Company, the Army Corps of Engineers, FHP, Marriott
Corporation, AT&T, Associated Foods, Salt Lake International
Airport, local and state governments, Brigham Young University
(BYU), and the University of Utah.
Some of Gagon's current projects include a Utah County
Security Facility, West Hills Middle School, BYU Law Library,
Salt Lake County Performing Arts Building, the Geneva Steel
Cupola Furnace, a used oil refinery for Dukeun and the
installation of a refinery for Interline (UK).
Gagon's manufacturing site has 22,000 square feet of office
and manufacturing space, five overhead cranes and 15 welding
stations.
Interline Technology
During 1993 and 1994, the Company was developing a computer
system and a hand print character scanner to read and interpret
hand printed letters and numbers. The technology is designed to
allow data forms and applications to be read and processed by the
computer instead of being entered by a data entry employee.
Because of extreme interest, and Management's involvement, in the
Company's used oil refining technology, Company Management
decided to stop development of the hand print character scanner
and invest the Company's cash and human resources in oil and gas
projects and the used oil refining technology.
Customers and Markets
The Company does not refine the oil it produces from its oil
and gas operations, but does engage in natural gas liquids
processing and fractionation. The Company's production is sold to
unaffiliated oil and gas purchasing companies in the area where
it is produced. Production is transported by trucks and
pipelines. Crude oil, condensate and natural gas liquids are sold
under short-term contracts at competitive prices based on
postings by major purchasers of similar products to whom area
producers sell. Natural gas is sold to major interstate natural
gas pipeline companies generally under one year contracts. The
Company also sells some gas on a month to month spot pricing
basis. In addition, many of the Company's gas contracts
incorporate "market-out" provisions which permit the gas
purchaser to terminate the contract (or reopen negotiations on
the price set forth therein) if the contract price exceeds market
prices.
The availability of a ready market for oil, gas and natural
gas liquids owned or acquired by the Company depends on many
factors beyond its control. These factors include the extent of
domestic production and imports of oil and gas, the proximity and
capacity of natural gas pipelines and other transportation
facilities, fluctuating demand for oil, gas and natural gas
liquids, the marketing of competitive fuels, and the effects of
state and federal regulation of oil and gas production and sales.
Since the Company has engaged in oil and gas activities, it has
not had any material difficulties in marketing its oil and gas
products, and the Company believes this will be the case in the
future.
The international customers and markets for used oil
refining operations differ depending on the feedstock that is
processed by a refinery and the finished product the market
demands. Typical finished products from a used oil refinery
include base lube stock, industrial lube stock, diesel extender,
and an asphalt modifier. Gadgil Western's refinery in Dubai
processes refinery bottoms into diesel fuels and other middle
distillates.
Governmental Regulation
Interline Energy Services' activities are subject to
existing federal and state laws and regulations which are
applicable to natural gas processing, gas gathering and oil and
gas production. In general, oil and gas production operations and
natural gas processing and their economics are affected by price
control, tax and environmental impacts as well as other laws
relating to the petroleum industry. Crude gathering operations
are regulated as a utility by the state of Wyoming.
Transportation of NGLs and finished products are regulated by the
U.S. Department of Transportation.
Interline Hydrocarbon's activities are subject to
regulations regarding the handling and processing of used oil and
its finished products. These regulations are mandated by the U.S.
Environmental Protection Agency and State Departments of
Environmental Quality (or an equivalent agency). Finished
Products are also regulated in a similar manner.
Gagon Mechanical is regulated by the Occupational Safety and
Health Administration (OSHA) for employee safety in the workplace
and within the industry for mechanical specifications by the
standards of the American Society of Mechanical Engineers (ASME).
The following overview is intended to focus only on the
regulations of primary concern to the Company and is by no means
complete with respect to specific regulatory compliance issues.
The following description of certain laws and regulations are,
therefore, qualified in their entirety by reference thereto.
Environmental Regulation. The Company's activities are
subject to various federal and state laws and regulations which
are applicable to all areas of business. These laws and
regulations cover the discharge of materials into the
environment, or otherwise relate to the protection of the
environment. The environmental regulations to which the Company
is subject include: (1) exposure to asbestos, regulated by the
EPA and OSHA; (2) air quality control, regulated by both the
Federal government under the Federal Clean Air Act and the
various state Departments of Environmental Air Quality; (3)
regulation of solid and hazardous wastes regulated by the EPA
under the Resource Conservation and Recovery Act (RCRA) of 1976;
(4) the Federal Clean Water Act which controls the discharge of
toxic discharges into surface streams; (5) the regulation of
underground storage tanks and pits under the Subtitle I of the
Resources Conservation and Recovery Act; and (6) the manufacture,
processing and distribution in commerce, use, disposal and making
of PCB's regulated under the toxic Substances Control Act passed
in 1976.
The Company's activities are subject to all existing federal
and state laws and regulations governing environmental impacts,
of which the above are representative. Such laws and regulations
may substantially increase operational costs and may prevent or
delay the commencement or continuation of a given operation. The
Company's management believes that its present operations comply
with applicable environmental legislation and regulations, and
that the existence of such regulations have had no material
adverse effect on the Company's operations to date. However,
future compliance may entail significant operating expenses over
time. As with any industry that is subject to such environmental
risks, there exists potential liabilities for the Company.
Transportation Regulation. Transportation of NGLs and
associated finished products are regulated by the U.S. Department
of Transportation. Some of these regulations include requirements
of placards on trucks, insurance and driver training and safety.
State Regulation of Oil and Gas Production. In all areas
where the Company conducts activities there are statutory
provisions regulating the production of oil and natural gas.
State statutes and regulations require permits for drilling
operations, drilling bonds and reports concerning operations. In
addition, there are state statutes, rules and regulations
governing conservation matters, including the unitization of
pooling of oil and gas properties, establishment of maximum rates
of production from oil and gas wells and the spacing, plugging
and abandonment of such wells. Such provisions may limit the rate
at which oil and gas could otherwise be produced from the
Company's properties including wells owned by others connected to
Company facilities and may restrict the number of wells that may
be drilled on a particular lease or in a particular field.
Operating Hazards and Uninsured Risks
The Company's operations are subject to the risks normally
incident to the operation of natural gas processing plants,
gathering systems, used oil refineries, oil and gas production,
construction, fabrication. Those risks include fires, explosions,
pipeline ruptures, pollution and hazardous material releases,
equipment malfunction and breakdowns, and operations errors and
omissions, any of which could result in damage to or destruction
of Company facilities or a suspension of operations or damage to
persons or property. Although the Company carries insurance
coverage which management believes to be adequate and comparable
to that carried by other companies in the same business, the
Company is not fully insured against certain of these risks,
either because insurance is unavailable, because management
elects not to insure due to high premium costs, or because the
insurance is not necessary in the judgment of management. The
occurrence of an event not fully insured against could have a
material adverse effect on the Company's financial position.
Employees
At March 15, 1996, the Company and its subsidiaries employed
148 full-time and 4 part-time employees. From time to time, the
Company utilizes the services of consulting geologists, engineers
and landmen as well as various laborers, tradesmen and mechanics.
ITEM 2. PROPERTIES
The Company's executive, administrative and accounting
offices are located at 160 West Canyon Crest Rd., Alpine, Utah
84004. This facility consists of approximately 11,515 square feet
of office space on about five acres of land that is owned by the
Company. Interline Hydrocarbon and Interline Energy Services also
lease an office at 350 West "A" Street, Suite 204, Casper,
Wyoming 82602.
Interline Energy Services' Well Draw Gas Plant is located 17
miles from Douglas, Wyoming. The Plant facilities consist of
17.85 acres of property, gas chillers, gas-to-gas exchangers,
storage tanks, four steel buildings enclosing the equipment, two
generators, compressors, de-ethanizer columns, fractionating
columns, truck weighing scales and scale house and other assets.
The gathering system consists of approximately 270 miles of high
and low pressure pipelines, two compressor stations and
facilities, and the associated chart recorders and wellhead
connection meter runs.
The Hat Creek Partnership, of which Interline Energy Services
owns 20%, owns working interests in two oil and gas wells and a
13 mile gathering line interconnected to the Well Draw Gas Plant,
all located in Niobrara County, Wyoming.
Interline Energy Services' Monument Butte Gathering System is
located 30 miles southeast of Duchesne, Utah. The Company's
facilities generally consist of a natural gas gathering system
with an approximate 28 mile trunk line and about 40 miles of
lateral lines connecting some 109 wells. The system is connected
to five compressors, totaling 1,725 horsepower, two of which are
located at a central compression facility which is housed in a
steel building along with other cinclude base lube stock, industrial lube
stock, diesel extender, and an asphalt modifier. Gadgil Western's refinery
in Dubai processes refinery bottoms into diesel fuels and other middle
distillates.
Governmental Regulation
Interline Energy Services' activities are subject to
existing federal and state laws and regulations which are
applicable to natural gas processing, gas gathering and oil and
gas production. In general, oil and gas production operations and
natural gas processing and their economics are affected by price
ed in Converse and Niobrara
counties of Wyoming from Conoco Pipeline Company. This system
consists of approximately 180 miles of 3, 4, and 6 inch gathering
and trunk lines, five pump stations with a total of approximately
50,000 barrels of storage, various pumps for wellhead and
mainline movement of crude oil, a three acre site with mainline
pumps and another three acre site with a small office building
and shop area, plus several small spare parts storage structures.
In June 1994, Interline Energy Services acquired working
interests in three oil and gas wells and associated acreage in
Converse County, Wyoming. The Company has since drilled two
additional wells on this property. Physical assets include casing
and tubing, pump jacks and drivers, oil storage tanks, separators
and other associated wellhead facilities.
Gagon Mechanical Contractors operates from a 3.6 acre site
located at 8531 South 700 West in Sandy, Utah 84070. On the site
is a building with 22,000 square feet of office and manufacturing
space. Equipment includes excavators, backhoes, trenchers, lifts,
welding machines, trailers, trucks and other pipe machines and
related mechanical construction equipment, parts, pipe and
inventory.
Interline Hydrocarbon has ownership in the assets of two
joint venture companies. The Company has a 26 percent ownership
interest in Genesis Petroleum L.L.C., a joint venture between the
Company and Quaker State Resources and a 40 percent ownership in
Interline UK (Limited), a joint venture between Interline
Hydrocarbon and Whelan Environmental Services.
ITEM 3. LEGAL PROCEEDINGS
On June 29, 1994, the Company was served with a complaint
seeking unspecified damages against it in the Third Judicial
District Court, State of Wyoming, County of Sweetwater. The
Plaintiff in the action is Phillips Petroleum Company; defendants
are the Company, Tulsa Operating Group, Inc., and Roger Williams
(unrelated to any of the directors or officers of the Company).
The Complaint arises out of three wells purchased by the Company
from Phillips in September 7, 1988, which the Company had in turn
sold to the codefendants on February 1, 1989. The Company's
purchasers (codefendants) failed to put the wells into
production, and as a result, were ordered to plug and abandon
them by federal and state regulatory agencies. The Codefendants
failed to carry out the plugging and abandonment of the wells,
and Phillips was ordered and completed the plugging and
abandoning of the wells, spending, as of the date of the
Complaint, $466,300.
On December 11, 1995, the Court entered a summary judgment in
favor of Phillips, awarding Phillips the sum of $466,785.61
against the Company based on contractual indemnity. Phillips and
the Company have since agreed on a settlement agreement, in which
the Company will pay $300,000. According to the agreement,
$250,000 was due from the Company and has been paid. The Company
will pay $10,000 per month for five months to fulfill the rest of
the obligation. In a cross claim, the Company is seeking
indemnity for these costs from the codefendants. Although the
Company has contractual indemnity rights against codefendants, it
is unknown that should a judgment be entered against codefendants
that they would have assets to pay such judgment. While
management believes that some recovery could be made, the Company
would have difficulty in enforcing a full recovery of its costs
from the codefendants. According to the settlement agreement, the
Company must give 40 percent of the recovery amount to Phillips.
Because of the uncertainty of the amount the Company could
recover against codefendants under its cross-claim, a reserve of
$100,000 had been accrued in 1994 and a reserve of $200,000 has
been accrued in 1995.
On August 4, 1995, Basin Exploration, Inc. filed a lawsuit
against the Company in the U.S. District Court for the District
of Colorado in Denver relating to a gas purchase agreement
between the Company and Basin. The dispute revolves around
measurement and allocation of Basin's gas and sales proceeds
therefrom. An unspecified amount of damages is claimed by Basin.
The Court is presently considering the Company's motions to
dismiss or transfer venue to the U.S. District Court of Wyoming.
Although the outcome of this litigation cannot be predicted, at
this time the Company believes that it has adequate answers and
defenses to all the issues raised in the suit. The Company's
financials do not reflect any reserves for these claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Common Stock
The Company's common stock is currently listed on the
American Stock Exchange Emerging Company Market Place under the
symbol "IRC.EC" Prior to July, 1994, the Company's common stock
was quoted on the NASDAQ Small Cap Market. The information
contained in the following table was obtained from the American
Stock Exchange and NASDAQ and shows the range of representative
prices for the Company's common stock for the periods indicated.
The prices represent quotations between dealers and do not
include retail mark-up, mark-down or commission, and do not
necessarily represent actual transactions:
High Low
1994
First Quarter $9.00 $4.88
Second Quarter $6.44 $3.69
Third Quarter $5.75 $4.63
Fourth Quarter $6.00 $4.38
1995
First Quarter $4.69 $2.50
Second Quarter $4.25 $2.96
Third Quarter $6.50 $4.00
Fourth Quarter $5.50 $4.00
1996
First Quarter $5.25 $3.50
(Through March 15, 1996)
Record Holders of Common Stock
The number of record holders of the Registrant's common
stock as of March 15, 1996, is 403.
Dividends
The Company has not paid any cash dividends to date and does
not anticipate or contemplate paying dividends in the foreseeable
future. It is the present intention of management to utilize all
available funds for the development of the Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in several operations which are
organized into the following three companies for operating and
accounting purposes:
Interline Energy Services - Oil and Gas Operations. The
Company has been engaged in the oil and gas industry since 1990.
Its oil and gas operations primarily involve natural gas
gathering, natural gas processing, a crude oil pipeline
operation, propane retail sales and oil well production. The
Company's main oil and gas operations are located in east-central
Wyoming and Eastern Utah. Wyoming operations, located near
Douglas, Wyoming, include the Well Draw Gas Plant, Interline
Crude Gathering Company, NRG Fuels, a 20.4% interest in the
Hatcreek Partnership and various producing oil and gas wells. The
Company's Utah operations are located near Roosevelt, Utah, and
includes the Monument Butte Gathering System and Roseland Wells.
Gagon Mechanical - Industrial and Commercial Construction.
Gagon Mechanical Contractors, a wholly owned subsidiary of the
Company, provides expertise and resources necessary for
construction of used oil refineries. Gagon specializes in
mechanical system construction, such as heating, ventilation, air
conditioning, process piping and plumbing, including piping and
controls for hydrocarbon and chemical products. Gagon's work
includes certified pressure vessel design and construction under
regulated American Society of Mechanical Engineers (ASME) "U" and
"R" stamps. Boiler piping work is done under ASME "PP" stamp
regulations. Teams specialize in piping, structural steel,
pressure vessels, instrumentation and controls, insulation and
electrical work.
Gagon Mechanical - Manufacturing. Part of Gagon's
construction revenues include the manufacture of refineries for
Interline Hydrocarbon. Gagon has the ability to build each
refinery from design and engineering to start up and operation.
Gagon supervised the construction of the Dubai refinery and has
built and installed the Genesis refinery in Salt Lake City, and
has manufactured and shipped a refinery for Interline (UK).
Currently, Gagon is manufacturing a refinery for Dukeun
Industrial Company and installing the Interline (UK) refinery.
Interline Hydrocarbon - Used Oil and Low-Grade Hydrocarbon
Refining. In January 1993, the Company acquired the exclusive
license to a patented reprocessing technology with the right to
exclusively manufacture, market, use, license, sub-license and
fully commercialize the patented technology as it relates to all
areas and facets of the field of hydrocarbons. The Company
subsequently acquired the patent rights relating to the
technology. As of March 15, 1996, the Company has two plants in
production trial stage. On May 27, 1995 Gadgil Western
Corporation officially inaugurated the first oil refinery in the
world to use Interline's technology. The second plant was built
for the Genesis joint venture in Salt Lake City. Although
management continues to evaluate the best marketing strategy for
the refining process, the current approach is to build the
refineries through Gagon, and sell and install them at locations
throughout the world. The Company anticipates revenues to come
from exclusivity fees, engineering fees and ongoing royalties and
from profit generated through ownership in various refineries
throughout the world.
The following analysis of the financial condition and
results of operations should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this
report.
Results of Operations
Total Revenues
In 1995, revenues increased $9,314,630, or 83.98%, to
$20,405,802 for the year ended December 31, 1995 as compared to
$11,091,172 for the year ended December 31, 1994. This revenue
increase included a $1,257,500, or 22.42% increase in oil and gas
revenues, a $3,756,990, or 81.1% increase in construction
revenues, a $401,246, or 47.27% increase in licensing and royalty
revenues and a $3,898,894 increase in manufacturing revenues. The
Company's total revenues, on a segment basis, for 1995 and 1994
were as follows:
1995 1994
Oil and Gas 6,867,201 34% 5,609,701 51%
Construction 8,389,707 41% 4,632,717 42%
Manufacturing 3,898,894 19% 0 0%
Used oil Refining 1,250,000 6% 848,754 7%
Total Revenue $20,405,802 100% $11,091,172 100%
Oil and Gas Revenues
Oil and gas revenues, contributed approximately 33.65% of
total revenues for the year ended December 31, 1995 as compared
to approximately 50.58% for the year ended December 31, 1994.
This resulted in an increase of $1,257,500, or 22.42%, to
$6,867,201 for the year ended December 31, 1995 as compared to
$5,609,701 for year ended December 31, 1994.
Wyoming operations revenue increased $1,619,672, or 44.13%,
to $5,289,836 for the year ended December 31, 1995 as compared
$3,670,164 for the year ended December 31, 1994. The increase in
revenues was mainly attributed to a decrease of $112,302, or
47.69% in NGL liquids fractionated for others, an increase of
$191,588, or 28.14% in transportation revenue, an increase of
$846,745, or 150.93% in revenue related to the Amoco contract, an
increase of $254,778, or 12.07% in NGL liquids processed and sold
and an increase of $266,480 from revenues related to the Conoco
pipeline acquisition.
Utah operations revenue decreased $362,172, or 18.67%, to
$1,577,365 for the year ended December 31, 1995 as compared to
$1,939,537 for the year ended December 31, 1994. This decrease
was attributed to an residue volume (MMBtu) increase of 218,010,
or 21.94%, to 1,211,704 for year ended December 31, 1995 compared
to 993,694 for year ended December 31, 1994. This increase was
offset by a decrease in price (MMBtu) of $.52, or 32.8%, to $1.07
for year ended December 31, 1995 compared to $1.59 for year ended
December 31, 1994. In 1995, the Company added 29 new wells to its
gathering system, compared to two new wells for 1994. With seven
new wells already added in 1996, the Company anticipates volumes
to increase.
Construction Revenues. Construction revenues, contributed
approximately 41.11% of total revenues for the year ended
December 31, 1995 compared to 41.77% for the year ended December
31, 1994. This resulted in an increase of $3,756,990 or 81.1%, to
$8,389,707 for the year ended December 31, 1995 compared to
$4,632,717 for the year ended December 31, 1994.
Revenues for 1995 were $5,193,339 from commercial work and
$3,196,368 from industrial work, compared to $3,706,173 from
commercial work and $926,544 from industrial work during 1994.
The increase was due to the Company's focus on larger commercial
and industrial contracts. As of December 31, 1995, uncompleted
work related to commercial work was $2,601,431 and uncompleted
work related to industrial work was $296,634.
Manufacturing Revenues. Manufacturing revenues, contributed
approximately 19.11% of total revenues for the year ended
December 31, 1995 compared to 0.0% for the year ended December
31, 1994. The $3,898,894 increase in revenues was attributed to
the Company's contracts to manufacture refineries for Quaker
State Resources, a Quaker State Company, Dukeun Industrial
Company of South Korea and the Company's joint venture partner
Whelan Environmental Services of England. As of December 31,
1995, uncompleted work related to manufacturing of refineries was
$1,532,834 compared to $0 for year ended December 31, 1994.
Refining Revenues. Refining revenues contributed 6.13% of
total revenues for the year ended December 31, 1995 compared to
7.7% for the year ended December 31, 1994. This resulted in an
increase of $401,246, or 47.27%, to $1,250,000 for the year ended
December 31, 1995 compared to $848,754 for the year ended
December 31, 1994. The increase was attributed to the Company
signing an exclusive licensing agreement for its contaminated oil
reprocessing technology with Gadgil Western Corporation (formerly
called Western India Group) for Bahrain and Singapore.
The Company also received licensing fees from Quaker State
Resources in the amount $678,273 which is classified on the
balance sheet under caption " Deferred revenue." This revenue
will be recognized in future periods if the contracts proceed as
agreed to. If the Company's refinery operations proceed pursuant
to current agreements, the Company anticipates that future
revenues will come from the sale of refineries, ongoing royalties
from sublicense agreements on a per gallon processed basis and
profits from joint venture ownership in refineries.
Direct Costs. Direct costs increased $7,858,458, or 96.3%,
to $16,018,466 for the year ended December 31, 1995 compared to
$8,160,008 for the year ended December 31, 1994. The increase of
$7,858,458 for 1995 was mainly attributed to an increase in the
Company's total revenues. As a percent of revenues, direct costs
increased by 4.93%, to 78.5% for the year ended December 31, 1995
compared to 73.57% for the year ended December 31, 1994. This
4.93% increase was mainly attributed to the Company's contracts
to manufacture refineries at cost for Quaker State Resources and
Interline (UK).
Selling, General and Administrative. Selling, general and
administrative expenses increased $494,695, or 22.11%, to
$2,732,811 for year ended December 31, 1995 compared to
$2,237,853 for year ended December 31, 1994. As a percent of
revenues, selling, general and administrative expenses were
13.39% for year ended December 31, 1995 compared to 20.18% for
year ended December 31, 1994. These expenses consist principally
of salaries and benefits, travel expenses, legal, information
technical services and administrative personnel of the Company.
Also included are outside legal and accounting fees, and expenses
associated with computer equipment and software used in the
administration of the business.
Research and Development. Research and development
expenses increased $35,033, or 5.63%, to $657,688 for year ended
December 1995 compared to $622,655 for year ended December 31,
1994. As a percent of revenues, research and development expenses
decreased to 3.22% for year ended December 31, 1995 compared to
5.61% for year ended December 31, 1994. Included in research and
development is a $350,127 overrun on the manufacturing of the
Genesis refinery. The overrun on the Genesis refinery is directly
related to ongoing modifications during construction. These
modifications will be implemented into the design of future
refineries.
The increase in research and development expenses in 1995
was primarily attributable to development and enhancement of its
new hydrocarbon refining technology. The increase, in absolute
dollars reflect additions to the Company's engineering staff and
related costs required to support its continued emphasis on
developing and testing its new hydrocarbon refining technology.
The Company believes that continued investment in research and
development is critical to its future growth and profitability.
The Company therefore expects that research and development
expenses will continue to increase in future periods.
Depreciation and Amortization. Depreciation and amortization
expenses increased $271,116, or 46.81%, to $850,309 for year
ended December 31, 1995 compared to $579,193 for year ended
December 31, 1994. As a percent of revenues, depreciation and
amortization expenses decreased to 4.17% for the year ended
December 31, 1995 compared to 5.22% for year ended December 31,
1994. The increase of $271,115 was attributed to the amortization
of its refining technology and marketing rights and an increase
in capital expenditures for year ended December 31, 1995.
Liquidity and Capital Resources
The Company had $1,705,219 in cash and cash equivalents as
of December 31, 1995, compared to $2,200,035 as of December 31,
1994. During 1995, the Company reported cash from operating
activities of $2,296,355 compared to $742,473 for 1994. This
increase in cash from operating activities was attributed to the
Company's receiving $1 million from Gadgil Western Corporation,
an increase in accounts payable attributed to the Genesis
refinery site work and an increase in deferred revenue.
Sources of liquidity for the Company include revenues from
oil and gas operations, construction operations and revenues from
sale of hydrocarbon refining technology and rights.
Management believes that the Company's cash from operating
activities is not adequate to meet its operating and capital
expenditure needs for the foreseeable future. On February 29,
1996 the Company obtained $1,500,000 in a 6% senior secured note
from a related individual. The obligation is due August 29, 1996.
In the event of a default on the note the principal can be
converted to up to 468,750 shares of the Company's common stock
at the price of the lesser of $3.20 per share or 80 percent of
the average closing price for the Company's shares for the five
consecutive trading days preceding the date of conversion. The
note was secured by all of the issued and outstanding stock of
two subsidiaries, Interline Energy Services and Gagon Mechanical
Contractors.
Presently, Management is seeking to raise approximately $5
to $10 million for future expansion through borrowing or an
equity placement of its common stock. If Quaker State Resources
elects to purchase additional refining plants, the Company is
entitled to receive the payments and licensing fees referred to
in the Quaker State Resources agreement as well as construction
revenues from building the refining facilities. These funds and
existing working capital are expected to be sufficient to fund
current operations during fiscal year 1996.
In the event management elects to participate in a joint
venture in owning and operating refining plants, the Company
would need to raise additional sums through borrowing or equity
financing. Additionally, it is Management's intent that when
potential purchasers of a refining plant place an order, the
payment terms will be tailored to provide construction funds to
build the plants. If the Company were to make any other major
acquisitions during the coming year, issuance of additional
stock, bank borrowing or other form of debt financing might be
considered.
Material Changes in Balance Sheet
The following represents material changes affecting the
balance sheet as of December 31, 1995 compared to the balance
sheet of December 31, 1994.
Current Assets: Current assets increased to $5,580,562 as of
December 31, 1995 from $4,368,878 as of December 31, 1994. The
$1,211,683 increase in current assets is attributed to a decrease
in cash and cash equivalents of $494,816 primarily from payment
to vendors and the Company's current net loss, an increase of
$1,033,015 in accounts receivable attributed to an increase in
current year revenues and the larger construction contracts, an
increase of $15,500 in current portion of note receivable, an
increase of $18,858 in inventories, an increase of $709,127 in
other current assets which is mainly attributed to cost in excess
of billing on construction contracts and a decrease in restricted
cash of $70,000 which was a requirement of a liquid contract with
the Department of Transportation.
Property, Plant and Equipment. Net property, plant and
equipment increased to $10,461,186 as of December 31, 1995 from
$7,507,613 as of December 31, 1994. The $2,953,573 increase was
attributed to capital expenditures of $3,702,313, a decrease due
to current year depreciation of $748,740. Major expenditures
consisted of $859,574 for an amine plant located at Amoco's
Bairoil plant, $548,773 for the purchase of the Conoco pipeline,
$983,184 for site work at the Genesis refinery, $216,854 for
tractors and trailers and $396,017 for additions to its gas
gathering system.
Current Liabilities. Current liabilities increased to
$6,902,829 as of December 31, 1995 from $3,779,593 as of December
31, 1994. The $3,123,235 increase in current liabilities is
attributed to a decrease in the Company's line of credit of
$135,536, an increase of $2,237,045 in accounts payable due to
the increase in current year revenues and larger construction
contracts, an increase of $453,473 in accrued liabilities is
mainly attributed to the Company's obligation to Phillips
Petroleum Company, an increase of $433,524 in other current
liabilities which was mainly attributed to billings in excess of
cost on construction contracts and an increase of $134,729 in
current portion of long-term debt.
Non-Current Liabilities. Non-current liabilities increased
to $3,392,692 as of December 31, 1995 from $3,035,885 as of
December 31, 1994. The $356,807 increase is attributed to an
increase in deferred revenue of $307,152 which represents
payments by Quaker State Resources, a principle reduction of
$714,883 which represents payments to vendors, a decrease of
$134,729 from reclassification of current portion of long term
debt, and new debt and capital lease obligations of $899,267.
Total Stockholders' Equity. Total stockholders' equity
increased to $7,983,626 as of December 31, 1995 from $7,115,740
as of December 31, 1994, The $867,886 increase in equity is
attributed to 850 shares of common stock issued for services
valued at $2,197, a private placement of 288,888 shares of common
stock issued for $1,298,783 and a decrease of $433,094 from
current year net loss.
INFLATION
The Company's business and operations have not been
materially affected by inflation during the past three years and
the current calendar year. The Company believes that inflation
will not materially and adversely impact its business plans for
the future.
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Financial Statements
Independent Accountants' Report
Year ended December 31, 1995
Balance Sheet -
December 31, 1995
Statement of Operations
Years ended December 31, 1995 and December 31, 1994
Statement of Changes in Stockholders' Equity -
Years ended December 31, 1995 and 1994
Statement of Cash Flows -
Years ended December 31, 1995 and 1994
Notes to Financial Statements
Financial Statement Schedules
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
<PAGE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
<PAGE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Contents
Independent Auditors' Report
Consolidated balance sheet, December 31,
1995
Consolidated statement of operations years
ended December 31, 1995 and 1994
Consolidated statement of stockholders'
equity, years ended December 31, 1995
and 1994
Consolidated statement of cash flows
years ended December 31, 1995 and 1994
Notes to consolidated financial statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Interline Resources Corporation
and Subsidiaries
We have audited the accompanying consolidated balance sheet
of Interline Resources Corporation and subsidiaries as of
December 31, 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years
ended December 31, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Interline Resources Corporation and
subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for the years ended December 31,
1995 and 1994, in conformity with generally accepted accounting
principles.
TANNER+Co.
Salt Lake City, Utah
March 19, 1996
<PAGE>
<TABLE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1995
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,705,219
Trade accounts receivable 2,851,804
Income taxes receivable 80,000
Inventories 117,272
Notes receivable - current portion 40,200
Other current assets 786,067
Total current assets 5,580,562
Property, plant and equipment 12,698,402
Accumulated depreciation and depletion (2,237,216)
Net property, plant
and equipment 10,461,186
Notes receivable 188,238
Intangible assets 1,953,598
Other assets 95,563
$18,279,147
<PAGE>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $4,492,790
Accrued liabilities 737,201
Current portion of long-term debt 1,187,991
Other current liabilities 484,847
Total current liabilities 6,902,829
Long-term debt 2,463,247
Deferred revenue 929,445
Contingencies -
Stockholders' equity:
Preferred stock - $.01 par value, 25,000,000
shares authorized, 1,000,000 series A
shares authorized; -0- series A shares
issued and outstanding -
Common stock - $.005 par value. 100,000,000
shares authorized; 13,951,052 shares issued
and outstanding 69,755
Additional paid-in capital 8,574,383
Retained earnings deficit (660,512)
Total stockholders' equity 7,983,626
$18,279,147
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended December 31, 1995 and 1994
<CAPTION>
<S> <C> <C>
1995 1994
Revenue $20,405,802 11,091,172
Direct costs 16,018,466 8,160,008
Gross margin 4,387,336 2,931,164
Selling, general and
administrative expenses 2,732,811 2,237,853
Research and development 657,688 622,655
Depreciation, depletion and amortization 850,309 579,193
Income (loss) from operations 146,528 (508,537)
Other income (expense):
Interest expense, net (303,534) (293,841)
Other expenses, net (276,088) (154,590)
Loss before income taxes (433,094) (956,968)
Income tax benefit
Current - 80,000
Deferred - 258,000
- (338,000)
Net (loss) $ (433,094) (618,968)
Loss per common share $(.03) (.05)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1995 and 1994
AdditionalRetained
Preferred Stock Common Stock Paid-in
Earnings
Shares Amount Shares Amount Capital (Deficit) Total
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994 - $ - 12,962,405 64,812 4,140,732 391,550 4,597,094
Shares issued to
vendor to satisfy
accounts payable
January 1994
at $1.47 per share - - 6,800 34 9,966 - 10,000
Shares issued for
services in January,
1994 at $5.00 per
share - - 7,480 37 37,363 - 37,400
Shares issued to
purchase equipment
in April, 1994 at
$4.75 per share - - 13,368 67 63,433 - 63,500
Shares issued for
services in June,
1994 ranging between
$5.78 and $5.87
per share - - 4,594 24 26,690 - 26,714
Shares issued in
private placement
offering for cash
October, 1994 at
$4.50 per share - - 666,666 3,333 2,996,667 - 3,000,000
Net loss December
31,1994 - - - - - (618,968) (618,968)
Balance, December
31, 1994 - - 13,661,313 68,307 7,274,851 (227,418) 7,115,740
Stock options
exercised at
$4.50 per share - - 288,889 1,444 1,297,336 - 1,298,780
Shares issued for
services at $2.58
per share - - 850 4 2,196 - 2,200
Net loss December
31, 1995 - - - - - (433,094) (433,094)
Balance, December
31, 1995 - $ - 13,951,052 69,755 8,574,383 (660,512) 7,983,626
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended December 31, 1995 and 1994
<CAPTION>
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net loss $ (433,094) (618,968)
Adjustment to reconcile net loss to
net cash provided by operating activities:
Depreciation, depletion and amortization 850,309 579,193
(Gain) loss on disposal of asset (7,285) 124,664
Loss on write off of technology costs 82,573 -
Common stock issued for services 2,200 64,114
(Increase) decrease in:
Accounts receivable (1,014,184) (707,284)
Income tax receivable - (80,000)
Inventories (18,858) -
Other current assets (709,127) 16,539
Other assets 112,626 53,975
Increase (decrease) in:
Accounts payable 2,237,045 930,806
Accrued liabilities 453,473 150,898
Income taxes payable - (10,000)
Deferred income taxes - (258,000)
Deferred revenue 307,152 504,438
Other current liabilities 433,525 (7,902)
Net cash provided by
operating activities 2,296,355 742,473
Cash flows from investing activities:
Proceeds from sale of equipment 7,285 231,478
Change in restricted cash 70,000 (70,000)
(Increase) decrease in notes receivable
from shareholders 25,190 (231)
Purchase of technology and marketing rights (538,961) (49,585)
Purchase of property, plant and equipment (2,803,046) (1,908,011)
Net cash used in investing
activities (3,239,532) (1,796,349)
Cash flows from financing activities:
Proceeds from notes payable and
long-term debt - 399,587
Proceeds from issuance of common stock 1,298,780 3,000,000
Payments on long-term debt (850,419) (841,231)
Net cash provided by
financing activities 448,361 2,558,356
Net increase (decrease) in cash (494,816) 1,504,480
Cash, beginning of year 2,200,035 695,555
Cash, end of year $1,705,219 2,200,035
Supplemental Disclosure of Cash Flow Information
Actual cash amounts paid for:
Interest $326,080 265,785
Income taxes $ - 22,906
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities
During the year ended December 31, 1995, the following transactions
occurred:
Property and equipment with a total value of $899,267 was
purchased with long-term debt.
During the year ended December 31, 1994, the following transactions
occurred:
Property and equipment with a total value of $1,233,001 was
purchased with debt of $1,169,501 and the issuance of 13,368
shares of the Company's restricted common stock valued at
$63,500.
The Company issued 6,800 shares of its restricted common
stock as payment of $10,000 of accounts payable.
The Company also disposed of certain assets where the
purchasers assumed an aggregate of $20,192 of debt as a part of
the disposal.
<PAGE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the
financial statements of Interline Resources Corporation,
Inc. (the Company) and its subsidiaries, 100% owned directly
or indirectly. All significant intercompany transactions
and balances have been eliminated in consolidation of the
Company with these entities.
Business Activity
The Company's principal segments of operations consist
of the following industries:
Gas Processing
The Company gathers natural gas through a system of
pipelines to its gas processing plant. The gas is then
processed and fractionated into its constituent natural gas
liquid products and remaining residue gas. Residue gas is
sold into a major interstate pipeline and the natural gas
liquid products are sold to both end users and other major
refineries for further refinement.
Construction
The Company operates in the construction industry,
primarily in the areas of plumbing, heating, air
conditioning and industrial piping. The Company obtains
construction contracts through competitive bids and operates
primarily in the state of Utah. As a condition for entering
into construction contracts the Company has purchased surety
bonds. The bonds are collateralized by certain assets of
the Company and personal guarantees of two shareholders.
Refining
The Company has a license to market a patented
technology which refines various types of oils, producing a
usable product. The Company's marketing efforts extend to a
worldwide market. Revenues are generated through the design
and manufacture of the plants, consultation regarding the
process, and royalties on the technology.
Manufacturing
The Company designs and manufactures refineries which
employ the Company's licensed oil refining technology. The
manufacturing process includes the initial engineering work
through the final assembly of the refinery on the customer's
site. The Company is required to maintain certification for
its manufacture of pressure vessels and boiler piping.
Revenues from this segment are generated from projects
constructed for placement at local, as well as,
international sites.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(1) Summary of Significant Accounting Policies - Continued
Concentration of Credit Risk
Financial instruments which potentially subject the
Company to concentration of credit risk consist primarily of
accounts receivable. In the normal course of business, the
Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations
of its customers and maintains allowances for possible
losses which, when realized, have been within the range of
management's expectations.
The Company maintains its cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such account and
believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Oil and Gas Accounting
The Company uses the "successful efforts" method to
account for oil and gas operations. The use of this method
results in the capitalization of costs related to
acquisition, exploration, and development of revenue
producing oil and gas properties. The costs of unsuccessful
exploration efforts are expensed in the period in which they
are determined unrecoverable by future revenues. Provision
for depreciation and depletion of oil and gas properties is
based on the units of production method, based on proven oil
and gas reserves.
Segment information concerning oil and gas reserves and
related disclosures are not presented since they are not
significant in relation to the financial statements taken as
a whole.
Construction Operations
Construction revenues are recognized on the percentage-
of-completion method of accounting. Profits on contracts
are recorded on the basis of "cost-to-cost" determination of
percentage-of-completion on individual contracts, commencing
when progress reaches a point where cost and estimate
analysis and other evidence of trend are sufficient to
estimate final results with reasonable accuracy. That
portion of the total contract price which is allocable to
contract expenditure incurred and work performed is accrued
as earned income. At the time a loss on a contract becomes
known, the entire amount of the estimated ultimate loss is
accrued. Claims for additional revenue are recognized when
settled. The aggregate of costs incurred and income
recognized on uncompleted contracts in excess of related
billings is shown as a current asset, and the aggregate of
billings on uncompleted contracts in excess of related costs
incurred and income recognized is shown as a current
liability.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(1) Summary of Significant Accounting Policies - Continued
Cash Equivalents
For purposes of the consolidated statement of cash
flows, cash includes all cash and investments with original
maturities to the Company of three months or less.
Inventories
Inventories consisting of supplies and miscellaneous
materials are recorded in the financial statements at their
aggregate lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost.
Depreciation is computed using straight-line and accelerated
methods. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed
from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of
maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized.
Deductions are made for retirements resulting from renewals
or betterments. The estimated useful lives are as follows:
Estimated
Useful
Life
Buildings and equipment 15-25 years
Equipment and vehicles 3-10 years
Investments
Investments in less than majority owned entities are
accounted for using the equity method. Investments are
included in the financial statements under the caption of
"Other Assets."
Income Taxes
Deferred income taxes are provided in amounts sufficient
to give effect to temporary differences between financial
and tax reporting.
The Company for income taxes uses the completed
contracts method of recognizing construction revenues on
long-term contracts. Under this method, contract revenues
are deferred until contract completion. The income
recognition on long-term contracts for financial reporting,
therefore, exceeds the income recognition for tax reporting.
The difference will be taxable when the contracts are
substantially complete. The Company also provides for
depreciation on the straight-line and accelerated methods
for financial accounting while using various accelerated
methods for income tax accounting. The tax effects of these
differences are reflected as deferred income taxes.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(1) Summary of Significant Accounting Policies - Continued
Amortization
The Company amortizes its marketing and technology
rights for the refining process over seventeen years. These
periods approximate the assets' useful lives.
Income Per Common Share
Income per share or common stock is calculated based on
the weighted average number of common shares outstanding
during the period. The weighted average shares outstanding
at December 31, 1995 and 1994 is approximately 13,815,125
shares and 13,156,000 shares, respectively. Fully diluted
income per share information is not presented as the per
share amounts are either antidulitive or not different from
presented per share amounts.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassification
Certain amounts in the prior years financial statements
have been reclassified to conform to the 1995 presentation.
(2) Note Receivables and Deferred Revenue
The Company entered into a contract to modify and
refurbish a plant for another entity. During 1993, the
construction was complete and the Company began receiving
payments for this construction. Terms of the agreement
stipulate that the Company will be reimbursed at the rate of
200% of its actual costs. Payments are received based on
the incremental margin of liquid prices charged over the
revenue expected from gas sales. At December 31, 1995, the
note receivable balance totalled approximately $213,000. An
amount totalling approximately $102,000 has been recorded as
deferred revenue related to this note. Income of $11,952
and $4,505 was recognized as income on the note during the
years ended December 31, 1995 and 1994, respectively.
The Company also has a demand note receivable from a
former employee which totalled $15,200 at December 31, 1995.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(2) Note Receivables and Deferred Revenue - Continued
During the year ended December 31, 1995, the Company
received approximately $828,000 on contracts and proposed
contracts regarding licensing of technology. These funds
were not earned prior to December 31, 1995 and have,
therefore, been deferred to a future year as deferred
revenue.
(3) Construction Contracts in Process
Information with respect to construction contracts in
process at December 31, 1995 follows:
Costs on uncompleted contracts $11,303,573
Estimated earnings thereon 1,261,703
12,565,276
Less billings applicable thereto 12,370,595
$ 194,681
Costs and earned profit on construction
contracts - unbilled $ 679,527
Billings in excess of costs and earned
profit on construction contracts (484,846)
$ 194,681
These balances are included in the financial statements
under the captions of "Other Current Assets" and "Other
Current Liabilities."
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(4) Accounts Receivable
Accounts receivable consist of the following:
Construction contracts:
Contracts in progress $ 308,181
Completed contracts 195,860
Retainage 759,901
Total construction receivables 1,263,942
Nonconstruction related accounts
receivable 1,592,862
2,856,804
Less allowance for doubtful accounts (5,000)
$2,851,804
(5) Property and Equipment
Property and equipment at December 31, 1995 consists of
the following:
Vehicles $ 461,498
Machinery and equipment 8,244,701
Buildings and structures 1,776,872
Oil and gas properties 915,124
Office furniture and equipment 302,092
Construction in progress 998,115
12,698,402
Less accumulated depreciation
and depletion (2,237,216)
$10,461,186
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(6) Technology and Marketing Rights
During 1993, the Company entered into an agreement to
purchase exclusive worldwide technology and marketing rights
to a refining process for used oil. The Company is
currently in negotiations with several entities who desire
to use its refining process. The Company capitalized
$1,712,989 of patent, engineering, and other costs related
to this agreement during the year ended December 31, 1993.
These rights are being amortized on a straight-line basis
over fifteen years. Amortization expense of $85,418 was
recorded during each of the years ended December 31, 1995
and 1994, and accumulated amortization at December 31, 1995
totaled $170,836.
During 1992, the Company entered into an agreement to
purchase technology and marketing rights to a scanner, which
would upon complete development, will convert handwritten
text into usable computerized characters. During 1995, the
Company determined the technology to not be economically
viable. An amount totalling $30,000 was capitalized as the
remaining value of computer and other equipment which is
utilizable in other areas of the Company. The remaining
cots were charged to expense during 1995.
(7) Income Taxes
Deferred income tax assets and liabilities are computed
for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to
the periods in which they are expected to affect taxable
income. Valuation allowances are established, if necessary,
to reduce the deferred tax asset to the amount that will
more likely than not be realized. Income tax expense is the
current tax payable or refundable for the period plus or
minus the net change in the deferred tax assets and
liabilities.
The Company's income tax (expense) benefit differed from
the statutory federal rates as follows:
1995 1994
Statutory rate applied to loss
before taxes $ 140,000 319,000
State income taxes 22,000 47,000
Increase in valuation allowance (162,000) (28,000)
Income tax (expense) benefit $ - 338,000
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(7) Income Taxes - Continued
Significant components of the Company's deferred tax
(assets) and tax liabilities at December 31, 1995 are as
follows:
Depreciation $652,000
Revenue recognition on construction contracts 471,000
Net operating losses (1,140,000)
Capital loss carryover (77,000)
Valuation allowance 94,000
$ -
The Company has approximately $2,417,000 of net
operating losses available to offset future income. These
net operating losses expire in the years 2005 through 2010.
If certain substantial changes in the Company's ownership
should occur, there would be an annual limitation of the
amount of carryforwards which could be utilized. In
addition, the Company has $207,000 of capital loss
carryforwards to use against income.
It is not possible to estimate the utilization of
carrying forward the available net operating losses to
future periods to offset income. Consequently, a valuation
allowance has been established to offset any tax asset.
(8) Long-Term Debt
Long-term debt at December 31, 1995, is as follows:
Notes payable to various financial
institutions bearing interest at
between 6.8% and 11.25%, due in
combined monthly installments of
$15,492 including interest, secured
by real estate $1,143,759
Note payable to various entities
with interest at between 9.25% and 12.25%,
requiring combined monthly installments
of $29,290 including interest,
collateralized by the Company's
natural gas gathering system
and processing plants 767,993
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(8) Long-Term Debt - Continued
Note payable to a financial
institution, due in monthly
installments of $5,870, including
interest at prime plus 3.5%
(12% at December 31, 1995),
secured by a life insurance
policy, equipment and accounts
receivable 460,726
Notes payable to various financial
institutions, due in combined monthly
installments of $16,380, including
interest at rates between 8.5% and
11.9%, secured by vehicles, inventories,
equipment, and receivables 354,274
Convertible note payable to an
individual, due in lump sum in
June, 1996, including interest of
10%, unsecured (see note 10) 250,000
Notes payable to officers/shareholders
due in 1996, interest accruing at
between 5% and 12%, unsecured 122,201
Capital lease obligations (see note 9) 552,285
3,651,238
Less current portion of long-term debt 1,187,991
Net long-term debt $2,463,247
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(8) Long-Term Debt - Continued
Future maturities of long-term debt as of December 31, 1995
are as follows:
Year Amount
1996 $1,187,991
1997 613,334
1998 465,505
1999 369,655
2000 324,372
Thereafter 690,381
$3,651,238
None of the Company's debt instruments are held for
trading purposes. The Company estimates that the fair value
of all financial instruments at December 31, 1995, does not
differ materially from the aggregate carrying values of its
financial instruments recorded in the accompanying balance
sheet.
(9) Capital Leases
The Company has entered into several noncancellable
capital leases for equipment. The leases have between two
and five year lease terms aggregate monthly payments total
$9,563. The assets under capital lease have been
capitalized at an aggregate cost of $634,746 and accumulated
amortization of these costs totaled $98,535 at December 31,
1995. Future minimum lease payments are as follows:
Year Ending December 31:
1996 $160,014
1997 183,508
1998 151,636
1999 99,797
2000 81,653
Total minimum lease payments 676,608
Less amount representing interest 124,323
Present value of minimum lease payments $552,285
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(10) Convertible Debt
During 1994, the Company issued a $250,000 senior
convertible note payable to an individual. The note bears
interest at 10% and is due in lump sum on June 30, 1996.
