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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended December 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition Period From _________ to
___________
Commission File Number 0-19365
CROWN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0368981
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 South State, Suite 550
Salt Lake City, Utah 84111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 537-5610
Securities registered pursuant to Section 12 (b) of the Act:
(None)
Securities registered pursuant to Section 12 (g) of the Act:
$0.02 PAR VALUE COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock, Par Value $0.02 per share
held by non-affiliates of the Registrant on March 27, 1998, was $11,019,725
using the average bid and asked price for Registrant's Common Stock. As of March
24, 1998, Registrant had 11,680,549 shares of its $0.02 par value Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy to be filed with the
Commission pursuant to Regulation 14A of the Securities Act of 1933 within 120
days after the close of the Company's most recent fiscal year are incorporated
by reference into Part III hereof.
Transitional Small Business Disclosure Format (check one)
YES [ ] NO [X]
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PART I.
ITEM 1. BUSINESS
General
Crown Energy Corporation ("Crown" or the "Company") is a Utah
corporation which specializes in the mining, production and marketing of premium
asphalt extracted from oil sands. The Company directs its activities from its
corporate offices in Salt Lake City, Utah. The Company was formed in 1981 as an
oil and gas production company. The Company changed its business focus to
concentrate on the mining, production and marketing of premium asphalt in 1995.
The Company believes it made significant advancements in this industry during
1997 by aligning itself with two major natural resource companies and by
commencing construction of an approximately $19 million asphalt processing
facility at Asphalt Ridge, near Vernal, Utah (the "Facility").
Effective August of 1997, the Company formed Crown Asphalt Ridge,
L.L.C., a Utah limited liability company ("Crown Ridge") with MCNIC Pipeline &
Processing Company, a Michigan corporation ("MCNIC") to develop the Asphalt
Ridge oil sand project in northeast Utah. MCNIC is a wholly owned subsidiary of
MCN Energy Group, Inc. ("MCN"), a large diversified energy holding company with
over $4 billion in assets and investments throughout North America and India.
MCN is involved in oil and gas exploration and production, natural gas
gathering, processing, transmission and storage, energy marketing, electric
power generation and distribution, and other energy-related businesses and
serves 1.2 million customers in more than 500 communities throughout Michigan.
Information about MCN Energy Group is available on the World Wide Web at
http://www.mcnenergy.com.
Contemporaneous with the MCNIC venture, the Company also closed on an
agreement for the private sale of $5 million of the Company's $10 Series A
Cumulative Convertible Preferred Stock to Enron Capital & Trade Resources Corp.
("ECT"), a subsidiary of Enron Corp. ("Enron"), a New York Stock Exchange
Company. Enron is a major buyer and seller of natural gas with assets of
approximately $20 billion. Enron also builds and manages worldwide natural gas
transportation, power generation, liquids, and clean fuels facilities. Proceeds
from the sale of stock to ECT have been and will be used for working capital and
to finance the Company's share of construction and start-up costs related to
Crown Ridge, which includes the construction of the Facility.
The Facility will process oil sands extracted from Crown Ridge's
estimated 100 million-barrel reserve. The Facility is designed to initially
process approximately 3,000 tons of oil sands daily for an average production of
1,700 barrels of asphalt per day. The estimated annual production of asphalt is
approximately 100,000 tons. The Company believes that the asphalt produced at
the Facility meets new stringent highway specifications and will have high
durability at lower cost. Further, the Company expects the Facility to be
operational in mid-1998. However, there can be no assurance that construction
will be completed on time or that when completed that premium asphalt will be
produced at lower cost than is presently available in the market.
As the Company prepares for commercial asphalt production in 1998, the
Company is also actively seeking other asphalt and oil sands related business
opportunities although no agreements have been reached. Further, there is no
guarantee that any agreement can or will be reached on terms and conditions
favorable to the Company.
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Crown Asphalt Ridge, L.L.C.
Formation. Effective August 1, 1997, the Company, through its
wholly-owned subsidiary, Crown Asphalt Corporation (hereafter collectively
referred to with Crown Energy Corporation as the "Company" unless indicated
otherwise) jointly formed Crown Ridge with MCNIC to develop substantial oil
sands reserves at Asphalt Ridge in Uintah County, Utah (the "Reserves") and to
continue to develop the Facility which is located on the Reserves. Utah contains
approximately 90 percent of the known U.S. oil sand deposits consisting of over
28 billion barrels of oil. The Company believes that the Reserves constitute one
of Utah's largest and most accessible deposits. Extensive studies estimate
surface minable reserves at Asphalt Ridge to be approximately 140 million
barrels, of which the Company believes Crown Ridge controls over 100 million
barrels.
MCNIC and the Company (sometimes referred to hereafter as the
"Members") will initially possess sharing ratios ("Sharing Ratios") of 75% and
25%, respectively, in the profits, losses and obligations of Crown Ridge. Once
the Facility is built by Crown Ridge and the economic operations of Crown Ridge
are successful to the extent of paying out to MCNIC an amount equal to 115% of
its cash investment in Crown Ridge, excluding tax benefits, the Company's
Sharing Ratio in Crown Ridge will increase to 50%. Thereafter the Members may
build other plants to further develop the oil sands reserves. These plants will
require additional capital contributions from the Members, which are described
in more detail below. The Company may participate up to 50% in the additional
facilities and up to 60% after payout. There are provisions for the Company to
retain an interest in these facilities after the recoupment of certain amounts
in the event the Company does not participate in the costs of such additional
facilities, as provided in the "Back-In Option."
Crown Ridge will proceed in phases in order to shepherd the risks and
resources of the Members. Each phase calls for the Members to contribute new
capital to move Crown Ridge through the next phase. The first phase called for
detailed engineering and verification of the oil sand reserves of the Company.
MCNIC and the Company have both contributed capital of $300,000 and $100,000
respectively, to Crown Ridge to cover the engineering and verification costs and
complete the first phase. With the completion of the first phase and as part of
the second phase, the Company has recently contributed, or will be required to
contribute, the following to Crown Ridge:
1. The Company's rights as lessee under certain equipment leases
on mining equipment with a fair market value of up to $3.5
million dollars (MCNIC has agreed that this contribution will
be accepted in lieu of $3.5 million in cash);
2. A sublicense of Crown's license of proprietary oil sands
refining technology from Park Guymon Enterprises, Inc.
("PGEI"), which is accorded only a nominal value under Crown
Ridge's Operating Agreement (the "Operating Agreement").
Following the commencement of operations, Crown Ridge shall be
responsible for paying the 2-5% royalty required by the
sublicense;
3. The Reserves (These properties are initially valued by Crown
Ridge at $500,000); and
4. An amount of cash needed to bring the Company's new capital
contributions up to 25% capital to construct the Facility,
giving full credit to the $3.5 million of equipment leases and
the $500,000 of property rights in 1 and 3 above.
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MCNIC has agreed to initially fund 75% of the amounts required by Crown
Ridge to construct the Facility and to operate Crown Ridge. Both Members may
make such additional contributions as may be required or agreed in the course of
building the Facility. To date, the Company has contributed approximately
$433,000 to Crown Ridge.
Subsequent Plants. Under the Crown Ridge Operating Agreement, the
Members may construct up to two subsequent plants (the "Subsequent Plants"),
similar to the Facility if the economics of Crown Ridge's oil sands processing
business so permit. In sum, a Subsequent Plant may be constructed if certain
economic returns (approximately 18% on 50% of its Capital Contributions to Crown
Ridge or any successor joint venture during any 12 month period) have been
experienced by MCNIC from the Facility and if the Members believe or are
independently advised that a sufficient market exists to allow for the operation
of the Subsequent Plants without damaging the competitive position or returns of
the earlier already built plants. The agreement of MCNIC and the Company is that
any Subsequent Plant will be held and operated by a separate legal entity (a
"Successor Entity") formed by the Members with similar provisions as Crown
Ridge. The Company may elect to participate in either of the Subsequent Plants
and may obtain, at its option, between 10% and 50% of the interests in the newly
formed entity. A portion of the Company's obligations to contribute to the
Successor Entity may be satisfied through the value of the contributed
properties which the Company may be credited with, as described below.
Following the determination by both Members or one Member to proceed
with the construction of a Subsequent Plant, Crown Ridge will convey to the
Successor Entity sufficient oil sand reserves or other property and water rights
to enable it to sustain operations in accordance with the applicable projections
and market study. If, during the twelve months prior to the sale of products
from the first Subsequent Plant, MCNIC has realized a return of approximately
30% on 50% of its Capital Contributions to Crown Ridge, the Company will be
credited with a value for these reserves and properties equal to $.10 per barrel
for the products estimated to be produced from the Subsequent Plant over a 20
year period.
If the Company elects not to proceed with any Subsequent Plant, and to
not make the needed capital contributions to build and operate the Subsequent
Plant, Crown will have a reduced interest in the Subsequent Plant (but will
still be credited with an interest equal to the value of the contributed
properties as described below, if the requisite return is achieved), subject to
an escalation under the Back-In Option described below.
Whether or not the Company elects to proceed with either Subsequent
Plant, if the Subsequent Plants reach certain levels of economic success
(approximately 115% of MCNIC's investment in plant 2 without giving effect to
any tax benefits), the Company will receive an increased interest of 10% in the
Subsequent Plant as a result of its oil sand properties and technology being
used by the Subsequent Plant(s).
Management of Crown Ridge; Major Decisions. Crown Ridge is governed by
a Management Committee consisting of five Managers. Initially, MCNIC is entitled
to appoint four Managers and the Company, one Manager. MCNIC's Manager
appointees are William Kraemer, Joseph Roberts, Jr., Martin Vucinaj, and Daniel
Schiffer. The Company's Manager appointee is Mr. Jay Mealey, the Company's
President. Joseph A. Roberts, Jr., was elected Chairman of the Management
Committee by a majority vote of the Managers. Managers may be removed or
replaced from time to time by the Member which appointed them.
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If any adjustment is made in the Members' respective Sharing Ratios
both the Company and MCNIC will be entitled to appoint one Manager for each 20%
of Crown Ridge interest held by that Member (rounded to the nearest 20% level),
provided, that MCNIC and the Company shall each be entitled to at least one
Manager at all times that they are Members of Crown Ridge. The size of the
Management Committee may be increased to six Managers if the foregoing
calculation requires it.
Management decisions shall generally be made through a majority vote of
the Managers. However, certain "Major Decisions" such as: (i) the approval of
the detailed engineering for the Facility; (ii) the approval of, or substantial
amendment to, the annual operating plan (the "Annual Operating Plan"); and (iii)
calls for additional Capital Contributions (except for calls contemplated by the
EPC Contract as defined in Crown Ridge's Operating Agreement and those required
to maintain Crown Ridge in emergencies); most distributions to the Members
require unanimous approval of the Managers.
Crown Ridge's operations shall be conducted each year pursuant to an
annual operating plan (the "Annual Operating Plan"). The Annual Operating Plan
shall address all aspects of Crown Ridge's operations for the coming year,
including budgeting for operations, the mining of oil sands products and the
marketing of those products. In the event the Management Committee is unable to
unanimously approve an Annual Operating Plan for any given calendar year, a
majority of the Managers shall have the authority to continue to maintain Crown
Ridge's operations at levels comparable to those approved under the last Annual
Operating Plan.
Additional Opportunities Within the Project Area and Area of Mutual
Interest. Crown Ridge may elect to pursue additional opportunities ("Additional
Opportunities") within the Asphalt Ridge project area ("Project Area") which are
brought to its attention by one of its Members. Should Crown Ridge elect to
pursue such an Additional Opportunity, it may do so either through Crown Ridge
or by forming a new company containing terms and provisions substantially
similar to those of Crown Ridge. In the event that Crown Ridge does proceed with
any Additional Opportunity, the Company shall have the right, but not the
obligation, to obtain an equity interest in each such Additional Opportunity of
no less than 10% and no greater than 50% (with MCNIC obtaining the remaining
interest). If the Management Committee determines not to proceed with the
Additional Opportu nity, any Member of Crown Ridge may then do so alone, subject
to the Back-In Option, discussed below, of the nonparticipating Member.
If either Member desires to develop any interests in real property,
fixtures or improvements within the State of Utah relating to the processing of
oil sands, bitumen, asphaltum or other minerals or mineral resources into
asphalt, performance grade asphalt, synthetic crude oil, diesel fuel, or any
other product produced using the intellectual property covered by the Company
Sublicense or any derivation thereof (an "AMI Opportunity"), the AMI Opportunity
must first be offered to Crown Ridge. The Company, shall then have the option,
but not the obligation, of acquiring (i) up to a 50% equity interest if the AMI
Opportunity relates to, or is designed for, the production and sale of asphalt
or performance grade asphalt; or, (ii) up to a 662/3% equity interest if the AMI
Opportunity relates to the production of synthetic crude oil, diesel fuel or any
other similar products.
If Crown Ridge elects not to proceed with the AMI Opportunity, the
Member who brought the opportunity to Crown Ridge may proceed alone and the
nonparticipating Member shall have no further interest in the activity covered
by such opportunity. Except as limited in the discussion above, each Member of
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Crown Ridge shall have the right to independently engage in any business
activities except that MCNIC shall not be entitled to use the Company's
technology provided to Crown Ridge in connection with such activities.
The Back-In Option. The Back-in Option is a means by which the Member
which initially elects not to participate in a plant may subsequently
participate at a later date upon favorable terms. The Back-in Option shall apply
if:
(i) The Company elects not to proceed with construction of the
Facility following the completion of the detailed engineering
(and MCNIC elects to proceed);
(ii) either Member elects not to participate in the construction of
a Subsequent Plant; or
(iii) either Member elects not to participate in an Additional
Opportunity.
In the case of the Company's election not to participate in Subsequent Plants or
Additional Opportunities, the Company shall be entitled to a 60% interest in the
particular plant or opportunity if it is the non-participating Member, and MCNIC
shall be entitled to a 40% interest if it is the non-participating Member, after
the participating Member has achieved a 200% payout of the costs of the
respective facility.
Distributions; Allocations of Profits and Losses. The Management
Committee shall cause Crown Ridge to distribute Available Cash, as defined
within the Operating Agreement, to the Members quarterly, within 30 days
following the end of each quarter. Distributions will be made in connection with
the respective capital account balances after taking into account all
allocations for profits and losses.
Management Agreement. Pursuant to an Operation and Management Agreement
(the "Management Agreement"), the Company will act as the "Operator" of the
Facility upon commencement of operations. Under the Management Agreement, the
Company will act as an independent contractor to Crown Ridge and will (i)
manage, supervise and conduct the operations of Crown Ridge; (ii) carry out the
terms of the Annual Operating Plan adopted and approved by the Management
Committee of Crown Ridge; (iii) implement the decisions made and instructions
given from time to time by the Management Committee. As compensation for the
services rendered under the Management Agreement, the Company will receive (i) a
monthly fee of $3,000; (ii) the payment of all out-of-pocket expenses incurred
through the performance of its duties; (iii) the payment of the reasonable
salaries, wages, overtime and other similar compensation paid to employees who
are employed full time in connection with the operations of Crown Ridge; and
(iv) a monthly home office overhead charge of $10,000.
During the first two years, the Company may be removed as Operator only
for "good cause" as defined within the Management Agreement. After this initial
term, the agreement will automatically renew for unlimited succeeding one year
terms unless either party indicates its desire to not renew within 90 days of
the expiration of the term. Also following the expiration of the initial term,
Crown Ridge may challenge the Company's status as Operator on economic grounds
by serving written notice to the Company that it believes that the operations of
the Facility may be conducted more efficiently and cheaply and that it is
willing to become the Operator (or has a bona fide commitment from a third party
to do so) on a reduced charge basis. Following the receipt of the economic
challenge, the Company will have 30 days to notify Crown Ridge that it elects to
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(i) allow Crown Ridge, or its designee, to become the Operator under the
proposed terms, or (ii) continue as the Operator under the proposed terms.
Asphalt Resources and Production
Asphalt Ridge Resource. The Asphalt Ridge oil sand deposit is located
in the Uintah Basin in eastern Utah near the town of Vernal. It is situated on
the east flank of the Uintah Basin incline dipping to the southwest at 3(degree)
to 8(degree). Numerous faults of differing size occur along Asphalt Ridge, which
help define the saturated areas.
Extensive reserve studies, including core drilling performed by Bechtel
and Sohio between the late 1950's and mid-1980's, estimate surface minable
reserves to be approximately 140 million barrels. The deposit is comprised of an
unconsolidated oil-wet sandstone up to 300 feet in thickness with overburden
thickness ranging from 0 to 500 feet. There are three "pit" areas along Asphalt
Ridge where the recoverable reserves are principally located. These areas are
referred to as the "A", "D", and "South" tracts. Crown Ridge controls
approximately 7,000 acres of private and state land encompassing these tracts,
which the Company believes contain an estimated 100 million barrels of surface
minable reserves.
Crown Ridge's first production facility will be located at the "A"
tract. The "A" tract contains in excess of 18 million barrels of surface minable
reserves with an average oil saturation of 11% by weight. This pit is partially
opened and is currently being mined on a small scale for use as local asphalt
road base. The pit has been mined since the 1940's and provides a natural site
to commence operations as overburden has been removed and an open pit area
exists for waste sand storage.
Production Technology. The hydrocarbon potential of oil sands is widely
recognized. North America contains the largest known oil sands deposit in the
world, located in the Athabasca region in Alberta, Canada. Utah contains about
90 percent of the known U.S. oil sands deposits consisting of over 28 billion
barrels of oil in place in about 50 deposits. Asphalt Ridge is one of Utah's
largest deposits containing over a billion barrels of oil in place. Numerous
research efforts have focused on applying the hot water processes used in Canada
to Utah oil sands with no commercial success. The fact that the Utah sands are
"oil-wet" - unlike the Canadian sands which are "water-wet" - and the fact that
the Utah oil is substantially more viscous dictates that a different process be
used. The Company and Dr. E. Park Guymon of Weber State University developed a
solvent/surfactant wash production process which was patented in 1990 and is now
sublicensed to Crown Ridge. The production process will enable Crown Ridge to
successfully produce premium asphalt from mined oil sands.
Production Process. There are three major steps in the production
process: (1) mining, (2) extraction - separation of the oil from the sand, (3)
distillation - recovery of the solvent and separation of light fractions from
the asphalt.
Mining. The oil sands ore will be mined using conventional surface
mining techniques and equipment. The ore will be transported by haul trucks to a
stockpile and loading facility near the extraction unit.
Extraction. The ore will be loaded from the stockpile into a feed
chute. Starting in the feed chute, the sands are mixed with a readily available,
organic diesel solvent using spray nozzles, mixing paddles, and countercurrent
washers. The oil-solvent mix is decanted to the oil processing stage and the
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sand is then washed with water and a de-emulsifying surfactant to release the
remaining oil. The oil-solvent mix is processed using three-phase decanting
centrifuges to remove any solids and water and is transported to the solvent
recovery/distillation process. The water and surfactant are recycled through the
process. The residual sand and clay will contain no hazardous materials and will
meet regulatory standards for "clean" soil. It will be moved to a backfill pile
located in the previously mined pit where it will be graded and compacted.
Distillation. Solvent - about 60% of the oil-solvent solution - will be
recovered using an atmospheric distillation unit and returned for re-use in the
closed-loop extraction unit. The remaining oil will be fractionated through
vacuum distillation into a light distillate fraction and a premium asphalt.
The Asphalt Industry
The Company anticipates that the asphalt produced from Asphalt Ridge
will initially be marketed as a high quality base stock asphalt to make modified
and performance grade asphalt cements. The Company also expects Crown Ridge to
begin to develop a market for the product as a performance grade asphalt and a
specialty asphalt modifier.
The federal government recently completed the Strategic Highway
Research Program (SHRP) which established uniform performance and quality
standards which states must follow for federal and state highways. As states
implement the SHRP standards, polymer modified asphalts will begin to be
replaced by performance grade-modified (PG-modified) asphalts.
As a result of these more stringent performance standards, asphalt
suppliers throughout the U.S. are having to rework their asphalt formulations
because, for the most part, existing conventional petroleum based asphalt cannot
meet these standards without some form of modification. Asphalt modification
typically requires the blending of a solid polymer (plastic) or other additive
with a base stock asphalt. The main problem suppliers and manufacturers face
with asphalt modification is keeping the polymer/additive stable in the asphalt
after blending. Without a homogeneous dispersion of the polymer/additive in the
asphalt, the improvement of performance of the material cannot be achieved.
State highway departments have begun to impose significant quality
control/assurance penalties to contractors and suppliers for modified asphalt
which does not meet the project specifications. These penalties have forced
suppliers to seek good, consistent base stock supplies which provide product
stability after blending. Regional petroleum asphalt base stock supplies are
often very poor quality which make them difficult or impossible to modify to
meet many of the SHRP specifications. As a result, virtually all of the base
stock asphalt used to make PG-modified asphalt in this market is imported from
outside the region.
The asphalt produced from Asphalt Ridge is expected by the Company to
be a high quality base stock asphalt. It should be a very stable material with
consistent, natural performance qualities. However, until the Facility is
completed and the asphalt produced there can be no assurance of its quality or
performance. The naturally occurring qualities of the asphalt are expected to
make it very versatile which the Company believes will enable it to meet a broad
range of SHRP specifications.
Competition. The Company, through Crown Ridge, will be competing with
several large, better financed companies in the regional asphalt supply
business. The three main regional suppliers of PG-modified asphalt and polymer
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modified are Koch Materials Company/Conoco, Petro Source Oil Company and
Sinclair Oil Company.
Light distillate. Light distillate is a by-product of the asphalt
refining process. The light distillate can be sold directly into the local
off-road diesel market or as a primary feedstock for motor fuels to refineries
in Salt Lake City. The Company believes there is a ready market for the
distillate production from the project and competition is not a factor because
of the relatively insignificant volume of production. Prices for distillate vary
with market conditions and the price of crude oil.
The Company believes Crown Ridge will benefit from an abatement of the
$10.00 per barrel Utah motor fuels tax for that portion of its production which
is sold as motor fuels. The tax abatement amount is either paid directly to the
producer from the State in the form of a rebate or paid by the refiner directly
to the producer from the tax proceeds collected at the retail level. This
abatement is not applicable to fuels not subject to the motor fuels tax such as
off-road diesel.
Seasonality. The asphalt industry is seasonal. Demand for asphalt
decreases significantly during the winter months when cold weather and snow
interferes with highway construction and repair. Notwithstanding the decrease in
demand for asphalt and asphalt related products during the winter months, the
Company believes that it can continue mining the oil sands and producing asphalt
to meet the peak demands of spring and summer.
Environment
The Company and its subsidiaries are subject to federal, state and
local requirements regulating the discharge of materials into the environment,
the handling and disposal of solid and hazardous wastes, and protection of
health and the environment generally (collectively "Environmental Laws").
Governmental authorities have the power to require compliance with these
Environmental Laws, and violators may be subject to civil or criminal penalties,
injunctions or both. Third parties may also have the right to sue for damages
and/or enforce compliance and to require remediation of contamination.
The Company and its subsidiaries are also subject to Environmental Laws
that impose liability for costs of cleaning up contamination resulting from past
spills, disposal and other releases of substances. In particular, an entity may
be subject to liability under the Federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund") and similar state laws
that impose liability - without a showing of fault, negligence, or regulatory
violations - for the generation, transportation or disposal of hazardous
substances that have caused or may cause, environmental contamination. In
addition, an entity could be liable for cleanup of property it owns or operates
even if it did not contribute to contamination of such property.
The Company expects that it may be required to expend funds to comply
with federal, state and local provisions and orders which relate to the
environment. Based upon information available to the Company at this time, the
Company believes that compliance with such provisions will not have a material
affect on the capital expenditures, earnings and competitive position of the
Company.
Sale of Preferred Stock to Enron Capital & Trade Resources Corp
On November 4, 1997, the Company completed the sale of 500,000 shares
of its $10 Series A Cumulative Convertible Preferred Stock ("Series A
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Preferred") to ECT pursuant to a Stock Purchase Agreement dated September 25,
1997 for an aggregate sales price of $5 million. Proceeds of the transaction
have and will be used for working capital and to finance the Company's share of
Crown Ridge's construction and start-up costs. ECT is a subsidiary of Enron, one
of the world's largest integrated natural gas and electricity companies with
approximately $20 billion in assets.
The Series A Preferred shares are convertible at the option of its
holder(s) into 24% of the common stock of the Company. Dividends accrue on the
outstanding Series A Preferred shares at the rate of 8% per annum and may be
paid through cash or comon shares of the Company at the option of the holder(s)
of such stock. Subject to the holder(s)' right to convert the Series A
Preferred, the Company may redeem such stock at any time from the date on which
it was issued at a percentage of the Series A Preferred's stated value ($10)
which will vary depending on when the Company exercises such right. The
holder(s) of the Series A Preferred may also require the Company to redeem its
Series A Preferred under certain circumstances after the eighth anniversary of
the issuance of such stock.
The holder(s) of the Series A Preferred have the right, but not the
obligation, to appoint 20% of the Company's Board of Directors. To date, the
holders(s) have not appointed any Directors. In addition, the holder(s) of the
Series A Preferred have certain voting rights upon any attempt by the Company to
alter the rights and preferences, redemption, voting or dividend rights senior
to the Series A Preferred, increase the number of Series A Preferred, reclassify
the Company's securities or enter into specified extraordinary events. All
voting rights of the Series A Preferred expire upon the issuance by the Company
of a notice to redeem such shares.
The shares of common stock issuable upon conversion of the Series A
Preferred is subject to adjustment upon the issuance of additional shares of the
Company's common stock resulting from stock splits, share dividends and other
similar events as well as upon the issuance of additional shares or portions
which are issued (i) in connection with the Company's venture with MCNIC in
Crown Ridge, or (ii) as compensation to any employee, director, consultant or
other service provider of the Company or any subsidiary (other than options to
acquire up to 5% of the Company's common stock at or less than the then fair
market value).
Subsidiaries of the Company
Crown Asphalt Corporation ("Crown Asphalt") was formerly known as Buena
Ventura Resourcs Corporation, a Utah Corporation.
Crown Asphalt was organized October 24, 1985 and was acquired by the
Company on September 30, 1992. Crown Asphalt is a Member of Crown Ridge.
Crown Asphalt Products Company ("Crown Products") was formerly known as
Energy Technologies Corporation. Crown Products was formed in 1991, but until
recently has been a dormant entity. The Company recently activated Crown
Products for the purpose of developing an asphalt marketing and distribution
business.
Applied Enviro Systems, Inc., is a dormant Oregon corporation.
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Gavilan Petroleum, Inc
In order to focus more completely on its core business of asphalt
mining and production, the Company sold 100% of its interest in its wholly-owned
subsidiary, Gavilan Petroleum, Inc. ("Gavilan") to Road Runner Oil, Inc. ("Road
Runner") pursuant to the terms and conditions of a Stock Purchase Agreement,
dated July 2, 1997 (the "Stock Agreement"). Gavilan operated oil and natural gas
properties. Under the Stock Agreement, the Company transferred all of the issued
and outstanding shares of Gavilan stock to Road Runner in exchange for $25,000
at closing and a $125,000 promissory note (the "Note"). The Note is secured by a
pledge of the Gavilan stock. The Company maintains that Road Runner is presently
in default under the terms of the Note and Stock Agreement and the Company is
currently evaluating its options concerning this matter. See "Item 3. Legal
Proceedings."
Employees
As of March 24, 1998, the Company had 9 full and part-time employees,
including 5 employees of its wholly-owned subsidiaries. None of the Company's
employees of the Company are represented by a union or other collective
bargaining group. Management believes that its relations with its employees are
good.
ITEM 2. PROPERTIES
The Company conducts its business operations at 215 South State, Suite
550, Salt Lake City, Utah, where it has approximately 3,423 square feet of
office space under lease until September 30, 2001. Under the terms of the lease,
the Company pays $4,400 per month through September 30, 1998; $4,638 per month
through September 30, 1999; $4,877 per month through September 30, 2000; and
$5,118 per month through the lease expiration date of September 30, 2001. There
is no renewal option under the terms of this lease. Management of the Company
believes that its current office lease is sufficient for its needs and believes
that it will either be able to negotiate a new lease on its existing space or
obtain suitable other space in the Salt Lake City area upon the expiration of
the existing lease.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings presently pending against the Company.
However, the Company maintains that Road Runner Oil, Inc. ("Road Runner") is in
default on the payment of $75,000 together with accrued interest from November
5, 1997 at the rate of 21% per annum under a certain Promissory Note and thus in
default under a Stock Purchase Agreement dated July 2, 1997. Road Runner
contends that the foregoing amount is offset by an overriding royalty in the
amount of $90,000 it claims the Company owes a third party. The Company
vigorously disputes Road Runner's claims. The Company has not yet taken any
legal action against Road Runner and is evaluating its options concerning this
matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 21, 1997, the Company held an annual meeting of its
shareholders to elect members of the Company's Board of Directors; to approve
the appointment of Pritchett, Siler and Hardy as independent accountants for the
11
<PAGE>
Company; to approve the Crown Energy Corporation 1997 Long-Term Incentive
Compensation Plan (the "Plan"); and to approve the transfer of the Company's oil
sands reserves and related technology to an entity jointly organized with MCNIC.
Proxies for the meeting were solicited pursuant to Regulation 14A under the
Securities and Exchange Act of 1934. Approximately 7,832,767 shares of Common
Stock of the Company were represented in person or by proxy at the Meeting out
of a total of 11,572,141 shares. All four of the Company's directors were
re-elected to successive terms as directors of the Company with approximately
7,588,317 votes in favor of James A. Middleton, 7,471,067 in favor of Thomas W.
Bachtell and 7,179,578 votes in favor of both Jay Mealey and Rich Rawdin.
However, following the annual meeting, on or about November 26, 1997, Thomas W.
Bachtell resigned as a director of the Company. The Company has not yet filled
the vacant seat on the Board. The Company's shareholders also voted in favor of
appointing the accounting firm of Pritchett, Siler & Hardy as the Company's
independent auditors for the next fiscal year with 7,827,781 shares voting in
favor of the appointment, 1,750 shares voting against and 3,236 shares
abstaining.
The next proposal was to approve the Plan. The purpose of the Plan is
to assist the Company in attracting, retaining and motivating executive officers
and other key employees essential to the success of the Company through
performance-related incentives linked to long-range performance goals. The Plan
provides for discretionary awards (the "Awards") of nonqualified stock options.
All Awards will be made in, or based on the value of, the Company's common stock
at the date of grant. The Plan is administered by the Company's Board of
Directors. Under the Plan, the maximum number of shares of common stock for
which Awards may be granted is 2,000,000 subject to adjustment in the event of a
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split or other similar event. The shares to be issued under the Plan may consist
of authorized but unissued shares or shares purchased in the open market.
Regular, full-time employees of the Company and its subsidiaries or affiliates
who are designated by the Board of Directors are eligible to participate in, and
receive Awards under the Plan. All of the executive officers of the Company are
eligible to participate in the Plan. The Plan was approved by the affirmative
vote of 6,748,188 shares of the Company voting in favor of the Plan, 838,758
voting against the Plan and 245,821 abstaining from voting.
The final proposal presented to the shareholders of the Company at the
Meeting was approval of the transfer of the Company's Reserves and related
technology to Crown Ridge. The transfer of the Reserves and technology was
approved with 7,816,167 shares voting in favor of the proposal, 1,800 voting
against and 14,800 abstaining.
No other matters were presented to the Company's shareholders for their
approval in the fourth quarter of the Company's 1997 fiscal year.
PART II.
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Crown's Common Stock has been traded in the over-the-counter market
since 1980. The common stock is currently listed on the NASD OTC Bulletin Board
under the symbol CROE. At the present time, only the common stock is publicly
traded. The following table sets forth the range of high and low bid quotations,
as adjusted for stock splits, of Crown's common stock as reported by the
National Quotation Bureau for each full quarter during the two most recent
fiscal years.
12
<PAGE>
The table represents prices between dealers, and does not include retail
markups, markdowns or commissions, and may not represent actual transactions:
CALENDAR QUARTER ENDED HIGH BID LOW BID
March 31, 1996 1.13 0.63
June 30, 1996 1.03 0.69
September 30, 1996 0.81 0.63
December 31, 1996 1.44 0.60
March 31, 1997 1.25 0.63
June 30, 1997 1.03 0.53
September 30, 1997 1.50 0.63
December 31, 1997 2.00 1.22
As of March 13, 1998, the high bid and low offer quotations reported by
the National Quotation Bureau were $1.44 and $1.38, respectively. Crown has not
paid any cash dividend on its common shares. It is the present policy of the
Board of Directors of Crown to retain any earnings for use in the business, and
therefore, the Company does not anticipate paying any cash dividends on its
common stock in the foreseeable future. On March 24, 1998, approximately 796
shareholders of record held Crown's common stock.
On November 4, 1997 the Company completed the sale of 500,000 shares of
its Series A Preferred to ECT pursuant to a stock purchase agreement dated
September 25, 1997, and in reliance of Section 4(2) and 4(6) of the Securities
Act of 1933 (the "1933 Act"), for an aggregate sales price of $5,000,000.
Crown's Series A Preferred is not traded. Crown must pay dividends on its
outstanding Series A Preferred, which dividends accrue at the rate of 8% per
annum and may be paid in cash or common stock at the option of the holder(s) of
the Series of Preferred. The Company also agreed to issue a Warrant to ECT to
purchase up to 8% of the issued and outstanding shares of common stock of the
Company if the Company does not realize an internal rate of return of 39% after
five years.
On or about September 2, 1997, the Company's Board of Directors
approved the 1997 Stock Option Plan which the shareholders subsequently approved
on October 21, 1997. The Plan provides for the granting of awards of up to
2,000,000 shares of Common Stock to key employees, officers, directors, and
consultants. The awards consist of non-qualified options. Awards under the Plan
will be granted as determined by the Board of Directors. At present, 450,000
options have been granted under the plan in reliance upon Section 4(2) of the
1933 Act.
On September 24, 1997, the Company committed to issue a warrant to an
entity to purchase 100,000 shares of the Company's common stock at $1.00 per
share in reliance on section 4(2) of the 1933 Act for services to be rendered in
connection with the raising of financing. The Warrants expire September 24,
2002.
In 1997, the Company issued 35,000 shares of common stock to PGEI as
payment on a license, 8,606 shares to an individual as compensation for paying
an accounts payable for the Company and 56,877 shares to an individual in
payment of a promissory note, each in reliance on Section 4(2) of the 1933 Act.
The Company also issued a warrant, which had vested in April, 1995, to
purchase an aggregate of 183,750 shares of common stock to an entity for
services in connection with the raising of financing in reliance on Section 4(2)
of the 1933 Act.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The financial data included in the following table has been derived
from the financial statements for the periods indicated. The financial
statements as of and for the years ended December 31, 1993 through 1997 were
audited by Pritchett, Siler & Hardy, P.C., independent public accountants. The
following financial data should be read in conjunction with the financial
statements and related notes and with management's discussion and analysis of
financial conditions and results of operations included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands except per share)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Revenues $87 $225 $214 $326 $445
Income (Loss) from
Continuing
Operations ($1,153) ($422) ($234) ($230) ($193)
Income(Loss) Per Share
from Continuing
Operations ($0.11) ($0.04) ($0.03) ($0.03) ($0.02)
Total Assets $7,064 $4,591 $4,344 $4,351 $4,481
Total Long-Term
Obligations -0- $182 $794 $964 $1,040
Convertible Preferred
Stock 5,000 -0- -0- -0- -0-
Cash Dividends Per
Common Share $0.00 $0.00 $0.00 $0.00 $0.00
Shareholder's
Equity $6,929 $3,471 $3,065 $2,940 $2,880
</TABLE>
The foregoing selected financial data is presented on a historical
basis and may not be comparable from period to period due to changes in the
Company's operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1997, the Company had cash and other current assets of
$3,288,989 as compared to cash and other current assets of $245,931 at December
31, 1996. The increase of $3,043,058 was primarily due to the sale of $5 million
of preferred stock to ECT. The increase was partially offset by capital
contributions to Crown Ridge and payments on debt obligations. As of December
31, 1997, the Company had no long-term debt obligations and believes it has
sufficient capital to meet all of its current working capital requirements and
its share of Crown Ridge's budgeted capital requirements.
In addition, the Company will incur its proportionate share of
operating expenses of Crown Ridge until such time that Crown Ridge's operations
become profitable. Furthermore, should Crown Ridge incur unforseen additional
capital costs, the Company is obligated to pay its proportionate share of such
costs.
14
<PAGE>
The Company believes it has sufficient capital to cover such obligations.
However, there can be no assurance that such additional obligations can be met.
Results of Operations
1997 vs. 1996
-------------
Oil and gas revenue decreased from $224,855 for the year ended December
31, 1996 to $86,781 for the year ended December 31, 1997, a decrease of $138,074
(61%). This decrease was due to the sale of the Company's oil and gas producing
subsidiary, Gavilan Petroleum, Inc. in July, 1997.
Oil and gas production costs decreased from $137,340 for the year ended
December 31, 1996 to $54,653 for the year ended December 31, 1997, a decrease of
$82,687 (60%). This decrease was due to the sale of the Company's oil and gas
producing subsidiary, Gavilan Petroleum, Inc. in July, 1997.
General and administrative expenses increased from $551,401 for the
year ended December 31, 1996 to $775,544 for the year ended December 31, 1997,
an increase of $224,143 (41%). This increase was primarily due to an increase in
expenses relating to the Asphalt Ridge oil sand project financing.
Depletion, depreciation and amortization decreased from $80,062 for the
year ended December 31, 1996 to $39,857 for the year ended December 31, 1997, a
decrease of $40,205 (50%). This decrease was primarily due to a reduction in
depletion expense related to the sale of the Company's oil and gas producing
subsidiary, Gavilan Petroleum, Inc. in July, 1997.
Other income/expenses increased from total expenses of $6,682 for the
year ended December 31, 1996, to total expenses of $803,290 for the year ended
December 31, 1997, an increase of $796,608. This increase was due to the loss
recorded on the sale of Gavilan Petroleum, Inc.
1996 vs. 1995
-------------
Oil and gas revenue increased from $213,526 for the year ended December
31, 1995 to $224,855 for the year ended December 31, 1996, an increase of
$11,329 (5%). This increase was due to higher average oil prices. Average oil
prices increased from $16.90 per barrel in 1995 to $19.85 per barrel in 1996, an
increase of 17%. This revenue increase was partially offset by a decline in
barrels produced. Barrels of oil sold for the year ended December 31, 1996 were
9,435 as compared to 10,501 barrels for the same period in 1995, a decrease of
10%. In 1997, the Company sold its oil producing subsidiary to focus on the
production of asphalt and other products from oil sands.
Oil and gas production costs increased from $132,641 for the year ended
December 31, 1995 to $137,340 for the year ended December 31, 1996, an increase
of $4,699 (4%). This immaterial increase was due to higher maintenance costs due
to aging well equipment.
General and administrative expenses increased from $432,655 for the
year ended December 31, 1995 to $551,401 for the year ended December 31, 1996,
an increase of $118,746 (27%). This increase was primarily due to an increase in
expenses relating to the Asphalt Ridge oil sands project.
Depletion, depreciation and amortization decreased from $81,149 for the
year ended December 31, 1995 to $80,062 for the year ended December 31, 1996, a
15
<PAGE>
decrease of $1,087 (1%). This decrease was due to lower production for the
period and was partially offset by a higher unit depletion rate.
Other income/expenses decreased from total expense of $31,714 for the
year ended December 31, 1995, to total expense of $6,682 for the year ended
December 31, 1996, a decrease of $25,032 (79%). This decrease was due to an
increase in interest income and other miscellaneous income items.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE
The financial statements required by this item are set forth following
Item 14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
accountants with respect to any matter of accounting principles or practices or
financial statement disclosure.
PART III.
Items 10 through 13 of Part III of this Form are incorporated by
reference from the Company's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A of the Securities Act of 1933 within 120
days after the close of the Company's most recent fiscal year.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated balance sheet and statement of income and cash
flows for the period ended December 31, 1997.
(2) EXHIBITS:
EXHIBIT NO. DOCUMENT
3.1 Articles of Incorporation (6)
3.2 Certificate of Voting Powers, etc. of the Company's Preferred
Stock (10)
3.2 Amended By-Laws (1)
4.1 Stock Option Agreement - 1991 (2)
4.2 Stock Option Agreements (6)
4.3 Convertible Debenture - Agreement dated May 6, 1997, between
Crown Energy Corporation and Oriental New Investments, Ltd.
(7)
4.4 Warrant with Encap Investments, L.C.
4.5 Form of Stock Option Agreements between the Company
and (1) Jay Mealey, (2) Richard Rawdin and (3) Thomas
Bachtell.
10.1 License Agreements with Park Guymon Enterprises,
Inc., dated January 20, 1989, June 1, 1990 and June
1, 1990 (3)
16
<PAGE>
10.2 Amendment to License Agreement with Park Guymon Enterprises,
Inc. (6)
10.3 Executive Employment Agreement with James A. Middleton (6)
10.4 Employment Agreement with Jay Mealey
10.5 Consulting Agreement with IBEX Group, Inc. and Hoffman
Partners, Inc. (6)
10.6 Promissory Note issued to Jay Mealey 12/31/95 (6) 10.7
Promissory Note issued to Thomas W. Bachtell 12/31/95 (6) 10.8
Promissory Note issued to Thomas W. Bachtell 12/31/95 (6) 10.9
Oil and Gas Minerals Lease, dated September 1, 1991 with
Wembco, Inc. (4)
10.10 Crown Office Space Lease (5)
10.11 First Amendment to Crown Office Space Lease
10.12 Investment Banking Agreement with Fortress Financial Group,
Ltd.
10.13 Promissory Note from Jay Mealey
10.14 Promissory Note from Rich Rawdin
10.15 Stock Pledge Agreement with Jay Mealey
10.16 Stock Pledge Agreement with Rich Rawdin
10.17 Assignment of Assets to Crown Asphalt Ridge, L.L.C. by Crown
Asphalt Corporation
10.18 Assignment to Crown Asphalt Ridge, L.L.C. by Crown Ashpalt
Corporation
10.19 Asphalt Ridge Project Operating and Management Agreement with
Crown Asphalt Ridge L.L.C., dated August 1, 1997
10.20 Sublicense and Agreement between Crown Asphalt Ridge, L.L.C.
and Crown Asphalt Corporation
10.21 Stock Purchase Agreement with Enron Capital & Trade Resources
Corp. (10)
10.22 Facility Construction contract with CEntry
10.23 Engineering, Construction and Procurement Agreement w/CENTRY
Constructors & Engineers, LLC Revised Right of Co-Sale
Agreement between Jay Mealey and Enron Capital & Trade
Resources Corp. (11)
10.24 Guaranty Agreement in favor of MCNIC Pipeline & Processing
Company
10.25 Crown Office Space Sublease
10.26 Stock Purchase Agreement dated July 2, 1997, between Crown
Energy Corporation and Road Runner Oil, Inc. (8)
10.27 Letter Agreement with EnCap Investments L.C.
21 Subsidiaries of the Company
24 Power of Attorney
27 Financial Data Schedule
- -------------------------
(1) Incorporated by reference from the Company's Registration Statement
on Form 10 filed with the Commission on July 1, 1991, amended August
30, 1991 and bearing Commission file number 0-19365.
(2) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1991 bearing Commission file
number 0- 19365.
(3) Incorporated by reference from the Company's Report on Form 8-K
filed with the Commission on or about September 30, 1992, bearing
Commission file number 0-19365.
17
<PAGE>
(4) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1992, bearing Commission file
number 0- 19365.
(5) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1992, bearing Commission file
number 0- 19365.
(6) Incorporated by reference from the Company's Registration Statement
on Form S-1 filed with the Commission on or about March 13, 1996,
bearing Commission file number 0-19365.
(7) Incorporated by reference from the Company's Form 8-K filed with
the Commission on or about June 12, 1997, bearing Commission file
number 0-19365.
(8) Incorporated by reference from the Company's Form 8-K filed with
the Commission on or about July 21, 1997, bearing Commission file
number 0-19365.
(9) Incorporated by reference from the Company's Form 8-K filed with
the Commission on or about November 18, 1997, bearing Commission file
number 0-19365.
(10) Incorporated by reference from Enron Capital & Trade Resources
Corp. Form 13D filed with the Commission on or about October 10, 1997.
(11) Incorporated by reference from Enron Capital & Trade Resources
Corp. Form 13D/A filed with the Commission on or about November 12,
1997.
(b)During the quarter ended December 31, 1997, the Company filed a Form
8-K on November 18, 1997 to report (1) the disposition of assets by its
wholly-owned subsidiary, Crown Asphalt Corporation, to a newly formed limited
liability company jointly organized and owned by one of the Company's subsidiary
and a third-party; and (2) the sale of 500,000 shares of the Company's $10
Series A Cumulative Convertible Preferred Stock pursuant to a Stock Purchase
Agreement dated September 25, 1997 for an aggregate sales price of $5 million.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
CROWN ENERGY CORPORATION
(Registrant)
By: /S/ James A Middleton
---------------------
James A. Middleton
Chief Executive Officer,
Chairman of the Board of Directors
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Jay Mealey
/S/ Jay Mealey
--------------
President, Chief Operating Officer and
Director
Date: March 30, 1998
Richard S. Rawdin
/S/ Richard S. Rawdin
---------------------
Vice President, Director and Secretary
Date: March 30, 1998
19
<PAGE>
CROWN ENERGY CORPORATION
STATEMENTS
----------
PAGE
Independent Auditors' Report of Pritchett, Siler & Hardy, P.C. F-1
Consolidated Balance Sheets, December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity, for the years
ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows, for the years ended
December 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-9
Supplemental Information - Unaudited F-24
20
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
PRITCHETT, SILER AND HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CROWN ENERGY CORPORATION
FINANCIAL STATEMENTS
CONTENTS
PAGE
------
- Independent Auditors' Report 1
- Consolidated Balance Sheets, December 31,
1997 and 1996 2 - 3
- Consolidated Statements of Operations, for the
years ended December 31, 1997, 1996 and
1995 4
- Consolidated Statement of Stockholders' Equity,
for the years ended December 31, 1997, 1996
and 1995 5 - 6
- Consolidated Statements of Cash Flows, for the
years ended December 31, 1997, 1996 and
1995 7 - 8
- Notes to Consolidated Financial Statements 9 - 23
- Supplemental Information - Unaudited 24 - 29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CROWN ENERGY CORPORATION
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Crown Energy
Corporation at December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997, 1996 and 1995. These 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 audited by us present
fairly, in all material respects, the consolidated financial position of Crown
Energy Corporation as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
Salt Lake City, Utah
March 5, 1997
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
------------------------
1997 1996
----------- -----------
CURRENT ASSETS:
Cash $3,100,765 $ 142,772
Trade and other accounts receivable, net
of allowance for doubtful accounts of
$75,000 and $0 at 1997 and 1996 10,808 30,379
Other current assets 177,416 72,780
---------- ----------
Total Current Assets 3,288,989 245,931
PROPERTY AND EQUIPMENT, net 7,383 1,758
EQUITY INVESTMENT IN A LIMITED
LIABILITY COMPANY 3,412,355 --
INVESTMENT IN OIL SAND PROPERTIES -- 2,919,077
INVESTMENT IN OIL AND GAS PRODUCING
PROPERTIES, full cost method -- 1,083,882
OTHER ASSETS 354,930 340,726
---------- ----------
$7,063,657 $4,591,374
---------- ----------
The accompanying notes are an integral part of these financial statements
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,535 $ 2,663
Other current liabilities 124,981 225,322
Current portion of long-term debt -- 185,984
------------ ------------
Total Current Liabilities 134,516 503,969
LONG-TERM DEBT, net of current portion -- 60,845
LONG-TERM DEBT - related parties -- 121,248
DEFERRED TAX LIABILITY -- 434,056
------------ ------------
Total Liabilities 134,516 1,120,118
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.005 par value,
1,000,000 shares authorized, 500,000
$10 series A Cumulative Convertible
Shares issued and outstanding 2,500 --
Common stock, $.02 par value,
50,000,000 shares authorized,
11,722,216 and 11,430,571 shares
issued and outstanding at 1997 and
1996 234,444 228,611
Capital in excess of par value 10,165,245 5,497,772
Retained earnings (deficit) (3,473,048)
------------ ------------
Total Stockholders' Equity 6,929,141 3,471,256
------------ ------------
$ 7,063,657 $ 4,591,374
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
REVENUE:
Oil and gas sales $ 86,781 $ 224,855 $ 213,526
------------ ------------ ------------
Total Revenue 86,781 224,855 213,526
------------ ------------ ------------
EXPENSES:
Production costs
and related taxes 54,653 137,340 132,641
General and administrative 775,544 551,401 432,655
Depreciation, depletion
and amortization 39,857 80,062 81,149
------------ ------------ ------------
Total Expenses 870,054 768,803 646,445
------------ ------------ ------------
OPERATING (LOSS) (783,273) (543,948) (432,919)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and other income 35,451 20,589 11,880
Interest and other expense (37,280) (27,271) (43,595)
Loss on sale of subsidiary (801,461) -- --
------------ ------------ ------------
Total Other Income (Expense) (803,290) (6,682) (31,715)
------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES (1,586,563) (550,630) (464,634)
CURRENT TAX EXPENSE -- -- --
DEFERRED TAX (BENEFIT) (434,056) (129,044) (231,025)
------------ ------------ ------------
NET (LOSS) $ (1,152,507) $ (421,586) $ (233,609)
------------ ------------ ------------
(LOSS) PER COMMON SHARE $ (.11) $ (.04) $ (.03)
------------ ------------ ------------
WEIGHTED AVERAGE SHARES 11,524,822 10,932,091 9,143,720
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Common Capital
Stock Stock in Excess
------------------ ------------------- of Par Retained
Shares Amount Shares Amount Value Deficit Total
------ ------ ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December
31, 1994 -- $ -- 8,991,217 $ 179,823 $4,359,609 $(1,599,932) $2,939,500
Shares
issued for
cash at
$.35 and
$.60 per
share -- -- 292,857 5,857 134,143 -- 140,000
Shares
issued for
non-cash
consideration
at $.33 to
$.76 per
share -- -- 195,273 3,905 102,029 -- 105,934
Shares
issued for
non-cash
consideration
at $.28 and
$.35 per
share to
related
parties -- -- 381,722 7,635 105,412 -- 113,047
Net loss
for the
year ended
December
31, 1995 -- -- -- -- -- (233,609) (233,609)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE,
December
31, 1995 -- -- 9,861,069 197,220 4,701,193 (1,833,541) 3,064,872
Shares
issued for
cash at
$.50 per
share, net
of placement
costs of
$65,000 -- -- 800,000 16,000 319,000 -- 335,000
Shares
issued for
commissions -- -- 80,000 1,600 38,400 -- 40,000
Shares
issued for
services at
$.79 to
$1.00 per
share -- -- 241,547 4,832 224,542 -- 229,374
Shares
issued for
payment of
note payable -- -- 47,955 959 22,637 -- 23,596
Shares
issued for
cash at
$.50 per
share -- -- 400,000 8,000 192,000 -- 200,000
Net loss
for the
year ended
December
31, 1996 -- -- -- -- -- (421,586) (421,586)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE,
December
31, 1996 -- -- 11,430,571 228,611 5,497,772 (2,255,127) 3,471,256
Shares
issued for
non-cash
consideration
at $1.00 per
share -- -- 35,000 700 34,300 -- 35,000
Shares
issued for
payables at
$.86 per
share -- -- 10,000 200 8,406 -- 8,606
Shares
issued for
payment of
note payable -- -- 56,877 1,138 24,847 -- 25,985
</TABLE>
[Continued]
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
[Continued]
<TABLE>
<CAPTION>
Preferred Common Capital
Stock Stock in Excess
--------------------- ----------------------- of Par Retained
Shares Amount Shares Amount Value Deficit Total
------ ------ ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Shares
issued upon
conversion of
convertible
debentures at
$.90 per
share -- -- 173,101 3,462 152,441 -- 155,903
Cancellation
of shares
previously
Issued -- -- (25,000) (500) (19,188) -- (19,688)
Issuance
of common
stock upon
exercise
of stock
options -- -- 41,667 833 (833) -- --
Preferred
shares issued
for cash
at $10 per
share, less
offering
cost of
$530,000 500,000 2,500 -- -- 4,467,500 -- 4,470,000
Dividends
on preferred
stock -- -- -- -- -- (65,414) (65,414)
Net loss
for the
year ended
December
31, 1997 -- -- -- -- -- (1,152,507)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December
31,1997 500,000 $ 2,500 11,722,216 $ 234,444 $ 10,165,245 $ (3,473,048) $ (6,929,141)
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From
Operating Activities:
Net (loss) $(1,152,507) $ (421,586) $ (233,609)
----------- ----------- -----------
Adjustments to reconcile net (loss)
to net cash used in operating
activities:
Depreciation, Depletion
and Amortization 39,857 80,062 81,149
Loss on sale of subsidiary 801,461 -- --
Non-cash (income) expense 117,738 474,082 33,078
Changes in Assets and Liabilities:
(Increase) decrease in
receivables (12,529) 7,318 868
(Increase) decrease in
other current assets 35,464 -- 4,875
(Increase) decrease in
other assets 1,792 (102,981) (33,325)
Increase (decrease) in
accounts payable (78,576) (151,651) 100,073
Increase (decrease) in
other current liabilities (140,209) (52,072) 205,654
Increase (decrease) in
deferred tax liability (434,056) (129,044) (231,025)
----------- ----------- -----------
330,942 125,714 161,347
----------- ----------- -----------
Net Cash (Used) by
Operating Activities (821,565) (295,872) (72,262)
----------- ----------- -----------
Cash Flows From Investing Activities:
Purchase of property
and equipment (6,960) -- --
Proceeds from sale of oil and
gas investments 75,000 -- 150,000
Additions to mining properties (25,060) (185,997) (129,852)
Payment for reclamation deposit (138,701) -- --
Investment in oil
sand joint venture (433,219) -- --
----------- ----------- -----------
Net Cash (Used) Provided
by Investing Activities (528,940) (185,997) 20,148
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from notes payable -- -- 20,000
Payments on notes payable (311,502) (7,606) (41,231)
Proceeds from convertible
debentures 150,000 -- --
Net proceeds from issuance of
preferred stock 4,470,000 -- --
Net proceeds from issuance of
common stock -- 535,000 140,000
----------- ----------- -----------
Net Cash Provided by
Financing Activities 4,308,498 527,394 118,769
----------- ----------- -----------
Net Increase (Decrease)
in Cash and Cash
Equivalents 2,957,993 45,525 66,655
Cash at Beginning of Year 142,772 97,247 30,592
----------- ----------- -----------
Cash at End of Year $ 3,100,765 $ 142,772 $ 97,247
----------- ----------- -----------
</TABLE>
[Continued]
<PAGE>
CROWN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS [Continued]
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for
1997 1996 1995
----------- ----------- -----------
Interest $ 27,131 $ 7,744 $ 7,616
----------- ----------- -----------
Income taxes $ -- $ -- $ --
----------- ----------- -----------
Supplemental Schedule of Non-cash Investing and Financing Activities: For the
Year Ended December 31, 1997: The Company issued 41,667 shares of common stock
upon the exercise of stock options in consideration for the individual canceling
83,333 stock options.
The Company issued 45,000 shares of common stock in payment of $43,606 in
licensing fees and other accounts payable.
The Company issued 56,877 shares of common stock in payment of a promissory note
and accrued interest totaling $25,985.
The Company issued 173,101 shares of common stock upon conversion of $150,000 in
convertible debentures with accrued interest of $5,903.
For the Year Ended December 31, 1996:
The Company issued 241,547 shares of common stock in payment of $229,375 in
consulting fees.
The Company issued 47,955 shares of common stock in payment of $23,596 for
payment on a promissory note.
Accounts payable in the amount of $78,708 were converted to a note payable.
The Company renewed certain notes payable and accrued interest of $17,032 was
added to the principal of the new notes.
For the Year Ended December 31, 1995:
The Company issued 3,250 shares of common stock to extend the maturity date of
the convertible debentures to January 1, 1997.
The Company issued 179,987 shares of common stock in payment of $99,320 in
consulting and legal fees.
The Company issued 381,722 shares of common stock in payment of $113,047 in
deferred salaries.
The Company issued 12,036 shares of common stock in payment of principal of
$4,460 and $783 of interest due on a note payable.
The Company converted deferred salaries of $38,271 into a note payable.
The Company converted accrued interest payable of $14,211 into notes payable.
The accompanying notes are an integral part of these financial statements
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Crown Energy Corporation ["PARENT"], is a Utah Corporation that
is engaged in the mining, production and selling of asphalt products through its
wholly owned subsidiary Crown Asphalt Corporation ["CAC"] and CAC's equity
investment in a Limited Liability Company (See Note 3). The Company was
previously engaged in the production and selling of oil and gas from leases it
operated in the State of Utah through its previously owned subsidiary Gavilan
Petroleum, Inc. ["Gavilan"].
Crown Asphalt Corporation ["CAC"], (formerly BuenaVentura Resources) was
incorporated under the laws of the State of Utah on October 24, 1985.
Applied Enviro Systems, Inc. ["AES"], was incorporated under the laws of the
State of Oregon. During 1993, AES discontinued its previous operations. AES
currently is an inactive subsidiary.
Gavilan Petroleum, Inc. ["Gavilan"] was acquired by Parent in 1991. Gavilan was
incorporated under the laws of the State of Utah and was sold on July 2, 1997
for $150,000. The sale was retroactive to June 1, 1997 and, accordingly, is
accounted for in these financial statements (See Note 5).
During September, 1991, the Company incorporated a subsidiary Energy
Technologies Corporation ["ETC"], a Utah Corporation, to acquire sell and
develop oil and gas prospects and related technologies. The subsidiary never
began operations and has remained inactive through December 31, 1997.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
inter-company transactions have been eliminated in consolidation.