The note is convertible in full to 67,750 shares of the
Company's restricted common stock at any time before the due
date, at the option of the note holder. The note is senior
to all debt agreements entered into by the Company
subsequent to the date of the note.
(11) Related Transactions
The Company had transactions with related parties during
the years ended December 31, 1995 and 1994 is as follows:
As part of the merger with Interline Natural
Gas, Inc., the Company issued long-term notes payable
totaling approximately $300,000 to officer/shareholders
of the Company. The balance of these notes at December
31, 1995 was approximately $122,000. Interest expense
on these notes totaled $10,192 and $13,866 for 1995 and
1994.
(12) Common Stock
During the year ended December 31, 1994 as a condition
for a private placement of the Company's restricted common
stock, the Company entered into an agreement which contains
certain restrictive covenants. The Company may not sell its
restricted common stock for a price less than $4.50 or issue
options or warrants of equal effect for a two year period
ending October 1996. The Company also may not repay any
related party debt during this period. These covenants may
be waived upon obtaining written consent of the other party
in the agreement.
(13) Stock Options
During the year ended December 31, 1995, the Company
issued common stock options to officers and employees as
follows:
On February 24, 1995, options for the purchase of a
total of 30,000 shares at $4.50 per share were granted to
officers of the Company. These options expire on
February 23, 2000 and remained unexercised at December
31, 1995.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(13) Stock Options - Continued
On April 21, 1995, options for the purchase of a
total of 50,000 shares at $4.50 per share were granted to
officers of the Company. These options expire on
February 23, 2000 and remained unexercised at December
31, 1995.
On June 25, 1995, options for the purchase of a total
of 67,500 shares at $4.50 per share were granted to
employees of the Company. These options expire on June
24, 2000 and remained unexercised at December 31, 1995.
On March 13, 1995, options for the purchase of a total
of 888,889 shares at $4.50 per share were granted to an
unrelated company. A total of 288,889 options were
exercised during 1995 for proceeds of approximately
$1,300,000. The terms of the options include expiration of
a portion of the shares available under the option each
month after the date of grant. Options for a total of
400,000 shares expired during 1995. At December 31, 1995, a
total of 200,001 options remained unexercised.
During the year ended December 31, 1994, prior to the
issuance of common stock through the private placement (see
note 12) the Company granted officers of the Company stock
options to purchase 37,500 shares of the Company's
restricted common stock for between $5.85 and $6.38 per
share. None of these options were exercised prior to
December 31, 1995.
(14) Segment Information
The Company has operations in the segments of gas
processing, construction and other. The following is a
breakdown by segment:
1995 1994
Capital expenditures:
Oil and gas processing $2,297,346 2,088,207
Construction 92,752 947,769
Manufacturing 147,574 -
Refining 931,236 81,967
Other 233,405 23,069
Total $3,702,313 3,141,012
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(14) Segment Information - Continued
Depreciation and amortization:
Oil and gas processing $ 568,345 320,830
Construction 53,177 55,566
Manufacturing 33,765 -
Refining 135,591 129,872
Other 59,429 72,925
Total 850,309 579,193
Identifiable assets:
Oil and gas processing 8,076,618 7,904,089
Construction 3,336,492 2,448,373
Manufacturing 2,310,519 -
Refining 3,512,414 2,503,659
Other 1,043,104 1,075,097
Total 18,279,147 13,931,218
Revenue:
Oil and gas processing 6,867,201 5,609,701
Construction 8,389,707 4,632,717
Manufacturing 3,898,894 -
Refining 1,250,000 848,754
Total 20,405,802 11,091,172
Operating income:
Oil and gas processing 297,574 214,251
Construction 196,374 101,640
Manufacturing (548,715) -
Refining 201,295 (711,241)
Other - (113,187)
Gross margin 146,528 (508,537)
Interest expense (303,534) (263,545)
Other corporate expenses (276,088) (184,886)
Loss before income taxes (433,094) (956,968)
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(15) Contingencies
The Company is a partner in several joint ventures. The
joint ventures have incurred debt related to the development
of the project. The Company, as a joint venture partner, is
contingently liable for the debt. The debt totals
approximately $1,085,000 at December 31, 1995.
The Company is involved in litigation arising during the
normal course of business. Management is vigorously
defending its position and believes that it has meritorious
defenses. The financial statements reflect any amounts that
management believes would be payable should the litigation
rule in favor of the plaintiff.
(16) Profit Sharing Plan
During 1995, the Company commenced a defined
contribution retirement plan which qualifies under code
section 401(k), for all eligible employees. Employees who
work at least 1,000 hours during a year and are over age 21
are eligible to participate. Employees may contribute up to
fifteen percent of their annual compensation subject to
regulatory limitations. The Company also contributes a
discretionary amount on behalf of the participating
employees. The company made contributions of $2,218 for the
year ended December 31, 1995.
(17) Subsequent Events
On February 29, 1996, the Company obtained $1,500,000 in
6% senior indebtedness from a related individual. The
obligation is due August 20, 1996 or is convertible to
shares of the Company's restricted common stock at the
option of the lender. The obligation is secured by assets
of the Company. Also on the same date, the same related
individual extended the terms of a prior $250,000 obligation
originally due June 30, 1996 to August 31, 1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
No disclosure required.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE COMPANY; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
A. Identification of Directors and Executive Officers. The
current directors and executive offices of the Company, who will
serve until the next annual meeting of shareholders or until
their successors are elected or appointed and qualified, are set
forth below:
Name Age Position
Michael R. Williams 44 Chairman/CEO/President/Director
Stephen P. Yeoman 41 Secretary/Director
R. LaMar Gagon 51 Director
Mark W. Holland 39 Chief Financial
Officer/Director
Background information concerning the Company's officers and
directors is as follows:
Michael R. Williams. Mr. Williams has been an officer and
director of the Company since October 1990. Mr. Williams received
his Bachelor of Arts degree in Business Management from Brigham
Young University in 1975.
Stephen P. Yeoman. Mr. Yeoman has been employed by the
Company as a vice president since August 1992. He was also
appointed as a director and secretary of the Company in February
1995. From April 1992 to August 1992, Mr. Yeoman was independent
consultant. From March 1988 to March 1992, Mr. Yeoman was
employed by Southern American Insurance as executive vice
president and director, and by Seven Peaks Resort as a director.
In April 1992, Seven Peaks Resort filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Law. In
March 1992, Southern American Insurance Company filed a voluntary
liquidation with State of Utah Insurance Department.
R. LaMar Gagon. Mr. Gagon has been a director of the Company
since 1994. Mr. Gagon is Vice President and founder of the
Draper, Utah based Gagon Mechanical Contractors Inc. Gagon is a
industrial/commercial contracting company building and providing
mechanical services to the construction, refinery, mining,
government, military and aerospace industries. He studied
mechanical engineering at Brigham Young University, after
graduating from Utah Technical College.
Mark W. Holland. Mr. Holland has been employed as a
Controller for the Company since 1989 and was appointed a
director of the Company in 1995. From 1983 to 1989 Mr. Holland
was employed by Savage Industries, Inc. as an accountant and as a
Controller for the Ideal Corporation and Cornelius Development
Corporation subsidiaries. Mr. Holland received his Certified
Public Accountant certification in 1989. Mr. Holland received his
Bachelor of Science degree in Accounting and Business
Administration from Southern Utah State College in 1983.
B. Significant Employees. None.
C. Family Relationships. None.
D. Other: Involvement in Certain Legal Proceedings. Except
as set forth in the disclosure about Mr. Yeoman, there have been
no events under any bankruptcy act, no criminal proceedings and
no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during
the past five years.
E. Compliance With Section 16(a). Section 16 of the
Securities Exchange Act of 1934 requires the filing of reports
for sales of the Company's common stock made by officers,
directors and 10% or greater shareholders. A Form 4 must be filed
within 10 days after the end of the calendar month in which a
sale or purchase occurred. Based upon review of Forms 4 filed
with the Company, those officers and directors were current on
all filings related to Form 4.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation
paid by the Company for services rendered during the last three
years to the Company's Chief Executive Officer and to the
Company's most highly compensated executive officers other than
the CEO, whose annual salary and bonus exceeded $100,000:
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name and Annual Restrict Option/ LTIP Other
Principal ($) ($) Compen- Stock SAR's Payouts Compen-
Position Year Salary Bonus sation Awards (#) ($) sation ($)
Michael R. 1995 $198,000 $-0- $-0- $-0- 7,500(1) $-0- $-0-
Williams 1994 $168,000 $-0- $-0- $-0- 7,500(1) $-0- $-0-
President 1993 $168,000 $-0- $-0- $-0- 357,500(1) $-0- $-0-
CEO, Chair-
man
LaMar 1995 $100,000 $-0- $-0- $-0- 24,167(2) $-0- $-0-
Gagon 1994 $100,000 $-0- $-0- $-0- 7,500(2) $-0- $-0-
Director, 1993 $-0- $-0- $-0- $-0- -0- $-0- $-0-
President,
Gagon
</TABLE>
(1) In August 1993, Mr. Williams was granted an option
to purchase 357,500 shares of common stock at a price
of $1.08125 per share, which was the estimated market
price at the time of grant. The option was approved by
the Company's shareholders on May 10, 1994. The option
was not exercisable until the expiration of six months
from the date of shareholder approval. In February
1994, Mr. Williams was granted an option to purchase
7,500 shares of the Company's common stock at a price
of $5.65 per share, which was the estimated market
price at the time of grant. The option was issued
pursuant to the Company's 1994 Officer and Director
Stock Option Plan and was approved by the Company's
shareholders on May 10, 1994. The option was not
exercisable until the expiration of six months from the
date of shareholder approval. According to the Plan
approved by shareholders, another 7,500 shares of the
Company's stock was granted March 1, 1995 at a price of
$4.50.
(2) In February 1994, Mr. Gagon was granted an option
to purchase 7,500 shares of common stock at a price of
$5.65 per share, which was the estimated market price
at the time of grant. The option was issued pursuant to
the Company's 1994 Officer and Director Stock Option
Plan and was approved by the Company's shareholders on
May 10, 1994. The option was not exercisable until the
expiration of six months from the date of shareholder
approval. According to the Plan approved by
shareholders, another 7,500 shares of the Company's
stock was granted March 1, 1995 at a price of $4.50.
Mr. Gagon was granted 16,667 shares of the Company's
stock at an exercise price of $4.50 per share,
according to a stock option grant approved by
shareholders on June 15, 1995. The option was not
exercisable until the expiration of six months from the
date of shareholder approval.
The Company provides health and life insurance to its
employees, including its officers and certain directors.
Stock Options Granted During 1995
The following table provides information on grants of stock
options during 1995 to the persons named in the Summary
Compensation Table above.
<TABLE>
OPTION GRANTS IN 1995
Individual
Grants
<CAPTION>
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
% of
Total Exerc
Optio Option ise
ns s or Expira
Name Grant Grante Base tion
ed d to Price Date
(#) Employ ($/Sh
ees )
in
Fiscal
Year
LaMar Gagon 24,167 16.38% $4.50 2/24/00
Michael R. 7,500 5.08% $4.50 2/24/00
Williams
</TABLE>
Option Values at December 31, 1995
No options were exercised during 1995 by the person named in
the Summary Compensation Table. The following table provides
information on the unexercised options at December 31, 1995 owned
by the people named in the Summary Compensation Table above.
<TABLE>
AGGREGATE OPTION EXERCISED IN 1995
AND YEAR END 1995 OPTION VALUES
<S> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Number of Value of
Unexercised Unexercised
Options at In-the-Money
Year End 1995 (#) Options at
Year End 1995
($)(1)
Shares
Acquire Value
Name d on Reali ExercisableUnexe ExercisableUnexe
Exercis zed rcisable rcisable
e
M. R. Williams -0- -0- 372,500 $1,165,369
LaMar Gagon -0- -0- 31,667 $-0-
</TABLE>
(1) An "In-the-Money" stock option is an option for which the
market price of the Company's common stock underlying the option
on December 31, 1995 exceeded the option price. The value shown
represents stock price appreciation since the date of grant. The
market price was based upon the closing price of the Company's
common stock on the American Stock Exchange Emerging Company
Marketplace on December 31, 1995 ($4.375).
Employment Agreements
The Company has no written employment agreement with any
officers or directors. Michael R. Williams is paid a monthly
salary of $16,500 by the Company. LaMar Gagon, a director of the
Company and the president of Gagon Mechanical Contractors, is
paid a monthly salary of $8,333.
Compensation of Directors
The Company's directors receive no compensation for Board of
Directors Meetings attended. On February 24, 1994, the Board of
Directors adopted an Officer and Directors Stock Option Plan. The
Plan was adopted by the Company's shareholders on May 10, 1994
and is a "formula" grant plan. The Plan provides that each
director and officer is to receive an option to purchase 7,500
shares at market value on the initial date of grant or upon
becoming an officer or director of the Company. The initial date
of grant was February 24, 1994. On March 1st of each year
thereafter, an additional option for 7,500 shares is granted.
Such additional options are exercisable at the market value on
such date.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. Security Ownership of Certain Beneficial Owners. The
following table sets forth information regarding shares of the
Company's common stock beneficially owned as of March 15, 1995
by: (1) each officer and director of the Company; (ii) all
officers and directors as a group; and (iii) each person known by
the Company to beneficially own 5 percent or more of the
outstanding shares of the Company's common stock.
Name and Address
Percentage
of Beneficial Owner Shares Owned(1)
Owned
Michael R. Williams(2)(3) 3,317,363 22%
160 W. Canyon Crest Rd.
Alpine, UT 84004
Stephen P. Yeoman(2)(4) 52,222 .3%
160 W. Canyon Crest Rd.
Alpine, UT 84004
R. LaMar Gagon(2)(5) 291,312 2%
8531 S. 700 West
Sandy, UT 84070
Gearle D. Brooks(6) 1,016,494 7%
160 W. Canyon Crest Rd.
Alpine, UT 84004
Name and Address
Percentage
of Beneficial Owner Shares Owned(1) Owned
Mark W. Holland(7) 117,220 1%
160 W. Canyon Crest Rd.
Alpine, UT 84004
Maurice D. Sabbah(8) 2,120,416 14%
c/o 461 Fifth Avenue
New York, NY
All Officers and Directors 3,778,117 25%
as a Group (4 persons)
Total Shares Issued and 14,671,802 100%
Outstanding(1)
(1) As of March 15, 1996 there were 13,951,052 shares
of the Company's common stock issued and outstanding.
Under the rules of the Securities and Exchange
Commission, for purposes of the above set forth chart,
all shares issuable to the above referenced persons
upon the exercise of options and warrants and
conversion rights are deemed to be issued and
outstanding. A total of 720,750 shares are issuable
upon currently exercisable options and debentures owned
by the persons set forth in the table above. Therefore,
for purposes of the above set forth chart, there are
deemed to be 14,671,802 shares issued and outstanding.
(2) These individuals are the officers and directors of
the Company.
(3) Mr. Williams is the Company's Chief Executive
Officer. The number of shares indicated as owned by Mr.
Williams includes 2,922,198 beneficially owned, 15,165
owned by his minor children and 380,000 shares issuable
upon the exercise of currently exercisable options.
(4) Includes 5,000 shares owned directly by Mr. Yeoman,
15,555 shares owned by his wife and 31,667 shares
issuable upon the exercise of currently exercisable
options. Mr. Yeoman is the president of Interline
Hydrocarbon and a director of the Company.
(5) Includes 252,145 shares owned directly by Mr. Gagon
and 39,167 shares issuable upon the exercise of
currently exercisable stock options. Mr. Gagon is a
director of the Company and is president of a
subsidiary of the Company.
(6) The number of shares indicated as owned by Mr.
Brooks includes 853,994 owned directly by Mr. Brooks
and 162,500 shares issuable upon the exercise of a
currently exercisable stock option.
(7) Mr. Holland is a director and the Chief Financial
Officer of the Company. The number of shares indicated
as owned by Mr. Holland includes 78,054 directly owned
by Mr. Holland and 39,166 shares which may be issued
upon the exercise of a currently exercisable stock
option.
(8) Includes 2,052,666 shares which are owned directly
by Mr. Sabbah and 67,750 shares which may be issued
upon the conversion of outstanding debt instrument. His
wife owns 29,000 shares, and his daughter owns 25,000
shares of the Company's stock. Mr. Sabbah disclaims
beneficial ownership of the securities owned by his
wife and by his daughter.
B. Security Ownership of Management. See Item 11(a) above.
C. Changes in Control. No changes in control of the
Company are currently contemplated.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In connection with the Company's purchase of its corporate
offices in Alpine, Utah, in 1992, Michael R. Williams executed a
personal and individual guarantee agreement for the $250,000 SBA
504 portion of the long-term financing. Michael R. Williams,
Timothy G. Williams and Gearle D. Brooks executed guarantees as
individual guarantors of the commercial bank's $562,000 first
mortgage.
Effective December 31, 1993, the Company acquired Gagon
Mechanical Contractors, Inc., a Utah corporation owned by R.
LaMar Gagon, a director of the Company, and his brother. The
Company issued 200,000 shares of its common stock to the two
shareholders of Gagon Mechanical Contractors, Inc. in exchange
for all of the issued and outstanding shares thereof. Gagon
Mechanical Contractors, Inc. is operated as a wholly owned
subsidiary of the Company.
During 1993, the Company borrowed funds from officers
Michael R. Williams, Timothy G. Williams and Gearle D. Brooks.
These loans accrued interest at the rate of 6% per annum and are
unsecured. The amounts of such loans made by each lender and the
amount due and owed by the Company as of December 31, 1995 was as
follows:
Total Amount Unpaid as
of Loans of 12/31/95
Lender
Michael R. Williams $89,519 $ -0-
Timothy G. Williams $19,000 $ 9,000
Gearle D. Brooks $79,985 $ 48,358
As part of the merger with Interline Natural Gas, the
Company issued a total of $300,000 in long-term notes to the
shareholders of Interline Natural Gas. The amounts of such loans
made by each lender and the amount due and owed by the Company as
of December 31, 1995 was as follows:
Total Amount Unpaid as
of Loans of 12/31/95
Lender
Michael R. Williams $165,000 $ -0-
Timothy G. Williams $ 60,000 $ -0-
Gearle D. Brooks $ 75,000 $64,843
On Feb. 29, 1996, the Company obtained a 6% senior secured
note of $1,500,000 from Maurice Sabbah, a 14 percent owner of the
Company. The principal is due August 29, 1996. If there is a
default under the 6% senior secured note, then the principal can
be converted to up to 468,750 shares of the Company's common
stock at the price of the lesser of $3.20 per share or 80 percent
of the average closing price for the Company's shares for the
five consecutive trading days preceding the date of conversion.
The note was secured by all of the issued and outstanding stock
of two subsidiaries, Interline Energy Services and Gagon
Mechanical Contractors.
Also on Feb. 29, 1996, the $250,000, 10% senior convertible
note that was due June 30, 1996 was extended until August, 29,
1996.
Parents of Company
The only parents of the Company, as defined in Rule 12b-2 of
the Exchange Act, are the officers and directors of the Company.
For information regarding the shareholdings of the Company's
officers and directors, see Item 11.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. The Exhibits which are filed with this Report or which
are incorporated herein by reference are set forth in the Exhibit
Index.
B. Reports on Form 8-K. The Company filed no reports on
Form 8-K during the last quarter of the fiscal year ended
December 31, 1995.
Exhibits to Form 10-KSB
Sequentially
Exhibit Numbered
Number Exhibit Page
3.1 Articles of Incorporation - Incorporated by N/A
Reference to Exhibit 3.1 to Registration
Statement No. 33-25011-D on Form S-18
3.2 Amendment to Articles of Incorporation - N/A
Incorporated by reference to Form 8-A
filed January 18, 1991
3.3 Bylaws - Incorporated by reference to Exhibit N/A
3.2 to Registration Statement 33-25011-D on
Form S-18
10.1 Agreement and Plan of Reorganization - N/A
Northcut Energy effective October 22, 1990.
(Incorporated by reference to Form 8-K filed
October 23, 1990)
10.2 Agreement and Plan of Merger - N/A
Northcut Energy and Interline Natural Gas, Inc.
December 23, 1991. (Incorporated by reference
to Form 8-K dated March 6, 1992)
10.3 License Agreement - Petroleum Systems, Inc. NA
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.4 License Agreement - Gadgil Western Corporation NA
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.5 Stock Option Agreement - Michael R. Williams NA
dated August 29, 1993
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.6 Stock Option Agreement - Timothy G. Williams NA
dated August 29, 1993
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.7 Stock Option Agreement - Gearle D. Brooks NA
dated August 29, 1993
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.8 1994 Non-Insider Stock Option Plan NA
dated February 24, 1994
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.9 1994 Officer and Director Stock Option Plan NA
dated February 24, 1994
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.10 Agreement and Plan of Reorganization - NA
Gagon Mechanical Contractors, Inc.
(Incorporated by Reference to Form 10-KSB
dated December 31, 1993)
10.11 Quaker State Resources Agreements NA
(Incorporated by Reference to Form 8-K
dated September 13, 1994)
10.12 Whelan Environmental Services Agreement NA
(Incorporated by Reference to Form 10-KSB
dated December 31, 1994)
10.13 Amoco Processing/Transportation Agreement
10.14 PSI Assignment Agreement
10.15 Dukeun Industrial Company Agreements
10.16 Bahrain and Singapore Agreement
10.17 Genesis Petroleum - Salt Lake, L.L.C Agreements
10.18 Guarantee - Interline (UK)
10.19 Note Purchase Agreement - Maurice Sabbah
21.1 Subsidiaries of Registrant
- -----------------------------------------------------------------
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 29, 1996 INTERLINE RESOURCES CORPORATION
By/s/ Michael R. Williams
Michael R. Williams
CEO/President
Director
Principal Executive Officer
By/s/ Mark W. Holland
Mark W. Holland
Chief Financial Officer
Director
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date Title Signature
March 29, 1996 CEO/President /s/ Michael R. Williams
and Director Michael R. Williams
March 29, 1996 Vice President/ /s/ Stephen P. Yeoman
Secretary/ Stephen P. Yeoman
Director
March 29, 1996 Director /s/ R. LaMar Gagon
R. LaMar Gagon
March 29, 1996 Director /s/ Mark W. Holland
Mark W. Holland
Amoco Agreements
PROCESSING/TRANSPORTATION AGREEMENT
This Processing/Transportation Agreement is made and
entered into this 9th day of September 1994, by and between
Interline Resources Corporation, a Utah corporation located
at 160 West Canyon Crest Road, Alpine, Utah, 84004
(hereinafter "IRC"), and Amoco Production Company, a
Delaware corporation located at 1670 Broadway, Denver,
Colorado, 80202 (hereinafter "Amoco").
WITNESSETH
WHEREAS, Amoco owns and operates oil production and
processing facilities located near Bairoil, Carbon County,
Wyoming; and
WHEREAS, Amoco intends a change in operating procedures
such that the Bairoil CO2 Processing plant will produce
additional volumes of natural gas liquids (NGL's) which
would contain sulfur compounds and carbon dioxide, and which
would require treating and processing; and
WHEREAS, IRC is in the business of transporting and
processing natural gas liquids, and owns and operates a
natural gas processing and NGL fractionation plant located
in Converse County, Wyoming (the Well Draw plant), which
plant has the capacity and ability to receive, fractionate,
store and redeliver the volumes of NGL's produced by Amoco's
Bairoil plant; and
WHEREAS, IRC is willing and able to construct a
treating facility at Amoco's Bairoil CO2 Processing plant,
which would receive NGL's from Amoco, and remove the sulfur
compounds and carbon dioxide. In addition, IRC will
transport the treated NGL's to IRC's Well Draw plant for
further processing.
NOW THEREFORE, in consideration of the mutual covenants
and agreements herein contained, and for the consideration
herein provided, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
The following expressions in this Agreement shall have
the meanings set forth below:
1.1 "Bairoil Plant" shall mean Amoco's CO2 processing
facility located in Carbon County, Wyoming, including
natural gas liquids production, storage and loading
equipment.
1.2 "Chromatographic Analysis" shall mean the method
as prescribed in Gas Processors Association's Publications
#2165 "Standard for Analysis of Natural Gas Liquid Mixtures
by Gas Chromatography", latest amended and revised editions,
the results of which yield a Component analysis of the
mixtures analyzed.
1.3 "CO2 Fractionator" shall meant he CO2
Fractionator at the Bairoil Plant.
1.4 "Component" shall mean those hydrocarbon and non-
hydrocarbon molecular constituents which are definable by
industry standards and procedures. Such components as used
in this Agreement shall be:
CO2 - Carbon Dioxide
H2S - Hydrogen Sulfide
C1 - Methane
C2 - Ethane
C3 - Propane
iC4 - Isobutane
nC4 - Normal Butane
iC5 - Isopentane
nC5 - Normal Pentane
C6+ - Hexanes and Heavier Hydrocarbons
1.5 "Contract Year" shall mean the calendar year
period which begins at 12:01 a.m. Mountain Time on the first
day which Raw Make is delivered by Amoco to IRC for
treating, and continues until 12:01 a.m. Mountain Time on
the first day of the same month in the succeeding calendar
year.
1.6 "Day" shall mean a period of twenty four (24)
consecutive hours beginning at 12:01 a.m. Mountain Time.
1.7 "Delivery Point" shall mean as to Finished
Products, the connection point at Processors's Plant truck
loading facilities at which the Finished Products are
delivered into trucks for Amoco's account. Alternatively,
if Treated Product or Finished Product is injected for
Amoco's account into the Phillips NGL pipeline, the Delivery
Point shall be the point at which care, custody and control
passes from IRC to Phillips.
1.8 "Finished Products" shall mean any or all of the
commercial products of propane, field grade butane, and
natural gasoline produced at the Processors's Plant.
1.9 "Fractionation Fee" shall mean a fee used to
determine the amount of capital recovery charged to Amoco
for processing of NGL as described in Article 10.
1.10 "Gallon" shall mean a volume of one (1) standard
U.S. gallon.
1.11 "Month" shall mean a period beginning at 12:01
a.m. Mountain Time on the first day of a calendar month and
ending at 12:01 a.m. Mountain Time on the first day of the
succeeding calendar month.
1.12 "Natural Gas Liquids" (NGL's) shall mean a mixed
hydrocarbon stream recovered at the Bairoil Plant
containing, in whole or in substantial part, mixtures of
ethane, propane, butane, (isobutane and normal butane), or
natural gasoline and incidental methane, hydrogen sulfide,
and carbon dioxide remaining in the liquid product.
1.13 "Processor's Plant" shall mean the Well Draw
natural gas processing and NGL fractionation facilities
owned and operated by IRC, located in Converse County,
Wyoming, which is able to separate the Treated Product into
Finished Product.
1.14 "Raw Make" shall mean the natural gas liquid
stream recovered through the CO2 fractionator at the Bairoil
Plant which contains undesirable levels of sulfur compounds
and carbon dioxide.
1.15 "Receipt Point" shall mean the connection point at
the Bairoil Plant NGL loading facilities at which Treated
Product is delivered to IRC for loading into trucks for
IRC's account.
1.16 "Treated Product" shall mean the NGL output of the
Treating Unit or the Raw Make if the Treating Unit is not in
operation.
1.17 "Treating Unit" shall mean the facility to be
installed by IRC at the Bairoil Plant which will treat the
Raw Make to reduce the sulfur compounds and carbon dioxide
to a level acceptable for further processing and
fractionation at the Processor's Plant and will provide
compression sufficient to return the Treating Unit Effluent
to the inlet of the Bairoil Plant.
1.18 "Treating Unit Effluent" shall mean the gaseous
stream containing carbon dioxide and sulfur compounds
(principally hydrogen sulfide, H2S), which is extracted from
the Raw Make by the Treating Unit, and returned by pipeline
to the Bairoil Plant.
ARTICLE 2
COMMITMENT
2.1 Amoco agrees that for the term of this Agreement,
it will commit the total NGL output of the CO2 fractionator
at the Bairoil Plant for treating and processing by IRC.
Amoco will pay for such services as provided for herein, and
will receive the Finished Products from IRC at the Delivery
Point on as ratable and consistent basis as is practical.
2.2 IRC agrees that for the term of this agreement, it
will receive Raw Make from the Bairoil Plant, treat the Raw
Make at the Treating Unit to remove sulfur compounds and
carbon dioxide, transport the Treated Product to IRC's Well
Draw plant, fractionate the Treated Product into Finished
Products, and redeliver the Finished Products to Amoco at
the Delivery Point. IRC Further agrees to treat the Raw
Make at the Well Draw plant to remove sulfur compounds and
carbon dioxide at any time that the Treating Unit is not
operational, subject to the quality specifications contained
in Article 7.1.
2.3 IRC agrees to install a Treating Unit at the
Bairoil Plant to remove sulfur compound and carbon dioxide
from the Raw Make and return the Treating Unit Effluent to
the Bairoil Plant. IRC agrees to maintain said Treating
Unit in accordance with the terms outlined in the Treating
Unit Operating Agreement attached as Exhibit 2.
2.4 Amoco agrees to operate and provide routine
maintenance as outlined in the Treating Unit Operating
Agreement attached as Exhibit 2.
ARTICLE 3
RAW MAKE TREATMENT
3.1 Amoco and IRC recognize that the Raw Make produced
by the Bairoil Plant under normal conditions will contain
sulfur compounds, principally H2S and mercaptans, and carbon
dioxide, which require removal before the NGL can be
fractionated at the Processor's Plant. IRC will install a
treating unit at the Bairoil Plant, which will reduce the
sulfur compounds and carbon dioxide contained in the Raw
Make to a level acceptable to IRC for transportation and
fractionation as defined in Article 7.1 A summary
description of the proposed Treating Unit, including an
abbreviated process flow diagram and utility requirements,
is attached as Exhibit 1.
3.2 The Treating Unit will be located at a mutually
agreed upon location at the Bairoil Plant. Amoco will
provide IRC with all necessary rights-of-way and accesses in
order to facilitate installation of the Treating Unit and
any necessary connections. IRC will coordinate design and
installation activities with Amoco, and all costs and risks
associated with such installation will be borne by IRC.
Amoco will be responsible for any tie-ins or connections of
IRC lines or equipment to Amoco's facilities. Amoco shall
have the right to review and approve unit design prior to
commencing construction and to review and approve final
construction prior to start-up to assure compliance with
Amoco specifications and operational compatibility. Amoco
agrees to conduct its review and approval in a timely
manner.
3.3 During any installation or construction activities
on or within Amoco's Bairoil Plant site, IRC, its employees,
subcontractors or agents will abide by Amoco's Bairoil Plant
safety guidelines and all applicable state and/or federal
laws, rules and
regulations. Amoco agrees that it will provide IRC with
copies of any such safety requirements or guidelines.
3.4 After execution of this Agreement by both parties,
IRC will expeditiously proceed with permitting, engineering
and all other activities preparatory to construction or
installation of the Treating Unit. It is anticipated that
the Treating Unit will be in operation not later that three
(3) months after the effective date of the Agreement. If
IRC has not placed the Treating Unit in operation by January
1, 1995, Amoco, at its sole option, may immediately
terminate this Agreement upon written notice to IRC.
3.5 Treated Product from the Treating Unit will be
piped to the existing Bairoil Plant NGL storage and truck
facilities, where IRC will load it into trucks for
transportation to the Processor's Plant.
3.6 Amoco will operate the Treating Unit on behalf of
IRC pursuant to the Treating Unit Operation Agreement of
even date, included herein as Exhibit 2.
ARTICLE 4
TRANSPORTATION
4.1 Loading and truck transportation of the Treated
Product from the Bairoil Plant to IRC's Processor's Plant
shall be the responsibility of IRC. IRC recognizes that
storage is limited at the Bairoil Plant, and that there is a
necessity to maintain a sufficient number of trucks to take
the Treated Product away in a timely manner such that there
is no interference with the operation of the Bairoil Plant.
IRC will utilize equipment and personnel which meet all
legal requirements necessary to transport the NGL material
contemplated herein and abide by Amoco safety rules while
entering, loading or exiting the Bairoil Plant property.
4.2 IRC will coordinate shipments of the Treated
Product with Amoco as necessary, in order to insure the
safe, orderly movement of the Treated Product from the
Bairoil Plant to IRC's Processor's Plant.
4.3 At Amoco's option and request, IRC will arrange
for transportation of the Finished Products from the Well
Draw plant to Amoco's desired market, under the terms and
conditions to be proposed at the time such a request is
received by IRC. However, IRC shall have a first right of
refusal to transport any Finished Products, other that
propane, for Amoco's account to the general area of
Converse, Laramie, Albany, Campbell, and Carbon Counties of
Wyoming.
ARTICLE 5
FRACTIONATION, STORAGE, AND REDELIVERY
5.1 IRC will receive the Treated Product at the
Processor's Plant, weight and analyze for content,
fractionate into commercial propane, mixed butane and
natural gasoline, and return equivalent volumes of Finished
Products to Amoco at the Delivery Point. Alternatively, at
Amoco's request, IRC will deliver the Finished Products into
the pipeline facilities of Phillips Petroleum Company. IRC
represents that it has adequate capacity to fractionate the
volumes of natural gas liquids contemplated under this
Agreement.
5.2 All shipments of the Treated Product received at
the Processor's Plant will be weighed and sampled by IRC.
The quantity received shall be determined by IRC's truck
unloading weigh tickets and chromatographic analysis of the
Treated Product. Such analysis shall be used to determine
the quantities of Treated Product. Such analysis shall be
used to determine the quantities of Treated Product received
for processing by IRC, and the quantities of Finished
Product to be returned to Amoco at the Delivery Point. IRC
agrees to provide Amoco with a separate representative
sample for comparison or other purposes upon request by
Amoco at any time.
5.3 IRC will commence fractionation of the Treated
Product as promptly as possible following receipt at the
Processor's Plant. However, Amoco and IRC recognize that
IRC may maintain a nominal quantity of Treated Product as
working storage to facilitate continuous plant operations.
5.4 Amoco shall take delivery of the Finished Products
at the Delivery Point on a take basis which is consistent
with the movement of Treated Product to the Processor's
Plant. Amoco shall be entitled to utilize IRC's available
storage for Finished Products, providing that Amoco accepts
delivery of the Finished Products on a timely basis.
5.5 IRC will account to Amoco on a monthly basis for
the volume of NGL's in IRC's care and custody. Such
accounting will include a balancing statement setting forth
the beginning inventory of products held for Amoco's
account, volumes of Treated Product received, Finished
Products delivered for Amoco's account, and ending Finished
Products inventory held for Amoco. Any Treated Product in
transit between the Bairoil Plant and the Processor's Plant
will also be identified. This statement will accompany
IRC's invoice for services in accordance with Article 10.1.
5.6 Raw Make or Treated Product will be measured at
the Receipt Point using the Bairoil truck loading meter.
Amoco shall prove this meter as dictated by state law.
Amoco and IRC will use Amoco's truck loading tickets with
IRC's truck loading scales at the Well Draw Plant to develop
a correlation between the two readings after the first
twenty (20) truck loads. At any time after this correlation
is established, if total monthly volumes received at
Processor's Plant vary by more than two percent (2%) from
the volumes delivered by Amoco at the Receipt Point, after
adjustment to take into account the correlation factor
derived above, the parties hereto agree to meet and
determine the reason and disposition of any variation.
5.7 Upon any termination of this Agreement, IRC agrees
to promptly complete fractionation of all Treated Product
and deliver the equivalent Finished Products to Amoco.
ARTICLE 6
OPERATIONS
6.1 IRC agrees to give Amoco thirty (30) days written
notice of any scheduled maintenance on the Treating Unit or
the Processor's Plant which will affect their operation.
6.2 Amoco realizes the interdependency of the Treating
Unit and the Bairoil Plant and agrees to allow IRC
reasonable access to facilities as reasonably required to
facilitate the operation of the unit, to coordinate
maintenance schedules and to maintain communication in all
activities in accordance with appropriate industry practice.
ARTICLE 7
QUALITY
7.1 The Raw Make delivered hereunder shall contain
less than 3 percent (%) CO2 by volume and not more than 300
ppm H2S.
7.2 Finished Products will be in the form of Propane,
field grade Butane and Debutanized Natural Gasoline (DNG).
Each product shall meet the following relevant
specifications:
a. Propane shall conform to Gas Processors
Associations (GPA) specification HD-5 set forth in
Publication 2140 "Liquified Petroleum Gas Specifications and
Test Methods" (latest revision);
b. Butane (iso butane and normal butane mix) shall
conform to GPA Publication 2140 "Liquified Petroleum Gas
Specifications and Test Methods" (latest revision) for
commercial butane;
c. Natural Gasoline shall conform to the GPA
specifications for natural gasoline provided in Publication
3132 "Natural Gasoline Specification and Test Methods"
(latest revision).
ARTICLE 8
MEASUREMENT/SAMPLING/ANALYSIS
8.1 All liquid volumes measured hereunder shall be
measured by IRC Truck Scales at the truck loading/unloading
facilities at the Processor's Plant.
8.2 IRC shall test or cause to be tested, and if
necessary adjust and repair, their scales at least
semiannually. Certification material arising out of these
tests should be provided to Amoco on a semiannual basis. In
any event, IRC's scales shall be tested upon the request of
Amoco at any time with any necessary adjustments or repairs
being made promptly. The expense of such tests shall be
borne by the party requesting same if the scale is found to
be correct and by IRC if found incorrect. For this purpose,
a registration within 0.0015 (0.15%) correct shall be
considered correct. If upon any test, the scale is found to
be measuring inaccurately, it shall be readjusted or
repaired immediately to eliminate the inaccuracy and if the
percentage of inaccuracy of the measuring equipment is found
to be in excess of 0.0015 (0.15%) the registrations shall be
corrected for a period extending back to the time such
inaccuracy occurred is such time is ascertainable and if not
ascertainable, then back one-half (1/2) of the time elapsed
since the date of testing. If scale(s) are completely
inoperative or not recording, Amoco's Bairoil Loading Meter
will be used to determine Raw Make volumes.
8.3 IRC shall notify Amoco of any truck scale testing
twenty-four (24) hours prior to such testing, and Amoco has
the right to witness such test.
8.4 Composition analysis of the Finished Products
shall be determined by chromatographic analysis of the
composite sample obtained at the Delivery Point. IRC agrees
to provide Amoco with a separate representative sample for
comparison or other purposes upon request by Amoco at any
time.
ARTICLE 9
TERM
9.1 This Agreement shall be effective as of the date
first above written, and shall extend for a primary term of
three (3) years commencing with the beginning of the
Contract Year. Unless written notice of the intent to
terminate is given by either party to the other, not later
than ninety (90) days prior to the end of the third year,
this Agreement will continue in full force and effect for
successive periods of one (1) year each ("Secondary Term").
Either party may terminate this Agreement during the
Secondary Term upon giving written notice no later than
ninety (90) days prior to the anniversary date of the
commencement of the Contract Year.
9.2 Unless otherwise agreed by the parties, upon any
termination of this agreement, IRC will dismantle and remove
the Treating Unit from the Bairoil Property in an orderly
and timely manner. IRC will also reclaim the Treating Unit
site as close as possible to its condition at the time of
installation.
ARTICLE 10
PROCESSING FEES/PRICES
10.1 Amoco shall pay to IRC a loading, transportation
and fractionation fee as follows:
a. Processing of Treated Product: For the volume of
Treated Product received by IRC at the Receipt Point
and processed at the fractionation plant, a fee of
three cents ($0.03) per gallon unless otherwise amended
under the Treating Unit Operating Agreement included as
Exhibit 2.
b. Loading and Transportation: For the volume of
Treated Product received by IRC at the Receipt Point, a
fee of four and one half cents ($0.045) per gallon. In
the event that the trucking tariff for movement
equivalent to the kind and type of movements from the
Bairoil Plant to the Processor's Plant hereunder (as
published from time to time by the State of Wyoming) is
revised, the loading and transportation fee will be
adjusted by the same percentage increase or decrease in
the published tariff rate.
10.2 Amoco shall have at all times the obligation to
make settlement for all royalties, severance or other taxes
due and payable on any NGL or other product treated and/or
processed by IRC hereunder.
10.3 Amoco agrees that the terms and conditions of this
Agreement, including but not limited to the fees and pricing
information contained in this Article 10, are confidential.
Disclosure of such terms to third parties by Amoco, its
employees, agents, subcontractors or others operating under
Amoco's control, is expressly prohibited without prior
written permission by IRC.
10.4 If the imposition of additional fees described in
Article 10.1b cause this Agreement to become unprofitable or
uneconomic in Amoco's view, Amoco may terminate this
Agreement upon ninety (90) days written notice to IRC.
ARTICLE II
BILLING AND PAYMENT
11.1 Each month IRC will prepare a treating and
processing statement in accordance with Article 5.5 and 10.1
which sets forth inventories and volumes of NGL's received
at IRC's Processor's Plant for processing into Finished
Product, along with an invoice for amounts due IRC
hereunder. This statement and invoice will be submitted to
Amoco not later than the fifteenth working day of the month
for the prior month.
11.2 Amoco agrees to pay all sums due IRC on a timely
basis, but within fifteen (15) working days after receipt of
a monthly invoice and statement. Such payment, however,
shall not be deemed to be a waiver of any rights to recoup
any amounts in dispute. Payments will be made by wire
transfer to IRC's designated account. IRC will provide
Amoco with payment instructions in writing, in advance of
any due date.
ARTICLE 12
OWNERSHIP AND LIABILITY
12.1 Amoco shall at all times retain full and complete
title and ownership to all the products treated, transported
and processed by IRC hereunder.
12.2 Amoco's Indemnification of IRC. Amoco agrees to
indemnify and hold IRC, its agents, officers, directors and
employees harmless from and against all damages, claims,
losses, expenses and liabilities, including attorney's fees
and, including, but not limited to, claims for environmental
damage, pollution, or contamination arising out of any
obligation to be performed by Amoco hereunder.
12.3 IRC's Indemnification of Amoco. IRC agrees to
indemnify and hold Amoco, its agents, officers, directors
and employees harmless from and against all damages, claims,
losses, expenses and liabilities, including attorney's fees
and, including, but not limited to, claims for environmental
damage, pollution, or contamination arising out of any
obligation to be performed by IRC hereunder.
12.4 Amoco's Liability for Possession and Control of
NGL. As between Amoco and IRC hereto, Amoco will be in
control and possession of the Treated Product (or Raw Make
if Treating Unit is not in operation) and Finished Product
deliverable hereunder until such Treated Product and
Finished Product is delivered at the Receipt Point and after
the Delivery Point and will be fully responsible and liable
for any and all damages, claims or actions, including injury
to and death of persons and property damage caused or
resulting from Amoco's operations and handling of said
Treated Product (or Raw Make if Treating Unit is not in
operation) and Finished Product while in its control and
possession and Amoco agrees to indemnify and hold IRC
harmless with respect thereto.
12.5 IRC's Liability for Possession and Control of NGL.
As between IRC and Amoco hereto, IRC will be in control and
possession of the Treated Product (or Raw Make if Treating
Unit is not in operation) and Finished Product from and
after the NGL is received at the Receipt Point and until the
Finished Product is delivered at the Delivery Point and will
be fully responsible and liable for any and all damages,
claims or actions, including injury to and death of persons
and property damage caused or resulting from IRC's
operations and handling of said Treated Product and Finished
Product while in its control and possession and IRC agrees
to indemnify and hold Amoco harmless with respect thereto.
ARTICLE 13
FORCE MAJEURE
13.1 In the event of either party hereto being rendered
unable wholly or in part by force majeure to carry out its
obligations under this Agreement, other than to make payment
as provided herein, it is agreed that on such party giving
notice and full particulars of such force majeure in writing
to the party after the occurrence of the cause relied upon,
then the obligations of the party giving such notice, so far
as they are affected by such force majeure, from its
inception, shall be suspended during the continuance of any
inability so caused but for no longer period, and such cause
shall be as far as possible remedied with all reasonable
dispatch.
13.2 The term "Force Majeure" as employed herein shall
mean acts of God, strikes, lockouts or other industrial
disturbances, acts of the public enemy, wars, blockades,
insurrections, riots, epidemics, landslides, lightning,
earthquakes, fires, storms, floods, washouts, arrests and
restraints of rulers and people, arrests and restraints of
the Government, either federal or state, inability of any
party hereto to obtain necessary materials, supplies or
permits due to existing or future rules, orders and laws of
governmental authorities (both federal and state),
interruptions by government or court orders, present or
future order of any regulatory body having proper
jurisdiction, civil disturbances, explosions, sabotage,
breakage or accident to machinery, equipment or lines of
pipe, the necessity for making repairs or alterations to
machinery, equipment or lines of pipe, freezing of wells or
lines of pipe, partial or entire failure of wells, and any
other causes, whether of the kind herein enumerated or
otherwise not within the control of the party claiming
suspension and which by the exercise of due diligence such
party is unable to overcome.
13.3 It is understood and agreed that the settlement of
strikes or lockouts shall be entirely within the discretion
of the party having the difficulty and that the above
requirement of the use of due diligence in restoring normal
operating conditions hall not require the settlement of
strikes or lockouts by acceding to the terms of the opposing
party when such course in inadvisable in the discretion of
the party having the difficulty.
ARTICLE 14
WAIVER
14.1 Any waiver by either party of any one or more
defaults by the other party in the performance of any
provisions of this Agreement, shall not operate or be
construed as a waiver of any future default or defaults,
whether of a like kind or different nature or character; and
no failure or omission by either party to immediately
proceed to cause the other to satisfy, cure, or otherwise
remedy any default or omission by such other party shall
constitute a waiver of any such default or omission.
ARTICLE 15
ASSIGNMENT
15.1 This Agreement shall not be assignable by either
party without the prior written consent of the other, which
consent shall not be unreasonably withheld. Nothing herein
shall be construed to prevent either party or any assignee
from pledging all or any part of this agreement or any
benefit accruing hereunder to any party making the pledge.
In the event either party shall assign its interest in this
agreement, it shall in the instrument of assignment cause
the assignee to assume its rights and obligations under this
agreement. Except as provided above, no assignment shall
relieve a party of its obligations hereunder unless the
other party hereto shall consent to the same.
ARTICLE 16
NOTICES
16.1 Notices to be given hereunder shall be deemed
sufficiently given and served when and if deposited in the
United States mail, postage prepaid, and registered or
certified, addressed as follows:
As to Amoco: Amoco Production Company
1670 Broadway
Denver, Colorado 80202
Attention: WEBS Joint Manager
As to IRC: Interline Resources Corporation
160 West Canyon Crest
Alpine, Utah 84004
Attention: Manager, NGL Sales
ARTICLE 17
LAWS AND REGULATIONS
17.1 This Agreement is subject to all present and
future valid laws and lawful orders, rules and regulations
of all duly constituted authorities now or hereafter having
jurisdiction of the parties, or either of them, their
respective facilities or operations, or this Agreement or
any provision hereof. Should either of the parties by law
or regulation be ordered or required to perform any action
inconsistent with the provisions hereof, this Agreement
shall be deemed modified to conform to such law, rule, or
regulation, nor shall anything herein be construed requiring
the party to waive its right to assert the lack of
jurisdiction of such regulatory body, governmental entity or
agency over this Agreement or any party hereto.
ARTICLE 18
MISCELLANEOUS
18.1 Each party shall have the right while this
Agreement remains in effect and for twenty-four (24) months
thereafter, to examine the books, records and charges of the
other party hereto necessary to verify the accuracy of any
statement, charge, or computation made hereunder. All
statements and payments issued pursuant hereto shall be
conclusively deemed to have been correct unless questioned
in writing by the party asserting a discrepancy within
twenty-four months after the date of any such payment or
statement.
18.2 This Agreement and the obligations of the parties
hereunder shall be interpreted, construed, and enforced in
accordance with the laws of the State of Wyoming. Forum and
venue will be exclusive in Cheyenne, Wyoming.
18.3 This Agreement supersedes any and all other
agreements, whether oral or written, between the parties
hereto with respect to the subject matter hereof and
contains all of the covenants and agreements between the
parties with respect to said matter. Each party to this
Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement,
statement, or promise not contained in this Agreement shall
be valid or binding.
18.4 This Agreement has been jointly drafted by the
parties hereto, and not by one to the exclusion of the
other.
18.5 No change, modification or alteration of this
Agreement shall be valid unless it is in writing, signed by
the parties hereto, and no course of dealings, prior
statements, writings, representations or warranties between
the parties shall be construed to alter the terms hereof.
18.6 The article headings in this Agreement are
inserted for convenience only, and shall not be considered a
part of this Agreement or used in its interpretation.
IN WITNESS WHEREOF, the parties have executed this
Agreement to be effective on the date first above written.
INTERLINE RESOURCES CORPORATION
By:Michael R. Williams
Title:President
AMOCO PRODUCTION COMPANY
By:Neil R. McCleary
Attorney-in-Fact
EXHIBIT
Attached top and made a part of that certain
Processing/Transportation Agreement dated September 9, 1994,
by and between Interline Resources Corporation and Amoco
Production Company.
TREATING UNIT OPERATING AGREEMENT
This agreement is make and entered into by and between
Interline Resources Corporation, a Utah corporation located
at 160 West Canyon Crest Road, Alpine, Utah, 84004
(hereinafter "IRC"), and Amoco Production Company, a
Delaware corporation located at 1670 Broadway, Denver,
Colorado, (Hereinafter "Amoco") based on the following
premises:
WHEREAS, IRC and Amoco have entered into an agreement
effective September 9, 1994, for the transportation and
processing of natural gas liquids ("NGLS") produced by Amoco
near Bairoil, Carbon County, Wyoming ("the
Processing/Transportation Agreement"), reference to which is
made for all purposes herein;
WHEREAS, the Processing/Transportation Agreement
contemplate installation of a Treating Unit is part and
parcel of the services to be performed by IRC under the
Processing/Transportation Agreement;
WHEREAS, for good and sufficient consideration which is
hereby acknowledged, IRC and Amoco have agreed upon the
construction, operation and accounting for the Treating Unit
as follows:
1. Definitions:
1.1 "Major Maintenance" shall refer to individual
work projects related to the Treating Unit for which
materials and/or outside labor costs exceed $200.00.
1.2 "Routine Maintenance" shall refer to
individual work projects related to the Treating Unit for
which material and/or outside labor costs are $200.00 or
less.
1.3 "Treating Costs" shall refer to the actual
cost to Amoco of operating the Treating Unit as set forth
in Paragraph 3.
1.4 "Treating Fee" shall refer to the fee to be
credited to Amoco for the
operation of the Treating Unit as described in
Paragraph 3.
1.5 "Treating Unit" shall refer to the amine unit
and attendant equipment, including compression, which will
treat the natural gas liquids recovered at Amoco's
Bairoil Plant to reduce sulfur compounds and carbon
dioxide and return the extracted gaseous stream to the inlet
of the Bairoil Plant.
2. IRC shall be responsible for Treating Unit design,
construction and Major Maintenance. Amoco shall have the
right to review and approve unit design prior to the
commencement of construction and to review and approve final
construction prior to start-up to assure compliance with
Amoco specifications and operational compatibility with the
Bairoil Plant. Amoco agrees to conduct its review and
approval in a timely manner.
3. Amoco shall operate the Treating Unit for IRC.
The Treating Fee for such operation shall be taken as a
deduction against the Fractionation Fee payable by Amoco
under the Processing/Transportation Agreement. Such
Treating Fee is intended to cover the actual costs,
excluding overhead, of the operation of the Treating Unit.
Such costs include the following:
a. Preventative maintenance (i.e., not "major
maintenance and repair") of the Treating Unit;
b. water costs necessary for operation of the
Treating Unit;
c. electricity or other power necessary for operation
of the Treating Unit;
d. fuel gas use in the operation of the Treating
Unit;
e. chemicals or lubricants utilized in the operation
of the Treating Unit;
f. labor changes associated with the operation of the
Treating Unit.
Amoco shall keep records to document the Treating Costs.
4. The Treating Fee shall be initially fixed at $.005
per gallon. Thereafter, but no more often than every six
months, if Amoco believes the Treating Fee to be inadequate,
it may cause review of the Treating Costs. In such an event
Amoco and IRC shall meet to review the procedures and
equipment utilized in the operation of the Treating Unit in
an effort to agree on practices which would enable the
Treating Unit Costs to be consistent with a $.005 per gallon
fee. If it is determined that a higher Treating Fee must be
charged in order to cover the Treating Costs, the Treating
Fee shall be increased; provided, however, that if the
increase in the Treating Fee causes this Agreement to become
unprofitable or uneconomic in IRC's view, IRC may terminate
this Agreement and the Processing/Transportation Agreement
upon ninety (90) days written notice to Amoco.
5. From the date of the initial start-up of the
Treating Unit, for accounting purposes, the Treating Fee
will be applied to the same volumes to which the
Fractionation Fee is applied.
6. Upon termination under Article 9 of the
Processing/Transportation Agreement or if IRC in rendered
unable to perform its obligations under the
Processing/Transportation Agreement, Amoco shall have the
option to purchase the Treating Unit or to lease the
Treating Unit on the following terms: Amoco may purchase
the Treating Unit for 100% of its installed cost during the
first year of operation; for 75% of installed cost in the
second year; for 50% of installed cost in the third year and
for 25% of installed cost thereafter. Alternatively, Amoco
may lease the Treating Unit with the above costs used to
determine the capital cost basis of the lease.
7. Article 12, Ownership and Liability, of the
Processing/Transportation Agreement shall apply the
obligations and duties of IRC and Amoco with respect to the
Treating Unit as well. Additionally, Articles 13, 14, 15,
16, 17, and 18 of the Processing/Transportation Agreement
are incorporated herein by reference.
8. The term of this Operating Agreement shall be
coterminous with the Processing/Transportation Agreement.
IN WITNESS WHEREOF, the parties have executed this
agreement effective on the effective date of the
Processing/Transportation Agreement.
INTERLINE RESOURCES CORPORATION
By: Michael R. Williams
Title:President
AMOCO PRODUCTION COMPANY
By: Neil R. McCleary
Attorney-in-Fact
FIRST AMENDMENT TO
PROCESSING/TRANSPORTATION AGREEMENT
WHEREAS, Interline Resources Corporation (IRC) and
Amoco Production Company (Amoco) have entered into that
certain Processing/Transportation Agreement dated September
9, 1994 (the Agreement); and
WHEREAS, Amoco and IRC now desire to amend the
Agreement to extend the term thereof and other provisions
related to depreciation of the Treating Unit.
NOW, THEREFORE, in consideration of the premises and
the mutual agreements contained herein, Amoco and IRC agree
as follows:
1. Article 9.1 is hereby modified so that the first
sentence reads as follows:
"This Agreement shall be effective as of the date
hereof and shall
extend for a primary term of five years from June
1, 1995."
2. Exhibit 2, Paragraph 6 is hereby modified to read as
follows:
"Upon termination under Article 9 of the
Processing/Transportation
Agreement of if IRC is rendered unable to perform
its obligations under the
Processing/Transportation Agreement, Amoco shall have the
option to purchase the Treating Unit or to
lease the Treating Unit on the following
terms: Amoco may purchase the Treating Unit for 100% of its
installed cost during the first year of operation; 80% of
the installed cost in the second year; 60% of the
installed cost in the third year; 40% of the
installed cost in the fourth year and 25% of the installed
cost thereafter. Alternatively, Amoco
may lease the Treating Unit with the above
costs used to determine the capital cost basis of the
lease."
Except as expressly provided herein, the Agreement shall
remain in full force and effect as written.
Executed this 18th day of July, 1995, but effective as
of September 9, 1994.
AMOCO PRODUCTION COMPANY INTERLINE RESOURCES
CORPORATION
By: Barbara M. Baumann By:Michael A. Megee
Title:Attorney in Fact Title:Vice President
ASSIGNMENT AGREEMENT
This Assignment Agreement is made and entered into as of
January 13, 1995, and is by and between the following Parties:
PSI: Petroleum Systems, Inc.
a Utah corporation
c/o Steve Martin
12216 South Graystone Lane
Draper, Utah 84020
Interline: Interline Resources Corporation
a Utah corporation
160 West Canyon Crest Drive
Alpine, Utah 84004
RECITALS
PSI represents that it is the owner of certain Inventions and
Patent Rights (as defined below).
PSI previously licensed certain aspects of said Inventions
and Patent Rights to Interline.
Interline now desires to receive an assignment of said
Inventions and Patent Rights in lieu of the present Licensing
Agreement, and PSI is agreeable to granting such an assignment
subject to a license back to PSI for PSI's field (as defined
below) on the terms and conditions set forth below.
Now, therefore, the Parties agree as follows:
1. Inventions. "Inventions" shall mean the inventions and
technology identified or described in the patent and patent
applications identified by patent number or application serial
number below. Inventions do not include the prior art described
in said patent or patent applications. Inventions also include
the ideas, methods, inventions and technology previously disclosed
by PSI and/or Craig R. Mellen to Interline (or Interline
Hydrocarbon, Inc.).
2. Patent Rights. "Patent Rights" shall mean United States
Patent No. 5,286,380 entitled APPARATUS FOR CONTAMINATED OIL
RECLAMATION (Inventor: Craig R. Mellen) and the following pending
patent applications:
UNITED STATES OF AMERICA
Title Serial No.
Process and Filing Date
Apparatus 08/197,473
for Contaminated 2/15/94
Oil
Reclamation
(Inventor:
Craig R. Mellen)
08/197,472
Apparatus and 2/15/94
Related
Method for
Processing
Drain Oil
(Inventors:
Craig R. Mellen
Al Jordan, Jerre 08/197,474
Brooks, 2/15/94
Kevin Norton)
Process For
Reclaiming
Hydrocarbons Using 08/197,383
a 2/15/94
Vaporized Carrier
(Inventor:
Craig R. Mellen)
Apparatus and
Related
Method For
Contaminated
Oil Reclamation
(Inventor:
Craig R. Mellen)
AUSTRALIA
Australian Patent No. 60682/94 (pending) 4/26/94
(Inventors: Craig R. Mellen, Al Jordan,
Jerre Brooks, Kevin Norton)
UNITED KINGDOM
U.K. Patent No. 9408609.7 (pending) 4/29/94
(Inventor: Craig R. Mellen, Al Jordan
Jerre Brooks, Kevin Norton)
Patent Rights further include all divisions, continuations,
continuations-in-part, reissues, and counterparts to any of
said patent applications or to said patent, and any and all
patents resulting or issuing from any of the foregoing, and
all patent rights in and to any of the Inventions therein.
Patent Rights include any and all foreign, PCT and EPO
patent rights to the foregoing including all patents and
patent applications corresponding to or resulting or issuing
from any of the foregoing. PSI represents that it has made
full disclosure to Interline of, and that the above-
identified Patent Rights include, all patents, patent
applications and other patent rights that are owned or
controlled by PSI, Petroleum Technology Corporation ("PTC")
and/or, to its knowledge, Craig R. Mellen, and that are
relevant to the processing of used oil and/or other
hydrocarbons. An exception to this representation and to
the assignment to Interline is any patent, patent
application, or patent right that is applicable only to
PSI's Field as defined in Section 18. The following pending
patent applications are excluded from this assignment and
remain the property of PSI because PSI has represented and
warranted to Interline that they are applicable only to
PSI's Field:
UNITED STATES OF AMERICA
Title Serial No. Filing
Date
Process for Extracting 08/196,971
2/15/94
Useable Hydrocarbons from
Naturally Occurring Sands
and Oil Shales (Inventor:
Craig R. Mellen)
Process for Remediating Soils 08/197,475
2/15/94
Contaminated with Non-Naturally
Occurring Hydrocarbons
(Inventor: Craig R. Mellen)
3. Assignment. In consideration of good and valuable
consideration given to PSI by Interline, the receipt and
sufficiency of which are hereby acknowledged by PSI, and
subject to the performance of the covenants and payment of
royalties hereinafter set forth, PSI hereby assigns,
transfers and conveys to Interline:
The entire right, title and interest in and to the
Inventions and the Patent Rights, and other intellectual
property, if any, in and to the Inventions.
The right to file, prosecute, amend, maintain, assign,
license and enforce the Patent Rights and any other U.S. or
foreign patents and patent applications for any of said
Inventions in Interline's own name, wherever such right may
be legally exercised, including the right to claim the
benefits of any applicable international conventions or
treaties, including rights of priority, for such
applications.
The geographic scope of this assignment is not limited, and
includes all countries and jurisdictions.
4. Issuance. PSI hereby authorizes and requests the
United States Commissioner of Patents and Trademarks, and
such patent officials and agencies in foreign countries as
are duly authorized by their patent laws to issue patents,
to issue any and all patents on said Inventions and Patent
Rights to Interline as the owner of the entire interest and
title therein, for the sole use and behoof of Interline, its
successors, assigns and licensees.
5. Cooperation. PSI hereby agrees, without further
consideration and without expense to it, to sign all lawful
papers and to perform all other lawful acts which Interline
may reasonably request of PSI to make this assignment fully
effective or to assist in the filing, prosecution,
maintenance and enforcement of Patent Rights, including, by
way of example but not of limitation, the following:
Prompt execution of all original, divisional,
substitute, reissue, and other United States and foreign
patent applications on said Inventions, and all lawful
documents requested by Interline to further the prosecution
of any of such patent applications.
Cooperation to the best of its ability in the execution
of all lawful documents and the production of evidence for
any proceeding or litigation involving said Inventions or
Patent Rights.
Prompt execution of assignments and notices of
assignment of Patent Rights for recordation with the United
States Patent and Trademark Office and any other patent
offices, agencies and authorities in any other countries.
Seeking the cooperation and assistance of Petroleum
Technology Corporation ("PTC") and the employees, officers,
directors, shareholders and representatives of PSI and PTC
to do any of the foregoing for Interline.
Seeking the cooperation and assistance of Craig R.
Mellen to the extent possible under the Mutual Release and
Settlement Agreement, dated October 25, 1994, a copy of
which has been provided to Interline.
Interline shall pay all reasonable expenses incurred in
connection with cooperation and assistance requested by
Interline under this Section.
6. Costs and Litigation.
(a) Patent Costs. The costs of filing, maintaining,
and prosecuting Patent Rights after the date of this
Assignment Agreement shall be paid solely by Interline
subject to the following:
(i) Interline has no further responsibility to
reimburse or pay PSI or PTC for any patent costs incurred
prior to the date of this Assignment Agreement or for any
fees charged by their patent attorneys or agents.
(ii) Interline has no responsibility to pay for
any services of any patent attorneys or agents other than
its own patent attorneys and agents.
(iii) Interline has no responsibility to pay
patent costs for Patent Rights abandoned by Interline or
assigned back to PSI under Section 7
(b) Litigation Costs. In the event of any litigation
or arbitration to enforce Patent Rights against others or in
the event of any litigation or arbitration challenging the
Patent Rights or the validity of the Patent Rights, the
following shall apply:
(i) Control. Interline shall control the
litigation or arbitration, and shall keep PSI regularly
advised of developments.
(ii) Costs. Interline shall be responsible for
and shall pay all costs and expenses, including attorneys'
fees of such litigation or arbitration. If any litigation
or arbitration to enforce Patent Rights results in an award
of damages or other monetary awards, and if after all costs,
expenses and attorneys' fees have been paid, any amounts
remain, then Interline and PSI shall share said remaining
amounts as follows:
20% to PSI
80% to Interline
(iii) Limit. Interline is not obligated to
initiate, continue or finance any litigation or arbitration
which it does not believe to be in its best business
interests. However, in that event, it shall first inform
PSI and give PSI the opportunity to step in and take over
any such litigation or arbitration from that point forward,
at PSI's sole cost and expense. In that event Interline
shall forfeit any rights to share in any monetary recovery
of any judgment or settlement obtained by PSI.
7. Abandonment of Patent Rights. If Interline desires to
abandon any Patent Rights, it shall first give notice to PSI
of such intent and a reasonable opportunity to assume
responsibility for the Patent Rights which Interline desires
to abandon. If PSI assumes responsibility for such Patent
Rights, then PSI shall be responsible for all future costs
associated therewith and Interline shall assign such Patent
Rights back to PSI. This shall not affect, and the
assignment back to PSI shall not include, any other Patent
Rights which Interline elects to retain or not abandon. PSI
and its assigns shall not enforce any of such assigned
Patent Rights against Interline or its licensees. Interline
shall not take any action with the assigned Patent Rights
that would knowingly place PSI in breach of its obligations
to its licensees PetroClean or Mellen, under the PetroClean
Agreement and Mellen Settlement Agreement (copies of which
have been given to Interline). Upon notice from PSI that
said action does place PSI in breach of its obligations to
its licensees PetroClean or Mellen under said agreements,
Interline shall correct such action. PSI agrees that the
use and licensing by Interline of Patent Rights outside of
PSI's Field shall not create any such breach.
8. Termination of Licensing Agreement. PSI and Interline
Hydrocarbon, Inc. entered into a "Licensing Agreement" dated
February 1, 1993 and an "Amendment to Licensing Agreement"
dated November 22, 1993. Said Licensing Agreement and
Amendment and any and all other amendments, supplements and
addendums, if any, thereto, are referred to herein as the
"Licensing Agreement". The Licensing Agreement is hereby
terminated and superseded in all respects by this Assignment
Agreement. Interline represents and warrants that Interline
Hydrocarbon, Inc. was a subsidiary of Interline and
subsequently merged with and into Interline, and that
Interline now stands as the party to the Licensing Agreement
and has the authority, right and power to agree to this
Section. Notwithstanding anything in this Section or this
Assignment Agreement to the contrary, common stock issued to
PSI under the Licensing Agreement shall continue to be
governed by Section 4.00 of the Licensing Agreement.
9. Products. "Products" shall mean any and all products
which are covered by or produced using a method or apparatus
covered by a valid and unexpired claim of any Patent Rights,
including any Patent Rights to PSI Improvements which
Interline elects to receive under Section 16 below.
10. Royalty.
(a) In General - Licensees. Interline shall pay to
PSI a royalty equal to twenty percent (20%) of the Licensee
Royalty Payments received by Interline from the licensing of
any Patent Rights and any other intellectual property
assigned by PSI to Interline under this Agreement. Said
royalty payable by Interline to PSI is referred to as the
"PSI Royalty." "Licensee Royalty Payments" shall mean the
payments received by Interline from its licensees in
consideration of the licensing of any Patent Rights or any
other intellectual property assigned by PSI to Interline
under this Agreement. Licensee Royalty Payments do not
include any fee or payment that is not consideration for
such licensing. For example, and without limitation,
Licensee Royalty Payments do not include exclusivity fees,
net profit shares or other sharing of profits, fees for
consulting, engineering, construction, training or other
services, or payments for the purchase of plants, units,
equipment, hardware, instrumentation, controls or computer
programs. Licensee Royalty Payments shall include royalties
and initial or fixed license fees paid by licensees to
Interline for license rights to the Patent Rights and any
other intellectual property assigned to Interline under this
Agreement, but this shall not be deemed to include any
exclusivity fees. Furthermore, if a fee or payment by a
licensee to Interline is made in consideration of a
reduction or elimination of a royalty to Interline that
would otherwise be considered Licensee Royalty Payments,
then such fee or payment shall be considered Licensee
Royalty Payments to the extent that such fee or payment is
consideration for such reduction or elimination of the
royalty.
(b) Minimum Amount of PSI Royalty. For any given
license of Patent Rights granted by Interline to a licensee,
the total PSI Royalty payable to PSI from such license must
equal or exceed the "Minimum Amount." The "Minimum Amount"
will be equal to one-half cent ($0.005) per gallon of
"Products" produced and sold or used by the licensee during
the first ten years of the license agreement, or for as long
as Licensee Royalty Payments are payable by the licensee to
Interline under the license agreement, whichever period is
longer, subject to the following:
1. If the license agreement includes a royalty
and if the royalty expires or terminates sooner than 10
years from the date of the license agreement, then the
production and sale or use of Products by the licensee for
the entire ten year period shall nonetheless be included in
the calculation of the Minimum Amount.
2. If the license agreement includes an initial
or fixed license fee, then the initial or fixed license fee
counts towards satisfaction of the Minimum Amount.
3. Residuum and waste products shall not be
considered "Products" for the purpose of calculating the
Minimum Amount.
4. Interline is not responsible for unauthorized
production or infringements by its licensees, and if such
unauthorized production or infringements result in Products
produced or sold by a licensee, the Minimum Amount shall not
be based on any such unauthorized or infringing Products.
Interline will take reasonable action, subject to the
provisions of Section 6(b) above, to correct unauthorized
production or infringement by its licensees. If Interline
is successful in recovering any amounts from the licensee
for such unauthorized or infringing production and sale of
Products, PSI shall be entitled to 20% thereof under Section
6 above.
5. Example: If a license agreement with a
licensee provides for an initial license fee of $200,000, a
royalty of $0.01 (one cent) per gallon of the Products for
eight years, and an exclusivity fee of $50,000, and if the
licensee produces 8,000,000 gallons of Products per year for
fifteen years, the following would apply:
Year 1:
Licensee Royalty Payments = $200,000 plus
(8,000,000 gallons x $0.01) = $280,000
20% PSI Royalty = 20% of $280,000 = $56,000
Minimum Amount = 8,000,000 gallons x $0.005 =
$40,000
Actual PSI Royalty = $56,000
Year 2:
Licensee Royalty Payments = 8,000,000 gallons
x $0.01 = $80,000
20% PSI Royalty = 20% of $80,000 = $16,000
Minimum Amount = 8,000,000 gallons x $0.005 =
$40,000, but is reduced to $24,000 because in Year 1 the
$56,000 paid exceeded the Year 1 Minimum Amount by $16,000
Actual PSI Royalty = $24,000
Explanation: For Years 1 and 2 combined, the
20% PSI Royalty = $72,000 and the Minimum Amount = $80,000
(i.e., $56,000 is paid in Year 1 and $24,000 is paid in Year
2).
Year 3:
Licensee Royalty Payments = 8,000,000 gallons
x $0.01 = $80,000
20% PSI Royalty = 20% of $80,000 = $16,000
Minimum Amount = 8,000,000 gallons x $0.005 =
$40,000
Actual PSI Royalty = $40,000
Explanation: For Years 1,2 and 3 combined,
the 20% PSI Royalty = $88,000 and the Minimum Amount =
$120,000. Therefore the total Actual PSI Royalty over Years
1, 2 and 3 should be $120,000 (i.e., $56,000 is paid in Year
1, $24,000 is paid in Year 2, and $40,000 is paid in Year
3).
Years 4 to 8:
Each year is similar to Year 3 in that the
20% PSI Royalty = $16,000, the Minimum Amount = $40,000,
and the Actual PSI Royalty = $40,000.
Years 9 and 10:
Licensee Royalty Payments = $0
20% PSI Royalty = $0
Minimum Amount = 8,000,000 x $0.005 = $40,000
Actual PSI Royalty = $40,000
Years 11 to 15:
Licensee Royalty Payments = $0
20% PSI Royalty = $0
Minimum Amount = $0
Actual PSI Royalty = $0
6. Example:
If in another license agreement, in Year 1
the 20% PSI Royalty = $10,000 and the Minimum Amount =
$30,000, and in Year 2 the 20% PSI Royalty = $80,000 and the
Minimum Amount = $30,000, and in Years 3 to 15 the 20% PSI
Royalty = $100,000 and the Minimum Amount = $30,000, then
the Year 1 Actual PSI Royalty = $30,000 and the Year 2
Actual PSI Royalty = $60,000 and the Years 3 to 15 Actual
PSI Royalty = $100,000. Explanation: Because the Minimum
Amount in Year 1 exceeded the 20% Royalty by $20,000,
Interline is entitled to credit the $20,000 against the PSI
Royalty due in Year 2. Thereafter, because the minimums are
exceeded in each year, the 20% PSI Royalty is also the
Actual PSI Royalty. Because royalties are paid for a period
exceeding 10 years, the actual 15 year period governs.
(c) Q Lube and Western. Interline is a party to a
"License and Technology Disclosure Agreement" with Q Lube,
Inc. dated September 13, 1994 (the "Q Lube Agreement"), and
an "Agreement" with Western India Group dated December 14,
1993 (the "Western Agreement"). Section 10(a) and (b) shall
not apply to the Q Lube Agreement or Western Agreement or to
licenses or royalties under such agreements. For these
licenses only, including any amendments or modifications
thereto, and notwithstanding any changes in ownership,
merger, acquisition, or the like as to or between Interline,
Western India Group, or Q Lube, the following apply:
(i) PSI Royalty. The PSI Royalty payable by
Interline to PSI shall be a royalty of two cents per
gallon of Products produced and sold or used by the licensee
or its sublicensee. However, for any Products having a
market value less than Base Oil, the PSI Royalty shall
instead be one cent per gallon of such Products. "Base
Oil" is one example of the Products that can be recovered
from the processing of Used Oil using the Inventions. "Used
Oil" is any oil refined from crude oil or a synthetic oil,
that has been used and as a result of that use is
contaminated by physical or chemical impurities. The PSI
Royalty is not limited to the processing of Used Oil but
includes Products produced from the processing of crude or
other hydrocarbons.
(ii) Q Lube. Whenever a royalty payment received by
Interline from Q Lube (or its successor or sublicensee) for
a Product is less than three and one-half cents (3.5) per
gallon of Product, then the PSI Royalty payable to PSI shall
be adjusted as follows:
a. If the 2 cent royalty (as described in
Section 10 (c)(i) above) is applicable to the Product, then
the 2 cent royalty payable to PSI shall be reduced to an amount
equal to 57% of the royalty payment received by Interline
for the Product.
b. If the 1 cent royalty (as described in
Section 10 (c)(i) above) is applicable to the Product, then
the 1 cent royalty payable to PSI shall be reduced to an amount
equal to 28.5% of the royalty payment received by Interline
for the Product.
For example, if the royalty received by
Interline for a Product is 3 cent per gallon and if the 2 cent
royalty would otherwise be applicable to that Product, then
the royalty payable by Interline to PSI shall be reduced to
57% of 3 cent (i.e. to a 1.71 cent per gallon royalty).
(d) Interline. For Products, if any, produced by
Interline or its Affiliate, as defined below, Interline
shall pay a PSI Royalty to PSI in the amount of the greater
of 1) the amount due under Section 10(a) if Interline
receives Licensee Royalty Payments from its Affiliate, or 2)
the following:
For Base Oil, the PSI Royalty shall be $0.007
(seven-tenths of one cent) per gallon of Products produced
and sold or used.
For other Products the PSI Royalty shall be $0.007
(seven-tenths of one cent) per gallon of Products
produced or 2% of the actual sales price of the
Products, whichever is less.
In any event, Section 10(b) applies, i.e., the total
PSI Royalty must at least equal the Minimum Amount of $0.005
per gallon of Products produced and sold or used.
"Affiliate" of Interline shall mean any entity(ies)
owned or controlled by Interline, in whole or in part.
However, notwithstanding anything in this Agreement to the
contrary, in the event that Interline ever acquires an
ownership interest in Western India Group or Q Lube, then
the provisions of Section 10(c) shall continue to govern
royalty payments due to PSI on products produced and sold or
used by Western India Group or Q Lube, or their successors
or assigns, and not this Section 10(d).
(e) Research. There shall be no royalty payable by
Interline for any Products produced for research or
development purposes.
(f) Resolution of Disputed Amount. In the event that
there is any dispute between the Parties concerning any
amount that is payable under this Agreement, the Parties
shall first seek to resolve the dispute through discussions
and negotiations with each other. If they are unable to
resolve the dispute, either Party may at any time submit the
dispute to arbitration. The arbitration shall be conducted
in Salt lake City, Utah in accordance with the commercial
arbitration rules of the American Arbitration Association.
The arbitrator shall decide the amount that is payable and
such decision by the arbitrator shall be binding and
conclusive. Each Party hereby submits itself to the
jurisdiction of the courts of the place where the
arbitration is held for the entry of judgment with respect
to the decision of the arbitrator hereunder. Judgment upon
the award may be entered in any court within the
jurisdiction of where the arbitration takes place and/or any
other court having jurisdiction. Interline shall not be
deemed to be in breach of this Agreement unless Interline
fails to pay the amount determined by the arbitration within
15 days after final resolution of the dispute. This section
(f) shall not excuse any delay of payment of undisputed
amounts.
11. Minimum Royalty. The minimum annual royalty (i.e., the
minimum total of the PSI Royalty payments for a year) paid
by Interline to PSI shall be as follows:
Calendar Year Minimum Royalty
1994 $25,000
1995 and each year $50,000
thereafter
for the term of this
Agreement
All actual PSI Royalties paid for a given year shall be
applied towards satisfaction of the minimum annual royalty.
A failure to pay the minimum annual royalty shall not be a
breach of this Agreement, but Section 12 below shall apply.
However, Interline's failure to pay actual PSI Royalties,
though less than the minimum annual royalty, shall be a
breach of this Agreement, subject to Section 32 below.
12. Payments. Not later than the last day of each January,
April, July, and October, Interline shall furnish to PSI a
written statement in such detail as PSI may reasonably
require of all royalties due pursuant to this Agreement for
the quarterly periods ended the last day of the preceding
December, March, June, and September, respectively, and
shall pay to PSI all royalties due to PSI. In the event
that the amounts due at the end of any calendar year do not
equal the minimum royalties specified above for said
calendar year, Interline may choose to pay the deficiency
(i.e., the difference between the minimum annual royalty and
the actual royalty for the year). If Interline does not
pay the minimum annual royalty or deficiency within fifteen
(15) days of written notice from PSI that the minimum annual
royalty or deficiency is due and has not been paid, then:
(a) Interline shall promptly assign all unexpired Patent
Rights back to PSI, and (b) this Agreement shall terminate
and the Licensing Agreement shall be reinstated, and (c)
Interline shall thereafter be a nonexclusive licensee under
the terms and conditions of the Licensing Agreement and
shall have the right to grant sublicenses thereunder, and
(d) licenses granted by Interline prior to such termination
shall remain in effect and the Parties shall respect the
rights of such licensees and PSI shall continue to receive
its share of the royalties under said licenses (i.e. the PSI
Royalty).
Notwithstanding the foregoing, the minimum annual royalty
for 1994, in the amount of $25,000, shall be paid upon the
execution of this Agreement.
13. Default. In the event of a material uncured breach by
Interline of this Agreement, or in the event that Interline
is adjudged bankrupt in a Chapter 7 liquidation or placed in
the hands of a receiver or trustee in a Chapter 7
bankruptcy, then, subject to the provisions of Section 32
below, and in addition to any other remedies available to
PSI, PSI may terminate this Agreement and in the event of
such termination:
(a) Interline's interest in the Patent Rights, the
Inventions and all other intellectual property rights and
other rights assigned to Interline hereunder shall revert to
and revest in PSI, and Interline shall promptly assign all
unexpired Patent Rights back to PSI; and
(b) Licenses of Patent Rights granted by Interline prior to
such assignment shall remain in effect and the parties shall
respect the rights of such licensees, and PSI shall receive
all Licensee Royalty Payments under said licenses, including
Interline's share of said Licensee Royalty Payments.
14. Taxes. If any royalties are subject to tax by any
country or other government authority, it is understood that
the royalties payable to PSI shall be used to pay such taxes
as provided below. If royalties payable by licensees to
Interline are subject to any such taxes, then Interline and
PSI shall be responsible for such taxes in proportion to
their shares of the royalty. For example, if under the Q
Lube Agreement a royalty paid by Q Lube to Interline is 3.5 cent
per gallon of Base Oil and PSI is entitled to 2.0 cent per
gallon thereof, and if a tax of 10% is applicable to the
royalty, then the Parties shall share the royalty and
responsibility for the tax as follows:
PSI's share 2.0 cent per gallon minus 0.2 cent per gallon
for tax
(i.e., PSI's tax responsibility = 10% of
its share of the royalty)
Interline's 1.5 cent per gallon minus 0.15 cent per gallon
share for tax
(i.e., Interline's tax responsibility =
10% of its share of the royalty)
15. Interest. Payments provided for in this Agreement,
when overdue, shall bear interest at a rate per annum equal
to one percent (1%) in excess of the prime rate published by
the Wall Street Journal at the time such payment is due, and
for the time period until such payment is received by PSI.
This Section 15 is not in lieu of any other remedies that
may be available to PSI to enforce or collect overdue
payments.
16. Improvements. "Improvements" shall mean improvements
to the Inventions. "Improvements" shall not include
alternative technologies or improvements to other
inventions. "PSI Improvements" shall mean Improvements
created by PSI or its employees within the scope of
employment. "Interline Improvements" shall mean
Improvements created by Interline or its employees within
the scope of employment. Neither Party is obligated to
create Improvements, but to the extent that Improvements are
created by either Party or its employees, the following
shall apply:
(a) Interline's rights to PSI Improvements. From time to
time as Interline reasonably requests and at its expense and
at mutually convenient times, PSI's personnel will meet with
Interline's personnel to facilitate disclosure of PSI
Improvements to Interline. Any PSI Improvements which
Interline elects to receive shall become Inventions under
this Agreement and all patents, patent applications and
patent rights thereto shall become part of the Patent Rights
under this Agreement. To the extent that any disclosed PSI
Improvements include trade secrets or other confidential
information, Interline shall keep such information
confidential, except when a reasonable justification for
disclosure exists (e.g., to a licensee). If disclosure is
made, Interline must obtain the written agreement of the
disclosee to reasonable obligations of confidentiality. No
obligation of confidentiality shall apply to PSI
Improvements which are or become publicly known through no
fault of Interline. PSI has no obligation to disclose, and
Interline has no rights to, any PSI Improvements that, in
PSI's reasonable judgment, are applicable only to PSI's
Field.
(b) PSI's Rights to Interline Improvements. From time to
time as PSI reasonably requests and at its expense and at
mutually convenient times, Interline's personnel will meet
with PSI's personnel to facilitate disclosure of Interline
Improvements to PSI. Any Interline Improvements which PSI
elects to receive shall be licensed to PSI on a nonexclusive
basis, for a fee of $100 per year, covering any and all such
Improvements, for use in PSI's Field only. Such license
shall include the right to grant sublicenses. All such
sublicenses are also limited to PSI's Field. To the extent
that any disclosed Interline Improvements include trade
secrets or other confidential information, PSI shall keep
such information confidential, except when a reasonable
justification for disclosure exists (e.g., to a licensee).
If disclosure is made, PSI must obtain the written agreement
of the disclosee to reasonable obligations of
confidentiality. No obligation of confidentiality shall
apply to Interline Improvements which are or become publicly
known through no fault of PSI. In addition to the foregoing
obligation of confidentiality, PSI shall not do anything
involving Interline Improvements that causes a breach by
Interline of any obligation under the Q Lube Agreement.
Interline has no obligation to disclose, and PSI has no
rights to, any Interline Improvements that, in Interline's
reasonable judgment, are not useful to PSI or its licensees
in PSI's Field.
17. Licenses. Within 30 days of execution by all parties
thereto, Interline shall provide PSI with a copy of each
license agreement in which any Patent Rights are licensed by
Interline. PSI shall keep such license agreements and their
content confidential. PSI may share such license agreements
and/or their contents with PTC, provided that PTC first
provides Interline with written assurance that PTC shall
keep such license agreements and their contents
confidential.
18. License to PSI. Interline hereby grants to PSI an
irrevocable license under all Patent Rights assigned to
Interline for PSI's Field only. Commencing one year after
the date of this agreement, and annually thereafter, PSI
shall pay Interline $100 per year for said License. This
license shall not apply to anything outside of PSI's Field,
but shall be exclusive for PSI's Field. "PSI's Field" shall
mean the practice of the Patent Rights as applied to
hydrocarbon products (a) which are extracted from tar sands
or oil shales, (b) which are from crude oil from which wax
is extracted as a primary marketable product, and (c) which
are from soil or other similar media artificially
contaminated with hydrocarbons.
19. Warranty. Each Party represents and warrants to the
other Party that it has the right and power to enter into
this Agreement. Nothing in this Agreement shall be deemed
to be a representation or warranty by PSI of the validity of
any of the Patents, Patent Rights, or PSI Improvements, or
by Interline of any Interline Improvements. PSI represents
and warrants that it has not assigned, licensed or
encumbered the Patent Rights to any other person or entity
except for the following licenses:
A license agreement entitled "License Agreement" (the
"PetroClean Agreement") has been entered into by PSI and
PetroClean, Inc. for the practice of certain Patent Rights
in the field of soil remediation only. A copy of the
PetroClean Agreement, which currently has no amendments or
addendums, has been given by PSI to Interline. There is no
assignment of the PetroClean Agreement to Interline. PSI
shall remain obligated under the PetroClean Agreement and
the license thereunder shall continue in effect. PSI's
rights under the PetroClean Agreement will be assigned to
Craig Mellen under the Mutual Release and Settlement
Agreement, dated October 25, 1994 (the "Mellen Settlement
Agreement"), a copy of which has been provided to Interline.
A license agreement for the practice of certain Patent
Rights in the field of dewaxing only (and not outside of
PSI's Field) will be given by PSI to Craig Mellen under the
Mutual Release and Settlement Agreement, dated October 25,
1994, a copy of which has been provided to Interline.
PSI shall have no liability to Interline or any other
person for or on account of any injury, loss, or damage, of
any kind or nature, arising from or caused by: (a) the
practice or use by Interline or its licensee of any
Invention, or (b) the manufacture or sale by Interline or
its licensee of any product or apparatus manufactured by
Interline or its licensee through the practice or use of any
Invention, or (c) the use of any such product or apparatus
by Interline or its licensee or a customer of Interline or
its licensee, or (d) any advertising or promotion by
Interline or its licensee of any such product or apparatus.
Interline shall indemnify PSI and its officers, directors,
employees, and representatives against, and hold them
harmless from, any such liability.
Interline shall have no liability to PSI or any other
person for or on account of any injury, loss, or damage, of
any kind or nature, arising from or caused by: (a) the
practice or use by PSI or its licensee of any Interline
Improvement, or (b) the manufacture or sale by PSI or its
licensee of any product or apparatus manufactured by PSI or
its licensee through the practice or use of any Interline
Improvement, or (c) the use of any such product or apparatus
by PSI or its licensee or a customer of PSI or its licensee,
or (d) any advertising or promotion by PSI or its licensee
of any such product or apparatus. PSI shall indemnify
Interline and its officers, directors, employees, and
representatives against, and hold them harmless from, any
such liability.
20. Term of agreement. This Agreement shall expire upon
the expiration of the last to expire of the Patent Rights,
unless sooner terminated as provided below. Interline may
terminate this Agreement by giving at least sixty (60) days
written notice to PSI and assigning back to PSI all
unexpired Patent Rights assigned under this Agreement and
making all payments accruing under this Agreement prior to
such termination and assigning any future licensee royalty
payments under the Patent Rights directly to PSI.
21. Antishelving. If Interline and its licensees
discontinue production and sale of Products without intent
to resume, Interline shall so notify PSI within one month of
such discontinuance, whereupon PSI shall have the right to
require Interline to assign all unexpired Patent Rights
back to PSI upon one month's written notice to Interline.
If Interline and its licensees discontinue production and
sale of Products for a period of one year, PSI shall have
the right to require Interline to assign all unexpired
Patent Rights back to PSI upon one month's written notice to
Interline, unless Interline can show that Interline or its
licensee in good faith intends or is actually working to
resume production and sales, and has a reasonable basis to
justify its delay. In such case Interline shall promptly
advise PSI in writing of the circumstances involved and
Interline shall thereupon have an additional year for
Interline or its licensee to resume production and sales so
long as the minimum royalty is paid. If production and sales
have not resumed by the end of that additional year, and
notwithstanding the payment of minimum royalties, this
Agreement shall then terminate in the same manner as
provided in Section 12 above. It is the intent of the
Parties that PSI not be deprived of the opportunity, for an
unreasonable length of time, to non-exclusively license the
Patent Rights if Interline and its licensees have
discontinued production and sales of Products for the time
periods provided above. If any Patent Rights are assigned
back to PSI under this Section 21 or if for any other reason
PSI acquires such Patent Rights, such Patent Rights shall be
subject to the licenses granted by Interline to its
licensees.
22. Records. Interline shall keep accurate records of all
of its operations affecting payments hereunder, and shall
permit PSI or its duly appointed agent to inspect all such
records and to make copies of or extracts from such records
during regular business hours throughout the term of this
Agreement upon three (3) days written notice.
23. Severability. The Parties agree that if any part,
term, or provision of this Agreement shall be found illegal,
unenforceable or in conflict with any valid controlling law,
then such part, term or provision shall be construed,
narrowed and amended as necessary to make it legal and
enforceable and to eliminate the conflict. The validity of
the remaining provisions shall not be affected thereby.
24. Decision by Court. In the event the legality of any
provision of this Agreement is brought into question because
of a decision by a court of competent jurisdiction, PSI, by
written notice to Interline, may revise the provision in
question or may delete it entirely so as to comply with the
decision of said court.
25. Waiver. The waiver of a breach hereunder may be
effected only by a writing signed by the waiving Party and
shall not constitute a waiver of any other breach.
26. Alteration. A provision of this Agreement may be
altered only by a writing signed by both Parties.
27. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of Utah of the United
States of America. Any litigation or arbitration between
the Parties relating to this Agreement or its subject matter
shall be conducted in Salt Lake County, Utah.
28. Counterparts. This Agreement may be executed in any
number of counterparts, all of which when executed and
delivered shall be deemed to be an original, and all of
which shall together constitute one and the same instrument.
29. Construction. This Agreement represents the wording
selected by the Parties to define their agreement and no
rule of strict construction shall apply against either
Party. Whenever the context reasonably permits, the
singular shall include the plural, the plural shall include
the singular, and the whole shall include any part thereof.
30. Successors. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective
successors and assigns.
31. Integration. This Agreement: (i) represents the entire
agreement between the Parties relating to the subject matter
of this Agreement, and (ii) supersedes all prior agreements,
understandings, representations and warranties relating to
the subject matter of this Agreement.
32. Breach. If either Party breaches this Agreement, the
breaching Party shall be entitled to 30 days from the date
that the breaching Party receives written notice of such
breach from the nonbreaching Party within which to cure such
breach (the "Cure Period"). With respect to a breach other
than a breach of obligation to pay royalties, the breaching
Party reasonably needs more than 30 days, the Cure Period
shall be extended as reasonably necessary, provided that the
breaching Party begins its efforts to cure the breach within
said 30 day period and is diligent in pursuing the cure to
completion. If the breaching Party reasonably believes that
the breach is not curable, then the breach shall be deemed
cured if the breaching Party takes reasonable action to
prevent a repeat of the breach and pays to the nonbreaching
Party the actual damages suffered by the nonbreaching Party
as a result of the breach. If the Parties are unable to
agree on the amount of such actual damages, the matter shall
be resolved by arbitration in the manner described in
Section 10 (f). If the breaching Party (i.e., the Party
alleged to have breached) disputes the existence of the
breach, then the Cure Period shall not begin to run until
after the dispute concerning the existence of the breach has
been finally resolved by arbitration or litigation. The
breaching Party will then have an opportunity to cure the
breach if the final resolution confirms the existence of the
breach. Neither Party is obligated to arbitrate a dispute
over the existence of a breach. However, a dispute over a
disputed amount under Section 10 (f), including a dispute
over the amount of actual damages above, must be arbitrated.
Neither Party shall be deemed in breach of this Agreement,
and PSI shall have no rights under Section 13, if the breach
is cured or deemed to have been cured as provided above.
33. Attachments. Attached to this Agreement are the
following:
(a) Consent of PTC.
(b) Exhibit A - Mellen Assignment
(c) Exhibit B - PTC Assignment of Patent Rights to
PSI.
34. Security Interest. To secure all royalties and the
performance of all other obligations of Interline (and its
successors and assigns) to PSI under this Agreement
(including any addendums or amendments), Interline hereby
grants to PSI a security interest in all Patent Rights
assigned by PSI to Interline hereunder, proceeds thereof,
and general intangibles arising from or related to the
Patent Rights. Such security interest shall be subject to
the rights granted by Interline to its licensees.
Interline shall fully cooperate with the reasonable requests
of PSI to perfect this security interest and shall fully
cooperate with PSI in connection with any UCC filings and
Patent Office recordations reasonably related to this
security interest. Should Interline fail promptly to
execute a financing statement upon written request by PSI,
then a copy of this agreement may be filed as a financing
statement. The address of the parties are set forth on the
first page of this Agreement. The rights of PSI as a
secured party are cumulative of all other rights under this
Agreement, including the right to receive back the Patent
Rights upon default by Interline as set forth in this
Agreement. This Section 34 and this security interest are
subject to Interline's rights under Section 32.
35. Consents.
(a) Shareholders. Although PSI and Interline believe
that shareholder consent is not necessary, PSI shall use its
best reasonable efforts to obtain and deliver to Interline
the written consent of PSI's shareholders to this Assignment
Agreement as soon as possible and to the extent possible.
(b) PTC. Although PSI and Interline believe that
PTC's consent is not necessary, PSI shall use its best
reasonable efforts to obtain and deliver to Interline the
written consent of PTC to this Assignment Agreement in the
form attached hereto.
36. Execution. The persons signing below represent that
they are duly authorized to execute this Agreement for and
on behalf of the Party for whom they are signing. PSI
represents that this Agreement has been duly authorized by a
resolution of its board of directors and that a true and
correct copy of such resolution has been provided to
Interline. Interline represents that this Agreement shall
be duly authorized by a resolution of its board of directors
and that a true and correct copy of such resolution shall be
provided to PSI.
37. Notices. Notices required or permitted to be made
hereunder shall be in writing, and shall be mailed or
delivered to the parties at the addresses set forth on the
first page of this agreement. Addresses for notice may be
changed by written notice as set forth herein.