Property and Equipment - Property and equipment are recorded at cost which is
depreciated over the estimated useful lives of the related assets. Depreciation
is computed using the straight-line method for financial reporting purposes,
with accelerated methods used for income tax purposes. The estimated useful
lives of property and equipment for purposes of financial reporting range from
three to seven years.
Oil Sand Properties - The Company's investment in oil sand properties, including
acquisition and development costs, were contributed for an equity investment in
a Limited Liability Company (See Note 3). The Company regularly reviewed the
carrying value of its investment in oil sand properties for impairment in
accordance with SFAS No.121.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Oil and Gas Properties - Oil and gas properties are accounted for on the full
cost method, whereby all costs associated with acquisition, exploration and
development of oil and gas properties are capitalized on a country-by-country,
cost center basis. All oil and gas revenues are derived from reserves located in
the state of Utah. Amortization of such costs is determined by the ratio of
current period production to estimated proved reserves. Estimated proved
reserves are based upon reports of petroleum engineers. The net carrying value
of oil and gas properties is limited to the lower of amortized costs or the cost
center ceiling defined as the sum of the present value [10% discount rate] of
estimated, unescalated future net cash flows from proved reserves, plus the
lower of cost or estimated fair value of unproved properties, giving effect to
income taxes.
Intangible Assets - In connection with the acquisition of CAC, the Company
recorded intangible assets in the amount of $250,000. These are included in
other assets and are being amortized over seventeen years on a straight-line
method. During 1997, 1996 and 1995, amortization expense of $14,706 was
recorded.
Revenue Recognition - The Company's revenue comes primarily from the sale of oil
and gas. Revenue from oil and gas sales is recognized when the product is
transferred to the purchaser.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Loss Per Share - Effective for the year ended December 31, 1997 the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share," which requires the Company to present basic earnings per share and
dilutive earning per share when the effect is dilutive. There was no effect on
the financial statements for the change in accounting principle. [See Note 14]
Cash and Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid debt investments purchased with a maturity
of three months or less to be cash equivalents. The Company maintains its cash
in bank deposits accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimated.
Long-Lived Assets - The Company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets" effective January 1, 1996. This standard
requires that the Company review the valuation of certain long-lived assets,
such as property, plant and equipment, equity investments, certain identifiable
intangibles, and goodwill related to those assets, and that an impairment loss
be recorded whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. It is the Company's policy
to reduce the carrying value of its investment if the estimated future cash
flows from the investment falls below the current carrying value of the assets.
No reduction has been recorded in the current year. The adoption of SFAS No. 121
did not have a material effect on the Company's financial statements.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less accumulated
depreciation as of December 31:
1997 1996
-------- --------
Furniture and office equipment $ 73,506 $ 66,546
Less: accumulated depreciation (66,123) (64,788)
-------- --------
Total $ 7,383 $ 1,758
-------- --------
Depreciation expense charged to operations was $1,355, $4,024 and $4,805, in
1997, 1996 and 1995, respectively.
NOTE 3 - EQUITY INVESTMENT IN LIMITED LIABILITY COMPANY
In August, 1997, the Company through its wholly owed subsidiary CAC entered into
a Limited Liability Company, Crown Asphalt Ridge, LLC ["CAR"], with MCNIC
Pipeline and Processing Company ["MCNIC"] for the purpose of developing, mining,
processing, and marketing asphalt, performance grade asphalt, diesel fuel,
hydrocarbons, bitumen, asphaltum, minerals, mineral resources and other oil sand
products. During the year ended December 31, 1997, the Company contributed cash
of $433,219 and the right to their oil sand properties and a license agreement,
which allows the Company to use certain patented oil extraction technology and
oil sand property leases, with a book value of $2,919,077 to CAR. The Company is
estimating to contribute an additional $3,942,000 of which $3,500,000 is
expected to be contributed through certain equipment leases on mining equipment.
These contributions to CAR are in exchange for an equity investment. MCNIC and
the Company will initially own shares of 75% and 25%, respectively, in the
profits, losses and obligations of the CAR. Once the initial plant is built by
CAR and the economic operations of CAR are successful to the extent of paying
out specific returns to MCNIC as described within the operating agreement then
CAC's interest in CAR will increase to 50%. The excess of the Company's
investment in CAR over its share in the related underlying equity in net assets
(approximately $2,500,000) will be amortized on a straight-line basis over a
period of 20 years when the production plant is completed and placed in
operation. In addition, the Company made advances to CAR in the form of prepaid
royalties in the amount of $108,000 recorded as other current assets and $24,902
recorded as other assets. During the year ended December 31, 1997, CAR entered
into an engineering, construction and procurement agreement to construct a
$16,000,000 mining and production plant, which is projected to be completed and
producing during 1998. The Company's ability to realize its equity investment in
CAR is dependent upon CAR successfully constructing and operating a full scale
production plant. In connection with CAR acquiring the rights to use patented
oil extraction technology, CAR will be required to pay royalties of 2% to 5%
based on future revenues after certain production costs and taxes.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - EQUITY INVESTMENT IN LIMITED LIABILITY COMPANY [Continued]
The following sumarizes the separate financial information of CAR at December
31, 1997:
1997
-------------
Current assets $ 47,530
Non-current assets 4,937,684
Current liabilities 812,293
Non-current liabilities --
Net equity 4,172,921
Revenues $ --
Costs and other deductions --
Net earnings --
----------
NOTE 4 - OIL SAND PROPERTIES
The Company's investment in oil sand properties at December 31, 1996 included
approximately $2,400,000 in acquisition costs from the business acquisition of
CAC during 1992. The Company has also capitalized approximately $500,000 in
additional acquisition and development costs related to the properties through
December 31, 1996. During 1997, the Company capitalized approximately $100,000
in additional acquisition and development costs. The Company's investment in oil
sand properties of $2,919,077 were contributed to acquire an equity interest in
CAR (See Note 3).
NOTE 5 - OIL AND GAS PROPERTIES
Upon placing oil and gas properties and productive equipment in use, the
unit-of-production method, based upon estimates of proven developed and
undeveloped reserves, is used in the computation of depletion. Depletion expense
for the years ended December 31, 1997, 1996 and 1995 amounted to $23,817,
$61,332, and $61,638, respectively. Because the Company has elected to value its
properties under the "full cost" method of accounting for oil and gas
properties, it has a maximum allowance value which is related to the underlying
oil and gas reserves. Where the capitalized value of its properties exceeds the
fair market value of the oil and gas reserves, the Company is required to adjust
the value of properties to the cost center ceiling [See Note 1] by increasing
the valuation allowance. The Company did not record a valuation adjustment for
the years ended December 31, 1997, 1996, or 1995.
During 1995, the Company sold certain oil and gas interests for total proceeds
of $150,000. The interests which were sold were not a significant portion of the
overall full cost pool and consequently the proceeds were recorded as a
reduction to the full cost pool. On July 2, 1997, the Company sold Gavilan
Petroleum, Inc. with all the remaining oil and gas interests for $150,000. The
sale was retroactive to June 1, 1997. The Company received $25,000 down and
accepted a note receivable of $125,000. At December 31, 1997 there was a
remaining balance of $75,000 on the note.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG TERM DEBT
The following is a summary of long-term debt as of December 31:
1997 1996
------ ------
9% Note payable to an officer, director and
shareholder, due July 1, 1998. [See Below] $ - $41,833
9% Note payable to an officer, director and
share-holder, due July 1, 1998. - 58,197
Payable to various parties in connection
with foreclosed Oil & Gas properties
for production taxes and royalties payable.
[See Below] - 65,139
10% Loan payable to an individual, maturing
June, 1997, Secured by trust deeds on oil
and gas properties. [See Below] - 15,282
10% Unsecured note payable to individual,
due on demand. - 20,706
9% Note payable to an officer, director and
shareholder, due July 1, 1998. - 21,218
Unsecured debentures to individuals, Interest
at 6%, due January 1, 1997. [See Below] - 74,600
18% Note payable to corporation due
November 1, 1997. - 71,102
------- -------
- 368,077
Less: Current Portion - (185,984)
------- -------
$ - $182,093
------- -------
During July, 1997, the Company issued a $150,000 9% convertible debenture which
matured November 13, 1997. The debenture was converted into 173,101 shares of
the Company's common stock, valued at $.901 per share, which was 65% of the
average closing bid price for the ten days prior to the date of conversion.
During 1996, the Company converted accounts payable of $78,708 into a note
payable with interest accruing at 18%. The note provided for monthly payments of
$8,000 and matures on November 1, 1997. During 1997, the Company converted
accounts payable of $18,930 into the note payable and paid off the notes
together with $8,620 in accrued interest.
On December 31, 1996 the Company converted accrued interest of $3,562, $4,956
and $1,807 on notes payable to officers and directors to principal bringing the
balance outstanding on the notes to $41,833, $58,197 and $21,218, respectively.
During 1997, the Company paid off the respective notes together with accrued
interest of $3,284, $4,125 and $1,666 respectively.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LONG TERM DEBT [Continued]
During February, 1995, the Company borrowed $20,000 on an 18% note payable from
an individual who is an officer, director and shareholder of the Company with
three monthly payments of $3,000 beginning February 28, 1995 with the remaining
principal and interest due May 31, 1995. The note was paid in full during 1995.
During November 1995, the Company converted deferred salaries of $34,750 and
their related accrued interest of $3,521 payable to an officer, director and
shareholder of the Company into a Note Payable.
During June, 1994, the Company raised $65,000 through the sale of partial units
of an Unsecured Debenture in a private placement. The Company had offered up to
twelve $50,000 units in the offering which expired September 30, 1994. Each unit
consisted of a promissory note for $50,000 due on or before January 1, 1996,
plus 12,500 shares of the Company's Common Stock. The promissory notes accrue
interest at 6% per year payable at maturity. During 1995 the Company, at its
option, extended the due dates of the notes to January 1, 1997 by issuing 3,250
shares of common stock to their holders. The debentures were paid off during
1997 together with accrued interest of $7,468.
In August, 1991, the Company perfected its interest under certain operating
liens to commence foreclosure on two properties and recorded the underlying
liabilities of $388,116 as the acquisition cost of the properties. The entire
amount of these liabilities is non-recourse and is to be repaid out of net
proceeds from the wells which is estimated to be $5,000 per month. Management is
currently negotiating with the respective parties for a long-term, non-recourse
payment plan wherein the parties would be paid from a percentage of the net
production proceeds. During 1993 the amount of liability was reduced by $295,544
to reflect management's current estimate of the actual amounts to be assumed by
the Company.
NOTE 7 - COMMON STOCK TRANSACTIONS
Common Stock Issuances - During 1997, the Company issued 56,877 shares of
restricted common stock in payment of $25,985 in notes payable. The Company also
issued 173,101 shares of common stock upon conversion of a $150,000 debenture
with related accrued interest of $5,903. [See Note 6]
During 1997, the Company also issued 10,000 and 35,000 shares of common stock in
payment of $8,606 in accounts payable and $35,000 in oil sand extraction
licensing fees. The Company also canceled 25,000 previously issued shares valued
at $19,688.
During February, 1996, the Company successfully completed a private placement of
800,000 shares of restricted common stock for $400,000. In connection with the
private placement, the Company issued 80,000 shares of restricted common stock
in commissions.
During 1996, the Company issued 51,547 shares of restricted common stock in
payment of a $50,000 finders fee included in accounts payable, 10,000 shares of
restricted common stock in connection with the renegotiations of oil sand
leases, 50,000 shares of common stock in payment of accrued liabilities, and
130,000 shares of common stock in payment of consulting and engineering work
performed.
During 1996, the Company issued 47,955 shares of restricted common stock in
payment of $23,596 in notes payable.
On November 7, 1996, the Company sold 400,000 shares of restricted common stock
in a private placement offering at $.50 per share. Total proceeds amounted to
$200,000.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMON STOCK TRANSACTIONS [Continued]
On November 7, 1996, management filed a Form S-1 registration statement to
register under the Securities Act for the future sale, from time to time, of
2,890,600 shares of the Company's common stock, of which 1,236,850 are presently
issued and outstanding and 1,653,750 are reserved for issuance upon the exercise
of Company's outstanding stock options held by officers, directors and employees
of the Company and by other investors and consultants.
During 1995, the Company sold 292,857 shares of restricted common stock to an
individual for $140,000 at prices of $.35 and $.60 per share. The Company issued
179,987 shares of restricted common stock at prices ranging from ($.76 to $.33
per share) for legal and consulting services valued at $99,320. Also during
1995, the Company issued 12,036 shares of common stock in lieu of payments on a
note payable of $5,243.
During 1995, the Company issued 381,722 shares of restricted common stock to
officers and employees of the Company in payment of $103,500 of deferred
salaries and related accrued interest of $9,547. Also during 1995, the Company
issued 3,250 shares of restricted common stock to the purchasers of the
Company's unsecured debenture. [See Note 6]
Stock Options and Warrants - As of December 31, 1997 the Company has the
following options outstanding to purchase common stock:
Number
Number Exercise of Shares
of Shares Price Exercised Vesting Date Expiration Date
(A) 250,000 $ .60 - July 5, 1993 May 30, 2000
(A) 250,000 $ .60 - July 5, 1994 May 30, 2000
(A) 250,000 $ .60 - July 5, 1995 May 30, 2000
(A) 300,000 $ .56 - May 31, 1995 May 30, 2000
(B) 25,000 $ .56 - May 31, 1995 May 30, 2005
(C) 444,444 $ .56 - November 5, 1997 May 30, 2000
(D) 25,000 $ 1.00 - September 10, 1993 May 30, 2000
(E) 183,750 $ .75 - April 23, 1995 April 23, 2000
(F) 300,000 $ .66 - January 29, 1996 January 9, 2001
(G) 450,000 $ 1.62 - See Below November 1, 2007
(H) 100,000 $ 1.00 - September 24, 1997 September 24,2002
-----------
2,578,194
-----------
(A) Options issued to three of the Company's officers.
(B) Options issued to a consultant of the Company.
(C) Options issued to three of the Company's officers vesting contingent on the
Company obtaining financing.
(D) Options issued to an employee.
(E) Warrants issued to an organization [See Note 13], to purchase one share of
the Company's common stock per warrant. The warrants vest on issuance and
are exercisable for seven years after their issuance.
(F) Options issued to one of the Company's officers.
(G) Options issued to an officer of the Company in connection with an
employment agreement. The first 150,000 options vest on the execution of
the agreement and when the Company's average stock price for a 30 day
period exceed $2.00; the second and third 150,000 options vest on the first
and second anniversary dates and when the average market price exceeds
$3.00 and $4.00, respectively.
(H) Warrants to an organization to purchase one share per warrant. Warrants are
exercisable for a five year period.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMON STOCK TRANSACTIONS [Continued]
During the periods presented in the accompanying financial statements the
Company has granted options to employees . The Corporation has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock option plans. Had compensation cost for
the Company's stock option plans been determined based on the fair value at the
grant date for awards in 1997, 1996 and 1995 consistent with the provisions of
SFAS No. 123, the Company's net loss and loss per common share would have been
increased to the pro forma amounts indicated below:
1997 1996 1995
------------ ------------ -------------
Net Loss As reported $ (1,152,507) $ (421,586) $ (233,609)
Proforma $ (1,166,606) $ (428,760) $ (248,698)
Loss per Common Share
As reported $ (.10) $ (.04) $ (.03)
Proforma $ (.10) $ (.04) $ (.03)
The fair value of each option granted is estimated on the date granted using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the period ended December 31, 1997, 1996 and
1995 risk-free interest rates of 5.9%, 5.5% and 6.3% expected dividend yields of
zero, expected life of 10, 6.1 and 5.6 years, and expected volatility 111%, 110%
and 99%.
A summary of the status of the options granted to employees at December 31,
1997, 1996 and 1995 and changes during the periods then ended is presented in
the table below:
Year Ended Period Ended Period Ended
December 31, 1997 December 31, 1996 December 31, 1995
---------------------- ------------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding
at beginning
of period 1,860,444 .60 1,560,444 .59 782,000 .61
Granted 450,000 $ 1.62 300,000 .66 778,444 .56
Exercised -- -- -- -- -- --
Forfeited (16,000) $ .51 -- -- -- --
Canceled -- -- -- -- -- --
---------- -------- --------- ------ --------- ------
Outstanding
at end of
Period 2,294,444 .80 1,860,444 .60 1,560,444 .59
---------- -------- --------- ------ --------- ------
Weighted
average
fair value
of options
granted 450,000 .12 300,000 .04 778,444 .03
---------- -------- --------- ------ --------- ------
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMON STOCK TRANSACTIONS [Continued]
A summary of the status of the options outstanding to employees at December 31,
1997 is presented below:
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ----------- ----------- ----------- -------- ----------- ---------
$ .56 - .60 1,519,444 2.4 .58 1,091,000 .58
$ .66 300,000 4.0 .66 300,000 .66
$1.00 25,000 2.4 1.00 25,000 1.00
$1.62 450,000 9.8 1.62 - -
- ----------- ----------- ----------- -------- ----------- ---------
$ .56 - $1.62 2,294,444 .80 1,416,000 .60
Preferred Stock - The Company is authorized to issue 1,000,000 preferred shares,
par value $.005 per share. The preferred shares may be issued by the Board from
time to time in one or more issues and with such serial designations as may be
stated or expressed in its resolution providing for the issuance of such shares.
There were no series of preferred stock designated issued or outstanding at
December 31, 1996.
Preferred Stock Issuance - On November 4, 1997, the Company completed the sale
of 500,000 shares of its Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock") pursuant to a stock purchase agreement dated
September 25, 1997 for an aggregate sales price of $5,000,000. The Series A
Preferred are convertible at the option of its holder into 24% of the common
stock of the Company. Dividends shall accrue on the outstanding Series A
Preferred shares at the rate of 8% per annum and may be paid through cash or
common shares of the Company at the option of the holder. Subject to the
holder's right to convert the Series A Preferred, the Company may redeem the
Series A Preferred at any time from the date on which it is issued at a
percentage of the Series A Preferred's stated value ($10) which will vary
depending on when the Company exercises such right. The Holder of the Series A
Preferred may also require the Company to redeem the Series A Preferred under
certain circumstances after the eighth anniversary of the Series A Preferred's
issuance. The holders of the Series A Preferred shall have the right, but shall
not be obligated, to appoint 20% of the Company's board of Directors. In
addition, the Holder will have certain voting rights upon any attempt by the
Company to alter the rights and preferences of the Series A Preferred, authorize
any security having liquidation preference, redemption, voting or dividend
rights senior to the Series A Preferred, increase the number of Series A
Preferred, reclassify its securities or enter into specified extraordinary
events. All voting rights of the Series A Preferred expire upon the issuance by
the Company of its notice to redeem such shares. The shares of common stock
issuable upon conversion of the Series A Preferred is subject to adjustment upon
the issuance of additional shares of the Company's common stock resulting from
stock splits, share dividends and other similar events as well as upon the
issuance of additional shares or options which are issued in connection with the
Company's equity investment (See Note 3) or as compensation to any employee,
director, consultant or other service provider of the Company or any subsidiary,
other than options to acquire up to 5% of the Company's common stock at or less
than fair market value.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMON STOCK TRANSACTIONS [Continued]
Common Stock Warrant - Upon the fifth anniversary of the issuance of the
preferred stock the Company will issue a warrant to the holder of the preferred
stock. The warrant will become exercisable, at $.002 per share, into a number of
common shares of the Company equal to (a) ($5,000,000 plus the product of (i)
($5,000,000 multiplied by (ii) 39%multiplied by (iii) 5 (the 39% internal rate
of return)))[14,750,000], minus (b) the sum of (i) all dividends and other
distributions paid by the Company on the preferred stock or on the common stock
received upon conversion of the preferred stock plus (ii) the greater of the
proceeds from the sale of any common stock received by the holder upon the
conversion of the preferred stock prior to the fifth anniversary date or the
Terminal value (as defined below) of such common stock sold before the fifth
anniversary plus (iii) the Terminal Value of the preferred stock and common
stock received upon conversion of the preferred stock then held, divided by (c)
the Fair Market Value of the Company's common stock on a weighted average basis
for the 90 days immediately preceeding the fifth anniversary date of the
issuance of the preferred stock. Terminal Value is defined as the (x) sum of (i)
the shares of common stock into which the preferred stock then held is
convertible, plus (ii) shares of common stock received upon conversion of
preferred stock, multiplied by (y) the fair market value of the Company's common
stock on a weighted average basis for the 90 days immediately preceeding the
fifth anniversary date of the issuance of the preferred stock. The warrants will
expire in 2007.
Stock Option Plan - On September 2, 1997, the Board of Directors of the Company
adopted and on October 21, 1997 the stockholders approved, the 1997 Stock Option
Plan. The plan provides for the granting of awards of up to 2,000,000 shares of
common stock to key employees, officers, directors, and consultants. The awards
consist of non-qualified stock options. Awards under the plan will be granted as
determined by the board of directors. At present 450,000 options have been
granted under the plan.
NOTE 8 - LEASES
Operating Leases - The Company leases its current office facility on an
operating lease which expires in September, 2001. During 1997 the Company
entered into a sublease for additional office space which expires in September
2001.
The future minimum lease payments for non-cancelable operating leases as of
December 31, 1997 are as follows:
Year ending
December 31 Amount
--------- ----------
1998 53,510
1999 56,374
2000 59,245
2001 46,063
2002 -
----------
TOTAL $ 215,192
----------
Lease expense charged to operations was $36,437, $31,778, and $28,699 for the
years ended December 31, 1997, 1996 and 1995.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
Accounting for Income Taxes [FASB 109] during Fiscal 1993. FASB 109 requires the
Company to provide a net deferred tax asset or liability equal to the expected
future tax benefit or expense of temporary reporting differences between book
and tax accounting and any available operating loss or tax credit carryforwards.
At December 31, 1997 and 1996, the total of all deferred tax assets were
$1,317,846 and $908,156 and the total of the deferred tax liabilities were $0
and $1,342,212. The amount of and ultimate realization of the benefits from the
deferred tax assets for income tax purposes is dependent, in part, upon the tax
laws in effect, the Company's future earnings, and other future events. The
Company has established a valuation allowance of $1,317,846 and $0 for the years
ended December 31, 1997 and 1996. The change in the valuation allowance during
the years ended December 31, 1997 and 1996 was $1,317,846 and $0, respectively.
The Company has available at December 31, 1997, unused tax operating loss
carryforwards of approximately $3,200,000 which may be applied against future
taxable income and expire in varying amounts beginning in 1997 through 2012. The
Company also has unused capital loss carryforwards of approximately $360,000
which may be applied against future taxable income and expire in 2003.
The components of income tax expense from continuing operations for the years
ended December 31, 1997, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
Current income tax expense:
Federal $ - $ - $ -
State - - -
---------- ---------- -----------
Net current tax
expense (benefit) $ - $ - $ -
---------- ---------- -----------
Deferred tax expense (benefit) arising from:
Excess of book over tax
basis depletion in oil
& gas properties $ (373,833) $ (323) $ (61,983)
Excess of book over tax
basis depletion in oil
sand properties (968,283) 43,917 (54,799)
Excess tax over book basis
depreciation (122) (161) (423)
Capital loss carryforwards (133,144) -- --
Net operating loss carryforwards (276,520) (172,477) (113,820)
Increase (decrease in
valuation allowance) 1,317,846 -- --
----------- ----------- -----------
Net deferred tax
expense (benefit) $ (434,056) $ (129,044) $ (231,025)
----------- ----------- -----------
</TABLE>
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES [Continued]
A reconciliation between income tax expense at the federal statutory rate to
income tax expense at the Company's effective rate is as follows:
<TABLE>
<S> <C>
December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C> <C>
Computed tax at the expected
federal statutory rate, 34% $ (539,431) $ (187,214) $ (157,976)
State income taxes, net of
federal income tax benefits (47,597) (16,519) (13,939)
Excess of book over tax basis
depletion in oil & gas properties (201,624) 20,193 (49,884)
Excess of book over tax basis
depletion in oil sand properties (968,283) 40,521 (60,516)
Other 5,033 13,975 51,290
Valuation allowance 1,317,846 -- --
----------- ----------- -----------
Effective income tax rates $ (434,056) $ (129,044) $ (231,025)
----------- ----------- -----------
</TABLE>
The temporary differences gave rise to the following deferred tax asset
(liability) at December 31, 1997 and 1996:
1997 1996
---------- ----------
NOL carryforwards $1,184,675 $ 908,156
Capital loss carryforward 133,144 --
Excess of tax over book accounting
depreciation 27 (95)
Excess of book over tax basis
in oil and gas properties -- (373,833)
Excess of book over tax basis
in oil sand properties $ -- $ (968,284)
The deferred taxes are reflected in the consolidated balance sheet for the years
ended December 31 1997 and 1996 as follows:
1997 1996
---------- ---------
Short term asset (liability) $ - $ -
Long term asset (liability) $ - $(434,056)
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - RELATED PARTY TRANSACTIONS
A current shareholder and officer of the Company has made loans to the Company
or its subsidiaries. At December 31, 1996, $58,197 was owing to the
officer/shareholder on a 9% note. The note was paid in full in November 1997.
During the year ended December 31, 1997 and 1996 the Company recorded interest
expense of $4,125 and $4,956 in connection with the note.
During 1995, the Company issued 381,722 shares of restricted common stock to
officers of the Company for deferred salaries of $103,000 and their related
accrued interest of $9,547. Also during 1995, the Company converted deferred
salaries of $34,750 and their related accrued interest of $3,521 to a $38,271
note payable bearing interest at 9% per annum. The note was paid in full
together with accrued interest of $6,846, during 1997.
During May, 1995, the Company issued 300,000 options to purchase common stock at
$.5625 per share to directors and officers of the Company.
Accounts payable at December 31, 1997 and 1996 includes $635 and $27,429 in
legal fees owing to a law firm in which a shareholder and former officer of the
Company is a partner. During 1995, the Company paid $33,092 to the law firm
through the issuance of 47,273 shares of common stock.
An officer/shareholder originally advanced $15,000 to the Company during 1993.
The underlying note payable provides for interest at 9% per annum. The balance
outstanding at December 31, 1996 was $21,218. The note was paid in full during
1997 together with accrued interest of $1,666.
NOTE 11 - LITIGATION
The Company may become or is subject to investigation, claim or lawsuits ensuing
out of the conduct of its business, including those related to environmental,
safety and health, commercial transactions etc. The Company is currently not
aware of any such items which it believes could have a material adverse affect
on its financial position.
NOTE 12 - CONCENTRATION OF CREDIT RISKS
The Company sold substantially all of its oil production to one purchaser for
the fiscal years ending December 31, 1997, 1996 and 1995. The oil sand property
leases held by the Company during 1996 and contributed into CAR during 1997 are
all located in eastern Utah.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - AGREEMENTS
The Company entered into an employment agreement, effective November 1, 1997
with a director and officer of the Company. The agreement covers the three year
period ending December 31, 2000, with the option to extend the agreement through
December 31, 2002. The agreement includes a base salary of $150,000 subject to
increase as of November 1 of each year provided that the Company achieves
positive cash flows from operations before interest, debt service, taxes,
depreciation, amortization, extraordinary and non-recurring items and dividends.
The annual base salary will increase to $180,000 on November 1, 1998, $210,000
on November 1, 1999 and should the term be extended, the annual base salary,
should increase 20% effective January 1, 2001 and each successive year
thereafter. In addition to the base salary, the director and officer is entitled
to receive a bonus for each fiscal year of the agreement provided certain
earnings levels are obtained or the underlying price of the Company's stock
increases to determined levels. If the earnings per share of the Company, for
the year ended December 31, 1998, is positive the director and officer shall be
paid a bonus of 50% of his base salary. For each subsequent year, if the
earnings per share is positive and increase from the preceeding fiscal year, the
director and officer shall be paid a bonus of 20% of the applicable EPS bonus
payment for each $.01 per share increases, provided that in no event shall the
EPS bonus for any fiscal year exceed the EPS bonus payment applicable. In
addition, the director and officer shall be paid a bonus if the average bid
price for the Company's common stock for all of the trading days in the month of
October in each applicable year exceeds $1.62, $2.62 and $3.62 for the years
ending December 31, 1998, 1999, and 2000. The director and officer for each
applicable year shall be paid a bonus equal to 10% of the base salary for each
$.20 increase in the average stock price over the predetermined levels. In the
event the stock price exceeds the determined levels, the director and officer
shall receive a bonus equal to the pro rata portion of the stock bonus payment
for additional increases which are less than $.20. In addition to the bonuses
the director and officer shall be granted an option to purchase 450,000 shares
of the Company's common stock at an exercise price of $1.62 per share.
The Company entered into an employment agreement, effective January 26, 1996
with the Chief Executive Officer and Chairman of the Board of Directors of the
Company. The agreement covers the three year period ending February 26, 1999,
with the option to extend the agreement through February 26, 2001. The agreement
includes a base salary of 5% of the Company's net profits from operations before
depletion, depreciation, tax credits, and amortization, but after interest
expense on debt; not to exceed $1,000,000 per year. The agreement also calls for
the Company to grant 300,000 stock options to purchase the Company's restricted
Common Stock at $.66 per share and an additional 75,000 options for each year of
Executive Employment which is completed after funding is achieved. Additionally,
other benefits are provided including participation in certain insurance,
vacation and expense reimbursements. As of December 31, 1995, the Company had
accrued a $50,000 finders fee in connection with the new employment agreement.
The fee was paid in February 1996, through the issuance of 51,547 shares of
restricted common stock.
<PAGE>
CROWN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - AGREEMENTS [Continued]
During April, 1995 the Company entered into an agreement with an organization to
perform professional, technical and project development services in connection
with the planned oil sand processing facility, to identify potential investors
for the project financing and to assist the Company in negotiating and closing
project financing terms and agreements. The terms of the agreement provided for
the Company to pay to the organization monthly amounts of $5,000 in cash or
$7,500 in common stock of the Company and to issue monthly 15,000 warrants to
purchase one share per warrant of the Company's common stock at $.75 per share.
These warrants are exercisable for seven years after their issuance. These
warrants allow the organization to purchase one common share of the Company's
stock at $1.00 per share and are exercisable for a period of seven years from
the date of issuance. A total of 183,750 warrants valued at $9,665 were issued
under the agreement. The agreement was terminated during 1997.
NOTE 14 - EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of dilutive potential
common stock for the years ended December 31, 1997, 1996 and 1995:
For the years Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
Income from continuing
operations applicable
to common stock $ 1,152,507) $ (421,586) $ (233,609)
Less: preferred dividends (65,414) -- --
------------ ------------ ------------
Income available to
common stockholders
used in Earnings
per share $ (1,217,921) $ (421,586) $ (233,609)
------------ ------------ ------------
Weighted average number
of common shares used
in earnings per share
outstanding during
the period 11,524,822 10,932,091 9,143,720
------------ ------------ ------------
Dilutive earnings per share was not presented as its effect is anti-dilutive.
The Company had at December 31, 1997, 1996 and 1995 options and warrants to
purchase 2,103,194, 1,835,444 and 1,535,444 shares of common stock ,
respectively, at prices ranging from $.40 to $1.96 per share, that were not
included in the computation of diluted earnings per share because their effect
was anti-dilutive (the options exercise price was greater than the average
market price of the common shares). The Company also has preferred stock
outstanding at December 31, 1997 which is convertible into approximately
4,334,340 shares of common stock that was not included in the computation of
diluted earnings per share as its effect was anti-dilutive.
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to the year ended December 31, 1997 officers and directors of the
Company exercised 946,296 options to purchase common stock for $549,166 in notes
receivable. The notes bear interest at 8% and are payable on or before Jan 2,
2003.
On February 17, 1998, Energy Technologies Corporation a subsidiary of the
company changed its name Crown Asphalt Products Company.
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES
Oil and Gas Reserves - Users of this information should be aware that the
process of estimating oil and gas reserves is very complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other things,
additional development activity, production history and viability of production
under varying economic conditions; consequently, material revisions to existing
reserve estimates may occur in the future. Although every reasonable effort is
made to ensure that the reserve estimates reported represent the most accurate
assessment possible, the significance of the subjective decisions required, and
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosure.
Proved reserves are estimated quantities of natural gas, crude oil and
condensate, and natural gas liquids which geological and engineering data
demonstrate, with reasonable certainty, to be recoverable in future years from
known reservoirs under existing economic and operating conditions.
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
The oil and gas reserve information presented in the following tables as of
December 31, 1997, 1996 and 1995 is based upon reports of petroleum engineers
and management's estimate. All reserves presented are proved reserves, all of
which are located within the United States, and are defined as estimated
quantities which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under existing
economic and operating conditions. Such reserves are estimates only and should
not be construed as exact amounts. The Company does not have proved reserves
applicable to long term supply agreements with foreign governments.
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Changes in Net Proved Reserves
[Volumes in Thousands]
<TABLE>
<CAPTION>
1997 1996 1995
----------------- --------------- ---------------
Oil Gas Oil Gas Oil Gas
(MBbls) (MMcf) (MBbls) (MMcf) (MBbls) (MMcf)
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Estimated quantity at
beginning of period 823 - 774 - 871 -
Revisions of previous
estimates - - 58 - 3 -
Discoveries and extensions - - - - - -
Purchase of reserves
in place - - - - - -
Production (4) - (9) - (10) -
Sale/disposal of reserves
in place (819) - - - (90) -
------- ------ ------- ------ ------- ------
Estimated quantity at
end of period - - 823 - 774 -
------- ------ ------- ------ ------- ------
Proved developed reserves:
Beginning of period 68 - 51 - 151 -
End of period - - 68 - 51 -
------- ------ ------- ------ ------- ------
Company's proportional
interest in reserves
of investees accounted
for by the equity
method - end of year - - - - - -
------- ------ ------- ------ ------- ------
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development Activities
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
[In Thousand of Dollars]
<S> <C> <C> <C>
Acquisition of properties:
Undeveloped leases $ -- $ -- $ --
Proved producing leases -- --
Exploration costs -- --
Development costs -- --
----------- ----------- -----------
Total Additions to Oil and Gas
Properties -- $ -- $ --
----------- ----------- -----------
Company's share of equity method
investees' costs of property
acquisition, exploration and
development costs $ -- $ -- $ --
----------- ----------- -----------
Capitalized Costs Relating to Oil and Gas Producing Activities
Capitalized costs as of the end of the
period: [In thousands of dollars]
Proved properties $ -- $ 2,196 $ 2,196
Unproved properties -- -- --
----------- ----------- -----------
Total Capitalized Costs -- 2,196 2,196
Less: accumulated depreciation and
depletion -- 1,112 1,051
----------- ----------- -----------
Net Capitalized Costs $ -- $ 1,084 $ 1,145
----------- ----------- -----------
Company's share of equity method
investees' net
capitalized costs $ -- $ -- $ --
----------- ----------- -----------
</TABLE>
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Results of Operations for Producing Activities
December 31,
-------------------------------
1997 1996 1995
-------- ------- ------
[In Thousand of Dollars]
Oil and gas sales $ 77 $ 214 $ 197
Production costs 55 137 128
Exploration costs -- -- --
Depreciation and depletion 24 61 62
----- ----- -----
Income (loss) from operations (2) 16 7
Income tax benefit (expense) 1 (6) (3)
----- ----- -----
Results of Operations from Producing
Activities [Excluding Corporate Overhead
and Interest Costs] (1) 10 4
----- ----- -----
Company's share of equity method
investees' results of operations
for producing activities -- -- --
----- ----- -----
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The information that follows has been developed pursuant to procedures
prescribed by SFAS No. 69, and utilizes reserve and production data estimated by
management and independent petroleum engineers. The information may be useful
for certain comparison purposes, but should not be solely relied upon in
evaluating the Company or its performance. Moreover, the projections should not
be construed as realistic estimates of future cash flows, nor should the
standardized measure be viewed as representing current value.
The future cash flows are based on sales, prices, costs, and statutory income
tax rates in existence at the dates of the projections. Material revisions to
reserve estimates may occur in the future, development and production of the oil
and gas reserves may not occur in the periods assumed, and actual prices
realized and actual costs incurred are expected to vary significantly from those
used. Management does not rely upon the information that follows in making
investment and operating decisions; rather, those decisions are based upon a
wide range of factors, including estimates of probable reserves as well as
proved reserves, and different price and cost assumptions than those reflected
herein.
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following table sets forth the standardized measure of discounted future net
cash flows from projected production of the Company's proved oil and gas
reserves:
December 31,
--------------------------------
1997 1996 1995
------- ------- -------
[In Thousand of Dollars]
Future reserves $ -- $17,510 $13,925
Future production and development
costs -- 12,324 10,403
Future income tax expenses -- -- --
-------- ------- -------
Future net cash flows -- 5,186 3,522
Discount to present
value at 10 percent -- 3,325 2,256
-------- ------- -------
Standardized measure of discounted
future net cash flows $ -- $ 1,861 $ 1,266
-------- ------- -------
Company's share of equity method
investees' standardized measure of
discounted future
net cash flows $ -- $ -- $ --
-------- ------- -------
<PAGE>
CROWN ENERGY CORPORATION
SUPPLEMENTAL INFORMATION
[Unaudited]
OIL AND GAS PRODUCING ACTIVITIES [Continued]
Standard Measure of Discounted Future Net Cash Flows
Relating to Proved Oil and Gas Reserves
The following table sets forth the changes in standardized measure of discounted
future net cash flows:
December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
[In Thousand of Dollars]
Balance at
beginning of period $ 1,861 $ 1,266 $ 1,506
Sales of oil and gas
net of production costs (22) (77) (69)
Changes in prices and costs -- 1,083 571
Changes in quantity estimates and
timing of production -- (411) (509)
Acquisition of reserves in place -- -- --
Current year discoveries, extensions
and improved recoveries -- -- --
Estimated future development and
production costs related to current
year acquisitions, discoveries,
extensions and improved recoveries -- -- --
Net change in income taxes -- -- --
Sales of reserves in place (1,839) -- (233)
Accretion of discount -- -- --
Other - change in ten percent
discount -- -- --
------- ------- -------
Balance at End of Period $ -- $ 1,861 $ 1,266
------- ------- -------
<PAGE>
Exhibit 4.4
Certificate No. ____
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED,
PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THE
SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
WARRANT
-------
(Void after 5:00 p.m., Mountain Time on
September 24, 2002, or earlier as provided below)
This certifies that, for value received, Encap Investments, L.C.
("Encap"), or registered assigns (collectively, the "Holder"), is entitled at
any time before 5:00 p.m., on September 24, 2002 (the "Expiration Date") to
purchase from Crown Energy Corporation, a Utah corporation (the "Company"), one
hundred thousand (100,000) shares of the Common Stock of the Company (the
"Warrant Shares") at a price of One Dollar ($1.00) per share (such price, as
adjusted from time to time pursuant to Section 6, is hereafter referred to as
the "Exercise Price"). The number of Warrant Shares to be received upon the
exercise of this Warrant and the Exercise Price may be adjusted from
time-to-time as hereinafter set forth.
1. Exercise of Warrant. This Warrant may be exercised, in whole or in
part, at any time after September 24, 1997, but not later than 5:00 p.m.,
Mountain Time, on September 24, 2002, by presentation and surrender of this
Warrant certificate (the "Warrant Certificate") to the Company at its principal
office (or at the office of its stock transfer agent, if any), with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price in cash or by check, payable to the order of the Company, together with
all taxes applicable upon such exercise. Upon receipt by the Company of this
Warrant Certificate at its office (or at the office of its stock transfer agent,
if any) in proper form for exercise and accompanied by payment as herein
provided, the Company shall promptly issue and cause to be delivered to the
Holder a certificate, issued in the name of the Holder, for the full number of
Warrant Shares so purchased, together with cash in respect of any fractional
shares, calculated as provided in Section 3 below. Upon proper exercise of this
Warrant, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
shares shall not then be actually delivered to the Holder.
2. Reservation of Shares. The Company hereby covenants and agrees that,
at all times during the period this Warrant is outstanding, it will reserve for
issuance and delivery upon exercise of this Warrant such number of shares of its
Common Stock (and/or other securities) as shall be required for issuance and
delivery upon exercise of this Warrant. The number of shares of Common Stock
<PAGE>
that the Company shall initially reserve for issuance hereunder shall be 100,000
shares. If it becomes necessary at any time to increase the number of reserved
shares for this purpose, the Board of Directors of the Company shall promptly
increase the number of authorized and/or reserved shares to a number sufficient
to provide for the number of shares that may be at that time issuable to the
Holder as described above. If it is necessary to increase the number of
authorized shares for this purpose, the Board of Directors will use its best
efforts to obtain any required approval of this increase by the shareholders.
3. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
to the Holder cash equal to the product of such fraction multiplied by the then
current fair market value of one share of Common Stock, computed to the nearest
whole cent. The then current fair market value of such shares shall be as
determined in good faith by the Board of Directors of the Company.
4. Transfer, Exchange, Assignment, or Loss of Warrant.
(a) This Warrant and the Warrant Shares may be assigned or
transferred only to an affiliate of the Holder. Any purported transfer
or assignment made other than in accordance with this paragraph 4(a)
shall be null and void and of no force and effect.
(b) Any assignment permitted hereunder may be in whole or in
part and shall be made by surrender of this Warrant Certificate to the
Company at its principal office with the Assignment Form annexed hereto
duly executed, together with funds sufficient to pay any transfer tax.
In such event the Company shall, without charge, execute and deliver a
new Warrant Certificate in the name of the assignee named in such
Assignment Form and this Warrant Certificate shall promptly be
cancelled (and a new Warrant Certificate issued to the Holder if the
assignment is in part).
(c) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant
Certificate, and, in the case of loss, theft, or destruction, upon
reasonably satisfactory indemnification, and, in the case of
mutilation, upon surrender and cancellation of this Warrant
Certificate, the Company will execute and deliver a new Warrant
Certificate of like tenor and date, and any such lost, stolen,
destroyed, or mutilated Warrant Certificate shall thereupon become
void. Any such new Warrant Certificate executed and delivered shall
constitute an additional contractual obligation on the part of the
Company, whether or not the Warrant Certificate that was so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by
anyone.
5. Rights of the Holder. The Holder shall not, by virtue of ownership
of this Warrant, be entitled to any rights as a shareholder of the Company,
either at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the Company except to
the extent set forth herein.
<PAGE>
6. Adjustments. The Exercise Price and the number of shares of Common
Stock issuable upon the exercise of the Warrant shall be subject to adjustment
from time-to-time as follows:
(a) Recapitalization. In the event the Company should at any
time or from time to time while this Warrant remains in force, effect a
recapitalization of such character that the securities covered hereby
shall be changed into or become exchangeable for a larger or smaller
number of such securities, then thereafter, the number of securities of
the Company which the Holder of this Warrant shall be entitled to
purchase hereunder, shall be increased or decreased, as the case may
be, in direct proportion to the increase or decrease in the number of
shares of the Company, by reason of such recapitalization, and the
Exercise Price hereunder, per share, shall in the case of an increase
in the number of shares be proportionally reduced, and in the case of a
decrease in the number of shares, be proportionally increased.
(b) Asset Distributions. In the event the Company shall at any
time prior to the exercise of this Warrant make any distribution of its
assets to holders of its Common Stock by liquidating or partial
liquidating dividend or by way of return of capital, or other than as a
dividend payable out of earnings or any surplus legally available for
dividends under the laws of the State of Utah, then the Holder of this
Warrant who exercises the same after the date of record for the
determination of those holders of Common Stock entitled to receive such
distribution of assets, shall be entitled to receive for the Exercise
Price, in addition to each share, the amount of such assets (or at the
option of the Company a sum equal to the value thereof at the time of
such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith)
which would have been payable to such Holder had it been the holder of
record of the Warrant Shares on the record date for the determination
of those entitled to such distribution.
(c) Merger, Consolidation, Etc. In case of any consolidation
or merger of the Company with or into another company or the conveyance
of all or substantially all of the assets of the Company to another
company, this Warrant shall thereafter be exercisable into the number
of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Company issuable upon
exercise of the Warrant would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in
the application of the provisions herein set forth with respect to the
rights and interest thereafter of the Holder of the Warrant to the end
that the provisions set forth herein (including provisions with respect
to changes in and other adjustments of the Exercise Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other property thereafter deliverable upon
the exercise of this Warrant.
7. Registration Rights.
<PAGE>
(a) Demand Registration. The Company hereby agrees that for a
period of four years commencing on September 24, 1998, that upon
written receipt of a demand for registration in the form of a written
request from the Holder of this Warrant or a majority of the Warrant
Shares, it will prepare and file under the Securities Act of 1933, as
amended (the "Act"), one registration statement under the Act to
register the Warrant Shares and will use its best efforts to cause such
registration statement or notification to become effective at the
earliest possible date and to remain effective for a period not to
exceed ninety days. The Company will bear the costs of such
registration statement, including, but not limited to, counsel fees of
the Company and disbursements, accountants' fees and printing costs, if
any, but excluding the fees of counsel and others hired by the Holder.
The foregoing demand registration right by the Holder at the expense of
the Company shall be on a one-time request basis only.
(b) Piggy-back Registration. Whenever during the four-year
period commencing September 24, 1998, the Company or any successor
proposes to file a or a registration statement under the Act relating
to a public offering of its equity securities under the Act (whether
for its own benefit or for the holders of any of its equity securities
or otherwise), but not including a registration on Form S-8, it shall
offer, upon thirty (30) days written notice to the Holder of this
Warrant or the holders of the underlying securities, to include and
shall include, at the Holder's option(s) all or any portion of this
Warrant and the securities underlying this Warrant in such registration
statement at the expense of the Company.
(c) Volume Limitation. In the event that an underwriter
selected by the Company to effect a registration pursuant to which the
Holder of the Warrant or the Warrant Shares would be entitled to
registration rights pursuant to subsections 7(a) and 7(b) of this
Section 7 should reasonably advise the Company that all of the Warrant
Shares which the Holder desires to include within such registration may
not be included due to marketing factors, the Company shall be
entitled, upon written notice to the Holder, to exclude such number of
Warrant Shares from such registration statement as its underwriter
shall reasonably advise and the Holder of the Warrant or Warrant Shares
shall be entitled to subsequently register such excluded shares
pursuant to the provisions of subsections 7(a) or 7(b) in a subsequent
offering according to the provisions of such subsections.
(d) Exchange of Information; Indemnification. In the event
that the Holder of the Warrant or Warrant Shares shall elect to
exercise its rights under subsections 7(a) or 7(b) of this Warrant,
such Holder agrees to provide all information reasonably requested by
the Company (in the event no underwriter is used with regard such
registration) or by any underwriter conducting such registration or by
any underwriter which the Company has engaged to conduct the
registration.
(1) In addition, in connection with the foregoing
registration, to the extent permitted by law, the Company will
indemnify the Holder, each of its officers, directors and
<PAGE>
partners or shareholders or any such person controlling such
Holder (collectively, the "Indemnified Person(s)"), from and
against any and all losses, damages, claims, liabilities,
reasonable costs and expenses (including any amounts paid in
any settlement effected with the Company's consent) to which
the Holder or such other Indemnified Persons may become
subject under the Securities Act, State Securities or Blue Sky
laws, common law or otherwise, insofar as such losses,
damages, claims, liabilities (or actions or proceedings in
respect thereof), costs or expenses which arise out of or are
based upon (i) any untrue statement, or alleged untrue
statement, of any material fact contained in the registration
statement or the prospectus included therein, as amended or
supplemented or, (ii) the omission, or alleged omission, to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading, and the
Company will reimburse the Holder, or other Indemnified
Persons, promptly upon demand for any legal or any other
expenses incurred by them in connection with investigating,
preparing to defend or defending against such loss, damage,
claim, liability, action or proceeding; provided that the
Company will not be liable in any case for amounts paid as
part of the settlement of any claim, loss, damage, liability
or action if such settlement is effected without the
reasonable consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable to the
extent any such claim, loss, damage, liability, or expense
arises out of, or is based upon any untrue statement, or
alleged untrue statement, omission, or alleged omission,
contained within written information furnished to the Company
or its underwriter by such Holder or any Indemnified Person to
be used within such registration statement.
(2) In addition, in connection with the foregoing
registration, to the extent permitted by law, the Holder will
indemnify the Company, each of its officers, directors,
shareholders, underwriters, any such person controlling the
Company (collectively, the "Company Indemnified Person(s)"),
from and against any and all losses, damages, claims,
liabilities, reasonable costs and expenses (including any
amounts paid in any settlement effected with the Holder's
consent) to which the Company or such other Company
Indemnified Person may become subject under the Securities
Act, State Securities or Blue Sky laws, common law or
otherwise, insofar as such losses, damages, claims,
liabilities (or actions or proceedings in respect thereof,
costs or expenses arise out of or are based upon (i) any
untrue statement, or alleged untrue statement, of any material
fact contained in the registration statement or the prospectus
included therein, as amended or supplemented or, (ii) the
omission, or alleged omission, to state therein a material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they are made, not misleading, contained within the written
information furnished to the Company or any Company
<PAGE>
Indemnified Person by the Holder or any Indemnified Person to
be used within such registration statement, and the Holder
will reimburse the Company, or other Company Indemnified
Persons, promptly upon demand for any legal or any other
expenses incurred by them in connection with investigating,
preparing to defend or defending against such loss, damage,
claim, liability, action or proceeding.
8. No Impairment. The Company will not, by amendment of its articles of
incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid 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 the carrying out of all the provisions of
this Warrant and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the Holder of the Warrant
against impairment.
9. Notices Generally. Notices and other communications to be given to
the Holder of the Warrant evidenced by this Warrant Certificate shall be
delivered by hand or mailed, postage prepaid, to
____________________________________________, or such other address as the
Holder shall have designated by written notice to the Company as provided
herein. Notices or other communications to the Company shall be delivered by
hand or mailed, postage prepaid, to the Company at 215 South State Street, Suite
550, Salt Lake City, Utah 84111, Attention: Jay Mealey, or such other address as
the Company shall have designated by written notice to such registered owner as
herein provided. Notice by mail shall be deemed given when deposited in the
United States mail, postage prepaid, as herein provided.
10. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Utah applicable to contracts entered
into and to be performed wholly within such State.
11. Amendments; Waivers; Termination; Headings. This Warrant and any
term hereof may be changed, waived, discharged or terminated only by an
instrument in writing, signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. The headings in this Warrant
are for convenience of reference only and are not part of this Warrant.
IN WITNESS WHEREOF, the Company has executed this Warrant Certificate
as of the ______ day of January, 1998.
CROWN ENERGY CORPORATION
By:________________________________
Jay Mealey, President and CEO
Exhibit 4.5
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement",) is entered into
effective as of the 31st day of May, 1995, by and between CROWN ENERGY
CORPORATION, a Utah corporation located in Salt Lake City, Utah (the
"Corporation") and Jay Mealey ("Mealey").
R E C I T A L S:
WHEREAS, Mealey is an employee of the Corporation;
WHEREAS, the Corporation desires to provide incentives to Mealey to
continue pursing the Company's objectives and to compensate him for hardships to
be incurred due to the salary deferral;
WHEREAS, the Board of Directors desires to motivate Mealey, as an
employee of the Corporation, to achieve the growth objectives of the Corporation
and to align Mealey's personal interest directly with those of the shareholders.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of covenants herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. The Corporation hereby grants to Mealey a non-transferable
option to purchase 148,148 shares ("Option Shares") of the Corporation's common
stock, $0.02 par value, (the "Stock") at the purchase price per share of
$0.5625. If the Corporation files for a registration statement relating to a
public offering of its securities under the Securities Act of 1933 as amended
such registration shall include the Option Shares.
2. Term of Option. Subject to the provisions of paragraphs 3, 4 and 5 hereof,
this agreement may be exercised by Mealey, in whole or in part, from time to
time after the Company completes financing for its Asphalt Ridge Project and
prior to the 31st day of May, 2000.
3. Manner of Exercise. Each of the Option Shares may be exercised by Mealey by
giving written notice and tendering full payment in cash or certified funds to
the Corporation. Such notice shall specify the number of Option Shares which
Mealey elects to purchase pursuant this agreement . Following receipt of notice
of exercise and payment , the Corporation shall, as soon as reasonably
practicable, and subject to the terms of this Agreement, deliver to Mealey
certificates for the Option Shares purchased, registered in his name.
4. Option Non-Transferable. This Agreement and the Option Shares (prior to
exercise) shall not be transferable other than by will or the laws of descent
and distribution.
5. Termination of Relationship. In the event Mealey's employment with the
Corporation is terminated for cause or by Mealey, all Option Shares which became
exercisable or eligible for exercise on or before the date of termination, shall
be retained by Mealey until they are exercised or expire.
6. Acknowledgments of Mealey.
<PAGE>
Mealey hereby acknowledges to the Corporation that:
(a) This Agreement is a non-statutory option not eligible for the
federal income tax treatment afforded options under Sections 421 and 422 of the
Internal Revenue Code of 1986, as amended.
(b) Any election under Section 83(b) of the Internal Revenue Code of
1986 relating to the preferential federal income tax treatment of a purchase of
the Option Shares shall be the sole responsibility of Mealey, notwithstanding
any requests by Mealey or his representative, on behalf of the Corporation or
its representatives, to make such filing on Mealey's behalf.
(c) Mealey acknowledges that he has not relied, and will not rely, upon
any advice or representations by the Corporation or its employees or
representatives with respect to the tax treatment of the Option Shares.
7. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to Mealey that:
(a) It has all necessary power to enter into this Agreement,
(b) This Agreement has been duly authorized by appropriate
actions of the Board of Directors of the Corporation.
(c) When issued and paid for in accordance with the terms
hereof, the Stock shall be fully paid and non-assessable.
8. Adjustment of Shares of Stock.
The Options shall be adjusted according to the following:
(a) If the outstanding shares of the common stock of the
Corporation are changed into or become exchangeable for a larger or smaller
number, different kind or type of shares of stock or other securities of the
Corporation or any other corporation or entity, whether by a reorganization,
recapitalization, stock split, combination of shares, merger or consolidation,
whether or not the Corporation is the surviving corporation, there shall be
substituted for each of the Option Shares not yet purchased pursuant to this
agreement , the number and kind of shares of stock or other securities into
which each outstanding share of common stock of the Corporation shall be so
changed or for what each such share shall be exchanged.
(b) If a dividend shall be declared upon the common stock of
the Corporation payable in shares of common stock of the Corporation, the Option
Shares not yet purchased pursuant to this Agreement shall be adjusted by adding
to each such share the number of shares which would be distributable thereon if
such share had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend.
Notwithstanding any other provisions contained in this paragraph 8, no
adjustment or substitution shall require the Corporation to sell a fractional
share of stock to Mealey. The Corporation hereby agrees to give prior written
notice of any adjustment or substitution pursuant to this paragraph 8 to Mealey.
Further notwithstanding any provision contained in this Agreement to the
<PAGE>
contrary, this Agreement shall not affect in any manner or way the right or
power of the Corporation to make adjustments, reclassification, reorganizations
or changes of its capital or business structure, or to merge, consolidate,
dissolve, liquidate, sell or transfer all or any part of its business or assets.
9. Notices. All notices or other communications of any kind which
either party to this Agreement may be required or may desire to serve on the
other party shall be in writing and may be delivered in person or by registered
or certified mail, with postage thereon fully prepaid, addressed to such party.
Any such notice or other communication made by mail shall be deemed delivered at
the expiration of the third business day after the date of mailing. Either party
may, from time to time, by notice in writing served upon the other, designate an
address for notices.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the above-referenced date.
CROWN ENERGY CORPORATION
Richard S. Rawdin, Vice President Jay Mealey
<PAGE>
PURCHASE FORM
-------------
The undersigned hereby elects to exercise the Warrant
represented by the attached Warrant Certificate to the
extent of purchasing
______________________________ (__________) shares of the Common Stock
of Crown Energy Corporation, a Utah corporation (the "Company"), and
herewith presents to the Company cash or a check in the amount of
-------------------------------------------------------- ($----------)
in payment of the Exercise Price thereof.
--------------------------------------------
Name of Holder (please print)
By:_________________________________________
Signature of Authorized Representative
------------------------------------------
Name of Authorized Representative
(please print)
-------------------------------------------
Date
LEP/263022.02
Exhibit 10.4
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated and effective as of November 1, 1997,
between CROWN ENERGY CORPORATION, a Utah corporation (the "Company"), and JAY
MEALEY ( the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and subject to the conditions set
forth in this Agreement.
NOW THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services to the Company as Chief Operating Officer and President, or
in such other executive position as may be mutually agreed upon by the Company
and the Executive, and to perform such other duties consistent with such
positions as may be assigned to the Executive by the Board of Directors of the
Company. The Executive shall have the general powers and duties of supervision
and management of the operations of the Company and such other powers and duties
as are typically vested in the offices of Chief Operating Officer and President
of a corporation and shall have such other additional duties consistent with
such positions as may from time to time be assigned by the Board of Directors of
the Company. In such capacity, Executive shall have full authority over the day
to day operation of the Company, subject only to the oversight of the Chief
Executive Officer and the Board of Directors. The Company agrees that at all
times during the Term, the Executive shall have complete authority for the day
to day operations of the Company and, without the prior written consent of the
Executive, it shall not employ or engage anyone, other than a Chief Executive
Officer, approved by the Executive in writing in his sole discretion, with any
title or any duties, functions or responsibilities which are equal or superior
to the Executive's title, duties, functions or responsibilities. For the
purposes of this Section 1.1, the Executive approves James A. Middleton as Chief
Executive Officer. In addition, unless otherwise agreed in writing by the
Executive, the Executive shall be on the Board of Directors of each subsidiary
of the Company. The Company shall take all action necessary to nominate the
Executive for election to the Board of Directors of the Company and shall use
its best efforts to have the Executive elected to the Board of Directors. If so
elected, the Executive shall be entitled to be a member of the Executive
Committee thereof and, to the extent permitted by applicable law, including
Section 16 of the Securities Exchange Act of 1934, as amended (the Exchange
Act"), and the rules of any national securities exchange on which securities of
the Company are quoted or listed, each other committee of the Board of
Directors.
<PAGE>
1.2 Acceptance. The Executive hereby accepts such employment
and agrees to render the services described above. During the Term, the
Executive agrees to serve the Company faithfully and, to the best of the
Executive's ability, to devote substantially all the Executive's business time,
energy and skill to promote the Company's interests. Nothing in this Agreement
shall preclude Executive from engaging, consistent with his duties and
responsibilities hereunder, in any capacity in charitable, civic, educational
and community affairs, from managing his personal investments or from investing
in real estate. The Executive further agrees to accept election, and to serve
during all or part of the Term, as a director of the Company and as an officer
or director of any subsidiary or affiliate of the Company, without any
compensation therefor other than that specified in this Agreement, if elected to
any such position by the shareholders or by the Board of Directors of the
Company or of any subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in the Salt
Lake City, Utah, metropolitan area, subject to reasonable travel requirements on
behalf of the Company.
2. Term of Employment: Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment under
this Agreement (the "Term") shall commence on November 1, 1997, and shall end on
December 31, 2000, or such later date to which the Term is extended pursuant to
Section 2.2.
2.2 End of Term Provisions. At any time on or after December
31, 1999, the Company shall have the right to give written notice of non-renewal
of the Term. In the event the Company gives such notice of non-renewal, the Term
automatically shall be extended so that it ends twelve months after the last day
of the month in which the Company gives such notice; provided, that if the
Company has not given written notice of non-renewal as provided in this Section
2.2 prior to June 30, 2000, the Term automatically shall be extended until
December 31, 2002. At any time on or after December 31, 1999, the Executive
shall have the right to terminate this Agreement by giving written notice of
termination to the Company. In the event the Executive gives such notice of
termination pursuant to this Section, all of the rights and obligations of the
parties hereto (other than any remaining obligations of the Company pursuant to
Section 3, including, but not limited to the pro rata portion of the Bonus and
Base Salary set forth therein, and the provisions of Section 5) shall terminate
on the date which is sixty (60) days after the date of such notice (the
"Executive Termination Date"). On the Executive Termination Date, Executive
shall keep all Options which shall have vested on or prior to such date provided
that such Options shall only be exercised in accordance with their terms and
Section 3.4 hereof.
2.3 Special Curtailment. The Term shall end earlier than the
original December 31, 2000, termination date provided in Section 2.1 or any
extended termination date provided in Section 2.2, in either case if sooner
<PAGE>
terminated pursuant to Section 4. Non-extension of the Term shall not be deemed
to be a wrongful termination of the Term or of this Agreement by the Company
pursuant to Section 4.4.
3. Compensation: Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary at the annual rate of not less than $150,000, subject to
increase as set forth below as of November 1 of each year (the "Base Salary").
Provided the the Company achieves a positive cash flow from operations (revenues
less opertaing expenses before interest, debt service, taxes, depreciation,
amortization, extraordinary and non-recurring items and dividends), the Base
Salary shall be automatically increased to $180,000 per annum effective as of
November 1, 1998, and to $210,000 per annum effective as of November 1, 1999.
Should the Term be extended pursuant to Section 2.2, the Base Salary shall
automatically increase by 20% per annum effective as of January 1 of each
successive year beginning January 1, 2001.
In the event that the Base Salary is adjusted pursuant to the
foregoing provision or the Company, in its sole discretion, from time to time
determines to increase the Base Salary, such increased amount shall, from and
after the effective date of the increase, constitute the "Base Salary" for
purposes of this Agreement. Such Base Salary shall be payable semi-monthly in
arrears and shall be subject to such deductions or withholding as are required
by law and consistent with the Company's policies for other senior executive
officers.
3.2 Bonus. In addition to the Base Salary the Executive shall
be entitled to receive a bonus as further defined in this Section 3.2 for each
fiscal year of this Agreement. For the purposes of this Agreement, unless
otherwise stated herein, the term "Bonus" shall include all payments made
pursuant to Sections 3.2 and 3.3 hereof.
3.2.1 Earnings Per Share Bonus. The Executive shall be paid
bonus compensation (the "EPS Bonus") in addition to his Base Salary, based on
the Company's earnings per share before extraordinary and non-recurring items,
discontinued operations and preferred stock dividends ("EPS") as follows:
(A) If EPS for the fiscal year ending December 31, 1998 is
positive, Executive shall be paid a bonus which shall equal 50% of Executive's
actual Base Salary for such applicable fiscal year. For purposes of this Section
3.2.1 such 50% of the applicable Base Salary shall hereinafter be referred to as
the "EPS Bonus Payment".
(B) For each subsequent fiscal year, if EPS (i) is positive
and (ii) has increased from the immediately preceding fiscal year, Executive
shall be paid a bonus for such fiscal year which shall equal 20% of the
<PAGE>
applicable EPS Bonus Payment for each $0.01 per share increase in EPS; provided,
that in no event shall the EPS Bonus for any fiscal year exceed the EPS Bonus
Payment for the applicable year.
3.2.1.2 The EPS Bonus shall be computed using generally
accepted accounting principles and such computations shall be based on the
Company's consolidated year end financial statements prepared by the Company's
independent certified accountants. All EPS Bonus Payments shall be calculated
and paid within 90 days of the end of each fiscal year. In the event of (a) a
recapitalization of the Company, (b) the acquisition of another entity or (c)
any other change in the corporate or capital structure of the Company which
would have a material impact upon the EPS, the Chairman of the Board shall meet
with Executive to determine what adjustments shall be made to the method of
calculating EPS hereunder.
3.2.1.3 If Executive is employed by the Company for less than
an entire fiscal year, any EPS Bonus Payments payable to Executive hereunder in
respect of such fiscal year shall be prorated in accordance with the number of
days in such fiscal year during which he was so employed unless otherwise stated
herein.
3.2.2 Stock Price Bonus. The Executive shall be paid bonus
compensation (the "Stock Price Bonus") in addition to his Base Salary, based on
an increase, if any, in the average bid price for the Company's Common Stock,
$0.02 par value per share (the "Common Stock"), as quoted on the NASD's
Electronic Bulletin Board, or such other exchange as the case may be, for all of
the trading days in the month of October in each applicable fiscal year (the
"Average Price") as follows:
(A) For the fiscal year ending December 31, 1998, Executive
shall be paid a bonus which shall be equal to 10% of Executive's actual Base
Salary for such applicable fiscal year (for purposes of this Section 3.2.2 such
portion of the applicable Base Salary shall hereinafter be referred to as the
"Stock Bonus Payment") for each $.20 increase in the Average Price over $1.62;
provided, that in the event the Average Price exceeds $1.82, the Executive shall
receive a payment equal to a pro rata portion of the Stock Bonus Payment for any
additional increase which is less than $0.20.
(B) For the fiscal year ending December 31, 1999, Executive
shall be paid a Stock Bonus Payment for each $.20 increase in the Average Price
over $2.62; provided, that in the event the Average Price exceeds $2.82, the
Executive shall receive a payment equal to a pro rata portion of the Stock Bonus
Payment for any additional increase which is less than $0.20.
(C) For the fiscal year ending December 31, 2000, Executive
shall be paid a Stock Bonus Payment for each $.20 increase in the Average Price
over $3.62; provided, that in the event the Average Price exceeds $3.82, the
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Executive shall receive a payment equal to a pro rata portion of the Stock Bonus
Payment for any additional increase which is less than $0.20.
3.2.2.1 All Stock Bonus Payments shall be calculated and paid
within 30 days of the end of each fiscal year. If Executive is employed by the
Company for less than an entire fiscal year, any Stock Bonus Payments payable to
Executive hereunder in respect of such fiscal year shall be (i) prorated in
accordance with the number of days in such fiscal year during which he was so
employed unless otherwise stated herein and, (ii) calculated using the thirty
(30) day period immediately prior to date of termination of employment for
purposes of determining the applicable Average Price.
3.2.2.2 In the event of any change in the Common Stock by
reason of stock dividends, split-ups, mergers, recapitalizations, combinations,
conversions or the like, the number and kind of shares subject to the provisions
regarding the Stock Price Bonus and the Average Price shall be appropriately
adjusted.
3.3 Discretionary Bonus In addition to the amounts to be paid
to the Executive pursuant to Sections 3.1 and 3.2, the Executive will be
eligible, upon the decision of the Board of Directors and in the Board's sole
discretion, to receive a discretionary bonus with respect to each fiscal year of
the Term in such amount as the Board in its sole discretion may determine. Bonus
amounts with respect to any year shall be payable in accordance with the bonus
policies in effect from time to time for executive officers of the Company.
3.4 Stock Options. As soon as practicable, but in no event
later than 30 days after the execution of this Agreement, the Company and the
Executive shall execute a stock option agreement pursuant to the Company's
Incentive Stock Option Plan in which the Executive is granted options (the
"Options") to purchase 450,000 shares of Common Stock of the Company (or any
other shares or class of stock into which the common stock shall be exchanged,
recapitalized or converted), (the "Company Common Stock") at an exercise price
of $1.62. Options to purchase 150,000 shares of the Company Common Stock shall
vest on the date of this Agreement, Options to purchase 150,000 shares of the
Company Common Stock shall vest on the first anniversary of the date of this
Agreement and Options to purchase 150,000 shares of the Company Common Stock
shall vest on the second anniversary date of this Agreement. In the event that
the average offer price for the Company's Common Stock, as quoted on the NASD's
Electronic Bulletin Board, or such other exchange as the case may be, for any
thirty (30) day period (the "Stock Price") equals or exceeds (a) $2.00, then
Options to purchase 150,000 shares of the Company Common Stock (the "First
Shares") shall become exercisable at the end of such period, (b) $3.00, then
Options to purchase the First Shares, if applicable, and an additional 150,000
shares of the Company Common Stock (the "Second Shares") shall become
exercisable at the end of such period and (c) $4.00, then Options to purchase
<PAGE>
the First Shares, if applicable, the Second Shares, if applicable, and an
additional 150,000 shares of the Company Common Stock shall become exercisable
at the end of such period. The Options will be exercisable for a period of ten
years from the date of this Agreement.
3.4.1 In the event of any change in the Company Common Stock
by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, conversions or the like, the number and kind of shares subject to
the Options and the exercise price shall be appropriately adjusted.
3.5 Office; Business Expenses; Travel. The Company shall
provide the Executive with an office, secretarial and other support services
commensurate with his position and responsibilities. The Company shall pay or
reimburse the Executive, within ten days of receipt of an expense report, for
all reasonable expenses actually incurred or paid by the Executive during the
Term in the performance of the Executive's services under this Agreement, upon
presentation of expense statements or vouchers or such other supporting
information as the Company customarily may require of its officers.
3.6 Vacation. During the Term, the Executive shall be entitled
to a vacation period of four weeks during each year of the Term, taken in
accordance with the vacation policy of the Company for its executive officers.
3.7 Fringe Benefits. During the Term, the Executive shall be
entitled to participate in all of the Company's employee benefit plans, programs
and arrangements, including any qualified pension plan, 401(k) plan, group
insurance, disability, profit sharing, bonus, thrift, stock option, stock
purchase or their so-called "fringe" benefit plan which the Company now or
hereafter provides to its employees generally or to other executive officers of
the Company, receiving the highest level of such benefits commensurate with his
positions, titles, duties, then current compensation and length of service. In
addition, the Company will provide medical, dental and disability benefits for
the Executive, the Executive's spouse and the Executive's children. The
Insurance coverage will be of the type and have such limits as are typically
provided by companies of similar size for executives with similar positions. The
insurance coverage may or may not be part of company-wide group policies.
4. Termination.
4.1 Death. If the Executive shall die during the Term, the
Term shall terminate and no further amounts or benefits shall be payable
hereunder, except that the Executive's legal representatives or beneficiary
designated by the Executive in writing to the Company shall be entitled to
receive (i) continued payments in an amount equal to 70% of the Base Salary in
effect at the time of Executive's death, until the end of the Term (as in effect
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immediately prior to the Executive's death) or, if the Company has not then
given written notice of non-renewal pursuant to Section 2.2, for a period of
twelve months after the last day of the month in which termination described in
the Section 4.1 occurred, whichever is longer, and (ii) a prorated amount of the
Bonus payable with respect to the fiscal year in which the Executive's death
occurs pursuant hereto. All payments made to the Executive's legal
representatives or beneficiaries upon Executive's death shall be payable on the
date on which payments are payable as specified herein. Such payments shall be
exclusive of and in addition to any benefits received as a result of the life
insurance policy maintained by the Company.
4.1.2 All stock Options which shall have vested on or prior to
Executive's death shall be transferred to Executive's legal representatives or
beneficiaries and shall be exercised in accordance with their terms and Section
3.4 hereof.
4.2 Disability. If, during the Term, the Executive shall
become physically or mentally disabled, whether totally or partially, such that
the executive is unable to perform the Executive's services hereunder for (i) a
period of eight consecutive months or (ii) for shorter periods aggregating eight
months during any twelve-month period, the Company may, at any time after the
last day of the eight consecutive months of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of eight months,
by written notice to the Executive (given before the Executive has recovered
from such disability) (the "Disability Notice"), terminate the Term and no
further amounts or benefits shall be payable hereunder, except that, the
Executive shall be entitled to receive (i) continued payments in an amount equal
to 70% of the Base Salary in effect at the time of such termination until the
end of the Term (as in effect immediately prior to such termination) or, if the
Company has not then given notice of non-renewal pursuant to Section 2.2, for a
period of twelve months after the last day of the month in which termination
described in this Section 4.2 occurred, whichever is longer, and (ii) a prorated
amount of the Bonus payable with respect to the year in which the Executive's
disability occurs pursuant hereto. If the Executive shall die before receiving
all payments to be made by the Company in accordance with the foregoing, such
payments shall be made to a beneficiary designated by the Executive in a form
prescribed for such purpose by the Company, or in the absence of such
designation to the Executive's legal representative.
4.2.1 Upon delivery of the Disability Notice, for the shorter
of the period the Executive remains disabled or until Executive has attained the
age of 65, the Company shall continue to provide (i) benefits for the Executive
under the corporate group life insurance plan and (ii) benefits for the
Executive, his spouse and children under the corporate group medical (including
the executive medical plan) and dental insurance plans, to the extent permitted
by such plans.
4.2.2 All stock Options which shall have vested on or prior to
<PAGE>
receipt by Executive of the Disability Notice shall be kept by Executive and
shall be exercised in accordance with their terms and Section 3.4 hereof.
4.3 Cause. In the event of (i) gross neglect by the executive
of the Executive's duties hereunder which continues following written notice to
the Executive from the Board of Directors detailing with specificity the acts or
omissions allegedly constituting such gross negligence, (ii) conviction of the
Executive of any felony, (iii) conviction of the Executive of any crime
involving theft of the property of the Company or any of its subsidiaries, (iv)
conviction of the Executive of any crime that subjects the Company or any of its
subsidiaries to material fines or penalties, (v) willful and material breach by
the Executive of any material provision of the Agreement, which breach is not
cured in all material respects within 30 days following receipt by the Executive
of written notice of such breach, then the Company may by written notice to the
Executive terminate the Term, and upon such termination, this Agreement shall
terminate and the Executive shall be entitled to receive no further amounts or
benefits hereunder, except any as shall have been earned or otherwise vested on,
or prior to, the date of such termination (including a pro rata amount of the
Bonus payable pursuant to Section 3.2 which shall be deemed to be earned
pursuant to this Section). In the event of termination pursuant to this Section
4.3, the Executive shall keep all Options which shall have vested on or prior to
such termination and such Options shall be exercised in accordance with their
terms and Section 3.4 hereof.
4.4 Company Breach. In the event of (i) the breach of any
material provision of this Agreement by the Company which breach is not cured in
all material respects within 30 days after notice to the Company (5 days in the
event of any failure to pay amounts due under Section 3.1 or 3.2 hereof or to
grant the options required under Section 3.4 hereof), (ii) any reduction in the
Executive's duties, responsibilities or title, or (iii) the relocation of the
Executive to any place outside the Salt Lake City, Utah, metropolitan area, then
the Executive shall be entitled to terminate the Term. Upon such termination, or
in the event the Company terminates the Term or this Agreement other than
pursuant to the provisions of Section 4.1, 4.2 or 4.3, the Company shall
continue to provide the Executive (i) payments of Base Salary, in the manner and
amount specified in Section 3.1, (ii) payments of the Bonus payable pursuant to
Section 3.2 in the manner and in the amount set forth therein, and (iii) fringe
benefits and additional benefits in the manner and amounts specified in Sections
3.6, 3.7 and 3.8 until the end of the Term (as in effect immediately prior to
such termination) or, if the Company has not then given written notice of
non-renewal pursuant to Section 2.2, for a period of twelve months after the
last day of the month in which termination occurred, whichever is longer (the
"Damage Period"). In addition, upon such termination, or in the event the
Company terminates the Term of this Agreement other than pursuant to the
provisions of Section 4.1, 4.2 or 4.3, Options which would have vested prior to
the end of the Damage Period shall vest and immediately become exercisable in
<PAGE>
their entirety. The Executive shall not be required to mitigate the amount of
any payment set forth in this Section; provided, however to the extent that the
Executive shall earn compensation in connection with other employment which is
comparable in duties and compensation to Executive's existing position during
the Damage Period (without regard to when such compensation is paid), the Base
Salary and Bonus payments to be made by the Company pursuant to this Section 4.4
shall be correspondingly reduced.
4.5 Termination by Executive for Good Reason. Following a
Change in Control (as defined below), the Executive shall be entitled to
terminate the Term for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Executive's express written
consent, of any one or more of the following events:
(a) The assignment to the Executive of any duties that are
inconsistent with, or the reduction of powers or functions associated with
Executive's positions, duties, responsibilities and status with the Company
immediately prior to the Change in Control; a change in Executive's reporting
responsibilities; or improper intervention by the Company in the Executive's
ability to materially perform the duties and responsibilities that have been
assigned to the Executive under this Agreement, except in connection with the
Company's termination of Executive's employment pursuant to Section 4.3;
(b) The Company's breach of any of the provisions of this
Agreement, including, but not limited to, a reduction by the Company in the
Executive's Base Salary in effect on the date thereof, or as the same may be
increased as provided herein; or a change in the conditions of Executive's
employment (e.g., including, without limitation, a failure by the Company to
provide the Executive with incentive compensation and benefit plans that provide
comparable benefits and amounts as such type programs in effect immediately
prior to the Change in Control, etc.); or
(c) The relocation of the Company's principal executive
offices to any place outside of the Salt Lake City, Utah, metropolitan area or
the Company's requiring the Executive to be based anywhere other than the
Company's principal executive offices, except for required travel on the
Company's business to an extent substantially consistent with the Executive's
present business travel obligations.
The Executive agrees to provide the Company with thirty (30) days'
prior written notice of any termination for Good Reason.
4.5.1 Compensation Upon Termination by the Company Other Than
for Cause or by the Executive for Good Reason Following a Change in Control. If,
following a Change in Control (as defined below) of the Company, the Executive's
employment shall be terminated (i) by the Company other than for Cause pursuant
to Section 4.3, or (ii) by the Executive for Good Reason, the Executive shall be
entitled to the following benefits:
<PAGE>
(a) Payment of Unpaid Base Salary. The Company shall
immediately pay the Executive any portion of the Executive's Base Salary and any
other amounts earned or otherwise vested but not paid prior to such termination
(including a pro rata amount of the Bonus payable pursuant to Section 3.2 which
shall deemed to be earned for purposes of this Section).
(b) Lump Sum Payment. Within five days following such
termination, the Company shall make a lump sum payment to the Executive in cash
in an amount equal to three times the sum of (i) the Executive's then annual
Base Salary, and (ii) the greater of (A) the total of any Bonus or Bonuses paid
to the Executive pursuant to Section 3.2 in the fiscal year of the Company ended
immediately prior to the fiscal year in which the termination occurs, and (B)
the average yearly amount of such Bonuses with respect to the three (or, if
less, the number of years the Executive has been employed by the Company or its
predecessor) fiscal years ended immediately prior to the fiscal year in which
the termination occurs; provided that, if either the EPS Bonus or the Stock
Price Bonus are not earned during any prior bonus period such period shall not
be used for purposes of calculating the average yearly amount of such Bonuses
with respect to this Section 4.5.1.
(c) Immediate Vesting of Stock Options. All Options granted to
the Executive shall vest and become fully exercisable upon Executive's
termination pursuant to this Section 4.5.1. At the election of Executive made
within 30 days following his date of termination, upon surrender of any or all
outstanding Options issued to him under any stock option plan maintained by the
Company, the Company shall pay Executive an amount equal to the product of: (a)
the fair market value of a share of Common Stock, determined as of the date of
termination minus the exercise price for such Option by (b) the number of shares
with respect to which Options are being surrendered.
(d) Continuation of Fringe Benefits and Additional Benefits.
The Company shall continue to provide the Executive with all fringe benefits and
additional benefits set forth in Sections 3.6, 3.7 and 3.8 until the end of the
Damage Period, as if the Executive's employment under the Agreement had not been
terminated. If as the result of termination of Executive's employment, Executive
and/or his otherwise eligible dependents or beneficiaries shall become
ineligible for benefits under any one or more of the Company's benefit plans,
the Company shall continue to provide the Executive and his eligible dependents
or beneficiaries with benefits at a level at least equivalent to the level of
benefits for which the Executive and his dependents and beneficiaries were
eligible under such plans immediately prior to the termination.
(e) Exercise Tax Gross-Up. In the event that the Executive
becomes entitled to the benefit payments provided under subparagraphs (a)-(d) of
this Section 4.5.1 ("Benefit Payments"), and if any of the Benefit Payments will
<PAGE>
be subject to any excise tax imposed under section 4999 of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), or successor sections
thereto ("Excise Tax"), the Company shall pay the Executive an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Benefit Payments and any federal, state
and local income tax and Excise Tax upon the payments provided for under this
Section 4.5.1, shall be equal to the amount of the Benefit Payments. For
purposes of determining whether any of the Benefit Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (i) any other payments or
benefits received or to be received by the Executive in connection with a Change
in Control or the termination of Executive's employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control or any person
affiliated with the Company or such person) shall be treated as "parachute
payments: within the meaning of section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of section 280G(b)(1) of the Code shall
be treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and reasonably acceptable to the
Executive such other payments or benefits (in whole or in part) do not
constitute parachute payments, including by reason of section 280G(b)(4)(A) of
the Code, or such excess parachute payments (in whole or in part) represents
reasonable compensation for services actually rendered, within the meaning of
section 380G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in
section 380Gb)(3) of the Code) allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, (ii) the amount of the Benefit Payments
which shall be treated as subject to the Excise Tax shall be equal to the lesser
of (A) the total amount of the Benefit Payments or (B) the amount of excess
parachute payments within the meaning of section 380G(b)(1) of the Code (after
applying clause (i), above), and (iii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Termination Date, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes based on the
marginal rage referenced above. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the
Termination Date (other than by reason of the availability of other deductions
for Federal or state income tax purposes that have the effect of reducing the
<PAGE>
taxable income of Executive), the Executive shall repay to the Company, at the
time that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income tax imposed on the Gross- Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise Tax
and/or a federal, state or local income tax deduction) plus interest on the
amount of such repayment at the rate provided in section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount take
into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Benefit
Payments.
(f) No Mitigation Required; No Other Entitlement to Benefits
under Agreement. Notwithstanding the provisions of Section 4.4, the Executive
shall not be required in any way to mitigate the amount of any payment provided
for in this Section 4.5.1, including, but not limited to, by seeking other
employment, nor shall the amount of any payment provided for in this Section
4.5.1 be reduced by any compensation earned by the Executive as the result of
employment with another employer after the Termination Date, or otherwise.
Except as set forth in this Section 4.5.1, following a termination governed by
this Section 4.5.1, the Executive shall not be entitled to any other
compensation or benefits set forth in this Agreement, except as may be
separately negotiated by the parties and approved by the Board of Directors of
the Company in writing in conjunction with the termination of Executive's
employment under this Section 4.5.1.
(g) Change in Control. A "Change in Control" shall be deemed
to have occurred if, after the date of this Agreement, the conditions set forth
in any one of the following paragraphs shall have been satisfied:
(i) Any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act (other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company; or any Company owned, directly or
indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the Company)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding securities; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board
<PAGE>
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in clause (i), (iii) or (iv) of this paragraph) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) The shareholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 75%
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person acquires more than 25% of the combined voting power of the
Company's then outstanding securities; or
(iv) The shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
(h) Dispute Relating to Executive's Termination of Employment
for Good Reason. If the Executive resigns his employment with the Company
alleging in good faith as the basis for such resignation any of the grounds
specified in Section 4.5, and if the Company then disputes Executive's right to
the payment of benefits under Section 4.5.1, the Company shall continue to pay
Executive the full compensation (including, but not limited to, his Base Salary
and applicable Bonus payments) in effect at the date Executive provided notice
of such resignation, and the Company shall continue the Executive as a
participant in all compensation, fringe benefits and additional benefits in
which the Executive was then a participant pursuant to Sections 3.6 through 3.8,
until the earlier of the expiration of the Damage Period or the date the dispute
is finally resolved, either by mutual written agreement of the parties or by
decree of a court of competent jurisdiction which is not appealable or with
respect to which the time for appeal has expired and no appeal has been
perfected. For the purposes of this Section, the Company shall bear the burden
of proving that the grounds for Executive's resignation do not fall within the
scope of Section 4.5, and there shall be a rebuttable presumption that the
Executive alleged such grounds in good faith.
4.6 Litigation Expenses. If the Company and the Executive
<PAGE>
become involved in any action, suit or proceeding relating to the alleged breach
of this Agreement by the Company or the Executive, and if a judgement in such
action, suit or proceeding is rendered in favor the Executive, the Company shall
reimburse the Executive for all expenses (including reasonable attorneys' fees)
incurred by the Executive in connection with such action, suit or proceeding.
Such costs shall be paid to the Executive promptly upon presentation of expense
statements or other supporting information evidencing the incurrance of such
expenses. If a judgement in such action, suit or proceeding is rendered in favor
the Company, the Executive shall reimburse the Company for all expenses
(including reasonable attorneys' fees) incurred by the Company in connection
with such action, suit or proceeding.
5. Indemnification.
The Company shall indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred or
sustained by the Executive in connection with any action, suit or proceeding to
which the Executive may be made a party by reason of the Executive being an
officer, director or employee of the Company or any subsidiary or affiliate of
the Company. If any action or proceeding is commenced or threatened as to which
indemnity may be sought hereunder, the Company shall advance all costs and
expenses (including all expenses of counsel chosen by the Executive) to the
Executive in connection with defending any such action or proceeding or
threatened action or proceeding and the Executive shall not be required to
provide any undertaking or security in connection therewith. It is expressly
agreed that a breach by the Company of the terms of this Section 5 shall
constitute a breach of this Agreement entitling the Executive to terminate this
Agreement pursuant to Section 4.4. The provisions of this Section 5 shall
survive the expiration of the Term and any termination of this Agreement by the
Company or by the Executive. The Company shall be required to maintain
directors' and officers' liability insurance during the Term on terms reasonably
satisfactory to Executive. The Executive shall be entitled to insurance coverage
on terms no less favorable than any other directors or officers of the Company.
During the Term, the Company shall not repeal or amend in any way that is
adverse to the Executive the provisions of Article XII of the Company's Articles
of Incorporation or Article VIII of the Company's By-laws and such Articles of
Incorporation shall at all times include provisions providing for the
exculpation, and elimination or limitation on the liability, of directors and
officers of the Company to the fullest extent permitted by applicable law.
6. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by overnight courier or mailed
first class, postage prepaid, by registered or certified mail (notices mailed
shall be deemed to have been given on the date mailed), as follows (or to such
<PAGE>
other address as either party shall designate by notice in writing to the other
in accordance herewith):
If to the Company, to: If to the Executive, to:
---------------------- ------------------------
Crown Energy Corporation Jay Mealey
215 South State, Suite 550 4645 Hunter's Ridge Circle
Salt Lake City, Utah 84111 Salt Lake City, UT 84124
Fax: (801) 537-5609 Phone: (801) 277-2337
Fax: (801) 277-5155
7. General.
7.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Utah applicable to
agreements made and to be performed entirely in the State of Utah.
7.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
7.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged misrepresentation,
promise or inducement not so set forth.
7.4 Neither this Agreement, nor the Executive's or the
Company's respective rights and obligations hereunder, may be assigned by either
party (including, in the case of the Company, by operation of law, by merger or
otherwise).
7.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
8. Subsidiaries and Affiliates.
<PAGE>
8.1 As used herein, the term subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate" shall
mean and include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or other
business entity in question.
IN WITNESS WHEREOF, the parities have executed this Agreement as of the
first date written above.
CROWN ENERGY CORPORATION
By: Richard S. Rawdin
Its: Secretary Jay Mealey
Exhibit No. 10.11
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is made as of this 16th day
of September, 1996, by and between the Parkside Salt Lake Corporation, a
Delaware corporation ("Landlord") and Crown Energy Corporation, a Utah
corporation ("Tenant") with reference to the following facts
and circumstances:
1. Landlord is the Owner of that certain building located at 215
S. State Street, Salt Lake City, Utah ("Property");
2. Landlord's predecessor in interest, State of California Public
Employees' Retirement System, and Tenant entered into a
certain Lease Agreement ("Lease") dated August 20, 1993.
3. American Realty Advisors ("Advisor") is the real estate
investment manager to the Landlord.
4. Landlord and Tenant desire to amend the Lease upon terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing facts and
circumstances, the mutual covenants and promises contained herein and other good
and valuable consideration, the receipt and legal sufficiency of which is
acknowledged by each of the parties, the parties do hereby agree to the
following:
1. Definitions. Each capitalized term used in this Amendment shall have
the same meaning as is ascribed to such capitalized term in the Lease, unless
otherwise provided for herein.
2. Expiration Date. The expiration date of the Lease shall be extended
to September 30, 2001.
3. Basic Annual Rent. Effective October 1, 1996, Basic Annual Rent,
pursuant to Article 3 of the Basic Lease Provisions, shall increase as follows:
<PAGE>
Basic Annual Rent Monthly Rent
----------------- ------------
October 1, 1996 - September 30, 1997 $32,011.70 $2,667.64
October 1, 1997 - September 30, 1998 $34,314.70 $2,859.56
October 1, 1998 - September 30, 1999 $36,617.70 $3,051.48
October 1, 1999 - September 30, 2000 $38,920.70 $3,243.39
October 1, 2000 - September 30, 2001 $41,223.70 $3,435.31
4. Tenant Improvements to Premises. Landlord shall provide Tenant with
an improvement allowance of $3.00 per usable square foot or $5,955.00 (the
"Improvement Allowance") for the purposes of constructing and installing
Tenant's improvements pursuant to working plans and drawings approved by
Landlord. Said Improvement Allowance shall include the cost of space planning
and working drawings. All costs incurred to improve the Premises, above and
beyond the Improvement Allowance shall be the Tenant's sole responsibility. The
Landlord's construction obligations are further clarified in the Work Letter
attached hereto as Exhibit A.
5. Broker. Tenant represents to Landlord that Tenant has not dealt with
any real estate broker, salesperson or finder in connection with this Amendment,
and no other such person initiated or participated in the negotiation of this
Amendment or is entitled to any commission in connection herewith. Tenant hereby
agrees to indemnify, defend and hold Landlord, its property manager and their
respective employees harmless from and against any and all liabilities, claims,
demands, actions, damages, costs and expenses (including attorneys' fees)
arising from either (a) a claim for a fee or commission made by any broker
claiming to have acted by or on behalf of Tenant in connection with this
Amendment, or (b) a claim of, or right to lien under the statutes of Utah
relating to real estate broker liens with respect to any such broker retained by
Tenant.
6. Binding. The Lease, as amended hereby, shall continue in full force
and effect, subject to the terms and provisions thereof and hereof. In the event
of any conflict between the terms of the Lease and the terms of this Amendment,
the terms of this Amendment shall control. This Amendment shall be binding upon
and inure to the benefit of Landlord, Tenant and their respective successors and
permitted assigns.
7. Submission. Submission of this Amendment by Landlord to Tenant for
examination and/or execution shall not in any manner bind Landlord and no
<PAGE>
obligations on Landlord shall arise under this Amendment unless and until this
Amendment is fully signed and delivered by Landlord and Tenant; provided,
however, the execution and delivery by Tenant of this Amendment to Landlord
shall constitute an irrevocable offer by Tenant to lease the Premises on the
terms and conditions herein contained, which offer may not be revoked for thirty
(30) days after such delivery.
8. Limit of Liability. Neither Landlord nor any principal of Landlord
nor any owner of the Property, whether disclosed or undisclosed, shall have any
personal liability with respect to any of the provisions of the Lease, as hereby
amended, and if Landlord is in breach or default with respect to Landlord's
obligations under the Lease, as hereby amended, or otherwise, Tenant shall look
solely to the equity interest of Landlord in the Property for the satisfaction
of Tenant's remedies or judgments.
9. Address for Payments and Notices. Article 12 of the Basic Lease
Provisions is hereby amended to provide that any notices to Landlord shall be
addressed to Landlord as designated below in item (a), with a copy to Wallace
Associates ("Building Manager") at the address designated below in item (b).
(a) Parkside Salt Lake Corporation
c/o American Realty Advisors
700 North Brand Boulevard, Suite 300
Glendale, CA 91205
Attn.: Stanley Iezman
(b) Wallace Associates
Steve Koch, Building Manager
215 South State Street, Suite 960
Salt Lake City, UT 84111
10. Miscellaneous.
10.1 Attorneys' and Other Fees. Should either party institute
any action or proceeding to enforce or interpret this Amendment or any provision
hereof, for damages by reason of any alleged breach of this Amendment or of any
provision hereof, or for a declaration of rights hereunder, the prevailing party
in any such action or proceeding shall be entitled to receive from the other
party all costs and expenses, including actual attorneys' and other fees,
reasonably incurred in good faith by the prevailing party in connection with
such action or proceeding. The term "attorneys' and other fees" shall mean and
<PAGE>
include attorneys' fees, accountants' fees, and any and all consultants and
other similar fees incurred in connection with the action or proceeding and
preparations therefor. The term "action or proceeding" shall mean and include
actions, proceedings, suits, arbitrations, appeals and other similar
proceedings.
10.2 TIME OF ESSENCE. TIME IS OF THE ESSENCE OF
THIS AMENDMENT AND EACH AND EVERY TERM AND PROVISION HEREOF.
10.3 Modification. A modification of any provision herein
contained, or any other amendment to this Amendment, shall be effective only if
the modification or amendment is in writing and signed by both Lessor and
Lessee.
10.4 Waiver. No waiver by any party hereto of any breach or
default shall be considered to be a waiver of any other breach or default. The
waiver of any condition shall not constitute a waiver of any breach or default
with respect to any covenant, representation or warranty.
10.5 Successors and Assigns. This Amendment shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
successors and assigns.
10.6 Number and Gender. As used in this Amendment, the neuter
includes the masculine and feminine, and the singular includes the plural.
10.7 Governing Law. This Amendment shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of the
State of Utah applicable to agreements made and to be performed wholly within
the State of Utah.
10.8 Construction. Headings at the beginning of each Section
and subsection are solely for the convenience of the parties and are not a part
of this Amendment. Except as otherwise provided in this Amendment, all exhibits
referred to herein are attached hereto and are incorporated herein by this
reference. Unless otherwise indicated, all references herein to Articles,
Sections, subsections, paragraphs, subparagraphs or provisions are to those in
this Amendment. Any reference to a Section herein includes all subsections
thereof. This Amendment shall not be construed as if it had been prepared by
only Lessor or Lessee, but rather as if both Lessor and Lessee had prepared the
same. In the event any portion of this Amendment shall be declared by any court
of competent jurisdiction to be invalid, illegal or unenforceable, such portion
<PAGE>
shall be deemed severed from this Amendment, and the remaining parts hereof
shall remain in full force and effect, as fully as though such invalid, illegal
or unenforceable portion had never been part of this Amendment.
10.9 Integration of Other Agreements. This Amendment sets
forth the entire agreement and understanding of the parties with respect to the
matters set forth herein and supersedes all previous written or oral
understandings, agreements, contracts, correspondence and documentation with
respect thereto. Any oral representations or modifications concerning this
Amendment shall be of no force or effect.
10.10 Indemnification by Lessee. Lessee agrees to indemnify,
defend and hold Lessor free and harmless of, from and against any and all
claims, demands, damages, losses, liabilities, causes of action, costs or
expenses (including reasonable attorneys' fees), directly or indirectly arising
in connection with the breach of any covenant, agreement, representation or
warranty of Lessee under the terms of this Amendment.
10.11 Duplicate Originals; Counterparts. This Amendment may be
executed in any number of duplicate originals, all of which shall be of equal
legal force and effect. Additionally, this Amendment may be executed in
counterparts, but shall become effective only after a counterpart hereof has
been executed by each party; all said counterparts shall, when taken together,
shall constitute the entire single Amendment between the parties.
10.12 Non-Waiver of Rights. No failure or delay of either
party in the exercise of any right given to such party hereunder shall
constitute a waiver thereof unless the time specified herein for exercise of
such right has expired, nor shall any single or partial exercise of any right
preclude other or further exercise thereof or of any other right.
10.13 Days. The term "days," as used herein, shall mean actual
days occurring, including Saturdays, Sundays and holidays. The term "business
days" shall mean days other than Saturdays, Sundays and holidays. If any item
must be accomplished or delivered hereunder on a day that is not a business day,
it shall be deemed to have been timely accomplished or delivered if accomplished
or delivered on the next following business day.
10.14 Further Assurances. Lessor and Lessee each agree to
<PAGE>
execute any and all other documents and to take any further actions reasonably
necessary to consummate the transactions contemplated hereby.
10.15 Joint and Several Liability. If Lessee consists of two
(2) or more parties, each of such parties (and each of Lessee's general
partners) shall be liable for Lessee's obligations under this Amendment, and all
documents executed in connection herewith, and the liability of such parties
shall be joint and several. Additionally, the obligations and liabilities
hereunder of the general partners or other appropriate persons or entities that
comprise Lessee, if any, are and shall be joint and several.
10.16 No Third Party Beneficiaries. Except as otherwise
provided herein, no person or entity shall be deemed to be a third party
beneficiary hereof, and nothing in this Amendment (either expressed or implied)
is intended to confer upon any person or entity, other than Lessor and/or Lessee
(and their respective nominees, successors and assigns), any rights, remedies,
obligations or liabilities under or by reason of this Amendment.
11. Full Force and Effect. All other terms and
conditions of the Lease shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year
first written above.
LANDLORD: TENANT:
PARKSIDE SALT LAKE CORPORATION CROWN ENERGY CORPORATION,
a Utah corporation
By: Glenn H. Birsberger, By: Jay Mealey
Asset Manager Its: President
Date: Date:
Exhibit No. 10.12
Investment Banking Agreement
This Agreement is made as of December 1, 1997, by and between Crown
Energy Corp, a Utah Corporation ("Crown") with its principal offices at 215
South State, Suite 550, Salt Lake City, Utah, 84111, and Fortress Financial
Group, Ltd., a Delaware Corporation ("FORTRESS") with its principal offices at
1204 Palm Boulevard, Suite D, Isle Of Palms, South Carolina, 29451.
Witnesseth
WHEREAS, Crown requires expertise in the area of investment banking to
support its business and growth;
WHEREAS, FORTRESS has substantial contacts among the members of the
investment community, investment banking expertise, and desires to act as a
consultant to provide investment banking and advisory services;
NOW, THEREFORE, in consideration of the premise and the mutual promises
and covenants contained herein and subject specifically to the conditions
hereof, and intending to be legally bound thereby, the parties agree as follows:
12. Certain Definitions. When used in this Agreement, the following
terms shall have the meanings set forth below:
12.1 Affiliate - any persons or entities controlled by a
Party.
12.2 Crown - Crown Energy Corporation.
12.3 Contact Person - the person who shall be primarily
responsible for carrying out the duties of the parties hereunder. Crown and
FORTRESS shall each appoint a Contact Person to be responsible for their
respective duties. In the event that one party gives notice to the other party
in writing that, in their reasonable opinion, the other party's Contact Person
is not able to fulfill their duties and responsibilities hereunder, both parties
shall mutually agree upon a replacement Contact Person within 10 days of the
said notice.
12.4 Extraordinary Expenses - expenses that are beyond those
expenses that are usual, regular, or customary in the conduct of in-house
activities in fulfillment of the scope of this Agreement which are agreed to in
advance by Crown.
<PAGE>
12.5 Payment or Payable in kind - distribution of the proceeds
of a transaction in the same type and form as was given as valuable
consideration for the transaction.
13. Contact Persons. The Contact Person for Crown is Jay Mealey,
President. The Contact Person for FORTRESS is Gregory D. Walker, President.
14. Services to be Rendered by FORTRESS. Services to be rendered, on a
best efforts basis, by FORTRESS are as follows:
14.1 Introduction to the Securities Brokerage Community.
FORTRESS has a close association with numerous broker/dealers and investment
professionals across the country and will enable contact between Crown to
facilitate business transactions among them. FORTRESS shall use their contacts
in the brokerage community to assist Crown in establishing relationships with
securities dealers and to provide the most recent corporate information to
interested securities dealers on a regular and continuous basis. FORTRESS
understands that this is in keeping with Crown's business objective to establish
a nationwide network of securities dealers who have an interest in Crown's
securities.
14.2 Market-making Intelligence. FORTRESS's clearing agent,
First Southwest Company, is a market-maker in numerous securities, and FORTRESS
has access to proprietary information through First Southwest Company's
market-making facilities and personnel. FORTRESS will monitor and react to
sensitive market information on a timely basis and provide advice and counsel
and proprietary intelligence (including but not limited to information on price,
volume and the identification of market-makers, buyers and sellers) to Crown in
a timely fashion and with substantial value-added interpretation of such
information. The foregoing notwithstanding, no information will be provided to
Crown with respect to the activities of any other FORTRESS customers or customer
accounts without such customer's prior consent.
14.3 Crown Transaction Due Diligence. Upon Crown's written
request FORTRESS will undertake due diligence on all proposed financial
transactions affecting Crown, of which FORTRESS is notified in writing in
advance, including investigation and advice on the financial, valuation and
stock price implications thereof.
14.4 Additional Duties. Crown and FORTRESS shall mutually
agree in writing upon any additional duties which FORTRESS may provide for
compensation paid or payable by Crown under this Agreement. Such additional
agreement(s) may, although there is no requirement to do so, be attached hereto
<PAGE>
and made a part thereof by written amendments to be listed as "Exhibits"
beginning with "Exhibit A" and initialed by both parties.
14.5 Best Efforts. FORTRESS shall devote such time and best
efforts to the affairs of Crown as is reasonable and adequate to render the
consulting services contemplated by this Agreement. FORTRESS cannot guarantee
results on behalf of Crown, but shall pursue all avenues available through its'
network of financial contacts. At such time as an interest is expressed in
Crown's needs, FORTRESS shall notify Crown and advise it as to the source of
such interest and any terms and conditions of such interest. The acceptance and
consummation of any transaction is subject to acceptance of the terms and
conditions by Crown. It is understood that a portion of the compensation to be
paid hereunder is being paid hereunder by Crown to have FORTRESS remain
available to assist with transactions on an as-needed basis.
15. Initial Fee to FORTRESS. Crown shall pay FORTRESS an initial fee of
$25,000 (Twenty-Five Thousand Dollars) for FORTRESS' initial set-up activities
which are necessary for FORTRESS to provide the services herein. Such fee will
be paid as follows: $12,500.00 within ten days of the execution of this
Agreement, and $12,500.00 within 90 days of the execution of this Agreement.
16. Indemnification. Crown agrees to indemnify and hold harmless
FORTRESS, each of its officers, directors, employees and each person, if any,
who controls FORTRESS, (collectively the "FORTRESS IP") against any and all
liability, loss and costs, expenses or damages, including but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever or howsoever caused, by reason of any claim asserted against any
FORTRESS IP by reason, or allegedly by reason, of any act, neglect, default or
omission, or any untrue or alleged untrue statement of a material fact, or any
misrepresentation of any material fact or any breach of any material warranty or
covenant of Crown or any of its agents, employees, or other representatives
arising out of, or in relation to, this Agreement. Nothing herein is intended to
nor shall it relieve either party from liability for its own act, omission or
negligence. All remedies provided by law, or in equity shall be cumulative and
not in the alternative.
FORTRESS agrees to indemnify and hold harmless Crown, each of its
officers, directors, employees and each person, if any, who controls Crown
(collectively the Crown IP) against any and all liability, loss and costs,
expenses or damages, including but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
<PAGE>
any litigation, commenced or threatened, or any claim whatsoever or howsoever
caused by reason of any claim asserted against any Crown IP by reason, or
allegedly by reason, of any act, neglect, default or omission, or any untrue or
alleged untrue statement of a material fact, or any misrepresentation of any
material fact or any breach of any material warranty or covenant by FORTRESS or
any of its agents, employees, or other representatives arising out of, or in
relation to, this Agreement. Nothing herein is intended to nor shall it relieve
either party from liability for its own act, omission or negligence. All
remedies provided by law, or in equity shall be cumulative and not in the
alternative.
17. Crown Representations. Crown hereby represents, covenants and
warrants to FORTRESS as follows:
17.1 Authorization. Crown and its signatories herein have full
power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
17.2 No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
violate any provision of the charter or by-laws of Crown, or violate any terms
or provision of any other agreement or any statute or law.
17.3 Litigation. Except as set forth below, there is no
actions, suit, inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission pending
or to the best knowledge of Crown threatened against Crown or any of its
officers, directors, or agent, which questions or challenges the validity of
this Agreement and its subject matter or will impair Crown's ability to perform
hereunder and Crown does not know or have reason to know of any valid basis for
any such action, proceeding or investigation.
17.4 Consents. No consent of any person, other than the
signatories hereto, is necessary for consummation of the transactions
contemplated hereby, including, without limitation, consents from parties to
loans, contracts, lease or other Agreements and consents from governmental
agencies, whether federal, state, or local.
17.5 FORTRESS Reliance. FORTRESS has and will rely upon the
documents, instruments and written information furnished to FORTRESS by Crown's
officers or other designated employees. All representations and statements
provided by Crown are true and complete and accurate to the best of Crown's
knowledge.
17.6 Services NOT EXPRESSED OR IMPLIED.
<PAGE>
A. FORTRESS has not agreed with Crown in this
Agreement or any other Agreement, verbal or written, to be a market-maker in
Crown's securities or in any specific securities or securities in which Crown
has an interest; and,
B. Any payments made herein to FORTRESS are
not, and shall not be construed as, compensation to FORTRESS for the purposes of
making a market, to cover FORTRESS out-of-pocket expenses for making a market,
or for the submission by FORTRESS of an application to make a market in any
securities; and,
C. No payments made herein to FORTRESS are
for the purpose of affecting the price of any security or influencing any
market-making functions, including but not limited to bid/ask quotations,
initiation and termination of quotations, retail securities activities, or for
the submission of any application to make a market.
18. FORTRESS Representations. FORTRESS hereby represents, covenants and
warrants to Crown as follows:
18.1 Authorization. FORTRESS and its signatories herein
have full power and authority to enter into this
Agreement and to carry out the transactions
contemplated hereby.
18.2 No Violation. Neither the execution and ------------
delivery of this Agreement nor the consummation of
the transactions contemplated hereby will violate any
provision of the charter or by-laws of FORTRESS or
violate any terms or provisions of any other
Agreement or any statute or law.
18.3 Litigation. Except as set forth below, there
---------- is no actions, suit, inquiry, proceeding
or investigations by or before any court or
governmental or other regulatory or administrative
agency or commission pending or to the best knowledge
of FORTRESS threatened against FORTRESS or any of its
officers, directors, or agents, which questions or
challenges the validity of this Agreement and its
subject matter or will impair FORTRESS's ability to
perform hereunder and FORTRESS does not know or have
reason to know of any valid basis for any such
action, proceeding or investigation.
18.4 Consents. No consent of any person, other than the
signatories hereto, is necessary for the consummation
of the transactions contemplated hereby, including
<PAGE>
without limitation, consents from parties to liens,
contracts, lease or other Agreements and consents
from governmental agencies, whether federal, state or
local.
19. Confidentiality.
19.1 FORTRESS and Crown each agree to provide reasonable
security measures to keep information confidential where release may be
detrimental to their respective business interests. FORTRESS and Crown shall
each require their employees, agents, affiliates, subcontractors, other
licensees, and others who will have access to the information through FORTRESS
and Crown respectively, to first enter appropriate non-disclosure Agreements
requiring the confidentiality contemplated by this Agreement in perpetuity.
19.2 FORTRESS will not, either during its engagement by Crown
pursuant to this Agreement or at any time thereafter, disclose, use or make
known for its or another's benefit, any confidential information, knowledge, or
data of Crown or any of its affiliates in any way acquired or used by FORTRESS,
during its engagement by Crown. Confidential information, knowledge or data of
Crown and its affiliates shall not include any information which is, or becomes
generally available to the public other than as a result of a disclosure by
FORTRESS or its representatives.
20. Miscellaneous Provisions.
20.1 Amendment and Modification. This Agreement may be
amended, modified and supplemented only by written agreement of FORTRESS and
Crown.
20.2 Waiver of Compliance. Any failure of FORTRESS, on the one
hand, or Crown, on the other, to comply with any obligation, agreement, or
condition herein may be expressly waived in writing, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
20.3 Expenses: Transfer Taxes, Etc. Whether or not the
transaction, if any, contemplated by this Agreement shall be consummated,
FORTRESS agrees that all fees and expenses incurred by FORTRESS in connection
with this Agreement shall be borne by FORTRESS and Crown agrees that all fees
and expenses incurred by Crown in connection with this Agreement shall be borne
by Crown, including, without limitation as to FORTRESS or Crown, all fees of
counsel and accountants.
<PAGE>
20.4 Other Business Opportunities. Except as expressly
provided in this Agreement, each party hereto shall have the right independently
to engage in and receive full bene(pound)its from business activities. In case
of business activities which would be competitive with the other party, notice
shall be given prior to this Agreement or, if such activities are proposed,
within ten (10) days prior to engagement therein. The doctrines of "corporate
opportunity" or "business opportunity" shall not be applied to any other
activity, venture, or corporation of either party.
20.5 Compliance with Regulatory Agencies. Each party agrees
that all actions, direct or indirect, taken by it and its respective agents,
employees and affiliates in connection with this agreement and any financing or
underwriting hereunder shall conform to all applicable Federal and State
securities laws.
20.6 Notices. Any notices to be given hereunder by any party
to the other may be effected by personal delivery in writing or in by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the "Contact Person" at the addresses appearing in
the introductory paragraph of this Agreement, but any party may change his
address by written notice in accordance with this subsection. Notices delivered
personally shall be deemed communicated as of actual receipt; mailed notices
shall be deemed communicated as of five (5) days after mailing.
20.7 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any right, interest or obligations hereunder will be assigned by any of the
parties hereto without the prior written consent of the other parties, except by
operation of law.
20.8 Delegation. Neither party shall delegate the performance
of its duties under this Agreement without the prior written consent of the
other party.
20.9 Publicity. Neither FORTRESS nor Crown shall make or
issue, or cause to be made or issued, any announcement or written statement
concerning this Agreement for dissemination to the general public without the
prior consent of the other party. This provision shall not apply, however, to
any announcement or written statement required to be made by law or the
regulations of any Federal or State governmental agency, except that the party
concerning the timing and consent of such announcement before such announcement
is made.
<PAGE>
20.10 Governing Law. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of Utah, without regard to its conflict of law doctrine.
Crown and FORTRESS agree that if any action is instituted to enforce or
interpret any provision of this Agreement, the jurisdiction and venue shall be
Salt Lake City, Utah.
20.11 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
20.12 Headings. The heading of the sections of this Agreement
are inserted for convenience only and shall not constitute a part hereto or
affect in any way the meaning or interpretation of this Agreement.
20.13 Entire Agreement. This Agreement and the other documents
and certificates delivered pursuant to the terms hereto, sets forth the entire
Agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and supersedes all prior agreements, promise,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto.
20.14 Third Parties. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other than the
parties hereto and their successors or assigns, any rights or remedies under or
by reason of this Agreement.
20.15 Attorneys' Fees and Costs. If any action is necessary to
enforce and collect upon the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and costs, in addition to any other
relief to which that party may be entitled. This provision shall be construed as
applicable to the entire Agreement.
20.16 Survivability. If any part of this Agreement is found,
or deemed by a court of competent jurisdiction to be invalid or unenforceable,
that part shall be severable from the remainder of the Agreement.
20.17 Further Assurances. Each of the parties agrees that it
shall from time-to-time take such actions and execute such additional
instruments as may be reasonably necessary or convenient to implement and carry
out the intent and purpose of this Agreement.
<PAGE>
20.18 Right to Data After Termination. After termination of
this Agreement, each party shall be entitled to copies of all information
acquired hereunder as of the date of termination and not previously furnished to
it.
20.19 Relationship of the Parties. Nothing
- --------------------------- contained in this Agreement shall be deemed to
constitute either party to become the partner of the other, the agent or legal
representative of the other, nor create any fiduciary relationship between them,
except as otherwise expressly provided herein. It is not the intention of the
parties to create nor shall this Agreement be construed to create any commercial
relationship or other partnership. Neither party shall have any authority to act
for or to assume any obligation or responsibility on behalf of the other party,
except as otherwise expressly provided herein. The rights, duties, obligations
and liabilities of the parties shall be separate, not joint or collective. Each
party shall be responsible only for its obligations as herein set out and shall
be liable only for its share of the costs and expenses as provided herein.
20.20 No Authority to Obligate the Contractor. Without the
consent of the Board of Directors of Crown, FORTRESS shall have no authority to
take, nor shall it take, any action committing or obligating Crown in any
manner, and it shall not represent itself to others as having such authority.
21. Term of Agreement and Termination. This Agreement shall be
effective upon execution, shall continue for one year unless terminated sooner,
by either party, upon giving to the other party thirty (30) days written notice,
after which time this Agreement is terminated.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
CROWN ENERGY CORPORATION
By: Jay Mealey, President
FORTRESS FINANCIAL GROUP, LTD.
By: Gregory D. Walker, President
Exhibit No. 10.13
Effective as of January 2, 1998
$319,583 Salt Lake City, Utah
PROMISSORY NOTE
FOR VALUE RECEIVED, Jay Mealey ("Borrower") promises to pay to the
order of CROWN ENERGY CORPORATION, a Utah corporation ("Holder"), at 215 South
State Street, Suite 550, Salt Lake City, Utah 84111, or at such other place as
may be designated in writing by Holder, or its successors
and assigns as follows:
Principal and Interest. Borrower promises to pay to Holder or
its order, in lawful money of the United States of America or shares of common
stock of Crown Energy Corporation ("Common Stock") as set forth below, the
principal sum of three hundred and nineteen thousand, five hundred and eighty
three dollars ($319,583), together with interest, compounded on a monthly basis,
on the unpaid principal balance from the date hereof until paid in full at the
prime rate of interest as published by the Wall Street Journal on the first
business day of each calendar quarter.
Payments. Borrower shall pay principal and interest as
follows: if not previously paid, all outstanding principal, accrued interest,
fees, etc. shall be due and payable on or before January 2, 2003, or upon the
sale of all of the Collateral, as defined in paragraph 4 below, whichever occurs
first. In the event that Borrower, at any time or from time to time prior to
January 2, 2003, sells any part of the Collateral, Borrower shall pay Holder an
amount equal to or exceeding the proportionate amount of principal and then
accrued interest attributable to the proportionate amount of Collateral sold
within three (3) business days from the date of receipt of the proceeds from
such sale. If any payment is not made in full within five (5) business days of
the due date, the entire amount due shall be subject to a five percent (5%) late
charge, calculated on the entire payment amount. All amounts received by Holder
shall be applied first to any costs and attorneys' fees, if any, incurred by
Holder due to a default by Borrower, then to accrued and unpaid late charges, if
any, then to interest, then to principal.
Notwithstanding the foregoing, Borrower may repay this Note,
in whole or in part, as follows:
(i) in cash;
(ii) by a written request to Holder that the number
of shares of Common Stock otherwise deliverable to
Borrower upon the exercise of any options to purchase
Common Stock, previously granted or which, in the
<PAGE>
future are granted to Borrower, having a Fair Market
Value (as defined below), in the aggregate equal to
or less than the outstanding balance due and owing on
this Note plus the exercise of price of the
surrendered options, be accepted in payment of this
Note and such options; or
(iii) by tendering to Holder a properly executed
stock certificate representing the number of shares
of Common Stock having a Fair Market Value, in the
aggregate, equal to or less than the outstanding
balance due and owing on this Note together with a
written request to Holder to accept such shares as
payment of this Note.
The Fair Market Value of a share of Common Stock on the date of
repayment of this Note shall be deemed to be the closing sales price
per share of Common Stock as quoted on the NASD Electronic Bulletin
Board, or other exchange or medium on which the Common Stock is traded
or listed at such time, on the date of such repayment or, if no sale of
Common Stock shall have been made on the NASD Electronic Bulletin
Board, or other exchange or medium, on that date, on the next preceding
business day on which there was a sale of such stock reported on the
NASD Electronic Bulletin Board, or other exchange or medium. Whenever a
payment of the balance due on this Note requires delivery of a
fractional share, the Holder may accept the next lower whole number of
shares of Common Stock and a cash payment shall be made by Borrower for
the balance due and owing on this Note.
Prepayment. Borrower may prepay this Note in whole or in part
at any time without penalty.