IN WITNESS HEREOF, the Parties have caused this Agreement to
be executed by their duly authorized officers, effective on
the date first set forth herein.
INTERLINE: PSI:
INTERLINE RESOURCES PETROLEUM SYSTEMS, INC.
CORPORATION
LaMar Gagon
Vice-President
Harry L. Peacock
President
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On January 13, 1995, before me personally appeared
Harry L. Peacock,
known to me to be the described person and who signed the
foregoing Assignment Agreement in my presence and
acknowledged under oath before me that he has read the same
and knows the contents thereof and that he executed the same
as his free act and deed on behalf of Petroleum Systems,
Inc. as its President and having been duly authorized to do
so by its board of directors and for the purposes set forth
therein.
NOTARY PUBLIC
Residing at: Salt Lake
County, Utah
My Commission Expires: August
20, 1995
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On January 13, 1995, before me personally appeared R.
LaMar Gagon, known to me to be the described person and who
signed the foregoing Assignment Agreement in my presence and
acknowledged under oath before me that he has read the same
and knows the contents thereof and that he executed the same
as his free act and deed on behalf of Interline Resources
Corporation as its Vice-President and having been duly
authorized to do so by its board of directors and for, the
purposes set forth therein.
NOTARY PUBLIC
Residing at:
My Commission Expires:
CONSENT OF PTC
Petroleum Technology Corporation ("PTC") consents to
the foregoing Assignment Agreement and represents to
Interline Resources Corporation ("Interline") that PTC knows
of no reason why the "Inventions" and "Patent Rights"
described in the Assignment Agreement cannot be assigned to
Interline as provided and warranted therein.
If and to the extent not already done, PTC shall
promptly record with the Patent and Trademark Office and
such other patent offices, agencies and authorities as are
applicable, such assignments to PSI as are necessary to
effectuate the assignment of Patent Rights under the
Assignment Agreement.
PTC hereby agrees to keep confidential any and all
license agreements and their content disclosed to PTC under
Section 17 of the Assignment Agreement.
Although PTC, PSI and Interline believe that
shareholder consent is not necessary, PTC shall use its best
reasonable efforts to obtain and deliver to Interline the
written consent of PTC's shareholders to the Assignment
Agreement as soon as possible and to the extent possible.
PTC Technology Corporation: By:
Its:
UNIT LICENSE AGREEMENT
by and among
INTERLINE RESOURCES CORPORATION
and
DUKEUN INDUSTRIAL CO., LTD.
<PAGE>
Date of Agreement: April 4, 1995
UNIT LICENSE AGREEMENT
This Unit License Agreement (the "Agreement") is dated
April 4, 1995 and is by and between the following Parties:
Interline: Interline Resources
Corporation
a Utah corporation
160 West Canyon Crest Drive
Alpine, Utah 84004
U.S.A.
Owner: Dukeun Industrial Co., Ltd.
a Korean company
SAMAN Bldg. 14th Floor
945 Daichi-Dong, Kangnam-Ku
Seoul, Republic of Korea
RECITALS
WHEREAS, Owner recognizes and acknowledges that
Interline possesses substantial and valuable technology,
expertise, know-how, information, trade secrets, patent
rights and intellectual property relating to the processing
of Used Oil and the manufacture and operation of equipment
for the processing of Used Oil;
WHEREAS, Owner desires to acquire a Unit for processing
Used Oil from Purchaser, who will acquire the Unit from
Interline under the Unit Purchase Agreement, and Owner
further desires to obtain a license from Interline for the
operation of the Unit in the Territory as defined herein;
and
WHEREAS, Interline is willing to construct the Unit and
sell the Unit to Purchaser for resale only to Owner, and
Interline is willing to grant the license, but only under
the terms and conditions of this Agreement
NOW, THEREFORE, the Parties agree as follows:
SECTION 1 - INTRODUCTION
1.1 The Unit. The "Unit" shall mean the Unit
(including its equipment and instrumentation) constructed
and assembled by Interline for Purchaser and sold to
Purchaser under the Unit Purchase Agreement. The Unit is
for processing Used Oil. Interline Technology is utilized
in the construction and operation of the Unit.
1.2 Used Oil. "Used Oil" shall mean any Oil that has
been used for its intended purpose and as a result of such
use has been contaminated by physical and/or chemical
impurities.
1.3 MP-FP Vessel. "MP-FP Vessel" shall mean the
vessel used in the operation of the Unit for solvent
extraction. Used Oil is introduced into the MP-FP Vessel,
combined with a carrier and subjected to solvent extraction
processing utilizing Disclosed Information.
1.4 Finished Products. "Finished Products" are
described below:
When Used Oil is processed by the Unit in
accordance with Interline's instructions,
"Residuum" and "First Perc Material" will result.
This is accomplished in an MP-FP Vessel. The
Residuum is a "Finished Product" that may be sold
or used. The First Perc Material may be sold or
used as a Finished Product or may be further
processed by distillation or other means to
recover other Finished Products, such as Base Oil,
Gasoline and Diesel.
(a) "Residuum" shall mean the colloidal
material separated from lighter Used Oil
fractions through the processing of Used Oil
by the Unit. The bottoms recovered from the
further processing of First Perc Material may
be combined with (and thus become part of)
the Residuum.
(b) "First Perc Material" shall mean the
hydrocarbon material other than Residuum
which results from the solvent extraction
processing of Used Oil through the use of the
Unit.
(c) "Base Oil" shall mean the base oil
recovered by the Unit from Used Oil. Base
Oil is derived from the distillation of First
Perc Material. Such distillation process can
segregate the Base Oil from the Gasoline and
Diesel fractions and the bottoms.
(d) "Diesel" shall mean the fraction
commonly referred to as diesel that is
recovered by the Unit from Used Oil. Diesel
can be derived from the distillation of First
Perc Material.
(e) "Gasoline" shall mean the fraction
commonly referred to as gasoline that is
recovered by the Unit from Used Oil.
Gasoline can be derived from the flashing of
First Perc Material.
(f) "Finished Products" shall mean all
commercially marketable products produced as
a result of processing Used Oil by any
process, equipment or apparatus of the Unit.
Finished Products include, but are not
necessarily limited to, First Perc Material,
Diesel, Gasoline, Base Oil and Residuum.
Finished Products other than First Perc
Material, Diesel, Gasoline, Base Oil and
Residuum, are sometimes referred to in this
Agreement as "other Finished Products."
1.5 Disclosed Information. "Disclosed Information"
shall mean any and all information, technology, data,
expertise, know-how, trade secrets, intellectual property,
inventions, processes, ideas, product formulations,
compositions, operating procedures, operating conditions
(including temperatures, pressures, flow rates, etc.),
specifications, Unit designs, equipment configurations and
the like, which are disclosed or transferred by Interline
(and/or any of its independent contractors or Purchaser) to
Owner. All information learned by Owner from the Unit or
from Purchaser shall be deemed part of the Disclosed
Information.
1.6 Proprietary Information. "Proprietary
Information" shall mean any and all Disclosed Information
(whether or not reduced to writing and in any stage of
development) except for Disclosed Information that is in the
public domain at the time of disclosure by Interline to
Purchaser or Owner. Proprietary Information, which
subsequent to disclosure by Interline to Purchaser or Owner,
becomes part of the public domain through no fault of
Purchaser or Owner shall thereafter cease to be Proprietary
Information. Public domain status must be established
through printed publications and/or other credible, tangible
evidence. Furthermore, anything which becomes lawfully and
legitimately available to Purchaser or Owner from a third
party (who did not directly or indirectly acquire the same
from Interline or Interline's licensors or assignors) shall
be released from the provisions of Section 4 (entitled
"Confidentiality"), but only to the extent necessary to
permit such use and disclosure as are permitted by such
third party. Specific items of Disclosed Information shall
not be excluded from the scope of Proprietary Information
merely because they can be assembled by selection and
combination of subject matter within the scope of the above
exceptions, or merely because they are encompassed within
more general subject matter within the scope of the above
exceptions.
1.7 Proprietary Materials. "Proprietary Materials"
shall mean any and all writings, records, documents and
other tangible media in which Proprietary Information is
embodied, stored or recorded, or from which Proprietary
Information can be transferred, retrieved, reproduced, read
or utilized. Documentation and Software under Exhibit E
shall be presumed to be Proprietary Materials.
1.8 Licensed Patents. "Licensed Patents" shall mean
any and all patents and patent applications owned by
Interline or licensed to Interline with a right to grant
sublicenses, but only to the extent that such patents or
patent applications are relevant to the Unit or its
operation or the processing of Used Oil by the Unit to
produce Finished Products. Any of the Licensed Patents
which terminates or expires or which is held to be invalid
or unenforceable by a court or tribunal of competent
jurisdiction (after resolution of any appeals) shall at such
time cease to be included within the scope of the Licensed
Patents. There is no representation as to the number, if
any, of Licensed Patents applicable to this Agreement or to
the scope of such Patents or the countries of issuance. A
list of the patents and patent applications presently owned
by Interline and/or licensed to Interline with a right to
grant sublicenses is attached hereto as Exhibit C. It is
understood that Exhibit C may be expanded to include other
patents and patent applications as relevant patents issue
and/or as additional applications are filed. For example,
patents and/or patent applications for Interline
Improvements licensed to Owner in the future may be added to
Exhibit C if and as such patents issue and such patent
applications are filed.
1.9 Interline's facilities. Any reference in this
Agreement to Interline's facilities or offices shall also
mean and include the facilities and offices of Interline's
subsidiary corporations, including Gagon Brothers Mechanical
Contractors, Inc.
1.10 Licensed Field. "Licensed Field" shall mean the
processing of Used Oil to recover Finished Products.
Expressly excluded from Licensee's Field and the License are
any hydrocarbon products which are extracted from tar sands
or oil shales, or which are extracted from crude oil from
which wax is extracted as a primary marketable product, or
which are extracted from soil or other similar media
artificially contaminated with hydrocarbons. Purchaser and
Owner shall not use the Unit or Disclosed Information for
any purpose or use outside of the Licensed Field.
1.11 Territory. The "Territory" shall mean within
thirty five miles of the city of Seoul, Republic of Korea.
The Territory does not include any geographic area outside
said twenty mile radius around Seoul.
1.12 Gallons. Any reference in this Agreement to
"gallons" or "gallon" shall mean U.S. gallons or U.S.
gallon.
1.13 Purchaser. "Purchaser" shall mean Jinnes
Technologies, Inc., a California corporation with an address
at 624 E. Evelyn Avenue, Suite F, Sunnyvale, California
94086, U.S.A.
1.14 Unit Purchase Agreement. "Unit Purchase
Agreement" shall mean the Unit Purchase Agreement between
Interline and Purchaser, wherein Purchaser purchases a Unit
from Interline for resale to Owner.
1.15 Unit Site. "Unit Site" shall mean the site in the
Territory selected by Owner for the Unit. The Unit Site
must be in the Territory.
SECTION 2 - THE LICENSE
2.1 Grant of License. Subject to the terms and
conditions of this Agreement, Interline hereby grants to
Owner and Owner hereby accepts, a nonexclusive,
nontransferable license to utilize Interline Technology: (a)
to operate the Unit in the Territory to process Used Oil in
the Licensed Field, and (b) to sell throughout the world the
Finished Products resulting therefrom. This license is
referred to in this Agreement as the "License." Except for
the license to sell under (b) above, the License is strictly
limited to the Unit, the Territory and the Licensed Field,
and are subject to Owner's compliance with this Agreement.
Owner shall not use Interline Technology outside of the
scope of the License. Rights not expressly granted in this
Agreement are reserved by Interline.
2.2 License of Licensed Patents. The License includes
a license under Licensed Patents subject to all restrictions
and limitations applicable to the License. Licensed Patents
to Interline Improvements are included in the License only
if the Interline Improvements are licensed to Owner in
accordance with Paragraph 2.11.
2.3 Term. The License shall become effective on the
date of this Agreement and shall continue in force for a
term of ninety-nine [99] years, unless terminated earlier by
the mutual consent of the Parties or as otherwise provided
in this Agreement. It is understood that as each Licensed
Patent expires or terminates or is abandoned or canceled, it
shall cease to be part of the License.
2.4 Termination. The License may be terminated at any
time by Interline if Owner breaches any provision in Section
3 - Payments or Section 4 - Confidentiality of this
Agreement and fails to cure said breach within 30 days of
notice of the breach. Termination of the License shall not
limit or affect the other legal and equitable remedies
available to Interline for any breach by Purchaser of this
Agreement.
2.5 Effect of Termination. Following termination of
the License, Interline shall have no further obligation or
liability under this Agreement, and Owner shall: (a) cease
all use of Disclosed Information and Proprietary
Information, (b) not thereafter produce any product or
process any Used Oil utilizing any part of the Disclosed
Information or Proprietary Information, (c) immediately
deliver to Interline (or dispose of in accordance with
Interline's instructions) all Software and Documentation
(and copies thereof) in the possession or control of
Purchaser or Owner, and (d) offer to sell the Unit back to
Interline at the Repurchase Price. Owner shall be free to
sell at any time all Finished Products produced before
termination of the License by Owner.
2.6 Sublicensing or Assignment. The License is
personal to Owner. However, Owner shall have the right or
the power to grant a sublicense under the License or
otherwise license or transfer any Disclosed Information,
Proprietary Information or Licensed Patents with the prior
consent of Interline. Owner shall also have the right or
the power to encumber, pledge or hypothecate the License or
to assign, convey or transfer the License with Interline's
advance written consent.
2.7 Expansion. Owner may not expand the capacity of
the Unit without Interline's advance written consent and the
payment to Interline of a mutually agreed-upon technology
fee. The License is limited to a capacity of no more than
the Design Capacity plus 10%.
2.8 Right to Inspect. Interline and its
representatives shall have the right, from time to time, to
inspect the Unit and its operation and Finished Products
produced by the Unit, at any reasonable time. Purchaser
shall cooperate therewith and shall make full disclosure
thereof to Interline. Interline shall have the right to
take samples of Finished Products produced by the Unit.
2.9 Trademarks. Nothing in this Agreement authorizes
Owner to use any trademark, service mark, name, logo or
commercial symbol of Interline without Interline's prior
written consent.
2.10 Ownership. Owner acknowledges that Interline (and
Interline's licensors) are the owners of the Proprietary
Information and Licensed Patents. To the extent permitted
by applicable law: (a) Owner shall not challenge or contest
the validity or enforceability of any Proprietary
Information or Licensed Patents, and (b) if Purchaser or
Owner does so, Interline may terminate the License.
2.11 Improvement Licenses. Interline Improvements
disclosed by Interline to Owner shall be licensed to Owner
as Disclosed Information and Proprietary Information under
and as part of the License and shall be governed by this
Agreement and its restrictions. Owner hereby licenses
Interline to use and implement for any purpose, and to
sublicense to third parties, any and all Owner Improvements
disclosed by Owner to Interline. This license includes a
license under any and all patents and other intellectual
property held or controlled by Owner applicable to the Owner
Improvements.
2.12 Warranties, Indemnification and Allocation of
Risk. Limited Warranties
made by Interline to purchaser Jinnes Technologies, Inc.
are set forth in Exhibit I hereto. Owner shall indemnify
Interline and its officers, directors, shareholders,
employees and representatives against, and hold them
harmless from, any and all claims, liabilities, demands,
damages, expenses and losses arising out of any use, sale or
other disposition of any Finished Products or other products
produced at the Unit or arising out of Owner's operation of
the Unit.
SECTION 3 - PAYMENTS
3.1 Royalty to Interline. For the first ten years of
Operation, Owner shall pay to Interline a Royalty based on
the quantity of Finished Products produced by the Unit
(excluding any residuum not sold) as follows:
Period Royalty Payment
1. First 4 Years of U.S.$0.07 per gallon
Operation
2. Next 3 Years of U.S.$0.06 per gallon
Operation
3. Next 3 Years of U.S.$0.05 per gallon
Operation
4. After 10 Years of None
Operation
As used in this Paragraph 3.1, "Operations" means the
processing of Used Oil by the Unit to recover Finished
Products in commercial quantities. Processing for start-up,
training, preliminary runs, the acceptance testing or
experimental purposes is insufficient to trigger the
beginning of Operation. Further, Operation of the Unit
shall begin for purposes of payment of the Royalty, 3 months
after the successful completion of the Acceptance Test. If
Operation of the Unit is suspended or discontinued for any
period of time, other than routine maintenance, the Royalty
period shall be suspended for the same period of time. When
Operation of the Unit begins again the Royalty period shall
also begin to run again. In this manner, the Royalty period
shall be extended by the length of the suspension.
3.2 Other Payments. For any other payments under this
Agreement (for example, payments for additional consultation
or additional training under Exhibit H Paragraph 3 and
reimbursable expenses) Owner shall make payment to Interline
within 30 days of the date of Interline's invoice or written
request for reimbursement. Each invoice will be accompanied
by supporting time sheets or other appropriate
documentation. Each request for reimbursement shall also be
accompanied by appropriate documentation of the expenses for
which reimbursement is requested.
3.3 Interest. Any payments under this Agreement not
made by Owner in full when due, shall thereafter bear
interest on the unpaid balance (including accrued but unpaid
interest) at the rate of 12% per annum.
3.4 Taxes. All payments to Interline under this
Agreement are in addition to and exclusive of all sales
taxes, use taxes, other taxes, duties, imports, assessments
and charges of any kind or description (except as provided
below) and payment for the same shall be the sole
responsibility of Owner. Owner shall indemnify Interline
and its directors, officers, employees, shareholders, agents
and representatives against, and hold them harmless from,
any and all liability which may be imposed on any of them
arising out of Owner's failure to make such payments timely
and in full. Without limiting the generality of the
foregoing, if any withholding tax or other tax or assessment
is applicable to the Royalties payable by Owner to
Interline, then Owner shall pay such taxes and assessments
or the Royalties shall be increased to such amount as is
necessary to yield to Interline after payment of such taxes
or assessments the amounts actually specified in Paragraphs
3.1. This Paragraph shall not apply to any income tax
imposed by the United States or the State of Utah on
Interline or to any taxes imposed by the government of the
Republic of Korea or any of its agencies to the extent, if
any, that such Korean taxes are allowable as a direct credit
to Interline against United States income taxes levied on
payments to Interline.
3.5 Measurement. The amount of Used Oil (and other
material) processed and the amount of Finished Product
produced by the Unit upon which the Royalty set forth above
shall be due and payable to Interline, shall be measured by
a liquid flow meter of a make and kind agreeable to
Interline and Owner, and shall be installed as an integral
component of the Unit (the "Royalty Meter").
3.6 Royalty Payments. On the first day of February
and August of the calendar year, Owner shall cause the PLC
to generate a report setting forth the number of gallons of
Used Oil (and other materials) processed and the number of
gallons of Finished Product produced by the Unit for each
day during the previous six months. Royalties shall be paid
to Interline twice each year based on the calendar year for
the six month periods ending January 31 and July 31 of each
year. On or before the twentieth day of each February and
August, Owner shall deliver to Interline a Royalty
Settlement Statement showing the number of gallons of Used
Oil (and other material) processed and the number of gallons
of Finished Product produced by the Unit during the previous
six month period and the Royalty amount payable to Interline
for the previous six month period. Each report shall be
signed by a duly authorized officer of Owner who shall
certify in writing in the report that the report is complete
and accurate. Payment in U.S. dollars shall be made by
Owner to Interline of the Royalty amount payable at the time
of furnishing of the Royalty Settlement Statement.
3.7 Efforts to Process Used Oil and Produce Finished
Product. Owner shall use its best reasonable efforts to use
the Unit to process Used Oil and to produce and sell
Finished Products in commercial quantities.
3.8 Records. Owner shall keep true and accurate
records, files and books of account containing all the data
reasonable required for the full computation and
verification of the amounts to be paid hereunder, the
information to be given in the statements provided for
herein, and any other normal and reasonable records
necessary to verify and substantiate performance of Owner's
obligations hereunder, Interline, or its designated
representative, shall have access to the books and records
of Owner during normal business hours for the purpose of
determining or confirming all billings and payments made
hereunder, and verifying and substantiating the performance
of Owner's obligations hereunder. Owner shall retain all
such records, files and books of account for a period of at
least five years after its preparation or such other period
as required under law.
SECTION 4 - CONFIDENTIALITY
4.1 Acknowledgment. Owner acknowledges that
Proprietary Information (including any Owner improvements)
is of great value to Interline and that such value depends
in significant part upon the preservation of the
confidentiality of the same. Owner agrees that it shall
take all reasonable precautions (including, but not limited
to, written non-disclosure agreements with employees and
independent contractors) to prevent any use or disclosure of
Proprietary Information not expressly authorized in writing
by Interline.
4.2 Restrictions. Except as expressly authorized in
writing by Interline, Owner shall not (a) disclose
Proprietary Information to any person or entity, (b)
transfer Proprietary Materials to any person or entity, (c)
allow any person or entity to gain access to Proprietary
Information or Proprietary Materials, (d) aid or encourage
any unauthorized use or commercial exploitation of
Proprietary Information or Proprietary Materials, (e) file
any patent applications disclosing or claiming any
Proprietary Information, or (f) fail to report to Interline
any infringement or misappropriation of Proprietary
Information or Proprietary Materials known to Owner. Owner
shall not disclose to any third party any of the terms,
provisions or conditions of this Agreement or the Unit
Purchase Agreement, except as specifically required by
applicable law or government regulation.
4.3 Protection of Unit. Owner acknowledges that the
Unit and Software embody or include Proprietary Information
and that to protect Proprietary Information the following
restrictions are reasonable and necessary. Except as
expressly authorized in writing by Interline, Owner shall
not (a) reverse engineer the Unit, (b) create any drawings,
diagrams, flow charts or other documents containing
technical information about the Unit, (c) construct or
assemble any facility, plant or processing equipment based
on the Unit or any part thereof,
or (d) allow any person or entity to inspect, reverse
engineer or access the Unit. The Unit shall not be sold or
transferred by Owner without the advance written consent of
Interline, which consent shall not be unreasonably withheld.
It is also understood and agreed that any sale or transfer
by Owner of the Unit would require a transfer of the License
and the agreement of the purchaser or transferee thereof to
the terms and conditions of this Agreement.
4.4 Return of Proprietary Materials. Upon termination
of the License for any reason, Owner shall immediately
deliver to Interline (or otherwise dispose of in accordance
with Interline's reasonable instructions) any and all
Proprietary Materials in the possession or control of Owner
or any of its employees or independent contractors. Owner
shall then certify in a writing delivered to Interline that
the foregoing has been fully accomplished.
SECTION 5 - GOVERNMENTS AND COUNTRIES
5.1 Owner's Responsibility. Owner shall obtain for
the Parties all approvals, permits, licenses, etc. necessary
for this Agreement and for the performance of obligations
under this Agreement (including payments to Interline)
required by the Government of the Republic of Korea or any
of its agencies ministries or under any law, regulation,
ordinance or requirement of the Republic of Korea or any of
its subdivisions. Approval from the government of the
Republic of Korea (including any applicable Korean agencies
and ministries) of this Agreement and the License shall be
obtained by Owner at its expense for benefit of the Parties.
Interline has no obligation under this Agreement, and the
License shall not become effective, until after written
confirmation is received by Interline that such approval
has been granted.
5.2 Export Act. Owner hereby warrants and certifies
that no part of Disclosed Information or Interline
Technology shall be made available or exported by Owner to
any country in contravention of any law or regulation of the
United States, including the Export Administration Act of
1979 and regulations relating thereto. This Agreement and
Interline's obligations hereunder are subject to such laws
and regulations.
5.3 Different Customs, Laws and Languages. Owner
acknowledges that the Republic of Korea is at a great
distance from Interline, and has laws, languages and customs
which are foreign to and unknown by Interline. Accordingly,
in an effort to help Interline in its performance of its
obligations, Owner shall assist Interline in dealing with
any problems arising from such distance and differences.
Interline shall not be liable for any breach or default
caused by any such problem.
SECTION 6 - GENERAL PROVISIONS
6.1 Attorneys' Fees. In the event of any litigation
or arbitration between the Parties, the prevailing Party
shall be entitled to recover from the nonprevailing Party
any and all costs, including reasonable attorneys' fees,
incurred by the prevailing Party. Such relief shall be in
addition to any other relief, award or damages to which the
prevailing Party may be entitled.
6.2 Severability. In case any one or more of the
provisions contained herein shall, for any reason, be held
to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement, and this
Agreement shall be construed as if such invalid, illegal or
unenforceable provision(s) had never been contained herein;
provided that such invalid, illegal or unenforceable
provision(s) shall first be curtailed, limited or eliminated
to the extent necessary to remove such invalidity,
illegality or unenforceability with respect to the
applicable law as it shall then be applied.
6.3 Governing Law. This Agreement shall be governed,
construed and enforced in accordance with the laws of Korea.
The United Nations Convention on Contracts for the Sale of
Goods shall not be applicable and is rejected by the
Parties.
6.4 Final Agreement. This Agreement (including the
Recitals set forth at the beginning hereof and Exhibits A
through I, attached hereto) constitutes the final and
complete agreement between the Parties concerning the
subject matter of this Agreement, and supersedes all prior
agreements, understandings, negotiations, letters of intent
(including the September 27, 1994 letter from Michael
Williams to Jae Sup N. Lee), and discussions, written or
oral, between the Parties with respect thereto. Any
modification, revision or amendment of this Agreement shall
not be effective unless made in a writing executed by the
Parties.
6.5 Waiver. Any waiver of, or promise not to enforce,
any right under this Agreement shall not be enforceable
unless evidenced by a writing signed by the Party making
said waiver or promise.
6.6 Language. The language used in this Agreement
shall be deemed to be the language chosen by the Parties to
express their mutual intent, and no rule of strict
construction shall be applied against any Party.
6.7 Notices. All notices, requests, consents, demands
and other communications under this Agreement must be in
writing and shall be sent to the Parties at the addresses
set forth below, or to such other person and place as any
Party may designate for itself by notice to the other
Parties:
Interline: Interline Resources
Corporation
160 West Canyon Crest Drive
Alpine, Utah 84004
U.S.A.
Owner: Dukeun Industrial Co., Ltd.
Saman Bldg., 14th Floor
945 Daichi-Dong, Kangnam-Ku
Seoul, Republic of Korea
6.8 Force Majeure. Except for obligations to make
payment, no Party shall be liable to the other Party for any
failure of (or delay in performance of) its obligations
hereunder due to any cause or circumstance which is beyond
its reasonable control including, but without limiting the
generality of the foregoing, any such failure or delay that
is caused by strike, lockout, labor shortage, unavailability
of personnel, equipment or parts, fire, explosion,
shipwreck, act of God or the public enemy, war, riot,
interference by the military or governmental authorities, or
compliance with the laws of the United States or with the
laws or orders of any applicable government authority.
6.9 Construction, Interpretation and Communication.
This Agreement is
written in the English language and shall be construed and
interpreted in accordance with such language, regardless of
any translations that may be prepared or executed. All
references to weights, measurements, volumes, capacity and
amounts, shall be definitions applied pursuant to the laws
and standards of the United States of America. All
communications between the Parties concerning anything
within the scope of this Agreement (including disclosures,
training and consultation) shall be in the English language.
6.10 Assignments. Owner does not have either the right
or the power to assign the License, this Agreement or any
rights hereunder without first obtaining the written consent
of Interline. Interline shall not withhold consent if the
assignment is to a person or entity who purchases or
acquires the Unit and who first delivers to Interline a
written acceptance of this Agreement and Owner's obligations
thereunder.
6.11 Termination Option - Interline. If approval of
the Unit Purchase Agreement, this Agreement and the License
are not obtained as contemplated in Section 5, or if any
other necessary governmental approval, permit or the like is
not obtained, Interline may terminate this Agreement and the
License.
6.12 Insolvency, Bankruptcy. If Owner becomes
insolvent, makes any assignment of its assets or business
for the benefit of creditors, or if a trustee or receiver is
appointed to administer or conduct its business or affairs,
or if it is adjudged in any legal proceeding to be either a
voluntary or involuntary bankrupt, then all the rights
granted to Owner in this Agreement (including the License)
or the Unit Purchase Agreement shall forthwith cease and
terminate without prior notice or legal action by Interline.
6.13 United States Dollars. All references to
"Dollars", "$", money or funds in this Agreement mean
dollars of the United States of America. All payments to
Interline by Owner under this Agreement shall be in lawful
money of the United States of America.
6.14 Non-Frustration, Other Instruments, Further
Assurances. No Party to this Agreement shall commit any act
or take any action which frustrates or hampers the rights of
the other Parties under this Agreement. Each Party shall
act in good faith and engage in fair dealing when taking any
action under or related to this Agreement. The Parties
agree to execute any other documents, instruments or
writings as may be reasonably required in connection with
the performance of this Agreement and the realization of the
benefits and protections hereof.
6.15 Execution. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute
one and the same instrument. The individuals signing below
represent that they are duly authorized to do so by and on
behalf of the Party for whom they are signing.
6.16 Warranty - No Conflict. Each party represents
that it has the right and power to enter into this Agreement
and that this Agreement is not contrary to or in conflict
with any other Agreement or obligation of the Party.
6.17 Subsequent Transactions. If in the future Owner
desires to purchase any Unit from Interline, then such Unit
shall be bought and owned by a joint venture entity owned
50% by Owner and 50% by Interline, and the Unit licensed and
operated by Owner pursuant to this agreement shall also be
bought, owned and operated by that joint venture entity at a
price equal to the total cost of this Unit plus 15% thereof
for each year that the Unit has been in operation. Said
joint venture entity shall be governed and established by
written instruments reasonably acceptable to the parties.
AGREED TO AND ACCEPTED BY:
DUKEUN INDUSTRIAL CO. LTD. ("Owner")
By (signature):
Name (print): Woo Jo Jung
Title: President
INTERLINE RESOURCES CORPORATION ("Interline")
By (signature):
Name (print): Michael R. Williams
Title: President
EXHIBIT A
THE UNIT
Process Description
The Interline Process relies on propane extraction
followed by vacuum distillation to clean and re-refine Used
Oil. The recovered Base Oil may require clay or an
equivalent finishing step to produce the required colors
mentioned in Exhibit B, entitled "Specifications".
The first step of the process dissolves the Used Oil
with propane and rejects most of the Used Oil additives and
any water present in the feedstock to the Unit. The
additives are blended with the heaviest Oil from the vacuum
distillation section to produce an asphalt extender.
Currently it is planned to evaporate the water in an excess
capacity furnace. However, alternative lower cost methods
may be chosen by the Owner based on specifications for
industrial waste water disposal in Korea. The waste water
disposal system design, construction and operation shall be
solely at Owner's expense.
The propane is recovered from the Oil-propane mix and
reused to dissolve additional Used Oil feedstock. The Oil
is then further refined by boiling the lighter gasoline and
diesel material out of the Base Oil. The Base Oil is then
distilled to improve color and remove any metals or other
impurities that may be present.
ded by Interline.
Equipment
A more detailed description of the equipment involved
will be supplied at a later date in the form of several
P&ID's (Process and Instrument Diagrams). A general
description of the equipment is provided below.
The equipment will be skid mounted to the extent
feasible. The Oil charge section will consist of Oil and
propane charge pumps, a feed preheat exchanger, and a
propane storage vessel.
The Propane Extraction section consists of a mixing
vessel together with a settling vessel. The Propane
Recovery section has a solution feed tank, a solvent flash
drum for propane removal, heat exchangers and a propane
condenser.
Following the extraction/recovery section is the
gasoline removal section. This section consists of an
atmospheric tower, heat exchangers and a compressor which
remove any propane or gasoline-type material which may still
be present in the Oil.
The vacuum distillation section consists of a single
tower, pumps, heat exchangers, coolers and vacuum producing
equipment necessary to boil the Base Oil thus removing the
metals and other contaminants remaining after the extraction
process. An asphalt mixing vessel is provided to mix the
Residuum recovered from the propane extraction together with
the heaviest material from the vacuum distillation section.
EXHIBIT B
SPECIFICATIONS
The Unit supplied by Interline will meet the following
operational specifications based on a Used Oil feedstock
quality as will be specified by Interline.
The Unit will have the capacity to process up to 24,000
gallons of Used Oil per 24- hour day.
The Base Oil will exhibit a color of 2.5 or better as
determined by ASTM test number D-15924-63T or D-1500-
64.
Since the Finished Products produced are directly
related to the quality of the Used Oil feed to the
Unit, the Unit design will be based on the sample of
Used Oil received from Owner.
Based on the sample of Used Oil feedstock received by
Interline from Owner on approximately April, 1994, it
is anticipated the Finished Products produced will be
approximately as follows:
1. Water: less than 10% of the
incoming feedstock will be water, as
determined by a laboratory distillation.
2. Fuel: The fuel (Diesel and
Gasoline) composition will be less than 10%
by volume of the incoming feedstock.
3. The balance of the product will be
Base Oil and asphalt extender. The asphalt
extender should not constitute more than 15%
of the incoming feedstock.
In addition to supplying the Unit to meet the above
specifications, Interline will supply the following:
1. The complete design and detailed engineering for the
process described in Exhibit A, being the documents
specified in Exhibit E Item 1.
2. Engineering and specification only for the required
furnace, incoming, intermediate and final product
storage tanks. Such required furnace, incoming,
intermediate and final product storage tanks shall be
provided at Owner's expense. However, if Owner desires
Interline to procure such items, Interline will procure
them for a fee of 5% of the purchase price thereof.
3. Design, installation and testing of plant control
instrumentation.
4. Interline will design, but will not install, the
foundation required for the Unit as described in
Exhibit A
EXHIBIT C
PATENTS
EXHIBIT D
ACCEPTANCE TEST
1. Test Requirements
a. The Unit will process 24,000 U.S. gallons of Used
Oil in a 24-hour period.
b. The Base Oil produced from the Unit will
exhibit a color of 2.5 or better as determined by
ASTM test number D-15924-63T or D-1500-64.
2. Acceptance Test Run
a. Interline will select a time convenient for Owner
and Interline and appropriate for the Acceptance
Test run to be carried out. The acceptance test
will last for a period of 24 consecutive hours.
b. Interline will specify all Unit process
conditions, feedstocks, catalysts, additives, flow
rates and compositions, and other appropriate
operating parameters and conditions for the
Acceptance Test run. Specifically, Interline
shall specify the Used Oil processed during the
Acceptance Test run. Test conditions will be set
when the detailed process design and engineering
for the Unit is submitted to Owner for its
approval.
c. Owner shall provide all raw materials and manpower
specified by Interline, and shall cause the Unit
to operate, at its expense, according to the
conditions set by Interline.
d. The volume of Used Oil processed shall be metered
or measured for volume through means or
instrumentation designated by Interline.
e. The Base Oil produced during the Acceptance Test
shall be sampled according to Interline's
directions and tested for color by ASTM test
number D-15924-63T or D-1500-64.
f. If during the Acceptance Test run period
interruptions, operating mishaps, mistakes or
other situations occur which are deemed by
Interline to be detrimental to the performance of
the Unit or to the quality of the Base Oil,
Interline may cause the Acceptance Test run to be
repeated, or Owner may, at its option, certify
that the Acceptance Test run has been successfully
completed.
g. Should the results of the Acceptance Test run not
meet the Test Requirements set forth above, the
Acceptance Test run shall be repeated according to
the provisions set forth in Exhibit F.
EXHIBIT E
DOCUMENTATION AND SOFTWARE
1. Documentation. Interline shall provide the following
documentation to Owner on or before delivery of the Unit at
the Unit Site:
(a) Operations Manual. An "Operations
Manual" describing the operation and use of
the Unit. Number of copies = 3.
(b) Data Book A "Data Book" for the
Unit. Number of copies = 3. The Data Book
will include the following:
- Process flow diagrams
- Process and instrument
diagrams
- Utility specifications
and requirements
- Equipment data sheets
- Motor list and on-line
electrical diagram
- Start-Up and shut-down
procedures
- Control system including
instrument specifications
- Maintenance data
(c) Infrastructure and Site Preparation
Package. An "Infrastructure and Site
Preparation Package" for the Unit and its
site. Number of copies = 3.
This documentation will be in the English language. The
number of copies of each document to be provided is
indicated above. This documentation and other documents and
works of authorship, if any, provided by Interline or
Purchaser to Owner shall be referred to as the
"Documentation" and shall be governed by this Agreement.
2. Software. Interline shall provide certain computer
programs with the Unit that are needed for operation or
control of the Unit (the "Software"). The Software is
licensed to Owner on a nonexclusive basis as part of the
License for use only in connection with the Unit and only in
the Territory. Owner has no right to any Software source
code.
3. Right to Copy. The License includes the right to copy
Documentation and Software but only as necessary for use in
connection with the Unit in the Territory.
4. Protection of Documentation and Software. Owner shall
not transfer the Documentation or Software or any part
thereof or any copy thereof away from the Unit Site and
shall not disclose the Documentation or Software or any part
thereof to any other person, company or entity.
5. Ownership. Notwithstanding anything in this Agreement
to the contrary, Owner does not obtain or receive any
ownership of the Software or Documentation or copies thereof
or the copyrights, trade secrets or other intellectual
property therein.
Title to Interline Software and Documentation and copies
thereof is retained by Interline. Software and
Documentation and copies thereof will only be loaned to
Owner for the duration of the License.
EXHIBIT F
INSTALLATION AND ACCEPTANCE
1. Installation and Start-Up of Unit. Interline shall
supervise the installation, erection, assembly and start-up
(including the Acceptance Test referred to in paragraph 2
below) of the Unit at the Unit Site. Owner or Purchaser
shall provide Interline and its personnel with access to and
use of such facilities, power supplies, offices and other
resources as are reasonably requested by Interline to
facilitate installation, erection, assembly, and start-up.
Such requests shall be made by Interline in writing and in
advance of the time they are required to allow Owner or
Purchaser reasonable time to comply therewith.
2. Acceptance Test. After installation of the Unit at the
Unit Site, Interline shall, with the assistance and
participation of Owner and Owner's personnel, conduct an
acceptance test in accordance with Exhibit D (the
"Acceptance Test"). The Acceptance Test will be deemed
successful if the test is completed without the Interline or
Owner discovering any substantial and material nonconformity
with the Specifications. If any such nonconformity is
discovered, Interline may take such remedial action and/or
provide such work-around solutions as it deems appropriate
and Owner shall cooperate in the implementation of such
remedial action and work-around solutions. This may
include, without limitation, adjustments and corrections to
the Unit, the addition or replacement of Unit equipment,
and/or changes to the operation of the Unit or its operating
parameters.
3. Certificate of Final Acceptance. When the Acceptance
Test has been successfully completed, Owner shall execute
and deliver to Interline and to Purchaser a Certificate of
Final Acceptance accepting the Unit as installed at the Unit
Site. It is the responsibility of Owner to report in
writing to Interline any nonconformity of the Unit with the
Specifications before executing the Certificate of Final
Acceptance.
EXHIBIT G
RESPONSIBILITIES OF OWNER OR PURCHASER
1. Site Preparation and other Responsibilities. At their
sole cost and expense, Owner or Purchaser shall be
responsible for the selection of the location of the Unit
Site and for the preparation of the Unit Site for the
installation of the Unit and for maintenance of said site
and its environment. At their sole cost and expense, Owner
or Purchaser shall be responsible for all tasks and items
(including the procurement thereof) identified in the
Infrastructure and Site Preparation Package and for:
(a) The provision, installation and
start-up of all equipment and resources
needed for the Unit.
(b) The provision of all needed
utilities (e.g., electricity, water, fuel,
etc.) and other infrastructure to the Unit
Site and Unit.
(c) Any and all site improvements,
structures, ancillary items and assistance
during installation, including, without
limitation:
All civic work, engineering, layout, excavation and
trenching (concrete and asphalt accuracy to be plus or minus
1/8");
Concrete pad upon which the Unit will be installed
(accuracy to specifications shall be plus or minus 1/8");
Gas, water, fire, storm drainage, sewer, electrical
lines and area lighting of adequate size and capacity
(including temporary power and water);
Fencing (temporary and permanent);
Bolt anchor embedments (accuracy to specifications
shall be plus or minus 1/16th inch);
Furnace, product heating lines, supply and return lines
to and from tank farm and furnace to process battery limits
termination points, and other lines to the point of
connection to the Unit;
Buildings, such as a control center, garages, personnel
quarters, etc.;
Blending facilities for converting Base Oil or other
Finished Products to higher grades;
Trucking facilities and storage facilities (including
raw material receiving equipment such as pumps and piping to
connect to storage areas and product load out equipment with
measuring devices and pump lines from storage);
Material handling equipment to include:
- 120 ton crane for 4 week period with
operator;
- 10 ton forklift with boom extension
for 6 week period; with operator;
- 2 ton flatbed truck for 6 week
period;
- 2 ea. 300 AMP welding machine for 6
week period;
- 80 foot manlift for 2 week period;
Supplying trained, professional construction people
with hand tools for two month period to include:
- 3 ea. Certified Welders;
- 3 ea. Pipe Fitters;
- 2 ea. Labor/Helper;
- 2 ea. Electricians;
Productivity of these and any other
Owner or Purchaser supplied construction
craftsmen shall comply with production
and quality standards of Gagon
Mechanical. If productivity or quality
of workmanship of construction people
supplied by Owner or Purchaser is less
than the Gagon Mechanical standards (as
determined by Interline's supervisors),
then Owner or Purchaser shall promptly
replace such workmen with persons
capable of meeting the Gagon Mechanical
standards.
Provide all propane required for process;
Storage tanks and related piping, pumps and
miscellaneous items; and
Owner or Purchaser representative at the Unit Site.
2. Local Experts and Compliance with Laws. At its sole
cost and expense, Owner or Purchaser shall obtain and
procure the services of a local professional engineer and
other experts and professionals as necessary who will
ascertain and ensure that the design, installation,
erection, assembly, start-up and operation of the Unit and
the Unit Site comply with local, national, and all other
applicable laws, codes, ordinances and regulations and will
assist Owner or Purchaser in obtaining any and all required
permits, licenses and approvals. The responsibility of
complying with all applicable laws, ordinances, codes,
regulations and the like and of obtaining all necessary
permits, licenses and approvals shall rest solely with Owner
or Purchaser.
3. Raw Materials. At its sole cost and expense, Owner or
Purchaser will supply all water, feedstock, chemicals,
utilities and raw materials, in such quantity and quality as
are required to operate the Unit and process Used Oil.
Interline shall at its expense provide the initial loading
of the Unit consumables (except propane) and the spare parts
for the first 6 months of operation of the Unit from the
date of installation of the Unit at the Unit Site. The
nature and amount of such spare parts, if any, shall be as
recommended by the manufacturers of the component parts of
the Unit.
4. Security and Safety. Owner or Purchaser shall be
responsible for the security of the Unit and all Unit-
related equipment, engineered items, materials and supplies
delivered to the Unit Site. Owner or Purchaser shall ensure
the safety, health and reasonable comfort of Interline
personnel at the Unit Site.
5. Costs and Expenses. In addition to any fees or charges
under this Agreement, and except for cost and expense of
providing the supervisors required by Exhibit F Paragraph 1
above, Owner or Purchaser shall pay for (or reimburse
Interline for) any and all reasonable costs and expenses
incurred by Interline and Interline personnel in connection
with the installation, erection, assembly and/or start-up of
the Unit or any other services rendered at Owner's or
Purchaser's request. Transportation, meals, lodging and
other accommodations for Interline personnel shall be
consistent with U.S. industry practice, and the safety,
health and reasonable comfort of Interline personnel shall
not be compromised.
6. Interline Personnel. With respect to Interline
personnel, the Parties agree as follows:
(a) Travel. All travel shall be by
commercial airline service via business class
and the most expeditious route available.
All travel and lodging arrangements shall be
made by Interline, but must be reasonable.
If Interline requests, Owner or Purchaser
shall assist Interline in making such
arrangements.
(b) Indemnification and Insurance.
Without limiting any other provision set
forth in this Agreement, Owner or Purchaser
shall indemnify Interline and all Interline
personnel against, and hold them harmless
from, any and all claims, costs, damages,
injuries and expenses which may arise in
connection with the performance of duties and
obligations under this Agreement while in
Korea.
(c) Office, Secretarial and
Communication Facilities and Services. Owner
or Purchaser shall provide each of
Interline's personnel at the Unit Site with
suitably furnished, lighted, heated and air
conditioned office space (including
restrooms), with suitable secretarial
services, with suitable communication
facilities (including facsimile and
telephone) and with suitable space for
storing tools and equipment. The cost of all
communications (telephone, facsimile, telex,
cable, etc.) made by Interline personnel
within the scope of their duties while on
assignment to Owner or Purchaser shall be
paid by Owner or Purchaser.
(d) Assistance to Interline personnel.
Owner or Purchaser shall give any assistance
which Interline personnel may reasonably
require for their health, safety, comfort or
well being or in order to perform Interline's
obligations and duties under this Agreement.
(e) Interpreters. Owner or Purchaser
shall make interpreters available to
Interline personnel as reasonably requested
to facilitate the performance of Interline's
obligations under this Agreement.
7. Supervision or Management Services. Except for the
supervision described in Exhibit F Paragraph 1 above,
Interline and its personnel shall function merely as
advisors and consultants, and Owner or Purchaser shall not
(a) require or request that Interline or Interline personnel
perform any supervisory or managerial duties, or (b) rely
upon Interline or Interline personnel for any supervisory or
managerial services.
EXHIBIT H
TRAINING AND CONSULTATION
1. Initial Training. Owner shall receive 10 days of
"Initial Training" at Interline's facilities in Sandy, Utah,
U.S.A. Initial Training shall be conducted on a Monday
through Friday week reasonably designated by Interline.
Initial Training shall provide instruction with respect to
the operation and use of the Unit. Interline's pilot plant
will be used for Initial Training. Initial Training will be
attended by not more than ten trainees designated by Owner.
Each day of training shall be approximately 6 to 8 hours.
The scope, content and manner of Initial Training shall be
determined by Interline. Owner's trainees shall be
experienced in the operation of petroleum refining equipment
and able to understand instruction given in the English
language.
2. Telephone Consultation. For one year beginning on the
date that the Unit is installed, Owner shall be entitled to
telephone consultation at no additional fee for up to 20
hours per month. Said hours are not cumulative and unused
hours will not be carried forward or credited to other
months. Telephone consultation is subject to the reasonable
availability of Interline's telephone consultation personnel
during Interline's telephone consultation hours. Telephone
consultation consists primarily of answers to questions and
is not to be used for training purposes. Telephone
consultation is subject to Interline's then-current
telephone consultation policies, limitations and procedures.
All telephone tolls will be paid by Owner. Telephone
consultation after said year or in excess of the hourly
limit is governed by Paragraph 4.3.
3. Additional Consultation and Additional Training. If
Owner desires additional consultation or additional
training, such consultation and training will be available
to Owner subject to the following:
(a) Additional consultation and additional
training are only available at such times and
places as offered by Interline, and are
subject to the availability of Interline's
personnel.
(b) Interline is entitled to receive
its then-current fees, as established by
Interline, for consultation and additional
training. The payments set forth in this
Agreement only entitle Purchaser and Owner to
the Initial Training and Telephone Support
described in Paragraphs 1 and 2 above.
(c) Consultation and additional
training shall only be used by Owner for the
purpose of operating the Unit in the
Territory.
(d) All information learned from consultation and
additional training shall be subject to the
provisions and restrictions of this
Agreement, including confidentiality and
nonuse provisions.
(e) Owner shall pay all expenses
reasonably incurred by Interline and its
personnel in connection with consultation or
additional training.
(f) Interline may decline to provide
consultation and training for any or no
reason after five years from the date of this
Agreement and at any time if Purchaser or
Owner breach this Agreement.
4. Expenses. Owner shall be responsible for any and all
costs and expenses of its trainees and personnel incurred in
connection with Initial Training, additional training,
telephone consultation, and/or additional consultation,
including (without limitation) transportation, meals,
accommodations, entertainment, compensation, etc. Interline
shall pay its own expenses in connection with the Initial
Training and telephone consultation. Owner shall also pay
all expenses reasonably incurred by Interline and its
personnel in connection with additional training, telephone
consultation and/or additional consultation, or occasioned
because of delay caused by Owner or Purchaser.
5. Interline Maintenance Agreement. This Agreement does
not entitle Owner to any maintenance services. Maintenance
services from Interline are available through an Interline
Maintenance Agreement, but only if such agreement is
executed by Interline and Owner and the applicable fees for
maintenance services are paid to Interline.
6. Owner's Personnel. Owner shall ensure that all of its
trainees and other personnel and representatives who visit
any of Interline's facilities shall comply with all safety
and other policies, procedures and guidelines of Interline.
Interline shall not be liable for, and Owner shall indemnify
Interline and its directors, officers, employees,
shareholders, agents and representative against, and hold
them harmless from, any and all injuries, deaths, damages,
liabilities, losses and claims incurred, caused or asserted
by any of the trainees or any other personnel or
representatives of Owner who visit Interline's facilities.
EXHIBIT I
WARRANTIES, INDEMNIFICATION, DISCLAIMER
AND LIMITATION ON LIABILITY
1. Warranty Unit.
a. Workmanship and Quality All work performed by Interline
and their subcontractors is to be done in a good and
workmanlike manner, and is guarantee against failure (except
that due to corrosion or misuse) and defect in labor or
materials for one year from date of completion. Interline
will also extend all warranties provided by the
manufacturers and vendors of any equipment purchase for use
in the completed facility.
b. Plant Capacity Interline will warrant the plant's
ability to process 24,000 gallons per day and the product
yields. Capacity and product yields will be determined by a
24 hour performance test conducted by the Owner (at their
expense) within 45 days after the plant installation is
completed. The test will be witnessed by Interline
representatives (at Interline's expense), and will be
conducted when the facility is operating at conditions no
less favorable that those of the original design. This
means Interline will warrant feed rates and product yields
based on the samples sent to us for design basis. If the
feed quality changes, the product yields may vary and the
warranty will not be in force. It also means once the 24
hour performance test has been successfully completed, this
warranty has been completely satisfied and future
performance is the responsibility of the owner.
If the plant fails to meet the requirements, Interline will
perform the necessary engineering design, purchase the
materials, and install the materials necessary to correct
the performance, at no cost to the Owner.
c. Operating Costs. Interline will warrant the heat
absorbs by the process (we will measure the hot oil
temperature to and from the fired heater and the hot oil
flow rate to determine heat absorbed) as well as electrical
consumption. These consumption's will be determined during
the 24 hour performance test and will be considered to meet
the warranty upon the successful completion of the
performance test.
Interline cannot warrant the total fuel consumption as the
Owner or Purchaser is responsible for purchasing the heater
and may choose a less efficient heater with a lower capital
cost as opposed to buying a heater with more heat recovery
surface. This is an economical decision that is dependent
on the Owner.
d. Equipment List. Interline will guarantee to supply a
description of equipment characteristics and the life term
of the equipment in the plant description.
This Agreement defines the entire and only warranties,
representations and guarantees of Interline with respect to
the quality, properties, safety, characteristics,
functionality, usefulness, merchantability, adequacy and
suitability of the Unit and Disclosed Information. The
warranties, representations and guarantees of Interline are
subject to the following conditions:
(a) Purchaser has complied with its obligations under
the Unit Purchase Agreement, and Owner has complied
with its obligations under this Agreement,
(b) that Owner's operators of the Unit have completed
training to the reasonable satisfaction of Interline,
(c) that a sufficient number (as determined by
Interline) of preliminary runs have been conducted
prior to the Acceptance Test,
(d) that Acceptance Test is conducted in a timely
manner unless delayed due to the fault or delay of
Interline,
(e) that the Unit has not been damaged or misused by
anyone other than Interline after delivery to
Purchaser, and
(f) that the Acceptance Test will not commence until
the Unit and the Parties, supplies and equipment have
arrived at the Unit Site.
2. Warranty - Infringement. Interline warrants that as of
the date of this Agreement Interline has no actual knowledge
that the Unit or any Disclosed Information to be used by
Owner with the Unit infringes any patent, trade secret or
copyright of a third party.
3. Disclaimer. INTERLINE MAKES NO REPRESENTATION, WARRANTY
OR GUARANTEE, EXPRESS, IMPLIED OR BY OPERATION OF LAW,
RELATING IN ANY WAY TO THE UNIT, DISCLOSED INFORMATION,
LICENSED PATENTS, FINISHED PRODUCTS PRODUCED AT THE UNIT,
TRAINING, CONSULTATION OR ANY OTHER MATTER RELATING TO THIS
AGREEMENT, NOT EXPRESSLY SET FORTH IN THIS AGREEMENT. ANY
AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NONINFRINGEMENT ARE DISCLAIMED AND
EXCLUDED BY INTERLINE.
4. Limitation on Liability. IN NO EVENT SHALL INTERLINE BE
LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN REASONABLY FORESEEABLE
GENERAL DAMAGES.
TABLE OF CONTENTS
SECTION 1 - INTRODUCTION 1
1.1 The Unit 1
1.2 Oil 1
1.3 Used Oil 2
1.4 First Perc Process Equipment 2
1.5 MP-FP Vessel 2
1.6 Finished Products 2
(a)"Residuum" 2
(b)"First Perc Material" 2
(c)"Base Oil" 2
(d)"Diesel" 2
(e)"Gasoline" 3
(f)"Finished Products" 3
1.7 Disclosed Information 3
1.8 Proprietary Information 3
1.9 Proprietary Materials 3
1.10 Licensed Patents 3
1.11 Interline's facilities 4
1.12 Licensed Field 4
1.13 Territory 4
1.14 Gallons 4
1.15 Specifications 4
1.16 Purchaser 4
1.17 Unit Purchase Agreement 4
1.18 Unit Site 4
SECTION 2 - MANUFACTURE AND PURCHASE OF UNIT 5
2.1 Manufacture of Unit 5
2.2 Design Capacity 5
2.3 Purchase of Unit by Owner 5
2.4 Title 5
SECTION 3 - DOCUMENTATION AND SOFTWARE 5
3.1 Documentation 5
(a)Operations Manual 5
(b)Data Book 5
(c)Infrastructure and Site Preparation
Package 6
3.2 Software 6
3.3 Right to Copy 6
3.4 Protection of Documentation and Software
6
3.5 Ownership 6
SECTION 4 - TRAINING AND CONSULTATION 6
4.1 Initial Training 6
4.2 Telephone Consultation 6
4.3 Additional Consultation and Additional
Training 7
4.4 Expenses 7
4.5 Interline Maintenance Agreement 8
4.6 Owner's Personnel 8
SECTION 5 - INSTALLATION AND ACCEPTANCE 8
5.1 Installation and Start-Up of Unit 8
5.2 Acceptance Test 8
5.3 Certificate of Final Acceptance 9
SECTION 6 - RESPONSIBILITIES OF OWNER 9
6.1 Site Preparation and other Responsibilities
9
6.2 Local Experts and Compliance with Laws. 10
6.3 Raw Materials 10
6.4 Security and Safety 11
6.5 Costs and Expenses 11
6.6 Interline Personnel 11
(a)Travel 11
(b)Indemnification and Insurance 11
(c)Office, Secretarial and Communication
Facilities and Services 11
(d)Assistance to Interline personnel
12
(e)Interpreters 12
6.7 No Supervision or Management Services 12
SECTION 7 - THE LICENSE 12
7.1 Grant of License 12
7.2 License of Licensed Patents 12
7.3 Term 12
7.5 Termination 12
7.6 Effect of Termination 12
(a) Exercise of Option to Repurchase 13
(b) Repurchase Price 13
(c) Delivery of Repurchased Items 13
(d)Option not Exercised 13
7.7 No Sublicensing or Assignment 14
7.8 Expansion 14
7.9 Reservation of Rights 14
7.10 Patent Markings 14
7.11 Right to Inspect 14
7.12 Trademarks 14
7.13 Ownership 15
SECTION 8 - TECHNOLOGY EXCHANGE 15
8.1 Technology Exchange 15
8.2 Interline Improvements 15
8.3 Owner Improvements 15
8.4 Licenses 15
SECTION 9 - PAYMENTS 15
9.1 Royalty to Interline 15
9.2 Extension of Royalty Period - Improvements
16
9.3 Other Payments 16
9.4 Interest 16
9.5 Taxes 16
9.6 Measurement 17
9.7 Quarterly Statements 18
9.8 Royalty Payments 18
9.9 Efforts to Process Used Oil 18
9.10 Records 18
SECTION 10 - WARRANTIES, INDEMNIFICATION, DISCLAIMER
18
AND LIMITATION ON LIABILITY 18
10.1 Warranty - No Conflict. 18
10.2 Warranty - Unit 18
10.3 Warranty - Infringement 19
10.4 Disclaimer 19
10.5 Limitation on Liability 19
10.6 Indemnification - By Owner 19
10.7 Allocation of Risk 20
SECTION 11 - CONFIDENTIALITY 20
11.1 Acknowledgment 20
11.2 Restrictions 20
11.3 Protection of Unit 20
11.4 Employees 20
11.5 Disclosure to Independent Contractors 21
11.6 Return of Proprietary Materials 21
11.7 Owner Improvements 21
11.8 Injunctive Relief 21
SECTION 12 - GOVERNMENTS AND COUNTRIES 21
12.1 Purchaser's Responsibility 21
12.2 Export Act 21
12.3 Impairment by Government Regulation 22
12.4 Different Customs, Laws and Languages 22
SECTION 13 - GENERAL PROVISIONS 22
13.1 Attorneys' Fees 22
13.2 Severability 22
13.3 Governing Law 22
13.4 Final Agreement 22
13.5 Waiver 23
13.6 Headings 23
13.7 Language 23
13.8 Notices 23
13.9 Force Majeure 23
13.10 English Language 23
13.11 Assignments 24
13.12 Delegation of Duties 24
13.13 Relationships 24
13.14 Termination Option - Interline 24
13.15 Insolvency, Bankruptcy 24
13.16 Construction and Interpretation 24
13.17 United States Dollars 24
13.18 Non-Frustration, Other Instruments,
Further Assurances 24
13.19 Execution 24
<PAGE>
UNIT PURCHASE AGREEMENT
by and among
INTERLINE RESOURCES CORPORATION
and
JINNES TECHNOLOGIES, INC.
<PAGE>
Date of Agreement: December 29, 1994
This document is prepared with no comma before following three
types of joining words: or and and/or. UNIT PURCHASE AGREEMENT
This Unit Purchase Agreement (the "Agreement") is dated
_______________, 1994 and is by and between the following
Parties:
Interline: Interline Resources Corporation
a Utah corporation
160 West Canyon Crest Drive
Alpine, Utah 84004
U.S.A.
Purchaser: Jinnes Technologies, Inc.
a California corporation
624 E. Evelyn Avenue, Suite F
Sunnyvale, California 94086
U.S.A.
RECITALS
WHEREAS, Purchaser recognizes and acknowledges that
Interline possesses substantial and valuable technology,
expertise, know-how, information, trade secrets, patent rights
and intellectual property relating to the processing of Used Oil
and the manufacture and operation of equipment for the processing
of Used Oil;
WHEREAS, Purchaser desires to purchase from Interline a Unit
for processing Used Oil and to immediately resell it to Owner,
provided that Interline, under the Unit License Agreement, grants
to Owner a license for the operation of the Unit in the
Territory, as defined herein; and
WHEREAS, Interline is willing to construct the Unit and sell
the Unit to Purchaser and to grant the license to Owner for
operation of the Unit in the city of Seoul, Republic of Korea,
but only under the terms and conditions of this Agreement.
NOW, THEREFORE, the Parties agree as follows:
SECTION 1 - INTRODUCTION
1.1 The Unit. The "Unit" shall mean the Unit (including
its equipment and instrumentation) constructed and assembled by
Interline for Purchaser and sold to Purchaser under this
Agreement. The Unit is for processing Used Oil. Interline
Technology is utilized in the construction and operation of the
Unit.
1.2 Oil. "Oil" shall mean any oil refined from crude oil.
Oil may contain additives to improve its lubrication, wear,
oxidation, corrosion and/or other characteristics.
1.3 Used Oil. "Used Oil" shall mean any Oil that has been
used for its intended purpose and as a result of such use has
been contaminated by physical and/or chemical impurities.
1.4 MP-FP Vessel. "MP-FP Vessel" shall mean the vessel
used in the operation of the Unit for solvent extraction. Used
Oil is introduced into the MP-FP Vessel, combined with a carrier
and subjected to solvent extraction processing utilizing
Disclosed Information.
1.5 Finished Products. "Finished Products" are described
below:
When Used Oil is processed by the Unit in
accordance with Interline's instructions, "Residuum"
and "First Perc Material" will result. This is
accomplished in an MP-FP Vessel. The Residuum is a
"Finished Product" that may be sold or used. The First
Perc Material may be sold or used as a Finished Product
or may be further processed by distillation or other
means to recover other Finished Products, such as Base
Oil, Gasoline and Diesel.
(a) "Residuum" shall mean the colloidal
material separated from lighter Used Oil fractions
through the processing of Used Oil by the Unit.
The bottoms recovered from the further processing
of First Perc Material may be combined with (and
thus become part of) the Residuum.
(b) "First Perc Material" shall mean the
hydrocarbon material other than Residuum which
results from the solvent extraction processing of
Used Oil through the use of the Unit.
(c) "Base Oil" shall mean the base oil
recovered by the Unit from Used Oil. Base Oil is
derived from the distillation of First Perc
Material. Such distillation process can segregate
the Base Oil from the Gasoline and Diesel
fractions and the bottoms.
(d) "Diesel" shall mean the fraction
commonly referred to as diesel that is recovered
by the Unit from Used Oil. Diesel can be derived
from the distillation of First Perc Material.
(e) "Gasoline" shall mean the fraction
commonly referred to as gasoline that is recovered
by the Unit from Used Oil. Gasoline can be
derived from the flashing of First Perc Material.
(f) "Finished Products" shall mean all
commercially marketable products produced as a
result of processing Used Oil by any process,
equipment or apparatus of the Unit. Finished
Products include, but are not necessarily limited
to, First Perc Material, Diesel, Gasoline, Base
Oil and Residuum. Finished Products other than
First Perc Material, Diesel, Gasoline, Base Oil
and Residuum, are sometimes referred to in this
Agreement as "other Finished Products."
1.6 Disclosed Information. "Disclosed Information" shall
mean any and all information, technology, data, expertise, know-
how, trade secrets, intellectual property, inventions, processes,
ideas, product formulations, compositions, operating procedures,
operating conditions (including temperatures, pressures, flow
rates, etc.), specifications, Unit designs, equipment
configurations and the like, which are disclosed or transferred
by Interline (and/or any of its independent contractors or Owner)
to Purchaser. All information learned by Purchaser from the Unit
or from Owner shall be deemed part of the Disclosed Information.
1.7 Proprietary Information. "Proprietary Information"
shall mean any and all Disclosed Information (whether or not
reduced to writing and in any stage of development) except for
Disclosed Information that is in the public domain at the time of
disclosure by Interline to Purchaser or Owner. Proprietary
Information, which subsequent to disclosure by Interline to
Purchaser or Owner, becomes part of the public domain through no
fault of Purchaser or Owner shall thereafter cease to be
Proprietary Information. Public domain status must be
established through printed publications and/or other credible,
tangible evidence. Furthermore, anything which becomes lawfully
and legitimately available to Purchaser or Owner from a third
party (who did not directly or indirectly acquire the same from
Interline or Interline's licensors or assignors) shall be
released from the provisions of Section 8 (entitled
"Confidentiality"), but only to the extent necessary to permit
such use and disclosure as are permitted by such third party.
Specific items of Disclosed Information shall not be excluded
from the scope of Proprietary Information merely because they can
be assembled by selection and combination of subject matter
within the scope of the above exceptions, or merely because they
are encompassed within more general subject matter within the
scope of the above exceptions.
1.8 Proprietary Materials. "Proprietary Materials" shall
mean any and all writings, records, documents and other tangible
media in which Proprietary Information is embodied, stored or
recorded, or from which Proprietary Information can be
transferred, retrieved, reproduced, read or utilized. Any
documentation received by Purchaser from Interline shall be
presumed to be Proprietary Materials.
1.9 Interline's facilities. Any reference in this
Agreement to Interline's facilities or offices shall also mean
and include the facilities and offices of Interline's subsidiary
corporations, including Gagon Brothers Mechanical Contractors,
Inc.
1.10 Territory. The "Territory" shall mean within twenty
miles of the city of Seoul, Republic of Korea. The Territory
does not include any geographic area outside said twenty mile
radius around Seoul.
1.11 Gallons. Any reference in this Agreement to "gallons"
or "gallon" shall mean U.S. gallons or U.S. gallon.
1.12 Specifications. The "Specifications" shall mean the
descriptions of the Unit set forth in Exhibit A and the
specifications set forth in Exhibit B.
1.13 Owner. "Owner" shall mean Dukeun Industrial Co., Ltd.
a Korean company with an address at Daichi-Dong, Kangnam-Ku,
Seoul, Republic of Korea.
1.14 Unit License Agreement. "Unit License Agreement" shall
mean the Unit License Agreement between Interline and Owner,
which shall be substantially in the form of Exhibit C.
1.15 Unit Site. "Unit Site" shall mean the site in the
Territory selected by Owner for the Unit. The Unit Site must be
in the Territory.
1.16 Other Definitions. Words used in this Agreement with
initial capital letters shall have the express definition
provided in the Unit License Agreement.
SECTION 2 - MANUFACTURE AND PURCHASE OF UNIT
2.1 Manufacture of Unit. Interline shall manufacture a
single Unit for Purchaser. A summary description of the Unit to
be manufactured is set forth in Exhibit A. Interline's
manufacturing duties include the following:
(a) Process engineering and design for the
process to be implemented by the Unit.
(b) Unit design and detailed engineering of
the Unit, including design and engineering of
furnace, incoming storage tanks, intermediate
process storage, finished product storage and Unit
Site layout.
(c) Procurement of materials and equipment
for the Unit and assembly and fabrication of the
Unit, but not including furnace, incoming storage
tanks, intermediate process storage, finished
product storage or the Unit Site.
(d) Preparation of an Infrastructure and
Site Preparation Design Package for the Unit.
(e) Design and installation of Unit control
instrumentation.
(f) Initial loading of Unit consumables.
At Interline's request, Purchaser shall promptly provide all
information and guidance needed by Interline in order to design
and manufacture the Unit to meet all applicable laws, ordinances,
codes, regulations and other requirements in the Territory. Any
additional costs incurred by Interline in meeting such laws,
ordinances, codes, regulations and other requirements shall be
paid by Purchaser in addition to the Unit Purchase Price.
2.2 Design Capacity. The "Design Capacity" of the Unit
shall be 24,000 gallons of Used Oil (and any other materials
included in the charge to the Unit) processed per 24 hours of
continuous operation.
2.3 Purchase. Purchaser agrees to purchase the Unit from
Interline and agrees to pay for the Unit in accordance with the
terms, conditions and provisions of this Agreement.
2.4 Sale to Owner. Purchaser agrees to promptly sell the
Unit to Owner in accordance with Purchaser's own separate
purchase agreement with Owner. Such purchase agreement shall not
negate, limit or affect any of (a) Purchaser's obligations to
Interline under this Agreement or any of the other terms,
conditions and provisions of this Agreement, or (b) Owner's
obligations to Interline under the Unit License Agreement or any
of the other terms, conditions and provisions under the Unit
License Agreement.
2.5 Title. Title to the Unit shall pass to Purchaser when
Interline receives from Purchaser payment in full of the entire
Unit Purchase Price under Paragraph 6.1 and Purchase sells the
Unit to Owner. Neither Purchaser, Owner nor the two of them
acting together have the right or the power to sell, lease or
encumber the Unit until after title passes to Owner (and even
after such passage of title, Paragraph 8.5 shall continue to
govern). The occurrence before title passes from Purchaser to
Owner of any event which creates or purports to create in any
other person any rights with respect to the Unit shall entitle
Interline to immediate and summary possession of the Unit.
2.6 Risk of Loss. Risk of loss with respect to Unit shall
shift to Purchaser when the Unit is delivered to Purchaser under
Paragraph 4.2, or otherwise comes into the possession or control
of Purchaser or Owner or their designee, or a carrier for transit
to Purchaser or Owner, whichever occurs first.
2.7 Schedule. The Parties shall cooperate with each other
and exercise their best reasonable efforts to meet the Schedule
set forth in Exhibit D.
SECTION 3 - DOCUMENTATION AND SOFTWARE
3.1 Provided Directly to Owner. Pursuant to the Unit
License Agreement, Interline shall provide Owner with certain
Documentation and Software relevant to the Unit, and its
installation and operation. Purchaser shall have no right to any
such documentation or software delivered by Interline to Owner.
3.2 Documentation Delivered to Purchaser. Any
documentation delivered to Purchaser by Interline relevant to the
Unit or is operation or installation shall promptly be delivered
by Purchaser to Owner as part of the Unit.
3.3 Ownership. Notwithstanding anything in this Agreement
to the contrary, Purchaser does not obtain, nor will Purchaser
receive, any ownership of the any documentation received from
Interline or copies thereof or the copyrights, trade secrets or
other intellectual property therein.
SECTION 4 - INSPECTION, DELIVERY AND INSTALLATION
4.1 Inspection by Purchaser. Before the Unit is delivered
to Purchaser (see Paragraph 4.2), the Unit shall be inspected by
a representative of Purchaser. It is understood that the Unit
will be in an unassembled condition. It is the responsibility of
Purchaser to report in writing to Interline the basis for any
cause or reason for rejecting the Unit. The unassembled
condition of the Unit shall not be a cause or reason for
rejection. Notwithstanding the Delivery Date indicated in
Exhibit D, Interline shall have no obligation to deliver the Unit
until after Purchaser has inspected the Unit. Purchaser shall
promptly make its representative available for this inspection
and purpose when Interline gives notice that the Unit is ready
for inspection.
4.2 Delivery. Following acceptance of the Unit after the
inspection of the Unit by a representative of Purchaser.
Interline shall deliver the Unit to Purchaser at Interline's
facilities in Sandy, Utah, U.S.A. Purchaser shall receive and
accept the Unit at such location. Purchaser shall be responsible
for transporting the Unit from Interline's facilities to Owner
and to the Unit Site. Purchaser's responsibility includes
packing and preparing the Unit for transportation and making all
necessary arrangements for transportation, including the
selection of a carrier. Purchaser and/or Owner shall be
responsible for the costs and expenses (including insurance) of
transporting the Unit from Interline's facilities to Owner at the
Unit Site. It is understood that the Delivery Date (see Exhibit
D) may be delayed by unexpected or unavoidable delays in
manufacture or by the need to remedy any problem that may cause a
rejection of the Unit under Paragraph 4.1.
4.3 Installation and Start-Up of Unit. Interline shall
supervise the installation, erection, assembly and start-up of
the Unit at the Unit Site pursuant to the Unit License Agreement.
4.4 Acceptance Test. After installation of the Unit at the
Unit Site, Interline shall, with the assistance and participation
of Owner and Owner's personnel, conduct acceptance testing as
provided in the Unit License Agreement.
4.5 Owner's Personnel. Purchaser shall ensure that all of
its personnel and representatives who visit any of Interline's
facilities shall comply with all safety and other policies,
procedures and guidelines of Interline. Interline shall not be
liable for, and Purchaser shall indemnify Interline and its
directors, officers, employees, shareholders, agents and
representative against, and hold them harmless from, any and all
injuries, deaths, damages, liabilities, losses and claims
incurred, caused or asserted by any personnel or representatives
of Purchaser who visit Interline's facilities.
4.6 Interline Maintenance Agreement. This Agreement does
not entitle Purchaser to any maintenance services for the Unit.
Maintenance services from Interline are available through an
Interline Maintenance Agreement, but only if such agreement is
executed by Interline and Owner and the applicable fees for
maintenance services are paid to Interline.
SECTION 5 - OBLIGATIONS OF PURCHASER
5.1 Expansion or Alteration of Unit. Purchaser may not
expand the capacity of the Unit, or alter, or change the Unit or
any goods obtained from Interline under this Agreement.
5.2 No Right to Operate Unit. Rights not expressly granted
to Purchaser under this Agreement are reserved by Interline.
Nothing in this Agreement shall provide Purchaser with any right
to utilize, to license to third parties, or to otherwise use,
exploit or practice the Licensed Patents, Disclosed Information,
Proprietary Information or any technology embodied in the Unit or
its operation.
5.3 Trademarks. Nothing in this Agreement authorizes
Purchaser to use any trademark, service mark, name, logo or
commercial symbol of Interline, or to remove or alter any
trademark, name, logo or commercial symbol on any part of the
Unit.
5.4 Ownership. Purchaser acknowledges that Interline (and
Interline's licensors) are the owners of the Proprietary
Information and Licensed Patents licensed to Owner under the Unit
License Agreement. To the extent permitted by applicable law:
(a) Purchaser shall not challenge or contest the validity or
enforceability of any Proprietary Information or Licensed
Patents, and (b) if Purchaser or Owner does so, Interline may
terminate this Agreement.
SECTION 6 - PAYMENTS
6.1 Unit Purchase Price. Purchaser shall pay to Interline
a Unit Purchase Price equal to the sum of Two Million United
States Dollars (U.S. $2,000,000) as follows:
(a) $200,000 within 15 days after Interline
provides evidence that it has obtained a
performance bond required by Paragraph 6.2.
(b) $200,000 when Interline informs
Purchaser that Interline has begun preparation of
the detailed process design and engineering for
the Unit.
(c) $800,000 when Interline informs
Purchaser that Interline has completed the
preparation of the detailed process and design
engineering for the Unit and the preparation of
the layout and specifications for the Unit Site.
(d) $600,000 upon delivery of the Unit to
Purchaser.
(e) $250,000 upon installation of the Unit
at the Unit Site.
(f) $200,000 upon completion of the
Acceptance Test.
If delivery of the Unit is delayed due to the fault or delay of
Purchaser or Owner, then the payment under (d) above shall be
made immediately. If the installation of the Unit is delayed due
to any cause or reason other than the fault or delay of
Interline, the $250,000 payment under (e) above shall be made
within 2 months of the date that substantially all of the Unit
arrives at the Unit Site. If the Acceptance Test is delayed due
to any cause or reason other than the fault or delay of
Interline, the $200,000 payment under (f) shall be made within 3
months of the date that substantially all of the Unit arrives at
the Unit Site.
6.2 Performance Bond. Interline shall obtain a performance
bond in the amount of $2,250,000 covering its obligations under
this Agreement. Evidence of such performance bond shall be
provided to Purchaser. Interline shall pay for only the first
$15,000 price of the performance bond and Purchaser shall pay for
the amount, if any, that the price of the performance bond
exceeds $15,000. If the performance bond is not obtained within
30 days from the date of execution of this Agreement by the
Parties, then this Agreement shall terminate and neither Party
shall have any obligation to the other Party.
6.3 Other Payments. For any other payments under this
Agreement, Purchaser shall make payment to Interline within 30
days of the date of Interline's invoice or written request for
reimbursement. Each invoice will be accompanied by supporting
time sheets or other appropriate documentation. Each request for
reimbursement shall also be accompanied by appropriate
documentation of the expenses for which reimbursement is
requested.
6.4 Interest. Any payments under this Agreement
(including, without limitation, payments under Paragraphs 6.1,
6.2 and 6.3 hereof) not made by Purchaser in full when due shall
thereafter bear interest on the unpaid balance (including accrued
but unpaid interest) at the rate of 18% per annum based upon a
365 day year or the highest rate allowed by applicable law,
whichever is lower.
6.5 Taxes. All payments to Interline under this Agreement
are in addition to and exclusive of all sales taxes, use taxes,
other taxes, duties, imports, assessments and charges of any kind
or description (except as provided below) and payment for the
same shall be the sole responsibility of Purchaser. Purchaser
shall indemnify Interline and its directors, officers, employees,
shareholders, agents and representatives against, and hold them
harmless from, any and all liability which may be imposed on any
of them arising out of Purchaser's failure to make such payments
timely and in full. This Paragraph 6.5 shall not apply to any
income tax imposed by the United States or the State of Utah on
Interline or to any taxes imposed by the government of the
Republic of Korea or any of its agencies to the extent, if any,
that (a) such Korean taxes are allowable as a direct credit to
Interline against United States income taxes levied on payments
to Interline, and (b) Interline utilizes such credits.
SECTION 7 - WARRANTIES, INDEMNIFICATION, DISCLAIMER
AND LIMITATION ON LIABILITY
7.1 Warranty - No Conflict. Each Party represents and
warrants that it has the right and power to enter into this
Agreement and that this Agreement is not contrary to or in
conflict with any other agreement or obligation of the Party.
7.2 Warranty - Unit. Interline warrants that if the Unit
does not successfully complete at least one Acceptance Test as
provided in the Unit License Agreement, then Interline will pay
liquidated damages to Owner as provided in the Unit License
Agreement. This Agreement defines the entire and only
warranties, representations and guarantees of Interline with
respect to the quality, properties, safety, characteristics,
functionality, usefulness, merchantability, adequacy and
suitability of the Unit and Disclosed Information. The
warranties, representations and guarantees of Interline and
Interline's obligations under Section 5, including any obligation
to pay liquidated damages to Owner, are subject to the following
conditions: (a) Purchaser has complied with its obligations under
this Agreement, and Owner has complied with its obligations under
the Unit License Agreement, (b) that Owner's operators of the
Unit have completed training to the reasonable satisfaction of
Interline, (c) that a sufficient number (as determined by
Interline) of preliminary runs have been conducted prior to the
Acceptance Test, (d) that the Acceptance Test is conducted in a
timely manner unless delayed due to the fault or delay of
Interline, (e) that the Unit has not been damaged or misused by
anyone other than Interline after delivery to Purchaser, and (f)
that the Acceptance Test will not commence until the Unit and the
Parties, supplies and equipment have arrived at the Unit Site.
THE SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF ANY SUCH
WARRANTIES, REPRESENTATIONS OR GUARANTEES IS SET FORTH IN THIS
AGREEMENT.
7.3 Warranty - Manufacturers'. In addition to any other
warranty provided under this Agreement, Interline agrees to
assign to Purchaser, and hereby does assign to Purchaser, all
manufacturers' and contractors' warranties relative to the Unit
or Unit construction.
7.4 Warranty - Infringement. Interline warrants that as of
the date of this Agreement Interline has no actual knowledge that
the Unit or any Disclosed Information to be used by Owner with
the Unit infringes any patent, trade secret or copyright of a
third party. There is no express or implied warranty of
noninfringement except as expressly stated above in this
Paragraph 7.4. It shall be the responsibility of Purchaser to
conduct such patent searches as they deem appropriate.
7.5 Disclaimer. INTERLINE MAKES NO REPRESENTATION,
WARRANTY OR GUARANTEE, EXPRESS, IMPLIED OR BY OPERATION OF LAW,
RELATING IN ANY WAY TO THE UNIT, DISCLOSED INFORMATION, LICENSED
PATENTS, FINISHED PRODUCTS PRODUCED AT THE UNIT, TRAINING,
CONSULTATION OR ANY OTHER MATTER RELATING TO THIS AGREEMENT, NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT. ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
AND NONINFRINGEMENT ARE DISCLAIMED AND EXCLUDED BY INTERLINE.
7.7 Limitation on Liability. IN NO EVENT SHALL INTERLINE
BE LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN REASONABLY FORESEEABLE GENERAL
DAMAGES. NOTHING IN THIS AGREEMENT SHALL ENTITLE PURCHASER TO
ANY LIQUIDATED DAMAGES FROM INTERLINE. IN NO EVENT SHALL THE
AGGREGATE LIABILITY OF INTERLINE TO PURCHASER, OR ANY PERSON
CLAIMING THROUGH PURCHASER, EXCEED $1,750,000.
7.8 Indemnification - By Purchaser. Purchaser shall
indemnify Interline and its directors, officers, shareholders,
employees and representatives against, and hold them harmless
from, any and all claims, liabilities, demands, damages, expenses
and losses arising out of any use, sale or other disposition of
any Finished Products or other products produced at the Unit or
arising out of Owner's operation of the Unit.
7.9 Allocation of Risk. This Agreement defines and
represents a mutually agreed upon allocation of risk between the
Parties and the consideration given and received under this
Agreement has been adjusted to reflect such allocation of risk.
SECTION 8 - CONFIDENTIALITY
8.1 Acknowledgment. Purchaser acknowledges that
Proprietary Information is of great value to Interline and that
such value depends in significant part upon the preservation of
the confidentiality of the same. Purchaser agrees that it shall
take all reasonable precautions to prevent any use or disclosure
of Proprietary Information not expressly authorized in writing by
Interline.
8.2 Restrictions. Except as expressly authorized in
writing by Interline, Purchaser shall not (a) disclose
Proprietary Information to any person or entity, (b) transfer
Proprietary Materials to any person or entity, (c) allow any
person or entity to gain access to Proprietary Information or
Proprietary Materials, (d) aid or encourage any unauthorized use
or commercial exploitation of Proprietary Information or
Proprietary Materials, (e) file any patent applications
disclosing or claiming any Proprietary Information, or (f) fail
to report to Interline any infringement or misappropriation of
Proprietary Information or Proprietary Materials known to
Purchaser. Purchaser shall not disclose to any third party any
of the terms, provisions or conditions of this Agreement or the
Unit License Agreement except as specifically required by
applicable law or government regulation.
8.3 Protection of Unit. Purchaser acknowledges that the
Unit and Software embody or include Proprietary Information and
that to protect Proprietary Information the following
restrictions are reasonable and necessary. Except as expressly
authorized in writing by Interline, Purchaser shall not (a)
reverse engineer the Unit, (b) create any drawings, diagrams,
flow charts or other documents containing technical information
about the Unit, (c) construct or assemble any facility, plant or
processing equipment based on the Unit or any part thereof, or
(d) allow any person or entity to inspect, reverse engineer or
access the Unit. The Unit shall not be sold or transferred by
Purchaser other than to Owner. It is also understood and agreed
that any sale or transfer of the Unit by Purchaser to Owner
requires that the Unit License Agreement be in force between
Owner and Interline.
8.4 Employees. Purchaser may only disclose Proprietary
Information to its employees and allow them access to Proprietary
Materials on a need to know basis for purposes related to this
Agreement, the Unit License Agreement and/or for operation of the
Unit; provided, however, that Purchaser first obtains from each
such employee a written agreement to abide by and respect the
restrictions and obligations of this Section 8. Said written
agreement shall be in a form reasonably acceptable to Interline.
Purchaser shall be responsible for the actions and inactions of
its employees.
8.5 Disclosure to Independent Contractors. Interline shall
not unreasonably withhold its consent to the disclosure of
Proprietary Information by Purchaser to its independent
contractors, to the extent that such disclosure is necessary for
the installation, erection, assembly, start-up, operation and/or
maintenance of the Unit. Purchaser must first obtain the written
agreement of the independent contractor to abide by and respect
the restrictions and obligations of this Section 8. Said written
agreement shall be in a form reasonably acceptable to Interline.
Purchaser shall be responsible for the actions and inactions of
its independent contractors.
8.6 Return of Proprietary Materials. Upon termination for
any reason of the Unit License Agreement or the License of Owner
thereunder, Purchaser shall immediately deliver to Interline (or
otherwise dispose of in accordance with Interline's reasonable
instructions) any and all Proprietary Materials in the possession
or control of Purchaser or any of its employees or independent
contractors. Purchaser shall then certify in a writing delivered
to Interline that the foregoing has been fully accomplished.
8.7 Injunctive Relief. Purchaser acknowledges that any
breach of any of the covenants or provisions contained in this
Section 8 will give rise to irreparable injury to Interline
inadequately compensable in damages or other legal remedies
alone. Accordingly, Interline may seek and obtain preliminary
and permanent injunctive relief and other equitable remedies
against the breach or threatened breach of said covenants or
provisions. Such relief shall be in addition to any other legal
or equitable remedies which may be available to Interline.
SECTION 9 - GOVERNMENTS AND COUNTRIES
9.1 Purchaser's Responsibility. Purchaser shall obtain for
the Parties all approvals, permits, licenses, etc. necessary for
this Agreement and for the performance of obligations under this
Agreement (including payments to Interline) required by the
Government of the Republic of Korea or any of its agencies
ministries or under any law, regulation, ordinance or requirement
of the Republic of Korea or any of its subdivisions. Approval
from the government of the Republic of Korea (including any
applicable Korean agencies and ministries) of this Agreement
shall be obtained by Purchaser at its expense for benefit of the
Parties.
9.2 Export Act. Purchaser hereby warrants and certifies
that no part of Disclosed Information or Interline Technology
shall be made available or exported by Purchaser to any country
in contravention of any law or regulation of the United States,
including the Export Administration Act of 1979 and regulations
relating thereto. This Agreement and Interline's obligations
hereunder are subject to such laws and regulations.
9.3 Impairment by Government Regulation. In the event that
the government of the Republic of Korea or the United States, or
any agency or subdivision of the government of either country,
adopts or interprets any measure, regulation or law, which is in
conflict with the terms of this Agreement or which has the effect
of impairing the object of this Agreement, either Party may
propose negotiations for an appropriate modification of this
Agreement. The Parties shall in good faith attempt to agree upon
an appropriate modification.
9.4 Different Customs, Laws and Languages. Purchaser
acknowledges that the Republic of Korea is at a great distance
from Interline, and has laws, languages and customs which are
foreign to and unknown by Interline. Accordingly, in an effort
to help Interline in its performance of its obligations,
Purchaser shall assist Interline in dealing with any problems
arising from such distance and differences. Interline shall not
be liable for any breach or default caused by any such problem.
SECTION 10 - GENERAL PROVISIONS
10.1 Attorneys' Fees. In the event of any litigation or
arbitration between the Parties, the prevailing Party shall be
entitled to recover from the nonprevailing Party any and all
costs, including reasonable attorneys' fees, incurred by the
nonprevailing Party. Such relief shall be in addition to any
other relief, award or damages to which the prevailing Party may
be entitled.
10.2 Severability. In case any one or more of the
provisions contained herein shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be
construed as if such invalid, illegal or unenforceable
provision(s) had never been contained herein; provided that such
invalid, illegal or unenforceable provision(s) shall first be
curtailed, limited or eliminated to the extent necessary to
remove such invalidity, illegality or unenforceability with
respect to the applicable law as it shall then be applied.
10.3 Governing Law. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State
of Utah and the laws of the United States of America. The United
Nations Convention on Contracts for the Sale of Goods shall not
be applicable and is rejected by the Parties. Any litigation or
arbitration between the Parties involving Interline shall be
conducted in Salt Lake City, Utah, U.S.A. and the Parties hereby
submit to such jurisdiction and venue. Such jurisdiction and
venue shall be exclusive.
10.4 Final Agreement. This Agreement (including the
Recitals set forth at the beginning hereof and Exhibits A through
D, attached hereto) constitutes the final and complete agreement
between the Parties concerning the subject matter of this
Agreement, and supersedes all prior agreements, understandings,
negotiations, letters of intent (including the September 27, 1994
letter from Michael Williams to Jae Sup N. Lee), and discussions,
written or oral, between the Parties with respect thereto. Any
modification, revision or amendment of this Agreement shall not
be effective unless made in a writing executed by the Parties.
10.5 Waiver. Any waiver of, or promise not to enforce, any
right under this Agreement shall not be enforceable unless
evidenced by a writing signed by the Party making said waiver or
promise.
10.6 Headings. The headings in this Agreement are for the
purpose of convenience only and shall not limit, enlarge or
affect any of the covenants, terms, conditions or provisions of
this Agreement.
10.7 Language. The language used in this Agreement shall be
deemed to be the language chosen by the Parties to express their
mutual intent, and no rule of strict construction shall be
applied against any Party.
10.8 Notices. All notices, requests, consents, demands and
other communications under this Agreement must be in writing and
shall be sent to the Parties at the addresses set forth below, or
to such other person and place as any Party may designate for
itself by notice to the other Parties:
Interline: Interline Resources Corporation
160 West Canyon Crest Drive
Alpine, Utah 84004
U.S.A.
Attention: President
With
a copy to: "Interline
Legal Department" at the
same address
Purchaser: Jinnes Technologies, Inc.
624 E. Evelyn Avenue, Suite F
Sunnyvale, California 94086
U.S.A.
Attention: Jae Sup N. Lee
10.9 Force Majeure. Except for obligations to make payment,
no Party shall be liable to the other Party for any failure of
(or delay in performance of) its obligations hereunder due to any
cause or circumstance which is beyond its reasonable control
including, but without limiting the generality of the foregoing,
any such failure or delay that is caused by strike, lockout,
labor shortage, unavailability of personnel, equipment or parts,
fire, explosion, shipwreck, act of God or the public enemy, war,
riot, interference by the military or governmental authorities,
or compliance with the laws of the United States or with the laws
or orders of any applicable government authority.
10.10 English Language. All communications between the
Parties concerning anything within the scope of this Agreement
shall be in the English language.
10.11 Assignments. Purchaser does not have either the
right or the power to assign this Agreement or any rights
hereunder without first obtaining the written consent of
Interline. Interline shall not withhold consent if the
assignment is to a person or entity who purchases or acquires the
Unit and who first delivers to Interline a written acceptance of
(a) this Agreement and Purchaser's obligations thereunder, and
(b) the Unit License Agreement and Owner's obligations
thereunder.
10.12 Delegation of Duties. Interline may delegate
duties and otherwise render its performance under this Agreement
through independent contractors selected by Interline.
10.13 Relationships. The Parties understand and agree
that neither Purchaser nor Owner is or shall be a partner, joint
venturer, agent or representative of Interline.
10.14 Termination Option - Interline. If approval of
this Agreement and the Unit License Agreement and the License to
Owner thereunder are not obtained as contemplated in Section 9,
or if any other necessary governmental approval, permit or the
like is not obtained, Interline may terminate this Agreement.
10.15 Insolvency, Bankruptcy. If Purchaser becomes
insolvent, makes any assignment of its assets or business for the
benefit of creditors, or if a trustee or receiver is appointed to
administer or conduct its business or affairs, or if it is
adjudged in any legal proceeding to be either a voluntary or
involuntary bankrupt, then all the rights granted to Purchaser in
this Agreement shall forthwith cease and terminate without prior
notice or legal action by Interline.
10.16 Construction and Interpretation. This Agreement is
written in the English language and shall be construed and
interpreted in accordance with such language, regardless of any
translations that may be prepared or executed. All references to
weights, measurements, volumes, capacity and amounts, shall be
definitions applied pursuant to the laws and standards of the
United States of America.
10.17 United States Dollars. All references to
"Dollars", "$", money or funds in this Agreement mean dollars of
the United States of America. All payments to Interline by
Purchaser under this Agreement shall be in lawful money of the
United States of America.
10.18 Non-Frustration, Other Instruments, Further
Assurances. No Party to this Agreement shall commit any act or
take any action which frustrates or hampers the rights of the
other Parties under this Agreement. Each Party shall act in good
faith and engage in fair dealing when taking any action under or
related to this Agreement. The Parties agree to execute any
other documents, instruments or writings as may be reasonably
required in connection with the performance of this Agreement and
the realization of the benefits and protections hereof.
10.19 Execution. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one
and the same instrument. The individuals signing below represent
that they are duly authorized to do so by and on behalf of the
Party for whom they are signing.
AGREED TO AND ACCEPTED BY:
JINNES TECHNOLOGIES, INC. ("Purchaser")
By (signature):
Name (print): Jeasup N Lee
Title: President
INTERLINE RESOURCES CORPORATION ("Interline")
By (signature):
Name (print): Michael R. Williams
Title: Presdient
EXHIBIT A
THE UNIT
Process Description
The Interline Process relies on propane extraction followed
by vacuum distillation to clean and re-refine Used Oil. The
recovered Base Oil may require clay or an equivalent finishing
step to produce the required colors mentioned in Exhibit B,
entitled "Specifications".
The first step of the process dissolves the Used Oil with
propane and rejects most of the Used Oil additives and any water
present in the feedstock to the Unit. The additives are blended
with the heaviest Oil from the vacuum distillation section to
produce an asphalt extender. Currently, it is planned to
evaporate the water in an excess capacity furnace. However,
alternative lower cost methods may be chosen by the Owner based
on specifications for industrial waste water disposal in Korea.
The waste water disposal system design, construction and
operation shall be solely at Owner's expense.
The propane is recovered from the Oil-propane mix and reused
to dissolve additional Used Oil feedstock. The Oil is then
further refined by boiling the lighter gasoline and diesel
material out of the Base Oil. The Base Oil is then distilled to
improve color and remove any metals or other impurities that may
be present.
If the color of the Base Oil by this point in the process
does not meet the color specification mentioned in Exhibit B and
in the Test Requirements of the Acceptance Test, then a clay
treatment or an equivalent finishing step will be provided by
Interline.
Equipment
A more detailed description of the equipment involved will
be supplied at a later date in the form of several P&ID's
(Process and Instrument Diagrams). A general description of the
equipment is provided below.
The equipment will be skid mounted to the extent feasible.
The Oil charge section will consist of Oil and propane charge
pumps, a feed preheat exchanger, and a propane storage vessel.
The Propane Extraction section consists of a mixing vessel
together with a settling vessel. The Propane Recovery section
has a solution feed tank, a solvent flash drum for propane
removal, heat exchangers and a propane condenser.
Following the extraction/recovery section is the gasoline
removal section. This section consists of an atmospheric tower,
heat exchangers and a compressor which remove any propane or
gasoline-type material which may still be present in the Oil.
The vacuum distillation section consists of a single tower,
pumps, heat exchangers, coolers and vacuum producing equipment
necessary to boil the Base Oil thus removing the metals and other
contaminants remaining after the extraction process. An asphalt
mixing vessel is provided to mix the Residuum recovered from the
propane extraction together with the heaviest material from the
vacuum distillation section.
EXHIBIT B
SPECIFICATIONS
The Unit supplied by Interline will meet the following
operational specifications based on a Used Oil feedstock quality
as will be specified by Interline.