Collateral. As collateral for the performance of all
obligations and liabilities hereunder, Borrower shall execute and deliver to
Holder a Stock Pledge Agreement granting Holder a security interest in the
shares of Common Stock purchased by Holder with the proceeds of this Note (the
"Shares"). Holder's sole recourse for repayment of this Note shall be the
Shares.
Due On Sale. Except as otherwise provided in paragraph 2
above, Borrower may not sell, transfer or encumber any interest in the Shares,
voluntarily or involuntarily, without Holder's prior written consent, so long as
Holder has not been paid in full under this Note. In the event of such a sale,
transfer or encumbrance and the failure to timely pay Holder the proportionate
amount of principal and interest due upon such sale, transfer or encumbrance of
less than all of the Shares, Holder may, at its option, declare the entire
outstanding balance due under this Note to be immediately due and payable.
Liabilities. Upon a default by Borrower under this Note or the
<PAGE>
Stock Pledge Agreement, as defined above, Holder may declare the entire unpaid
principal balance, if any, together with accrued interest, late charges, fees
and costs to be immediately due and payable without presentment, demand, protest
or other notice of any kind. No failure or delay on the part of Holder in
exercising any right, power, or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power, or privilege
provided at law, in equity, or by contract. Borrower agrees to pay all costs of
collection incurred by reason of the default, including court costs and
reasonable attorneys' fees including such expenses incurred before legal action,
during the pendency thereof, and continuing to all such expenses in connection
with appeals to higher courts arising out of matters associated herewith.
General Provisions. This Note shall be binding upon the
Borrower, and any successors and assigns of Borrower, if any. This Note and all
documents and instruments associated herewith shall be governed by and construed
and interpreted in accordance with the laws of the State of Utah. The terms of
the Note may not be modified except by a written agreement executed by Holder
and Borrower. Time is of the essence hereof.
Entire Agreement in Writing. This written agreement, and any
other documents executed in connection herewith, are the final expression of the
agreement and understanding of Borrower and Holder with respect to the general
subject matter hereof and supersede any previous understanding, negotiations or
discussions, whether written or oral. This written agreement, and any other
documents executed in connection herewith, may not be contradicted by evidence
of any alleged oral agreement. Borrower acknowledges that the proceeds of the
Note are being used by Borrower to exercise options to purchase common stock of
the Borrower which were previously granted to Holder and to pay taxes thereon,
and not for any other personal, consumer or household purposes.
DATED effective as of January 2, 1998.
BORROWER:
Jay Mealey
Exhibit No. 10.14
Effective as of January 2, 1998
$229,583 Salt Lake City, Utah
PROMISSORY NOTE
FOR VALUE RECEIVED, Richard S. Rawdin ("Borrower") promises to pay to
the order of CROWN ENERGY CORPORATION, a Utah corporation ("Holder"), at 215
South State Street, Suite 550, Salt Lake City, Utah 84111, or at such other
place as may be designated in writing by Holder, or its
successors and assigns as follows:
1. Principal and Interest. Borrower promises to pay to Holder or its
order, in lawful money of the United States of America or shares of common stock
of Crown Energy Corporation ("Common Stock") as set forth below, the principal
sum of two hundred and twenty-nine thousand, five hundred and eighty three
dollars ($229,583), together with interest, compounded on a monthly basis, on
the unpaid principal balance from the date hereof until paid in full at the
prime rate of interest as published by the Wall Street Journal on the first
business day of each calendar quarter.
2. Payments. Borrower shall pay principal and interest as follows: if
not previously paid, all outstanding principal, accrued interest, fees, etc.
shall be due and payable on or before January 2, 2003, or upon the sale of all
of the Collateral, as defined in paragraph 4 below, whichever occurs first. In
the event that Borrower, at any time or from time to time prior to January 2,
2003, sells any part of the Collateral, Borrower shall pay Holder an amount
equal to or exceeding the proportionate amount of principal and then accrued
interest attributable to the proportionate amount of Collateral sold within
three (3) business days from the date of receipt of the proceeds from such sale.
If any payment is not made in full within five (5) business days of the due
date, the entire amount due shall be subject to a five percent (5%) late charge,
calculated on the entire payment amount. All amounts received by Holder shall be
applied first to any costs and attorneys' fees, if any, incurred by Holder due
to a default by Borrower, then to accrued and unpaid late charges, if any, then
to interest, then to principal.
Notwithstanding the foregoing, Borrower may repay this Note,
in whole or in part, as follows:
(i) in cash;
(ii) by a written request to Holder that the number
of shares of Common Stock otherwise deliverable to
Borrower upon the exercise of any options to purchase
Common Stock, previously granted or which, in the
<PAGE>
future are granted to Borrower, having a Fair Market
Value (as defined below), in the aggregate equal to
or less than the outstanding balance due and owing on
this Note plus the exercise of price of the
surrendered options, be accepted in payment of this
Note and such options; or
(iii) by tendering to Holder a properly executed
stock certificate representing the number of shares
of Common Stock having a Fair Market Value, in the
aggregate, equal to or less than the outstanding
balance due and owing on this Note together with a
written request to Holder to accept such shares as
payment of this Note.
The Fair Market Value of a share of Common Stock on the date of
repayment of this Note shall be deemed to be the closing sales price
per share of Common Stock as quoted on the NASD Electronic Bulletin
Board, or other exchange or medium on which the Common Stock is traded
or listed at such time, on the date of such repayment or, if no sale of
Common Stock shall have been made on the NASD Electronic Bulletin
Board, or other exchange or medium, on that date, on the next preceding
business day on which there was a sale of such stock reported on the
NASD Electronic Bulletin Board, or other exchange or medium. Whenever a
payment of the balance due on this Note requires delivery of a
fractional share, the Holder may accept the next lower whole number of
shares of Common Stock and a cash payment shall be made by Borrower for
the balance due and owing on this Note.
3. Prepayment. Borrower may prepay this Note in whole or in part at any
time without penalty.
4. Collateral. As collateral for the performance of all obligations and
liabilities hereunder, Borrower shall execute and deliver to Holder a Stock
Pledge Agreement granting Holder a security interest in the shares of Common
Stock purchased by Holder with the proceeds of this Note (the "Shares").
Holder's sole recourse for repayment of this Note shall be the Shares.
5. Due On Sale. Except as otherwise provided in paragraph 2 above,
Borrower may not sell, transfer or encumber any interest in the Shares,
voluntarily or involuntarily, without Holder's prior written consent, so long as
Holder has not been paid in full under this Note. In the event of such a sale,
transfer or encumbrance and the failure to timely pay Holder the proportionate
amount of principal and interest due upon such sale, transfer or encumbrance of
less than all of the Shares, Holder may, at its option, declare the entire
outstanding balance due under this Note to be immediately due and payable.
6. Liabilities. Upon a default by Borrower under this Note or the Stock
Pledge Agreement, as defined above, Holder may declare the
<PAGE>
entire unpaid principal balance, if any, together with accrued interest, late
charges, fees and costs to be immediately due and payable without presentment,
demand, protest or other notice of any kind. No failure or delay on the part of
Holder in exercising any right, power, or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege provided at law, in equity, or by contract. Borrower agrees to pay all
costs of collection incurred by reason of the default, including court costs and
reasonable attorneys' fees including such expenses incurred before legal action,
during the pendency thereof, and continuing to all such expenses in connection
with appeals to higher courts arising out of matters associated herewith.
7. General Provisions. This Note shall be binding upon the Borrower,
and any successors and assigns of Borrower, if any. This Note and all documents
and instruments associated herewith shall be governed by and construed and
interpreted in accordance with the laws of the State of Utah. The terms of the
Note may not be modified except by a written agreement executed by Holder and
Borrower. Time is of the essence hereof.
8. Entire Agreement in Writing. This written agreement, and any other
documents executed in connection herewith, are the final expression of the
agreement and understanding of Borrower and Holder with respect to the general
subject matter hereof and supersede any previous understanding, negotiations or
discussions, whether written or oral. This written agreement, and any other
documents executed in connection herewith, may not be contradicted by evidence
of any alleged oral agreement. Borrower acknowledges that the proceeds of the
Note are being used by Borrower to exercise options to purchase common stock of
the Borrower which were previously granted to Holder and to pay taxes thereon,
and not for any other personal, consumer or household purposes.
DATED effective as of January 2, 1998.
BORROWER:
Richard S. Rawdin
Exhibit No. 10.15
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is entered into
effective as of the 2nd day of January, 1998, by Jay Mealey, (the "Pledgor") and
Crown Energy Corporation, a Utah corporation (the "Secured Party").
RECITALS
WHEREAS, Pledgor holds beneficially and of record 548,148 shares of the
issued and outstanding shares of Common Stock of Crown Energy Corporation, a
Utah corporation (the "Shares");
WHEREAS, the Secured Party has made a loan (the "Loan") of $319,583 to
Pledgor pursuant to a certain Promissory Note (the "Note") of even date
herewith, and is willing to accept as adequate security therefor, the pledge of
the Shares by Pledgor to the Secured Party as collateral to secure the Loan;
WHEREAS, Pledgor desires to pledge the Shares as security and in
consideration for the Loan;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and conditions contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of Security Interests.
1.1 The Shares. Pledgor hereby grants to Secured Party a
security interest in the Shares that are evidenced by the stock certificates
described in Exhibit A attached hereto, together with any substitutes therefor,
or proceeds thereof, and any interest, stock rights, rights to subscribe,
dividends, stock dividends, liquidating dividends, new securities, and other
property to which Pledgor may become entitled by reason of the ownership of such
securities during the existence of this Agreement.
1.2 Definitions. The security interests described in Section
1.1 are hereinafter collectively referred to as the "Security Interests." The
stock certificates referred to in Section 1.1 are hereinafter collectively
referred to as the "Certificates." All of the shares and rights described in
Section 1.1 above are hereinafter referred to collectively as the "Collateral."
2. Obligations Secured. During the term hereof, the Collateral shall
secure payment of the Loan (the "Secured Obligation").
3. Perfection of Security Interests. Upon execution of this Agreement,
Pledgor shall promptly deliver and transfer possession of the originals of the
<PAGE>
Certificates to the Secured Party to be held by the Secured Party until
termination of this Agreement or foreclosure of the Secured Party's Security
Interests as provided herein. Pledgor shall also execute all documents
(including, but not limited to, assignments of stock in the form attached hereto
as Exhibit B-1) and perform all acts as the Secured Party may reasonably request
so as to perfect and maintain a valid security interest for the Secured Party in
the Collateral.
4. Assignment. The Secured Party may assign or transfer the whole or
any part of its security interest granted hereunder, and may transfer as
collateral security the whole or any part of the Secured Party's Security
Interest in the Collateral. Any transferee of the Collateral shall be vested
with all of the rights and powers of the Secured Party hereunder with respect to
the Collateral.
5. Pledgor's Warranty of Title. Pledgor hereby represents and warrants
to the Secured Party as follows: (i) that Pledgor has good title (both record
and beneficial) to the Collateral; (ii) that there are no restrictions upon
Pledgor's transfer of any of the Collateral pursuant to the provisions of this
Agreement; and (iii) that the Collateral is free and clear of any encumbrances
of every nature whatsoever. Pledgor further agrees not to grant or create any
security interest, claim, lien, pledge or other encumbrance with respect to the
Collateral until the Secured Obligation has been paid in full.
6. Collection of Dividends and Interest. During the term of this
Agreement, the Secured Party is authorized to collect all dividends, interest
payments, and other amounts that may be, or may become, due on any of the
Collateral. Such amounts collected shall be applied to the Secured Obligation.
7. Voting Rights. During the term of this Agreement, Pledgor, as
applicable, shall have the right to exercise all voting rights evidenced by, or
relating to, the Collateral until the occurrence of any event of default under
the Note to be executed in connection therewith.
8. Warrants and Options. In the event that, during the term of this
Agreement, subscription warrants, stock dividends, or any other rights or
options shall be issued in connection with the Collateral, such warrants, stock
dividends, rights and options shall be immediately delivered to the Secured
Party to be held under the terms hereof in the same manner as the Collateral.
9. Preservation of the Collateral and Reimbursement of Secured Party.
Pledgor shall pay all taxes, charges, and assessments against the Collateral and
do all acts necessary to preserve and maintain the value thereof. On failure of
Pledgor so to do, the Secured Party may make such payments on account thereof as
(in the Secured Party's discretion) is deemed desirable. Any such payments
expended by the Secured Party shall be considered part of the Secured Obligation
and shall be reimbursable to Secured Party prior to or at the time the Shares
are sold.
10. Remedies. Upon the occurrence of any event of default under the
Note or this Agreement, at the sole option of the Secured Party, without demand
<PAGE>
or notice, all or any part of any indebtedness evidenced by the Note shall
become immediately due and payable. Upon any such default, the Secured Party may
sell, assign, transfer and deliver, the Collateral, rights to the Collateral, or
rights to any portion of proceeds therefrom, or any additions thereto or
substitutes therefor, in such order as the Secured Party may elect, and any such
sale, assignment, transfer or delivery may be by public or private sale at such
price or prices and on such terms and conditions as the Secured Party in its
sole and absolute discretion may determine. The Secured Party may apply the
remaining proceeds, after deducting all costs of sale, in payment or reduction
of the Secured Obligation in such order as the Secured Party in its discretion
may determine, and the excess proceeds of any such sale shall be paid over by
the Secured Party to Pledgor, as applicable. At any public or private sale, the
Secured Party may, if it is the highest bidder, purchase any or all of the
Secured Party's rights to the Collateral and may apply any unpaid balance of the
Secured Obligation on account of or in full satisfaction of the Secured
Obligation. Notwithstanding any provision in this Agreement to the contrary,
Pledgor shall be liable to the Secured Party for any and all unpaid amounts,
including, without limitation, costs and fees, due on the Note following the
sale of the Collateral pursuant to the terms of this Agreement.
11. Return of Collateral or Pledge of Additional Collateral. Each
calendar quarter the Secured Party shall compare the value of Pledgor's Shares
with the unpaid balance of the Note. If the unpaid balance of the Note exceeds
the Fair Market Value of the Shares and Shares have been released by the Secured
Party to Pledgor, the Secured Party shall require the Pledgor to fully secure
the Note by (1) giving the Secured Party possession, custody and control of
certificates for additional shares of Common Stock of Crown Energy Corporation
equal to the difference between the Fair Market Value of the Shares (as defined
below) and the unpaid balance of the Note, or (2) paying down the balance due on
the Note to the point that it is fully secured by the Shares; provided, however,
that the Pledgor shall not be required to pledge additional shares or pay down
the Note in an amount greater than the proportionate value, measured at the time
pledged, of the Shares for which the Company has not received payment. If the
Fair Market Value of the Shares exceeds the unpaid balance of the Note, upon the
written request of Pledgor, the Secured Party shall return to Pledgor the
certificates for any Shares not needed to fully secure Pledgor's Note. In
addition, promptly following payment by Pledgor to the Secured Party of all or
any part of the principal and interest due on the Note, the Secured Party shall
release the Security Interest granted herein and deliver to Borrower a
Certificate for the number of Shares proportionately attributable to the
percentage amount of principal and accrued interest paid by Borrower to the
Secured Party. If the Secured Party is paid in full, it shall release and return
all of the Collateral.
For purposes of this paragraph, the Fair Market Value of the Shares on
the date of valuation shall be deemed to be the closing sales price per share of
Crown Energy Corporation common stock (the "Common Stock") as quoted on the NASD
Electronic Bulletin Board, or other exchange or medium on which the Common Stock
is traded or listed at such time, on the date of such repayment or, if no sale
of Common Stock shall have been made on the NASD Electronic Bulletin Board, or
<PAGE>
other exchange or medium, on that date, on the next preceding business day on
which there was a sale of such stock reported on the NASD Electronic Bulletin
Board, or other exchange or medium.
12. Waiver. Pledgor waives any right that it may have to require the
Secured Party to proceed against any other person, or proceed against or exhaust
any other security, or pursue any other remedy the Secured Party may have.
13. Term of Agreement. This Agreement shall continue in full force and
effect until the Secured Obligation shall have been paid in full.
14. General Provisions. The following provisions are also an integral
part of this Agreement:
14.1 Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of the successors and assigns of the respective
parties hereto.
14.2 Captions. The headings used in this Agreement are
inserted for reference purposes only and shall not be deemed to define, limit,
extend, describe or affect in any way the meaning, scope or interpretation of
any of the terms or provisions of this Agreement or the intent hereof.
14.3 Counterparts. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures upon any counterpart
were upon the same instrument. All signed counterparts shall be deemed to be one
original.
14.4 Severability. The provisions of this Agreement are
severable, and should any provision hereof be found by a court of competent
jurisdiction to be void, voidable, unenforceable or invalid, the remaining
provisions of this Agreement shall nevertheless remain in full force and effect.
14.5 Waiver of Breach. Any waiver by either party of any
breach of any kind or character whatsoever by the other, whether such be direct
or implied, shall not be construed as a continuing waiver of or consent to any
subsequent breach of this Agreement.
14.6 Cumulative Remedies. The rights and remedies of the
parties hereto shall be construed cumulatively, and none of such rights and
remedies shall be exclusive of, or in lieu of limitation of any other right,
remedy or priority allowed by applicable law.
14.7 Amendment. This Agreement may be modified only by a
written document that refers to this Agreement and that is executed by both
parties.
14.8 Interpretation. This Agreement shall be interpreted,
construed and enforced according to the substantive laws of the State of Utah.
<PAGE>
14.9 Attorneys' Fees. In the event any action or proceeding is
brought by either party to enforce the provisions of this Agreement, the
prevailing party in such action shall be entitled to recover its costs and
reasonable attorneys' fees, whether such sums are expended with or without suit,
at trial or on appeal.
14.10 Notice. Any notice or other communication required or
permitted to be given hereunder shall be effective upon receipt. Such notices
may be sent (i) in the United States mail, postage prepaid and certified, (ii)
by express courier with receipt, (iii) by facsimile transmission, with a copy
subsequently delivered as in (i) or (ii) above. Any such notice shall be
addressed or transmitted as follows:
If to Pledgor: Address:
Facsimile No.:
If to Secured Party:
Crown Energy Corporation Address:
215 South State Street, Suite 550
Salt Lake City, Utah 84111
Facsimile No.: (801) 537-5609
IN WITNESS WHEREOF, Pledgor and the Secured Party have executed this
Agreement as of the day, month and year first above written.
Pledgor:
Jay Mealey
Secured Party:
Crown Energy Corporation
By: Richard S. Rawdin
Its: Secretary
Exhibit No. 10.16
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement") is entered into
effective as of the 2nd day of January, 1998, by Richard S. Rawdin, (the
"Pledgor") and Crown Energy Corporation, a Utah corporation (the "Secured
Party").
RECITALS
--------
WHEREAS, Pledgor holds beneficially and of record 398,148 shares of the
issued and outstanding shares of Common Stock of Crown Energy Corporation, a
Utah corporation (the "Shares");
WHEREAS, the Secured Party has made a loan (the "Loan") of $229,583 to
Pledgor pursuant to a certain Promissory Note (the "Note") of even date
herewith, and is willing to accept as adequate security therefor, the pledge of
the Shares by Pledgor to the Secured Party as collateral to secure the Loan;
WHEREAS, Pledgor desires to pledge the Shares as security and in
consideration for the Loan;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and conditions contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Grant of Security Interests.
1.1 The Shares. Pledgor hereby grants to Secured Party a
security interest in the Shares that are evidenced by the stock certificates
described in Exhibit A attached hereto, together with any substitutes therefor,
or proceeds thereof, and any interest, stock rights, rights to subscribe,
dividends, stock dividends, liquidating dividends, new securities, and other
property to which Pledgor may become entitled by reason of the ownership of such
securities during the existence of this Agreement.
1.2 Definitions. The security interests described in Section
1.1 are hereinafter collectively referred to as the "Security Interests." The
stock certificates referred to in Section 1.1 are hereinafter collectively
referred to as the "Certificates." All of the shares and rights described in
Section 1.1 above are hereinafter referred to collectively as the "Collateral."
2. Obligations Secured. During the term hereof, the Collateral shall
secure payment of the Loan (the "Secured Obligation").
3. Perfection of Security Interests. Upon execution of this Agreement,
Pledgor shall promptly deliver and transfer possession of the originals of the
Certificates to the Secured Party to be held by the Secured Party until
<PAGE>
termination of this Agreement or foreclosure of the Secured Party's Security
Interests as provided herein. Pledgor shall also execute all documents
(including, but not limited to, assignments of stock in the form attached hereto
as Exhibit B-1) and perform all acts as the Secured Party may reasonably request
so as to perfect and maintain a valid security interest for the Secured Party in
the Collateral.
4. Assignment. The Secured Party may assign or transfer the whole or
any part of its security interest granted hereunder, and may transfer as
collateral security the whole or any part of the Secured Party's Security
Interest in the Collateral. Any transferee of the Collateral shall be vested
with all of the rights and powers of the Secured Party hereunder with respect to
the Collateral.
5. Pledgor's Warranty of Title. Pledgor hereby represents and warrants
to the Secured Party as follows: (i) that Pledgor has good title (both record
and beneficial) to the Collateral; (ii) that there are no restrictions upon
Pledgor's transfer of any of the Collateral pursuant to the provisions of this
Agreement; and (iii) that the Collateral is free and clear of any encumbrances
of every nature whatsoever. Pledgor further agrees not to grant or create any
security interest, claim, lien, pledge or other encumbrance with respect to the
Collateral until the Secured Obligation has been paid in full.
6. Collection of Dividends and Interest. During the term of this
Agreement, the Secured Party is authorized to collect all dividends, interest
payments, and other amounts that may be, or may become, due on any of the
Collateral. Such amounts collected shall be applied to the Secured Obligation.
7. Voting Rights. During the term of this Agreement, Pledgor, as
applicable, shall have the right to exercise all voting rights evidenced by, or
relating to, the Collateral until the occurrence of any event of default under
the Note to be executed in connection therewith.
8. Warrants and Options. In the event that, during the term of this
Agreement, subscription warrants, stock dividends, or any other rights or
options shall be issued in connection with the Collateral, such warrants, stock
dividends, rights and options shall be immediately delivered to the Secured
Party to be held under the terms hereof in the same manner as the Collateral.
9. Preservation of the Collateral and Reimbursement of Secured Party.
Pledgor shall pay all taxes, charges, and assessments against the Collateral and
do all acts necessary to preserve and maintain the value thereof. On failure of
Pledgor so to do, the Secured Party may make such payments on account thereof as
(in the Secured Party's discretion) is deemed desirable. Any such payments
expended by the Secured Party shall be considered part of the Secured Obligation
and shall be reimbursable to Secured Party prior to or at the time the Shares
are sold.
10. Remedies. Upon the occurrence of any event of default under the
Note or this Agreement, at the sole option of the Secured Party, without demand
or notice, all or any part of any indebtedness evidenced by the Note shall
<PAGE>
become immediately due and payable. Upon any such default, the Secured Party may
sell, assign, transfer and deliver, the Collateral, rights to the Collateral, or
rights to any portion of proceeds therefrom, or any additions thereto or
substitutes therefor, in such order as the Secured Party may elect, and any such
sale, assignment, transfer or delivery may be by public or private sale at such
price or prices and on such terms and conditions as the Secured Party in its
sole and absolute discretion may determine. The Secured Party may apply the
remaining proceeds, after deducting all costs of sale, in payment or reduction
of the Secured Obligation in such order as the Secured Party in its discretion
may determine, and the excess proceeds of any such sale shall be paid over by
the Secured Party to Pledgor, as applicable. At any public or private sale, the
Secured Party may, if it is the highest bidder, purchase any or all of the
Secured Party's rights to the Collateral and may apply any unpaid balance of the
Secured Obligation on account of or in full satisfaction of the Secured
Obligation. Notwithstanding any provision in this Agreement to the contrary,
Pledgor shall be liable to the Secured Party for any and all unpaid amounts,
including, without limitation, costs and fees, due on the Note following the
sale of the Collateral pursuant to the terms of this Agreement.
11. Return of Collateral or Pledge of Additional Collateral. Each
calendar quarter the Secured Party shall compare the value of Pledgor's Shares
with the unpaid balance of the Note. If the unpaid balance of the Note exceeds
the Fair Market Value of the Shares and Shares have been released by the Secured
Party to Pledgor, the Secured Party shall require the Pledgor to fully secure
the Note by (1) giving the Secured Party possession, custody and control of
certificates for additional shares of Common Stock of Crown Energy Corporation
equal to the difference between the Fair Market Value of the Shares (as defined
below) and the unpaid balance of the Note, or (2) paying down the balance due on
the Note to the point that it is fully secured by the Shares; provided, however,
that the Pledgor shall not be required to pledge additional shares or pay down
the Note in an amount greater than the proportionate value, measured at the time
pledged, of the Shares for which the Company has not received payment. If the
Fair Market Value of the Shares exceeds the unpaid balance of the Note, upon the
written request of Pledgor, the Secured Party shall return to Pledgor the
certificates for any Shares not needed to fully secure Pledgor's Note. In
addition, promptly following payment by Pledgor to the Secured Party of all or
any part of the principal and interest due on the Note, the Secured Party shall
release the Security Interest granted herein and deliver to Borrower a
Certificate for the number of Shares proportionately attributable to the
percentage amount of principal and accrued interest paid by Borrower to the
Secured Party. If the Secured Party is paid in full, it shall release and return
all of the Collateral.
For purposes of this paragraph, the Fair Market Value of the Shares on
the date of valuation shall be deemed to be the closing sales price per share of
Crown Energy Corporation common stock (the "Common Stock") as quoted on the NASD
Electronic Bulletin Board, or other exchange or medium on which the Common Stock
is traded or listed at such time, on the date of such repayment or, if no sale
of Common Stock shall have been made on the NASD Electronic Bulletin Board, or
other exchange or medium, on that date, on the next preceding business day on
<PAGE>
which there was a sale of such stock reported on the NASD Electronic Bulletin
Board, or other exchange or medium.
12. Waiver. Pledgor waives any right that it may have to require the
Secured Party to proceed against any other person, or proceed against or exhaust
any other security, or pursue any other remedy the Secured Party may have.
13. Term of Agreement. This Agreement shall continue in full force and
effect until the Secured Obligation shall have been paid in full.
14. General Provisions. The following provisions are also an integral
part of this Agreement:
14.1 Binding Agreement. This Agreement shall be binding upon
and shall inure to the benefit of the successors and assigns of the respective
parties hereto.
14.2 Captions. The headings used in this Agreement are
inserted for reference purposes only and shall not be deemed to define, limit,
extend, describe or affect in any way the meaning, scope or interpretation of
any of the terms or provisions of this Agreement or the intent hereof.
14.3 Counterparts. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures upon any counterpart
were upon the same instrument. All signed counterparts shall be deemed to be one
original.
14.4 Severability. The provisions of this Agreement are
severable, and should any provision hereof be found by a court of competent
jurisdiction to be void, voidable, unenforceable or invalid, the remaining
provisions of this Agreement shall nevertheless remain in full force and effect.
14.5 Waiver of Breach. Any waiver by either party of any
breach of any kind or character whatsoever by the other, whether such be direct
or implied, shall not be construed as a continuing waiver of or consent to any
subsequent breach of this Agreement.
14.6 Cumulative Remedies. The rights and remedies of the
parties hereto shall be construed cumulatively, and none of such rights and
remedies shall be exclusive of, or in lieu of limitation of any other right,
remedy or priority allowed by applicable law.
14.7 Amendment. This Agreement may be modified only by a
written document that refers to this Agreement and that is executed by both
parties.
14.8 Interpretation. This Agreement shall be interpreted,
construed and enforced according to the substantive laws of the State of Utah.
14.9 Attorneys' Fees. In the event any action or proceeding is
<PAGE>
brought by either party to enforce the provisions of this Agreement, the
prevailing party in such action shall be entitled to recover its costs and
reasonable attorneys' fees, whether such sums are expended with or without suit,
at trial or on appeal.
14.10 Notice. Any notice or other communication required or
permitted to be given hereunder shall be effective upon receipt. Such notices
may be sent (i) in the United States mail, postage prepaid and certified, (ii)
by express courier with receipt, (iii) by facsimile transmission, with a copy
subsequently delivered as in (i) or (ii) above. Any such notice shall be
addressed or transmitted as follows:
If to Pledgor:
Address:
Facsimile No.:
If to Secured Party:
Crown Energy Corporation Address:
215 South State Street, Suite 550
Salt Lake City, Utah 84111
Facsimile No.: (801) 537-5609
<PAGE>
IN WITNESS WHEREOF, Pledgor and the Secured Party have executed this
Agreement as of the day, month and year first above written.
Pledgor:
Richard S. Rawdin
Secured Party:
Crown Energy Corporation
By: Jay Mealey
Its: President
Exhibit No. 10.17
ASSIGNMENT
----------
Pursuant to Section 3.3 of that certain Operating Agreement (the
"Operating Agreement") for Crown Asphalt Ridge, L.L.C., a Utah limited liability
company (the "Company"), Crown Asphalt Corporation, a Utah corporation ("Crown")
hereby grants, conveys, assigns, and transfers to the Company all of its
interests in those certain properties (the "Properties") described on Exhibit
"A", attached hereto and incorporated herein, to be held by the Company and
disposed of thereby pursuant to the terms of the Operating Agreement.
IN WITNESS, Crown has caused this Assignment to be executed by its duly
authorized officer, this 30th day of January of 1998.
CROWN ASPHALT
CORPORATION,
a Utah Corporation
By: Jay Mealey
Its:President
<PAGE>
STATE OF UTAH )
):SS
COUNTY OF SALT LAKE )
On this 30th day of January, 1998, personally appeared before me Jay
Mealey, and after being by me duly sworn did acknowledge that he is the
President of Crown Asphalt Corporation and that the foregoing instrument was
signed on behalf of said corporation by authority of its by-laws and said Jay
Mealey duly acknowledged to me that said corporation executed the same.
Notary Public
STEPHEN J. BURTON
7276 West Gettysburg Dr. Stephen J. Burton
Magna, Utah 84044 Notary Public
My Commission Expires Residing in Salt Lake City, Utah
November 3, 2001
State of Utah
My Commission Expires:
11/3/2001
Exhibit 10.18
ASSIGNMENT
Crown Asphalt Corporation (formerly Buena Ventura Resources
Corporation), does hereby assign, grant, convey and transfer to Crown Asphalt
Ridge, L.L.C., a Utah limited liability company, whose address is 215 South
State Street, Suite 550, Salt Lake City, Utah 84111, all of its right, title and
interest in and to the leases and lands described in Exhibit A, attached hereto
and made a part hereof, without reservation of any kind.
Executed this 30th day of January, 1998.
CROWN ASPHALT CORPORATION
a Utah Corporation
Jay Mealey
President
STATE OF UTAH )
):ss
COUNTY OF SALT LAKE )
On this 30th day of January, 1998, personally appeared before me Jay
Mealey, and after being duly sworn did acknowledge that he is the President of
Crown Asphalt Corporation and that said instrument was signed on behalf of said
corporation by authority of its by-laws and said Jay Mealey duly acknowledged to
me that said corporation executed same.
Notary Public
STEPHEN J. BURTON
7276 West Gettysburg Dr. Stephen J. Burton
Magna, Utah 84044 Notary Public
My Commission Expires Residing in Salt Lake City, Utah
November 3, 2001
State of Utah
My Commission Expires:
11/3/2001
Exhibit 10.19
ASPHALT RIDGE PROJECT
OPERATING AND MANAGEMENT AGREEMENT
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS .............................................................................................. 1
AGREEMENT.............................................................................................. 1
1. Definitions.......................................................................... 1
2. Engagement of Crown Asphalt as the Operator; Representations and
Warranties........................................................................... 6
2.1 Engagement of the Operator.................................................. 6
2.2 Ownership and Custody of Company Assets..................................... 6
2.3 Representations and Warranties.............................................. 7
3. Responsibilities of the Company...................................................... 7
4. Authority of the Operator............................................................ 8
4.1 Operation of Project........................................................ 8
4.2 No Assumption of Obligations Outside Authority. ........................... 9
4.3 Other Authority. .......................................................... 9
5. Duties of the Operator............................................................... 9
5.1 Presentation of Annual Operating Plan....................................... 9
5.2 Conduct of Operations....................................................... 9
5.3 Other Mineral Properties.................................................... 9
5.4 Specific Powers and Duties of the Operator.................................. 10
5.5 Books and Records........................................................... 12
5.6 Audits...................................................................... 12
6. Reports.............................................................................. 13
6.1 Reports..................................................................... 13
6.2 Results of Operations....................................................... 13
6.3 Access to Records........................................................... 13
6.4 Inspection of Property...................................................... 14
7. Standard of Care..................................................................... 14
8. Company Liability for Costs; Indemnification of the Operator......................... 14
8.1 Reimbursement............................................................... 14
8.2 Indemnification............................................................. 14
9. Compensation of the Operator......................................................... 14
9.1 Reimbursement of Costs...................................................... 14
9.2 Management Fee.............................................................. 16
<PAGE>
10. Presentation of Annual Operating Budget.............................................. 16
10.1 Scope of Annual Operating Budget............................................ 16
10.2 Content of Annual Operating Plan. .......................................... 16
10.3 Amendments and Supplements.................................................. 17
10.4 Approval by Management Committee............................................ 17
11. Performance of Approved Annual Operating Plan........................................ 17
11.1 Conformance with Annual Operating Plan...................................... 17
11.2 Overruns.................................................................... 17
11.3 Emergencies................................................................. 17
12. Activities During Deadlock........................................................... 18
13. Accounts and Settlements............................................................. 18
13.1 Monthly. ................................................................... 18
13.2 Billings for Cash Requirements. ............................................ 18
14. Sale of Products..................................................................... 18
15. Term of Agreement.................................................................... 18
16. Force Majeure........................................................................ 19
17. Default.............................................................................. 19
17.1 Failure to Perform.......................................................... 19
17.2 Negotiation of Disputes..................................................... 19
17.3 Responsibility for Default.................................................. 19
17.4 Measure of Compensation..................................................... 19
18. Successors and Assigns............................................................... 20
19. Removal or Resignation of the Operator............................................... 20
19.1 Removal of the Operator..................................................... 20
19.2 Resignation; Deemed Offer to Resign......................................... 20
19.3 Continuity of Operations.................................................... 21
19.4 Replacement of Operator on Economic Grounds................................. 21
19.5 Sale of MCNIC's Interest; Reduced Crown Interest............................ 22
20. Arbitration.......................................................................... 22
20.1 Submission to Arbitration................................................... 22
20.2 Initiation of Arbitration and Selection of Arbitrators...................... 22
20.3 Arbitration Procedures...................................................... 23
20.4 Enforcement................................................................. 23
20.5 Fees and Costs.............................................................. 23
21. Notice; Representatives.............................................................. 23
<PAGE>
21.1 Representatives............................................................. 23
21.2 Notices..................................................................... 23
22. Confidentiality...................................................................... 25
23. General Provisions................................................................... 25
23.1 Section Headings. .......................................................... 25
23.2 Severability................................................................ 25
23.3 Governing Law. ............................................................. 25
23.4 Entire Agreement; Amendments. .............................................. 25
23.5 No Partnership. ............................................................ 25
23.6 Waiver...................................................................... 26
</TABLE>
List of Exhibits
----------------
EXHIBIT A DESCRIPTION OF ASPHALT RIDGE PROPERTY
EXHIBIT B FIRST ANNUAL OPERATING PLAN
SCHEDULE I ACCOUNTING PROCEDURES
<PAGE>
ASPHALT RIDGE
OPERATING AND MANAGEMENT AGREEMENT
THIS OPERATING AND MANAGEMENT AGREEMENT (this "Agreement"), dated as of
August 1, 1997, is between CROWN ASPHALT RIDGE L.L.C., a Utah limited liability
company (the "Company"), and CROWN ASPHALT CORPORATION, a Utah corporation
("Crown Asphalt" or, when acting as such, the "Operator").
RECITALS
A. The Company has been organized by its sole members, Crown Asphalt
and MCNIC Pipeline and Processing Company, a Michigan corporation ("MCNIC"), for
the purpose of developing, mining, processing, and marketing "Products" (as
defined in Section 1 of this Agreement) contained in designated tar sands
deposits located near Vernal, Utah within the Properties, (as defined in Section
1 of this Agreement).
B. Crown Asphalt has substantial experience and expertise in exploring
for, and equipping, mining, processing, and operating tar sands properties for
the purpose of recovering Products therefrom, and Crown Asphalt has access to
the information, knowledge, experience, and proven technical capability and
other resources to undertake the personal services required for the management
of the "Project," as defined in Section 1 of this Agreement.
C. The Company and Crown Asphalt desire to enter into this Agreement to
allow Crown Asphalt to act as the Operator of the Project in accordance with and
subject to the terms and provisions of this Agreement.
AGREEMENT
In consideration of the mutual benefits to be obtained hereby and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions. For purposes of this Agreement and all Exhibits
and Schedules attached to this Agreement, the following terms have the meanings
set forth below:
"AAA" means the American Arbitration Association.
"Accounting Procedures" means the Accounting Procedures attached as
Schedule I to this Agreement.
"Affiliate" of a party means (a) any Person or entity directly or
indirectly owning, controlling, or holding with power to vote 50% or more of the
<PAGE>
outstanding voting securities, membership interests, or partnership interests of
the party; (b) any entity 50% or more of whose outstanding voting securities,
membership interests, or partnership interests are directly or indirectly owned,
controlled, or held with power to vote by the party or a Person or group
described in (a); and (c) any officer, director, member, manager, or partner of
the party or any Person described in subsections (a) or (b) of this paragraph.
For purposes of the preceding sentence, "control" means possession, directly or
indirectly, of the power to direct or cause direction of management and policies
through ownership of voting securities, contract, voting trust, or otherwise.
Affiliates of Crown Asphalt include Crown Parent, and Gavilan Petroleum, Inc., a
Utah corporation.
"Agreement" means this Asphalt Ridge Project Operating and Management
Agreement, including all amendments and modifications, and all Exhibits and
Schedules attached to the Agreement, which are incorporated into the Agreement
by this reference.
"Annual Operating Plan" has the meaning set forth in Section 5.3(a) of
the LLC Operating Agreement.
"Assets" means the Properties, Products, Licenses, contract rights, and
all other moveable and immoveable, corporeal and incorporeal property of the
Company, including property presently owned by the Company or hereafter acquired
by the Company, whether owned or leased by the Company.
"Chairman" means the individual selected as the Chairman of the Company
pursuant to the LLC Operating Agreement.
"Confidential Information" means information concerning the properties,
operations, business, trade secrets, technical know-how, and other non-public
information and data of the other party and any technical information with
respect to the Project.
"Continuing Obligations" means obligations or responsibilities that are
reasonably expected to continue or arise after Operations on a particular area
of the Properties or Operation of a Plant have ceased or are suspended, such as
future monitoring, stabilization, or Environmental Compliance.
"Crown Parent" means Crown Energy Corporation, a Utah corporation.
"Detailed Engineering" means the engineering study conducted by the
Company concerning the items set forth in Schedule 1(b) of the LLC Operating
Agreement.
"Development" means all preparation (other than Exploration) for the
removal and recovery of Products, including verification of existing ore
reserves at the Properties, activities aimed at expansion of production from
presently known deposits, construction and installation of the Initial Plant,
and all related Environmental Compliance.
"Employees" shall have the meaning set forth in Section 9.1.
<PAGE>
"Encumbrances" means mortgages, deeds of trust, security interests,
pledges, liens, net profits interests, royalties or overriding royalty
interests, other payments out of production, or other burdens of any nature.
"Environmental Compliance" means actions performed during or after
Operations to comply with the requirements of all Environmental Laws, Licenses,
or other contractual commitments or obligations of the Company.
"Environmental Laws" means Laws aimed at Reclamation or restoration of
the Property; abatement of pollution; protection of the environment; protection
of flora, fauna, or wildlife, including endangered species; ensuring public
safety from environmental hazards; protection of cultural or historic resources;
management, storage, or control of hazardous materials or substances; releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances as wastes into the environment, including without
limitation, ambient air, surface water and groundwater, and all other Laws
relating to the manufacturing, processing, distribution, use, treatment,
storage, disposal, handling, or transport of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, including without
limitation CERCLA and RCRA.
"Environmental Liabilities" means any and all claims, actions, causes
of action, damages, losses, liabilities, obligations, penalties, judgments,
amounts paid in settlement, assessments, costs, disbursements, or expenses
(including without limitation attorneys' fees and costs, experts' fees and
costs, and consultants' fees and costs) of any kind or of any nature whatsoever
that are asserted against any Person, by any Person or entity alleging liability
(including without limitation liability for study, testing, or investigatory
costs, cleanup costs, response costs, removal costs, remediation costs, natural
resource damages, property damages, business losses, personal injuries,
penalties, or fines) arising out of, based on, or resulting from (i) the
presence, release, threatened release, discharge, or emission into the
environment of any hazardous materials or substances existing or arising on,
beneath, or above the Property or emanating or migrating or threatening to
emanate or migrate from the Property to off-site properties, (ii) physical
disturbance of the environment, or (iii) the violation or alleged violation of
any Environmental Laws.
"Expansion or Modification" means, with respect to the Initial Plant
only, (i) a material increase in mining or production capacity; (ii) a material
change in the process used to produce Products; (iii) a material change in waste
or tailings disposal methods; or (iv) a material change in Environmental
Compliance. An increase or change is "material" if it is anticipated to cost
more than 10% of the original capital costs attributable to the Development of
the mining or production capacity, recovery process, or waste or tailings
disposal methods relating to the Initial Plant.
"Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality, or commercial value of new deposits of
Products, including airborne surveys, sampling, geologic surveys, geophysical
surveys, geochemical testing, surface and underground drilling and workings, and
other methods, and all related Environmental Compliance.
<PAGE>
"Governmental Fees" means all location fees, mining claim rental fees,
mining claim maintenance payments, and similar payments required by Law to
locate or hold unpatented mining claims.
"Initial Development Schedule" means a detailed schedule for the
Project including a schedule and budget for technical visits and reviews,
Exploration, Feasibility Studies, testing necessary to support environmental
impact analyses, environmental baseline studies, and arranging for timely
accounting, communications, computer, and other systems necessary to support the
Development scheduling for the Project.
"Initial Plant" means the Plant to be constructed by the Company in
accordance with the LLC Operating Agreement.
"Law" or "Laws" means all applicable federal, state, and local Laws
(statutory or common), rules, ordinances, regulations, grants, concessions,
franchises, licenses, orders, directives, judgments, decrees, and other
governmental restrictions, including permits and other similar requirements,
whether legislative, municipal, administrative, or judicial in nature.
"Leased Equipment" shall mean the mining equipment identified on
Schedule 3.3(a)(i) to the LLC Operating Agreement.
"Licenses" means all licenses, leases, permits, certificates,
agreements, and other documents or contracts necessary for the Company to carry
out the full scope of its business activity with respect to the Properties,
including all licenses, leases, and permits from competent governmental or
regulatory authorities and third parties granting the Company the right to
prospect for, appraise discovered deposits of, and mine ores containing
Products, and to produce Products therefrom. As the context requires, "Licenses"
shall mean all such licenses, leases, permits, agreements, and other documents
necessary to enable the Company to carry out all Exploration, Development, and
Mining contemplated in the first Annual Operating Plan, or for any subsequent
Exploration, Development, and Mining Program approved by the Management
Committee for other portions of the Properties or other properties that are
acquired by the Company.
"LLC Operating Agreement" means the Operating Agreement for Crown
Asphalt Ridge L.L.C. of even date with this Agreement.
"Management Committee" means the Management Committee of the Company
established pursuant to the LLC Operating Agreement.
"Marketing Plan" means a plan approved by the Management Committee for
the marketing of Products and shall address, among other things, the projected
market and prices for each Product, potential purchasers and terms of
anticipated contracts for the sale of Products, and potential new markets.
<PAGE>
"Mining" means the mining, extracting, producing, beneficiating,
handling, refining, or other processing of Products, as well as the removal of
overburden from and the reclamation of the Properties.
"Operations" means the activities and operations carried out by or on
behalf of the Company pursuant to the terms of this Agreement.
"Operations Account" means the account maintained in accordance with
this Agreement showing the charges and credits incurred or obtained by the
Operator that are chargeable or credited to the Company.
"Operator" means Crown Asphalt and any successor to Crown Asphalt
authorized by the Management Committee having the responsibilities of the
Operator pursuant to this Agreement.
"Person" means a natural person, corporation, joint venture,
partnership, limited partnership, limited liability company, trust, estate,
business trust, association, governmental authority, or any other entity.
"Permitted Investments" has the meaning set forth in Section 5.4(d).
"Plant" means a facility or facilities for the handling, processing,
separation, flotation, refining, or other beneficiation of Products.
"Prime Rate" means the annual rate of interest that equals the floating
commercial rate as published in the "Money Rates" section of the Wall Street
Journal from time to time, adjusted in each case as of the banking day in which
a change in the Prime Rate occurs; provided, however, that if such rate is no
longer published in the Wall Street Journal, then "Prime Rate" shall mean an
annual rate of interest that equals the floating commercial loan rate of
Citibank, N.A., or its successor, announced from time to time as its "base
rate," adjusted in each case as of the banking day in which a change in the base
rate occurs.
"Products" means all tar sands, hydrocarbons, bitumen, asphaltum and
minerals and mineral resources produced from the Properties, and all products
produced therefrom by or at the Initial Plant, including without limitation
asphalt, performance grade asphalt, synthetic crude oil, and diesel fuel.
"Project" means Operations associated with and directed toward
operating and improving existing facilities, constructing and operating the
Initial Plant, and exploring for, developing, and marketing commercially
marketable Products from mines on the Properties, under a License and other
rights granted by appropriate governmental agencies or third parties covering
the Properties and the existing workings and all developed and undeveloped
Products within the Properties and other properties that may be acquired by the
Company and made subject to this Agreement.
<PAGE>
"Properties" means those interests in real property and Water Rights
described in Exhibit A.
"Reclamation" means actions performed during or after Operations to
shape, stabilize, revegetate, or otherwise treat the land disturbed by
Operations in order to return it to a safe, stable condition consistent with the
establishment of a productive post-mining use of the land and the abandonment of
facilities in a manner which protects the public's safety, and is in accordance
with Laws. Reclamation shall be conducted using sound, economically, and
technically practical environmental practices that are appropriate for the
existing and anticipated Programs pursuant to which Operations are conducted,
and that are consistent with the applicable reclamation Laws of Utah or the
United States of America, whichever may be applicable.
"Reclamation and Mine Closing Reserve" is defined in Section 10.2(d) of
this Agreement.
"Subsequent Plants" means two Plants that may be constructed by the
Members after completion of the Initial Plant. The Subsequent Plants shall not
be owned or held by the Company but shall be held in separate limited liability
companies owned by the parties as described in Article VII of the LLC Operating
Agreement.
"Water Rights" means water and water rights and water permits, together
with all applications for water rights or applications or permits for the use,
transfer, or change of water rights, ditch and ditch rights, well and well
rights, reservoir and reservoir rights, and stock or interests in irrigation or
ditch companies appurtenant to the Properties, and all other rights to water for
use at or in connection with the Properties or the improvements thereon, or the
Mining of Products on or in the Properties that are now owned or hereafter
acquired by the Company and made subject to this Agreement.
All capitalized terms not defined herein have the meanings ascribed to
them in the LLC Operating Agreement.
<PAGE>
2. Engagement of Crown Asphalt as the Operator; Representations
and Warranties.
2.1 Engagement of the Operator. The Company hereby engages
Crown Asphalt to act as an independent contractor to (i) manage, supervise, and
conduct the Operations of the Company on behalf of the Company in accordance
with the terms of this Agreement, (ii) carry out the Annual Operating Plan
adopted and approved by the Management Committee, and (iii) implement the
decisions made and instructions given from time to time by the Management
Committee, all as provided and subject to the restrictions and limitations set
forth herein. Crown Asphalt hereby accepts such engagement and responsibilities
and agrees that it shall perform the obligations and duties described herein as
an independent contractor in accordance with the authority granted to the
Operator herein and the terms and conditions of this Agreement. Crown Asphalt
may perform its duties as the Operator directly or through Crown Parent, the
parent company of Crown Asphalt, or other Affiliates of Crown Asphalt, but Crown
Asphalt shall remain responsible for performing its obligations hereunder.
2.2 Ownership and Custody of Company Assets.
(a) All property, real and personal (excluding
the Crown Intellectual Property), held, developed, constructed, or acquired by
or on behalf of the Company pursuant to this Agreement or the LLC Operating
Agreement shall be owned by the Company, and the Operator shall not have any
ownership, title, or interest therein except to the extent that the Operator has
an interest as a Member under the LLC Operating Agreement. All equipment,
(including the Company's interest as lessee under equipment leases) buildings,
improvements, Products, properties, contract rights, Licenses, and other things
acquired by the Operator for the Company shall be Assets of the Company
irrespective of whether the Operator or the Company actually holds title.
(b) The Operator shall have possession, custody,
and control of the Assets for the use and benefit of the Company in accordance
with the terms of this Agreement.
(c) Except as permitted by this Agreement or
unless authorized by the Management Committee or by an approved Annual Operating
Plan, the Operator shall not mortgage, pledge, charge, encumber, create any lien
upon or trust in, lease, sublease, or otherwise dispose of any Assets, the
Project or any other real or personal property whatsoever or any contractual or
other rights in which any Member or the Company has an interest, or acquire or
contract to acquire any property for any Member or the Company under any
conditional sales agreement or other title retention agreement or any property
which is subject to any Encumbrance (other than any charge permitted by the LLC
Operating Agreement) at the time of acquisition thereof; and the Operator shall
take prompt action within the limits of available funds in the Operations
Account to remove any Encumbrance arising or existing by operation of Law on or
over any such right or property of any Member or the Company.
<PAGE>
2.3 Representations and Warranties. Each of the parties hereby
represents and warrants to the other that: (a) in the case of Crown Asphalt, it
is a corporation validly existing under the Laws of Utah and is authorized to
transact business in Utah, and, in the case of the Company, it is a limited
liability company formed under the Laws of Utah and is authorized to transact
business in Utah; (b) it is duly authorized to execute this Agreement and to
carry out all its duties and obligations hereunder; (c) the execution and
delivery of this Agreement will not violate or conflict with any provision of
the Laws of Utah or of any organizational instrument governing or relating to
the party; and (d) assuming due execution of this Agreement by all parties, this
Agreement constitutes the legal, valid, and binding obligations of each party,
enforceable against that party in accordance with its terms.
3. Responsibilities of the Company. The Company shall:
(a) Obtain and maintain all Licenses from competent
governmental authorities or third parties necessary for the Operator to carry
out its duties and responsibilities to plan, construct, and operate the Project;
(b) Obtain and maintain Licenses to explore,
appraise, develop, and mine additional properties, if any, within the Properties
for the Company that are to be operated by the Operator;
(c) Acquire surface use and other rights that will
allow the Operator to use surrounding lands to conduct prospecting, appraisals,
exploration, and extraction of deposits of Products and transportation
operations in connection with Licenses obtained by the Company, including
Licenses related to the Properties and other prospect areas; and
(d) Timely review proposed Annual Operating Plans
and, in the Company's discretion, approve and adopt Annual Operating Plans to
allow the Operator to perform its obligations and duties under this Agreement.
The obligations of the Operator shall be excused to the extent that its ability
to perform its obligations are impaired by the Company's failure to perform the
above described actions; provided that the Company shall have no liability for
failure to perform such actions.
4. Authority of the Operator.
4.1 Operation of Project. The Project will consist of the
operation of the Initial Plant designed to recover Products from the Properties.
The Initial Plant will be designed and constructed pursuant to arrangements to
be provided for in other agreements with third parties. To the extent requested
by the Company, the Operator shall cooperate with such activities to facilitate
the Operator's timely and efficient assumption of the operation of the Project
following the completion of the Initial Plant. In the operation of the Project
and the performance of its duties and obligations hereunder, the Operator shall
<PAGE>
act as an independent contractor in accordance with its best judgment. The
Operator shall obtain the approval of the Company prior to undertaking any of
the following:
(a) any Expansion or Modification that increases the
capacity of the Project by more than 500 barrels of Product per year;
(b) any Expansion or Modification to the Project or
any group of related capital additions or improvements to the Project estimated
to cost more than $10,000, including without limitation the acquisition of
transportation facilities of a capital nature;
(c) the surrender or abandonment of any mineral or
surface License, Water Right or other interest in land constituting a part of
the Assets held in the name of the Operator;
(d) the sale, assignment, or transfer of all or part
of the Assets, provided that the Operator may dispose of any item or group of
related items of tangible personal property included in the Assets for the
account of the Company at fair market value if in the opinion of the Operator
the property is no longer useful in the operation of the Project and its
original acquisition cost did not exceed $10,000; and upon such disposition,
such personal property shall be deemed excluded from the Assets;
(e) engaging in hedging transactions or investment
in other than Permitted Investments; or
(f) retaining or entering into contracts with, or
engaging as an agent or independent contractor under this Agreement, any
Affiliate of the Operator or Person affiliated with any Member; provided
further, that if the Operator engages any of its Affiliates to provide services
hereunder as provided above, it shall do so on terms comparable to and
competitive with those available to the Operator from others dealing at
arm's-length or terms that are approved unanimously by the Management Committee;
(g) retaining any consulting firms, engineering
firms, accounting firms, and law firms to assist it in carrying out its
obligations hereunder; or
(h) subcontracting for any labor or operational
services if the aggregate amount payable, or reasonably estimated to be payable,
under all such subcontracts is greater than $10,000 for any 12-month period.
4.2 No Assumption of Obligations Outside Authority. The
Operator has no authority to act for or to assume any obligation or liability on
behalf of the Company except for such authority as is expressly conferred on the
Operator by this Agreement or by the Company pursuant to this Agreement or the
Annual Operating Plan; and the Operator shall indemnify and hold the Company,
the Members, their respective successors and assigns, and their respective
directors, officers, employees, and agents harmless from and against any and all
losses, claims, damages, and liabilities arising out of any unauthorized act or
<PAGE>
assumption of any obligation or liability by the Operator on behalf of the
Company in bad faith or in circumstances constituting willful misconduct by the
Operator.
4.3 Other Authority. The Operator shall have authority to
undertake all other activities reasonably necessary to fulfill its duties
pursuant to Section 5.
5. Duties of the Operator. The Operator shall perform all actions
reasonably necessary or advisable for the operation and maintenance of the
Project and the Assets including without limitation the following:
5.1 Presentation of Annual Operating Plan. In accordance with
Section 10 and this Section 5.1, the Operator will each year develop and present
to the Management Committee for approval a proposed Annual Operating Plan in
accordance with Section 5.3 of the LLC Operating Agreement for the Project
during the next succeeding calendar year. After approval by the Company of an
Annual Operating Plan in accordance with the LLC Operating Agreement, the
Operator will carry out the approved Annual Operating Plan, in cooperation with
the Management Committee and in accordance with the terms of this Agreement.
5.2 Conduct of Operations. Consistent with the Annual
Operating Plan approved by the Management Committee, the Operator shall:
(a) after completion of construction of the Project,
manage the operation of the Project for the production of Products; and
(b) market Products on behalf of the Company
pursuant to annual Marketing Plans approved by the Management Committee.
5.3 Other Mineral Properties. Consistent with an approved
Annual Operating Plan the Operator shall:
(a) evaluate other properties included in the Area
of Mutual Interest for possible acquisition by the Company and make
recommendations to the Management Committee for acquisition of properties that
the Operator believes have commercial mineral potential for Products or are
necessary or convenient for Mining Products within the Properties; and
(b) if requested by the Company, manage Exploration
in the area of the Properties or of other properties acquired by the Company
within the Area of Mutual Interest or the Project Area, using personnel,
equipment, and subcontractors assembled by the Operator.
5.4 Specific Powers and Duties of the Operator. The Operator
will have the following specific powers, obligations, and duties, which it will
perform as would a prudent operator in accordance with good mining and
processing industry practices and in accordance with the approved Annual
Operating Plan:
<PAGE>
(a) The Operator shall implement the decisions of
the Management Committee, and shall make all expenditures necessary to carry out
approved Annual Operating Plans within the limits set forth therein. The
Operator shall promptly advise the Management Committee if it lacks sufficient
funds, or anticipates that it will lack sufficient funds, to carry out its
responsibilities under this Agreement.
(b) In consultation with the Chairman, the Operator
shall develop an annual Marketing Plan for the marketing and sales of Products
to enable the Chairman to submit the Marketing Plan to the Management Committee
for approval at least 90 days before the beginning of the year to which the plan
relates.
(c) The Operator shall assure the custody,
maintenance, operation, and protection of the Assets and any other property of
any Member in the Operator's possession.
(d) The Operator shall deposit and prudently invest
in Investments pre-approved by the Management Committee ("Permitted
Investments") all funds it receives from or on behalf of the Company in excess
of funds maintained in the Operations Account for current operations; and
disburse such funds as are necessary to carry out Operations, including payment
of all sums payable by the Operator for: its employment of employees, agents,
representatives, engineers, advisers, independent contractors, and other
personnel; its acquisition of services, supplies, utilities, materials,
equipment, and other property necessary or appropriate in connection therewith
as provided for in the Annual Operating Plan; all fees payable to the Operator
under this Agreement; and remittance to the Company of the proceeds from the
sale of Products as provided in this Agreement.
(e) The Operator shall maintain full and accurate
accounts of all business transactions entered into pursuant to this Agreement.
(f) The Operator may sell or dispose of any tools,
equipment, supplies, or facilities included in the Project that wear out or are
no longer useful; provided, however, that in any year the Operator may not sell
or dispose of such tools, equipment, supplies, and facilities whose original
acquisition costs exceed $10,000 in the aggregate, without the prior approval of
the Management Committee.
(g) The Operator shall oversee the preparation and
evaluation of proposals for the further Development of the Project to increase
the efficiency or capacity of the Project by providing facilities for the
production of additional Products and for the conduct of such geological,
geophysical and engineering as the Management Committee may deem necessary or
desirable in connection therewith.