1 The Unit will have the capacity to process up to 24,000
gallons of Used Oil per 24- hour day.
2 The Base Oil will exhibit a color of 2.5 or better as
determined by ASTM test number D-15924-63T or D-1500-64.
3 Since the Finished Products produced are directly related to
the quality of the Used Oil feed to the Unit, the Unit design
will be based on the sample of Used Oil received from Owner.
4 Based on the sample of Used Oil feedstock received by
Interline from Owner on ___________, 1994, it is anticipated the
Finished Products produced will be approximately as follows:
(a) Water: less than 10% of the incoming feedstock will be
water, as determined by a laboratory distillation.
(b) Fuel: The fuel (Diesel and Gasoline) composition will be
less than 10% by volume of the incoming feedstock.
(c) The balance of the product will be Base Oil and asphalt
extender. The asphalt extender should not constitute more than
15% of the incoming feedstock.
In addition to supplying the Unit to meet the above
specifications, Interline will supply the following:
5 The complete design and detailed engineering for the process
described in Exhibit A, being the documents specified in the Unit
License Agreement, Section 3.1.
6 Engineering and specification only for the required furnace,
incoming, intermediate and final product storage tanks. Such
required furnace, incoming, intermediate and final product
storage tanks shall be provided at Owner's expense. However, if
Owner desires Interline to procure such items, Interline will
procure them for a fee of 5% of the purchase price thereof.
7 Design, installation and testing of plant control
instrumentation.
8. Interline will design, but will not install, the foundation
required for the Unit as described in Exhibit A.
EXHIBIT C
FORM OF UNIT LICENSE AGREEMENT
EXHIBIT D
SCHEDULE
1. Completion of plant fabrication: within six (6) months of
receipt of Purchaser's payment to Interline as provided by
Section 6.1(a).
2. Completion of plant installation: within one (1) month
after arrival of the Unit at the Unit Site.
3. Completion of performance testing: within two (2) months
after installation of the Unit at the Unit Site.
TABLE OF CONTENTS
SECTION 1 - INTRODUCTION 1
1.1 The Unit 1
1.2 Oil 1
1.3 Used Oil 2
1.4 MP-FP Vessel 2
1.5 Finished Products 2
(a) "Residuum"
2
(b) "First Perc
Material" 2
(c) "Base Oil"
2
(d) "Diesel" 2
(e) "Gasoline"
2
(f) "Finished
Products" 2
1.6 Disclosed Information 3
1.7 Proprietary Information 3
1.8 Proprietary Materials 3
1.9 Interline's facilities 3
1.10 Territory 3
1.11 Gallons 3
1.12 Specifications 3
1.13 Owner 4
1.14 Unit License Agreement 4
1.15 Unit Site 4
1.16 Other Definitions 4
SECTION 2 - MANUFACTURE AND PURCHASE OF UNIT 4
2.1 Manufacture of Unit 4
2.2 Design Capacity. 5
2.3 Purchase 5
2.4 Sale to Owner 5
2.5 Title 5
2.6 Risk of Loss 5
2.7 Schedule 5
SECTION 3 - DOCUMENTATION AND SOFTWARE 5
3.1 Provided Directly to Owner 5
3.2 Documentation Delivered to Purchaser 5
3.3 Ownership 5
SECTION 4 - INSPECTION, DELIVERY AND INSTALLATION 6
4.1 Inspection by Purchaser 6
4.2 Delivery 6
4.3 Installation and Start-Up of Unit 6
4.4 Acceptance Test 6
4.5 Owner's Personnel 6
4.6 Interline Maintenance Agreement 6
SECTION 5 - OBLIGATIONS OF PURCHASER 7
5.1 Expansion or Alteration of Unit 7
5.2 No Right to Operate Unit 7
5.3 Trademarks 7
5.4 Ownership 7
SECTION 6 - PAYMENTS 7
6.1 Unit Purchase Price 7
6.2 Performance Bond 8
6.3 Other Payments 8
6.4 Interest 8
6.5 Taxes 8
SECTION 7 - WARRANTIES, INDEMNIFICATION, DISCLAIMER
AND LIMITATION ON LIABILITY 9
7.1 Warranty - No Conflict 9
7.2 Warranty - Unit 9
7.3 Warranty - Manufacturers' 9
7.4 Warranty - Infringement 9
7.5 Disclaimer 9
7.7 Limitation on Liability 10
7.8 Indemnification - By Purchaser 10
7.9 Allocation of Risk 10
SECTION 8 - CONFIDENTIALITY 10
8.1 Acknowledgment. 10
8.2 Restrictions 10
8.3 Protection of Unit 10
8.4 Employees 11
8.5 Disclosure to Independent Contractors 11
8.6 Return of Proprietary Materials 11
8.7 Injunctive Relief 11
SECTION 9 - GOVERNMENTS AND COUNTRIES 11
9.1 Purchaser's Responsibility 11
9.2 Export Act 12
9.3 Impairment by Government Regulation 12
9.4 Different Customs, Laws and Languages 12
SECTION 10 - GENERAL PROVISIONS 12
10.1 Attorneys' Fees 12
10.2 Severability 12
10.3 Governing Law 12
10.4 Final Agreement 13
10.5 Waiver 13
10.6 Headings 13
10.7 Language 13
10.8 Notices 13
10.9 Force Majeure 13
10.10 English Language 14
10.11 Assignments 14
10.12 Delegation of Duties 14
10.13 Relationships 14
10.14 Termination Option - Interline 14
10.15 Insolvency, Bankruptcy 14
10.16 Construction and Interpretation 14
10.17 United States Dollars 14
10.18 Non-Frustration, Other Instruments, Further Assurances 14
10.19 Execution 15
15
BAHRAIN AND SINGAPORE AGREEMENT
THIS AGREEMENT (hereinafter "Agreement") effective the 20th
day of July 1995 is entered into by Interline Hydrocarbon
Inc., a corporation of the State of Wyoming, having its
principal place of business at 350 W. "A" Street, Suite 204,
Casper, Wyoming, 82601 (hereinafter called "Interline") and
Mr. Nandan Gadgil, Gadgil Western Group, and all
corporations, subsidiaries, affiliates, partnerships, joint
ventures, agents, principles, or other business entities or
individuals related thereto, having its principal place of
business at: P. O. Box 51331, Dubai, UAE, (hereinafter
called Western).
WHEREAS:
A. Western has been granted effective as of December
14, 1993 an exclusive sublicense by Interline Hydrocarbon
Inc. under the Interline Process, Patents, Improvements and
Technical Information to use, apply and practice the
technology disclosed thereunder to produce, process,
manufacture, use and sell Licensed Products (as defined in
the Sublicense Agreement dated December 14, 1993 referred to
above) for the Territory comprising India, Thailand,
Vietnam, Malaysia, Saudi Arabia, UAE, Oman, Kuwait, Iran and
Qatar only.
B. Interline Resources Corporation, a Utah corporation
of 160 West Canyon Crest Drive, Alpine, Utah 84004, has
acquired all right, title and interest in and to the
exclusive sublicense referred to in Recital A above together
with all of the obligations and duties of Interline
Hydrocarbon Inc. under that Sublicense Agreement.
C. Interline Resources Corporation, by an Assignment
Agreement dated January 13, 1995 with Petroleum Systems
Inc., a Utah corporation, acquired all right, title and
interest in certain inventions and Patent Rights relating to
the Interline Process, Patents, Improvements and Technical
Information relating to the Licensed Products, the subject
of the Sublicense referred to above, together with the
exclusive right to grant licenses thereon subject to the
exclusion of the practice of the Patent Rights as applied to
hydrocarbon products (a) which are extracted from the sands
or oil shales, (b) which are from crude oil from which wax
is extracted as a primary marketable product, and (c) which
are from soil or other similar media artificially
contaminated with hydrocarbons, the subject matter so
excluded forming the basis of an exclusive license between
Interline Resources Corporation and Petroleum Systems Inc.
D. By an assignment dated July 20, 1995, Interline
Hydrocarbon Inc. acquired all rights and obligations under
the Assignment Agreement dated January 13, 1995 between
Petroleum Systems Inc. and Interline Resources Corporation
including Inventions and Patent Rights defined therein and
the exclusive rights and obligations under the Assignment
Agreement dated January 13, 1995 between Petroleum Systems
Inc. and Interline Resources Corporation including
Inventions and Patent Rights defined therein and the
exclusive right to grant licenses thereunder together with
all rights and obligations under licenses previously granted
by Interline Hydrocarbon Inc. and/or Interline Resources
Corporation.
E. Interline is now the beneficial owner of the
Interline Process and certain Patents, Improvements and
Technical Information all pertaining to the treatment and
processing of hydrocarbon based media, and has the sole
right to license said Interline Process, Patents,
Improvements and Technical Information subject to the
exclusions set forth in Recital C above.
F. Western wishes to acquire a further license under
the Interline Process, Patents, Improvements and Technical
Information for the sole purpose of practicing the same in
the production of Licensed Products in Singapore and
Bahrain, ("the Licensed Territory") in accordance with the
provisions herein set forth.
G. Interline and Western believe that it may be to
their mutual advantage that Interline further sub-licenses
the Interline Process, Patent, Improvements and Technical
Information to parties other than Western in the Licensed
Territory.
H. It is understood by the parties that Western
intends to own, construct, and operate Interline Plants in
the Licensed Territory and that as part of the consideration
for entering into this transaction, that Interline shall
have the right to participate in such endeavors with Western
under the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises,
including payment, deliveries, disclosures, and mutual
promises hereinafter set forth, the parties hereto,
intending to be legally bound hereby, agree with each other
as follows:
Article 1
DEFINITIONS
As used herein, the following terms shall have the
meanings set forth below:
1.00 "Interline Process" means the process, method
and/or practice (including apparatus) originally invented by
Craig R. Mellen, and further developed by Interline, whereby
Hydrocarbon media is combined with a carrier (or carriers)
and thereafter subjected to multiple processes by which the
processed hydrocarbons are changed into a product having an
economically enhanced value and includes those embodiments
and descriptions found in U.S. Patent No. 5286380 and any
and all divisions, or continuations thereof.
1.01 "Patent or Patents" shall mean the following
Patent and Patent Application and all divisions,
continuations, reissues, substitutes, equivalents and
extensions thereof, as well as all related subject matter
and improvements and modifications thereto, the basis for
which is found in U.S. Patent No. 5286380 entitled
"Apparatus for Contaminated Oil Reclamation" and
International Patent Application #PCT/US95/01861 entitled
"Removal Of Contaminants From Oil."
1.02 "Improvement" or "Improvements" means any
improvement or invention created or acquired by Interline
that Interline believes is an advantageous addition or
change to the Licensed Technology.
1.03 "Technical Information" means published and
unpublished research and development information, unpatented
inventions, apparatus, knowledge, techniques and know-how of
every kind of character, trade secrets and technical data in
the possession of Interline at the effective date of this
Agreement which are needed to fully exploit the Licensed
Technology and all subsequent derivative Technical
Information developed or acquired by Interline which is
based upon said Technical Information including any
expansion, enhancement revision, modification or any other
form of development in which said technical information is
recast, improved or adapted.
1.04 "IP-FP Vessel" means the Interline Process First
Phase Vessel. An IP-FP Vessel may be one or more of a
unique proprietary constructed processing vessel wherein
hydrocarbon media is first introduced and combined with a
carrier and processed utilizing that art and practice
embodied and encompassed by the Licensed Technology.
1.05 "First Phase Process Equipment" means equipment
necessary to practice the Interline Process including IP-FP
Vessels, oil/propane separator equipment, propane recovery
equipment, residuum/water separator equipment and asphalt
blending vessels, together with the associated pumps,
piping, and control instrumentation including the PLC and
electrical systems.
1.06 "Interline Plant" means any mechanical processing
facility which uses First Phase Processing Equipment and the
Licensed Technology.
1.07 "Finished Products" means hydrocarbon laden media
products processed with First Phase Process Equipment or
apparatus of the Interline Plant. Finished Products
include, but are not necessarily limited to First Phase
Material, Diesel, Fuel Oil (and other low grade fuels),
Gasoline, Base Oil and Residuum.
1.08 Reserved.
1.09 "Licensed Territory" means the following
countries: Singapore and Bahrain only.
1.10 "Effective date hereof" means the date of final
execution of this Agreement.
1.11 "Licensed Technology" means the Patents,
Improvements, Know How and Technical Information all
pertaining to the treatment and processing of certain
hydrocarbon based media.
Article 2
DISCLOSURE OF TECHNICAL INFORMATION
2.00 Furnishing the Technical Information. As soon as
is practicable after the effective date hereof, Interline
shall furnish to Western all information necessary to enable
Western to practice the Licensed Technology in the
production of Finished Products. The form and type of
information furnished shall be at the discretion of
Interline and may include engineering information, technical
data, assembly drawings, detailed drawings, prints,
specifications, equipment, parts, tanks, vessels and
components, comprising integral parts of the Licensed
Technology. Interline shall only be obligated to furnish
such information and Technical Information necessary for
Western to produce Finished Products and shall not be
required to furnish any such information, data and Technical
Information which is, in the opinion of Interline, not
necessary for the manufacture and production of Finished
Products.
2.01 Reserved
2.02 Visits to Interline. Within one (1) year from
the effective date hereof, Western shall be entitled to
send, at its own expense, its technicians and executives to
visit plants and laboratories to be designated by Interline,
for the purpose of familiarizing such technicians and
executives with the application of the Licensed Technology
for the manufacture and production of the Finished Products.
Such visits shall be made at mutually convenient times and
during normal business hours.
2.03 Technical Assistance During Start-up. At the
request of Western, Interline will provide at its
convenience and for a time period determined by Interline, a
qualified person and persons to assist Western at the time
Western begins the use of the Interline Process - it being
understood that neither by furnishing services of such
technical personnel nor otherwise, will Interline assume any
responsibility for adapting or assisting in the adaptation
of Western's plants or equipment for use of the Interline
Process, or assume any responsibility whatever in connection
with such use.
Western will pay Interline's expenses incurred in
connection with furnishing the services of such technical
personnel including, without limitation, salary, traveling
and living expenses, and part of the departmental overhead
and general administrative expenses of his employer to the
extent reasonably allocable to the person under standard
accounting practices.
2.04 Additional Technical Assistance and Visits to
Interline. At the consent of Interline, from time to time
during the term of this Agreement, Western may send, at its
own expense, technicians and/or executives to visit plants
and laboratories to be designated by Interline, in which
application of the Licensed Technology is in use.
2.05 Visits to Western. From time to time during the
term of this Agreement, representatives or other designees
of Interline may, at Interline's expense, be sent to inspect
plants or laboratories in which application of the Licensed
Technology is in use or under study by Western. On the
occasion of such visits, or upon the written request of
Interline, Western shall be obligated to disclose and report
full information, including product samples, with respect to
all adaptations and improvements of the Licensed Technology
which Western has made, practiced, attempted, experimented
with, or otherwise has become aware of.
2.06 Design and Engineering of the First Phase Process
Equipment and other Engineering Services. Practice of the
Interline Process to produce Finished Products requires the
use and operation of First Phase Process Equipment. For
each Interline Plant constructed by Western under this
Agreement, Interline shall have the sole right to design,
engineer and specify the First Phase Process Equipment to be
utilized in said Interline Plant. Accordingly, when Western
determines to construct an Interline Plant, it shall so
notify Interline of the desired processing capacity, and
Interline shall proceed to design, engineer and specify the
First Phase Process Equipment necessary to meet said
capacity. Upon delivery to Western of said design and
engineering specifications, Western shall pay Interline an
amount equal to the greater of Fifty Thousand Dollars
($50,000.00) or ten percent (10%) of the total installed
cost of the First Phase Process Equipment. In the event
Western desires Interline to perform other special
engineering, design or other similar services, such special
services being beyond the scope of Interline's obligation
under this Agreement, and it is convenient for Interline to
perform such services for Western, Interline and Western
will mutually determine the compensation to be paid
Interline for the services requested.
2.07 Confidential Basis. Western agrees that the
Licensed Technology, and all Improvements and Technical
Information, whether written or oral, furnished or otherwise
known to Western shall be treated as confidential by Western
and Western shall take the necessary precautions to assure
that the Licensed Technology is not in any way disclosed to
any third party or parties during or after the term of this
Agreement. Western further agrees that it will not use the
Licensed Technology after termination of this Agreement.
2.08 Disclosure to Related Persons. The provisions of
Paragraph 2.07 shall not forbid disclosure of the Licensed
Technology by Western to its subsidiaries where necessary
for the use of the Licensed Technology to produce Finished
Products and with notice to Interline. In the event of such
disclosures, however, the receiving party shall be required
to agree to the same conditions of confidentiality as are
set forth in this paragraph and in paragraph 2.07 above, and
said disclosures shall not be made until Interline has
received from Western a writing evidencing the same.
2.09 Disclaimer of Liability. Interline shall use its
best efforts to verify the completeness and accuracy of the
Technical Information furnished by it hereunder, however,
Interline shall not be liable for any damages arising out of
use of such Technical Information.
Article 3
RIGHTS AND LICENSES
3.00 Grant. In consideration of the payments made
hereunder subject to the provisions set forth in Articles 4
and 6 hereof and the reservations, limitations and other
requirements set forth herein, Western is hereby granted,
for the duration of this Agreement, an exclusive license
under the Interline Process, Patents, Improvements and
Technical Information to use, apply and practice the
technology disclosed thereunder to produce, process,
manufacture, use and the sale of Finished Products only in
the Territory.
Notwithstanding anything else contained in this Agreement to
the contrary, the rights and title granted hereunder shall
not be effective until and unless the payment required in
Article 6.00 of this Agreement has been paid in full.
3.01 Absence of Implicit Licenses. Except as
expressly granted to Western herein, no license is given
hereunder and no act or acts of
manufacture, use, sale, import, export, or otherwise shall
be constructed as conveying any license to Western or to any
third party, expressly or by implication, estoppel or
otherwise.
3.02 Warranty, Indemnity. Interline, which has the
sole right to design, engineer, and specify the Licensed
Technology to be utilized in the Interline Plant, shall
warrant validity and specifications of the design and
Engineering and other Engineering Information supplied to
Western. Interline assumes no liability to Western or to
third parties with respect to (a) the performance
characteristics of any hydrocarbon material processed,
produced, manufactured or sold by Western under this
Agreement; (b) the production, use or sale of any apparatus
or Finished Product, or the practice of the Licensed
Technology; (c) any advertising to other promotional
activities with respect to any of the foregoing. Western
hereby indemnifies and holds harmless Interline against all
losses, damages and expenses, including reasonable
attorney's fees, incurred as a result of or related to
claims of third person's involving the processing,
manufacture, use or sale of the Finished Products or use of
the Licensed Technology.
The only Warranty shall be deemed to be a
representation of the validity of the design/engineering of
the Licensed Technology.
3.03 No Contest Clause. Western agrees not to
contest, nor to aid others in contesting, directly or
indirectly during the life of the Agreement or any extension
thereof, the validity of or title to the Licensed Technology
under which License rights are granted to Western hereunder.
3.04 Government Consent, Registration, Regulatory
Approval. It is understood that practice of the Licensed
Technology and/or this Agreement may be subject to various
governmental regulations, government consents and/or
registrations in the Licensed Territory. Western will
secure all such necessary approvals and consents of any such
governments, agencies and boards in the Licensed Territory.
Interline shall cooperate to the extent which may be
reasonably required in connection therewith, however,
Interline shall have no affirmative obligation to prosecute
any such applications, approvals or registrations on behalf
of Western, the same being at the sole undertaking and
expense of Western.
3.05 Applications. Interline will, at its sole
discretion file, prosecute and maintain Patents and patent
applications relating to the Licensed Technology.
Article 4
SUBLICENSING
4.00 The license granted Western hereby, is exclusive
as to Western in the Licensed Territory except as is
specifically provided for in this Article 4 and Article 7.
Because the parties acknowledge that it may be to their
mutual advantage to further sublicense the Interline
Process, Patents and Technical Information to parties other
than Western in the Licensed Territory, this Article 4, make
provision therefore.
4.01 Either party may propose to the other that a
sublicense under the license created hereby be granted to a
third party. If Western consents to so sublicense, then
Western shall seek to negotiate and get such terms,
covenants and conditions as they deem proper, it being
understood and agreed, however, that in all cases, said
terms, covenants and conditions shall include provision for
Interline to solely receive those running royalties set
forth in Paragraph 6.01 hereof. All monies, proceeds,
benefits and considerations received as a result of granting
a sub-license pursuant to Article 4, shall after deducting
all costs and expenses actually incurred in connection with
obtaining such sub-license, be divided equally between
Interline and Western.
4.02 Interline shall be obligated to consent to any
sublicense of the Interline Process, Patents and Technical
Information proposed by Western to a party other than
Western in the Licensed Territory, which would result in
Interline receiving not less than those royalties set forth
in Article 5 and not otherwise conflict with terms and
conditions of this Agreement.
Article 5
RESERVED
5.00 Reserved.
5.01 Reserved.
Article 6
LICENSE FEES, ROYALTY and MEASUREMENT
6.00 As compensation for the rights granted hereunder,
Western will pay to Interline the sum of one million US
Dollars ($1,000,000) payable in cash on execution of this
Agreement. This payment will not be paid later than August
31, 1995. The parties agree that no rights shall be granted
under this Agreement until this payment is made in full.
6.01 Running Royalty. For all Finished Products
produced, Western shall pay to Interline a royalty of two
cents (2 c) per gallon. On quantities of base oil stock
sold by Western produced under the Interline Process,
Patents, Improvements and Technical Information, Western
shall pay to Interline an additional royalty of five cents
(5c) per gallon making a total of seven cents (7c) per
gallon on base oil. These royalty amounts shall be paid to
Interline on every gallon of Licensed Product produced
regardless of whether the Licensed Product is produced by a
sublicense under this Agreement.
6.02 Royalty Adjustment. On January 1, 1999, the
parties shall re- determine the royalty amounts set forth
above. The purpose of redetermining the royalty amounts are
for the sole benefit of Interline. Accordingly, effective
January 1, 1999, royalties shall be increased by that
percentage increase in the OPEC posted price of crude from
the date of execution of this agreement, to December 31,
1998. Said increased royalty amounts shall be in effect
during the succeeding calendar year (1999). Thereafter, on
each succeeding calendar year during the term of this
agreement, a similar price redetermination shall be made and
shall be applicable during the succeeding year. In no
event, however, shall the redetermination result in
Interline receiving less than the royalties set forth in
6.01 above.
6.03 Reserved.
6.04 Measurement. The amount of the Finished Product
produced upon which the running royalty set forth above
shall be due and payable to Interline, shall be measured by
a liquid flow meter of a make and kind agreeable to the
parties, and shall be installed as an integral component of
the First Phase Process Equipment (herein "Royalty Meter").
The Royalty Meter shall be electronically linked to a
Programmable Logic Controller and computer ("PLC"). All
volumes of such Finished Product shall be computed to a
standard U.S. gallon. The Royalty Meter shall be open to
inspection by Interline at all times. The Royalty Meter
shall be tested and calibrated at Western's expenses by a
third party agreeable to Interline, for accuracy of
measurement quarterly or as often as Interline deems
advisable. In case any question arises as to the accuracy of
the Royalty Meter measurement, said meter shall be tested
upon the demand of either party and, if any error is found,
the meter shall be corrected. A volume measurement within
two percent (2%) of correct shall be considered correct as
to Finished Product produced prior to the test. The volume
of Finished Product produced for any period of inoperation
or inaccurate measurement in excess of two percent (2%)
shall be determined using the following:
(a) By correcting the error, if the percentage of error
is ascertainable by calibration, test or mathematical
calculation.
(b) By using the registration of any check measuring
equipment, if installed and accurately registering.
(c) By estimating the quantity processed by comparison
to volumes processed during preceding periods under similar
conditions when the measuring equipment was registering
accurately.
(d) By reviewing any inventory volumes, sales slips,
weight tickets, tank gauge measurements or other records
kept by Western in the normal course of its business, which
can be used reliable to determine production.
(e) If none of the above methods are feasible, the
volumes shall be determined by use of some other method
acceptable in the industry for determining such volume.
Article 7
INTERLINE PARTICIPATION RIGHTS
7.00 Option to Participate. As set forth in the
recitals of this Agreement, Western intends to own and
operate an Interline Plant in the Licensed territory. As
part of the consideration for entering into this Agreement,
Interline desires and Western does hereby agree to and grant
Interline, the unrestricted right and option to participate
and own up to 50% of all rights, title and interests which
may be owned and purchased by Western as a result of, or
arising out of the rights granted Western by this Agreement.
Said rights to participate shall be at the same cost basis
and terms by which Western obtains its interest.
7.01 Notice of Proposed Project. Upon Western's
determination to construct an Interline Plant, or otherwise
engage in a business opportunity to which Interline's option
to participate arises (hereinafter a "Proposed Project"),
Western shall give Interline written notice of the proposed
project. The proposed project notice, shall set forth the
nature of the proposed project in a manner and detail
sufficient for Interline to perform its own due diligent
evaluation in determining whether or not to elect its option
to participate.
Western acknowledges that Bahrain and Singapore are at
great distances from Interline and has customs, laws and
languages which are foreign to and unknown by Interline.
Accordingly, in an effort to help Interline in its
consideration of participating in a proposed project,
Western agrees to help, aid, advise, consult suggest,
disclose and counsel with Interline on the merits and
advisability of electing to participate in the project with
the highest degree of dignity and openness.
7.02 Manner of Exercising Option to Participate.
Within a reasonable length of time after being fully advised
concerning the nature and details of a proposed project,
said period not being more than sixty (60) days from receipt
of the Notice of Proposed Project, Interline shall give
Western written notice electing to participate, or electing
not to participate. In the event Interline elects not to
participate, Western shall have the right to proceed with
the project without Interline's participation, as long as
said project is accomplished on the terms and conditions
specified and disclosed in the Notice of Proposed Project.
In the event Western proceeds to complete or completes the
project on terms different that those set forth in the
Notice of Proposed Project, then Interline's notice of
election not to participate, shall be treated as null and
void, and Western shall notify Interline by a notice setting
forth the changed circumstances and Interline shall have the
right to reconsider its participation as if it were an
initial Notice of Proposed Project.
7.03 Acts of the Parties Upon Election to Participate.
Upon the election of Interline to participate in a proposed
project, the parties agree to contractually and legally
associate themselves in a form, or entity mutually agreeable
to them to accomplish the Proposed Project. Said
association may include the formation of a corporation,
partnership, joint venture, limited liability corporation,
trust, holding company, operating agreement, lease or other
legal association. Hereinafter said to be formed
association shall be referred to as a "Joint Venture",
however, use of said term shall not operate to limit or
define the type of entity the parties may mutually agree to.
Both parties acknowledge that it would be extremely
difficult and speculative to attempt to set forth in this
Agreement, all of the terms and conditions that may be
included in the formation of the joint venture and therefore
such terms and conditions of Joint Venture agreements shall
be discussed and accepted by both the parties on a case-to-
case basis.
Article 8
EXCHANGE OF INFORMATION
8.01 Exchange of Information. During the term of this
Agreement, Interline and Western will exchange information
which is calculated to increase the usefulness of the
Licensed Technology to the end that they may each have the
benefit of the knowledge and experience of the other.
8.02 Improvements. In the event that any improvement
patent is obtained on the patent herein mentioned, or any
application be made for such improvement patent or any
invention is made by the patent owner or assignee, affecting
such patent and Interline has the right to use said Patent,
Western shall have the right to use such improvement or
invention in as far as they relate to the rights granted
Western hereunder to utilize the Licensed Technology.
Further, in the event that Western shall have issued to it
any patent for an improvement on the processes or devices
covered by the patent herein mentioned or shall make
application for any such patent, or shall make any invention
affecting such device during the continuance of this
agreement, such improvement patents, patent applications and
inventions shall become the property of Interline and
Western shall execute and deliver to Interline upon written
demand any assignment or other instrument necessary to
properly transfer to Interline such patent, patent
application or invention, but Western shall have the same
right to use such improvement or invention, whether
application for a patent has been made or not, as though the
same were herein specifically covered by this agreement and
under the same terms, covenants and conditions.
8.03 Grant of License to Interline. In addition to
the rights of assignment granted in Paragraph 7.02, Western
hereby grants to Interline and its subsidiaries a world-
wide, royalty-free, irrevocable, permanent, exclusive
license to make, use and sell products and improvements
thereon under any invention which is conceived or patented
by Western during the life of this Agreement and which
relates directly or indirectly to the Licensed Technology.
It is agreed, however, that such license to Interline shall
not include any rights to practice the Licensed Technology
or to sell Finished Products in the Licensed Territory.
8.04 Additional Products. It is acknowledged by
Western that this Agreement shall apply only to the
production of Finished Products as defined herein. It is
understood, however, that additional processes, products and
apparatus may have been developed, or may be developed and
will be developed by Interline which arise out of the
Licensed Technology. In the event Interline elects to offer
additional processes, technology and/or apparatus for the
manufacture of products other than those Finished Products
herein, Interline and Western will mutually determine the
compensation to be paid to Interline for granting Western
the rights to manufacture, process, use and sell such
additional Finished Products.
Article 9
STATEMENTS, PAYMENT AND RECORDS
9.00 Monthly Statements. On the first day of the next
succeeding production month, the PLC shall generate a report
setting forth the number of gallons processed by the First
Phase Process Equipment each day during the previous
production month.
9.01 Payment. On or before the fifteenth (15th) day
following the end of each quarter Western shall render to
Interline a Royalty Settlement Statement showing the total
daily gallons processed the previous quarter by the First
Phase Process Equipment and the total amount due to
Interline. Payment in U.S. dollars shall be made at the
time of furnishing said Royalty Settlement Statement. In
the event Western fails to make payment of the royalties
within 90 days after they become due and payable, in
addition to any other remedies provided herein, Interline
shall have the unencumbered and unrestrained right to offer,
negotiate and enter into non-exclusive sub license
agreements with parties other than Western in the Licensed
Territory without having to proceed under Article 4 hereof,
and Western shall have no right or claim to any of the
proceeds, consideration, benefits, rights or income
Interline may receive therefrom.
9.02 Interest. Western shall pay interest to
Interline upon any and all amounts overdue and payable
hereunder at the prime rate on the U.S. dollar as quoted in
the Wall Street Journal and adjusted quarterly.
9.03 Records. Western shall keep true and accurate
records, files and books of accounts containing all the data
reasonably required for the full computation and
verification of the amounts to be paid hereunder, the
information to be given in the statements provided for
herein, and any other normal and reasonable records
necessary to verify and substantiate performance of
Western's obligations hereunder. Interline, or its
designated representative, shall have access to the books
and records of Western during normal business hours for the
purpose of determining or confirming all billings and
payments made hereunder. Western shall retain all such
records, files and books of accounts for a period of at
least five years after its preparation or such other period
as required under law.
Article 10
TERMINATION
10.00 Default. If either party shall at any time be
in default in fulfilling any of its obligations hereunder,
and such default shall not be cured within sixty (60) days
after written notice from the other party specifying the
nature of the default, the other party shall thereafter have
the right to terminate this Agreement by giving written
notice of termination to the defaulting party, and upon the
giving of such notice of termination this agreement shall
terminate forthwith.
10.01 Insolvency, Bankruptcy. If Western becomes
insolvent, makes any assignment of its assets of business
for the benefit of creditors, or if a trustee or receiver is
appointed to administer or conduct its business or affairs
or if its adjusted in any legal proceeding to be either a
voluntary or involuntary bankrupt, then all the rights
granted herein shall forthwith cease and terminate without
prior notice or legal action against Interline.
10.02 Impairment by Government Regulation. In the
event that the government of any of the countries of the
Licensed Territory, or any agency, subdivision thereof,
adopts or interprets any measure, regulation or law, which
although not directly in conflict with the terms of this
Agreement may, nevertheless, in either party's opinion have
the effect of impairing the object of this Agreement, or
otherwise directly impairs the object of this Agreement,
either party may propose negotiations for an appropriate
modification of the Agreement. If the agreement or
modification is not reached within ninety (90) day following
the receipt of such a proposal, the other party may, upon
giving thirty (30) days written notice of termination to the
other party, terminate this Agreement as to a date to be
specified in such notice.
10.03 Termination Upon Expiration. This Agreement
shall terminate upon the expiration of the last to expire of
the Patents, Improvements, or Technical Information or upon
the abandonment of the last to be abandoned of any Patent
application, whichever is later, unless the Agreement is
sooner terminated.
10.04 Western Termination. Western may terminate this
Agreement at any time upon sixty (60) days written notice in
advance to Interline.
10.05 Antishelving. If Western discontinues its
processing of Finished Product without intent to resume, it
shall so notify Interline within one month of such
discontinuance, whereupon Interline shall have the right to
terminate this Agreement upon one month's written notice.
If Western discontinues production of Finished Product for a
period of one year, Interline shall have the right to
terminate this Agreement upon one month's written notice
unless Western can show that in good faith it intends and is
actually working to resume processing, and has reasonable
basis to justify its delay. In such case, Western shall
advise Interline in writing, before the end of such one year
period, of the circumstances involved and Western shall
thereupon have up to an additional year to resume
processing.
10.06 Effect of Termination. Notwithstanding
termination of this contract:
(a) Except for a default by Interline, Western shall
be obligated to cease and desist all practice of the
Licensed Technology.
(b) Western shall not be relieved of its obligation to
pay royalties to Interline with respect to Finished Product
processed prior to the effective date of termination.
(c) No circumstance, act, operation, or event, however
described or designated shall result in Western continuing,
or the right to continue processing under the Licensed
Technology without the payment of these running royalties
set forth in Article 6 thereof.
(d) Western shall not be relieved from its obligation
under Paragraphs 2.07 and 2.08.
10.07 Return of Technical Information. Except upon
default by Interline, in the event of termination of this
Agreement, Western shall return to all written Technical
Information furnished to Western hereunder, including any
copies of such technical information as may have been made
by or for Western.
Article 11
MISCELLANEOUS
11.00 Force Majeure. In the event that further lawful
performance of this Agreement or any part thereof by either
party shall be rendered impossible by or as a consequence of
any law, order, or act of any government or political
subdivisions thereof having jurisdiction over such party or
its affiliates (except as to government approvals which
Western was obligated to obtain) of by acts of public
enemies, war, strikes, or other labor disturbances, fires,
floods, acts of God or any causes of like or different kind
beyond the control of the parties, the parties hereto shall
be excused from any failure to perform any obligation
hereunder to the extent such failure is attributable to such
cases; provided, however, that in any such case such failure
to perform may nevertheless give rise to a right of
termination as provided in Article 7. The affected party
shall use all possible diligence to remove the force majeure
as quickly as possible.
11.01 Litigation. If either party discovers
infringements of the Patents and/or Improvements in the
Licensed Territory, it shall communicate the details to the
other party. Interline thereupon shall have the right, but
not the obligation, to take whatever action it deems
necessary, including the filing of lawsuits, to protect the
rights of the parties to this Agreement and to terminate
such infringement. Western shall cooperate with Interline
if Interline takes any such action, but all expenses of
Interline shall be borne by Interline. If Interline
recovers any damages or compensation for any action it takes
hereunder, Interline shall retain 100% of such damages. If
Interline does not wish to take any action hereunder,
Western shall also have the right, but not the obligation,
to take any such action, in which case Interline shall
cooperate with Western, but all of Western expenses shall be
borne by Western. Western shall receive 90% of any damages
or compensation it recovers for any such infringement and
shall pay 10% of such damages or compensation to Interline,
after deducting its costs, including attorney fees. Neither
party may settle with an infringer without the prior
approval of the other party, if such settlement would affect
the rights of the other party under the Licensed Technology.
11.02 Assignment, Transfers, Encumbrances. Any party
hereto may sell, transfer, assign, mortgage or grant
security interest in all or any part of its rights,
interests, benefits, or opportunities created or arising out
of this Agreement. However, such sale, transfer, assignment
, mortgage or grant of security interest shall be made
subject to this Agreement, with specific reference to this
Agreement made in any such writing and the purchaser,
transferee, assignee, purchaser of foreclosure or mortgage,
or holder of the security interest shall assume all the
obligations of this Agreement and shall be responsible for,
be obligated to, and bear as a party hereunder, with the
same effect as though originally named as one of the parties
hereto. The other party shall not be bound by transfer of
any such interest until it receives true copies of all
applicable transfer documents.
11.03 Severability. The parties agree that if any
part, term, or provision of this Agreement shall be found
illegal or in conflict with any valid controlling law, the
validity of the remaining provisions shall not be affected
thereby. In the event the legality of any provision of this
Agreement is brought into question because of a decision by
a court of competent jurisdiction, Interline, by written
notice to Western, may revise the provision in question or
may delete it entirely so as to comply with the decision of
said court.
11.04 Waiver, Alteration. The waiver of a breach
hereunder may be effected only by a writing signed by the
waiving party and shall not constitute a waiver of any other
breach. A provision of this Agreement may be altered only
by a writing signed by both parties.
11.05 Negotiation. If at any time during the term of
this Agreement, after termination hereof, any dispute,
difference or question arises between the parties respecting
the terms of this Agreement, or the transactions
contemplated hereby, the parties agree that they shall
negotiate in good faith to attempt to resolve such disputes,
differences or questions prior to commencing arbitration.
11.06 Arbitration, Applicable Law. All disputes
arising in connection with this Agreement (except at
Interline's option disputes relating to the obligation of
Western to render the statements and make payments provided
for herein) shall be settled by arbitration in accordance
with the Commercial Arbitration Rule on the American
Arbitration Association. Arbitration shall be held at
London, United Kingdom, unless the arbitrator or a majority
of the arbitrators decide that it shall be held at some
other place. Judgment upon the award rendered may be lodged
in any court having jurisdiction or application may be made
to such court for a judicial acceptance of the award and an
order of enforcement, as the case may be.
11.07 Attorney's Fees. In any arbitration action, or
action at law or in equity to enforce any of the provisions
or rights under this Agreement, the unsuccessful party to
such action, as determined by an arbitration or by a Court
in a final judgment or decree, shall pay the successful
party's costs, expenses and reasonable attorney's fees
incurred therein by such party (including without limitation
such costs, expenses and fees on any such appeal), and if
such party shall recover judgment in any such action or
proceeding such costs, expenses and attorney's fees shall be
included as part of such judgment.
11.08 Entire Agreement. This Agreement contains the
entire understanding of the parties hereto pertaining to the
subject matter hereof and supersedes any and all prior and
contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto
and cannot be modified, changed or discharged, except by
writing, duly executed by the parties hereto with the same
formality as this Agreement.
11.09 Captions, Recitals. The captions in this
Agreement are for convenience only and shall not define or
limit any provision hereof. The introductory paragraphs (or
recitals) to the Agreement also form a part of this
Agreement and are incorporated herein this reference.
11.10 Construction and Interpretation. This Agreement
is written in the English language and shall be constructed
and interpreted in accordance with such language, regardless
of any translations that may be required to be executed.
All references to weight, measurements, volumes, capacity
and amounts, shall be definitions applied pursuant to the
laws of the United States of America.
11.11 Notice. Any notice required to be given under
this Agreement shall be given in writing and shall be deemed
sufficiently served if sent by airmail, delivered by courier
service or by telecopier, fax, telex or other similar means
of communication and confirmed the following day by airmail,
addressed to the parties concerned as follows:
Interline: Interline Hydrocarbon Inc.
Attn: Michael R. Williams
350 W. "A" Street, Suite 204
Casper, Wyoming 82601
Western: Gadgil Western Group
Attn: Nandan Gadgil
P. O. Box 51331
Dubai, UAE
11.12 Non-Frustration, Other Instruments, Further
Assurances.
Neither party to this Agreement shall commit any act or take
any action which frustrates or hampers the rights of the
other party under this Agreement. Each party shall act in
good faith and engage in fair dealing when taking any action
under or related to this Agreement. Both parties agree to
execute any other documents, agreements, instruments, or
writings as may be reasonably required in connection with
the performance of this Agreement and the realization of the
benefits hereof.
11.13 No Brokers. The parties represent and agree
that no commission, brokers fees, finder's fee or similar
fees or expenses will accrue or be paid by their party with
respect to this transaction, or any transaction in the
future unless agreed to by the parties in writing.
IN WITNESS HEREOF the parties have caused this
Agreement to be executed by their duly authorized officers,
effective on the date first set forth herein.
INTERLINE HYDROCARBON INC.
___________________
Michael R. Williams
Chairman
GADGIL WESTERN GROUP
___________________
Nandan Gadgil
Chairman
\skc\qlube\gen\270
OPERATING AGREEMENT
FOR
GENESIS PETROLEUM-SALT LAKE, L.L.C.
THIS OPERATING AGREEMENT is made and entered into as of
October 25, 1995, by and between QUAKER STATE RESOURCES, INC., a
Nevada corporation ("QSR"), and INTERLINE HYDROCARBON, INC., a
Wyoming corporation ("Interline").
The Members desire to form a limited liability company
pursuant to the laws of the State of Utah. Accordingly, in
consideration of the mutual covenants contained herein, the
Members agree and certify as follows:
ARTICLE I
THE LIMITED LIABILITY COMPANY
1.1 Formation; Applicability of the Act. The Members
hereby form a limited liability company (the "Company") pursuant
to the provisions of the Utah Limited Liability Company Act as
currently or hereinafter in effect in the State of Utah (the
"Act"). On any matter upon which this Operating Agreement is
silent, the Act shall control. No provision of this Operating
Agreement shall be in violation of the Act and to the extent any
provision of this Operating Agreement is in violation of the Act,
such provision shall be void and of no effect.
1.2 Filing. In connection with the execution of this
Operating Agreement, the Members shall cause Articles of
Organization that comply with the requirements of the Act to be
properly filed with the Division of Corporations and Commercial
Code of the Utah Department of Commerce, and shall execute such
further documents and instruments and take such further action as
is appropriate to comply with the requirements of law for the
formation and operation of a limited liability company in all
states and counties where the Company may conduct its business.
1.3 Registered Office; Registered Agent. The street
address of the initial registered office of the Company is 1385
West 2200 South, Salt Lake City, Utah 84119, and thereafter at
such other location as the Members may designate. The name and
address of the Company's registered agent is: CT Corp., 50 West
Broadway, 8th Floor, Salt Lake City, Utah 84101.
1.4 Principal Place of Business. The location of the
principal place of business of the Company shall be at 1385 West
2200 South, Salt Lake City, Utah 84119, or at such other place as
the Members from time to time may determine.
ARTICLE II
NAME OF THE LIMITED LIABILITY COMPANY
The name of the Company shall be GENESIS PETROLEUM-SALT
LAKE, L.L.C.
ARTICLE III
TERM
3.1 Term of the Company. The Company shall commence on the
date of the filing of the Articles of Organization with the
Division of Corporations and Commercial Code of the Utah
Department of Commerce, and shall be dissolved fifty (50) years
from such date; provided, however, that the Company shall be
dissolved prior to such date upon the occurrence of any of the
following events:
(a) upon the vote of a majority of the ownership
interests in the Company;
(b) any event that makes it unlawful for the business
of the Company to be carried on by the Members;
(c) the death, retirement, resignation, expulsion,
insolvency, bankruptcy, or dissolution of a Member or the
occurrence of any other event that terminates the continued
eligibility for membership of a Member in the Company; or
(d) any other event causing a dissolution of a limited
liability company under the Act.
3.2 Continuance of the Company. Notwithstanding the
foregoing provisions of Section 3.1, upon the occurrence of an
event described in Section 3.1(c) above, the Company shall not
terminate or dissolve but shall continue, provided that the
remaining Members unanimously elect to continue the business of
the Company within ninety (90) days following such dissolution
triggering event. Otherwise, the Company shall dissolve and wind
up its affairs and the assets of the Company shall be distributed
pursuant to Article XI of this Agreement. For the purposes of
this Article, bankruptcy shall include a general assignment for
the benefit of creditors. The successors in interest of any
Member whose death, etc., might cause a dissolution of the
Company shall become substituted Members of the Company only if
they first consent in writing to be bound by the provisions of
this Agreement, and then only if the remaining Members
unanimously consent in writing to such substitution. Without
such consent, the successors in interest shall be treated as
unauthorized assignees.
ARTICLE IV
CHARACTER OF BUSINESS
The character and purposes of the Company shall be:
(a) To use a certain patented solvent extraction
technology (hereinafter "Technology") for the refining and
processing of certain hydrocarbons;
(b) To purchase, convey, trade, sell, manufacture,
process, and refine used oils, waste oils, used
hydrocarbons, petroleum products, and all products
developed, manufactured, processed, refined, or derived
therefrom;
(c) To incur indebtedness, secured or unsecured, for
any of the purposes of the Company;
(d) To lease, rent, purchase or acquire any and all
types of real and personal property, and to enter into,
perform and require performance under contracts, leases,
agreements of every legal type whatsoever.
(e) To invest and reinvest the assets of the Company,
and to purchase or otherwise acquire, hold, sell, transfer,
exchange, or otherwise dispose of or realize upon,
securities of all types and descriptions and any other
interests in business ventures;
(f) To transact any and all other businesses for which
limited liability companies may be formed under the Act;
(g) Any other purposes necessary to protect or enhance
the assets of the Company.
ARTICLE V
NAMES AND RESIDENCES OF MEMBERS
The name and place of business of each Member of the Company
are as follows:
Member Place of Business
Quaker State Resources, Inc. 1385 West 2200 South
Salt Lake City, Utah
84119
Interline Hydrocarbon, Inc. 160 West Canyon
Crest Drive
Alpine, Utah 84004
ARTICLE VI
CAPITAL CONTRIBUTIONS
6.1 Initial Contributions to Capital. The initial capital
contributions of the respective Members and the respective
interests of the Members in the initial capital of the Company
are as follows:
Capital Percent Ownership
Member Contribution Interest
Quaker State Resources, Inc. $ 300,000.00
74.00%
Interline Resources $ 100,000.00
26.00%
TOTAL: $ 400,000.00 100.00%
6.2 Interest on Contributions. No interest shall be paid
on the initial contributions to the capital of the Company or on
any subsequent capital contributions made by the Members.
6.3 Withdrawal of Capital. No withdrawals of the Company
capital will be permitted except on the affirmative vote of the
Management Committee established pursuant to Article X herein.
ARTICLE VII
CAPITAL ACCOUNTS; DRAWING ACCOUNTS
7.1 Capital Accounts. An individual capital account shall
be maintained for each Member. The capital interest of each
Member shall consist of its share of the initial capital of the
Company as shown in Article VI hereof, increased by: (1) its
additional contributions to capital, and (2) its share of Company
profits transferred to its capital account; and decreased by:
(a) distributions to the Member in reduction of the Member's
capital account, and (b) the Member's proportionate share of
Company losses, if transferred from its drawing account.
7.2 Drawing Accounts. An individual drawing account shall
be maintained for each Member. All withdrawals made by a Member
shall be charged to its drawing account. Each Member's share of
profits and losses shall be credited or charged to its drawing
account.
7.3 Distribution of Profits. If the Management Committee
determines that any portion of the credit balances in the
Members' drawing accounts should be retained for the reasonable
needs of the business, such portion shall be retained in the
Company. Any portion of the Members' drawing accounts which is
not so retained for the reasonable needs of the business, shall
be distributed to the Members, in accordance with their
respective interests therein, no less often than annually.
7.4 Transfers from Drawing Accounts to Capital Accounts.
The Members may transfer all or part of any credit balances or
debit balances in the Members' drawing accounts to the Members'
capital accounts at any time, provided the transfers are made
proportionately to each Member's interest in capital, and such
proportionate Membership interests are preserved inviolate. No
transfer may be made to any capital account which would have the
effect of altering or modifying the percentage ownership interest
as set forth in Section 6.1 herein.
ARTICLE VIII
REIMBURSEMENTS, PROFITS AND LOSSES
8.1 Cost Reimbursement. In consideration of the efforts
and contributions of each Member of the Company, each Member
shall be reimbursed by the Company for actual costs incurred
while performing its duties for the Company. Actual costs shall
be determined by itemized and documented lists and/or by
Management Committee approval. All reimbursements shall be made
on a monthly basis. In the event costs exceed revenues, each
Member shall, at the time of the monthly reimbursement, be
reimbursed a percentage of its costs, which percentage shall be
determined by the Management Committee.
8.2 Allocation of Profits. In addition to reimbursements
as provided in Section 8.1 herein, each Member shall share in any
of the net profits or net losses of the Company. In order to
determine net profits and losses, the definitions attached hereto
as Exhibit "___" shall be applied. All Members acknowledge that
the Technology License obtained by QSR, and to be sublicensed to
the Company requires payment of a royalty of: (a) three and one
half cents ($0.035) per gallon of base oil recovered from any
process which employs the Technology; (b) the lesser of three and
one half cents ($0.035) per gallon, or ten percent (10%) of the
sales price received for each product (other than base oil)
derived from the Unit; as well as (c) seven and one half percent
(7.5%) of any net profits received by the Company. The remaining
distributable net profits received by the Company shall be split
as follows:
a. Seven percent (7%) of net profits shall be paid to
Crysen Refining, Inc. as ground rent under a Lease Agreement
dated July 7, 1995.
b. Twenty-two and one-half percent (22.5%) of net
profits shall be paid to Interline.
c. Sixty-three percent (63%) of net profits shall be
paid to QSR.
8.3 Allocation of Losses. All losses of the Company shall
be allocated amongst the Members pro rata in accordance with
their capital interest in the Company, namely as follows: 74% to
Quaker State Resources, Inc., 26% to Interline. Losses shall be
carried forward to following year(s) where necessary, and shall
accrue against future profits.
8.4 Liability of Members. No Member shall be personally
liable for any of the losses of the Company beyond its initial
capital investment in the Company.
ARTICLE IX
ACCOUNTING FOR THE COMPANY
9.1 Accounting Methods; Fiscal Year. The Company shall
keep its accounting records and shall report for income tax
purposes on an accrual basis. The fiscal year of the Company,
both for accounting and tax reporting purposes, shall be the
calendar year.
ARTICLE X
MANAGEMENT OF THE LIMITED COMPANY
10.1 Management of the Company. The Company shall be
managed by QSR. Policy decisions will be made by a Management
Committee consisting of one appointed representative from each
Member. Each Member shall appoint their own representative on an
annual basis. Voting rights of the Management Committee shall be
based upon percentage ownership of each Member in the Company,
with each representative of the Management Committee having one
vote for each full one percent (1.0%) of ownership of the Member
represented. All decisions by the Management Committee shall
require the affirmative vote of a majority of all voting
interests.
10.2 Independent Powers of Manager. The Manager shall have
broad authority and powers to act without the approval of, or
action by, the Management Committee in conducting the ongoing
affairs of the Company, including, but not limited to: acting as
the Tax Matters Member as set forth in Section 10.4 of this
Operating Agreement; maintaining checking or other accounts in
such bank or banks as the Manager shall determine; managing,
maintaining, distributing and safeguarding all funds received by
the Company; paying obligations of the Company; executing
contracts, assignments, agreements, legal documents, and other
documents binding upon the Company; interacting with customers,
governmental agencies, suppliers, and other third parties; filing
regulatory, compliance, financial, tax, accounting and other
reports for and on behalf of the Company; selling Company
products; managing Company assets; creating or incurring debt for
and on behalf of the Company, whether through borrowing,
spending, charging or otherwise, up to a maximum sum of $50,000
per month; establishing Company credit accounts with third
parties; hiring and firing Company employees; managing personnel;
establishing operational, marketing, production, and personnel
policies; and taking all other action deemed necessary by the
Manager in managing, conducting, organizing, supervising, and
overseeing the daily operations, business affairs, marketing,
production, sales, and ongoing concerns of the Company, which are
not otherwise prohibited under Section 10.3 of this Operating
Agreement.
10.3 Dependant Powers of Manager. The Manager shall have
certain powers and authorities to act, only with approval or
action by the Management Committee. Managerial acts requiring
Management Committee approval shall include: a sale of all or
substantially all of the assets of the Company; the creation of
debt in a sum exceeding a cumulative total of $50,000 per month;
any sale of products at a price less than Company cost; any
amendments, changes or modifications to Company Member
compensation policies; approval of significant capital
improvements; settlement of lawsuits.
10.4 Tax Matters Member. The Company shall appoint a Tax
Matters Member. The Tax Matters Member shall have the following
rights and duties: (a) to provide the Internal Revenue Service
any or all information which is within the knowledge of the Tax
Matters Member as to the organization operations and/or
liquidation of the Company; (b) to adjust, arbitrate, negotiate,
compromise, sue or defend, abandon or otherwise deal with and
settle any and all federal tax matters or claims in favor of or
against the Members and the Company as the Tax Matters Member
shall deem proper; and (c) do all other things which may be
permitted or required of tax matters partners pursuant to
Internal Revenue Code Sections 6221 through 6232 as amended.
ARTICLE XI
LIQUIDATION
11.1 Events Causing Liquidation. This Company shall be
dissolved and terminated when any one or more of the following
occurs:
(a) The term of the Company expires without renewal;
(b) The Members unanimously vote to dissolve the
Company; or
(c) Subject to the provisions of Article III, there is
a death, retirement, resignation, expulsion, dissolution,
incapacity or bankruptcy of a Member.
11.2 Method of Liquidation. Upon any such dissolution and
termination of this Company, the Company shall immediately
commence to wind up its affairs. The remaining Members shall act
as liquidators. The liquidators shall have full power and
authority to sell, assign and encumber any or all of the
Company's assets and to wind up and liquidate the Company's
business, assets and affairs in an orderly and prudent manner.
11.3 Settlement Upon Dissolution. The Members shall
continue to share profits during the period of liquidation in the
same proportions as before dissolution. Any losses in
disposition of the Company properties in the process of
liquidation shall be credited or charged to the Members in the
ratio of their capital interests. The proceeds from the
liquidation shall be applied in the following order:
(a) To creditors of the Company, including Members who
are creditors of the Company;
(b) To Members in respect to their share of any
undrawn profits; and
(c) To Members in respect to their contributions to
the capital of the Company.
11.4 Distribution in Kind. If the liquidator shall
determine that a portion of the Company's assets should be
distributed in kind to the Members, the liquidator shall
distribute such assets to the Members in undivided interests as
tenants-in-common in proportion to the Members' ownership
interests.
11.5 Completion of Dissolution. Upon the completion of the
distribution of the Company assets, the Company shall be
terminated and the Management Committee shall cause the Company
to execute Articles of Dissolution and take such other actions as
may be necessary or appropriate to terminate the Company.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. Any notices to or between the Members shall
be in writing and shall be sent registered mail, return receipt
requested, to the address of each Member as the same appears in
the books and records of the Company. Notice shall be deemed to
be received on the earlier of the day actually received or the
fifth day after being deposited in the United States mail as
above described.
12.2 Amendment of Agreement. This Agreement may be amended,
altered, supplemented, or modified by the vote of the Management
Committee; provided, however, that no provision of this Agreement
requiring a decision to be made or action to be taken upon the
vote or agreement of the Members or Management Committee may be
amended to allow a decision to be made or action to be taken upon
the vote or agreement of less than sixty percent (60%) of all
voting interests.
12.3 Invalidity. If any part of this Agreement is or shall
be invalid or unenforceable for any reason, the same shall be
deemed severable from the remainder hereof, and shall in no way
affect or impair the validity of this Agreement, or any other
portion thereof.
12.4 Gender. The masculine includes the feminine and the
neuter, the singular includes the plural, and vice versa, as the
context may require.
12.5 Execution of Further Instruments. The Members shall
cooperate with each other in good faith to accomplish the
objectives and purposes hereof and to that end, from time to
time, they shall make, execute, and deliver such other and
further instruments as may be necessary or convenient in the
fulfillment of this Agreement.
12.6 Headings. The headings of this Agreement are included
solely for convenience of reference and shall not be construed as
limiting or in any other way modifying the text of the Agreement.
12.7 Agreement to be Binding. This Agreement shall be
governed by the laws of the State of Utah and shall inure to the
benefit of and shall be binding upon each of the Members and
their respective personal representatives, executors, heirs,
successors, and assigns (including successors and assigns by
operation of law and involuntary event, as well as by voluntary
act).
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement.
MEMBERS:
QUAKER STATE RESOURCES, INC.
By: Shane Smoot
Its: President
INTERLINE HYDROCARBON, INC.
By: Stephen P. Yeoman
Its: President
Mr. Michael R. Williams,
March 28, 1996
Page 3
Mr. Michael R. Williams,
INTERLINE RESOURCES CORPORATION
160 West Canyon Crest Drive
Alpine, Utah 84004
Re: Letter of Understanding -- Genesis
Petroleum-Salt Lake, L.C. Capitalization
Dear Mike:
This letter will serve to document the recent changes
in agreement between Quaker State Resources, Inc. (hereinafter
"QSR") and Interline Resources Corporation (hereinafter
"Interline") relative to the capitalization of Genesis Petroleum-
Salt Lake, L.C. (hereinafter "Genesis") and the respective
interests of the parties in Genesis.
As you may recall, by the terms of the License and
Technology Disclosure Agreement (hereinafter "License Agreement")
dated September 13, 1994, QSR (as successor in interest to Q
Lube, Inc.) agreed to pay to Interline the sum of Five Hundred
Thousand Dollars ($500,000.00) upon the latter of: (i) the time
the first Unit began operating at full capacity; or (ii) January
15, 1995.1 It was also anticipated that the first Unit would be
operated by Genesis, and that original Genesis members would
likely include QSR, Interline, Crysen Refining, Inc. (hereinafter
"Crysen"), and perhaps APR Inc. It was always anticipated that
QSR's capital investment with relation to Genesis would be the
purchase of the Unit and the ancillary structures necessary for
Unit operation, and provision of a pro-rata share of operating
capital.
Inasmuch as Crysen and APR have, for various reasons,
removed themselves from participation in Genesis membership, QSR
and Interline have found it necessary to reach a new agreement
regarding Genesis capitalization and membership interests. The
terms agreed upon between the QSR and Interline are as follows:
1. The parties acknowledge and agree that the Crysen Site
preparation will require an expenditure of approximately Nine
Hundred Thousand Dollars ($900,000.00), which figure is a
reflection of completing such Crysen Site preparation at cost.
2. Interline agrees to apply the Five Hundred Thousand
Dollar payment due from QSR to Interline under Section 3.2.3 of
the License Agreement entirely and exclusively to the costs of
Crysen Site preparation (the site "Improvements"). In addition,
Interline agrees to pay all other costs and expenses of site
preparation which are necessary to place the Unit in a state of
readiness for operation at full capacity, up to an additional
Four Hundred Thousand Dollars, for a total expenditure for site
preparation of approximately Nine Hundred Thousand Dollars
($900,000). All such Improvements are to be completed at
Interline's cost. Should the Improvements cost more than Nine
Hundred Thousand Dollars ($900,000), all excess expenses will be
paid from the operating capital by Genesis Petroleum.
3. Subject to the terms of the Ground Lease between
Genesis Petroleum and Crysen Refining, Interline will own the
Improvements to the Genesis site constructed and paid for by
Interline, up to $900,000 or such lesser sum as actually paid by
Interline. Genesis will own the remainder of the Improvements to
the extent the cost of such Improvements was paid by Genesis.
Interline will lease its share of the Improvements to Genesis at
a lease rate determined by multiplying the cost to Interline of
completing the Improvements (approximately $900,000) by an agreed
upon "Cost of Capital", which amount will be paid on terms
agreeable to both members of Genesis.
4. In addition to the foregoing, Interline also agrees to
pay to Genesis as capital funding the sum of One Hundred Thousand
Dollars ($100,000.00).
5. QSR agrees to purchase the Unit with related flare,
tower and laboratory equipment, together with all other ancillary
equipment necessary for the operation of the Unit at the Crysen
Site, and to lease all such equipment to Genesis pursuant to the
terms of an equipment lease. It is anticipated that the cost of
the Unit and related equipment, including all exclusivity fees
and related costs will be approximately Two Million Seven Hundred
Thousand Dollars ($2,700,000). The equipment lease between QSR
and Genesis will contain the same basic terms as the site
improvement lease referenced in paragraph 3. The lease rate will
be determined by multiplying the cost to QSR of the Unit and
related equipment (approximately $2,700,000) by the agreed upon
"Cost of Capital", which amount will be paid on the same terms as
agreed upon pursuant to Paragraph 3.
6. In addition to the foregoing, QSR agrees to provide to
Genesis as capital funding the sum of Three Hundred Thousand
Dollars ($300,000.00).
7. QSR and Interline agree that the initial membership
interests of the Parties in Genesis, and the respective
capitalization calculations thereof, as set forth in the initial
Operating Agreement of Genesis shall be as follows:
Initial Contributions to Capital. The initial capital
contributions of the respective Members and the respective
interests of the Members in the initial capital of the
Company are as follows:
Capital Percent
Ownership
Member Contribution
Interest
Quaker State Resources, Inc. $ 300,000.00
74.00 %
Crysen Refining, Inc. $ 100,000.00
26.00 %
TOTAL: $ 400,000.00 100.00 %
9. Both Interline and QSR shall be subject to capital calls
based upon their respective interests in Genesis.
10. Should QSR elect to terminate the its agreements with
Interline, pursuant to the terms thereof, and require Interline
to repurchase the Unit, QSR agrees to assign its interest in
Genesis to Interline, provided Interline reimburses all costs
incurred by QSR with relation to Genesis.
In the event the foregoing is an accurate recitation of the
facts and agreements of the parties, and if Interline is in full
agreement therewith, please execute this Letter in the place duly
provided below, and return the Letter to me as soon as possible.
Sincerely,
Quaker State Resources, L.C.
Shane D. Smoot
cc: Stephen K. Christensen, Esq.
_______________________________
1 See License Agreement, Section 3.2.3.
Guarantee (Foreign)
To: BARCLAYS BANK PLC
1. In consideration of your giving time credit and/or
banking facilities and accommodation to
INTERLINE (UK) LIMITED
JUBILEE WORKS
51/53 HANLEY STREET
ASTON
BIRMINGHAM
ENGLAND
(hereinafter called "the Principal") I/we the undersigned
hereby guarantee the payment or discharge to you and
undertake that the undersigned will on demand in writing
made on the undersigned pay or discharge to you all moneys
and liabilities which shall for the time being be due owing
or incurred by the Principal to you whether actually or
contingently and whether solely or jointly with any other
person and whether as principal of surety including interest
commission or other lawful charges and expenses which you
may in the course of your business charge in respect of any
of the matters aforesaid or for keeping the Principal's
account (including any further advances made by you to the
Principal and any other liabilities of the Principal to you
arising during the three months period of notice hereinafter
referred to) together also with:-
(i) such further sum for interest (whether or not the
same shall have been compounded) and banking charges
accruing due to you from the Principal before or after the
date of demand or expiration of the said notice as the case
may be and not debited to the Principal's account at such
date, and
(ii) all costs and expenses recoverable by you from
the Principal.
Provided always that the total amount recoverable hereunder
shall not exceed the sum of
One million two hundred thousand pounds sterling and in
addition the interest (on that amount or on such less sum as
may be due and owing) charges costs and expenses referred to
in sub-paragraphs (i) and (ii) above and in Clause 2 below.
2. The undersigned hereby agree to pay you all costs and
expenses (on a full indemnity basis) arising out of or in
connection with the recovery by you of the moneys due to you
under this Guarantee.
3. This Guarantee is to be a continuing security to you
notwithstanding any settlement of account or other matter or
thing whatsoever but may and shall be determined (save as
below provided) and the liability hereunder crystallized
(except as regards unascertained or contingent liabilities
and the interest charges costs and expenses hereinbefore
referred to) at the expiration of three months after the
receipt by you form the undersigned of notice in writing to
determine it but notwithstanding determination as to one or
more of the undersigned this Guarantee is to remain a
continuing security as to the other or others.
4. A demand for payment or any other demand or notice
under this Guarantee may be made or given by any manager
officer or agent of yours or of any branch of yours by
letter addressed to the undersigned and sent by post to or
left at the address for service given in Clause 30 below or
at your option in the case of a company its registered
office and if sent by post shall be deemed to have been made
or given at noon on the day following the day the letter was
posted.
5. For the purposes of the liability of the undersigned to
you under this Guarantee (including in particular but
without prejudice to the generality of the foregoing for all
purposes the liability of the undersigned for interest)
every sum of money which may now be or which hereafter may
from time to time become due or owing to you as aforesaid by
the Principal (or would have become so due or owing were it
not for the bankruptcy or winding up of the Principal) shall
be deemed to continue due and owing to you by the Principal
until the same shall be actually repaid to you
notwithstanding the bankruptcy or winding up of the
Principal or any other event whatever and in case of the
death of the Principal all sums which would have been due or
owing as aforesaid to you by the Principal if the Principal
had lived until the time at which you shall receive actual
notice of his death shall for all purposes of this Guarantee
be deemed included in the moneys due and owing to you by the
Principal.
6. This Guarantee is to be in addition to and is not to
prejudice or be prejudiced by any other securities or
guarantees (including any guarantee signed by the
undersigned) which you may now or hereafter hold from or on
account of the Principal and is to be binding on the
undersigned as a continuing security notwithstanding any
payments from time to time made to you or any settlement of
account or disability or incapacity affecting the
undersigned or the death of the undersigned or any other
thing whatsoever.
7. This Guarantee is to be applicable to the ultimate
balance that may become due to you from the Principal and
until payment of such balance the undersigned shall not be
entitled to participate in any security held or money
received by you on account of such balance or to stand in
your place in respect of any such security or money.
8. You are to be at liberty in the event of this Guarantee
ceasing from any cause whatsoever to be binding as a
continuing security on the undersigned to open a fresh
account and to continue any then existing account with the
Principal and no moneys paid into any such fresh account by
or on behalf of the Principal shall on a settlement of any
claim under this Guarantee be appropriated towards or have
the effect of payment of any part of the moneys due from the
Principal at the time of this Guarantee ceasing to be so
binding as aforesaid unless the person (other that the
undersigned) paying in such moneys shall at the time direct
you in writing specially to appropriate the same for that
purpose.
9. In the event of this Guarantee being determined either
by notice by the undersigned or by demand in writing by you,
or in the event of your receiving notice of any disability
or incapacity of the undersigned, it shall be lawful for you
to continue the account with the Principal notwithstanding
such determination or notice of disability or incapacity and
the liability of the undersigned for the amount due from the
Principal at the date upon which such determination of this
Guarantee shall become operative and of effect or when you
shall receive notice of any disability or incapacity of the
undersigned shall remain, notwithstanding any subsequent
payment into or out of the account by or on behalf of the
Principal.
10. Any admission or acknowledgment in writing by the
Principal or any person on behalf of the Principal of the
amount of the indebtedness of the Principal or otherwise in
relation to the subject matter of this Guarantee or any
judgment or award obtained by you against the Principal or
proof by you in Bankruptcy or Companies Winding Up which is
admitted or any statement of account furnished by you the
correctness of which is certified by any one of your General
Managers or Regional General Managers or Assistant General
Managers or Managers shall be binding and conclusive on the
undersigned.
11. You are to be at liberty without thereby affecting
your rights hereunder at any time and from time to time
(whether before or after any demand for payment made by you
under or any notice of determination of this Guarantee or
receipt by you of any notice of any disability or incapacity
of the undersigned) to refuse or grant (as the case may be)
further credit to the Principal to renew any bills of
exchange or promissory notes for a period and to compound
with give time for payment or grant other indulgence to the
Principal or to any obligant on bills of exchange promissory
notes or otherwise or to accept compositions from and make
any other arrangement with the Principal or any persons
liable to you in respect of securities held or to be held by
you to give up modify exchange or abstain from perfecting or
taking advantage of or enforcing any securities guarantees
or other contracts or the proceeds of any of the foregoing
and to discharge any parties thereto and to realize any
securities in such manner as you may think expedient.
12. The price obtained upon the realization of any
securities held by you for the indebtedness of the Principal
to you shall be binding on the undersigned and the
undersigned shall not be entitled by reason of anything in
the time or mode of realization of such securities or in the
price obtained therefore to any reduction in the amount of
his liability to you hereunder.
13. In the event of the bankruptcy or insolvency of the
Principal or of his entering into a composition or
arrangement with his creditors or if the Principal is a
company society or corporation in the event of the Principal
going into liquidation or being wound up or reconstructed or
making any arrangement with their creditors any dividends of
payments which you may receive from the Principal or his
estate or any other person shall be taken and applied as
payments in gross and shall not prejudice your right to
recover from the undersigned to the full extent of this
Guarantee the ultimate balance which after the receipt of
such dividends or payments may remain owing to you by the
Principal.
14. You are also to be a liberty without thereby affecting
your rights hereunder at any time and from time to time at
your absolute discretion to release discharge compound with
or otherwise vary or agree to vary the liability under this
Guarantee of or make any other arrangements with any one or
more of the undersigned and no such release discharge
composition variation agreement or arrangement or
arrangement shall prejudice or in any way affect your rights
and remedies against the other or others of the undersigned.
15. You are also to be a liberty, without prejudice to any
other rights you may have, at any time and from time to time
place and keep for such time as you may think prudent any
moneys received recovered or realized under or by virtue of
this Guarantee to or at a separate or suspense account to
the credit either of the undersigned or of you as you shall
think fit without any intermediate obligation on your part
to apply the same or any part thereof in or towards the
discharge of the moneys due or owing to you as aforesaid by
the Principal.
16. In the event of the bankruptcy or winding up of the
Principal you are to be at liberty (notwithstanding payment
to you by the undersigned or any other person of the whole
or any part of the amount hereby guarantee or any release
settlement discharge or arrangement made or given by you) to
rank as creditors and prove against the Principal's estate
or in the Principal's liquidation for the full amount of
your claim and you may and shall receive and retain the
whole of the dividends to the exclusion of the rights (if
any) of the undersigned as guarantor in competition with you
until your claim is fully satisfied.
17. No assurance security or payment which may be avoided
under any enactment relating to insolvency and no release
settlement discharge or arrangement which may have been
given or made on the faith of any such assurance security or
payment shall prejudice or affect your right to recover from
the undersigned to the full extent of this Guarantee as if
such assurance security payment release settlement discharge
or arrangement (as the case may be) had never been granted
given or made. And any such release settlement discharge or
arrangement shall as between you and the undersigned be
deemed to have been given or made upon the express condition
that it shall become and be wholly void and of no effect if
the assurance security or payment on the faith of which it
was made or given shall be void or (as the case may be)
shall at any time thereafter be avoided as aforesaid to the
intent and so that you shall become and be entitled at any
time after such avoidance to exercise all or any of the
rights in the Guarantee expressly conferred upon you and/or
all or any other rights which by virtue and as a consequence
of this Guarantee you would have been entitled to exercise
but for such release settlement discharge or arrangement.
And where any security is held by you for the liability of
the undersigned hereunder you shall be at liberty at your
absolute discretion to retain such security for a period of
twenty-five months after the repayment of all sums that are
or may become due to you from the Principal notwithstanding
any release settlement discharge or arrangement given or
made by you on or as a consequence of such repayments and if
at any time within the period of two years after such
repayment either a bankruptcy petition shall be presented
against the Principal or a petition shall be presented to a
competent court for an Order for the winding up of the
Principal or the appointment of an administrator in respect
of the Principal or the Principal (being a company) shall
commence to be wound up voluntarily you shall be at liberty
and notwithstanding as before mentioned to continue to
retain such security or any part thereof for and during such
further period as you in your absolute discretion shall
determine and the undersigned agree that such security shall
be deemed to have been and to have remained held by you as
and by way of security for the payment to you of all or any
sums which shall or may become due and owing to you from and
by the undersigned either under and by virtue of the terms
and conditions of this Guarantee in the event of and upon or
after any avoidance of any assurance security or payment
under any of the said enactments relating to insolvency or
under or as a consequence of an Order (if any) made under
section 241 of the Insolvency Act 1986 and any demand made
by you or on your behalf pursuant to such provisions.
18. In the event of any Order being made under section 241
of the Insolvency Act 1986 then, unless you in your absolute
discretion shall otherwise determine, any sum
(other than any sum for or representing costs) which shall
be paid to you by the undersigned with the object of
complying with the requirements of such Order or which upon
a realization of any security deposited with you by the
undersigned shall be retained and applied by you in or
towards the payment or discharge of any sum (other than
costs) payable to you by the undersigned pursuant to any
such Order shall for all or any of the purposes of this
Guarantee and notwithstanding that it shall have been so
paid with the aforesaid object or so retained and applied in
manner before stated be treated as between you on the one
hand and the undersigned on the other hand as having been
paid by the undersigned pursuant to a demand for payment
made by you or on your behalf under this Guarantee.
19. As a separate and independent stipulation (but without
increasing the before-mentioned total amount recoverable
hereon) the undersigned agree that all sums of money which
may not be recoverable from the undersigned on the footing
of a guarantee whether by reason of any legal limitation
disability or incapacity on or of the Principal or any other
fact or circumstance and whether known to you or not shall
nevertheless be recoverable from the undersigned as sole or
principal debtor(s) in respect thereof and shall be repaid
by the undersigned on demand in writing made by you or on
your behalf.
20. When the Principal is or are an unincorporated body
committee partnership trustees or debtors on a joint account
this guarantee shall not be affected by any change, whether
by death retirement or addition or by any other means, or,
the Principal being a partnership firm, by any change in
respect of the style of the firm, but shall remain valid
continuing and effective as fully and in all respects as if
the person or persons constituting such body committee
partnership trustees or debtors on joint account at the date
of any demand for payment made by you under or any notice of
determination of this Guarantee or at any time previously
was or were the same as at the date hereof.
21. This guarantee shall continue to bind the undersigned
notwithstanding any amalgamation that may be affected by you
with any other company or person whether the new company
thus formed shall or shall not differ in its name objects
character and constitution from you the above-name it being
the intent that this Guarantee shall remain valid and
effectual in all respects and for all purposes in favor of
and with reference to any such new company when formed and
may be proceeded on and enforced in the same manner to all
intents and purposes as if such new company had been
expressly named in and referred to herein instead of you.
22. In case of the death of the undersigned any demand
made or given as aforesaid and addressed to him shall for
all purposes of this Guarantee be deemed a sufficient demand
by you upon him and his personal representatives and shall
be as effectual as if he were still living.
23. Where this Guarantee is signed by more than one party
the liability of each of them hereunder to you shall be
joint and several and every agreement and undertaking on
their part shall be construed accordingly.
24. The liability hereunder of the undersigned and each of
them if more than one shall not be avoided or invalidated by
reason of any guarantee or any charge by any co-surety being
invalid or unenforceable.
25. Throughout this Guarantee wherever the context admits,
the singular shall include the plural and vice versa, the
expression "the undersigned" shall mean and include every
person liable hereunder (including all partners in a firm)
or any one or more of them and his/their executors and
administrators and (in addition) the committee receiver or
other person lawfully acting on behalf of every such person
but no personal liability shall attach to any duly
authorized agent or attorney signing as such, the expression
"person" shall mean and include a company, society,
corporation, firm or an individual, and in the case of an
individual his executors administrators committee receiver
or other person lawfully acting on behalf of every such
person and the expression "this Guarantee" shall be
construed as including and extending to any separate or
independent stipulation or agreement hereinbefore contained.
26. Our obligation hereunder shall be to make payment to
you in the same currency as the currency in which the
Principal shall be liable to you as aforesaid without
deduction for or on account of any investment currency
premium exchange costs or other costs incurred by us in
acquiring such currency.
27. Any reference herein to any section in any Statute
shall be deemed to include a reference to any statutory
modification or re-enactment thereof for the time being in
force.
28. This Guarantee shall be governed by the laws of
England and without prejudice to the generality of this
provision and for the avoidance of doubt it is hereby
expressly declared that the undersigned have no right to
require you whether before or after taking proceedings or
obtaining or enforcing judgment against the undersigned:
(a) to proceed against the Principal
(b) to proceed against any security held from the
Principal
(c) to proceed against any co-surety of any security
held from the undersigned
or from any co-surety.
(d) to pursue any other remedy available to you.
29. The undersigned undertake and warrant to you that the
making and performance of this guarantee are within our
powers and have been duly authorized by all necessary
actions and do not contravene any law or contractual or
other restriction binding on us and that we have obtained
all necessary governmental and other approvals and consents
for this Guarantee.
30. The undersigned hereby agree that any legal action or
proceedings arising out of or in connection with this
Guarantee may be brought in the High Court of Justice in
England and irrevocably submit to the jurisdiction of that
court and agree that in the event of any such action being
begun by you in respect of this Guarantee any originating
process judgment or other document in such action or
proceedings shall be sufficiently served if delivered to:
DAVID SCHOLLENBERGER
HOLME ROBERTS & OWEN
4TH FLOOR
MELLOR HOUSE
26A ALBERMARLE STREET
LONDON W1X 3FA
provided that this submission to jurisdiction shall not (and
shall not be construed so as
to) limit your right to take proceedings in whatever
jurisdiction shall seem fit to you.
31. The paper upon which this Guarantee is printed is, and
at all times shall remain your property.
Execution of Guarantee
Executed by me/us this: 3rd day of November 1995
COMPANIES:
Either:
Signed by: Michael R. Williams and
Stephen P. Yeoman for and
on behalf of Interline Resources
Corporation
pursuant to a resolution of the Board
of Directors (a certified copy whereof
is annexed hereto).
I/We/each of us hereby acknowledge(s) receipt of a copy of
the above Guarantee.
Signed by: Stephen P. Yeoman
Michael R. Williams
98733.03
INTERLINE RESOURCES CORPORATION
AND
MAURICE D. SABBAH
$1,500,000
6% Senior Secured Note Due August 29, 1996
NOTE PURCHASE AGREEMENT
Dated as of February 29, 1996
<PAGE>
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON
THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE
SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Table of Contents
Article I Authorization and Issuance of Note 1
1.1 Authorization of Issue 1
1.2 Issuance and Sale of Note 1
(a) Sale of Note 1
(b) Closing Date; Delivery of Note 1
(c) Purchaser's Representation 1
1.3 Convertible Note 2
Article II Representations and Warranties of Company 2
2.1 Organization 2
2.2 Authorization 2
2.3 Capitalization 2
2.4 No Contravention 3
2.5 Litigation 3
2.6 Financials 3
2.7 Consents 3
2.8 Proceeds of Note 4
2.9 ERISA 4
2.10 Income Tax Returns 4
2.11 Investment Company 4
2.12 Principal Executive Office 4
2.13 No Solicitation 4
2.14 SEC Filings 5
2.15 Obligations to Register 5
2.16 Compliance with Environmental Laws 5
2.17 Disclosure 5
2.18 Solvency 6
Article III Payment of Note 6
3.1 Payment 6
3.2 Limitation on Interest 6
3.3 Optional Prepayment 6
Article IV Affirmative Covenants of Company 6
4.1 Preservation of Franchises and Existence 6
4.2 Payment of Taxes and Other Charges 6
4.3 Commission and Stock Exchange Filings 7
4.4 Notice of Certain Events 7
4.5 Compliance With Laws 7
4.6 Securities Act Registration Statements 7
4.7 Use of Proceeds of New Financings 7
Article V Negative Covenants 8
5.1 Authorized Shares 8
5.2 Indebtedness 8
5.3 Liens 8
5.4 Dividend Payments 8
5.5 Transactions with Affiliates 8
5.6 Limitation on Capital Expenditures 8
5.7 No Merger, Etc. 9
Article VI Events of Default and Remedies 9
6.1 Events of Default 9
(a) Nonpayment of the Note 9
(b) Negative Covenants 9
(c) Other Covenants 9
(d) Misrepresentations 9
(e) Voluntary Bankruptcy and Insolvency
Proceedings 10
(f) Adjudication of Bankruptcy 10
(g) Breach of Stock Purchase Agreement 10
6.2 Acceleration of Maturity 10
6.3 Other Remedies 10
6.4 Conduct No Waiver, Collection Expenses 11
6.5 Remedies Cumulative 11
6.6 Cooperation by the Company 11
Article VII Conversion 11
7.1 Conversion Privilege 11
7.2 Manner of Conversion 11
(a) Conversion of Note 11
(b) Accrued Interest 12
7.3 Delivery of Stock Certificates 12
7.4 Covenant to Reserve Shares for Conversion 12
7.5 Compliance With Governmental Requirements 12
7.6 Special Agreements of the Company 12
7.7 Notifications by the Company 13
7.8 No Dilution 13
Article VIII Registration and Transfer of Restricted Shares 14
8.1 Registration on Request 14
(a) Request by Purchaser 14
(b) Registration Statement Form 14
(c) Expenses 14
(d) Effective Registration Statement 14
(e) Selection of Underwriters 15
8.2 Incidental Registration 15
(a) Right to Include Restricted Shares 15
(b) Priority in Incidental Registrations 15
(c) Expenses 16
8.3 Registration Procedures 16
8.4 Indemnification 18
(a) Indemnification by the Company 18
(b) Indemnification by the Purchaser 19
(c) Notices of Claims 19
(d) Other Indemnification 20
(e) Rule 144 20
(f) Holdback Agreement 20
Article IX Miscellaneous 21
9.1 Amendments and Waivers 21
9.2 Integration and Severability 21
9.3 Successors and Assigns 21
9.4 Reliance on and Survival of Various
Provisions 21
9.5 Notices and Other Communications 21
9.6 Governing Law 22
9.7 Table of Contents and Headings 22
9.8 Counterparts 22
9.9 Expenses 22
Article X Definitions 22
10.1 Previous Definitions 22
10.2 Additional Definitions 22
EXHIBITS
EXHIBIT A Form of 6% Senior Secured Note
EXHIBIT B Pledge Agreement
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT, dated as of February 29, 1996 (this
"Agreement"), between INTERLINE RESOURCES CORPORATION, a Utah
corporation (the "Company") and MAURICE D. SABBAH, an individual
residing in the State of North Carolina (the "Purchaser").
The Company and the Purchaser agree as follows:
ARTICLE I
AUTHORIZATION AND ISSUANCE OF CONVERTIBLE NOTE
1.1 AUTHORIZATION OF ISSUE. The Company has duly
authorized the issuance of a 6% Senior Secured Note due August
29, 1996 in the aggregate principal amount of $1,500,000 (the
"Note"). The Note shall be substantially in the form of Exhibit
A hereto.
1.2 ISSUANCE AND SALE OF CONVERTIBLE NOTE. (a) Sale
of the Note. Subject to the terms hereof, the Company agrees to
sell, and the Purchaser agrees to purchase, on the Closing Date,
the Note at a price equal to 100% of the principal amount
thereof, payable in immediately available funds.
(b) Closing Date; Delivery of Note. The date for the
purchase and sale of the Note hereunder shall be February 29,
1996 (the "Closing Date"). Purchase and sale of the Convertible
Note shall occur on the Closing Date, at such place as the
parties hereto may designate. On the Closing Date, the Company
will deliver to the Purchaser, against payment of the purchase
price therefor, the Note in the aggregate principal amount of
$1,500,000, dated the Closing Date and a duly executed Pledge
Agreement in the form of Exhibit B hereto (the "Pledge
Agreement").
(c) Purchaser's Representation. The Purchaser
represents to the Company that he is acquiring the Note for his
own account for investment and not with a view to any public
distribution thereof and will not sell or offer to sell the Note
in violation of any of the registration requirements of the
Securities Act. The Purchaser hereby consents to the imposition
of a legend substantially similar to the following on the Note
and the Purchaser agrees to abide by the restrictions contained
therein:
"NEITHER THE DEBT REPRESENTED BY THIS NOTE,
NOR THE SHARES INTO WHICH THIS NOTE MAY BE
CONVERTED, HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SUCH ACT AND SUCH LAWS OR
PURSUANT TO AN EXEMPTION THEREFROM."
1.3 CONVERTIBLE NOTE. As an inducement to, and as
further consideration for, Purchaser purchasing the Note and for
the extension of the maturity thereof set forth in the next
sentence, the Company agrees to fully secure and collateralize
the full outstanding principal amount and unpaid interest on the
$250,000 10% Senior Convertible Note (the "Old Note") purchased
by the Purchaser pursuant to a Note Purchase Agreement dated as
of June 30, 1994 (the "Old Note Purchase Agreement"), as amended,
as set forth in the Security Agreement. The Purchaser and the
Company hereby agree that the maturity date of the 10% Senior
Convertible Note shall be extended from June 30, 1996 to
August 29, 1996 and all other terms and conditions of the 10%
Senior Convertible Note shall remain unmodified.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants as follows:
2.1 ORGANIZATION. The Company is a corporation duly
organized, validly existing, and in good standing under the laws
of the State of Utah, is duly licensed or qualified and in good
standing as a foreign corporation in each jurisdiction where the
character of its properties or the nature of its activities makes
such qualification necessary, except where the failure to so
qualify would not have a material adverse effect on its
properties, business or condition (financial or otherwise), and
has the corporate power and authority and all necessary licenses
and permits to carry on its present business as now conducted,
except where the failure to have any such licenses and permits
would not have a material adverse effect on its properties,
business or condition (financial or otherwise), and to enter into
and perform its obligations under the Agreement and the Note.
2.2 AUTHORIZATION. The Agreement and the Note have
been duly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms.
2.3 CAPITALIZATION. The authorized capital stock of
the Company consists solely of 100,000,000 shares of Common
Stock, $.005 par value, of which 13,950,200 shares are
outstanding, excluding the Conversion Shares, all of which
outstanding shares have been duly authorized and validly issued
by the Company and are fully paid, nonassessable and free of
preemptive rights. No shares of Common Stock are held on the
date hereof in the treasury of the Company. The issuance and
sale of all such shares have been in full compliance with all
applicable federal and state securities laws. Other than the
Note and a $250,000 10% Senior Convertible Note held by Purchaser
and as set forth in Schedule 2.3, there are no subscriptions,
options, warrants or calls relating to the issuance by the
Company of any shares of its Common Stock, including any right of
conversion or exchange under any outstanding security or other
instrument. The Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of Common Stock or any security convertible
into or exchangeable for any Common Stock. The Common Stock is
vested with all the voting rights in the Company. The Conversion
Shares have been duly authorized and reserved for issuance. When
issued, the Conversion Shares will be fully paid and
nonassessable and free from preemptive rights.
2.4 NO CONTRAVENTION. The execution, delivery and
performance by the Company of this Agreement, the Pledge
Agreement and the Note and compliance by the Company with all of
the provisions hereof and thereof do not and will not contravene
any law or any order of any court or governmental authority or
agency applicable to or binding on the Company or any of its
properties, or contravene the provisions of, or constitute a
default (or event of default) with or without the passage of
time, by the Company under, or result in the creation of any Lien
upon the property of the Company under its Certificate of
Incorporation or by-laws or any material indenture, mortgage,
contract or other agreement or instrument to which the Company is
a party, or by which the Company or any of its property is bound
or affected.
2.5 LITIGATION. Except as set forth in Schedule 2.5,
there are no proceedings pending or, to the knowledge of the
Company, threatened against the Company in any court or before
any governmental authority or arbitration board or tribunal
which, if adversely determined, would reasonably be likely to
have a material adverse effect on the properties, business,
profits or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole, or impair the ability of the
Company to perform its obligations under the Agreement and the
Note. The Company is not in default with respect to any order of
any court or governmental authority or arbitration board or
tribunal.
2.6 FINANCIALS. The Company has provided to the
Purchaser the audited consolidated balance sheet and consolidated
statements of income and retained earnings and cash flows of the
Company and its Subsidiaries, for the fiscal years ended December
31, 1991, 1992, 1993, and 1994 (collectively, the "Financial
Reports"). The Financial Reports were prepared in conformity
with generally accepted accounting principles, and fairly present
the consolidated financial position of the Company and its
Subsidiaries as of such date and the results of their
consolidated operations for the period then ended. The Company
has also provided to the Purchaser the unaudited consolidated
balance sheet, and consolidated statement of operations and
statement of cash flow of the Company and its subsidiaries, for
the fiscal quarter ended September 30, 1995 (the "Quarterly
Report"). The Quarterly Report was prepared in accordance with
generally accepted accounting principles, and fairly presents the
consolidated financial position of the Company and its
Subsidiaries as of such date and the results of their
consolidated operations for the period then ended. Since
September 30, 1995, there has been no material adverse change in
such financial condition or operations.
2.7 CONSENTS. Neither the nature of the Company or
its businesses or properties, nor any relationship between the
Company and any other Person, nor any circumstances in connection
with the execution and delivery of this Agreement and the Note,
is such as to require a consent, approval or authorization of any
Person or governmental authority, or filing, registration or
qualification with, any governmental authority on the part of the
Company in connection with the execution and delivery of this
Agreement and the Note.
2.8 PROCEEDS OF NOTE. The proceeds from the sale of
the Note will be used for general corporate purposes. None of
the transactions contemplated by this Agreement or the Note will
result in a violation of Section 7 of the Securities Exchange Act
of 1934, as amended, or any regulations issued pursuant thereto,
including without limitation, Regulations G, T and X of the Board
of Governors of the Federal Reserve System, 12 C.F.R., Chapter
11. None of the proceeds from the sale of the Note will be used
to purchase or carry (or refinance any borrowing the proceeds of
which were used to purchase or carry) any "security" within the
meaning of such Act.
2.9 ERISA. The execution and delivery by the Company
of the Agreements, and the issuance and sale on the Closing Date
of the Note will not involve any transaction which is subject to
the prohibitions of Section 406 of ERISA or in connection with
which a tax could be imposed pursuant to Section 4975 of the
Code.
2.10 INCOME TAX RETURNS. The Company has timely filed
all United States Federal income tax returns and all other
material tax returns which are required to be filed by it and has
paid all taxes due pursuant to such returns or pursuant to any
assessment made against the Company or any of its assets, and all
other taxes, fees or other charges imposed on the Company by any
governmental authority (other than taxes, fees or other charges
the payment of which is being contested in good faith by the
Company) and no tax liens have been filed and no claims are being
asserted with respect to any such taxes, fees or other charges
which could reasonably be expected to have a materially adverse
effect on its ability to perform its obligations under this
Agreement and the Note.
2.11 INVESTMENT COMPANY. Neither the Company nor any
of its Affiliates is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, or an "investment adviser" within
the meaning of the Investment Company Act of 1940.
2.12 PRINCIPAL EXECUTIVE OFFICE. The principal
executive office and place of business of the Company is located
at 160 West Canyon Crest Drive, Alpine, Utah 84004. The Company
is engaged in the oil and gas industry, including natural gas
gathering, natural gas processing and oil well production and
various research and development projects involving the re-
refining of oil.
2.13 NO SOLICITATION. Neither the Company nor anyone
acting on behalf of the Company will offer the Note or any part
thereof or any similar security for issue or sale to any
prospective purchaser, or solicit any offer to acquire any Note
or any part thereof so as to bring the issuance and sale of the
Note within the provisions of Section 5 of the Securities Act of
1933, as amended.
2.14 SEC FILINGS. The Company has filed all forms,
reports, and documents required to be filed with the Commission
since December 31, 1991, and has heretofore made available to the
Purchaser, in the form filed with the Commission, (i) its Annual
Report on Form 10-K for the fiscal years ended December 31, 1991,
1992, 1993 and 1994, (ii) its Quarterly Report on Form 10-Q for
the periods ended March 31, 1995, June 30, 1995 and September 30,
1995, (iii) all proxy statements relating to the Company's
meeting of stockholders (whether annual or special) held since
January 1, 1992, and (iv) all other reports or registration
statements (other than Reports on Form 10-Q not referred to in
clause (ii) above) filed by the Company with the Commission since
December 31, 1991 (collectively the "SEC Reports"). The SEC
Reports (i) were prepared in all material respects in accordance
with the requirements of the Securities Act, or the Exchange Act,
as the case may be, and (ii) did not at the time they were 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 light of the
circumstances under which they were made, not misleading.
2.15 OBLIGATIONS TO REGISTER. The Company has not
agreed to register any securities under the Securities Act, other
than (i) pursuant to Article X of this Agreement or otherwise in
respect of securities held by the Purchaser or (ii) pursuant to
an agreement with any person who is a stockholder of the Company
on the date hereof (and no stockholder has registration rights on
terms more favorable to such stockholder than the rights of the
Purchaser pursuant to Article X of this Agreement).
2.16 COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company
and its Subsidiaries are in compliance with all applicable
statutes, rules, regulations and orders of all governmental
authorities relating to environmental protection and pollution
control, with respect to the conduct of their respective
businesses and the ownership of their respective properties,
except where such failure to comply will not individually or in
the aggregate have a material adverse effect on the condition,
financial or otherwise, of the Company and its Subsidiaries on a
consolidated basis.
2.17 DISCLOSURE. This Agreement, the Note, and all
other documents, certificates, instruments, reports and
statements furnished to the Purchaser by or on behalf of the
Company in connection with the transactions contemplated hereby
and thereby, taken as a whole, do not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein and
therein not misleading. There is no fact known to the Company
which is having a material adverse effect, or which is reasonably
likely to have a material adverse effect during the twelve month
period commencing on the date hereof, on the business,
properties, operations or condition, financial or otherwise, of
the Company and its Subsidiaries on a consolidated basis, which
has not been set forth in this Agreement, the Note, or in the
other documents, instruments, certificates and statements
previously furnished in writing to the Purchaser by or on behalf
of the Company in connection with the transactions contemplated
hereby.
2.18 SOLVENCY. As of the Closing Date, the Company and
its Subsidiaries, taken as a whole, are Solvent.
ARTICLE III
PAYMENT OF NOTE
3.1 PAYMENT. The principal of and interest on the
Note shall be payable to Purchaser c/o Fortress Re, Inc., 262
East Morehead Street, in Burlington, North Carolina 27215, in
lawful money of the United States of America, against presentment
of the Note.