(h) The Operator shall explore for Products on the
Properties, with a view to maintaining adequate proven reserves of Products to
meet anticipated requirements for the Mining and processing of Products within
the Properties.
<PAGE>
(i) Except to the extent limited by this Agreement,
the Operator shall (i) purchase or otherwise acquire all material, supplies,
equipment, vehicles, fuel, tools, supplies, power, water, utility, and
transportation services required for Operations, and such purchases or
acquisitions shall be made on the best terms reasonably available to the
Operator, taking into account all the circumstances; (ii) procure all solvents
required for solvent extraction Operations on the Project within the Properties;
and (iii) use its reasonable best efforts to obtain such customary warranties
and guarantees as are available in connection with such purchases and
acquisitions.
(j) Except to the extent limited by this Agreement,
the Operator shall (i) make or arrange for all payments required by Licenses,
Encumbrances, contracts, and other agreements relating to the Company and its
Operations; (ii) pay all Governmental Fees required as the result of the
inclusion of unpatented mining claims as part of the Assets; and (iii) do all
other acts reasonably necessary to maintain the Licenses and other Assets and
carry out the obligations of the Company. If authorized by the Management
Committee, the Operator shall have the right to contest in the courts, by
arbitration, or otherwise, the validity or amount of any taxes or assessments if
the Operator deems them to be unlawful, unjust, unequal, or excessive, or to
undertake such other steps or proceedings as the Operator may deem reasonably
necessary to secure a cancellation, reduction, readjustment, or equalization
thereof before the Operator shall be required to pay them, and the Operator
shall use reasonable efforts to prevent any Assets from being lost as a result
of the nonpayment of any taxes, assessments, or similar charges.
(k) The Operator shall prepare and file reports or
returns (except returns with respect to taxes based upon or measured by income)
required by Law, by the LLC Operating Agreement, or by the Licenses, or any
other agreements to be filed in connection with the Operations or the Assets.
(l) The Operator shall: (i) apply for and obtain all
necessary Licenses in the name of the Company; (ii) maintain all necessary
Licenses in accordance with their terms and all applicable Laws; (iii) conduct
all Operations in compliance with applicable Laws; (iv) promptly notify the
Chairman and the Management Committee of any allegations of substantial
violation of Laws; and (v) prepare and file all reports or notices required for
Operations of the Company. All reasonable costs incurred by the Operator in
contesting and complying with any asserted violations of applicable Laws,
including without limitation any fines or penalties, shall be charged to the
Operations Account, except to the extent that any such costs result from the
gross negligence or willful misconduct of the Operator, its Affiliates or
subcontractors, or any of their employees or agents.
(m) The Operator shall prosecute and defend, but
shall not initiate without consent of the Management Committee, all litigation
or administrative proceedings arising out of Operations and shall keep the
Company advised regarding the status thereof; provided that the Company may
elect to participate in or assume control of any such proceeding. Prior
Management Committee approval shall be required for any settlement involving
payments, commitments, or obligations in excess of $10,000 in cash or value.
<PAGE>
(n) The Operator shall secure and maintain, for the
benefit of the Company and the Operator in connection with the Operations and
the Assets, adequate and reasonable insurance with coverage, limits, and
deductible amounts as approved by the Management Committee if available at
reasonable cost, including the covering of risks of personal injury to or death
of employees or others and risk of fire. The Operator shall obtain and furnish
to the Company certificates of insurance obligating the insurers to notify the
Operator and the Company in writing 30 days prior to any cancellation or
modification thereof, and shall, with the approval of the Management Committee,
adjust losses and claims pertaining to or arising out of such insurance.
(o) The Operator shall dispose of Assets, whether by
sale, abandonment, surrender, or transfer in the ordinary course of business;
provided, however, that without prior authorization from the Management
Committee or the Chairman, the Operator shall not dispose of assets in any one
transaction having a value in excess of $10,000.
(p) The Operator will furnish, or, subject to the
approval of the Company pursuant to Section 4.1, subcontract for, sufficient
labor forces to assure the performance of its obligations hereunder. The
Operator shall obtain such management and technical personnel, including without
limitation engineers, financial planning, accounting and marketing personnel,
superintendents, advisers, experts and employees of the Operator, as it
reasonably deems necessary or advisable.
(q) The Operator shall procure from outside experts
and consultants special engineering, design, legal, accounting, advertising,
public relations, and other professional and advisory services and shall
supervise such independent contractors as the Operator may retain.
(r) The Operator shall review all invoices for
approval, pay all approved invoices, and keep and maintain all required
accounting and financial records pursuant to the Accounting Procedures and in
accordance with customary accounting practices in the U.S. mining and mineral
processing industry. In addition, the Operator shall provide assistance to the
Chairman in the preparation and maintenance of financial and tax accounts of the
Company.
(s) The Operator shall take such actions in an
emergency affecting safety or life or the conduct of Operations or the
preservation of Assets and any other property and assets of the Members in the
Operator's possession without special instructions or authorizations as the
Operator may deem necessary or advisable to prevent loss, injury, or damage or
to maintain or restore Operations or the Assets.
(t) The Operator shall undertake all other
activities reasonably necessary to fulfill the foregoing.
5.5 Books and Records. The Operator shall properly maintain
adequate books and records relating to its activities hereunder in accordance
<PAGE>
with generally accepted accounting principles consistently applied and the
Accounting Procedures attached as Schedule I. All statements of transactions and
accounts rendered by the Operator to the Company under this Agreement shall be
rendered in United States Dollars.
5.6 Audits. The books and records maintained pursuant to
Section 5.5 shall be open to the inspection by the Company and the Members at
all reasonable times and shall be audited as of the end of each calendar year
within 60 days after the end of the calendar year by a "Big Six" firm of public
accountants selected by Operator as may be selected by the Management Committee;
provided, however, that if the Management Committee adopts an accounting period
other than the calendar year, audits shall be performed after the end of each
such period, rather than at the end of the calendar year. All written exceptions
to and claims against the Operator for discrepancies disclosed by any such audit
shall be made not more than three months after receipt of the audit report by
the Members. Failure to make any exception or claim within the three-month
period shall mean the audit is correct and binding upon the Company and the
Operator.
6. Reports.
6.1 Reports. The Operator shall use reasonable efforts to keep
the Management Committee advised of all material aspects of the Operations by
submitting in writing to the Management Committee:
(a) Monthly progress reports that include statements
of expenditures and comparisons of expenditures to the adopted Annual Operating
Plan;
(b) Periodic summaries of data acquired;
(c) Copies of reports concerning Operations;
(d) A detailed report within 90 days after
completion of each Annual Operating Plan, which shall include comparisons
between actual and Budgeted expenditures and comparisons between the objectives
and results of Programs;
(e) As soon as practicable (and not later than 90
days after the close of each calendar year), such additional information or data
concerning any Member that it requires in order to prepare its tax returns; and
(f) Such other reports as the Management Committee
may reasonably request.
6.2 Results of Operations. Within two days after the end of
each calendar month, the Operator shall furnish to each Member a progress report
summarizing the results of Operations of the Project during the preceding month
as compared with the results of Operations of the Project for the month as
forecast in the Annual Operating Plan approved and adopted by the Management
Committee for that month.
<PAGE>
6.3 Access to Records. The Operator shall permit each Member
through its duly authorized representatives at all reasonable times to examine
and make copies of all records, reports, accounts, plans, maps, logs, surveys,
assays, analyses, production reports, correspondence, other documents, and all
interpretations thereof under the control of the Operator relating to any of the
Assets or the Operations. Each Member shall have the right to authorize, and the
Operator shall permit, any lending institution to which the Member is or expects
to become indebted (either by employees of the lending institution or
independent accountants employed by it), at all reasonable times, to examine all
such information, as well as the books and records maintained by the Operator
pursuant to Section 5.5 and to discuss the finances and accounts of the Operator
relating to Operations with officers and representatives of the Operator or with
its public accountants.
6.4 Inspection of Property. The Operator shall permit each
Member through its duly authorized representatives, and any lending institution
(including any employees or accountants designated by it) authorized by a Member
that is or expects to become indebted to the lending institution, at all
reasonable times, to have access to the Properties, the facilities located
thereon, and any other Project facility and to consult with employees of the
Operator or any independent contractor and its employees that have been engaged
by the Operator concerning the Operations and the performance of its services by
the Operator under this Agreement.
7. Standard of Care. The Operator shall conduct all Operations in a
good, workmanlike, and commercially reasonable manner, in accordance with sound
mining, processing, and other applicable industry standards and practices
applicable in the area where the Operations are conducted, and in accordance
with the provisions of the Licenses. Notwithstanding the foregoing sentence, the
Operator shall not be liable to the Company for any act or omission resulting in
damage or loss except to the extent caused by or attributable to the Operator's
gross negligence or willful misconduct.
8. Company Liability for Costs; Indemnification of the Operator.
8.1 Reimbursement. The Company shall provide the Operator with
funds in advance or shall reimburse the Operator for any costs or liabilities
incurred by the Operator in carrying out its responsibilities under this
Agreement, including without limitation expenditures made in accordance with an
approved Annual Operating Plan, expenditures otherwise authorized or permitted
under this Agreement, and other expenditures authorized by the Company.
8.2 Indemnification. The Company agrees to indemnify and to
hold harmless the Operator and its Affiliates against any claim of or liability
to any third Person resulting from any act or omission of the Operator, its
agents or employees, in conducting Operations pursuant to this Agreement in good
faith to the extent that the claim or liability is not covered by insurance, and
except to the extent that the claim or liability results from the gross
negligence or willful misconduct of the Operator, its Affiliates, its agents, or
its employees, unless the act or omission of the Operator, its Affiliates,
agents, or employees, is done or omitted at the express instruction, or with the
express concurrence of, the Company.
<PAGE>
9. Compensation of the Operator.
9.1 Reimbursement of Costs. Subject to Section 11.1, the
Company shall reimburse the Operator for all reasonable direct costs actually
paid in the performance of this Agreement by the Operator, including without
limitation the costs described in the Accounting Procedures, and the following:
(a) compensation, including all remuneration in
whatever form, for personal services rendered by employees of the Operator or of
any Person that is an Affiliate of the Operator who are employed full time in
connection with and dedicated to the performance of this Agreement
("Employees"), including but not limited to reasonable salaries, wages, premiums
for overtime and extra pay shifts, bonuses, incentives, suggestion and safety
awards, social security, old age benefit taxes, employee insurance,
contributions to pension and annuity plans and to employment and trade union
plans or funds, superannuation funds, sick leave, long service leave, holiday
pay, severance pay, and other fringe benefits;
(b) travel, lodging, subsistence, and incidental
expenses of Employees incurred in the discharge of duties connected with the
performance of this Agreement;
(c) costs of materials, supplies, and services
required for the performance of this Agreement, including the costs of
inspections, storage, salvage, and other usual expenses incident to the
procurement and use thereof and costs of procurement of or arranging for
shipment of Products and preparation of shipping documents;
(d) rents, royalties, renewal fees, or payments on
or in lieu of production of Products when such payments are made by the Operator
for the account of the Company;
(e) Governmental Fees and taxes of every kind
(except taxes based upon or measured by the income of the Operator) levied,
assessed, or imposed upon or in connection with the Assets or the production of
Products or other operations of the Project, together with any interest or
penalties reasonably incurred in connection with contested payments thereof that
are paid by the Operator for the benefit of the Company;
(f) charges for utility services such as power, gas,
water, and communications, including telephone, facsimile, and radio, and the
cost and expense of installing or rendering any such services;
(g) costs incurred to replace or repair damage or
loss or to satisfy liabilities arising from acts of Employees not compensated
for by insurance or otherwise, unless due to the bad faith, gross negligence, or
willful misconduct of the Operator;
<PAGE>
(h) costs of transportation of Employees, materials,
equipment and supplies necessary for the operation of the Project;
(i) charges for legal, accounting, engineering, and
consulting services rendered by professionals who are not Employees reasonably
incurred in connection with the performance of this Agreement.
(j) premiums on insurance that the Operator is
required or permitted to carry under the terms of this Agreement;
(k) office expenses, including supplies, equipment,
or other expenses incident to office maintenance and operation;
(l) maintenance and repair expenses necessary or
appropriate to keep the Project in good condition and repair and in efficient
operating condition;
(m) costs and expenses incurred in connection with
the sale of Products, including without limitation promotional, advertising, and
other selling activity, pursuant to approved Marketing Plans;
(n) costs and expenses incurred in connection with
geological, geophysical, geochemical, airborne, Environmental Compliance, any
required environmental baseline studies, and engineering, undertaken by the
Operator relating to the Exploration, Development, and Mining of the Project,
including without limitation costs and expenses incurred in the Exploration and
proving of reserves in the Properties;
(o) except for actions brought against the Operator
by the Company in which the Operator is held liable by reason of its bad faith,
willful misconduct or gross negligence, litigation costs and expenses, including
attorneys' fees and expenses, and the amount of any judgments obtained against
the Operator or the Company (and any agreed settlement) insofar as they relate
to the Assets or the operation of the Project; and
(p) amounts payable to independent contractors or
subcontractors, consultants, consulting firms, engineering firms, contractors,
accounting firms, and law firms, retained by the Operator (subject to any prior
approvals of the Company required under this Agreement) to assist the Operator
in carrying out its obligations hereunder.
<PAGE>
9.2 Management Fee. The Company will pay the Operator a
monthly fee of $3,000 for managing the Operations in addition to such other
costs as provided for elsewhere in this Agreement.
10. Presentation of Annual Operating Budget.
10.1 Scope of Annual Operating Budget. An Annual Operating
Plan shall be for a period of one calendar year; however, upon approval by the
Management Committee, an Annual Operating Plan may be for a period longer than
one calendar year. The parties shall develop the first Annual Operating Plan
within a reasonable time period after the execution hereof. During the period
covered by an Annual Operating Plan, and at least 90 days prior to its
expiration, the Operator will submit to the Management Committee a proposed
Annual Operating Plan for the next succeeding period.
10.2 Content of Annual Operating Plan. Each Annual Operating
Plan proposed by the Operator will contain the following information:
(a) A narrative description of the Operations
proposed for the period covered by the proposed Annual Operating Plan.
(b) A separate breakdown of costs for the Project
and for activities pertaining to other areas within the Properties, if any.
(c) A detailed breakdown of costs by category for
each phase of Operations, in accordance with the Accounting Procedures. Proposed
expenditures will be shown on a monthly basis.
(d) Provision for payment into an interest-bearing
reserve account established by the Company (the "Reclamation and Mine Closure
Reserve") of a uniform charge per unit of production sufficient over the life of
the mine to pay the estimated total cost for Reclamation, abandonment, closure,
and long-term care and monitoring of the Project or any other mine developed
within the Properties by the Company, or if such fund is inadequate, payment of
such additional amounts as are required to perform Reclamation or to establish a
reserve fund sufficient to pay estimated Reclamation costs.
(e) A sum equaling 10% of all other expenditures in
the Annual Operating Plan (excluding the Reclamation and Mine Closure Reserve
and the Operator's management fee) as a reserve for contingencies.
(f) Provision for the Operator's fees pursuant to
Section 9.2.
(g) Other information required by Section 5.3(a) of
the LLC Operating Agreement.
<PAGE>
10.3 Amendments and Supplements. During the period covered by
an Annual Operating Plan, the Operator may propose amendments to the Annual
Operating Plan or a supplemental Annual Operating Plan.
10.4 Approval by Management Committee. Action on a proposed
Annual Operating Plan will be taken by the Management Committee as provided in
the LLC Operating Agreement. If the Management Committee does not approve a
proposed Annual Operating Plan, the Operator will, if feasible, in cooperation
with the Management Committee attempt to make changes that will enable the
Annual Operating Plan to be approved and adopted.
11. Performance of Approved Annual Operating Plan.
11.1 Conformance with Annual Operating Plan. Except as
otherwise provided herein or as otherwise authorized by the Company, the
Operator will conduct Operations, incur expenses, and purchase assets for the
Company only in accordance with Annual Operating Plans approved by the
Management Committee.
11.2 Overruns. Budget overruns of 10% or less may be made
without amendment to the existing Annual Operating Plan or prior approval of the
Company. If the Operator anticipates that an Annual Operating Plan overrun of
greater than 10% will occur and believes that additional expenditures are
warranted prior to the end of the approved Annual Operating Plan, the Operator
shall propose one or more amendments or supplements to the current Annual
Operating Plan for approval by the Management Committee. In calculating
expenditures in excess of an approved Annual Operating Plan, all expenditures
for the entire program covered by the Annual Operating Plan shall be considered
as a whole and compared to the whole of the expenditure reflected in the Annual
Operating Plan.
11.3 Emergencies. In case of emergency, the Operator may take
any reasonable action it deems necessary to protect life, health, safety, or
property, to protect the Assets, to comply with Laws, or to comply with Licenses
governing operation of the Properties. The Operator may make reasonable
expenditures for such emergencies. The Operator shall promptly notify the
Management Committee of the emergency, and the Company shall reimburse the
Operator for all reasonable resulting costs.
12. Activities During Deadlock. If the Management Committee for any
reason fails timely to adopt any Annual Operating Plan after the First Annual
Operating Plan or a Minimum Budget, the Operator shall have authority to
continue Operations sufficient to maintain the Assets, to comply with and
fulfill all the requirements of all Licenses, to fulfill existing contracts, to
comply with Laws, and, if production has commenced or Development of a mine has
proceeded to near completion when the deadlock occurs, to maintain or initiate
production levels consistent with the Annual Operating Plan that has previously
been approved by the Management Committee. The Company shall provide funding for
such Operations during deadlock and reimburse the Operator as provided in this
Agreement.
<PAGE>
13. Accounts and Settlements.
13.1 Monthly. Within two business days after the end of each
month, the Operator shall submit to the Management Committee a report of
estimated production of Products and estimated net income from the sale of
Products for that month. Within 30 days after the end of each month, the
Operator shall submit to the Management Committee a balance sheet as of the end
of that month and a statement of income and expenses for that month, a report of
production of Products for that month, and such additional information with
respect to the Operations for that month as the Company may request.
13.2 Billings for Cash Requirements. On the basis of the
approved Annual Operating Plan, the Operator shall submit to the Management
Committee prior to the last day of each month a billing for estimated cash
requirements for the next month to the extent that they are in excess of cash
remaining available from prior advances of cash made by the Company and from
sales of Products. Within 30 days after receipt of each billing, the Company
shall advance to the Operator the amount set forth in the billing. The Operator
shall maintain a cash balance approximately equal to anticipated disbursements
for the next 30 days, and the Operator shall promptly remit to the Company all
funds in excess of that amount. The Operator shall prudently invest all funds in
excess of immediate cash requirements for the benefit of the Project in
Permitted Investments.
14. Sale of Products. The Operator shall cause Products to be sold in
accordance with the terms and provisions of a Marketing Plan approved by the
Company or pursuant to such other direction of the Company to the Operator if no
such plan is in effect.
15. Term of Agreement. Unless sooner terminated as provided herein, the
term of this Agreement shall commence on the effective date of this Agreement
and shall expire two years after that date (the "Initial Term"), which term
shall be automatically extended for unlimited successive one year periods unless
it is terminated during the pendency of any such subsequent period by one party
furnishing the other with written notice, at least 90 days prior to the
expiration of the period, of an intent to terminate this agreement upon the
expiration of the period. It is expressly the intent of the parties hereto that
unless previously removed as the Operator pursuant to the terms of this
Agreement, the Operator shall act in a similar capacity and on similar terms as
are provided for herein with regard to each Subsequent Plant, Additional
Opportunity or AMI Opportunity described within the LLC Operating Agreement.
16. Force Majeure. Except for the obligation to make payments when due
hereunder, the obligations of the Company or the Operator shall be suspended to
the extent and for the period that performance is prevented by any cause,
whether foreseeable or unforeseeable, beyond its reasonable control ("Force
Majeure"), including without limitation labor disputes (however arising and
whether or not employee demands are reasonable or within the power of the party
to grant); acts of God; Laws, proclamations, instructions, or requests of any
government or governmental entity; judgments or orders of any court; inability
to obtain on reasonably acceptable terms, or unreasonable delays in obtaining,
any License or other authorization, including governmental approvals;
<PAGE>
curtailment or suspension of activities to remedy or avoid an actual or alleged,
present or prospective violation of federal, state, or local environmental
standards; acts of war or conditions arising out of or attributable to war,
whether declared or undeclared; riot, civil strife, insurrection, or rebellion;
fire, explosion, earthquake, storm, flood, sink holes, drought, or other adverse
weather condition; delay or failure by suppliers or transporters of materials,
parts, supplies, services, or equipment or by contractors' or subcontractors'
shortage of, or inability to obtain, labor, transportation, materials,
machinery, equipment, supplies, utilities, or services; accidents; breakdown of
equipment, machinery, or facilities; or any other cause, whether similar or
dissimilar to the foregoing. The performance of the party affected by Force
Majeure shall be suspended only for as long as the event of Force Majeure
continues, and the parties shall consult with each other and use their best
efforts to find alternative means of accomplishing such performance as satisfies
the requirements of this Agreement. Immediately upon cessation of the event of
Force Majeure, the party affected by Force Majeure shall notify the other party
in writing and shall take steps to recommence or continue the performance that
was suspended.
17. Default.
17.1 Failure to Perform. The failure of any party to perform
any of its obligations in this Agreement and the failure of that party to cure
the default within 14 days after the issuance of written notice thereof (or
initiate efforts to cure if the cure would extend beyond the foregoing period)
shall constitute a default by that party.
17.2 Negotiation of Disputes. The parties shall negotiate in
good faith to resolve amicably any disputed matters relating to alleged
defaults. In addition, the parties shall negotiate in good faith procedures to
be adopted to avoid ongoing defaults by any party.
17.3 Responsibility for Default. A defaulting party shall be
responsible to the non-defaulting party for all direct damages caused by its
default.
17.4 Measure of Compensation. The measure of compensation in
the event of a default by either party shall be limited to compensation for
actual losses incurred by the non-defaulting party, including without limitation
costs of obtaining alternate contractors to perform services, production
expenses, or property losses resulting directly from the failure or
non-performance of the defaulting party, but not lost profits.
<PAGE>
18. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns;
provided, however, that neither party shall transfer its rights or obligations
hereunder without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, either party
may assign its rights and delegate its duties hereunder to one of its Affiliates
without the prior consent of the other party. It shall not be unreasonable for
the Company to withhold its consent to an assignment by the Operator to its
non-Affiliated successor as a Member of the Company and, in such event, the
remaining Member in the Company in accordance with the LLC Operating Agreement
shall have the sole right to designate the successor to the Operator.
19. Removal or Resignation of the Operator.
19.1 Removal of the Operator. During the Initial Term of this
Agreement, the Operator may be removed only for "good cause" by the affirmative
vote of the Management Committee (after excluding the voting interest of the
Operator). For purposes hereof, "good cause" shall mean any of the following (a)
repeated negligence; (b) unremedied negligence; (c) willful misconduct; (d)
material breach of the standards of operation contained in Section 5; or (e)
material failure to perform its obligations under this Agreement. For purposes
hereof, "repeated negligence" shall occur if (i) the Operator is negligent in
performing its obligations under this Agreement; (ii) the Operator receives a
notice in writing from the Management Committee specifying that the Management
Committee has reasonably determined that the Operator has been negligent in the
performance of its duties as the Operator and the basis for such determination
by the Management Committee; and (iii) the Operator receives such written
notices more than three times in any six month period. For purposes hereof,
"unremedied negligence" shall occur if (i) the Operator is negligent in
performing its obligations under this Agreement; (ii) the Operator receives a
notice in writing from the Management Committee specifying that the Management
Committee has reasonably determined that the Operator has been negligent in the
performance of its duties as the Operator and the basis for such determination
by the Management Committee; and (iii) the Operator has not remedied, or
commenced diligent efforts to cure within such period, its negligence within
seven calendar days and continues to pursue such diligent efforts until such
matters are cured after its receipt of the Management Committee's notice.
19.2 Resignation; Deemed Offer to Resign. The Operator may
resign upon not less than 120 days' prior notice to the Company, in which case
the other Member in the Company may elect to become the new Operator by notice
to the resigning Operator within 30 days after receipt of the notice of
resignation. If any of the following shall occur, the Operator shall be deemed
to have resigned upon the occurrence of the event described in each of the
following subsections, with the successor Operator to be appointed by the other
Member at a subsequently called meeting of the Management Committee, at which
the Operator shall not be entitled to vote. The other Member of the Company may
appoint itself or a third party as the Operator. If a third party is appointed
as the Operator, the third party must execute an Operating and Management
<PAGE>
Agreement containing terms and conditions substantially similar to the terms set
forth herein, except that the third party operator may be removed at anytime,
with or without cause, by the Management Committee.
(a) The removal of the Operator for "good cause" as
defined within Section 19.1;
(b) A receiver, liquidator, assignee, custodian,
trustee, sequestrator, or similar official for a substantial part of the
Operator's assets is appointed and the appointment is neither made ineffective
nor discharged within 60 days after the making thereof.
(c) The Operator fails to pay or contest in good
faith its bills and business debts as they become due and such failure would
reasonably be expected to have a material adverse effect on (i) the condition
(financial or otherwise), business, assets or results of operations of the
Operator, or (ii) the ability of the Operator to perform its obligations under
this Agreement;
(d) The Operator commences a voluntary case under
any applicable bankruptcy, insolvency, or similar Law now or hereafter in
effect; or consents to, requests, or acquiesces in the entry of an order for
relief in an involuntary case under any such Law or to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator, or other similar official of any substantial part of its assets;
or makes a general assignment for the benefit of creditors; or takes corporate
or other action in furtherance of any of the foregoing;
(e) A judgment, decree, or order for relief is
entered against the Operator that materially affects its ability to serve as the
Operator, or materially affects a substantial part of its interest in the
Company or its other assets by a court of competent jurisdiction in an
involuntary case commenced under any applicable bankruptcy, insolvency, or other
similar Law of any jurisdiction now or hereafter in effect; or
(f) A successful challenge of the Operator, as
provided for in Section 19.4.
Under Subsections (b), (c), or (d) above, the appointment of a successor
Operator shall be deemed to pre-date the event causing the deemed resignation.
19.3 Continuity of Operations. In the event of its removal,
resignation, or deemed resignation, the Operator will cooperate in transferring
files, accounts, data, contract rights, and all other things necessary or
convenient for the conduct of Operations by the new Operator. The Operator will
use its best efforts to provide for continuity of Operations notwithstanding the
transfer of operational responsibility to its successor.
19.4 Replacement of Operator on Economic Grounds. At any time
following the Initial Term the Company may give written notice to the Operator
proposing terms and conditions under which the Company (a) believes that
<PAGE>
Operations can be conducted more efficiently and (b) is willing to become the
Operator under this Section or has a bona fide commitment from a third party
(including any Member of the Company) to do so. The notice shall set forth
specific changes in operating practices or procedures, specific reductions in
charges or other costs of operation under this Agreement (including overhead),
or both. Within 30 days after receipt of the Company's notice, the Operator will
notify the Company that it elects (x) to allow the Company, or the Company's
designee, to become the Operator under the terms and conditions contained in the
Company's proposal or (y) to continue as the Operator under the terms and
conditions of the Company's proposal. If the Operator elects to proceed under
"(x)," the change of Operator shall occur effective 7:00 a.m. on the 30th day
after receipt by the Company of the Operator's notice of election. The removed
Operator cannot seek to remove and replace the replacement Operator under this
Section 19.4 within six (6) months after the date of removal of the removed
Operator.
19.5 Sale of MCNIC's Interest; Reduced Crown Interest.
(a) Notwithstanding anything to the contrary in this
Agreement or the LLC Operating Agreement, if at any time after the Initial Term
MCNIC transfers its entire membership interest in the Company to a Person that
is not an Affiliate of MCNIC or the Company sells the Plant to a Person that is
not an Affiliate of the Company or any member of the Company (the "Transferee"),
the Transferee shall have the right, exercisable by written notice to the
Operator within 30 days after transfer of MCNIC's membership interest or
purchase of the Plant, as the case may be, to replace Crown Asphalt as the
Operator with the Transferee's designee, effective upon the date and time
specified in the notice, and any binding agreement of MCNIC or the Company to
sell its membership interest in the Company or the Plant, respectively, to a
party other than one of the aforementioned parties shall indicate whether the
purchaser intends to remove Crown Asphalt as the Operator.
(b) If at any time either (i) Crown Parent ceases to
own at least 50% of the voting stock of Crown Asphalt or to control Crown
Asphalt, or (ii) Crown Asphalt fails to maintain at least a 5% membership
interest in the Company, or (iii) Crown Asphalt is entitled to receive less than
a 5% share of any distributions made by the Company, then MCNIC shall be
entitled to remove Crown Asphalt as the Operator and to replace Crown Asphalt as
the Operator with MCNIC's designee, effective upon the date and time specified
in the notice.
20. Arbitration.
20.1 Submission to Arbitration. The parties hereby submit all
controversies, claims, and matters of difference arising under this Agreement to
arbitration. Without limiting the generality of the foregoing, the following
shall be considered controversies for this purpose: (a) all questions relating
to the interpretation or breach of this Agreement, (b) all questions relating to
any representations, negotiations, and other proceedings leading to the
execution hereof, and (c) all questions as to whether the right to arbitrate any
such question exists.
<PAGE>
20.2 Initiation of Arbitration and Selection of Arbitrators.
The party desiring arbitration shall so notify the other party, identifying in
reasonable detail the matters to be arbitrated and the relief sought.
Arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the following categories: (1)
an attorney with at least ten years' experience in mining law; (2) an attorney
with at least ten years' experience in general commercial law, including mining
matters; and (3) a person with at least ten years' experience in the oil and gas
or mining industry and at least 10 years experience in tar sands or crude oil
processing. The AAA shall submit a list of persons meeting the criteria outlined
above for each category of arbitrator, and the parties shall select one person
from each category in the manner established by the AAA. If any party or the
arbitrators fail to select arbitrators as required above, the AAA shall select
such arbitrators. The arbitrators shall be entitled to a fee commensurate with
their fees for professional services requiring similar time and effort. If the
arbitrators so desire, they shall have the authority to retain the services of a
neutral judge or attorney (whose fees shall be treated as an arbitrator's fees)
to assist them in administering the arbitration and conducting any hearings and
taking evidence at such hearings or otherwise.
20.3 Arbitration Procedures. All matters arbitrated hereunder
shall be arbitrated in Denver, Colorado pursuant to Utah Law, and shall be
conducted in accordance with the Commercial Arbitration Rules of the AAA, except
to the extent such rules conflict with the express provisions of this Section 20
(which shall prevail in the event of such conflict); provided, however, that all
substantive law issues relating to the rights and obligations of the parties
under this Agreement shall be governed by Section 23.3 below. The arbitrators
shall conduct a hearing no later than 45 days after submission of the matter to
arbitration, and a decision shall be rendered by the arbitrators within 10 days
of the hearing. At the hearing, the parties shall present such evidence and
witnesses as they may choose, with or without counsel. Adherence to formal rules
of evidence shall not be required, but the arbitration panel shall consider any
evidence and testimony that it determines to be relevant, in accordance with
procedures that it determines to be appropriate. Any award entered in an
arbitration shall be made by a written opinion stating the reasons for the award
made.
20.4 Enforcement. This submission and agreement to arbitrate
shall be specifically enforceable. Arbitration may proceed in the absence of any
party if notice of the proceedings has been given to such party. The parties
agree to abide by all awards rendered in such proceedings. Such awards shall be
final and binding on all parties to the extent and in the manner provided by
Utah Law. All awards may be filed with the clerk of one or more courts, state,
federal, or foreign, having jurisdiction over the party against which the award
is rendered or its property, as a basis of judgment and of the issuance of
execution for its collection. No party shall be considered in default hereunder
during the pendency of arbitration proceedings specifically relating to such
default.
20.5 Fees and Costs. The arbitrators' fees and other costs of
the arbitration and the reasonable attorney fees, expert witness fees and costs
of the prevailing party shall be borne by the non-prevailing party. In its
written opinion, the arbitration panel shall, after comparing the respective
positions asserted in the arbitration claim and answer thereto, declare as the
prevailing party that party whose position was closest to the arbitration award
<PAGE>
(not necessarily the party in favor of which the award on the arbitration claim
is rendered) and declare the other party to be the non-prevailing party. The
arbitration award shall include an award of the fees and costs provided by this
Section 20.5 against the non-prevailing party.
21. Notice; Representatives.
21.1 Representatives. The Operator and the Company shall each
designate an individual, and one or more alternates, who shall be its
representative for purposes of receiving and giving communications with the
other in regard to the performance of this Agreement.
21.2 Notices. All notices, requests, or other communications
("Notices") required to be given or made hereunder shall be in writing and
addressed as follows:
If to the Company:
Crown Asphalt Ridge L.L.C.
c/o MCNIC
150 West Jefferson Avenue
Suite 1700
Detroit, Michigan 48226
Attention: William E. Kraemer
Facsimile: (313) 256-6918
With copy to:
MCNIC
150 West Jefferson Avenue
Suite 1700
Detroit, Michigan 48226
Attention: William E. Kraemer
Facsimile: (313) 256-6918
and
MCN Energy Group
500 Griswold
10th Floor
Detroit, Michigan 48226
Attention: Daniel L. Schiffer, Esq.
Facsimile: (313) 965-0009
With copy to:
Crown Energy Corporation
215 South State
<PAGE>
Suite 550
Salt Lake City, Utah 84111
Attention: Mr. Jay Mealey
Facsimile: (801) 537-5609
If to the Operator, to:
Crown Asphalt Corporation
215 South State, Suite 550
Salt Lake City, Utah 84111
Attention: Mr. Jay Mealey
Facsimile: 801 537-5609
or to such address as either party may notify the other party in writing.
Notices shall be given (a) by personal delivery to the other party, or (b) by
electronic communication, with answer- back confirmation. All Notices shall be
effective and shall be deemed delivered (a) if by personal delivery on the date
of delivery if delivered during normal business hours, and, if not delivered
during normal business hours, on the next business day following delivery, or
(b) if by electronic communication on the date the electronic communication is
received if received during normal business hours, otherwise on the next
business day following receipt of the electronic communication.
22. Confidentiality. Each party agrees to keep confidential and not
use, reveal, provide or transfer to any third party other than a Member, or an
Affiliate of a Member, any Confidential Information it obtains or has obtained
concerning the other party, except: (a) to the extent that disclosure to a third
party is required by applicable Law; (b) information that, at the time of
disclosure, is generally available to the public (other than as a result of a
breach of this Agreement or any other confidentiality agreement to which the
party is subject or of which it has knowledge), as evidenced by generally
available documents or publications; (c) information that was in its possession
prior to disclosure (as evidenced by appropriate written materials) and was not
acquired directly or indirectly from the other party; (d) to its employees,
consultants or advisors for the purpose of carrying out their duties hereunder,
to the extent disclosure is necessary or advisable; (e) to banks or other
financial institutions, to the extent disclosure is necessary or advisable to
obtain financing; (f) to third parties to the extent necessary to enforce this
Agreement; provided, however, that in each case of disclosure pursuant to (a),
(d) or (e), the party or parties to whom disclosure is made agree to be bound by
this confidentiality provision. The obligation of each party not to disclose
Confidential Information except as provided herein shall not be affected by the
termination of this Agreement or the replacement of either or both of the
parties.
23. General Provisions.
23.1 Section Headings. The section headings in this Agreement
are for reference purposes only and shall not be used to construe or interpret
or affect in any way the substantive meaning, intent, or interpretation of this
Agreement.
<PAGE>
23.2 Severability. If any provision of this Agreement shall be
determined by any relevant legal authority to be unlawful, unenforceable,
invalid, void or voidable, the legality, validity, or enforceability of the
remainder of this Agreement shall not be affected or impaired thereby and the
unlawful, unenforceable, invalid, void, or voidable provision shall be deemed
deleted from this Agreement to the same extent as if never incorporated.
23.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of Utah, without regard to its conflict of
law rules.
23.4 Entire Agreement; Amendments. This Agreement sets forth
the entire agreement between the parties relating to the subject matter
contained herein and supersedes all prior discussions and understandings among
them. This Agreement may not be amended except by written agreement executed by
both parties.
23.5 No Partnership. It is not the purpose or intent of this
Agreement to create, and it shall never be construed as creating, a joint
venture, partnership, mining partnership, or agency relationship between the
Company and the Operator.
23.6 Waiver. A waiver by either party of a default hereunder
shall not be deemed to be a waiver of any subsequent default, nor shall any
delay in asserting a right hereunder be deemed a waiver of such right. The
preceding sentence shall not be construed as a waiver of any applicable statute
of limitations. The failure of either party to insist in any one or more
instances upon strict performance of any of the provisions of this Agreement or
to take advantage of any of its rights hereunder, shall not be construed as a
waiver of any such provisions or relinquishment of any such rights, but the same
shall continue and remain in full force and effect. All remedies afforded under
this Agreement shall be cumulative and in addition to every other remedy
provided for herein or by Law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in two original counterparts, effective for all purposes as of the date
set forth above.
CROWN ASPHALT CORPORATION, a Utah
corporation
By:
Name: Jay Mealey
Title: President
<PAGE>
CROWN ASPHALT RIDGE, L.L.C., a Utah limited
liability company
By: CROWN ASPHALT CORPORATION, a
Member
By:
Name: Jay Mealey
Title: President
and
By: MCNIC PIPELINE & PROCESSING
COMPANY, a Michigan corporation, a
Member
By:
Name:
Title:
Exhibit 10.20
SUBLICENSE AGREEMENT
This Sublicense Agreement (the "Agreement") made and entered in to as
of _____________, 1997, is by and between Crown Asphalt Corporation, a Utah
corporation ("Crown") and Crown Asphalt Ridge, L.L.C., a Utah limited liability
company ("Crown Asphalt").
Recitals
A. Crown, formerly known as BuenaVentura Resources Corporation,
possesses an exclusive license with Park Guymon Enterprise, Inc., a Utah
corporation ("PGEI"), dated January 29, 1989 in Utah, as amended on July 1,
1993, and July 1, 1996 (the "License"), to a process, the practice of which is
within the scope of the claims of United States Patent No. 4,968,417, dated
November 6, 1990, relating to a process for recovering bitumen from tar sands,
and more particularly, to a solvent extraction/water process for recovering
bitumen from tar sands contaminated with clay (the "Invention").
B. Crown is a member of Crown Asphalt and is required by its Operating
Agreement (the "Operating Agreement") to contribute a sublicense (the
"Sublicense") under the License for use of the Invention by Crown Asphalt and by
LLC-2 and LLC-3 in the Project Area and possible use outside of the Project Area
for AMI Opportunities (which fall solely within the boundaries of the State of
Utah).
<PAGE>
C. Accordingly, Crown now grants Crown Asphalt a Sublicense for use of
the Invention as provided in the Operating Agreement, subject to the terms,
conditions and covenants set forth below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
undertakings expressed herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Crown Asphalt, and
subject to the conditions hereinafter set forth, the parties agree as follows:
1. Definitions. The following terms shall have the meanings specified
below:
1.1 Technology. The Invention was developed by E. Park
Guymon and is exclusively owned by PGEI. The Invention separates clay
contaminated bitumen from tar sands with a solvent. The bitumen is dissolved
with an organic solvent such as condensate from a natural gas well. The clay is
separated from the dissolved bitumen and the solvent is recovered and recycled.
The sand is washed with water containing a surface active agent to remove
residual bitumen and solvent. The term "Technology" shall refer to the Invention
and any knowledge or information developed by PGEI or E. Park Guymon ("Guymon")
at any time during the terms of either this Agreement or the License, or prior
thereto, which relates to the Invention, and processes, equipment, instructions,
and any other information, materials or data necessary for use of the Invention.
In addition, the term "Technology" shall also refer to any change, improvement
or addition to the Invention, and to any modification or addition to any
processes, equipment, instructions, and any other information, materials or data
<PAGE>
developed or designated by PGEI or Guymon, for use in connection with the
separation of bitumen from sand during the terms of either this Agreement or the
License.
1.2 Product. The term "Product" shall refer to asphalt,
bitumen, maltha, and all other hydrocarbon minerals contained in tar sands.
1.3 Extraction Taxes. The term "Extraction Taxes" shall refer
to sales, use, gross receipts, ad valorem, severance and other taxes due and
payable in respect to severance, production, removal, sale or disposition of the
tar sands and Product, but excluding any taxes on net income.
1.4 Processing Costs. The term "Processing Costs" shall refer
to the amounts actually incurred by Crown Asphalt for processing or other
beneficiation of tar sands and Product.
1.5 Transportation Costs. The term "Transportation Costs"
shall refer to the expenses and charges actually incurred by Crown Asphalt in
transporting tar sands and Product from the mine to the refinery or other place
of processing and/or sale. Such costs shall include, but not be limited to,
wages, rent, freight, shipment insurance, handling, port, delay, demurrage,
lighterage, tug, forwarding costs, and transportation and other applicable
taxes.
1.5 Production Royalty on Net Returns. The term "Production
Royalty on Net Returns" shall refer to the amount of money actually received by
Crown Asphalt for the sale of Product produced by use of the Technology, less,
<PAGE>
to the extent borne by Crown Asphalt, sales and brokerage costs, Transportation
Costs, Processing Costs, and Extraction Taxes.
1.6 Territory. The term "Territory" shall refer to all lands
within the exterior boundaries of the State of Utah.
2. Term. The term of this Agreement shall commence on the date hereof
and shall continue in perpetuity unless terminated earlier by either party.
3. Sublicense Rights.
3.1 Grant of Sublicense. Crown hereby grants to Crown
Asphalt, an exclusive sublicense (the "Sublicense"), within the limitations and
requirements set forth below, to use the Technology for all purposes incidental
to separating Product and other minerals from tar sands deposits located within
the Territory including a right to further sublicense the Technology to others
involved with the exploitation of a business opportunity involving the
Technology licensed by this Agreement; provided, that such further sublicenses
may not violate the terms of this Agreement or the License.
4. Provision of Services by PGEI, Related Matters and Disclaimer.
4.1 Training. Crown will require PGEI, pursuant to the
License, to provide to Crown Asphalt, their employees and consultants, training
in the use of the Technology as they shall request.
4.2 Improvements in Technology. During the term of the
License, PGEI is required to promptly notify Crown of any improvements in, or
<PAGE>
modifications, changes or additions to, the Technology (the "Enhancements") and
to make any and all Enhancements available to Crown within a reasonable time
after the development and documentation of such Enhancements. Crown shall, in
turn, promptly make any such Enhancements available to Crown Asphalt. In the
event that the License is terminated, other than as a result of any actions or
lack thereof, of Crown Asphalt, then PGEI shall make such Enhancements available
to Crown Asphalt.
Crown has agreed within the License to submit promptly to PGEI all
available information on any Enhancements to the Technology, now or hereafter
found, discovered, or learned by Crown. Accordingly, Crown Asphalt shall also
inform PGEI of such Enhancements. Crown Asphalt acknowledges that such
information will be the sole property of PGEI.
4.3 Patent, Trademark and Infringement Protection. Crown
Asphalt shall have no right to pursue or obtain any patents, copyrights or
trademarks with respect to the Technology. In the event that Crown Asphalt
receives notice that intangible property rights with respect to the Technology
are being infringed upon, Crown Asphalt shall promptly notify Crown of such
infringement and Crown shall notify PGEI of the same.
4.4 Authority and Covenants of Crown. Crown warrants and
represents to Crown Asphalt that (a) Crown is a corporation duly organized,
validly existing and in good standing under the laws of the State of Utah, with
the corporate power and authority to own property and carry on its business as
it is now being conducted and to perform its obligations under this Agreement,
and (b) the execution, delivery and performance of this Agreement have been duly
<PAGE>
authorized by Crown's Board of Directors and do not conflict
with or violate the Articles of Incorporation or By-Laws of Crown or
any material agreement to which Crown is a party or by which Crown is
bound, any order, decree or judgment of any court or other tribunal
having competent jurisdiction or any applicable law, ordinances, rule,
regulation or order of any administrative or regulatory authority.
4.5 Disclaimer of Warranties. Crown Asphalt acknowledges that
the Technology has never been used commercially nor has it been demonstrated to
meet any governmental regulatory, safety, environmental or other standards.
Therefore, Crown EXPRESSLY DISCLAIMS AND NEGATES (a) ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY AND (b) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE. ALL RISKS ASSOCIATED WITH THE TECHNOLOGY ARE ASSUMED
BY CROWN ASPHALT. NO REPRESENTATION IS EXPRESSED OR IMPLIED AND NOTHING HEREIN
SHALL BE CONSTRUED AS PERMISSION OR RECOMMENDATION TO PRACTICE A PATENTED
INVENTION WITHOUT A LICENSE.
5. Covenants of Crown Asphalt. Crown Asphalt makes the following
additional covenants to Crown.
5.1 Reasonable Business Efforts, and Minimum Production
Standards to Maintain Exclusive Territory. Crown Asphalt shall use its
reasonable business efforts to maximize use of the Technology in the Territory
by, as soon as reasonably practical, constructing and putting into operation the
Initial Plant as defined in the Operating Agreement.
<PAGE>
Within three years after the Initial Plant has processed
7,500 tons of raw tar sands (agreed by the parties to equate to the production
of 5,000 barrels of Product), Crown Asphalt and any of its lower-tier
sublicensees will be cumulatively processing not less than 500,000 tons of raw
tar sands (agreed by the parties to equate to the production of 333,333 barrels
of Product) per year or PGEI shall have the right to license the Technology to
others within the Territory.
Within five years after the Initial Plant has processed 7,500 tons of
raw tar sands (agreed by the parties to equate to the production of 5,000
barrels of Product) or seven years from the date for the License, as extended
per amendment, whichever first occurs, Crown Asphalt and any of the lower-tier
sublicensees will be cumulatively processing 1.5 million tons of raw tar sands
(agreed by the parties to equate to the production of 1,000,000 barrels of
Product) per year or PGEI shall have the right to license the Technology to
others within the Territory.
Performance of the above events set forth in this Section 5.1 is
expressly made subject to the occurrence of Force Majeure as provided below.
PGEI agrees that any licensing agreement it grants to another, whether
within or outside of the Territory, will not contain a royalty more favorable to
the licensee than the Production Royalty on the Net Returns contained herein.
5.2 Production Royalty on Net Returns.
A. Crown Asphalt agrees to pay directly to PGEI a two percent (2%)
<PAGE>
Production Royalty on Net Returns for all Product produced and sold using the
Technology. The Product shall be deemed sold at the time the money is actually
received by Crown Asphalt.
B. Production Royalty Payments. All payments of Production
Royalties are due forty-five (45) days after the end of each calendar quarter
(being 45 days after March 31, June 30, September 30, and December 31) and will
be accompanied by a royalty settlement statement which will show the
mathematical calculation of how the payment amount was calculated and will be
accompanied with other appropriate documentation showing attributable cost
deductions and sales records. Pursuant to the License, if PGEI has not issued
written notice objecting to the payment amount within one (1) year, it shall be
conclusively deemed correct.
In case of any dispute or question concerning the ownership of the
royalty under this Agreement, or any part thereof, Crown Asphalt may, at its
election, deposit any disputed amounts into an interest bearing escrow account
until the dispute is finally and conclusively resolved. Crown Asphalt may deduct
from the escrow deposits and from amounts otherwise due the owner of the royalty
which is disputed or in question, all costs and expenses, including attorneys'
fees, it actually incurs by reason of such dispute or question.
C. Depository. All moneys which may become due and payable
under the terms of this Agreement shall be made to Weber State Credit Union
Account #9263, which PGEI has appointed as PGEI's agent for the receipt of such
payment or to such other organization as PGEI may from time to time designate by
written notice given to Crown or Crown Asphalt. All payments made to such Agent
<PAGE>
designated by PGEI shall be considered to have been made to PGEI, and having
made payment to such Agent, Crown Asphalt (and Crown) shall be relieved of all
responsibility or liability for the disbursement thereof.
5.3 Crown Asphalt's Costs, Liabilities. Crown Asphalt shall
be responsible for the costs of Crown Asphalt's business, including, without
limitation, all costs incurred by Crown Asphalt in connection with this
Agreement, in using the Technology, in generating revenues, and any and all
losses, claims, damages, liabilities and other costs incurred by Crown Asphalt
in connection therewith. Crown Asphalt shall hold Crown harmless in connection
with any of the foregoing. In no event shall Crown or PGEI be liable for any
incidental or consequential damages such as lost profits, expenses or damages
incurred by Crown Asphalt for use of the Technology.
5.4 Use of Technology; Business. During the term of this
Agreement, Crown Asphalt shall use the Technology only in connection with
applications and purposes that are approved in writing by PGEI for Crown
Asphalt's or any sublicensee's use, and only within the Territory.
5.5 Ethical and Lawful Conduct; Authority. Crown Asphalt
shall conduct its operations at all times in an ethical and lawful manner. Crown
Asphalt shall abide by all applicable federal, state, and local laws and
regulations. Crown Asphalt shall not enter into any agreement, grant any
licenses or sublicense rights or take any other action which conflicts with,
violates or interferes with PGEI's full rights under the License. Crown Asphalt
shall obtain all permits, qualifications to do business, licenses, permits or
<PAGE>
other governmental approval required in order to conduct its business as
contemplated by the parties.
5.6 Insurance. Prior to putting the Initial Plant into
operation, Crown Asphalt shall obtain, and maintain in full force and effect
during the entire term of this Agreement, at Crown Asphalt's sole expense, an
insurance policy or policies for itself, and Crown and PGEI, as co-insureds,
against any loss, liability or expense whatsoever from fire, personal injury,
theft, death, property damage, or otherwise arising or occurring upon or in
connection with Crown Asphalt's use of or other exercises of its rights to the
Technology. Such policy or policies shall include general liability coverage
covering property damage and bodily injury sufficient to cover any incident or
occurrence as generally practiced in the industry and other such additional
coverage as shall be required by local law in the Territory. The policies of
insurance obtained by Crown Asphalt shall not be subject to cancellation except
on ten days' written notice to Crown and PGEI, and Crown Asphalt shall cause
certificates of insurance, with copies of all original policies attached,
showing compliance with all the requirements of this Section 5.6, to be
delivered to Crown and PGEI.
5.7 Referrals; Other Technology. Crown Asphalt shall promptly
refer to PGEI any and all opportunities of which Crown Asphalt becomes aware to
use the Technology for any purpose outside the Territory or to use the
Technology within the Territory for any purpose other than granted to Crown
Asphalt under this Agreement.
6. Indemnification. Each party shall indemnify and hold harmless the
other party, its directors, officers, employees and agents, from and against any
<PAGE>
and all losses, claims, damages, liabilities, litigation and costs (including,
without limitation, fees and expenses of counsel and any costs incurred in
investigating, preparing for, defending against, providing evidence, producing
documents or taking any other action in respect of any such claims or
litigation) arising out of or based upon the failure or such indemnifying party
to perform its obligations under this Agreement or any material inaccuracy made
by such indemnifying party in this Agreement.
7. Agency. Nothing in this Agreement shall be construed as causing
Crown Asphalt to be Crown's or PGEI's agent, representative or a division of
Crown with respect to the Technology or otherwise. During the term of this
Agreement, Crown Asphalt shall be entirely responsible for use of the
Technology, and shall not act in any manner as Crown's or PGEI's agent,
representative or as a division of Crown.
8. Breach; Termination.
8.1 Breach. In the event that either party commits a material
breach of any of such party's obligations under this Agreement, the other party
shall have a right to recover damages from and to obtain injunctive or other
equitable relief with respect to such breach.
8.2 Termination. This Agreement may be terminated by either
party ("Notifying Party") in the event the other party ("Defaulting Party")
shall have committed a material breach not cured within thirty (30) days after
the Notifying party shall have given the Defaulting Party written notice
identifying the material breach and specifying the conduct believed by the
<PAGE>
Notifying Party to constitute such material breach. However, should there be an
issue as to whether a material breach has occurred, then the provisions of
Section 8.3 below are applicable.
8.3 Disputes. It is specifically agreed that should there
arise any dispute between the parties hereto, such disputes shall not interrupt
the performance of this Agreement by either Crown or Crown Asphalt, nor will
operations hereunder be interrupted, delayed or impaired during the pendency of
and until the final settlement of such dispute.
9. Force Majeure. In the event that further lawful performance of this
Agreement or any part thereof, by any party hereto, shall be rendered impossible
by or as a consequence of any law or any act of any government or political
subdivision thereof having jurisdiction over such party, such party shall not be
considered in material breach hereunder by reason of any failure to perform
occasioned thereby. Any delays in or failure by either party hereto in the
performance of any obligations hereunder shall be excused if, and to the extent
caused by occurrences beyond such party's reasonable control, including but not
limited to, inability to obtain permits or insurance, chemical supply shortages,
transportation interruptions, inability or delay in obtaining equipment, unusual
equipment breakdowns, commercial frustration, acts of God, strikes or other
labor disturbances, war, whether declared or not, sabotage, fire, explosion,
earthquake, flood or any other cause or causes, whether or not similar to those
specifically enumerated herein, which cannot be reasonably controlled by such
party.
10. Miscellaneous.
<PAGE>
10.1 Assignability. Crown Asphalt may not assign all or any
part of its right, title or interest in this Agreement without the prior written
consent of Crown. Any assignment in violation of this Section 10.1 shall be null
and void.
10.2 Notices. All notices required or permitted to be given
hereunder shall be given by letter, sent by certified mail, return receipt
requested, to the addresses as shown on the signature page to this Agreement.
Any party, by written notice to the other party, may change the address for
notices to be sent to it.
10.3 Governing Law; Forum. All questions with respect to the
formation, validity and construction of this Agreement, and the rights, and
liabilities of the parties hereto, shall be governed by the laws of the State of
Utah. Any suit to enforce any provision of this Agreement or to obtain any
remedy with respect hereto shall be brought within the Federal or State Courts
of Utah and for this purpose each party expressly and irrevocably consents to
the jurisdiction of said Courts.
10.4 Inurement. This Agreement shall inure to the benefit of,
and shall be binding upon, the assigns, successors in interest, personal
representatives, estates, heirs, and legatees of each of the parties hereto.
10.5 Litigation Costs. In the event of any controversy, claim
or dispute between the parties hereto, arising out of or related to this
Agreement or the breach thereof, the prevailing party shall be entitled to
recover from the losing party reasonable expenses, attorney and witness fees,
and costs.
<PAGE>
10.6 Subrogation. Throughout the term of this Agreement,
Crown Asphalt shall be entitled to the benefit of, and be entitled to assert,
the covenants and obligations of PGEI to Crown set forth within the License as
though such had been tendered to Crown Asphalt directly.
10.7 Entire Agreement. This Agreement contains the entire
agreement of the parties hereto relating to the subject matter of this
Agreement, and supersedes any prior agreement or oral agreements between them
concerning the subject matter contained herein. There are no representations,
agreements, arrangements or understandings, oral or written, between and among
the parties hereto, relating to the subject matter contained in this Agreement,
which are not fully expressed herein.
10.8 Modifications. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties.
10.9 Severability. Both parties agree that in the event it is
determined that any provision contained in this Agreement is illegal, or legally
unenforceable (or becomes so), the remainder of the Agreement shall not be
affected thereby, and the remaining lawful provisions hereof shall remain in
full force and effect, and be binding on the parties.
10.10 Acknowledgments. Crown Asphalt acknowledges that it has
made an independent review and has not relied upon any representations made by
Crown. Crown Asphalt's decision to enter into this Agreement was entered with
<PAGE>
full opportunity to review the business, legal and technical aspects of the
arrangement and independent of any warranties or representations made by Crown,
except as expressly stated herein.
10.11 Further Assurances. Whenever reasonably necessary and
so often as reasonably requested by one party, the other party shall promptly
execute and deliver or cause to be executed and delivered all such other and
further instruments, documents or assurances, and promptly do or cause to be
done all such other and further things, as may be necessary or reasonably
required in order to further and more fully to vest in the requesting party all
rights, interests, powers, benefits, privileges and advantages conferred or
intended to be conferred upon it by this Agreement.
Dated this day and year first above written.
CROWN ASPHALT CORPORATION, a
Utah corporation
By: Jay Mealey
Its: President
Address:
215 South State Street, Suite 550
Salt Lake City, Utah 84111
CROWN ASPHALT RIDGE, L.L.C., a
Utah limited liability company
By: Joseph H. Churust
Its: Vice President
<PAGE>
Address:
150 West Jefferson Avenue, #1700
Detroit, Michigan 48226
Read and Consented to:
PARK GUYMON ENTERPRISES, INC.
By: E. Park Guymon, President
4085 Eccles Avenue
Ogden, Utah 84403
Exhibit No. 10.22
ENGINEERING, CONSTRUCTION
AND PROCUREMENT AGREEMENT
between
CROWN ASPHALT RIDGE, L.L.C.
and
CENTRY CONSTRUCTORS &
ENGINEERS, LLC.