3.2 LIMITATION ON INTEREST. No provision of this
Agreement or of the Note shall require the payment or permit the
collection of interest in excess of the maximum which is
permitted by law. If any such excess interest is provided for
herein or in the Note, or shall be adjudicated to be so provided
for, then the Company shall not be obligated to pay such interest
in excess of the maximum permitted by law, and the right to
demand payment of any such excess interest is hereby waived, any
other provisions in this Agreement or in the Note to the contrary
notwithstanding.
3.3 OPTIONAL PREPAYMENT. The principal of the Note
shall be subject to prepayment, at the option of the Company, in
full but not in part, without premium. Any prepayment shall be
made together with accrued and unpaid interest thereon to the
prepayment date. Notwithstanding the foregoing, following the
earlier of an Event of Default or August 29, 1996, the right of
the Company to prepay or pay the Note shall be conditioned upon
its giving written notice to the Purchaser of prepayment at least
five business days prior to the date upon which prepayment may be
made and the Purchaser shall have the right to convert the Note
in accordance with Article VII during the period after notice is
given and prior to payment.
ARTICLE IV
AFFIRMATIVE COVENANTS OF COMPANY
The Company covenants and agrees that, from the date hereof
until the Note has been paid in full:
4.1 PRESERVATION OF FRANCHISES AND EXISTENCE. Except
as otherwise permitted by this Agreement, the Company will (i)
maintain its corporate existence, rights and franchises in full
force and effect, and (ii) cause each of its subsidiaries to
maintain its corporate existence, rights and franchises in full
force and effect.
4.2 PAYMENT OF TAXES AND OTHER CHARGES. The Company
will pay, and will cause each of its subsidiaries to pay, when
due (i) all taxes, assessments and other governmental charges or
levies imposed upon it or any of its properties or income
(including without limitation such as may arise under Section
4062, 4063 or 4064 of ERISA or any similar provisions of law),
and (ii) all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons which,
if unpaid, might result in the creation of a Lien upon any of its
properties.
4.3 COMMISSION AND STOCK EXCHANGE FILINGS. Promptly
upon their becoming available, the Company will deliver to the
Purchaser a copy of (i) all regular or periodic reports which the
Company or any of its subsidiaries shall file with the Commission
or any national securities exchange, and (ii) all reports, proxy
statements and financial statements delivered or sent by the
Company to its stockholders or by any of its subsidiaries to its
stockholders other than the Company.
4.4 NOTICE OF CERTAIN EVENTS. The Company agrees to
provide written notice to the Purchaser immediately upon the
occurrence of any event having a material adverse effect on the
Company's business or operations or upon the Purchaser's rights
under this Agreement or the Note.
4.5 COMPLIANCE WITH LAWS. The Company will, and will
cause its Subsidiaries to, comply with all applicable statutes,
rules, regulations and orders of all governmental authorities,
with respect to the conduct of its business and the ownership of
its properties, if failure to so comply, individually or in the
aggregate, may have a material adverse effect on the condition,
financial or otherwise, of the Company and its Subsidiaries on a
consolidated basis.
4.6 SECURITIES ACT REGISTRATION STATEMENTS. The
Company covenants that it will not file any registration
statement under the Securities Act or any comparable statement
under any similar federal statute then in force, covering any
public offering of debt or equity securities, unless the Company
shall first have given to the Purchaser notice thereof. The
Company covenants that it will give the Purchaser prompt written
notice of the filing of any registration statement pursuant to
the requirements of Section 12 of the Exchange Act relating to
any class of securities of the Company or any application to
register such securities.
4.7 USE OF PROCEEDS OF NEW FINANCINGS. The Company
agrees that it shall use all proceeds of any equity or debt
financings by it or any of its Subsidiaries (other than
refinancings of existing indebtedness in the amount of such
indebtedness, net proceeds of approximately $600,000 receivable
from Quaker State upon the purchase of equity pursuant to
existing agreements, an aggregate of approximately $700,000
anticipated to be received from debt financings from CIT and
Sentry Financial, and financings for capital expenditures to the
extent permitted by Section 5.6) to promptly prepay the Note.
None of the Company's Subsidiaries shall sell or commit to issue
any equity securities.
ARTICLE V
NEGATIVE COVENANTS
The Company covenants and agrees that, from the date hereof
until the Note has been paid in full:
5.1 AUTHORIZED SHARES. The Company will maintain a
sufficient number of authorized and unissued shares of Common
Stock in order to issue at least 468,750 shares to the Purchaser
upon conversion of the Note in accordance with Article VII
hereof.
5.2 INDEBTEDNESS. The Company will not, and will not
permit any of its Subsidiaries to, incur any Indebtedness, other
than Indebtedness which is junior to the Note in right of
payment, or indebtedness to trade creditors or for accounts
payable incurred in the normal course of business.
5.3 LIENS. The Company will not, and will not permit
its Subsidiaries to, create, incur or suffer to exist, any Lien
upon any of the property, real, personal or mixed, tangible or
intangible, of the Company or its Subsidiaries, which secures
Indebtedness, singly or in the aggregate, in an amount greater
than $25,000.
5.4 DIVIDEND PAYMENTS. The Company will not, and will
cause each of Interline Energy Services, Inc. ("IES") and Gagon
Brothers Mechanical Contractors, Inc. ("Gagon") not to, declare
or authorize or commit to pay any dividends or other
distributions on any equity securities issued by the Company, IES
or Gagon, whether in cash, property, securities or otherwise, and
whether by dividend, repurchase, redemption, reclassification or
otherwise (except for dividends by the Company in the form of
common stock).
5.5 TRANSACTIONS WITH AFFILIATES. The Company will
not, and will not permit any of its Subsidiaries to, (i) make any
loan or advance or otherwise extend credit to any of their
respective Affiliates, or (ii) enter into any other transaction
with any of their respective Affiliates, in each such case, upon
terms and conditions less favorable to the Company or its
Subsidiaries than the terms and conditions which would apply in a
similar transaction with a person other than such Affiliate.
Neither the Company nor any of its Subsidiaries will pay or
commit to pay cash compensation on an annualized basis to Michael
Williams aggregating more than the total cash amounts paid to
Mr. Williams during 1995.
5.6. LIMITATIONS ON CAPITAL EXPENDITURES. Other than
capital expenditures by IES and its Subsidiaries to the extent of
$75,000 for well hookups, $10,000 for a high pressure separator,
$20,000 in respect of the Conoco South Kaye Pipeline, $37,000 for
NRG Propane tanks (to be financed by debt or equity) and up to
$300,000 for the purchase of Burke Energy ($50,000 down and the
balance to be financed by the seller, if such purchase is
consented to by the Purchaser in writing, which consent shall not
be unreasonably withheld) and by Interline Hydrocarbon, Inc. of
up to $55,000 in connection with patent filings, the Company and
its Subsidiaries shall not spend or commit to spend more than
$25,000 in the aggregate in respect of "Capital Expenditures"
(other than expenditures which the Company and its Subsidiaries
as of the date hereof, are irrevocably contractually committed to
make and which are not avoidable without substantial monetary
penalty). As used herein, the term "Capital Expenditures" means
any expenditures which, in accordance with generally accepted
accounting principles, are not categorized as expenses and,
without limiting the foregoing, shall include any investments in
equity or debt securities or partnership interests and any
expenditures which must be amortized under generally accepted
accounting principles (including expenditures for plant,
equipment, additions or improvements thereto). The Company and
its Subsidiaries shall not alter in any way their business
practices in effect prior to the date hereof in order to convert
what in accordance with past practice would have resulted in
Capital Expenditures into an expense, such as rental or lease
fees for plant or equipment or otherwise structure transactions
in order to circumvent the objectives of this Section.
5.7. NO MERGERS, ETC. The Company will not permit any
of its Subsidiaries, to (i) consolidate or merge with any entity,
(ii) sell, lease, or otherwise dispose of a significant portion
of its assets (other than in the ordinary course of business
consistent with past practice), (iii) liquidate or dissolve, or
(iv) agree or otherwise commit to do any of the foregoing.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default under this Agreement:
(a) Nonpayment of the Note. If the Company fails to
pay (i) the principal on the Note when and as the same becomes
due and payable, whether at maturity thereof, or subject to 6.3
hereof in accordance with a prepayment notice, or otherwise, or
(ii) the interest on the Note when and as the same becomes due
and payable; or
(b) Negative Covenants. If the Company fails to
perform or observe any covenant contained in Article V or in the
Pledge Agreement and such failure shall have continued for 10
business days, provided, however, that if such failure is
incapable of cure then the Event of Default shall occur upon such
failure; or
(c) Other Covenants. If the Company fails to perform
or observe any other of the covenants, conditions or agreements
on the part of the Company set forth in this Agreement or in the
Note, and such failure shall have continued for 30 days,
provided, however, that if such failure is incapable of cure then
the Event of Default shall occur upon such failure; or
(d) Misrepresentations. If any representation,
warranty or statement made by the Company in this Agreement, the
Note, the Pledge Agreement or in any certificate or other
instrument delivered to the Purchaser pursuant to this Agreement,
shall be incorrect in any material respect as of the time when
made; or
(e) Voluntary Bankruptcy and Insolvency Proceedings.
If the Company or any of its Subsidiaries shall file a petition
in bankruptcy or for reorganization or for an arrangement or any
composition, readjustment, liquidation, dissolution or similar
relief pursuant to Title 11 of the United States Code or under
any similar present or future federal law or the law of any other
jurisdiction or shall be adjudicated a bankrupt or insolvent, or
consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or any of its Subsidiaries or
for all or any substantial part of its property, or shall make a
general assignment for the benefit of its creditors, or shall
admit in writing its inability to pay its debts generally as they
become due, or shall take any corporate action in furtherance of
any of the foregoing;
(f) Adjudication of Bankruptcy. If a petition or
answer shall be filed proposing the adjudication of the Company
or any of its Subsidiaries as bankrupt or its reorganization or
arrangement, or any composition, readjustment, liquidation,
dissolution or similar relief with respect to it pursuant to
Title 11 of the United States Code or under any similar present
or future federal law or the law of any other jurisdiction, and
the Company or any of its Subsidiaries, as the case may be, shall
consent to or acquiesce in the filing thereof, or such petition
or answer shall not be discharged or denied within 60 days after
the filing thereof; or
(g) Breach of Stock Purchase Agreement. If the
Company shall breach any of obligations or covenants set forth in
the Common Stock Purchase and Sale Agreement dated as of
October 28, 1994 by and between the Company and the Purchaser
(other than the repayment prior to the date hereof by the Company
of a $90,000 loan from Michael Williams and of loans of
approximately $27,500 to two other officers).
6.2 ACCELERATION OF MATURITY. If any Event of Default
shall be continuing, the Purchaser may, by notice to the Company,
declare the entire outstanding principal of the Note, and all
accrued and unpaid interest thereon, to be due and payable
immediately, and upon any declaration the entire outstanding
principal of the Note and said accrued and unpaid interest shall
become and be immediately due and payable, without presentment,
demand, protest or other notice whatsoever, all of which are
hereby expressly waived, anything in the Note or in this
Agreement to the contrary notwithstanding, provided that if an
Event of Default under clause (e) or (f) of 6.1 shall have
occurred, the outstanding principal of the Note, and all accrued
and unpaid interest thereon, shall immediately become due and
payable, without any declaration and without presentment, demand,
protest or other notice whatsoever, all of which are hereby
expressly waived, anything in the Note or this Agreement to the
contrary notwithstanding.
6.3 OTHER REMEDIES. If any Event of Default shall be
continuing, the Purchaser may enforce its rights by suit in
equity, by action at law, or by any other appropriate
proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this
Agreement or in the Note or in aid of the exercise of any power
granted in this Agreement or in the Note and may enforce the
payment of the Note and any of its other legal or equitable
rights.
6.4 CONDUCT NO WAIVER, COLLECTION EXPENSES. No course
of dealing on the part of the Purchaser, nor any delay or failure
on the part of the Purchaser to exercise any of its rights, shall
operate as a waiver of such right or otherwise prejudice the
Purchaser's rights, powers and remedies. If the Company fails to
pay, when due, the principal of, or the interest on the Note, or
if the Company fails to comply with any other provision of this
Agreement, the Company will pay to the Purchaser, to the extent
permitted by law, on demand, such further amounts as shall be
sufficient to cover the costs and expenses, including but not
limited to reasonable attorneys' fees, incurred by the Purchaser
in collecting any sums due on the Note or in otherwise enforcing
any of his rights.
6.5 REMEDIES CUMULATIVE. No right or remedy conferred
upon or reserved to the Purchaser under this Agreement is
intended to be exclusive of any other rights or remedy, and every
right and remedy shall be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter
existing under applicable law. Every right and remedy given by
this Agreement or by applicable law to the Purchaser may be
exercised from time to time and as often as may be deemed
expedient by the Purchaser, as the case may be.
6.6 COOPERATION BY THE COMPANY. To the extent that it
lawfully may, the Company agrees that it will not at any time
insist upon or plead, or in any manner whatever claim or take any
benefit or advantage of any applicable present or future stay,
extension or moratorium law, which may affect observance or
performance of the provisions of this Agreement or of the Note;
nor will it claim, take or insist upon any benefit or advantage
of any present or future law providing for the valuation or
appraisal of any security for the Note prior to any sale or sales
thereof which may be made under or by virtue of any instrument
governing the same; nor will it, after any such sale or sales,
claim or exercise any right, under any applicable law, to redeem
any portion of such security so sold.
ARTICLE VII
CONVERSION RIGHT AFTER DEFAULT
7.1 CONVERSION PRIVILEGE. The unpaid principal amount
of the Note may, at the election of Purchaser, at any time after
the earlier of an Event of Default or August 23, 1996, be
converted in whole or in part into fully paid and nonassessable
shares of Common Stock at the rate of the lesser of $3.20 per
share or 80% of the average closing price for shares of the
Common Stock for the five consecutive trading days preceding the
date of Purchaser's written election of conversion. (In any
conversion, each dollar of principal amount of the Note shall be
applied on a dollar for dollar basis against the conversation
rate.)
7.2 MANNER OF CONVERSION.
(a) Conversion of Note. After the earlier of an Event
of Default or August 23, 1996, the Note may be converted by the
Purchaser by surrender of such Note, with the notice of
conversion affixed thereto duly executed by the Purchaser, to the
Company at its principal office at 160 West Canyon Crest Drive,
Alpine, Utah (or at such other office as the Company shall
designate to the Purchaser from time to time). The conversion
shall be deemed to have been effected immediately prior to the
close of business on the date on which the Note shall have been
so surrendered to the Company. If the Purchaser elects to
convert less than all of the Note, then the Company shall issue
and deliver to the Purchaser a Note reflecting the principal
amount not converted into Common Stock, but in all other respects
identical to the Note.
(b) Accrued Interest. Within five days after the
conversion of the Note, the Company will pay to the Purchaser all
accrued and unpaid interest on the principal amount so converted
to and including the date of conversion, without any adjustment
of such interest in respect of any dividend or other distribution
payable on the Common Stock issued upon such conversion.
7.3 DELIVERY OF STOCK CERTIFICATES. As promptly as
practicable after the conversion of the Note, and in any event
within five days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will
issue, authenticate and deliver the certificate or certificates
for the number of shares of Common Stock issuable upon such
conversion. All shares of the Common Stock which shall be so
deliverable shall be duly and validly issued and fully paid and
nonassessable. Each certificate shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SUCH ACT AND SUCH LAWS OR PURSUANT TO AN
EXEMPTION THEREFROM.
7.4 COVENANT TO RESERVE SHARES FOR CONVERSION. The
Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of its authorized
Common Stock and/or shares of its Common Stock then owned or held
by or for the account of the Company, solely for the purpose of
delivery upon conversion of the Note as provided in this Article
VII, such number of shares of Common Stock as shall then be
deliverable upon the conversion of the Note.
7.5 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. If any
shares of Common Stock required to be reserved for purposes of
conversion of the Note hereunder require registration with or
approval of any governmental authority under any federal or state
law, or listing upon any national securities exchange, before
such shares may be issued upon conversion, the Company will in
good faith and as expeditiously as possible endeavor to cause
such shares to be duly registered, approved or listed, as the
case may be.
7.6 SPECIAL AGREEMENTS OF THE COMPANY. The Company
covenants and agrees that the Company will not, by amendment of
its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of
securities or otherwise, avoid or take any action which would
have the effect of avoiding the observance or performance of any
of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in carrying
out all of the provisions of this Article VII.
7.7 NOTIFICATIONS BY THE COMPANY. In case at any
time:
(1) the Company shall declare upon the Common Stock
any dividend or other distribution to the holders of the Common
Stock;
(2) the Company shall make an offer for subscription
pro rata to the holders of the Common Stock of any additional
shares of stock of any class or other rights;
(3) the Board of Directors of the Company shall
authorize any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation of the Company or
merger of the Company with, or sale of all or substantially all
of its assets to, another person;
(4) the Board of Directors of the Company shall
authorize a voluntary dissolution, liquidation or winding-up of
the Company; or
(5) the Company shall become subject to involuntary
dissolution, liquidation or winding-up;
then, in any one or more of such cases, the Company shall give
notice to the Purchaser of the date on which (a) the books of the
Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (b) such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up shall take place or be voted upon by
stockholders of the Company, as the case may be. Such notice
shall also specify the date as of which the holders of record of
the stock shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, as the case may be.
Such notice shall be given not less than 30 and not more than 90
days prior to the action in question and not less than 30 and not
more than 90 days prior to the record date or the date on which
the Company's transfer books are closed in respect thereto, and
such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement
under the Securities Act or to a favorable vote of stockholders,
if either is required.
7.8 NO DILUTION. If the Company:
(i) (A) makes a distribution in respect of the Common Stock
in shares of Common Stock, (B) subdivides the
outstanding shares of Common Stock or (C) combines the
outstanding shares of Common Stock into a smaller
number of shares, in each case whether by
reclassification or recapitalization (including
reclassification or recapitalization by way of merger
or consolidation); or
(ii) issues to holders of shares of Common Stock as a
dividend or distribution, (including by way of
reclassification or recapitalization), any right or
warrant to purchase shares of Common Stock, or any
security convertible into shares of Common Stock; or
(iii) (A) issues, sells or exchanges shares of Common
Stock for a cash price less than the fair market value
of such Common Stock on the date of such issuance, sale
or exchange, or (B) issues, sells or exchanges shares
of Common Stock for property or a combination of cash
and property; or
(iv) makes a distribution in respect of the Common Stock by
way of dividend, distribution, reclassification or
recapitalization (including by way of merger or
consolidation), or redeems or repurchases any Common
Stock;
then the Company shall promptly adjust the number of shares of
Common Stock to be received upon conversion hereunder so that the
fair market value of the shares to be received by Purchaser
following any of the events described in (i)-(iv) and the
adjustment is equal to the fair market value of the shares that
would have been received by Purchaser if conversion had taken
place immediately prior to such event and adjustment.
ARTICLE VIII
REGISTRATION AND TRANSFER OF RESTRICTED SHARES
8.1 REGISTRATION ON REQUEST. (a) Request by
Purchaser. Upon the written request of the Purchaser requesting
that the Company effect the registration under the Securities Act
of all or part of the Restricted Shares and specifying the
intended method of disposition thereof, the Company thereupon
will, as soon as practicable but in no event later than 120 days
after such request, effect the registration under the Securities
Act of the Restricted Shares which the Company has been so
requested to register. The Company shall be obligated to effect
only one registration upon request of the Purchaser pursuant to
this 8.1 and only during such time as a public market exists.
The Company shall not grant to any person the right to request
the Company to, nor shall the Company include in any registration
pursuant to this 8.1, any securities of the Company other than
the Restricted Shares.
(b) Registration Statement Form. A registration
requested pursuant to this 8.1 shall be effected by the filing
of a registration statement on Form S-1 or such other form as may
be available (other than a Form S-8), in the sole discretion of
the Company.
(c) Expenses. The Company will pay all Registration
Expenses in connection with registration requested pursuant to
this 8.1.
(d) Effective Registration Statement. A registration
requested pursuant to this 8.1 will not be deemed to have been
effected unless it has been declared effective by the Commission;
provided that if, after it has become effective, the offering of
Restricted Shares pursuant to such registration is interfered
with by any stop order, injunction or other order or requirement
of the Commission or any other governmental or administrative
agency or any court prevents or otherwise limits the sale of
Common Stock pursuant to the registration, such registration will
be deemed not to have been effected. If (i) a registration
requested pursuant to this 8.1 is deemed not to have been
effected or (ii) the registration requested pursuant to this
8.1 does not remain effective for a period of at least 180 days
and less than all the registered shares were sold, then the
Company shall remain obligated to effect one registration
pursuant to this 8.1, except if the registration did not become
effective or remain effective solely as a result of bad faith
actions of the Purchaser.
(e) Selection of Underwriters. If a requested
registration pursuant to this 8.1 involves an underwritten
offering, the Purchaser shall have the right but not an
obligation to designate the managing underwriter and the Company
shall have the right to approve the managing underwriter
designated by the Purchaser, which approval shall not be
unreasonably withheld.
8.2 INCIDENTAL REGISTRATION. (a) Right to Include
Restricted Shares. If the Company at any time proposes to
register any of its securities under the Securities Act (other
than a registration on Form S-8 or any successor form and other
than in connection with a Rule 145(a) transaction and other than
pursuant to a registration under 8.1), whether or not for sale
for its own account, it will, each such time, give prompt written
notice, but in any event at least 20 days prior written notice
prior to registration, to the Purchaser, of its intention to do
so and of the Purchaser's rights under this 8.2. Upon the
written request of the Purchaser made within 10 business days
after the receipt of any such notice (which request shall specify
the intended number of Restricted Shares to be disposed of by the
Purchaser and the intended method of disposition thereof), the
Company will effect the registration under the Securities Act of
all Restricted Shares which the Company has been so requested to
register by the Purchaser, to the extent requisite to permit the
disposition (in accordance with such intended methods thereof) of
the Restricted Shares to be so registered; provided, that (i) if,
at any time after giving written notice of its intention to
register any securities and prior to the effective date of the
registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such securities, the Company must give written notice of
such determination to the Purchaser and, thereupon, shall be
relieved of its obligation to register any Restricted Shares in
connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of the Purchaser under 8.1
and (ii) if a registration requested pursuant to this 8.2 shall
involve an underwritten public offering, the Purchaser may elect,
in writing at least 30 days prior to the effective date of the
registration statement filed in connection with such
registration, not to register any Restricted Shares in connection
with such registration. No registration effected under this
8.2 shall relieve the Company of its obligation to effect
registration upon the request under 8.1 herein.
(b) Priority in Incidental Registrations. If a
registration pursuant to this 8.2 involves an underwritten
offering and the managing underwriter advises the Company in
writing that, in its opinion, the number of securities requested
to be included in such registration pursuant to this 8.2 and
pursuant to any other rights granted by the Company to holders of
its securities to request inclusion of any such securities in
such registration exceeds the number which can be sold in an
orderly manner in such offering, the Company shall include in
such registration, pro rata among the Purchaser on the basis of
the number of Restricted Shares requested by the Purchaser to be
included and all other holders of Common Stock of the Company who
have incidental registration rights and who have requested that
their shares be so included, the number of shares so requested to
be included which in the reasonable opinion of such underwriter
can be sold.
(c) Expenses. The Company will pay all Registration
Expenses in connection with registration of Restricted Shares
requested to be registered pursuant to this 8.2, provided,
however, that the Company shall not be obligated to pay
Registration Expenses in connection with more than two
registrations of Restricted Shares requested pursuant to 8.2
(not including any registrations in which the Company determined
not to register Restricted Shares). The Company shall not have
fulfilled its obligation to pay Registration Expenses in
connection with a registration requested pursuant to 8.2 if
(i) the registration did not become effective or (ii) the
registration did not remain effective for a period of at least
120 days and less than all of the registered shares were sold,
unless the registration did not become effective or remain
effective solely as a result of bad faith actions of the
Purchaser.
8.3 REGISTRATION PROCEDURES. If and whenever the
Company is required to effect or cause the registration of any
Restricted Shares under the Securities Act as provided in this
Agreement, the Company will, as expeditiously as possible:
(a) prepare and, in any event within 60 days after the
end of the period within which requests for registration may be
given to the Company, file with the Commission a registration
statement with respect to such Restricted Shares and, within 90
days after the date a request for registration was first given,
cause such registration statement to become effective, provided,
however, that the Company may discontinue any registration of its
securities which is being effected pursuant to 8.2 herein at
any time prior to the effective date of the registration
statement relating thereto;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period not in
excess of 120 days and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in
accordance with the intended methods of disposition by the
Purchaser set forth in such registration statement;
(c) furnish to the Purchaser such number of copies of
such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and summary
prospectus), in conformity with the requirements of the
Securities Act, and such other documents as the Purchaser may
reasonably request in order to facilitate the disposition of the
Restricted Shares by the Purchaser;
(d) register or qualify such Restricted Shares covered
by such registration statement under such other securities or
blue sky laws of such jurisdictions which apply, and do any other
acts and things which may be necessary or advisable to enable the
Purchaser to consummate the disposition in such jurisdiction of
the Restricted Shares owned by the Purchaser;
(e) cause such Restricted Shares covered by such
registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to
enable the Purchaser to consummate the disposition of such
Restricted Shares;
(f) immediately notify the Purchaser, at any time when
a prospectus relating to the Restricted Shares is required to be
delivered under the Securities Act within the appropriate period
mentioned in clause (b) of this 8.3, of the Company becoming
aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and
within five days prepare and furnish to the Purchaser a
reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such Restricted Shares, such prospectus
shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(g) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its security
holders, as soon as practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date
of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder;
(h) to list such Restricted Shares on any securities
exchange on which the Common Stock is then listed, if such
Restricted Shares are not already so listed and if such listing
is then permitted under the rules of such exchange, and to
provide a transfer agent and registrar for such Restricted Shares
covered by such registration statement not later than the
effective date of such registration statement;
(i) in the case of a registration pursuant to 8.1,
if requested by the Purchaser, enter into such agreements
(including an underwriting agreement in customary form) and take
such other actions as the Purchaser requests in order to expedite
or facilitate the disposition of such Restricted Shares;
(j) obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and
covering matters of the type customarily covered by "cold
comfort" letters as the Purchaser shall reasonably request; and
(k) make available for inspection by the Purchaser, by
any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by the Purchaser or any such
underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company as shall be
reasonably necessary to enable them to exercise their due
diligence responsibility, and cause all of the Company's
officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration
statement.
The Purchaser agrees that upon receipt of any notice from
the Company of the happening of any event of the kind described
in clause (f) of this 8.3, such holder will forthwith
discontinue disposition of Restricted Shares pursuant to the
registration statement covering such Restricted Shares until such
holder's receipt of the copies of the supplemented or amended
prospectus contemplated by clause (f) of this 8.3, and, if so
directed by the Company, such holder will deliver to the Company
(at the Company's expense) all copies, other than permanent file
copies then in such holder's possession, of the prospectus
covering such Restricted Shares current at the time of receipt of
the Company's notice. In the event the Company shall give any
such notice, the period mentioned in clause (b) of this 8.3
shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to
clause (f) of this 8.3 to and including the date when each
seller of Restricted Shares covered by such registration
statement shall have received the copies of the supplemented or
amended prospectus contemplated by clause (f) of this 8.3.
8.4 INDEMNIFICATION.
(a) Indemnification by the Company. In the event of
any registration of any securities of the Company under the
Securities Act pursuant to 8.1 or 8.2, the Company agrees to
(i) indemnify and hold harmless, to the extent permitted by law,
the Purchaser, and any person who participates as an underwriter
in the offering or sale of the Restricted Shares against any and
all losses, claims, damages or liabilities, joint or several, and
expenses to which the Purchaser, or any such underwriter may
became subject under the Securities Act, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are
based upon (aa) any untrue statement or alleged untrue statement
contained in the registration statement or amendment or
supplement thereto under which such securities were registered
under the Securities Act, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement
thereto, or (bb) any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii)
reimburse the Purchaser or underwriter for any legal or any other
expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability,
action or proceeding; provided, that the Company shall not be
liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in
such registration statement or amendment or supplement thereto or
in any such preliminary, final or summary prospectus in reliance
upon and in conformity with written information furnished to the
Company through an instrument duly executed by the Purchaser
specifically stating that it is for use in the preparation
thereof; and provided, further, that the Company will not be
required to indemnify any person who participates as an
underwriter in the offering or sale of Restricted Shares or any
other person, if any, who controls such underwriter within the
meaning of the Securities Act to the extent that any such loss,
claim, damage or liability for which indemnification is claimed
results from such underwriter's failure to send or give a copy of
the final prospectus to the person asserting an untrue statement
or an alleged untrue statement or omission or alleged omission at
or prior to the written confirmation of such sale, if such
statement or omission was corrected in such final prospectus and
the Company has previously furnished copies thereof to such
underwriter. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of
the Purchaser or any underwriter and shall survive the transfer
of such securities by the Purchaser.
(b) Indemnification by the Purchaser. The Company may
require, as a condition to including any Restricted Shares in any
registration statement filed in accordance with this Article
VIII, that the Company receive an undertaking reasonably
satisfactory to it from the Purchaser, to indemnify and hold
harmless (in the same manner and to the same extent as set forth
in this 8.4(b)) the Company, any directors, officers and other
controlling persons thereof, and all other prospective sellers
with respect to any statement or alleged statement in or omission
or alleged omission from such registration statement, any
preliminary, final or summary prospectus contained therein, or
any amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the
Company through an instrument duly executed by the Purchaser
specifically stating that it is for use in the preparation of
such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated
by reference into any of the foregoing. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any of the Company's
directors, officers or controlling persons and shall survive the
transfer of such securities by the Purchaser.
(c) Notices of Claims. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for
indemnification may be made pursuant to this 8.4, such
indemnified party will, if a claim in respect thereto is to be
made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, that the
failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its
obligations under the preceding subdivisions of this 8.4 except
to the extent that the indemnifying party is actually prejudiced
by such failure to give notice. In case any such action is
brought against an indemnified party, unless in such indemnified
party's judgment a conflict of interest between such indemnified
and indemnifying parties exists in respect of such claim, the
indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party and
after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party
for any legal or other expenses subsequently incurred in
connection with the defense thereof. No indemnifying party will
consent to entry of any judgment or enter into any settlement
which does not include an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to all claims asserted by
the claimant or pleaded or which could have been pleaded in the
litigation by the plaintiff.
(d) Other Indemnification. Indemnification similar to
that specified in the preceding subdivisions of this 8.4 (with
appropriate modifications) shall be given by the Company and the
Purchaser with respect to any required registration or other
qualification of securities under any federal or state law or
regulation or governmental authority other than the Securities
Act.
(e) Rule 144. The Company covenants that it will file
the reports required to be filed by it under the Securities Act
and the Exchange Act and the rules and regulations adopted by the
Commission thereunder (or, if the Company is not then required to
file such reports, it will, upon the request of the Purchaser,
make publicly available other information), and it will take such
further action as the Purchaser may reasonably request, all to
the extent required from time to time to enable the Purchaser to
sell all or a portion of the Restricted Shares without
registration under the Securities Act within the limitation of
the exemptions provided by (i) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the Commission.
Upon the request of any holder of Restricted Shares, the Company
will deliver to such holder a written statement as to whether it
has complied with such requirements.
(f) Holdback Agreement. (i) If any registration
pursuant to 8.1 shall be in connection with an underwritten
public offering, the Purchaser agrees by acquisition of such
Restricted Shares not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the Securities Act,
of any Restricted Shares, and shall not effect any such public
sale or distribution of any other equity security of the Company
or of any security convertible into or exchangeable for any
equity security, of the Company (in each case, other than as part
of such underwritten public offering) within seven days before or
90 days after the effective date of such registration, and the
Company hereby also so agrees and agrees to cause each other
holder of at least 10% of the aggregate number of the shares of
Common Stock to so agree.
(ii) The Company agrees (aa) not to effect any
public sale or distribution of its equity securities (other than
any such sale or distribution of such securities in connection
with any merger or consolidation by the Company or any of its
Subsidiaries or the acquisition by the Company or any of its
Subsidiaries of the capital stock or substantially all of the
assets of any other person or in connection with an employee
stock option or other benefit plan), during the seven days prior
to, and during the 90-day period beginning on, the effective date
of any registration statement in which the Purchaser is
participating (except as part of such registration), and (bb)
that any agreement entered into after the date of this Agreement
pursuant to which the Company issues or agrees to issue any
privately placed equity securities, shall contain a provision
under which holders of such securities agree not to effect any
public sale or distribution of any such securities during such
period, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such registration, if
permitted).
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENTS AND WAIVERS. This Agreement may not be
changed, modified or discharged orally, nor may any waivers or
consents be given orally hereunder, and every such change,
modification, discharge, waiver or consent shall be in writing
and signed by the person against which enforcement thereof is
sought.
9.2 INTEGRATION AND SEVERABILITY. This Agreement, the
Pledge Agreement, the Note, the Old Note Purchase Agreement and
the Old Note embody the entire agreement and understanding
between the Purchaser and the Company and supersede all prior
agreements and understandings relating to the subject matter
hereof. In case any one or more of the provisions contained in
this Agreement, the Pledge Agreement, the Note, the Old Note
Purchase Agreement or the Old Note or any application thereof,
shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
contained herein and therein, and any other application thereof,
shall not in any way be affected or impaired thereby.
9.3 SUCCESSORS AND ASSIGNS. All covenants,
agreements, statements, representations and warranties in this
Agreement or any certificate delivered pursuant hereto by or on
behalf of the Company or by or on behalf of the Purchaser shall
bind and inure to the benefit of the respective successors and
assigns of such party hereto.
9.4 RELIANCE ON AND SURVIVAL OF VARIOUS PROVISIONS.
All covenants, agreements, statements, representations and
warranties made herein or in any certificate delivered pursuant
hereto (i) shall be deemed to be material and to have been relied
upon by the Purchaser, notwithstanding any investigation
heretofore or hereafter made by the Purchaser or on the
Purchaser's behalf, and (ii) shall survive the execution and
delivery of the Note and shall continue in full force and effect
so long as the Note is outstanding and unpaid provided that all
representations and warranties made herein or in any certificate
delivered hereto shall speak only as of the date made.
9.5 NOTICES AND OTHER COMMUNICATIONS. All notices,
requests, consents and other communications hereunder shall be in
writing and shall be delivered, or shall be sent by certified or
registered mail, return receipt requested, postage prepaid and
addressed (i) if to the Purchaser, c/o Fortress Re, Inc., 292
East Morehead Street, Burlington, North Carolina 27215, or to
such other address as may have been furnished to the Company by
notice from the Purchaser, or (ii) if to the Company, to 160 West
Canyon Crest Drive, Alpine, Utah 84004, or to such other address
as may have been furnished to the Purchaser. All notices shall
be deemed to have been given either at the time of the delivery
thereof at the address of such persons for purposes of this
9.5, or, if mailed, at the completion of the fifth full day
following the time of such mailing thereof to such address, as
the case may be.
9.6 GOVERNING LAW. This Agreement and the Notes shall
be construed in accordance with and governed by the laws of the
State of North Carolina, without regard to its principles of
conflicts of law. If any action or proceeding shall be brought
by the Purchaser in order to enforce any right or remedy under
this Agreement or under the Note, the Company hereby consents and
will submit to the jurisdiction of any state or federal court of
competent jurisdiction sitting within the area comprising the
Middle District of North Carolina on the date of this Agreement.
9.7 TABLE OF CONTENTS AND HEADINGS. The table of
contents and the headings of the various subdivisions hereof are
for convenience of reference only and shall in no way modify any
of the terms or provisions hereof.
9.8 COUNTERPARTS. This Agreement may be signed by each
party hereto upon a separate copy in which event both of said
copies shall constitute a single counterpart of this Agreement.
This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
9.9 EXPENSES. The Company agrees to reimburse the
Purchaser for up to $20,000 of his actual out-of-pocket expenses
incurred in connection with negotiating and drafting this
Agreement, the Note and the Pledge Agreement (including the
reasonable fees and disbursements of his legal counsel and of his
accountant), which amount shall be payable by the Company at the
time the Note is repaid or converted.
ARTICLE X
DEFINITIONS
10.1 PREVIOUS DEFINITIONS. The following terms have
been elsewhere defined in this Agreement and have the respective
meanings assigned to them in the indicated sections, and such
terms, together with the other terms defined in 10.2, shall
include the singular as well as the plural: "Agreement,"
"Company" and "Purchaser," defined in the introductory paragraph;
"Note," defined in 1.1; "Closing Date," defined in 1.2(a).
10.2 ADDITIONAL DEFINITIONS. Except as otherwise
specified or as the context may otherwise require, the following
terms shall have the respective meanings set forth below whenever
used in this Agreement:
"Affiliate" shall mean any person (other than the Company's
Subsidiaries or the Purchaser) which, directly or indirectly,
through one or more intermediaries, controls, is controlled by,
or is under common control with, the Company or any of its
Subsidiaries. The term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management and policies of a person, whether through the
ownership of voting stock, by contract or otherwise.
"Commission" shall mean the Securities and Exchange
Commission and any other similar or successor agency of the
federal government administering the Securities Act, the Exchange
Act, or the Trust Indenture Act.
"Common Stock" shall mean and include the Company's
authorized common stock, $.005 par value per share, and shall
also include any class of the capital stock of the Company
hereafter authorized which shall neither (i) be limited to a
fixed sum or a percentage of par value in respect of the rights
of the holders thereof to receive dividends and to participate in
the distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding-up of the Company, nor (ii)
be subject at any time to redemption by the Company, provided,
however, the Common Stock receivable upon conversion of the Note
shall include only shares of the capital stock of the Company
designated as common stock or shares of any class or classes of
the capital stock of the Company resulting from any
reclassification or reclassifications of such common stock which
are not limited to any such fixed sum or percentage of par value
and which are not subject to any such redemption.
"Conversion Shares" shall mean any Common Stock issued or
issuable upon conversion of the Note.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Event of Default" shall mean each of the happenings or
circumstances enumerated in 6.1.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and any similar or successor federal statute,
and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Incur" (including the correlative terms "incurred",
"incurring", "incurs", and "incurrence"), when used with respect
to any Indebtedness, shall mean create, incur, assume, guarantee
or in any manner become liable in respect of (including, without
limitation, by operation of law), such Indebtedness.
"Indebtedness" of any Person shall mean and include, as of
any date as of which the amount thereof is to be determined, (i)
all items (other than capital items such as capital stock,
surplus and retained earnings, as well as reserves for taxes in
respect of income deferred to the future and other deferred
credits and reserves) which in accordance with generally accepted
accounting principles would be included in determining total
liabilities as shown on the liability side of a balance sheet of
such Person as of such date, (ii) all obligations which are
secured by any Lien existing on property owned by such Person
whether or not the obligations secured thereby shall have been
assumed by such Person, (iii) all obligations (other than
cancellation fees) of such Person to purchase any materials,
supplies or other property, or to obtain the services of any
Person, if the relevant contract or other related document
requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of
whether or not delivery of such materials, supplies or other
property is ever made or tendered or such services are ever
performed or tendered, (iv) all obligations of such Person to
advance or supply funds to, or to purchase property or services
from, any other Person in order to maintain the working capital,
net worth or any other balance sheet condition of such other
Person or to pay debts, dividends or expenses of such other
Person or to assure such other Person or any third party against
any liability or loss and (v) guaranties, endorsements and other
contingent obligations, direct or indirect, on the part of such
Person (other than endorsements of negotiable instruments for
collection in the ordinary course of business) for the payment,
discharge or satisfaction of Indebtedness of others of the
character described in clauses (i), (ii), (iii)and (iv) above,
including any agreement, contingent or otherwise, to (x) purchase
such Indebtedness of others, or (y) purchase or sell property or
services primarily to permit the debtor in respect of such
Indebtedness of others to avoid loss, or (z) supply funds to or
invest in any such debtor.
"Lien" shall mean: (i) any interest in property (whether
real, personal or mixed and whether tangible or intangible) which
secures an obligation owed to, or a claim by, a Person other than
the owner of such property, whether such interest is based on the
common law, statute or contract, including, without limitation,
any such interest arising from a mortgage, charge, pledge,
security agreement, conditional sale, trust receipt or deposit in
trust, or arising from a consignment or bailment given for
security purposes (other than a trust receipt or deposit given in
the ordinary course of business which does not secure any
obligation for borrowed money), (ii) any encumbrance upon such
property which does not secure such an obligation, and (iii) any
exception to or defect in the title to or ownership interest in
such property, including without limitation, reservations, rights
of entry, possibilities of reverter, encroachments, easements,
rights of way, restrictive covenants, licenses and profits a
prendre. For purposes of this Agreement, any Person shall be
deemed to be the owner of any property which it has acquired or
holds subject to a lease or conditional sale agreement or other
arrangement pursuant to which title to the property has been
retained by or vested in some other Person for security purposes.
"Person" shall include any individual, a corporation, an
association, a partnership, a trust or estate, a government and
any agency or political subdivision thereof, or any other entity.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with Article VIII,
including, without limitation, (i) all Commission and stock
exchange or National Association of Securities Dealers, Inc.
registration, filing fees and listing expenses, (ii) all fees and
expenses of complying with securities or blue sky laws (including
fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of any Conversion
Shares), (iii) all printing, messenger and delivery expenses,
(iv) the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any
special audits and/or "cold comfort" letters required by or
incident to such performance and compliance, (v) the fees and
disbursements of counsel retained in connection with such
registration by the Purchaser, and (vi) any fees and
disbursements of underwriters customarily paid by issuers or
sellers of securities, including the fees and expenses of any
special experts retained in connection with the requested
registration, but excluding underwriting discounts, commissions,
insurance charges and transfer taxes, if any.
"Restricted Shares" shall mean any Common Stock issued or
issuable upon conversion of the Note. As to any particular
Restricted Shares once issued, such securities shall cease to be
Restricted Shares when (i) a registration statement with respect
to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) such
securities shall have been distributed to the public pursuant to
Rule 144 (or any successor provision) under the Securities Act,
(iii) such securities shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or
qualification of them under the Securities Act, or (iv) such
securities shall have ceased to be outstanding.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and any similar or successor federal statute, and the
rules and regulations of the Commission thereunder, all as the
same may be in effect at the time.
"Solvent" shall mean with respect to any Person on a
particular date, on such date (i) the fair value of the property
of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such
Person, (ii) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become
absolute and matured, (iii) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities
mature, and (iv) such Person is not engaged in business or a
transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is
engaged. In computing the amount of contingent liabilities at
any time, it is intended that such liabilities will be computed
at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other business entity of which more
than 50% of the outstanding capital stock (or other ownership
interest) having ordinary voting power to elect a majority of the
board of directors, managers or other voting members of the
governing body of such entity (irrespective or whether at the
time capital stock (or other ownership interest) of any other
class or classes of such entity shall or might have voting power
upon the occurrence of any contingency) is at the time directly
or indirectly owned by such Person, or by one or more other
Subsidiaries of such Person.
IN WITNESS WHEREOF, the Purchaser has executed and delivered
this Agreement and the Company has caused this Agreement to be
executed, sealed, and delivered by its officer thereunto duly
authorized.
INTERLINE RESOURCES CORPORATION
By___________________________________
Name: Michael R. Williams
Title: Chief Executive Officer
and President
_____________________________________
Maurice D. Sabbah
[SEAL]
EXHIBIT A
INTERLINE RESOURCES CORPORATION
6% SENIOR SECURED NOTE
DUE AUGUST 29, 1996
$1,500,000
FOR VALUE RECEIVED, the undersigned, INTERLINE RESOURCES
CORPORATION, a corporation organized and existing under the laws
of the State of Utah (herein called the "Company"), hereby
promises to pay to MAURICE D. SABBAH, an individual residing in
the State of North Carolina, the principal sum of ONE MILLION
FIVE HUNDRED THOUSAND DOLLARS, on August 29, 1996, together with
simple interest (computed on the basis of a 360-day year of
twelve 30-day months) from the date of this Note until said
principal hereof shall become due and payable, at the rate of 6%
per annum, and to pay interest compounded daily at the rate of
12% per annum on any overdue payment of principal and accrued and
unpaid interest, until the same shall be paid in full.
Payment of the principal of, and interest on, this Note
shall be made, in lawful money of the United States of America in
the manner and at the place provided in Article III of the
Agreement hereinafter referred to. Accrued interest shall be
payable at the same time principal is due and payable.
This note is issued pursuant to that certain Note Purchase
Agreement dated as of February 29, 1996 between the Company and
Maurice D. Sabbah. This Note is entitled to the benefits of, and
is subject to the terms contained in the Note Purchase Agreement
(said Note Purchase Agreement, as amended and modified from time
to time, herein called the "Agreement"). The provisions of the
Agreement are hereby incorporated in this Note to the same extent
as if set forth at length herein.
This Note is subject to prepayment pursuant to the terms and
conditions of Article III of the Agreement.
In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of this Note may
become or be declared due and payable in the manner and with the
effect provided in the Agreement.
If the principal amount of this and any accrued but unpaid
interest is not paid in full on or before August 29, 1996 or upon
the occurrence of certain events set forth in the Agreement, the
principal amount of this Note is convertible in whole or in part
into at least 468,750 shares of Common Stock of the Company, on
the conditions specified in Article VII of the Agreement, at the
option of the holder hereof, upon surrender hereof, and upon the
giving of notice of conversion.
NEITHER THE DEBT REPRESENTED BY THIS NOTE, NOR THE
SHARES INTO WHICH THIS NOTE MAY BE CONVERTED, HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS, AND
ACCORDINGLY, MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF REGISTRATION UNDER SUCH ACT AND
SUCH LAWS OR PURSUANT TO AN EXEMPTION THEREFROM.
This Note evidences senior indebtedness of the Company and
is secured by the stock of certain subsidiaries of the Company to
the extent provided in the Pledge Agreement dated as of
February 29, 1996 between the Company and Maurice D. Sabbah.
This Note will rank pari passu in right of payment with all other
existing and future senior indebtedness of the Company, and will
rank senior to all subordinated indebtedness of the Company.
Should the indebtedness represented by this Note or any part
thereof be collected in any proceeding provided for in the
Agreement or be placed in the hands of attorneys for collection,
the Company agrees to pay, in addition to the principal, premium,
if any, and interest due and payable hereon, all costs of
collecting this Note, including reasonable attorneys' fees and
expenses.
IN WITNESS WHEREOF, INTERLINE RESOURCES CORPORATION, has
caused this Note to be dated February 29, 1996, and to be
executed and sealed on its behalf by its officer thereunto duly
authorized.
INTERLINE RESOURCES CORPORATION
By:
____________________________________
Michael D. Williams,
Chief Executive Officer and
President
SUBSIDIARIES OF INTERLINE RESOURCES CORPORATION
Interline Hydrocarbon, Inc.
Subsidiaries: Interline (UK) Limited (40% ownership)
Genesis Petroleum - Salt Lake City L.L.C.
Interline Energy Services, Inc.
Subidiaries: Interline Crude Gathering Company
NRG Fuels, Inc.
Subsidiaries: Interline Transportation
Company
Gagon Mechanical Contractors, Inc.
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