November 5, 1997
<PAGE>
<TABLE>
<CAPTION>
ENGINEERING, CONSTRUCTION AND PROCUREMENT AGREEMENT
TABLE OF ARTICLES
<S> <C> <C>
ARTICLE 1 DEFINITIONS.................................................................................. 1
1.1 Definitions................................................................................... 1
ARTICLE 2 CONTRACTOR'S RESPONSIBILITIES................................................................ 4
2.1 Scope of Work................................................................................. 4
2.2 Engineering Services.......................................................................... 4
2.3 Contractor-Furnished Drawings, Data and Samples............................................... 5
2.4 Owner-Furnished Drawings...................................................................... 6
2.5 Hazardous Material............................................................................ 7
2.6 Additional Work............................................................................... 8
2.7 Subcontractors................................................................................ 9
2.8 Means, Methods and Techniques................................................................. 9
2.9 Coordination of Work; Cooperation............................................................. 10
2.10 Materials, Appliances, Tools, Equipment, Machinery, Supplies, and
Utilities..................................................................................... 10
2.11 Contractor's Plant, Equipment, and Facilities................................................. 11
2.12 Testing....................................................................................... 11
2.13 Use of Completed Portions..................................................................... 11
2.14 Cleanup....................................................................................... 12
2.15 Use of Owner's Construction Equipment or Facilities........................................... 12
2.16 Delivery, Unloading, and Storage.............................................................. 13
2.17 Inspection of Work............................................................................ 13
2.18 Shop Quality Surveillance..................................................................... 13
2.19 Quality Program Requirements.................................................................. 14
2.20 Correction of Defective Work.................................................................. 14
2.21 Backcharges................................................................................... 15
2.22 Waiver of Liens............................................................................... 16
2.23 Responsibility for Work....................................................................... 16
2.24 Temporary Office and Storage Facilities....................................................... 17
2.25 Environmental Conditions...................................................................... 17
2.26 Equal Products and Substitutions.............................................................. 17
ARTICLE 3 OWNER'S RESPONSIBILITIES..................................................................... 18
3.1 Owner's Responsibilities...................................................................... 18
3.2 Owner's Representations and Warranties........................................................ 19
ARTICLE 4 WARRANTIES AND GUARANTIES ................................................................... 19
4.1 Warranty and Guaranties....................................................................... 19
4.2 No Liens and Encumbrances..................................................................... 20
4.3 Exclusions.................................................................................... 20
4.4 Used Materials and Equipment; Special Application Equipment................................... 20
4.5 No Other Warranties........................................................................... 20
4.6 Documentation................................................................................. 21
ARTICLE 5 CONTRACT TIME................................................................................ 21
5.1 Project Schedule.............................................................................. 21
5.2 Mechanical Completion and Final Acceptance.................................................... 22
5.3 Project Schedule, Progress Reporting, and Meetings............................................ 24
5.4 Delays........................................................................................ 25
<PAGE>
5.5 Time Extensions or Adjustments................................................................ 26
5.6 Force Majeure Events.......................................................................... 26
5.7 Updated Project Schedule...................................................................... 27
5.8 No Release.................................................................................... 27
5.9 Time Extensions After Final Payment........................................................... 27
5.10 Adjustment to Contract Price.................................................................. 28
5.11 Progress...................................................................................... 28
ARTICLE 6 COMPENSATION................................................................................. 28
6.1 Contract Price................................................................................ 28
6.2 Operation Bonus............................................................................... 28
6.3 Payment....................................................................................... 28
6.4 Time of Payment............................................................................... 29
6.5 Schedule of Values............................................................................ 29
6.6 Applications for Payment...................................................................... 29
6.7 Payment of Subcontractors..................................................................... 31
6.8 Liens and Claims.............................................................................. 31
6.9 Payment or Use Not Acceptance................................................................. 31
6.10 Final Payment................................................................................. 31
6.11 Operation Bonus Payment....................................................................... 32
ARTICLE 7 CHANGES IN THE WORK.......................................................................... 32
7.1 Minor Changes................................................................................. 32
7.2 Value Change Orders........................................................................... 32
7.3 Procedure for Change Orders................................................................... 32
7.4 Continued Performance Pending Resolution of Disputes.......................................... 33
7.5 Effect of Force Majeure Event................................................................. 33
7.6 Documentation................................................................................. 33
7.7 Notice of Change.............................................................................. 33
7.8 Unknown Conditions............................................................................ 33
7.9 Payment for Change Orders..................................................................... 34
ARTICLE 8 COST OF THE WORK FOR CHANGE ORDERS........................................................... 34
8.1 Cost of Design & Engineering Services......................................................... 34
8.2 Construction Labor and Other Cost Items....................................................... 34
8.3 Discounts..................................................................................... 36
ARTICLE 9 SUSPENSION OF THE WORK BY OWNER.............................................................. 36
9.1 Suspension.................................................................................... 36
9.2 Resumption of Work............................................................................ 37
9.3 Effect of Breach.............................................................................. 37
ARTICLE 10 INDEMNIFICATION............................................................................. 37
10.1 Contractor's Indemnification.................................................................. 37
10.2 Owner's Indemnification....................................................................... 38
10.3 Claim Procedure............................................................................... 38
10.4 No Limitation................................................................................. 39
ARTICLE 11 INSURANCE AND WAIVER OF SUBROGATION......................................................... 39
11.1 Contractor's Insurance........................................................................ 39
11.2 Owner's Insurance............................................................................. 41
11.3 Property Insurance Loss Adjustment............................................................ 42
11.4 Waiver of Subrogation......................................................................... 42
11.5 Limitation of Liability of Contractor......................................................... 42
11.6 Damage to Vehicles............................................................................ 43
<PAGE>
ARTICLE 12 TERMINATION AND OWNER'S TAKEOVER RIGHTS .................................................... 43
12.1 Termination by Owner for Cause................................................................ 43
12.2 Termination for Convenience................................................................... 44
ARTICLE 13 DISPUTE RESOLUTION.......................................................................... 46
13.1 Commitment to Resolution...................................................................... 46
13.2 Dispute Resolution Procedure.................................................................. 47
13.3 Arbitration................................................................................... 47
13.4 Work Continuance.............................................................................. 48
13.5 Multiparty Proceeding......................................................................... 49
ARTICLE 14 LABOR, SAFETY & SECURITY.................................................................... 49
14.1 Labor, Employees, Supervision................................................................. 49
14.2 Performance of Work, Care Required............................................................ 49
14.3 Strikes....................................................................................... 49
14.4 Illumination.................................................................................. 50
14.5 Accident Prevention........................................................................... 50
14.6 Vehicular Requirements........................................................................ 51
14.7 Explosives and Blasting....................................................................... 51
14.8 Safety........................................................................................ 51
14.9 Protective Equipment.......................................................................... 52
14.10 Contractor Substance Abuse Program............................................................ 52
14.11 First Aid, Hospital, Medical.................................................................. 53
14.12 Clearances Along Roadways and Railroads....................................................... 53
14.13 Contractor's Security Responsibilities........................................................ 53
14.14 Security and Access to Site................................................................... 54
14.15 Fire Prevention............................................................................... 54
ARTICLE 15 MISCELLANEOUS PROVISIONS.................................................................... 55
15.1 Words and Phrases............................................................................. 55
15.2 Team Relationship............................................................................. 55
15.3 Extent of Agreement........................................................................... 55
15.4 Qualification in State........................................................................ 55
15.5 Contractor's Status........................................................................... 56
15.6 Commercial Activities......................................................................... 56
15.7 Site Inspection............................................................................... 56
15.8 Confidential Information...................................................................... 56
15.9 Nonwaiver of Defaults......................................................................... 57
15.10 Conflict of Interest.......................................................................... 57
15.11 Employees..................................................................................... 57
15.12 Laws, Ordinances, Permits, Licenses, and Taxes................................................ 57
15.13 Inventions.................................................................................... 58
15.14 Assignment.................................................................................... 58
15.15 Controlling Law............................................................................... 58
15.16 Severability.................................................................................. 59
15.17 Notices....................................................................................... 59
15.18 No Intended Third Party Beneficiaries......................................................... 60
15.19 Counterparts; Facsimile Signatures............................................................ 60
</TABLE>
LIST OF SCHEDULES
SCHEDULE A - Work Scope
SCHEDULE B - Site and Battery Limits
SCHEDULE C - Contractor's Basic Rates
<PAGE>
ENGINEERING, CONSTRUCTION AND PROCUREMENT AGREEMENT
This Engineering, Construction and Procurement Agreement (the
"Agreement") is made as of this 5th day of November, 1997 by and between CROWN
ASPHALT RIDGE, L.L.C., a Utah limited liability company ("Owner") and CENTRY
CONSTRUCTORS AND ENGINEERS, LLC, a Utah limited liability company
("Contractor").
Recitals:
A. Owner is the owner of certain real property interests located at
Asphalt Ridge near Vernal, Utah (the "Site") upon which Owner desires to have
constructed a project to be known as the Asphalt Ridge Tar Sands Surface
Facilities Project (the "Project").
B. Contractor is experienced in the engineering, procurement and
construction of mining facilities similar to the Project and desires to provide
the Work, as hereinafter defined, in connection with the Project, upon the terms
and conditions set forth herein.
Agreement:
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Owner and Contractor agree as
follows:
ARTICLE 1 DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms shall have the
indicated meanings:
1.1.1 Additional Work means services, work, equipment,
material and labor that are outside the scope of the Work set forth in this
Agreement.
1.1.2 Business Day means any day other than a Saturday,
Sunday or holiday on which banks are closed in the State of Utah.
1.1.3 Change shall have the meaning set forth in Section
7.3 hereof.
1
<PAGE>
1.1.4 Change Order shall have the meaning set forth in
Section 7.3 hereof.
1.1.5 Change Order Notice shall have the meaning set
forth in Section 7.3.
1.1.6 Change Order Request shall have the meaning set
forth in Section 7.3.
1.1.7 Contract Documents means the following documents:
1.2 Change Orders;
1.3 Work Scope;
1.4 Drawings;
1.5 Technical Specifications;
1.6 Amendments to this Agreement;
1.7 This Agreement; and
1.8 All other attachments or documents adopted by
reference in this Agreement.
In case of any inconsistency, conflict or ambiguity among the Contract
Documents, the documents shall govern in the order in which they are listed in
this Section 1.1.7. If any inconsistency will materially affect the Contract
Price or the Work then Contractor shall promptly, upon becoming aware thereof,
provide Owner notice thereof pursuant to ARTICLE 7 and seek written
clarification from Owner. In case of a conflict between any referenced codes,
standards or technical specifications, such conflict will be resolved by a
written clarification from Owner in a manner not inconsistent with the intent of
the Contract Documents or applicable codes.
1.8.1 Contract Price shall have the meaning set forth in
Section 6.
2
<PAGE>
1.8.2 Contract Time means the entire period for the
performance of the Work commencing upon the Effective Date and ending upon Final
Acceptance, and specifically includes the Mechanical Completion Date.
1.8.3 Contractor means CEntry Contractors & Engineers,
LLC, a Utah limited liability company.
1.8.4 Day means a calendar day unless otherwise
specified.
1.8.5 Detailed Engineering Documents shall have the
meaning set forth in Section 2.2.
1.8.6 Drawings means those drawings identified in the
Work Scope and the Detailed Engineering Documents prepared by Contractor for the
performance of the Work.
1.8.7 Effective Date means November 5, 1997.
1.8.8 Final Acceptance shall have the meaning set forth
in Section 5.2.2.
1.8.9 Final Payment shall have the meaning set forth in
Section 6.10.
1.8.10 Force Majeure Event shall have the meaning set
forth in Section 5.6.1.
1.8.11 Laws means all local, municipal, state and federal
laws, ordinances, rules, directives, orders, and regulations existing as of the
Effective Date or known in the industry to take effect after the Effective Date
related to the Work and to the performance thereof, including, but not limited
to, building and construction codes.
1.8.12 Mechanical Completion of the Work, or of a
designated portion, occurs on the date when construction is sufficiently
complete in accordance with the Contract Documents so that Owner can occupy or
utilize the Work, or a designated portion thereof, for the use for which it is
intended.
1.8.13 Mechanical Completion Date shall have the meaning
set forth in Section 5.1.2.
3
<PAGE>
1.8.14 Operation Bonus shall have the meaning set forth
in Section 6.2.
1.8.15 Operation Period shall have the meaning set forth
in Section 6.2.
1.8.16 Owner means Crown Asphalt Ridge, L.L.C., a Utah
limited liability company.
1.8.17 Preliminary Schedule shall have the meaning set
forth in Section 5.3.1.
1.8.18 Project Schedule shall have the meaning set forth
in Section 5.3.1.
1.8.19 Punch List Items shall have the meaning set forth
in Section 5.2.1.2.
1.8.20 Retention shall have the meaning set forth in
Section 6.3.
1.8.21 Rules shall mean the Construction Industry
Arbitration Rules of the American Arbitration Association.
1.8.22 Service Agreement shall have the meaning set forth
in Section 6.3.
1.8.23 Site means the area within the battery limits at
Asphalt Ridge near Vernal, Utah, as more fully depicted on Schedule B hereto.
1.8.24 Subcontractor shall means a person or entity who
has an agreement with Contractor or with Contractor's subcontractor or a
Subcontractor at any tier to perform any portion of the Work or who supplies any
equipment that is incorporated as part of the Work. The term "Subcontractor"
does not include any separate contractor employed by Owner.
1.8.25 Used Materials and Equipment means equipment and
materials included as a part of the Work which are specified in the Contract
Documents or in an acknowledgement from Owner as being used, refurbished or
rebuilt, and specifically include, but are not limited to, those items
identified as such in the Work Scope.
4
<PAGE>
1.8.26 Technical Specifications means those technical
specifications identified in the Work Scope and the Detailed Engineering
Documents prepared by Contractor for the performance of the Work.
1.8.27 Warranty Period means the period commencing on
Mechanical Completion and ending on the date occurring twelve (12)-months after
Mechanical Completion.
1.8.28 Work means the work, services, equipment, material
and labor set forth in the Work Scope, and any other work or services described
in or reasonably to be considered as falling under or required by the provisions
of the Contract Documents and includes, but is not limited to, all design,
engineering, Site preparation, procurement, construction labor, material,
equipment, supplies, all facilities or things or services necessary thereto or a
part thereof, but not inclusive of any work, equipment or materials to be
provided by Owner or any Additional Work that may be provided in accordance with
ARTICLE 7.
1.8.29 Work Scope means the Work described on Schedule A
hereto.
ARTICLE 2 CONTRACTOR'S RESPONSIBILITIES
2.1 SCOPE OF WORK. Contractor shall perform or provide all of the Work
described in the Work Scope. Contractor shall furnish the services of all
supervisors, engineers, designers, draftsmen and other personnel necessary for
the preparation of drawings, specifications, project schedules, cost estimates
and other documents required by the Contract Documents, and shall obtain and
maintain throughout the performance of the Work or for such other periods as may
be required by applicable Laws, all permits, qualifications and licenses
required to be taken out in the name of Contractor which are necessary or
required for the performance of the Work, except for permits, qualifications and
licenses that are the responsibility of Owner hereunder.
2.2 ENGINEERING SERVICES. Contractor shall submit for Owner's review
detailed engineering documents (the "Detailed Engineering Documents"). The
Detailed Engineering Documents shall set forth in detail the requirements for
construction of the Work, and shall consist of drawings and specifications based
upon Laws enacted at the time of their preparation. Construction shall be in
accordance with the approved Detailed Engineering Documents. Three sets of the
Detailed Engineering Documents shall be furnished to Owner prior to commencement
of construction of the portion of the Work depicted in such Detailed Engineering
Documents. Owner and Contractor have received a copy of certain soils and
geotechnical recommendations from a geotechnical engineer (the "Soils Report").
If deemed necessary by Owner, Owner will retain the services of such other
5
<PAGE>
geotechnical engineers and consultants at Owner's cost as may be required in the
opinion of Owner as the Work progresses. Owner agrees that Contractor is
entitled to rely on the accuracy of the Soils Report without independent
verification, Contractor has no responsibility for the geotechnical engineers or
their recommendations, and that any such information arranged for or provided
prior to the date hereof is for informational purposes only. Owner shall be
responsible for any geotechnical conditions not identified in the Soils Report.
2.3 CONTRACTOR-FURNISHED DRAWINGS, DATA AND SAMPLES. Review by Owner as
provided in Section 2.2 does not constitute acceptance or approval of design
details, calculations, analyses, test methods, certificates, or materials
developed or selected by Contractor, and does not relieve Contractor from full
compliance with the Contract Documents.
2.3.1 Drawings. Unless otherwise provided in this Section
2.3.1 where drawings are required under the Contract Documents, including those
for (a) installing Contractor-furnished material or equipment, or (b) planning
and performance of the Work under the Contract Documents, such drawings shall be
submitted timely by Contractor to Owner prior to the time fabrication,
installation, or performance is commenced on the Work affected thereby. Drawings
of a specific piece of equipment shall identify components with the
manufacturer's part number or reference drawing number clearly indicated. If
reference drawing numbers are used, the review data of such drawings shall be
included. Drawings shall indicate design dimensions, and maximum and minimum
allowable operating tolerances on all major wear kits, i.e., rotating,
reciprocating, or intermittent sliding fits between shafts or stems and seals,
guides, and pivot pins. The sequence of submission of all drawings shall be such
that all information is available for reviewing each drawing when it is
received.
2.4 All drawings submitted by Contractor shall be certified by
Contractor to be correct for the stage of the engineering services being
provided. Owner will conduct a review of Contractor's drawings and a
reproducible drawing marked with one of the following notations will be returned
to Contractor within one (1) Business Day after receipt of the drawing by Owner:
A- Proceed & Approved.
B- Proceed, except as noted on drawing (resubmission not
required).
C- Revise and resubmit.
D- Disapproved (see attachment).
6
<PAGE>
E- Receipt acknowledged.
2.5 Contractor shall provide three (3) record sets of the final
drawings to be used in fabrication and/or construction.
2.5.1 Samples. Where samples are required by the Contract
Documents, they shall be submitted by Contractor as a part of the Contract
Price. Samples shall be subject to review, and materials represented by such
samples shall not be manufactured, delivered to the Site, or incorporated into
any Work without such review. Contractor shall have the right to proceed with
Work which is the subject of the sample if Owner fails to notify Contractor in
writing of Owner's approval of the sample within one (1) Business Day after
receipt by Owner. If Owner subsequently directs a change in an item, the sample
for which was otherwise in conformity with the Contract Documents when submitted
for review by Contractor, Contractor shall be entitled to a Change Order under
ARTICLE 7.
2.6 Samples which have been reviewed may, at Owner's option, be
returned to Contractor for incorporation into the Work.
2.6.1 Data and Certificates. Where certificates are
required, two (2) copies of each such certificate shall be submitted by and at
the cost of Contractor. Such submittal shall be made not less than three (3)
days prior to the time that the materials represented by such certificates are
needed for incorporation into any portion of the Work. Certificates shall be
subject to review, and material represented by such certificates shall not be
fabricated, delivered to the Site or incorporated into any Work without such
review. Contractor shall the right to proceed with Work which is the subject of
the submittal of the data or certificate if Owner fails to approve same within
one (1) Business Day after receipt. If Owner subsequently directs a change in an
item, the submittal for which was otherwise in conformance with the Contract
Documents when submitted for review by Contractor, Contractor shall be entitled
to a Change Order under ARTICLE 7.
2.7 Certificates shall clearly identify the material being certified
and shall include but not be limited to providing the following information:
Contractor's name, Project name, name of the item, manufacturer's name, and
reference to the appropriate drawing, Work Scope section, and Section number,
all as applicable.
7
<PAGE>
2.7.1 Ownership of Documents.
2.8 The originals of calculation sheets, design, detail and working
drawings, sketches, specifications, manufacturers' guarantees, and all other
original documents pertaining to or prepared by Contractor for the Work shall be
and shall remain at all times, throughout the Project and hereafter, the
property of Owner.
2.9 Upon Final Acceptance and before Final Payment, Contractor shall
release and deliver to Owner any and all such originals; provided, however, that
Contractor shall have the right to reproduce all such originals for the purpose
of Contractor's record file of the Project.
2.10 OWNER-FURNISHED DRAWINGS. In addition to the Drawings incorporated
in the Contract Documents, Owner shall furnish Contractor with prints of such
pertinent drawings of existing plant Site and structures, requested by
Contractor, as may be available to Owner. Contractor shall be entitled to rely
on the accuracy of such drawings and information unless otherwise expressly
indicated by Owner to Contractor at the time any such drawing or information is
delivered to Contractor. Contractor shall verify all above-grade elevations,
clearances and utilities stub-up locations. Contractor shall give Owner prompt
written notice of any defect in the existing drawings of which Contractor has
actual knowledge.
2.11 HAZARDOUS MATERIAL.
2.11.1 As used herein, "Hazardous Material" is any
substance or material identified now or in the future as hazardous or toxic
under any Law, or any other substance or material which may be considered
hazardous or toxic or otherwise subject to statutory or regulatory requirements
governing handling, disposal and/or clean-up, including, but not limited to,
asbestos or polychlorinated biphenyl (PCB) but shall not include tar sands (or
the components thereof) naturally occurring at the Site. Contractor shall not be
obligated to commence or continue Work until any known or suspected Hazardous
Material discovered at the Site has been removed, rendered or determined to be
harmless by Owner as certified by an independent testing laboratory and approved
by the appropriate government agency.
2.11.2 If after the commencement of the Work, known or
suspected Hazardous Material is discovered at the Site (other than Hazardous
Materials brought on Site by Contractor or any of its Subcontractors),
Contractor shall be entitled to immediately stop Work in the affected area, and
Contractor shall report the condition to Owner and, if required, to any
government entity with jurisdiction.
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2.11.3 Contractor shall not be required to perform any
Work relating to or in the area of known or suspected Hazardous Material (other
than Hazardous Materials brought on Site by Contractor or any of its
Subcontractors) without written mutual agreement.
2.11.4 Unless brought on Site by Contractor or any of its
Subcontractors, Owner shall be responsible for retaining an independent testing
laboratory to determine the nature of the material encountered and whether it is
a Hazardous Material requiring corrective measures and/or remedial action. Such
measures shall be the sole responsibility of Owner, and shall be performed in a
manner minimizing any adverse effect upon the Work of Contractor. Contractor
shall resume Work in the area affected by any Hazardous Material only upon
written agreement between the parties after the Hazardous Material has been
removed or rendered harmless by Owner.
2.11.5 If Contractor incurs additional costs and/or is
delayed due to the presence of known or suspected Hazardous Material (other than
Hazardous Materials brought on Site by Contractor or any of its Subcontractors)
, Contractor shall be entitled to an equitable adjustment in the Contract Price
and the Mechanical Completion Date.
2.11.6 To the fullest extent permitted by Law, but subject
to Section 11.5.2, Owner shall defend, indemnify and hold harmless Contractor,
Subcontractors of any tier, and the members, agents, officers, directors and
employees of each of them, from and against any and all Claims, damages, losses,
costs and expenses, including but not limited to, attorney's fees, costs and
expenses incurred in connection with litigation or arbitration, arising out of
or relating to the performance of the Work in any area affected by Hazardous
Material except with respect to Hazardous Materials brought onto the Site by
Contractor or its Subcontractors. To the fullest extent permitted by Law, but
subject to Section 11.5.2, such indemnification shall apply regardless of the
fault, negligence, breach of warranty or contract, or strict liability of such
indemnitee. Provided, however, that Owner's obligations under this Section 2.5.6
shall not apply to any claims, damages, losses, costs or expenses to the extent
of the fault or negligence of the intended indemnitee.
2.11.7 The terms of this Section 2.5 shall survive the
completion of the Work under this Agreement and/or any termination of this
Agreement.
2.12 ADDITIONAL WORK. The following Additional Work shall be provided
or procured only upon the request of Owner and the agreement of Contractor. A
written agreement between Owner and Contractor shall define the extent of such
Additional Work. Such Additional Work shall be entitle Contractor to a Change
Order pursuant to ARTICLE 7:
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2.12.1 Soils, subsurface and environmental studies,
reports and investigations required for the Project or submission to
governmental authorities or others having jurisdiction over the Project.
2.12.2 Consultations and representations before
governmental authorities or others having jurisdiction over the Project.
2.12.3 Artistic renderings, models and mockups of the
Project or any part of the Project or the Work.
2.12.4 Interior design and related services including
procurement and placement of furniture, furnishings, art work and decorations.
2.12.5 Making revisions to the Detailed Engineering
Documents or documents forming the basis of the Contract Price after they have
been reviewed by Owner, and which are due to causes beyond the control of
Contractor.
2.12.6 Design, coordination, management, expediting and
other services supporting the procurement of materials to be obtained, or work
to be performed, by Owner or Owner's separate contractors.
2.12.7 Estimates, proposals, appraisals, consultations,
negotiations and services in connection with the repair or replacement of any
loss resulting from a Force Majeure Event or any other cause intended to be
covered by insurance.
2.12.8 Document reproduction exceeding the limits provided
for in this Agreement.
2.12.9 Obtaining service contractors and training
maintenance personnel, assisting and consulting in the use of systems and
equipment after thirty (30) days from the Mechanical Completion Date, and
adjusting and balancing of systems and equipment after that date unless any of
such activities are being performed to correct Punch List Items, or items
pursuant to any warranty by Contractor or its Subcontractors hereunder.
2.12.10 Services requested by Owner or required by the
Work which are not specified in the Contract Documents and which are not
normally part of generally accepted engineering or construction services for
work of the nature contemplated hereby.
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2.12.11 Serving or preparing to serve as an expert witness
in connection with any proceeding, legal or otherwise, regarding the Project at
the request of Owner unless expressly required in the Work Scope.
2.13 SUBCONTRACTORS.
2.13.1 Work not performed by Contractor with its own
forces shall be performed by Subcontractors. Contractor may employ such
Subcontractors as Owner has reasonably approved, provided, however, that in the
interests of reducing unnecessary and burdensome paperwork, the requirements of
this Agreement relating to such Subcontractor approvals, or Contractor providing
Owner copies of subcontracts, shall apply only to Subcontractors with a contract
in excess of $100,000 for other than consumable items and commodities. If Owner
does not disapprove in writing of any proposed Subcontractor within two (2)
Business Days after receipt of Contractor's request for approval, such
Subcontractor shall be deemed approved.
2.13.2 Every subcontract shall expressly provide that (a)
should this Agreement be terminated, then the subcontract may be terminated, and
shall set out the terms and procedures for such contract termination, and (b) in
the event this Agreement is terminated, then Owner shall have the option to
continue such subcontract as one between Owner and Subcontractor.
2.13.3 Contractor shall provide for assignment of
subcontract agreements in the event that Owner terminates this Contract for
cause under ARTICLE 12 hereof. Following such termination, Owner shall notify in
writing those Subcontractors whose assignments will be accepted, subject to the
rights of sureties.
2.14 MEANS, METHODS AND TECHNIQUES. Owner shall not be responsible for,
neither will it have control nor charge of means, methods, techniques, sequences
or procedures, or for safety precautions and programs in connection with the
provision of the Work by Contractor. Except as otherwise provided herein, Owner
shall not be responsible for Contractor's failure to carry out the Work in
accordance with the Contract Documents. Owner will not be responsible for or
have control or charge over any of the acts or omissions of Contractor,
Subcontractors of any tier, or any of their agents or employees, or any other
persons performing any of the Work. Owner will communicate with Subcontractors
only through Contractor.
2.15 COORDINATION OF WORK; COOPERATION. By entering into this
Agreement, Contractor acknowledges that there may be other separate contractors
on the Site whose work must be coordinated and scheduled with that of
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Contractor. Contractor shall take all reasonable steps to ensure that its Work
is properly scheduled and coordinated with the work of the separate contractors
in the vicinity of the Work. Contractor will cooperate with separate contractors
and coordinate, as appropriate and reasonable, the requirements for the Work
with the requirements governing the work of the separate contractors and safety
programs, and endeavor to minimize any delay, hindrance or interference with the
work of other separate contractors or Owner; provided, however that the Work
shall at all times have priority over the work of any separate contractor.
Contractor also expressly agrees that, in the event the Work is hindered,
delayed, interfered with or otherwise affected by a separate contractor,
Contractor shall initially attempt to directly resolve issues relating to
scheduling and coordination with any separate contractor. Contractor shall be
entitled to a Change Order for any added costs and/or time required to be
incurred by Contractor in any coordination required by this Section 2.9.
2.16 MATERIALS, APPLIANCES, TOOLS, EQUIPMENT, MACHINERY,
SUPPLIES, AND UTILITIES.
2.16.1 Except as otherwise provided in ARTICLE 3 and in
the Work Scope, Contractor shall provide and pay for all items necessary for the
execution and completion of the Work specified in the Contract Documents,
including, but not limited to, materials, appliances, tools, equipment,
machinery, supplies, utilities, other facilities, and the transportation,
loading and/or unloading thereof; provided, however, that Contractor shall be
required to pay for temporary construction utilities supplied by third parties
only through February 28, 1998, after which date, such cost shall be borne
solely by Owner. Contractor shall be entitled to the free use of any utilities
provided directly by Owner and not by any third party.
2.16.2 In the event that Owner furnishes materials for
incorporation in the Work or equipment for use by Contractor, Contractor is
responsible to visually inspect promptly upon Contractor's receipt thereof, any
materials or equipment provided by Owner for the Work, and must thereafter
promptly inform Owner if any material or equipment provided is found to be
defective based on such visual inspection, provided that Contractor shall not be
responsible for any defects that are not discoverable during such visual
inspection.
2.16.3 Owner will accept no responsibility for protection
of, or policing of, Contractor's equipment, tools, or materials which are
furnished or used in its Work on Owner's property. Contractor must provide
security in accordance with Section 14.14.
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2.17 CONTRACTOR'S PLANT, EQUIPMENT, AND FACILITIES.
2.17.1 Contractor shall provide and use on any Work only
such construction plant and equipment as are capable of producing the quality
and quantity of Work and materials required by the Contract Documents and within
the time or times specified in the Project Schedule. Contractor's equipment, and
that of its Subcontractors, shall at all times be in safe and good working order
and shall meet the requirements of MSHA/OSHA for operating condition to the
extent applicable. Use of equipment not meeting these requirements shall be
discontinued until repaired. Owner reserves the right to direct Contractor to
remove substandard equipment from the Site.
2.17.2 Before proceeding with any Work or with erection of
any facilities including but not limited to temporary structures, machinery,
equipment, offices, warehouses and camps, Contractor shall furnish Owner with
such information and drawings relative to such equipment, plant and facilities
as Owner may reasonably require.
2.18 TESTING.
2.18.1 Any equipment furnished by Contractor or by Owner
for installation by Contractor as part of the Work, will be initially tested and
adjusted for mechanical operation by Contractor prior to Final Acceptance with
the assistance of Owner in accordance with the manufacturer's recommendations
therefor.
2.18.2 Contractor shall be responsible for installation of
all materials and equipment included in the Work in accordance with
manufacturer's instruction or according to the Contract Documents.
2.18.3 If tests in addition to those required by the
Contract Documents are desired by Owner, Contractor shall be advised in
reasonable time to permit such testing. Such additional tests will be at Owner's
expense and shall entitle Contractor to an increase in the Contract Price and
the Contract Time.
2.18.4 Except as explicitly identified in the Work Scope,
Owner shall furnish and pay for all materials, operators, equipment and
utilities required for any tests, including all raw materials, utilities, water,
testing equipment, and other materials.
2.19 USE OF COMPLETED PORTIONS.
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2.19.1 Whenever any portion of Work performed by
Contractor is mechanically complete, Owner may take possession of or use such
portion subject to the requirements of any insurance underwriters. If Owner
takes possession of any portion of the Work, such portion shall be deemed to
have achieved Mechanical Completion.
2.19.2 Any use by Owner of the Work as contemplated in
Section 2.13.1 hereof, shall in no case be construed as constituting acceptance
of the Work, and shall neither relieve Contractor of any of its responsibilities
under this Agreement, nor act as a waiver by Owner of any of the conditions
thereof. However, if such use increases the cost or delays the completion of
remaining portions of Work, Contractor shall be entitled to a Change Order for
such cost and/or delay in accordance with the provisions of ARTICLE 7 of this
Agreement. Owner shall solely be responsible for any damage or ordinary wear and
tear caused by such use and Contractor's warranties with respect to such portion
of the Work shall commence to run as of the date such use commences.
2.19.3 Notwithstanding the use of any portion of the Work
by Owner pursuant to this Section 2.13, Contractor shall have full access to
such portion of the Work to the extent Contractor believes is necessary for the
performance of the remaining portions of the Work. Contractor shall not be
liable for any interference, hinderance, shutdowns, or other effects caused by
Contractor's access to such portion of the Work or performance of the balance of
the Work.
2.20 CLEANUP.
2.20.1 Contractor shall, at all times, keep its work areas
and that of its Subcontractors in a neat, clean, and safe condition. Disposal
areas for rubbish and debris at the Site will be designated by Owner.
2.20.2 At the completion of its Work, Contractor shall
promptly remove its equipment, temporary structures, debris, and excess
materials from Owner's property and leave the Site in a neat and clean
condition.
2.20.3 If Contractor or its Subcontractors fail to comply
with this Section 2.14 after reasonable written notice, Owner may remove such
equipment, temporary structures, debris, and excess materials at its expense and
will backcharge Contractor for the reasonable costs necessarily incurred by
Owner in connection therewith in accordance with Section 2.21.
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2.21 USE OF OWNER'S CONSTRUCTION EQUIPMENT OR FACILITIES.
2.21.1 Circumstances may arise where Contractor requests
Owner to make available to Contractor certain equipment or facilities belonging
to Owner for the performance of the Work. If Owner agrees to such request, the
equipment or facilities will be charged to Contractor at agreed rental rates;
provided that Owner shall not charge Contractor for the facilities to be
provided to Contractor pursuant to the provisions of the Work Scope.
2.21.2 Owner will furnish a copy of the equipment
maintenance and inspection record before equipment is rented, and these records
shall be maintained by Contractor during Contractor's use of equipment.
2.21.3 In the event such equipment is furnished with an
operator, such operator will perform its services under the complete direction
and control of Contractor and shall be considered Contractor's employee for all
purposes (including being covered by Contractor's insurance with respect to such
activities) other than the payment of wages, worker's compensation, or other
benefits, whether paid directly or indirectly by Owner.
2.22 DELIVERY, UNLOADING, AND STORAGE.
2.22.1 Contractor shall receive, unload, store in a secure
place, and deliver from storage to the Site all materials and plant equipment,
including Owner-furnished materials and plant equipment, required for the
performance of the Work. The storage facilities and methods of storing shall
comply with manufacturer or supplier requirements. Materials and equipment
subject to degradation by outside exposure shall be stored off the ground, on
dunnage in a weather-tight enclosure provided by Contractor.
2.22.2 Contractor shall keep complete and accurate
records, for Owner's inspection, of all materials and plant equipment received,
stored, and issued for use in the performance of the Work.
2.23 INSPECTION OF WORK.
2.23.1 Owner shall at any and all times have reasonable
access to the Work being performed hereunder, and all aspects thereof and to the
premises affected thereby, for inspection purposes, including the utilization at
Owner's expense of third-party inspectors and quality control personnel; and
Contractor shall provide reasonable facilities for such access and inspection.
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2.23.2 If the Contract Documents or applicable Laws
require any portion of the Work be tested or approved, Contractor shall notify
Owner of the readiness for inspection, and Owner will promptly inspect such
Work. If any such Work is covered up by Contractor without approval or consent
of Owner, Contractor shall, if required by Owner, uncover the Work for
examination and recover the Work without additional cost to Owner.
2.24 SHOP QUALITY SURVEILLANCE.
2.24.1 Further to the provisions of Section 2.17, Owner's
representative shall be afforded reasonable access to all areas of the
manufacturing plants while any Work is in progress. Upon Owner's reasonable
request, Owner's representative will be furnished with reasonable information
and access necessary to verify the Work is being performed in accordance with
the Contract Documents.
2.24.2 Owner's representative may visit the fabrication
plant on a regular basis to monitor the Work in progress. The frequency of these
visits shall be in relation to the level of work activity and the quality
history of the fabrication plant.
2.25 QUALITY PROGRAM REQUIREMENTS.
2.25.1 Contractor shall be required to establish and
maintain a quality program suitable for Work Scope and shall designate in
writing to Owner, the name of individual(s) responsible for ensuring that the
program is implemented. A quality plan shall be prepared to ensure adequate
control and assurance of quality.
2.25.2 The quality plan, including its procedures and
operations, shall be documented and, upon reasonable request by Owner, shall be
subject to review by Owner. The plan shall apply to the control of quality
throughout all areas of performance, including as appropriate, the design,
procurement, identification, stocking, and issue of material; construction,
identification or manufacturing process control; preservation of constructed
items or systems including unused materials until release and/or acceptance as
defined by the Contract Documents.
2.25.3 The plan shall provide that discrepancies in
products, materials, workmanship, or constructed items which do not conform to
the Contract Documents be reported to Owner and corrective action be taken as
provided in the plan. Provisions shall be included for the periodic review of
program criteria, adequacy and implementation. Program discrepancies shall be
reported and corrective actions taken.
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2.26 CORRECTION OF DEFECTIVE WORK.
2.26.1 At any time before Mechanical Completion, should
any installed material or workmanship be of lesser quality than that specified
by the Contract Documents (except for Used Equipment and Materials or materials
otherwise approved by Owner), Contractor shall, upon receipt of Owner's written
notice of such nonconformity and the bases thereof, remove any nonconforming
Work and any other Work damaged by the nonconforming Work and replace the
nonconforming Work and any other Work affected by replacing the nonconforming
Work, using conforming materials for that specified, all without additional cost
to Owner. If Contractor is not able within a reasonable time after written
demand to remove or replace, as required by the foregoing sentence, Contractor
shall be responsible to Owner for any reasonable costs incurred by Owner in
replacing or repairing such nonconforming Work. Owner has the option to withhold
applicable and reasonable portions of the payment due Contractor until such
replacement or repair Work has been completed. This Section is complementary to,
and is to be taken in conjunction with ARTICLE 4 and shall not be construed as
limiting Owner's rights or remedies as provided therein. Correction of defective
or nonconforming Work after the Mechanical Completion Date is covered by
Contractor's warranties and guaranties set forth in ARTICLE 4 hereof.
2.26.2 Re-examination of questioned Work may be ordered by
Owner and, if so ordered, the Work shall be uncovered by Contractor, if
necessary. If such Work is found to be in accordance with the Contract
Documents, Owner will pay the cost of uncovering and covering as Additional Work
as a Change Order to the Contract Price, and Contractor shall be entitled to an
extension of the Contract Time for the time required to uncover, test and
recover such Work. If the uncovered Work is found not to be in accordance with
the Contract Documents, Contractor shall pay all costs of uncovering and
covering in addition to the costs of correcting the nonconforming Work disclosed
and shall not be entitled to any extension of the Contract Time related thereto.
2.27 BACKCHARGES. In addition to the rights and obligations attendant
to ARTICLE 4, Owner shall have the following rights and Contractor the following
obligations:
2.27.1 In the event prior to Mechanical Completion the
item or items furnished by Contractor under this Agreement are found to be in
nonconformity with the Contract Documents as to workmanship and/or materials, it
remains the responsibility of Contractor to promptly correct any deficiency when
so directed. Owner will take reasonable measures to discover such non-compliance
as quickly as practical. However, failure to do so shall in no way relieve
Contractor of its responsibility prior to Mechanical Completion to promptly make
such corrections and/or modifications as required so as to minimize delay and/or
damage to other Work. Correction of defective or nonconforming Work after the
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Mechanical Completion Date is covered by Contractor's warranties and guaranties
set forth in ARTICLE 4 hereof.
2.27.2 If upon being notified by Owner of nonconforming
Work and having been directed to correct the nonconforming Work by a specific
date consistent with the current Project Schedule, Contractor states, or by its
action indicates to Owner, its inability or unwillingness to comply, then Owner
after at least five (5) days' prior written notice to Contractor may, without
limiting any other rights or remedies of Owner, proceed to have the Work
accomplished by others and backcharge Contractor for the reasonable cost of such
required Work.
2.27.3 The cost of such backcharge Work shall be computed
as follows:
2.28 Manual labor including foremen shall be charged at the total of
bare cost plus reasonable, actual payroll additives, plus an amount equal to
fifteen percent (15%) of such costs.
2.29 Material shall be charged at the actual delivered cost, plus ten
percent (10%) of such costs.
2.30 Equipment rental shall be charged at prevailing job Site rates.
2.31 Reasonable indirect costs, i.e., Project overhead, supervision,
administration, held engineering, materials handling, and procurement shall be
charged at actual reasonable cost, pro rata, plus an amount equal to fifteen
percent (15%) of such costs.
2.32 All reasonable contract costs for having the backcharge Work
performed by other contractors (including such contractors, labor, material,
equipment, and reasonable overhead and profit), shall be charged at actual
out-of-pocket cost.
2.33 Before proceeding on such backcharge Work, Owner will advise
Contractor and forward to Contractor an Authorization of Backcharge for
Contractor's signature. However, failure of Contractor to provide such written
authorization shall not impair Owner's right to proceed to have the Work
performed and charge Contractor therefor. Contractor shall pay actual costs
incurred, computed as set forth above, or Owner may withhold such sum from funds
due Contractor. The performance of backcharge Work shall relieve Contractor of
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its responsibilities under the Contract Documents with respect to express or
implied warranties, guarantees and specified standards for quality with respect
to such backcharge Work.
2.34 WAIVER OF LIENS.
2.34.1 Subject to Contractor's receipt from Owner of
amounts due under this Agreement, Contractor hereby waives to the fullest extent
permitted by Law all mechanics, other liens, or payment bond claims for or on
account of the Work done or materials furnished hereunder so that the
improvements of structures wherein the same may be incorporated and the land to
which they are appurtenant shall at all times be free and clear of all such
liens and claims. Contractor agrees to pay out-of- amounts received from Owner
for such purpose all amounts properly due by it to all Subcontractors and other
persons performing any Work or furnishing any labor or materials for any of the
Work. The foregoing lien releases shall be effective for Work done and materials
furnished through the date of the lien release and to the extent of payments
received by Contractor.
2.34.2 Subject to Contractor's receipt from Owner of
amounts due under this Agreement, if such liens or claims are placed on Owner's
property by any person performing any Work or furnishing any labor or materials
for any of the Work, Contractor shall, upon the request of Owner, have such
liens or claims removed at Contractor's expense and Contractor shall indemnify
Owner from any liabilities associated with such lien pursuant to ARTICLE 10 to
the extent Contractor has received from Owner all amounts due under this
Agreement.
2.34.3 Contractor agrees that it shall include, in every
subcontract related to this Project, provisions under which the Subcontractor
waives any mechanics, other liens, or payment bond claims it may have under Law
to the extent of payments received, and agrees to pay all amounts due by such
Subcontractor to any person performing any work or furnishing any labor or
materials to Subcontractor for any of the Work covered by this Agreement.
2.35 RESPONSIBILITY FOR WORK. Subject to Section 2.13, Contractor shall
be responsible for and shall bear any and all risk of loss or of damage to Work
until Mechanical Completion unless caused by the acts or omissions of Owner or
Owner's separate contractors.
2.36 TEMPORARY OFFICE AND STORAGE FACILITIES. Contractor shall be
responsible for providing office and storage facilities for its own use at the
Site in a location reasonably designated by Owner.
2.37 ENVIRONMENTAL CONDITIONS. Throughout performance of its Work,
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Contractor shall conduct all operations in such a way as to comply with Section
15.12, and Section 2.5. Subject to Section 2.5 and ARTICLE 3, Contractor shall
provide the following:
2.37.1 Suitable equipment, facilities and precautions to
prevent the discharge of contaminants from the Work which may violate any
environmental Law.
2.37.2 Fugitive Dust Control - Contractor shall be
responsible to provide reasonable fugitive dust control measures at all
excavations, material sites, demolitions, roads, disposal areas, borrow areas
and construction sites related to the Work of Contractor. Fugitive dust
generated from disturbed areas created by the construction shall be stabilized
by water spray or other method accepted by Owner.
2.37.3 Water Containment - Upon commencement of excavation
at the Site, as prescribed by and in accordance with applicable permits of which
Contractor has been advised by Owner through the Mechanical Completion Date,
Contractor shall retain any storm water drainage occurring on the Site from
being released as surface flow onto adjacent property provided that such
obstructions do not materially interfere with the Work. Contractor shall have
the right, without liability to Owner or any third party, to erect berms,
barriers or other obstructions to prevent storm water drainage from entering the
Site from adjacent property. Contractor shall have no the obligation or
liability to manage any storm water drainage diverted from entering the
boundaries of the Site.
2.38 EQUAL PRODUCTS AND SUBSTITUTIONS (does not apply to Used Materials
and Equipment). The naming of a certain brand, make or manufacturer or article,
device, product, material, fixture, form or type construction by name, maker or
catalog number, shall convey the general style, type, character and standard of
quality of the article desired and shall not be construed as limiting
competition. Contractor, with Owner approval, may propose to use any article,
device, product, materials, fixture, form or type of construction which in the
judgment of Contractor and Owner is equal to or better than the specified item
considering quality, workmanship, economy of operation, suitability for the
purpose intended, and acceptability for use on the Project.
2.39 PROCUREMENT. Contractor shall procure and pay for, in Contractor's
name as an independent contractor and not as agent for Owner, all Contractor and
Subcontractor labor, materials, equipment, supplies, manufacturing and related
services (whether on or off the Site) for construction of and incorporation into
the Work that are required by the Work Scope for completion of the Project in
accordance with this Agreement and are not explicitly specified to be furnished
by Owner. Except for Used Materials and Equipment, such items shall be new,
unless otherwise agreed by Owner and Contractor, and warranted and guaranteed as
set forth in ARTICLE 4. Upon the first to occur of (a) initial operation of the
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Project, or (b) termination of this Agreement, all such warranties and
guaranties to which Contractor has rights shall be assigned by Contractor to
Owner or Owner's assignee; provided that Contractor shall have the benefit of
such warranties to the extent Owner makes any warranty claim against Contractor
related to the items to which any such warranty applies. Neither Contractor, its
Subcontractors, nor any person under Contractor's control shall knowingly take
any action that will release, void, impair or waive any warranties or guaranties
on equipment, materials or services that it procures from others.
ARTICLE 3 OWNER'S RESPONSIBILITIES
3.1 OWNER'S RESPONSIBILITIES. In addition to its obligations set forth
elsewhere in the Contract Documents, Owner shall:
3.1.1 obtain and pay for all required permits and
licenses, certificates, government allocations, authorizations, priorities and
approvals necessary for the Project which are required to be taken out in
Owner's name (collectively "permits") (except building permits and normal
construction type permits which are the responsibility of Contractor). Owner
shall promptly advise Contractor in writing of any permit conditions,
requirements or limitations that apply to Contractor or the performance of the
Work and shall submit any notifications required to the appropriate governmental
authority. Permits that are the responsibility of Owner include, but are not
limited to, environmental, air quality and mining permits, and any permits
relative to permanent facilities, pollution and water rights. Owner specifically
acknowledges that the Work Scope contemplates a Project with a nominal capacity
of 3000 tons per day and that Owner's existing permits may allow a Project of
only 2000 tons per day capacity. It is the responsibility of Owner, not
Contractor, to obtain any necessary permits, approvals and consents necessary to
permit the Project to be constructed and operated at design capacity as set
forth in the Work Scope. Contractor shall be entitled to a Change Order for the
effect of the failure to obtain, or the changed terms and conditions of, any
necessary governmental permits, approvals and consents other than those that
Contractor is obligated to obtain, as specified in the Work Scope necessary to
allow the Project to be constructed and operated as set forth in the Work Scope.
3.1.2 appoint one or more individuals who shall be
authorized to act on behalf of Owner, with whom Contractor may consult at all
reasonable times, whose instructions, requests, and decisions will be binding
upon Owner as to all matters pertaining to the Project, the Work and the
performance of the parties hereunder.
3.1.3 pay Contractor the costs and compensation provided
for in the Contract Documents.
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3.1.4 furnish Contractor information in the possession of
Owner identifying the type and location of utility lines and other man-made
objects beneath the Site or otherwise informing Contractor of any utility lines
of which Owner is aware. Contractor shall have the right to rely upon such
information and shall have no liability for any damage or injuries related to
underground utilities or other man-made objects that are not located or
identified on the drawings or other documents provided by Owner.
3.1.5 promptly report to Contractor any defects or
suspected defects in the Work in order that Contractor may take prompt,
effective measures to correct the defect.
3.1.6 provide and permit Contractor and its Subcontractors
the free use of water, air, light, heat and other utilities, at the locations on
the battery limits of the Site identified on Schedule B, all at locations
mutually acceptable to Contractor and Owner. Permanent utilities shall be
installed by Owner and be available for use by Contractor without cost to
Contractor at such locations no later than March 1, 1998 or Owner shall
reimburse Contractor by way of Change Order for the costs of continuing
temporary utilities at and to the Site after such date.
3.1.7 furnish the Site, with areas for storage and
handling of construction materials and equipment, field fabrication and assembly
work.
3.1.8 provide supervisory, technical and operating
personnel for package turnover of the Project, including electrical system
checkout, equipment calibrations and tests.
3.1.9 furnish required Owner information and Owner-
furnished equipment in a timely manner and render timely decisions pertaining
thereto.
3.2 OWNER'S REPRESENTATIONS AND WARRANTIES. Owner represents
and warrants to Contractor as follows:
3.2.1 Owner has and during the Contract Time will maintain
sufficient financial capacity and resources to perform all of Owner's
obligations under the Contract Documents, including but not limited to payment
of the Contract Price to Contractor when and as such payments become due.
3.2.2 Except with respect to certain government
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environmental and operating permits that Owner will obtain as provided herein,
Owner has all requisite technology licenses, consents, approvals and
authorizations to enter into this Agreement and have the Project constructed on
the Site.
ARTICLE 4 WARRANTIES AND GUARANTIES
4.1 WARRANTY AND GUARANTIES. Except as otherwise provided in Section
4.4 hereof, Contractor warrants and guaranties to Owner for the Warranty Period
that all equipment, materials and other items furnished as a part of the Work
under this Agreement shall be of good quality and free from defective
workmanship and as otherwise warranted in the Work Scope. Contractor agrees to
correct promptly as a part of the Contract Price any Work performed hereunder
that, at any time during the Warranty Period proves to be defective or deficient
in material or workmanship. The Work shall conform in all material respects with
the approved plans, drawings and specifications for the Project. After receipt
of a written notice from Owner which shall be given within thirty (30) days
after discovery of such defective or deficient material or workmanship,
Contractor shall bear all costs and expenses associated with correcting any
warranted work, including, without limitation, necessary disassembly,
transportation, reassembly and re-testing, as well as reworking, repair or
replacement of such Work, and disassembly and reassembly of adjacent work when
necessary to give access to the defective or nonconforming Work. Contractor's
obligations under this Section 4.1 shall survive Final Acceptance of the Work
and termination of the Agreement for the Warranty Period. Nothing in this
Section 4.1 shall be construed to establish a period of limitation with respect
to other obligations Contractor might have under the Contract Documents.
Contractor shall use its reasonable efforts to obtain a minimum of a twelve (12)
month warranty commencing on Mechanical Completion on all new purchased major
engineered equipment provided as a part of the Work.
4.2 NO LIENS AND ENCUMBRANCES. Contractor warrants and guaranties that
when title to the Work passes to Owner, it shall pass free and clear of all
liens, claims, security interests and other encumbrances, and that none of such
Work shall be acquired by Contractor subject to any agreement under which a
security interest or other lien or encumbrance is retained by any person.
4.3 EXCLUSIONS. The warranties and guaranties set forth in this ARTICLE
4 shall not apply in the case of misuse, abuse, neglect or unauthorized
modifications, repairs or substitutions by Owner to the Work and as otherwise
excluded or limited in the Work Scope. No warranty is provided for equipment,
materials or labor furnished by persons other than Contractor or its
Subcontractors or for normal wear and tear. Owner acknowledges that except as
expressly identified in the Work Scope, Contractor is not performing process
engineering for the Project and except as expressly identified in the Work
Scope, Contractor does not represent, warrant or guarantee that the Project will
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achieve any desired level of production throughput, quality of product or other
performance criteria.
4.4 USED MATERIALS AND EQUIPMENT; SPECIAL APPLICATION EQUIPMENT. Any
Used Materials and Equipment products, equipment, systems or materials
incorporated in the Work at the direction, with the consent of, or upon the
specific request of Owner, shall be covered exclusively by the warranty, if any,
of the manufacturer and/or vendor and is not included in the warranty set forth
in Section 4.1 hereof. There are no warranties which extend beyond the
description on the face thereof.
4.5 NO OTHER WARRANTIES. THE WARRANTIES, GUARANTIES AND REMEDIES SET
FORTH ABOVE AND IN THE WORK SCOPE ARE IN LIEU OF ANY OTHER AVAILABLE AT Law OR
OTHERWISE. ALL OTHER WARRANTIES EXPRESSED OR IMPLIED INCLUDING THE WARRANTY OF
MERCHANTABILITY AND THE WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE ARE
EXPRESSLY DISCLAIMED.
4.6 DOCUMENTATION. Contractor shall collect all written warranties and
equipment manuals for engineered equipment that is part of the Work and deliver
them to Owner.
ARTICLE 5 CONTRACT TIME
5.1 PROJECT SCHEDULE.
5.1.1 Single Schedule. Owner and Contractor are committed
to using the Project Schedule to their best mutual advantage. They agree to work
to one schedule developed openly and by mutual agreement, with no hidden
schedules or agendas for either; that they will both participate in developing a
Project Schedule upon which they can both rely; that they will work together to
ensure the schedule is properly and timely updated at least monthly, and if
circumstances require, at more frequent intervals; and that they have agreed on
the Mechanical Completion Date set forth below which reflects their time goals
and accommodates Owner's needs.
5.1.2 Mechanical Completion Date. Contractor agrees to
achieve Mechanical Completion of the Work no later than May 16, 1998, as such
date may be adjusted as provided by the terms of this Agreement (the "Mechanical
Completion Date"). The Mechanical Completion Date has been agreed upon based on
the understanding that both parties will cooperate with each other to expedite
approvals, consents, permits and other time sensitive matters so that the Work
can proceed in a logical and expeditious manner.
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5.1.3 Early Completion. For each day that Contractor
achieves Mechanical Completion prior to the Mechanical Completion Date, as such
Date may be adjusted as provided herein, Owner shall pay Contractor the
following amounts. This early completion bonus shall be paid within fifteen (15)
days after Mechanical Completion:
Calendar Days
-------------
Dollars Per Day
---------------
1 through 15
$ 2,500 for each day through the fifteenth (15th) day
16 or more
$ 5,000 for each day after the fifteenth (15th) day
In no event shall the bonus amount for the first fifteen
(15) days of any early completion period exceed $2,500 per day regardless of how
early Mechanical Completion is achieved.
5.1.4 Liquidated Damages. For each day that Mechanical
Completion is not achieved after the expiration of the Mechanical Completion
Date, as such Date may be adjusted as provided herein, Contractor shall pay
Owner the following amounts as agreed upon and liquidated damages. The
liquidated damages shall be deducted from the Final Payment and shall be Owner's
exclusive remedy for delay in achieving Mechanical Completion assuming
Mechanical Completion is eventually achieved.
Calendar Days
-------------
Dollars Per Day
---------------
1 through 15
None
16 through 30
$ 2,500 for each day after the sixteenth (16th) day through the
thirtieth (30th) day
31 or more
$ 7,500 for each day after the thirtieth (30th) day
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In no event shall the liquidated damages for days 16
through 30 of any delay period exceed $2,500 per day regardless of how late
Mechanical Completion is achieved.
5.2 MECHANICAL COMPLETION AND FINAL ACCEPTANCE PROCEDURES.
5.2.1 Mechanical Completion Procedure.
5.3 Contractor and Owner shall develop a mutually agreed upon turnover
package plan consisting of the breakout of the Work into major areas (as defined
in the Work Scope) schedule for package turnover and acceptance procedures.
5.4 Within five (5) Business Days after receipt of Contractor's notice
that a turnover package is or will be mechanically complete, Owner and
Contractor will test and inspect the turnover package in order to achieve
Mechanical Completion on a coordinated area-by-area basis. Based upon this test
and/or inspection of the turnover package, Owner shall, within two (2) Business
Days after completion of the tests and inspections, identify any defects,
deficiencies and/or discrepancies between the installed equipment, materials and
workmanship as represented by the specifications, of which it has knowledge. If
no defects or deficiencies are noted or identified, the area which was part of
the turnover package shall be deemed to be mechanically complete (but Contractor
shall not be relieved of any liability therefor under ARTICLE 4 or elsewhere in
this Agreement). If defects or deficiencies are noted or identified Contractor
shall take corrective action for such defects, deficiencies and/or
discrepancies. Subsequent to performing corrective measures to remove such
defects, deficiencies and/or discrepancies which present an unsafe operating
condition or adversely affect the reliable operation of the Project, Contractor
shall again provide notice to Owner that the turnover package is mechanically
complete, at which time Owner and Contractor shall again, within two (2)
Business Days of such notice, test and inspect the turnover package in order to
achieve Mechanical Completion, and this sequence of steps shall be repeated
until each turnover package is mechanically complete. With respect to those
defects, deficiencies and/or discrepancies which do not present an unsafe
condition or affect the reliable operation of the Project, Contractor and Owner
shall develop a "punch list" of items requiring correction by Contractor (the
"Punch List Items") to effect Final Acceptance and such items shall not be the
cause of delaying Mechanical Completion.
5.5 Contractor shall provide notice to Owner that Contractor deems the
entire Work to be mechanically complete when the Work and each component, system
or subsystem thereof (i) complies with all provisions of the Contract Documents
relating to the installation except for Punch List Items; (ii) is ready for
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start-up of operations at the design criteria specified in the Work Scope; (iii)
may be operated without damage to the Work or any other property and without
injury to any person, and in compliance with permits (of which Contractor has
knowledge as of the date on which the Detailed Engineering Documents were
prepared or implemented by Change Order as provided herein) and in compliance
with applicable Laws; and (iv) the equipment is ready for initial operation (at
the design criteria specified in the Work Scope), adjustment and testing.
5.6 During tests and inspections for Mechanical Completion, Owner shall
provide operating and maintenance personnel as necessary to determine Mechanical
Completion.
5.6.1 Final Acceptance Procedure.
5.7 Subsequent to Mechanical Completion and upon completion of the
Punch List Items, Contractor shall provide notice to Owner that Contractor deems
the Work ready for Final Acceptance. Final Acceptance shall be deemed to have
been achieved when all of the following have occurred:
5.7.1 Owner has been assigned all permits, licenses, and
approvals obtained by Contractor and assignable to Owner.
5.7.2 Owner has received all Drawings and Specifications,
including record drawings of the Work, test data, and other technical
information required by the Contract Documents.
5.7.3 Contractor has successfully completed all tests of
the Work required by the Contract.
5.7.4 Owner has received all operations, maintenance, and
spare parts lists and manuals and all instruction books required by the
Contract Documents.
5.7.5 Contractor has performed and corrected all Punch
List Items pursuant to Section 5.2.1.2 herein.
5.7.6 The Work has been completed in accordance with
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applicable Laws, and in accordance with applicable permits relating to design
and construction known to Contractor at the time the Work was performed.
5.8 Within ten (10) days after receipt of notice that the Work is ready
for Final Acceptance, Owner using reasonable efforts, shall give notice to
Contractor of any deviation from the requirements of Section 5.2.2.1 above of
which it then has knowledge. Contractor shall then perform corrective measures
to remove such deviations and shall again provide notice to Owner that the Work
is deemed ready for Final Acceptance. Owner will have five (5) days after each
subsequent notice to advise Contractor of any additional or remaining deviations
from the requirements of Section 5.2.2.1 above of which it is aware which must
be corrected by Contractor as a condition to Final Acceptance.
5.9 If no deviations exist, or if Owner fails to notify Contractor of
any deviations within the above time frames, Final Acceptance will be deemed to
have been achieved, and Owner shall immediately issue a notice of Final
Acceptance dated to reflect the actual date of Final Acceptance.
5.10 Contractor understands that it is important to Owner that Final
Acceptance occur as soon as reasonably practicable after Mechanical Completion.
Therefore, Contractor agrees to promptly and diligently complete the
requirements of Section 5.2.2.1 above following Mechanical Completion.
5.11 PROJECT SCHEDULE, PROGRESS REPORTING, AND MEETINGS.
5.11.1 Upon execution of this Agreement by Owner and
Contractor, Contractor will provide to Owner for review a preliminary, interim
schedule (the "Preliminary Schedule") for the performance of the Work which
shall include a Preliminary Schedule of values. Owner shall provide any comments
on the Preliminary Schedule to Contractor within five (5) days after submission
to Owner for review. Within thirty (30) days thereafter, Contractor will update
the Preliminary Schedule and submit to Owner for review (a) a project schedule
for the Work, with the proper and reasonable activity sequences and durations
required to meet the Mechanical Completion Date (the "Project Schedule"), and
(b) a Schedule of Values for payment purposes, which Schedule of Values shall be
subject to Owner's approval as specified in Section 6.5.
5.11.2 During the performance of the Work, Contractor
shall submit the following periodic reports to Owner unless otherwise directed
by Owner:
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5.12 A computerized PROJECT SCHEDULE. This schedule shall be based upon
the Critical Path Method, shall be prepared by Contractor and submitted to Owner
for review. This schedule shall be prepared using the SureTrak software and
parties agree that such is acceptable.
5.12.1 The schedule shall set forth and reflect the
utilization of Contractor's resources required to perform the Work, the logical
sequence of design, procurement and construction activities, appropriate
interfaces between activities, Project key dates and necessary interfaces with
Subcontractors. The schedule shall contain the various activities required to
perform the Work and the dates the activities shall be started and completed in
order to complete the Work by the Mechanical Completion Date.
5.12.2 One reproducible drawing of the Project Schedule
shall be submitted to Owner with each update.
5.12.3 Contractor shall use reasonable efforts to maintain
such schedule; provided, however that Contractor shall have the right to adjust
such schedule, and the sequence, activities and logic utilized in such schedule,
in any manner Contractor believes is necessary or appropriate to achieve
Mechanical Completion by the Mechanical Completion Date.
5.13 A CONTRACT PROGRESS CHART which combines the manhours and schedule
activities to form a basis to monitor progress. This is a graphic representation
showing schedule and actual manpower curves and progress curves, and schedule
and actual progress percentages for major activities. This document shall be
updated and issued monthly utilizing an Owner-approved form.
5.13.1 If a submitted Project Schedule reflects a slippage
in the projected Mechanical Completion Date, a narrative report shall accompany
said schedule indicating the cause of the delay and describing the corrective
action which shall be taken to improve the schedule in order to meet the
required Mechanical Completion Date. The Project Schedule shall be revised and
updated by Contractor accordingly and submitted to Owner for review.
5.14 DELAYS. In the event of any delay or hindrance to Contractor not
authorized by this Agreement which is due to a Force Majeure Event or is caused
by Owner, or by any other of Owner's separate contractors, and which Contractor
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believes has delayed or hindered the performance of the Work, Contractor shall
give written notice in accordance with ARTICLE 7 hereof and submit in writing a
request for such extension of time and increase in the Contract Price as
Contractor believes is justified utilizing the most recent update of the Project
Schedule.
5.15 TIME EXTENSIONS OR ADJUSTMENTS.
5.15.1 Except as otherwise provided in the Contract
Documents, the Mechanical Completion Date may only be changed by a Change Order.
5.15.2 The parties hereto acknowledge and agree that the
only contractually mandated date is the Mechanical Completion Date. Contractor
acknowledges and agrees that the Mechanical Completion Date will not be adjusted
or modified if at all possible, except in accordance with the Contract
Documents.
5.15.3 The parties agree that the Project Schedule is a
plan or estimate for Contractor's Work which may be revised from time to time by
Contractor; that the general flow of the Work and the duration and sequence of
the various activities are flexible and that the schedule will be subject to
revision by Contractor as conditions warrant or require; and that all such
revisions shall be in accordance with the requirements of this Agreement and
consistent with Contractor's obligations and responsibilities to Owner and
separate contractors under this Contract. Contractor agrees that should
conditions or Changes in the Work occur which delay any portion of the Work,
Contractor will, to the extent practicable and reasonable, take prompt and
timely action, in compliance with the requirements of this ARTICLE 5, to adjust
or modify the sequence of the Work and the duration of activities therefor; the
goal of such action shall be to absorb or adjust for the effect of any such
condition or Change in order that no adjustment will be required to the
Mechanical Completion Date if Contractor is reasonably able to do so without
additional cost or liability to Contractor. The burden of substantiating a claim
for an extension of time shall rest with Contractor.
5.16 FORCE MAJEURE EVENTS.
5.16.1 Force Majeure Event. Neither party hereto shall be
considered to be in default in performance of any obligation hereunder if
failure of performance shall be due to a Force Majeure Event. For the purposes
of this Agreement, the term "Force Majeure Event" shall mean any cause beyond
the control of the party affected, including, but not limited to, flood,
earthquake, storm, fire, lightning, epidemic, war, riot, civil disturbance,
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labor disturbance, sabotage, and restraint by court order or public authority,
which by exercise of due foresight such party could not reasonably have been
expected to avoid, and which by exercise of due diligence it is unable to
overcome. Neither party shall, however, be relieved of liability for failure of
performance if such failure is due to causes arising out of its own negligence
or to removable or remediable causes that it fails to remove or remedy with
reasonable dispatch. Nothing contained herein, however, shall be construed to
require either party to prevent or settle a strike or other labor disturbance.
5.16.2 Burden of Proof. In the event that the parties are
unable in good faith to agree that a Force Majeure Event has occurred, in any
proceeding to resolve the dispute the burden of proof as to whether a Force
Majeure Event has occurred shall be upon the party claiming a Force Majeure
Event.
5.16.3 Excused Performance. If either party is rendered
wholly or partially unable to perform its obligations under this Agreement
because of a Force Majeure Event, except for the obligation to pay money, that
party will be excused from whatever performance is affected by the Force Majeure
Event to the extent so affected; provided that:
5.17 The nonperforming party gives the other party prompt notice
describing the particulars of the occurrence, including an estimation of its
expected duration and probable impact on the performance of such party's
obligations hereunder, and, upon reasonable request, provides periodic reports
with respect thereto during the continuation of the Force Majeure Event;
5.18 The suspension of performance shall be of no greater scope and of
no longer duration than is reasonably required by the Force Majeure Event;
5.19 The nonperforming party shall exercise all reasonable efforts to
mitigate or limit damages to the other party;
5.20 The nonperforming party shall exercise all reasonable efforts to
continue to perform its obligations hereunder and to correct or cure the event
or condition excusing performance; and
5.21 When the nonperforming party is able to resume performance of its
obligations under this Agreement, that party shall give the other party written
notice to that effect and shall promptly resume performance hereunder.
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5.22 Notwithstanding anything contained herein to the contrary, delays
that are caused directly and primarily by Owner shall be deemed to be
suspensions pursuant to the provisions of ARTICLE 9 for which Contractor shall
be entitled to extensions in the time of performance and to compensation for any
additional costs incurred as a result therefrom.
5.23 UPDATED PROJECT SCHEDULE. Any time extension granted under this
ARTICLE 5 shall be included in Contractor's latest update of the Project
Schedule and the schedule adjusted appropriately thereby.
5.24 NO RELEASE. No extension of time granted under this ARTICLE 5
shall relieve Contractor from full responsibility for compliance with all of the
requirements of the Contract Documents, nor shall it be deemed a waiver by Owner
of its right to terminate this Agreement for default of Contractor.
5.25 TIME EXTENSIONS AFTER FINAL PAYMENT. No claim by Contractor for a
time extension under this Agreement shall be valid or allowable if asserted
after Final Payment.
5.26 ADJUSTMENT TO CONTRACT PRICE. In the event that an extension of
time is granted pursuant to Section 5.6, in whole or in part, and Contractor
incurs additional actual costs as a direct result of the delay or hindrance,
Owner shall increase the Contract Price and issue Change Orders to reflect such
additional costs.
5.27 PROGRESS. Contractor shall keep Owner reasonably advised in
advance as to its plans for performing each part of its Work. If at any time
Contractor's progress is inadequate to meet the requirements of the Contract
Documents, Owner may so notify Contractor who shall thereupon take such steps as
may be necessary to improve its progress. Neither such notice by Owner nor
Owner's failure to issue such notice shall relieve Contractor of its obligation
to achieve the quality of Work and rate of progress required by the Contract
Documents.
ARTICLE 6 COMPENSATION
6.1 CONTRACT PRICE. Owner agrees to pay Contractor as compensation of
Contractor hereunder for the performance of the Work the fixed price of FIFTEEN
MILLION SIX HUNDRED THOUSAND DOLLARS ($15,600,000) (the "Contract Price").
Except as otherwise provided herein, in the event the costs and expenses
incurred by Contractor for the Work hereunder exceed the Contract Price,
Contractor shall be solely responsible and liable for such excess costs and
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expenses and shall not be entitled to any additional reimbursement or
compensation from Owner, and Owner shall not be liable or responsible to
Contractor or any third party for such excess costs and expenses.
6.2 OPERATION BONUS. Owner acknowledges that except as expressly
provided in the Work Scope, Contractor has and does not provide any process
guaranties or warranties concerning the production of the Project.
Notwithstanding the lack of such guaranties and warranties, in addition to the
Contract Price, Contractor shall be entitled to receive from Owner an amount
equal to TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) (the "Operation Bonus")
once the Project has operated as set forth in this Section 6.2 for one hundred
twenty (120) Operating Days (the "Operation Period"). For the purposes hereof,
the term "Operating Days" means the aggregate of all days on which the Project
is in operation or could have been in operation commencing on the date the
Project first processes material. Operating Days need not be consecutive but
specifically exclude any downtime due to ordinary repairs or maintenance or
repairs and maintenance attributable to Contractor's performance of the Work.
Any day on which the Project does not operate due to reasons not attributable to
ordinary repairs and maintenance or Contractor's performance of the Work shall
be deemed to be Operating Days for the purposes of this Section 6.2.
Notwithstanding the foregoing, for a day to be an "Operating Day," the Project
must operate in accordance with the Design Criteria set forth in the Work Scope,
as such Design Criteria may have been modified as provided herein, and the
Project must achieve, or be capable of achieving, the designed outputs as to
both quality and quantity unless attributable to causes unrelated to the
Project.
6.3 PAYMENT. Partial payments of the Contract Price will be made to
Contractor for applications for payment received in an amount equal to
ninety-five percent (95%) of the cost of the Work completed by Contractor, less
the aggregate of previous payments. Five percent (5%) of such invoices (the
"Retention") shall be withheld by Owner to secure faithful performance of
Contractor's obligations hereunder. Subject to the terms and conditions hereof,
the Retention shall be paid to Contractor at the time of Final Payment. All
amounts paid to Contractor prior to the effective date hereof for any services
and work related to the Project or under the Services Agreement dated December
3, 1996 (the "Service Agreement") shall not be applied toward or reduce any
amount due hereunder to Contractor.
6.4 TIME OF PAYMENT. Partial payments described in Section 6.3 hereof
shall become due to Contractor fifteen (15) days after submission to Owner of a
proper application for payment. Partial payment to Contractor shall not operate
as an approval or acceptance of Work furnished pursuant to this Agreement.
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6.5 SCHEDULE OF VALUES. Before the first application for payment
hereunder Contractor shall submit to Owner for approval a preliminary schedule
of values allocated to the various portions of the Work. The schedule of values
shall be prepared in such a manner that each major item of the Work (including
engineering) and each subcontracted item of the Work is shown as a separate line
item. This schedule shall be used as a basis for reviewing applications for
payment and may be updated from time to time by mutual agreement of the parties
based on the progress of the Work. Within five (5) Business Days after receipt
by Owner of the Schedule of Values, or any proposed amendment thereto, Owner
shall either approve such Schedule of Values or provide Contractor with written
notice of Owner's objections to such Schedule.
6.6 APPLICATIONS FOR PAYMENT.
6.6.1 All applications for payment shall be submitted on a
bi-weekly basis. Review by Owner of Contractor's application for payment shall
be accomplished within ten (10) days after its receipt. Owner acknowledges that
timely payment is a material part of the consideration of this Agreement. Owner
may, as a condition precedent to any payment to Contractor, require Contractor
to submit complete waivers or releases of any and all claims (except for
retention if any) of any person, firm or corporation providing services,
equipment or materials through the date of such application in connection with
or in any way related to the performance of this Agreement, conditioned on
payment of the amounts included in such application. When required, Contractor
shall, in addition, furnish acceptable evidence that all such claims have been
satisfied. Owner shall pay an additional charge of one percent (1%) of the
invoiced amount per month for any payment not paid to Contractor when due (as
determined under ARTICLE 13 in case of dispute), including any amounts
improperly withheld for any reason pursuant to the terms hereof. In the event
any such application for payment has not been paid, or contested in good faith
as provided in ARTICLE 13, within fifteen (15) days after its due date,
Contractor shall have the right to suspend performance of the Work and such
suspension shall be considered to be a compensable delay by Owner. In the event
any such application for payment has not been paid within sixty (60) days after
its due date, Contractor shall have the right to terminate this Agreement unless
it receives payment in full of such application for payment within ten (10) days
after written demand therefore, and such termination shall be treated as if
Owner terminated for convenience pursuant to Section 12.2 hereof. Such
suspension and/or termination shall not limit or otherwise affect Contractor's
right to pursue any other remedies available at law or in equity. The provisions
of this Section 6.6.1 are subject to the dispute resolution procedures set forth
in ARTICLE 13 hereof.
6.6.2 Each application for payment shall be accompanied
by a certification signed by Contractor certifying to the effect that, except as
previously disclosed to Owner: (a) there are no known claims, liens, security
interests or encumbrances in the nature of mechanics' or materialmen's liens or
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claims or otherwise arising out of or in connection with the performance by
Contractor or any Subcontractor of the Work outstanding or known to exist at the
date of the application for payment; (b) all due and payable bills with respect
to the Work have been paid to date or will be paid from the proceeds of the
application for payment, and (c) releases, assignments and/or waivers from all
Subcontractors for Work done and materials furnished for which payment has been
made by Owner to Contractor have been obtained in such a form as to constitute
an effective waiver of all such liens and claims under the Laws of the State of
Utah to the extent of payments made therefor by Owner and shall be delivered to
Owner together with a similar release and waiver signed by Contractor.
6.6.3 Contractor warrants and guarantees that title to all
Work, materials and equipment covered by an Application for Payment, whether
incorporated in the Project or not, shall pass to Owner to the extent of receipt
by Contractor of payment therefore, free and clear of all liens, claims,
security interests or encumbrances.
6.6.4 Contractor shall submit the original of applications
for payment to:
Crown Asphalt Ridge, L.L.C.
215 South State Street, Suite 550
Salt Lake City, Utah 84111
Attn: Accounts Payable
6.6.5 Any amount otherwise payable under this Agreement
may be withheld, in whole or part, if either:
6.7 Contractor is in material default of any agreement covenant,
obligation or condition set forth in this Agreement;
6.8 Contractor becomes insolvent or files or has filed against it a
petition for rearrangement, composition or compromise with its creditors under
applicable Laws;
6.9 Contractor fails to timely remedy defective Work; or
6.10 Contractor fails to timely pay when due any Subcontractor for any
Work properly performed on the Project.
Before any amount may be withheld from any payment to Contractor,
Owner shall advise Contractor in writing as to the reasons for such deduction,
the amount to be withheld, and the reasonable steps which, if taken by
Contractor, will result in the release of such withholding and shall meet with
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Contractor in a good faith effort to resolve any such reason for withholding.
Owner shall pay when due the portion of any invoice that is not in dispute, and
shall pay any disputed amounts as provided in ARTICLE 13. Owner shall pay to
Contractor any amounts withheld under this Section 6.6.5 if Contractor cures the
defaults in its performance that formed the basis for such withholding.
6.11 PAYMENT OF SUBCONTRACTORS. Contractor shall promptly pay each
Subcontractor the amount to which any such Subcontractor is entitled. Contractor
shall indemnify and hold harmless Owner from any loss, cost, expense (including
but not limited to reasonable attorneys' fees) or liability arising from
Contractor's breach of this Section 6.7. Contractor shall, by an appropriate
agreement with each Subcontractor, require each Subcontractor to make payments
to their respective Subcontractors in a similar manner.
6.12 LIENS AND CLAIMS. At the time of each payment of Contractor's
application for payment hereunder, Contractor shall provide to Owner sufficient
documentation to establish that there are no mechanics', labor or materialmen's
liens or other claims, liens, security interests or encumbrances filed against
the Project, the Site and any and all interests and estates therein or any
improvements or materials placed on the Site, or if such matters exist,
Contractor shall endeavor to promptly have any such lien released by bond or
otherwise and deliver to Owner evidence of such release. If any such lien or
claim of lien is filed, Owner may withhold from the next payment invoiced by
Contractor, the final payment or other amount payable to Contractor under this
Agreement, an amount sufficient to discharge any or all such liens or claims. If
after thirty (30) days from the time such lien or claim is made, Contractor has
not discharged or bonded over such lien or claim, Owner may discharge such lien
or claim with the moneys withheld, whereupon for purposes of this Agreement such
moneys shall be deemed to have been paid to Contractor hereunder.
6.13 PAYMENT OR USE NOT ACCEPTANCE. No payment of an application for
Payment or other payment to Contractor or any use of the Project by Owner shall
constitute an acceptance of any of the Work and other work to be performed
hereunder furnished by Contractor hereunder or shall relieve Contractor of any
of its obligations or liabilities with respect thereto.
6.14 FINAL PAYMENT. Unless Owner determines to release a portion of the
Retention prior to Final Acceptance, Owner will make final payment of the
balance of the Contract Price due under this Agreement, including any remaining
Retention, (the "Final Payment") to Contractor within fifteen (15) days after
Final Acceptance. Final Payment to Contractor shall not release Contractor or
any surety from their obligations hereunder. Before issuance of Final Payment,
Owner may request satisfactory evidence that all payrolls, materials bills and
other indebtedness connected with the Work have been paid or otherwise
satisfied.
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6.15 OPERATION BONUS PAYMENT. The Operation Bonus shall be promptly
paid to Contractor within fifteen (15) days after the end of Operation Period
provided for in Section 6.2 hereof.
ARTICLE 7 CHANGES IN THE WORK
7.1 MINOR CHANGES. Owner may request minor Changes in the Work
consistent with the purpose of Work and not involving extra expense to or
additional time for performance by Contractor. Contractor shall make such minor
Changes in the Work at no additional cost to Owner and without any time
adjustment for the performance thereof.
7.2 VALUE CHANGE ORDERS. Contractor may from time to time during the
course of the Work request changes in the Work, submit capital cost savings
ideas and suggestions to Owner. If accepted by Owner, such ideas and suggestions
shall be deemed to be "Value Change Orders" and shall entitle Contractor to a
Change Order that includes the cost of engineering services related to such
Value Change Order in addition to the capital cost of such change. In the event
that the agreed upon projected capital cost reduction anticipated from such
change is not realized, Contractor will not be entitled to recover the cost of
such additional engineering services. The amount payable by Owner for such
additional engineering services shall be determined as contemplated by ARTICLE 8
or as is mutually agreed upon in the Change Order. Any capital cost savings from
a Value Change Order shall be shared seventy percent (70%) by Owner and thirty
percent (30%) by Contractor, and shall be implemented by Change Order.
7.3 PROCEDURE FOR CHANGE ORDERS. When Contractor becomes aware of any
circumstances that Contractor believes will necessitate a change in the Contract
Documents, an increase in the Contract Price or a change to the Contract Time
(each a "Change"), Contractor shall notify Owner (each, a "Change Order
Notice"). All Change Order Notices shall include documentation reasonably
sufficient to enable Owner to determine (i) the factors necessitating the
possibility of a Change; (ii) the impact that the Change is likely to have on
the Contract Price; (iii) the impact that the Change is likely to have on
scheduling and the Mechanical Completion Date; and (iv) such other information
as Owner may reasonably request in connection with such Change. If Owner desires
to make a Change, it shall submit a "Change Order Request" to Contractor.
Contractor shall promptly review the Change Order Request and notify Owner in
writing of the options for implementing the proposed Change (including, if
practicable any option that does not involve an extension of time) and the
effect, if any, each such option would have on the Contract Price, the
Mechanical Completion Date, the Project Schedule, and any warranties or
guaranties. Contractor shall provide Contract Price, schedule and performance
guaranty impacts to Owner for Changes proposed by Owner. Owner may, but shall
not be obligated to, issue a written order covering such proposed Change (each,
a "Change Order"), in which event the contents of Contractor's notice described
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in this Section 7.3 shall be binding on Contractor. In the event Owner disagrees
with Contractor's statement of the effect of such Change on the Contract Price,
the Mechanical Completion Date, the Project Schedule, or the warranties or
guaranties, Owner may proceed with issuance of the Change Order while the
dispute is being resolved.
7.4 CONTINUED PERFORMANCE PENDING RESOLUTION OF DISPUTES.
Notwithstanding a dispute regarding the amount of any increase or decrease in
the Contract Price with respect to a Change, Contractor shall proceed with the
performance of such Change promptly following Owner's execution of the
corresponding Change Order. Until any such dispute is settled by an amendment to
the Contract Price, Contractor shall be entitled to payments on a time and
material basis as set forth in ARTICLE 8 and the rates and policies set forth
therein. Except in the event of an emergency or minor Changes, Contractor shall
not be obligated to put Changes into effect until the Contract Price has been
adjusted by mutual agreement in writing, in accordance with the provisions of
Section 7.3 or Owner has confirmed in writing the obligation of Owner to pay
Contractor on a time and materials basis as set forth in the immediately
foregoing sentence.
7.5 EFFECT OF FORCE MAJEURE EVENT. In the event and to the extent that
a Force Majeure Event affects Contractor's ability to meet the Mechanical
Completion Date, an equitable adjustment in such date and an adjustment due to
Contractor's actual and demonstrated costs caused thereby shall be made by
agreement of Owner and Contractor as provided in Sections 5.7 and 5.10.
7.6 DOCUMENTATION. All claims by Contractor for adjustments to one or
more of the Contract Price, the Mechanical Completion Date, the Project
Schedule, and the any warranties or guaranties as a result of Changes under this
ARTICLE 7 shall be supported by such documentation as is reasonably sufficient
for Owner to determine the accuracy thereof.
Contractor shall keep and require each of its Subcontractors, if any,
to keep, at no additional cost to Owner, full and detailed accounts of costs
chargeable to Owner on a time and material basis under any Change Order. During
the Project, and for one (1) year following Mechanical Completion of the Work,
Owner or its authorized representatives shall be afforded full access to such
accounts, records, and supporting documents for audit, copy (such copies will be
property of Owner), and verification of such costs. Contractor or Owner shall
remit promptly to the other party the amount of any adjustment resulting from
audit.
7.7 NOTICE OF CHANGE. Owner shall have the right, at any time and from
time to time, to make Changes in the Work, including either extra related Work
or deletions therefrom. When notified by Owner that a Change will occur,
Contractor shall discontinue Work on that portion of the Work to be changed,
unless otherwise specifically instructed by Owner in the notice of Change.
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7.8 UNKNOWN CONDITIONS. Contractor shall promptly after discovery, and
before such conditions are further disturbed, notify Owner in writing of: (1)
subsurface or latent physical conditions at the Site differing materially from
those indicated in the Contract Documents, or (2) unknown physical conditions at
the Site, of an unusual nature, materially differing from those ordinarily
encountered and generally recognized as inherent in Work of the character
provided for in this Agreement. To the extent practicable, Contractor shall
provide such notice the same day that Contractor becomes aware of such
conditions. Owner shall promptly investigate the conditions. If such conditions
increase or decrease Contractor's cost of performing the Work, or time required
for performance of any part of the Work, Owner and Contractor shall reasonably
negotiate a Change, as appropriate, to the Contract Time and the Contract Price.
7.9 PAYMENT FOR CHANGE ORDERS. Unless otherwise indicated in a Change
Order or agreed to in writing by the parties hereto, the amount of a Change
Order shall be (a) paid in the manner and as provided in ARTICLE 6 hereof, and
(b) included in the calculations for progress payments under Section 6.3 hereof.
Disputed Change Orders will be paid in the manner provided in ARTICLE 13 hereof.
ARTICLE 8 COST OF THE WORK FOR CHANGE ORDERS
Wherever the terms of this Agreement require the calculation of the
cost of the Work for a Change Order, the following provisions shall apply:
8.1 COST OF DESIGN & ENGINEERING SERVICES. Contractor's design and
engineering costs shall be calculated on the basis of manhours expended
multiplied by the Rate Schedule set forth in Schedule C hereto which manhours
are subject to an audit by Owner in accordance with generally accepted auditing
standards should a dispute arise between the parties relating thereto.
8.2 CONSTRUCTION LABOR AND OTHER COST ITEMS. Contractor shall
be paid for the following costs, without duplication, for the performance
of the Additional Work:
8.2.1 Direct Labor Cost. Payment shall be made for all
field classifications up to and including foremen, superintendents. resident
construction manager, general superintendent, assistant superintendents, general
foremen, safety representatives, surveyors, office personnel, field engineers,
time-keepers, maintenance mechanics, and similar field personnel, plus fifteen
percent (15%) of such cost.
8.3 The cost for direct labor of Contractor, includes:
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8.4 The cost of industrial accident or Worker's Compensation and
Occupational Disease Insurance.
8.5 The cost of social security taxes and unemployment compensation
insurance and all other statutory costs.
8.6 The additional costs of Contractor's Fringe Benefit package.
8.7 Per diem and overtime costs. The Contract Price is based on a 40
hour week and per diem for each field employee.
8.7.1 Contractor Equipment. A valuation for each item of
construction equipment delivered to the Project shall be established and agreed
to by Owner based upon ninety percent (90%) of the K-III Rental Rate for
Construction Equipment owned by Contractor. For new equipment, such agreed
valuation shall be either Contractor's original cost less allowed depreciation
or the appraised evaluation of an independent insurance appraiser obtained at
Contractor's expense, whichever is greater. Cost for equipment will include
mobilization, demobilization, use costs, replacement costs for normal and
required use of equipment.
8.7.2 Materials and Third-Party-Owned Construction
Equipment Costs. Payment for the cost of materials and/or third-party-owned
construction equipment furnished by Contractor shall be made, provided such
furnishing and use of materials was specifically authorized. For all such
materials, Contractor shall be paid the actual cost of such material, including
the transportation charges, plus ten percent (10%) of such costs. The charges
for third-party-owned construction equipment shall be at local and prevailing
rates, plus ten percent (10%) of such rates. Vendor's invoice or acceptable
substitute shall accompany the billing along with the verification by Contractor
of use of such materials.
8.7.3 Tools and Consumables. In lieu of payment for tools
and equipment with a new cost of Seven Hundred and Fifty Dollars (US $750.00) or
less each, and for consumables, Contractor shall be paid an amount equal to
eight percent (8%) of the actual direct labor cost of wages as defined in
Section 8.2.1.
8.7.4 Reasonable transportation, travel, hotel and moving
expenses of Contractor's personnel incurred in connection with the
Additional Work.
8.7.5 Cost of all materials, supplies and equipment
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incorporated in the Work, including costs of inspection, testing,
transportation, storage and handling, plus ten percent (10%) of such costs.
8.7.6 Cost of the premiums for any additional insurance
for Contractor for the performance of the Change or extra work, or any increased
surety bond premium necessitated by the Change or extra work, unless otherwise
paid by Owner.
8.7.7 Sales, use, gross receipts or other taxes, tariffs
or duties related to the Additional Work for which Contractor is liable.
8.7.8 Permits, fees, licenses, tests, royalties, damages
for infringement of patents and/or copyrights, including costs of defending
related suits for which Contractor is not responsible under this Agreement and
deposits lost for causes other than Contractor's fault or negligence.
8.7.9 All costs associated with establishing, equipping,
operating, maintaining and demobilizing the field office.
8.7.10 Reproduction costs, photographs, cost of telegrams,
facsimile transmissions, long distance telephone calls, data processing
services, postage, express delivery charges, telephone service at the Site and
reasonable petty cash expenses at the field office.
8.7.11 All water, power and fuel costs necessary for the
Additional Work.
8.7.12 Cost of removal of all Hazardous Materials and
nonhazardous substances, debris and waste materials, plus ten percent (10%) of
such costs.
8.7.13 Costs incurred due to an emergency affecting the
safety of persons and/or property, plus ten percent (10%) of such costs.
8.8 DISCOUNTS. All discounts for prompt payment shall accrue to Owner
to the extent such payments are made directly by Owner. To the extent payments
are made with funds of Contractor, all cash discounts shall accrue to
Contractor. All trade discounts, rebates and refunds, and all returns from sale
of surplus materials and equipment, shall be credited to the cost of the
Additional Work.
ARTICLE 9 SUSPENSION OF THE WORK BY OWNER
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9.1 SUSPENSION. Owner may, upon forty-eight (48) hours written notice
to Contractor, order Contractor to suspend, delay, or interrupt all or any part
of the Work without cause for such period of time as Owner may determine to be
appropriate for its convenience. Such notice of suspension of Work will
designate the amount and type of plant, labor and equipment to be committed to
the Site. During the period of suspension, Contractor shall use commercially
reasonable efforts to utilize its plant, labor, and equipment in such a manner
as to minimize costs associated with suspension. Upon receipt of any such
notice, unless the notice requires otherwise, Contractor shall:
9.1.1 Promptly discontinue the Work subject to the notice
on the date and to the extent specified in the notice;
9.1.2 Place no further orders or subcontracts for
material, services, or facilities with respect to suspended work except to the
extent required in the notice;
9.1.3 Promptly make every reasonable effort to obtain
suspension, upon terms satisfactory to Owner, of all orders, subcontracts, and
rental agreements to the extent they relate to performance of Work suspended;
9.1.4 Continue to protect and maintain the Work including
those portions on which work has been suspended;
9.1.5 Take such other action(s) to mitigate Contractor's
costs as Owner approves in writing;
9.1.6 As full compensation for such suspension, Contractor
shall be reimbursed for the following costs, reasonably incurred, without
duplication of any item, to the extent that such costs directly result from such
suspension of Work;
9.2 A standby charge to be paid to Contractor during the period of
suspension of work, which standby charge shall be sufficient to compensate
Contractor for keeping, to the extent required in the notice, its organization
and equipment committed to the work in a standby status;
9.3 All reasonable costs associated with mobilization and
demobilization of the plant, labor forces and equipment of Contractor and its
Subcontractors;
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9.4 An equitable amount to reimburse Contractor for the cost of
maintaining and protecting that portion of the Work which work has been
suspended; and
9.5 If, as a result of any such suspension of the Work, the cost to
Contractor of later performing the Work is increased or decreased, an equitable
adjustment shall be made in the cost of performing the remaining portion of Work
and the applicable portion of the Contract Price.
9.6 RESUMPTION OF WORK. Upon receipt of notice to resume suspended
work, Contractor shall promptly resume performance of the suspended work to the
extent required in the notice. Any claim on the part of Contractor for time or
compensation relating to the suspension of work shall be waived if not presented
to Owner in writing within ten (10) days after receipt of notice to resume work,
and Contractor shall, within the same ten (10) days, submit for review a revised
construction schedule.
9.7 EFFECT OF BREACH. Neither compensation or extension of time shall
be granted if suspension results from Contractor's breach of requirements of
this Agreement.
ARTICLE 10 INDEMNIFICATION
10.1 CONTRACTOR'S INDEMNIFICATION.
10.1.1 Subject to Section 11.5.2, Contractor agrees to
indemnify, defend, and save Owner, and its officers, members, agents, employees,
successors and assigns (collectively the "Owner Indemnified Parties") harmless
from and against any and all loss and expense, including attorneys' fees and
other legal expense, by reason of liability imposed or claimed to be imposed by
Law upon Owner Indemnified Parties on the basis of any theory of strict
liability for the performance by, or for the negligent acts or omissions of,
Contractor, its employees, agents or Subcontractors, in the performance of the
Work, including, but not limited to: (a) damage related to of bodily injuries,
including death at any time resulting therefrom, sickness, disease or infection
(collectively "Bodily Injuries"); (b) damage to property, sustained by any
person or persons, to the extent such Bodily Injuries or property damage arise
out of any such act or omission during the undertaking of or otherwise directly
and arising out of, incident or relating to the performance of the Work; (c)
damage or liability arising in whole or in part, through any such act or
omission, or civil or criminal violations, in failing to comply with applicable
Laws, and (d) any claim arising out of the breach of any obligation by
Contractor or any Subcontractor of obligations or responsibilities to employees
performing any portion of the Work or violation by Contractor or Subcontractors
of any labor or safety standards applicable to the Work.
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10.1.2 Notwithstanding the requirements of the foregoing
Section 10.1.1, Contractor shall have no obligation to indemnify Owner
Indemnified Parties for any pro rata liability imposed upon Owner Indemnified
Parties for damage, loss or expense, including attorneys' fees and other legal
expense, arising by reason of liability imposed or claimed to be imposed by Law
arising out of or relating to any negligent act or omission, strict liability or
criminal violations of any Owner Indemnified Party or of Owner's separate
contractors or their agents or employees; provided, however, that this provision
does not relieve Contractor of Contractor's pro rata liability under the
indemnity provisions hereof.
10.2 OWNER'S INDEMNIFICATION.
10.2.1 Subject to Section 11.5.2, Owner agrees to
indemnify, defend, and save Contractor, and its officers, members, agents,
employees, successors and assigns (collectively, the "Contractor Indemnified
Parties") harmless from and against any and all loss and expense, including
attorneys' fees and other legal expense, by reason of liability imposed or
claimed to be imposed by Law upon Contractor Indemnified Parties on the basis of
any theory of strict liability for the performance by, or for negligent acts or
omissions of, the Owner Indemnified Parties in the performance of the Work,
including, but not limited to: (a) damage because of Bodily Injuries; (b) damage
to property, sustained by any person or persons, to the extent such Bodily
Injuries or property damage arise out of any such act or omission during the
undertaking of or otherwise directly and arising out of, incident or relating to
the performance of the Work; (c) damage or liability arising in whole or in
part, through any such act or omission, or civil or criminal violations by any
Owner Indemnified Party in failing to comply with applicable Laws, and (d) any
claim arising out of the breach of any obligation by any Owner Indemnified Party
of obligations or responsibilities to employees or violation by any Owner
Indemnified Party of any labor or safety standards applicable to the Work.
10.2.2 Notwithstanding the requirements of the foregoing
Section 10.2.1, Owner shall have no obligation to indemnify the Contractor
Indemnified Parties for any pro rata liability imposed upon any of the
Contractor Indemnified Parties for damage, loss or expense, including attorneys'
fees and other legal expense, arising by reason of liability imposed or claimed
to be imposed by Law arising out of or relating to the negligent act or
omission, criminal violations or strict liability of any Contractor Indemnified
Party or their agents or employees; provided, however, that this provision does
not relieve Owner of Owner's pro rata liability under the indemnity provisions
hereof.
10.2.3 Owner shall indemnify, defend and hold harmless
Contractor from and against any claim that the Project violates or infringes on
any property right derived from the patented rights of Dr. Park Guymon.
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10.3 CLAIM PROCEDURE. Promptly after receipt by any Indemnified Party
under this ARTICLE 10 of notice of any claim or the commencement of any action,
said Indemnified Party shall notify the indemnifying party in writing of the
claim or the commencement of said action; provided that the failure to notify
the indemnifying party shall not relieve indemnifying party from any liability
which it may have to an Indemnified Party otherwise under this ARTICLE 10 unless
such failure prejudices the indemnifying party's ability to perform its
obligations under this ARTICLE 10. If any such claim shall be brought against an
Indemnified Party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and to assume the
defense thereof with counsel satisfactory to the Indemnified Party and to settle
and compromise any such claim or action. After notice of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the Indemnified Party under this ARTICLE 10 for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof.
10.4 NO LIMITATION. The provisions of the ARTICLE 10 shall not limit or
otherwise affect the rights and remedies of the parties not otherwise limited by
this Agreement and available at law or in equity.
ARTICLE 11 INSURANCE AND WAIVER OF SUBROGATION
11.1 CONTRACTOR'S INSURANCE.
11.1.1 General Requirement. During the Contract Time and
at all times during the performance and until completion of the Work,
Contractor, and its Subcontractors at any tier, shall each severally provide and
maintain at its own expense the insurance required by this Section 11.1 for the
benefit of Contractor performing Work at the Site and for the benefit of Owner
and its affiliated corporations; such insurance is to continue in force until
Final Acceptance.
11.1.2 No Owner Insurance. Except for the Builders Risk
Policy contemplated by Section 11.2 hereof, insurance shall not be provided by
Owner for Contractor, its Subcontractors, suppliers, service organizations,
testing companies, engineers, consultants or anyone else under contract with
Contractor. Contractor shall be solely responsible for procuring and maintaining
the following insurance coverage for all Work provided hereunder.
11.1.3 Specific Requirements. During the Contract Time,
Contractor and all Subcontractors shall maintain in force the following
insurance with companies with an "A" or better rating by A.M. Best Company,
unless otherwise agreed, and with policies written in a form acceptable to
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Owner; provided, however, that Contractor and all Subcontractors may, at their
discretion, maintain insurance in addition to or in excess of the limits set
forth herein:
(a) Professional Liability Insurance. Contractor shall
provide, for Owner's protection professional liability insurance for claims
arising from the negligent performance of the design and engineering services
provided under this Agreement shall be written for not less than $1,000,000 per
claim and in the aggregate. These requirements shall be continued in effect for
three (3) year(s) after the Mechanical Completion Date. If Contractor retains
consultants or Subcontractors who provide design or engineering services, said
entities shall carry professional liability insurance coverage in the foregoing
sums unless Owner, in its sole discretion, lessens or waives this requirement in
writing for a specific design or engineering professional or Subcontractor.
(b) Worker's Compensation and Occupational Disease
insurance in compliance with applicable Law in the jurisdiction where the Work
and services are to be performed, including the following special coverage
extensions:
(I) Employers Liability coverage with limits of not less
than per $1,000,000 per accident;
(ii) "Borrowed Servant" endorsement providing that a
Worker's Compensation claim brought against Owner by a Contractor's employee
shall be treated as a claim against Contractor;
(iii) Premiums and any and all return premiums for
Worker's Compensation insurance and other applicable insurance and dividends
earned thereunder, shall belong to and be payable to Contractor.
(c) Commercial General Liability insurance with per
occurrence limit, subject to an annual $18,000,000 total aggregate for
Contractor, for bodily injury and property damage, including the following
coverage extensions:
(I) Contractual liability covering the liability
assumed in this Agreement;
(ii) Completed operations coverage which shall
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continue in force for a period of three (3) years following Mechanical
Completion of the Work;
(iii) Comprehensive Automobile Liability insurance
including all owned, non-owned, and hired vehicles, with not less than the
following limits:
Bodily Injury
_ $2,000,000 combined single limit
Property Damage per occurrence
11.1.4 Special Provisions. All policies of insurance
carried by Contractor and its Subcontractors pursuant to this Section 11.1 shall
(a) provide that they may not be canceled or the protection afforded thereby
substantially changed without thirty (30) days prior written notice to Owner and
(b) contain endorsements stating that Contractor's/Subcontractor's coverage is
primary to any coverage Owner may elect to carry for its own account, or for
Contractor or its Subcontractors. The policies required under Section 11.1.3(c)
shall be endorsed to name Owner, MCNIC Pipeline & Processing Company, Crown
Asphalt Corporation and their respective members, subsidiaries and associated
and affiliated companies, as additional insureds with respect to items for which
indemnification is provided by Contractor pursuant to ARTICLE 10 hereof.
Contractor and Subcontractors shall permit Owner to examine any of the insurance
policies specified herein.
11.1.5 Deductibles. Subject to ARTICLE 10, any and all
deductibles specified in the above described Contractor or Subcontractor
insurance policies shall be assumed by, for the account of, and at the sole risk
of Contractor or its Subcontractors.
11.1.6 Subcontractor Insurance. The provisions of the
insurance described above shall apply to Contractor and its Subcontractors, and
these specifications shall be incorporated in any contract or agreement between
Contractor and its Subcontractors who perform Work under this Agreement.
11.1.7 Evidence of Insurance. Contractor shall not
commence Work at the Site until a certificate in evidence of insurance coverage
has been provided to and approved by Owner, nor shall Contractor allow any
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Subcontractor to commence Work at the Site until said Subcontractor has provided
a certification in evidence of insurance coverage, and said certification has
been provided to and approved by Owner. Certificates shall be furnished to Owner
promptly and must reflect both the endorsement provisions requiring thirty (30)
days prior written notice to be given before cancellation or material change,
and the additional interest where applicable. Each certificate shall specify the
date when such benefits and insurance expire. Contractor agrees that such
benefits and insurance, as specified above, shall be provided and maintained
until Final Acceptance.
11.2 It shall be a condition of approval that the required insurance
must be arranged with insurance companies authorized to do business in the State
of Utah, U.S.A.
11.3 Contractor shall be responsible for compliance by all of its
Subcontractors with these insurance requirements and shall furnish certificates
as provided herein evidencing the required insurance for its Subcontractors.
11.4 Owner's approval or failure to approve or disapprove insurance
certificates furnished by Contractor or its Subcontractors shall not relieve
Contractor or its Subcontractors from responsibility for liability, damage, and
accidents as set forth herein.
11.5 If at any time the required insurance policies described in this
Section 11.1 should be canceled, terminated or modified so that the insurance is
not in full force and effect as required herein, and such insurance is not
replaced within ten (10) days after written notice to Contractor, such event
shall be a default hereunder and Owner may obtain insurance coverage equal to
that required herein and recover the premium costs therefor from Contractor.
11.6 Contractor and its Subcontractors shall, as they deem necessary,
carry fire, theft, physical damage, or other insurance on their own and their
employees' tools, equipment, reusable materials (such as metal forms and metal
scaffolding), trailers, and any property of their employees.
11.7 OWNER'S INSURANCE. Owner shall, at its sole cost, carry "Builder's
All Risk" insurance covering all risk of physical loss or damage to the Work at
the Site, including all materials, equipment, and supplies which are being
transported to the Site and which are to become a part of the Work (but
excluding any loss or damage to Contractor's or any Subcontractor's equipment,
machinery, or tools, and equipment or property of a similar nature not destined
to become a permanent part of the completed Work or Project). Such insurance
shall be provided with a limit sufficient to cover property values at risk on a
replacement cost basis, and shall insure against the perils of fire and extended
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coverage and shall include "all risk" insurance for physical loss or damage,
including, without duplication of coverage, theft, vandalism, and malicious
mischief. Owner, Contractor and Subcontractors shall be named as insureds under
said policy, as their interests appear.
11.8 PROPERTY INSURANCE LOSS ADJUSTMENT.
11.8.1 Any insured loss shall be adjusted with Owner and
Contractor and made payable to Owner and Contractor as trustees for the
insureds, as their interests may appear. Unless otherwise mutually agreed, if
the proceeds are not used to restore any damaged or destroyed portions of the
Work to which such proceeds relate, such damaged or destroyed Work shall be
deemed to be fully complete in accordance with the Contract Documents and
accepted by Owner, and Contractor shall be entitled to a Change Order for any
Additional Work or Change in warranties or guaranties resulting from such
damaged or destroyed Work or the affect of such damaged or destroyed Work on the
balance of the Project.
11.8.2 Upon the occurrence of an insured loss, monies
received will be deposited in a separate account and the trustees shall make
distribution in accordance with the agreement of the parties in interest, or in
the absence of such agreement, in accordance with an arbitration award pursuant
to ARTICLE 13. If the trustees are unable to agree between themselves on the
settlement of the loss, such dispute shall also be submitted for resolution
pursuant to ARTICLE 13.
11.9 WAIVER OF SUBROGATION. The insurance policies carried by
Contractor and its Subcontractors pursuant to Section 11.1.3 (c) hereof shall
contain endorsements waiving the insurer's right to subrogation against Owner,
its members and their respective subsidiaries, associated, and affiliated
companies, and their employees, officers, and directors. Contractor shall
require similar waivers from all Subcontractors and any consulting engineers and
shall require each of them to include similar waivers in their subcontracts of
any tier and consulting agreements.
11.10 LIMITATION OF LIABILITY OF CONTRACTOR.
11.10.1 The liability of Contractor for third party claims
arising out of or relating in anyway to the Work or the Project shall in no
event exceed the amount of insurance which Contractor or Owner are required to
provide by the terms hereof plus any deductible paid by Contractor.
11.10.2 Notwithstanding anything in the Contract Documents
to the contrary, in no event will either party be liable to the other party or
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any other person for consequential or special damages, including but not limited
to, loss of use of the facilities or equipment, lost profits, lost production or
inability to perform collateral contracts.
11.10.3 This Section 11.5 and all of its subparagraphs
shall not be valid or enforceable should such liability arise as a direct result
of fraud or intentional misrepresentation on the part of Contractor or Owner.
11.11 DAMAGE TO VEHICLES. In addition to Contractor's liability for
property damage as set forth in the Contract Documents, Contractor shall also be
responsible and shall indemnify and hold harmless Owner for any damage to
Contractor's vehicles and the vehicles of its Subcontractors, employees, and
agents or representatives of Contractor or Subcontractors while the vehicles are
parked or used on Owner's property or in the performance of the Work.
ARTICLE 12 TERMINATION AND OWNER'S TAKEOVER RIGHTS
12.1 TERMINATION BY OWNER FOR CAUSE.
12.1.1 If any or all Work to be performed under this
Agreement is abandoned by Contractor; if Contractor materially fails to abide by
the Laws of governmental authorities having jurisdiction; or, if Contractor
materially utilizes improper materials and/or inadequately skilled workers; or,
if Contractor materially does not make proper payment to laborers, material
suppliers or Subcontractors; or, if any material amount of the Work is
subcontracted by Contractor without the required approval of Owner; or, if
Contractor becomes insolvent or unable to meet its payroll or other current
obligations or be adjudicated a bankrupt, or have an involuntary petition of
bankruptcy filed against it, or make an assignment for benefit of creditors, or
file a petition for an arrangement, composition, or compromise with its
creditors under any applicable Laws, or have a trustee or other officer
appointed to take charge of its assets; or, if Contractor is violating any of
the conditions or provisions of this Agreement; or, if Owner determines that
Contractor is refusing or failing to perform properly any Work or that
Contractor is performing Work in bad faith or not in accordance with the terms
hereof; or if Contractor is otherwise in material breach of any provision of
this Agreement or fails to substantially perform any of its obligations
hereunder and does not commence and diligently proceed to cure any such default
within ten (10) days after receipt of written notice of default, Owner may,
without notice to Contractor's sureties, either withhold any amounts necessary
to cure such default or terminate Contractor's right to proceed with all or any
portion of such Work. Owner will then have the right to complete such Work by
whatever reasonable method Owner may deem expedient, including employing another
contractor under such form of contract as Owner may deem advisable, and Owner
shall have the right to take possession of and use until Mechanical Completion
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any or all of the materials, plant, tools, equipment, supplies, and property of
every kind furnished by Contractor for such Work.
12.1.2 The expense of so completing such Work, which is in
excess of the expense that Owner would have incurred if Contractor had completed
the Work, together with a reasonable charge for administering any contract for
such completion, will be charged to Contractor, and such expense may be deducted
by Owner out of such monies as may be due or may at any time thereafter become
due to Contractor.
12.1.3 Upon receipt of any such written notice of
termination of right to proceed, Contractor shall, at Contractor's expense, take
the following actions for that Work affected by any such termination:
12.2 Assist Owner in making an inventory of all materials and equipment
in storage at the Site, in route to the Site, in storage or manufacture away
from the Site, and on order from suppliers;
12.3 Assign to Owner subcontracts, supply contracts and equipment
rental agreements all as designated by Owner; and
12.4 Remove from the Site all construction materials, equipment and
plant listed in said inventory other than such construction materials, equipment
and plant that are designated in writing by Owner to be used by Owner in
completing such Work.
In the event Owner terminates Contractor's right to perform the Work by
asserting one of the grounds set out in this Section 12.1 and such grounds are
later determined to be inapplicable, Owner's action shall then be deemed to be a
termination pursuant to Section 12.2, TERMINATION FOR CONVENIENCE, and subject
to all payment terms therein.
12.4.1 The procedure provided in this Section 12.1 for
termination shall be concurrent with and in addition to and without prejudice
to, and not in lieu of or in substitution for, any other rights or remedies at
law or in equity which Owner may have for the enforcement of its rights under
this Agreement and its remedies for any default by Contractor of the covenants,
obligations or conditions hereof.
12.5 TERMINATION FOR CONVENIENCE.
12.5.1 Owner shall have the right at any time to
terminate, for its convenience and with or without cause, all or any portion of
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the Work upon giving five (5) days written notice thereof to Contractor. The
termination shall be effective five (5) days after the delivery of the notice or
upon such later date as may be specified in the notice. Upon such termination an
equitable settlement shall be made between Owner and Contractor. It is the
intent of the parties hereto that an "equitable settlement" hereunder shall
include payment for only the Work actually performed and the materials furnished
and incorporated into the Work up to the date of termination, plus reasonable
overhead and profit thereon, direct, actual expenses incidental to termination
and settlement plus an equitable distribution of the Operation Bonus as provided
in Section 12.2.2 hereof.
12.5.2 Pursuant to the intent of the parties as set forth
in Section 12.2.1., the parties hereby agree that the following items shall be
considered in arriving at an equitable settlement:
12.6 Direct and indirect costs and expenses of engineering, planning,
arranging, constructing, installing and administering, incurred prior to the
termination, in accordance with generally accepted accounting practices.
12.7 Reasonable costs and expenses of removing, storing and preserving
or disposing of materials not used in the performance of the Work.
12.8 Reasonable accounting, clerical and other costs and expenses
incident to termination and settlement.
12.9 Reasonable overhead and profit allowance for preparation made and
Work done prior to the termination.
12.10 Reasonable costs and expenses of settling claims, if any, of
Subcontractors, including the reasonable cost of Work done and materials
supplied by Subcontractors to the time of termination plus an equitable
allowance for Subcontractor's overhead and profit on Work done prior to date of
termination.
12.11 Amounts otherwise payable under the Contract Documents including
any Change Order Work required by Owner.
12.12 equitable distribution of the Operation Bonus as estimated on the
date of such notice; provided, that if this Agreement is terminated for
convenience (a) less than ninety (90) days after the Effective Date, Contractor
shall receive no portion of the Operation Bonus, or (ii) more than ninety (90)
days after the Effective Date, Contractor shall receive the Operation Bonus in
the ratio that the sum of the Contract Price paid to Contractor as of the date
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of termination bears to the entire Contract Price, and such amount shall be
promptly paid to Contractor at the end of the Operation Period.
12.12.1 The following items shall not be considered in
arriving at an equitable settlement except to the extent identified above:
12.13 Anticipated profits or fees to be earned on uncompleted portions
of the Work.
12.14 Consequential damages.
12.15 Expenses of Contractor due to the failure of Contractor or its
Subcontractors to discontinue the Work on the date of termination as identified
in the notice of termination.
12.16 Losses upon other contracts or from sales or exchanges of capital
assets or Internal Revenue Code Section 1244 assets.
12.16.1 Items not specifically listed in Sections 12.2.2
and 12.2.3 shall be considered or not considered in such equitable settlement in
accordance with the intent of the parties as hereinabove expressed. No final
payment shall be made by Owner hereunder, however, until Contractor has
submitted to Owner (a) a final statement supported by vouchers; (b) lien waivers
or other evidence satisfactory to Owner that Contractor has paid in full all
labor, materials, services, and subcontracts and all applicable taxes for those
cost previously paid by Owner (c) conditional lien waivers for all labor,
materials, services and subcontracts to be paid upon final payment by Owner.
12.16.2 Upon receipt of such termination notice, and
except as otherwise directed by Owner, Contractor, at Owner's expense, shall do
all things necessary to ensure the efficient, proper closeout of the terminated
Work, including, but not limited to, the following:
12.17 Perform such acts as may be necessary to preserve and protect all
Work already performed and Owner's property;
12.18 Stop performance of all Work terminated on the date of the notice
and to the extent specified in said notice, excepting only that Work which Owner
directs to be performed to carry out said termination;
12.19 Place no further orders, trade contracts, or subcontracts for
services, materials or equipment except as shall be necessary for completion of
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such portion of the Work which is not terminated, nor make any further
procurement or other monetary commitments except with the written consent of
Owner;
12.20 At the request of Owner, terminate to the extent possible all
outstanding contracts, orders or subcontracts to the extent they are related to
or include a scope of work or equipment or material item which is subject to
said termination order;
12.21 Assign to Owner, in the manner and to the extent directed by
Owner, all the rights, title and interest of Contractor in outstanding orders or
subcontracts for Work so terminated; upon such assignment, Owner shall have the
right, but not the duty, to settle or pay any and all claims arising out of the
termination; or Owner may direct Contractor, with approval of Owner, to settle
all outstanding liabilities and all claims arising out of such termination
provided that Owner has first paid Contractor the amount of such outstanding
liabilities and claims;
12.22 Deliver to Owner, when and as directed by Owner, all documents
which, if the Work had been completed, Contractor would be required under the
Contract Documents to account for or deliver to Owner, and transfer title to
Owner to such property to the extent not already transferred.
ARTICLE 13 DISPUTE RESOLUTION
13.1 COMMITMENT TO RESOLUTION. Owner and Contractor are committed to
the timely resolution of any disputes, issues or claims between them at the
lowest possible level. Compliance with the requirements of this ARTICLE 13 is a
precondition to the filing of any complaint or Lawsuit relating to a matter in
dispute between Owner and Contractor.
13.1.1 Owner and Contractor agree to maintain good
communications between them on the Project and are committed to open and frank
discussions of any issues which may arise. Both are committed to bringing up
issues at weekly job meetings or at specially called meetings to discuss matters
at issue.
13.1.2 Contractor may seek technical clarifications by use
of a form titled "CONTRAcTOR'S REQUEST FOR INFORMATION." Contractor shall be
solely responsible for requesting instructions or interpretations which
Contractor determines are necessary in its performance of the Work.
13.2 DISPUTE RESOLUTION PROCEDURE. In order to accomplish
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the amicable resolution of disputes, the parties agree to the following
procedure as a pre-condition to the filing of any legal action by either party:
13.2.1 Contractor shall give written notice to Owner as
soon as reasonably practicable, but in no case longer than thirty (30) calendar
days after discovery by Contractor of the occurrence of the event giving rise to
any claim by Contractor. The parties acknowledge that timely notice is required
by Owner so that all matters can be remedied or resolved promptly. If Contractor
intentionally fails to comply with such notice requirement, then the claim for
which notice is not timely given may, in the sole discretion of Owner, be
considered waived by Contractor.
13.2.2 Contractor shall submit with its claim such
information, costs, and data in such detail and specificity as may be required
by Owner to justify and substantiate such claims.
13.2.3 If the dispute resolution procedure set forth above
does not resolve the issue or claim, the matter shall be submitted to binding
arbitration as set forth in Section 13.3 hereof.
13.3 ARBITRATION.
13.3.1 Submission to Arbitration. The parties hereby
submit all controversies, claims, and matters of difference arising under this
Agreement to arbitration. Without limiting the generality of the foregoing, the
following shall be considered controversies for this purpose: (a) all questions
relating to Force Majeure Events, Changes and interpretation or breach of this
Agreement, (b) all questions relating to any representations, negotiations, and
other proceedings leading to the execution hereof, and (c) all questions as to
whether the right to arbitrate any such questions exists.
13.3.2 Initiation of Arbitration and Selection of
Arbitrators. The party desiring arbitration shall so notify the other party,
identifying in reasonable detail the matters to be arbitrated and the relief
sought. Except for Fast Track and Regular Proceedings (as defined in the
Construction Industry Arbitration Rules of the AAA (the "Rules")), arbitration
hereunder shall be before a three-person panel of neutral arbitrators,
consisting of one person from each of the following categories: (1) an attorney
with at least ten years' experience in mining law; (2) an attorney with at least
ten years' experience in construction law, including mining matters; and (3) a
person with at least ten years' experience in the oil and gas, construction or
mining industry and at least 10 years experience in tar sands or crude oil
processing. The AAA shall submit a list of persons meeting the criteria outlined
above for each category of arbitrator, and the parties shall select one person
from each category in the manner established by the AAA. If any party or the
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arbitrators fail to select arbitrators as required above, the AAA shall select
such arbitrators. Arbitrators for Fast Track and Regular Proceedings shall be
selected in the manner provided for in the Rules.
13.3.3 Arbitration Procedures. All matters arbitrated
hereunder shall be arbitrated in Salt Lake City, Utah pursuant to Utah Law, and
shall be conducted in accordance with the Rules, except to the extent such Rules
conflict with the express provisions of this Section 13.3 which shall prevail in
the event of such conflict). The arbitrator(s) shall conduct a hearing no later
than 45 days after submission of the matter to arbitration, and a decision shall
be rendered by the arbitrators within 10 days of the hearing. At the hearing,
the parties shall present such evidence and witnesses as they may choose, with
or without counsel. Adherence to formal rules of evidence shall not be required,
but the arbitration panel shall consider any evidence and testimony that it
determines to be relevant, in accordance with procedures that it determines to
be appropriate. Any award entered in an arbitration shall be made by a written
opinion stating the reasons for the award made.
13.3.4 Enforcement. This submission and agreement to
arbitrate shall be specifically enforceable. Arbitration may proceed in the
absence of any party if notice of the proceedings has been given to such party.
The parties agree to abide by all awards rendered in such proceedings. Such
awards shall be final and binding on all parties to the extent and in the manner
provided by Utah Law. All awards may be filed with the clerk of one or more
courts, state, federal, or foreign, having jurisdiction over the party against
which the award is rendered or its property, as a basis of judgment and of the
issuance of execution for its collection. No party shall be considered in
default hereunder during the pendency of arbitration proceedings specifically
relating to such default.
13.3.5 Fees and Costs. The arbitrators' fees and other
costs of the arbitration and the reasonable attorney fees, expert witness fees
and costs of the prevailing party shall be borne by the non-prevailing party. In
its written opinion, the arbitration panel shall, after comparing the respective
positions asserted in the arbitration claim and answer thereto, declare as the
prevailing party that party whose position was closest to the arbitration award
(not necessarily the party in favor of which the award on the arbitration claim
is rendered) and declare the other party to be the non-prevailing party. The
arbitration award shall include an award of the fees and costs provided by this
Section 13.3.5 against the non-prevailing party.
13.4 WORK CONTINUANCE. At all times, even if a matter is subject to a
dispute resolution procedure, Contractor shall proceed with the undisputed Work
in accordance with the determinations, decisions, instructions and
clarifications of Owner, without waiver by Contractor of any rights, claims or
defenses relating thereto, and Contractor shall be compensated as provided in
this Agreement during such Work continuance; provided, however, that Contractor
shall be paid for all disputed amounts included in any application for payment
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on the basis of time and materials as provided in ARTICLE 8 hereof, except that
the mark-up of Contractor on such amounts may be withheld by Owner pending the
outcome of the dispute resolution proceedings provided for in this ARTICLE 13.
In the event Contractor is not timely paid the undisputed portions of any
invoice, as set forth in Section 6.6.1, Contractor shall, in addition to its
other rights and remedies, have the right to suspend performance of the Work
until such payment is received by Contractor.
13.5 MULTIPARTY PROCEEDING. The parties agree that they will use their
best efforts to ensure that all parties necessary to resolve a claim or issue
are parties to the same dispute resolution procedure required by this ARTICLE
13. Appropriate provisions shall be included in all contracts between Contractor
and its Subcontractors at any tier to require any Subcontractor to consolidate
any claims it may have with those of Contractor in any dispute resolution
procedure required under this ARTICLE 13.
ARTICLE 14 LABOR, SAFETY & SECURITY
14.1 LABOR, EMPLOYEES, SUPERVISION.
14.1.1 Except for termination or completion of work
assignment, Contractor's Project Manager and Project Engineer who are assigned
by Contractor to the Project will not be removed from the Project or assigned
additional work on other Projects without providing notice to Owner. In
addition, with respect to voluntarily removal of any such person by Contractor,
Contractor will submit to Owner one (1) month advance formal written notice that
any such Project Manager or the Project Engineer assigned to the Project will be
removed.
14.1.2 Contractor shall keep a superintendent at the Site
during the progress of the Work who shall represent Contractor, and all
directions given to the superintendent by Owner shall be as binding as if given
directly to Contractor. All major directions or instructions by Owner will be
confirmed in writing as provided herein.
14.2 PERFORMANCE OF WORK, CARE REQUIRED. Contractor and its
Subcontractors of any tier shall at all times conduct all operations under this
Agreement in a reasonable manner to avoid the risk of bodily harm to persons or
risk of damage to any property at the Site. Contractor shall promptly take all
reasonable precautions which are necessary and adequate against any conditions
which involve a risk of bodily harm to persons or damage to any property.
Contractor shall inspect all of the Work in an effort to discover and determine
any such conditions, and shall be solely responsible for discovery,
determination, and correction of any such conditions. Contractor and its
Subcontractors of any tier shall assure that their personnel are properly
trained and fully qualified to perform operations in the manner described above.
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14.3 STRIKES. Contractor shall at all times supply a sufficient number
of skilled workers to perform the Work covered by this Agreement with promptness
and diligence. Should any workers performing Work covered by this Agreement
engage in a strike or other Work stoppage or Work slowdown or cease to work due
to picketing or a labor dispute of any kind, Contractor shall take all
appropriate and commercially reasonable steps to ensure that its work force
continues to the extent practicable.
14.4 ILLUMINATION. When any Work is performed at night or where
daylight is shut off or obscured, Contractor shall provide artificial light
sufficient to permit Work to be carried on efficiently, satisfactorily, and
safely, and to permit thorough inspection. During such time periods, the access
to the place of Work shall also be clearly illuminated. All wiring for electric
light and power shall be installed and maintained to ensure the standards of
safety and accident prevention for which Contractor is responsible, securely
fastened in place at all points, and shall be kept as far as possible from
telephone wires, signal wires, and wires used for firing blasts.
14.5 ACCIDENT PREVENTION.
14.5.1 Contractor shall comply with and enforce compliance
by all Subcontractors and their respective employees, agents, consultants,
Subcontractors or suppliers with the standards of safety and accident prevention
as set forth in or required by all applicable Laws of any governmental entity
having jurisdiction of the Work performed by Contractor hereunder. Contractor
warrants that it is familiar with and that its safety and accident prevention
program will be consistent with or exceed the program discussed or suggested in
the Project Safety Manual, the edition of the "Manual of Accident Prevention in
Construction", as published by the Associated General Contractors of America
Inc., and the edition of the "Accident Prevention Manual for Industrial
Operations" as published by the National Safety Council, Inc. in effect as of
the Effective Date.
14.5.2 Contractor shall submit to Owner for its review a
written copy of its contract-specific safety plan, which shall fully comply with
all requirements of the Contract Documents, prior to mobilization. Any review or
acceptance by Owner of Contractor's safety plan shall not relieve Contractor of
its responsibility for safety, nor shall such review be construed as limiting in
any manner Contractor's obligation to undertake any action which may be
necessary or required to establish and maintain safe working conditions at the
Site.
14.5.3 Contractor shall appoint a qualified safety
representative. Such safety representative shall attend all Work safety meetings
and participate fully in all activities outlined in Contractor's safety program.
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14.5.4 Contractor shall maintain accurate accident and
injury reports. Upon request, Contractor shall furnish Owner a monthly summary
of injuries and manhours lost due to injuries.
14.5.5 Contractor shall hold regularly scheduled meetings
to instruct its personnel on safety practices and the requirements of the Work
safety program. Should Contractor be cited for any violation of its safety
related obligations, Contractor shall discharge any responsibility in connection
with such violation at its own expense. Contractor agrees to indemnify, defend
and hold Owner harmless for any costs or liability incurred as a result of the
failure of Contractor or any of its Subcontractor to comply with the employee
safety and health requirements of this Agreement.
14.6 VEHICULAR REQUIREMENTS. The following traffic regulations (which
at all times shall be generally applicable to Owner and Owner's separate
Contractors) must be obeyed by Contractor:
14.6.1 All vehicles must come to a complete stop at all
gates, building entrances, stop signs, and posted railroad crossings.
14.6.2 All vehicular equipment operating on Owner's plant
roadways must be operated within posted speed limits, and seat belts must be
worn at all times while on Site.
14.6.3 When necessary for trucks to stop on tracks for
loading and unloading, the tracks must be properly flagged.
14.6.4 Vehicles must have their lights turned on and horns
sounded when entering buildings. When the driver's vision is obscured, an
observer must be assigned to the vehicle to keep all personnel safe and in the
clear.
14.6.5 Parking areas shall be designated by Owner.
14.6.6 All vehicles must adhere to traffic restrictions
and requirements.
14.6.7 Engine compression brakes shall not be used at the
Site.
14.7 EXPLOSIVES AND BLASTING. Contractor not perform any
blasting unless expressly authorized in writing by Owner.
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14.8 SAFETY.
14.8.1 Contractor shall use commercially reasonable
efforts to obtain during the performance of the Work the "Lost Time Accident
Rate" (LTA) for Contractor and each Subcontractor at any tier of at least
fifteen percent (15%) below the national average, as determined by the
Department of Labor Occupational Injury and Illness Incidence Rates schedule.
Owner shall not be responsible for any schedule adjustments, contract price
adjustments, or other liabilities for failure of Contractor or any Subcontractor
or proposed Subcontractor at any tier to meet this standard.
14.8.2 Owner reserves the right to consider any relevant
criteria on Contractor or any of the Subcontractors at any tier, such as
MSHA/OSHA citation history, accident severity, etc., reflecting on the risk of
injury or illness to Owner's property or employees, or to Owner's separate
contractors.
14.8.3 Owner may, at its option, refuse or have terminated
from the Work any Subcontractor at any tier which poses an unacceptable risk of
injury or illness to Owner's property or employees, or to Owner's separate
contractors.
14.8.4 To protect persons from injury and to avoid
property damage, adequate barricades, construction signs, flashers, or guards
shall be placed and maintained at the Site by Contractor during the progress of
construction Work, including after regular working hours and on weekends. In
addition, when required, watchmen or flagmen shall be posted at the Site by
Contractor to prevent accidents.
14.8.5 Adequate guards will be installed at the Site on
exposed moving parts of power tools and equipment. Contractor must comply and
require all Subcontractors to comply with the applicable Laws with respect
thereto in effect in the State of Utah.
14.8.6 Contractor's personnel and the personnel of any
Subcontractors are not to work from scaffolding until it is ready for use and
has been inspected and approved for use by Contractor's safety representative.
Contractor shall be liable for the careful, proper, safe, erection and
maintenance of scaffolding at the Site. Any inspection or observation by Owner
will neither impute responsibility on Owner nor relieve Contractor from
liability for the careful, proper, and safe, erection and maintenance of the
scaffolding.
14.9 PROTECTIVE EQUIPMENT.
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14.9.1 Hard hats, meeting ANSI Z.89 standards, safety
glasses, meeting ANSI Z.87 standards, and steel-toed leather work boots, meeting
ANSI Z.41 standards, (6" high minimum) shall be worn at all times by
Contractor's personnel, its Subcontractors' personnel, and any other persons
entering Owner's property at the invitation of or with the knowledge or
permission of, or on behalf of Contractor or any Subcontractors. Other
protective equipment shall be utilized as specified in applicable federal, state
and local statutes, rules, or orders, or as specified by Owner.
14.9.2 Contractor and its Subcontractors shall furnish
respirators for their employees to be available when required. Such respirators
must comply with all applicable standards and regulations relating thereto.
14.10 CONTRACTOR SUBSTANCE ABUSE PROGRAM.
14.10.1 To the extent permitted by Law, Contractor for
itself and for and on behalf of its Subcontractors at all tiers shall maintain a
substance abuse program, which program shall meet the minimum requirements
published by the Associated General Contractors of America, Inc. and the
National Safety Council, Inc. for substance abuse prevention.
14.10.2 CONTRACTOR AND ITS SUBCONTRACTORS SHALL NOT SUPPLY
TO OWNER A LIST OF THE NAMES OF INDIVIDUALS WHOSE SUBSTANCE ABUSE SCREENING
TESTING OR BLOOD ALCOHOL TESTING HAS PROVEN POSITIVE. NOR WILL THEY IN ANY WAY
COMMUNICATE OR ATTEMPT TO COMMUNICATE TO OWNER ANY DETAIL RELATING TO SUCH
INDIVIDUAL.
14.10.3 Contractor shall ensure, by exercising all
reasonable means, that its agents and employees and those of its Subcontractors
are neither under the influence of, nor do they use, possess, consume, transfer,
manufacture, or sell or attempt to sell any form of alcohol, intoxicant,
narcotic, depressant, stimulant, hallucinogen, illegal drug or
perception-altering substance except the taking of those prescribed drugs under
the direction of a licensed, qualified physician while engaged on the Project or
property, or while performing Work or engaged in activities envisaged under this
Agreement. In the event that a particular prescription or over-the-counter
medication may have an effect upon an individual's ability to perform Work on
the Project or property, Contractor shall satisfy Owner that it has taken
appropriate and adequate measure to assure that such medication will not impair
the individual's Work performance or create a risk to the individual or to
others engaged on Owner's Project or present on Owner's property, or create a
risk of damage to or impairment of property and the environment.
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14.10.4 Contractor shall retest all individuals who may
have been involved in an accident within 12 hours of the incident at no cost to
Owner.
14.11 FIRST AID, HOSPITAL, MEDICAL. Contractor shall provide and
maintain adequate first aid facilities at the Site and arrange for emergency
treatment of injuries by doctors in private practice. Owner will not assume any
responsibility, financial or otherwise, for any hospital, medical, or surgical
care or treatment which Contractor, Subcontractors, or their employees may
require during the course of the Work or at any time thereafter. In the event of
the use of any of Owner's first aid, hospital, or medical facilities or medical
personnel by Contractor, Subcontractors, or their agents or employees,
Contractor shall pay the reasonable value of any such use or services, and
agrees to indemnify and hold Owner harmless from any damage, claim, expense, or
liability which may arise out of or be incidental to such use of facilities or
services.
14.12 CLEARANCES ALONG ROADWAYS AND RAILROADS.
14.12.1 Contractor shall keep all material at least six
feet (6') from the edge of the roadways and clear of walkways, and shall
maintain a clearance of eight feet six inches (8'6") from the centerline of all
railroad track.
14.12.2 Approval for construction of temporary railroad
crossings in locations other than the areas assigned to Contractor shall be
obtained from Owner. When the use of such temporary crossings is no longer
required, said crossings shall be removed by Contractor and track restored to
its original condition. No temporary railroad crossing will be allowed on tracks
not owned by Owner unless Contractor has coordinated with the Railroad and
obtained the Railroad's advance approval and accommodation of such crossing and
Contractor fully complies with all requirements and constraints of the Railroad
regarding said temporary crossing.
14.13 CONTRACTOR'S SECURITY RESPONSIBILITIES.
14.13.1 Contractor shall at all times conduct all
operations under this Agreement in a manner to minimize the risk of loss, theft,
or damage by vandalism, sabotage, or other means to any property. Contractor
shall promptly take all reasonable precautions which are necessary and adequate
against any conditions which involve a risk of a loss, theft, or damage to its
property.
14.13.2 Contractor shall comply with any reasonable
security program adopted by Owner for the Site and all applicable Laws,
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Contractor shall cooperate with Owner on all security matters and shall promptly
comply with any reasonable Project security requirements established by Owner.
Such compliance with these security requirements shall not relieve Contractor of
its responsibility for maintaining proper security for the above noted items,
nor shall it be construed as limiting in any manner Contractor's obligation to
undertake reasonable action as required to establish and maintain secure
conditions at the Site.
14.13.3 Contractor shall prepare and maintain accurate
reports of incidents of loss, theft, or vandalism and shall furnish these
reports to Owner within 24 hours of such incident.
14.13.4 Contractor shall be responsible for the security
of the lay down area provided or assigned to it and for the equipment and/or
materials furnished, received, or issued by or to it.
14.14 SECURITY AND ACCESS TO SITE. Entrance into Owner's property by
employees of Contractor or its Subcontractors will be subject to Owner's
reasonable security rules and regulations disclosed to Contractor in writing,
and Contractor agrees to comply and cause compliance by its Subcontractors
therewith. Contractor may obtain authorization for trucks and other vehicles to
enter Owner's property subject to compliance with such rules and regulations.
Contractor's representatives and employees must enter the Site through an
entrance designated by Owner. If Owner requests Contractor to perform security
and access functions not otherwise included in the Work Scope, then such cost
shall be Additional Work and Contractor shall be entitled to a Change Order for
such cost.
14.14.1 All vehicles that enter upon Owner's property, and
all lunch, other containers, and packages of Contractor, Contractor's employees,
its Subcontractors, and Subcontractors' employees shall be subject to inspection
by Owner's security personnel at any time while on Owner's property.
14.15 FIRE PREVENTION.
14.15.1 Within fifteen (15) days after the Effective Date,
Contractor shall submit its plan for fire prevention and fire protection at the
Site to Owner for approval. Such approval shall not relieve Contractor of its
contractual obligation to use extraordinary care with regard to fire prevention.
14.15.2 Contractor shall provide portable fire
extinguishers compatible with the hazards of each work area, and shall instruct
its personnel in their location and use. Wherever welding and burning are
conducted, flammable materials shall be protected, and an observer shall be
provided by Contractor to be present during the burning
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and welding operation to ensure that protective measures are taken and that no
fires result from such operation.
14.15.3 In the event of fire, Contractor shall immediately
notify Owner's appropriate fire control department. Contractor shall be advised
prior to commencement of Work at the Site as to the details of reporting such an
emergency.
ARTICLE 15 MISCELLANEOUS PROVISIONS
15.1 WORDS AND PHRASES. Where the words "as shown," "as detailed," "as
indicated," or words of like import are used in the Contract Documents,
reference is to the drawings, unless the context clearly indicates a different
meaning. Where the words "required," "approved," "satisfactory," "determined,"
"acceptable," or words of like import are used in the Contract Documents, action
by Owner is indicated unless the context clearly indicates otherwise, and all
Work shall be in accordance therewith. Such action, or failure to act, shall not
relieve Contractor of its contractual responsibilities for performance of its
duties and obligations under the terms of the Contract Documents. Wherever in
the Contract Documents it is provided that Contractor shall perform certain Work
"at its expense" or "without charge," or that certain Work will not be paid for
separately, such above quoted words mean that Contractor shall not be entitled
to any additional compensation from Owner for such Work, and the cost thereof
shall, unless otherwise specified, be considered as included in the payment for
other items of Work. Whenever the Contract Documents permit or require action by
Owner, including approvals, consents or review, such action shall be reasonably
taken and not be unreasonably withheld or delayed. Words, expressions and
phrases of a technical nature which are not otherwise defined herein shall be
interpreted in accordance with a recognized and well known trade meaning in the
construction industry.
15.2 TEAM RELATIONSHIP. Owner and Contractor proceed with the Project
on the basis of trust, good faith and fair dealing. They agree to take all
actions reasonably necessary to perform this Agreement in an economical and
timely manner consistent with the terms and conditions hereof.
15.3 EXTENT OF AGREEMENT. The Contract Documents are solely for the
benefit of the parties hereto and represent the entire and integrated agreement
between the parties, and supersede all prior negotiations, representations or
agreements, either written or oral, which are fully merged herein, with the
exception of that certain Confidentiality Agreement dated as of December 1996
executed by MCNIC Oil & Gas Company and Contractor (the "Confidentiality
Agreement") and Services Agreement.
15.4 QUALIFICATION IN STATE.
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15.4.1 Contractor is a limited liability company organized
under the laws of the State of Utah. Upon Owner's reasonable request, Contractor
shall provide Owner with a certificate of good standing from the Utah Department
of Commerce during the period of this Contract.
15.4.2 TRADE AND PROFESSIONAL LICENSES. Contractor is duly
licensed to do the type and scope of Work contemplated and required by the
Contract Documents and employs and will utilize in performing the Work hereunder
professional engineers who are properly licensed in the State of Utah to provide
design and engineering services and to certify and stamp the drawings which are
a part of the Work hereunder. Contractor shall not (a) engage the services of or
purchase materials or labor for use on the Project from any person or firm
required to be licensed under the Utah Construction Trades Licensing Act, who is
not duly and properly licensed to perform the services or provide the labor and
materials sought by Contractor for purposes of the Project; or (b) utilize
engineers to perform the Work who are not properly licensed to perform such
services in the State of Utah.
15.5 CONTRACTOR'S STATUS. Contractor represents that it is fully
experienced, properly qualified, registered, licensed, equipped, organized, and
financed to perform the Work as required under the Contract Documents. For all
purposes Contractor is, and shall be deemed to be and treated as, an independent
contractor and not as the agent of Owner while engaged in the performance of the
Work. Nothing set forth herein shall be deemed to create the relationship of
partners, principal and agent, or joint venturers between the parties hereto.
Contractor shall maintain complete control over its employees, suppliers and
Subcontractors. Nothing contained in the Contract Documents or any subcontract
awarded by Contractor shall create any contractual relationship between any such
supplier or Subcontractor of any tier and Owner. Contractor shall perform its
Work hereunder in accordance with its own methods subject to compliance with the
Contract Documents.
15.6 COMMERCIAL ACTIVITIES. Contractor shall not establish any
commercial activity or issue concessions or permits of any kind to third parties
for establishing commercial activities on lands owned or controlled by Owner
except to the extent necessary for the proper performance of the Work.
Contractor shall not allow its employees to engage in any commercial activities
on the Site.
15.7 SITE INSPECTION. It is agreed, that prior to the award of this
Agreement, Contractor visited the Site. By execution of the Agreement,
Contractor acknowledges such visit and an understanding of the conditions under
which the Work must be accomplished including the manner of construction and
access to the Site.
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15.8 CONFIDENTIAL INFORMATION.
15.8.1 Owner and Contractor agree that the Confidentiality
Agreement is, and remains, in full force and effect. Owner agrees to be bound by
the terms and provisions of such Confidentiality Agreement as fully and
completely as if Owner were a signatory thereto. Notwithstanding the foregoing,
Owner and Contractor agree that (a) Contractor and its employees shall not
without prior consent of Owner, make any public announcement regarding the
financial terms and conditions of the Agreement, and (b) Contractor may, with
the Owner's approval, which approval shall not be unreasonably withheld, issue a
press release concerning the entry of Contractor and Owner into this Agreement,
(b) may place signage at and near the Site identifying the Project and
Contractor's involvement in the Project, and (c) and Owner may develop and use
certain photographic and general descriptions of the Project in their respective
sales and marketing efforts.
15.8.2 Owner acknowledges that Contractor's reports,
plans, specifications, field data, field notes, laboratory tests data,
calculations, estimates and similar data and documents are instruments of
professional service and not products. In consideration of the relinquishment of
Ownership of such documents by Contractor, Owner hereby waives any claim against
Contractor and shall defend and hold harmless Contractor from and against any
liability for injury or loss allegedly arising from re-use of any of such
documents on another project.
15.9 NONWAIVER OF DEFAULTS. Failure of Owner or Contractor at any time,
or from time to time, to enforce or require strict observance and performance of
any term or condition of the Contract Documents will not constitute a waiver of,
or affect, or impair such term or condition in any way; nor will such failure
affect the right of either party to avail itself at any time of such remedies as
it may have for any breach or breaches of such term or condition by the other
party.
15.10 CONFLICT OF INTEREST. Contractor and Owner shall exercise
reasonable care and diligence and establish reasonable precautions to prevent
its employees or agents from making, receiving, providing, or offering
substantial gifts, entertainment, payments, loans, or other considerations for
the purpose of influencing the individuals to act contrary to the requirements
of the Contract Documents. This obligation shall apply to the activities of the
employees and agents of Contractor in their relations with the employees and
their families of Owner and of third parties associated with the Work and visa
versa.
15.11 EMPLOYEES. Prior to Final Acceptance and for a period of six (6)
months thereafter, neither party will offer employment or enter into any
consulting arrangement with an employee of the other party who was an employee
of such party as of the Effective Date or at any time during the Contract Time.
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15.12 LAWS, ORDINANCES, PERMITS, LICENSES, AND TAXES.
15.12.1 Contractor shall comply with all Laws, safely
plans, and requirements of every duly constituted governmental authority, agency
or instrumentality having jurisdiction over the Work or the Site that are
applicable at the time Contractor performs the Work. Contractor shall notify
Owner immediately upon any denial, suspension or revocation of any permit; shall
make all contributions with respect to employment required by such applicable
Laws, and shall assume and pay any taxes imposed on the Work, including sales
and use tax, as any or all of which may apply to these Contract Documents except
that Owner shall indemnify Contractor from any sales tax not paid by Contractor
or its Subcontractors in reliance on any exemption claimed by Owner. All
Subcontractors, vendors or suppliers performing Work under this Contract will
comply with the terms and conditions of this Section 15.12.1.
15.12.2 All articles and materials furnished by Contractor
hereunder shall comply with such provisions of the Federal Occupational Safely
and Health Act of 1970, and the Federal Mine Safely and Health Amendments Act of
1977 and regulations under said Acts as apply to the possession and use of such
articles and materials as contemplated by the Contract Documents. Contractor
shall furnish Material Safely Data Sheets for all such materials.
15.12.3 To the extent that the Work contemplated herein
requires Contractor to perform its Work in areas which are subject to the
jurisdiction of Federal Mine Safety and Health Administration, State
Occupational Safety and Health Acts, and/or Federal Occupational Safety Health
Act of 1970 (herein collectively referred to as MSHA/OSHA laws), Contractor
shall apply for and obtain a Contractor identification number as required under
the MSHA/OSHA laws. Contractor shall be responsible for compliance by Contractor
and its Subcontractors with all standards, rules, and regulations promulgated
under applicable MSHA/OSHA laws, and shall be responsible for any citations or
orders issued thereunder arising out of Work to be performed by Contractor or
its Subcontractors pursuant to this Agreement, including any assessment levied
in connection therewith.
15.12.4 Notwithstanding any of the foregoing, to the
extent that compliance with any future Laws, or any changes in existing Laws
enacted or amended after the Effective Date, of any duly constitutional
governmental authority, agency, or instrumentality imposes on Contractor
additional requirements to the Work Scope, Owner shall reimburse Contractor for
the additional cost incurred by Contractor as a result thereof and grant a
reasonable extension of time for the execution of the Work in accordance with
ARTICLE 7, CHANGES IN THE WORK. Except as provided in the foregoing sentence or
elsewhere in this Agreement, Contractor shall be responsible for any additional
costs of construction required by a change in the Laws after the Effective Date
hereof.
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15.13 INVENTIONS. Contractor agrees that all inventions and
developments arising out of Work performed under this Contract made by
Contractor, Contractor's employees, its Subcontractors or Subcontractors'
employees, are the property of Owner. Contractor agrees to promptly communicate
such inventions and developments to Owner. Contractor further agrees to do or
cause to be done, upon Owner's request and at Owner's expense, all reasonable
acts and things to assist Owner as may be necessary for filing and prosecuting
patent applications on said inventions and developments.
15.14 ASSIGNMENT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their successors and assigns. Contractor
shall have the right to assign any money due or to become due Contractor
hereunder provided that any such assignment shall not be effective until written
notice is provided Owner hereunder. Owner may freely assign this Agreement to
any affiliated or subsidiary corporation which is sufficiently capitalized to
perform Owner's obligations under this Agreement. Contractor may subcontract
portions of this Agreement and with respect to any portion of the Work and/or
services so subcontracted to any such Subcontractor, Contractor hereby
guarantees the performance of this Agreement by each such Subcontractor and
hereby assumes full responsibility for any and all of their acts or omissions.
Owner and Contractor shall remain fully liable to each other notwithstanding any
such approved assignment and/or subcontract. No assignee of Contractor shall
further assign performance without the prior approval of Contractor and Owner.
15.15 CONTROLLING LAW. This Agreement shall be construed and enforced,
and all rights and liabilities hereunder shall be determined, in accordance with
the laws of the State of Utah. Any legal proceeding of any nature brought by any
party to this Agreement against the other party to enforce any right or
obligation under the Contract Documents, or arising out of any matter pertaining
to this Agreement or the Work to be performed hereunder, shall be submitted for
trial before a court of competent jurisdiction.
15.16 SEVERABILITY. Any provision or paragraph of this Agreement
prohibited by law of any state or held to be invalid in any state, shall, as to
such state, be ineffective to the extent of such prohibition or invalidity, and
such provision or paragraph shall be severable from this Agreement without
invalidating the remaining provisions or paragraphs hereof.
15.17 NOTICES.
15.17.1 All notices, agreements, approvals, demands,
requests, consents, waivers, directives, instructions, designations, and other
communications (collectively called "Notices") required by this Agreement or
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permitted to be given or made by either party to the other shall be valid only
if given in writing by a duly designated representative or representatives of
such other party.
15.17.2 Notices required pursuant to this Agreement shall
be delivered to Owner by hand, sent by facsimile transmission, or sent prepaid
by registered or certified mail, return receipt requested, addressed as follows:
CROWN ASPHALT RIDGE, L.L.C.
215 South State Street, Suite 550
Salt Lake City, Utah 84101
Attn: Jay Mealey
Facsimile No.: (801) 537-5609
Copies to the following for all Notices required under
ARTICLE 13 hereof:
MCNIC PIPELINE & PROCESSING COMPANY
500 Griswald Avenue
Detroit, Michigan 48226
Attn: Dan Schiffer
Facsimile No.: (313) 965-0009
and
MCNIC PIPELINE & PROCESSING COMPANY
150 West Jefferson Avenue, Suite 1700
Detroit, Michigan 48226
Attn: William E. Kraemer
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Facsimile No.: (313) 256-6918
or to such other person and/or address or addresses as
Owner may direct by written Notice given pursuant to this ARTICLE 15. Any such
Notice sent shall be deemed to have been given when delivered into U.S. mails
postage prepaid, or if not mailed, when actually delivered and written receipt
therefor obtained.
All other notices, such as directives and instructions
dealing with the day by day operations under this Agreement, shall be sent to
Owner only.
15.17.3 Notices required to be given to Contractor
pursuant to this Agreement shall be delivered by hand, sent facsimile
transmission, or sent prepaid by registered or certified mail, return receipt
requested, addressed as follows:
If to Contractor:
CENTRY CONSTRUCTORS AND ENGINEERS, LLC
375 Chipeta Way
Salt Lake City, Utah 84108
Attn: Randy Harmsen
Facsimile No.: (801) 569-0604
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Copies to the following for all Notices required under
ARTICLE 13 hereof:
KIMBALL, PARR, WADDOUPS, BROWN & GEE
185 South State Street, Suite 1300
Salt Lake City, Utah 84111
Attn: Roger D. Henriksen
Facsimile No.: (801) 532-7750
or to such other person or persons and/or address or
addresses as Contractor may direct by written Notice given pursuant to this
ARTICLE 15. Any such Notice so sent shall be deemed to have been given on the
actual delivery date of such Notice.
All other notices, such as directives and instructions
dealing with the day by day operations under this Agreement, shall be sent to
Contractor only.
15.17.4 Unless otherwise provided in the Contract
Documents, if Contractor receives oral instructions from Owner, written Notice
confirming said instructions shall be submitted in writing by Owner to
Contractor or confirmed in writing by Contractor to Owner within ten (10) days
after receiving such instructions.
15.18 NO INTENDED THIRD PARTY BENEFICIARIES. This Agreement is solely
between Owner and Contractor, and there are no intended third-party
beneficiaries hereto, including but not limited to Contractor's Subcontractors,
suppliers, consultants or other parties retained by Contractor as part of the
Work provided hereunder.
15.19 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be signed
in any number of counterparts with the same effect as if the signatures on each
counterpart were on the same instrument. Executed documents sent by facsimile
transmission shall be valid and binding.
IN WITNESS WHEREOF, the parties by their authorized representatives
have executed this Agreement as of the Effective Date intending to be legally
bound.
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"Contractor"
CEntry Constructors & Engineers, LLC
a Utah limited liability company
By_____________________________
Its __________________________
"Owner"
CROWN ASPHALT RIDGE, L.L.C.,
a Utah limited liability company
By_____________________________
Its __________________________
By_____________________________
Its __________________________
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Exhibit No. 10.24
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty") dated as of August 1, 1997,
is made by CROWN ENERGY CORPORATION, a Utah corporation ("Guarantor"), in favor
of MCNIC PIPELINE & PROCESSING COMPANY, a Michigan corporation, and its
respective successors and assigns (the "Beneficiary").
RECITALS
--------
A. Crown Asphalt Corporation, a Utah corporation ("Crown Asphalt"), a
wholly owned subsidiary of Guarantor, and the Beneficiary are Members of Crown
Asphalt Ridge, L.L.C., a Utah limited liability company ("Crown LLC"), which was
formed pursuant to that certain Operating Agreement for Crown Asphalt Ridge
L.L.C. dated as of the date hereof (the "Operating Agreement") between the
Beneficiary and Crown Asphalt.
B. Crown LLC and Crown Asphalt are parties to that certain Operating
and Management Agreement dated as of the date hereof (the "Management
Agreement").
C. As a condition the execution of the Operating Agreement and to the
making of capital contributions to Crown LLC by the Beneficiary, the Beneficiary
has required Guarantor to enter into this Guaranty.
C. The Board of Directors of the Guarantor has determined that the
Guarantor's execution, delivery and performance of this Guaranty may reasonably
be expected to be of substantial benefit to the Guarantor, directly and
indirectly, and to be in the best interests of the Guarantor.
AGREEMENT
---------
NOW, THEREFORE, in order to comply with the terms and conditions of the
<PAGE>
Operating Agreement, (ii) to induce the Beneficiary to enter into and make
capital contributions to Crown LLC under the Operating Agreement and (iii) for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Guarantor hereby covenants and agrees with, and represents
and warrants to, the Beneficiary as follows:
1 Defined Terms. The following terms shall have the following meanings
and capitalized terms used herein but not defined herein shall have the meanings
ascribed thereto in the Operating Agreement:
"Affiliate" shall mean (a) any Person directly or indirectly owning,
controlling or holding with power to vote 50% or more of the outstanding voting
securities, membership interests or partnership interests of the Member, (b) any
Person 50% or more of whose outstanding voting securities, membership interests
or partnership interests are directly or indirectly owned, controlled or held
with power to vote by the Member or a Person or group described in "(a)", and
(c) any officer, director, member, manager or partner of the Member or any
Person described in subsections (a) or (b) of this paragraph.
"Beneficiary" shall have the meaning set forth in the preamble to this
Guaranty.
"Capital Contribution" shall have the meaning set forth in the
Operating Agreement.
"Crown Asphalt" shall have the meaning set forth in Recital A.
"Crown LLC" shall have the meaning set forth in Recital A.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Existing Data" shall have the meaning set forth in the Operating
Agreement.
"Financial Statements" shall mean the financial statements attached as
Schedule 4.6(m) to the Operating Agreement.
<PAGE>
"Guaranteed Obligations" shall have the meaning set forth in Section 2.
"Guarantor" shall have the meaning set forth in the preamble to this
Guaranty.
"Management Agreement" shall have the meaning set forth in Recital B.
"Material Adverse Effect" shall mean, with respect to any Person, a
material adverse effect on (i) the condition (financial or otherwise), business,
assets and results of operations of that Person and its Affiliates, taken as a
whole, or (ii) the ability of that Person to perform its obligations under this
Agreement.
"Operating Agreement" shall have the meaning set forth in Recital A.
"Person" shall mean an individual, natural person, corporation, joint
venture, partnership, limited partnership, limited liability company, trust,
estate, business trust, association, governmental authority or any other entity.
"Proxy Statement" shall have the meaning set forth in Section 6(e).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stockholders Meeting" shall have the meaning set forth in Section
6(e).
2. The Guaranty. Guarantor hereby irrevocably and unconditionally
guarantees to the Beneficiary Crown Asphalt's full and timely performance,
payment and discharge of all of the obligations, of whatever type, that Crown
Asphalt is required to perform, pay or discharge on or before August 1, 1999
under the Operating Agreement and under the Management Agreement (the
"Guaranteed Obligations") and hereby agrees that if Crown Asphalt shall fail to
pay any amount when and as the same shall be due and payable by Crown Asphalt or
<PAGE>
timely to perform and discharge in full any Guaranteed Obligation, Guarantor
will forthwith pay to the Beneficiary an amount equal to any such amount or
perform and discharge, or cause to be performed or discharged, any such
Guaranteed Obligation, as the case may be, as such payment or performance is
required pursuant to the terms of the Operating Agreement or the Management
Agreement to be made or done by Crown Asphalt, and all reasonable expenses,
including reasonable attorneys' fees, that may be incurred by the Beneficiary in
enforcing such Guaranteed Obligations and enforcing the covenants and agreements
of Guarantor herein, provided, however, that Guarantor shall not be required to
perform any Guaranteed Obligation until the third Business Day after Guarantor
has been notified under this Guaranty that payment of such Guaranteed Obligation
is then required by the terms of the Operating Agreement or Management
Agreement, as applicable. The guaranty in the preceding sentence is an absolute,
present and continuing guaranty of payment and of performance of the Guaranteed
Obligations and is in no way conditional or contingent upon any attempt to
collect from Crown Asphalt or upon any other action, occurrence or circumstance
whatsoever other than notice as set forth in the preceding sentence. It shall
not be necessary for the Beneficiary, in order to enforce such payment by
Guarantor, first to institute suit or exhaust its remedies against Crown Asphalt
or any other Person liable with respect to the Guaranteed Obligations.
3. Obligations Absolute. The obligation of Guarantor hereunder shall be
primary, absolute, irrevocable and unconditional, irrespective of the validity,
regularity or enforceability of the Operating Agreement or the Management
Agreement (except any invalidity or unenforceability caused by an action or
omission of the Beneficiary), and shall not be subject to any counterclaim,
setoff, deduction or defense based upon any claim Guarantor may have against
Crown Asphalt or the Beneficiary or otherwise. To the fullest extent permitted
by law, the obligations of Guarantor hereunder shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
affected by, any circumstance or condition whatsoever (whether or not Guarantor
shall have any knowledge or notice thereof), including, without limitation:
(A) any amendment, modification of or supplement to the
Operating Agreement, the Management Agreement, or any other instrument referred
to therein or any assignment or transfer of any rights or obligations
thereunder;
(B) any release or waiver, by operation of law or
otherwise, of the performance or observance by Crown Asphalt or any other Person
of any express or implied agreement, covenant, term, obligation or condition
under the Operating Agreement or the Management Agreement, except that
<PAGE>
Guarantor shall be released with respect to the portion of the Guaranteed
Obligations attributable to Crown Asphalt pro tanto to the extent the
Beneficiary releases in writing Crown Asphalt from liability with respect to the
Guaranteed Obligations;
(C) any extension of the time for the payment of all or
any portion of any sums payable under the Operating Agreement or the Management
Agreement, or the extension of time for the performance of any obligation under,
arising out of, or in connection with the Operating Agreement or the Management
Agreement;
(D) any failure, omission, delay or lack of diligence on
the part of the Beneficiary, or any other Person, to enforce, assert or
exercise, or any waiver of, any right, privilege, power or remedy conferred on
the Beneficiary or any other Person by the Operating Agreement or the Management
Agreement, or any action on the part of the Beneficiary or such other Person
granting indulgence or extension of any kind;
(E) the taking (or subsequent release thereof) of
additional security for the obligations of Crown Asphalt under the Operating
Agreement or the Management Agreement;
(F) any bankruptcy, insolvency, readjustment, composition,
liquidation, dissolution or similar proceeding with respect to Crown Asphalt or
its property;
(G) any merger, amalgamation or consolidation of Guarantor
or of Crown Asphalt into or with any other corporation, limited liability
company or partnership or any sale, lease or transfer of any or all of the
assets of Guarantor or of Crown Asphalt to any Person;
(H) any failure on the part of Crown Asphalt for any
reason to comply with or perform any of the terms of any agreement with
Guarantor;
(G) any failure to perfect or maintain the perfection of
any lien on or security interest in any collateral securing, at any time,
performance of Crown Asphalt's obligations under the Operating Agreement or the
Management Agreement; or
<PAGE>
(J) any other circumstance that might otherwise constitute
a legal or equitable discharge or defense of a guarantor.
4. Waiver. Guarantor unconditionally waives, to the fullest extent
permitted by law: (a) notice of acceptance hereof, of any action taken or
omitted in reliance hereon and of any defaults by Crown Asphalt in the payment
or performance of any Guaranteed Obligations, and of any of the matters referred
to in paragraph 3 hereof; (b) all notices that may otherwise be required by
statute, rule of law or otherwise to preserve any of the rights of the
Beneficiary against Guarantor, including, without limitation, presentment to or
demand for payment from Crown Asphalt or Guarantor, notice to Crown Asphalt or
to Guarantor of default or protest for nonpayment or dishonor, and the filing of
claims with a court in the event of the bankruptcy of Crown Asphalt; (c) any
right to the enforcement, assertion or exercise by the Beneficiary of any right,
power or remedy conferred in this Guaranty, the Operating Agreement or the
Management Agreement; (d) any requirement or diligence on the part of the
Beneficiary; and (e) any other act or omission (including any delay by the
Beneficiary or any other Person in the taking of any action) that might in any
manner or to any extent vary the risk of Guarantor or that might otherwise
operate as a discharge of Guarantor. Guarantor waives any right to require the
Beneficiary to proceed against any additional or substitute endorsers or
guarantors or to pursue or exhaust any security provided by Crown Asphalt,
Guarantor or any other Person or to pursue any other remedy available to the
Beneficiary.
5. Reinstatement of Guaranty. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if and to the extent at any time
any payments, in whole or in part, made by Crown Asphalt or Guarantor to the
Beneficiary in respect of the Guaranteed Obligations are required to be
rescinded by a court of competent jurisdiction or must otherwise be restored or
returned by the Beneficiary upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of Crown Asphalt, or upon or as a result of the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to Crown Asphalt or any substantial part of its property, or
otherwise, all as though such payments had not been made.
6. Representations, Covenants and Warranties of Guarantor.
Guarantor represents, covenants and warrants as follows:
(A) Organization and Good Standing. Guarantor is a
<PAGE>
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah, and Guarantor has the requisite power to enter into and
perform its obligations under this Guaranty.
(B) Approval and Enforceability of Guaranty. (i) The
execution, delivery and performance of this Guaranty have been duly authorized
by all necessary corporate action on the part of Guarantor.
(ii) This Guaranty has been duly and validly executed and
delivered and constitutes the legal, valid and binding obligation of Guarantor,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium, reorganization, dissolution, receivership
and similar laws affecting the rights and remedies of creditors generally, and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iii) Neither the execution or delivery of this Guaranty,
nor the fulfillment or compliance with the terms and provisions hereof (x)
requires any authorization, consent, approval, exemption or other action by or
notice to or filing with any court or administrative or governmental or
regulatory body, or (y) will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any lien or encumbrance upon any of
the properties or assets of Guarantor pursuant to its organization documents,
any award of any arbitrator or any agreement (including any agreement with
shareholders), instrument, order, judgment, decree, statue, law, rule or
regulation to which Guarantor or its assets and properties is subject.
(C) Financial Statements. The Financial Statements present
fairly in all material respects, and in accordance with generally accepted
accounting principles applied on a consistent basis, Guarantor's and Crown
Asphalt's financial position at the date thereof and the results of Guarantor's
and Crown Asphalt's operations and cash flows for the period covered thereby.
Guarantor is not aware of any material error in, or omission from the Financial
Statements. The Form 10-K filed by Guarantor for the fiscal year ended December
31, 1996 and the Form 10-Q filed by Guarantor for the fiscal quarter ended June
30, 1997 are true and correct in all respects. Since June 30, 1997, there has
been no Material Adverse Effect with respect to Guarantor.
(D) Total Assets and Net Sales. As of the date of this
<PAGE>
Guaranty, the "total assets" and "net sales" of Guarantor and Crown Asphalt, as
such terms are used in 16 C.F.R. 801.40(b) (1997), are each less than
$10,000,000.
(E) Stockholders Meeting and Proxy Statement. Guarantor
shall, promptly after the date of this Guaranty, (i) take all actions necessary
in accordance with Utah Law and its charter and bylaws to convene a special
meeting of Guarantor's stockholders to act on the Operating Agreement and the
transactions contemplated thereby (the "Stockholders Meeting"); (ii) prepare and
file with the SEC a proxy statement (the "Proxy Statement") that complies with
the applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder for
stockholders of Guarantor in connection with the Operating Agreement and the
transactions contemplated thereby, and supplement the Proxy Statement from time
to time if necessary or appropriate under applicable law; and (iii) shall take
any action required to be taken under any applicable federal or state securities
laws in connection with the Operating Agreement and the transactions
contemplated thereby. Guarantor shall use its best efforts to solicit from
stockholders of Guarantor proxies in favor of the approval and adoption of the
Operating Agreement and the transactions contemplated thereby, and to secure the
vote of stockholders required by Utah Law and its charter and bylaws to approve
and adopt the Operating Agreement and the transactions contemplated thereby
(including, without limitation, including in the Proxy Statement the
recommendation of the Guarantor's board of directors in favor of the approval
and adoption of the Operating Agreement and the transactions contemplated
thereby). All documents (including, without limitation, the Proxy Statement and
any supplements thereto) that Guarantor is responsible for filing with the SEC
in connection with the Operating Agreement and the transactions contemplated
thereby will comply as to form in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder. Guarantor shall
afford MCNIC the opportunity to review and comment on any proposed filings with
the SEC or other governmental agency and any disclosures to Guarantor's
stockholders or other third Persons reasonably in advance thereof.
7. Notices. Unless otherwise specifically provided herein, all notices,
consents, directions, approvals, instructions, requests and other communications
required or permitted by the terms hereon shall be in writing, and any such
communication shall become effective when received, addressed in the following
manner:
(A) if to Guarantor, to:
<PAGE>
Crown Energy Corporation
215 South State, Suite 550
Salt Lake City, Utah 84111
Attention: Mr. Jay Mealey
Facsimile: (801) 537-5609
(B) if to the Beneficiary, to:
MCNIC Pipeline & Processing Company
150 West Jefferson Avenue, Suite 1700
Detroit, Michigan 48226
Attention: William E. Kraemer
Facsimile: (313) 256-6918
with a copy to:
MCN Energy Group
500 Griswold
10th Floor
Detroit, Michigan 48226
Attention: Daniel L. Schiffer, Esq.
Facsimile: (313) 965-0009
provided, however, that Guarantor or the Beneficiary may change its address for
communications by notice given as aforesaid to the other parties hereto.
8. Construction. The section and subsection headings in this Guaranty
are for convenience of reference only and shall neither be deemed to be a part
of this Guaranty nor modify, define, expand or limit any of the terms or
provisions hereof. All references herein to numbered sections, unless otherwise
indicated, are to sections of this Guaranty. Words and definitions in the
singular shall be read and construed as though in the plural and vice versa, and
words in the masculine, neuter or feminine gender shall be read and construed as
though in either of the other genders where the context so requires.
9. Severability. If any provision of this Guaranty, or the
application thereof to any Person or circumstances, shall, for any reason or to
<PAGE>
any extent, be invalid orunenforceable, such invalidity or unenforceability
shall not in any manner affect or render invalid or unenforceable the remainder
of this Guaranty, and the application of that provision to other Persons or
circumstances shall not be affected but, rather, shall be enforced to the extent
permitted by applicable law.
10. Successors. The terms and provisions of this Guaranty shall be
binding upon and inure to the benefit of Guarantor and the Beneficiary and,
subject to the restrictions on transfer in the Operating Agreement and the
Management Agreement, their respective successors, transferees and assigns
provided, however, (i) no assignment or other transfer by, through or under the
Beneficiary shall operate to increase Guarantor's obligations hereunder and (ii)
Guarantor shall be fully protected in making and shall receive full credit for
any payments or other performance made by it to the Beneficiary or its
successors, transferees and assigns with respect to the Guaranteed Obligations
prior to the time Guarantor receives written notice of such succession, transfer
or assignment, subject to Section 5 hereof
11. Entire Agreement; Amendment. This Guaranty expresses the entire
understanding of the subject matter hereof, and all other understandings,
written or oral, are hereby merged herein and superseded. No amendment of or
supplement to this Guaranty, or waiver or modification of, or consent under, the
terms hereof shall be effective unless in writing and signed by the party to be
bound thereby.
12. Certain Limitations. Except as expressly contemplated by this
Guaranty and the Operating Agreement, each of Guarantor and the Beneficiary
hereby waives all rights to recover consequential or indirect damages from the
other in connection with this Guaranty. If and to the extent any payment
required to be made pursuant to this Guaranty is deemed to constitute liquidated
damages, the parties acknowledge and agree that damages are difficult or
impossible to determine and that such payment constitutes a reasonable
approximation of the amount of such damages and not a penalty.
13. Term of Guaranty. This Guaranty and all guarantees, covenants and
agreements of Guarantor contained herein shall continue in full force and effect
until August 1, 1999. Notwithstanding the foregoing, this Guaranty and all
guarantees, covenants and agreements of Guarantor contained herein shall
continue in full force and effect with respect to all Guaranteed Obligations
arising or accruing prior to August 1, 1999 until such time as all of such
Guaranteed Obligations shall be paid or otherwise performed and discharged in
<PAGE>
full, regardless of whether such payment, performance or discharge occurs before
or after August 1, 1999.
14. Further Assurances. Guarantor hereby agrees to execute and deliver
all such instruments and take all such action as the Beneficiary may from time
to time reasonably request in order to effectuate fully the purposes of this
Guaranty.
15. Survival of Representations and Warranties. All representations and
warranties contained herein or made in writing or on behalf of Guarantor in
connection herewith shall survive the execution and delivery of this Guaranty.
16. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY THEREIN, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly
executed and delivered as of the date and year first above written.
CROWN ENERGY CORPORATION,
a Utah corporation
By:
Name:
Title:
Exhibit No. 10.25
SUBLEASE
--------
This Sublease is made as of the day of October, 1997 by and between
Holland & Hart LLP a Colorado limited liability partnership ("Sublandlord") and
Crown Energy Corporation, a Utah corporation ("Subtenant") with reference and
respect to the following facts and circumstances (Sublandlord and Subtenant,
collectively, the "Parties"):
Recitals:
- ---------
A. Sublandlord is the tenant under that certain Office Lease (the
"Master Lease"), dated as of February 1, 1996 between
Sublandlord and State of California Public Employees
Retirement System ("CPERS"), amended by a "First Amendment
Lease" (the "Amendment") dated May 9, 1997, by CPERS'
successor in interest, Parkside Salt Lake Corporation, a
Delaware corporation (the "Landlord") which is attached hereto
as Exhibit A and by this reference made a part hereof,
concerning approximately 11,808 rentable square feet of office
space (the "Premises") located on the fifth floor of the
building (the "Building") located at 215 South State Street,
Salt Lake City, Utah, 84111-2346.
B. Subtenant desires to sublease from Sublandlord a portion of
the Premises consisting of approximately 1120 rentable square
feet of space (the "Subleased Premises") more particularly
described on Exhibit B, attached hereto and by this reference
made a part hereof, and Sublandlord has agreed to sublease the
Subleased Premises to Subtenant upon the terms, covenants and
conditions herein set forth.
C. Subtenant has read the Master Lease and is familiar with
its terms and conditions.
Agreement:
- ----------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and promises contained herein and for good and valuable consideration, the
receipt and sufficiency of which is acknowledged by each of the Parties, the
Parties do hereby agree to the following:
<PAGE>
1. Sublease. Sublandlord hereby subleases and demises to Subtenant and
Subtenant hereby hires and takes from Sublandlord the Subleased Premises.
2. Term. The term of this Sublease shall commence on the substantial
completion of the build-out of the subleased premises and shall end, unless
sooner terminated as provided in the Master Lease or this Sublease on October
30, 2001 (the "Term").
3. Rent.
a. Base Rent. Subtenant shall pay
base rent during the term of this Sublease as follows:
YEAR Annual Monthly
Year 1: $18,480.00 $1,540.00
Year 2: $19,040.04 $1,586.67
Year 3: $19,599.96 $1,633.33
Year 4: $20,193.60 $1,682.80
b. First Month's Lease Payment; Absence of Security Deposit.
At the commencement of this Sublease, Subtenant shall deliver to Sublandlord the
first month's base rent in advance and shall pay monthly rent thereafter each
month in advance of the following month. No Security Deposit shall be required.
c. Improvements. In addition to the foregoing, Subtenant
agrees to pay for all expenses up to six thousand dollars ($6,000), incurred in
constructing improvements of the Subleased Premises in accordance with the
specifications agreed upon by Sublandlord and Subtenant (the "Improvements").
The Parties agree that all such expenses incurred in constructing the
Improvements will be amortized over the Term and will be paid in equal monthly
installments concurrent with payment of the base rent described herein
throughout the Term by Subtenant. Notwithstanding the foregoing, if Sublandlord
exercises its rights under Section 8(a) hereof, Subtenant shall be released of
its obligation to pay the remainder, if any, of such amortized expenses. To the
contrary, if Subtenant exercises its rights under Section 8(b) hereof, prior to
the end of the Term, Subtenant shall pay all outstanding amounts under this
Section 3(c) which would have been paid during the Term immediately upon such
exercise.
4. Use. Subtenant covenants and agrees to use the Premises in
accordance with the provisions of the Master Lease and for no other purpose and
otherwise in accordance with the terms and conditions of the Master Lease and
this Sublease.
<PAGE>
5. Master Lease. As applied to this Sublease, the words "Landlord" and
"Tenant" as used in the Master Lease shall be deemed to refer to Sublandlord and
Subtenant hereunder, respectively. Subtenant and this Sublease shall be subject
in all respects to the terms of, and the rights of the Landlord under, the
Master Lease. Except as otherwise expressly provided in Section 7 hereof, the
covenants, agreements, terms, provisions and conditions of the Master Lease
insofar as they relate to the Subleased Premises and insofar as they are not
inconsistent with the terms of this Sublease are made a part of and incorporated
into this Sublease as if recited herein in full, and the rights and obligations
of the Landlord and the Tenant under the Master Lease shall be deemed the rights
and obligations of Sublandlord and Subtenant respectively hereunder and shall be
binding upon and inure to the benefit of Sublandlord and Subtenant respectively.
As between the Parties only, if there is a conflict between the terms of the
Master Lease and the terms of this Sublease, the terms of this Sublease shall
control.
6. Landlord's Performance Under Master Lease.
6.1 Subtenant recognizes that Sublandlord is not in a position
to render any of the services or to perform any of the obligations required of
Sublandlord by the terms of this Sublease. Therefore, notwithstanding anything
to the contrary contained in this Sublease, Subtenant agrees that performance by
Sublandlord of its obligations hereunder are conditional upon due performance by
the Landlord of its corresponding obligations under the Master Lease and
Sublandlord shall not be liable to Subtenant for any default of the Landlord
under the Master Lease. Subtenant shall not have any claim against Sublandlord
by reason of the Landlord's failure or refusal to comply with any of the
provisions of the Master Lease unless such failure or refusal is a result of
Sublandlord's act or failure to act. This Sublease shall remain in full force
and effect notwithstanding the Landlord's failure or refusal to comply with any
such provisions of the Master Lease and Subtenant shall pay all rent payments
required under Section 3 herein and all other charges provided for herein
without any abatement, deduction or setoff whatsoever. Subtenant covenants and
warrants that it fully understands and agrees to be subject to and bound by all
of the covenants, agreements, terms, provisions and conditions of the Master
Lease, except as modified herein. Furthermore, Subtenant and Sublandlord further
covenant not to take any action or do or perform any act or fail to perform any
act which would result in the failure or breach of any of the covenants,
agreements, terms, provisions or conditions of the Master Lease on the part of
the Tenant thereunder.
6.2 Whenever the consent of Landlord shall be required by, or
Landlord shall fail to perform its obligations under, the Master Lease,
Sublandlord agrees to use its best efforts to obtain, at Subtenant's sole cost
and expense, such consent and/or performance on behalf of Subtenant.
6.3 Sublandlord represents and warrants to Subtenant that the
<PAGE>
Master Lease is in full force and effect, all obligations of both Landlord and
Sublandlord thereunder have been satisfied and Sublessor has neither given nor
received a notice of default pursuant to the Master Lease.
6.4 Sublandlord covenants as follows: (i) not to voluntarily
terminate the Master Lease, (ii) not to modify the Master Lease so as to
adversely affect Subtenant's rights hereunder, and (iii) to take all actions
reasonably necessary to preserve the Master Lease.
7. Variations from Master Lease. The following covenants, agreements,
terms, provisions and conditions of the Master Lease are hereby modified or not
incorporated herein:
7.1 Notwithstanding anything to the contrary set forth in the
Master Lease, the term of this Sublease and base rent payable under this
Sublease and the amount of the Security Deposit required of Subtenant shall be
as set forth in Sections 2 and 3 above.
7.2 The parties hereto represent and warrant to each other
that neither party dealt with any broker or finder in connection with the
consummation of this Sublease and each party agrees to indemnify, hold and save
the other party harmless from and against any and all claims for brokerage
commissions or finder's fees arising out of either of their acts in connection
with this Sublease. The provisions of this Section 7.2 shall survive the
expiration or earlier termination of this Sublease.
7.3 Notwithstanding anything contained in the Master Lease to
the contrary, as between Sublandlord and Subtenant only, all insurance proceeds
or condemnation awards received by Sublandlord under the Master Lease shall be
deemed to be the property of Sublandlord.
7.4 Any notice which may or shall be given by either party
hereunder shall be either delivered personally or sent by certified mail, return
receipt requested, addressed to the party for whom it is intended at the
Subleased Premises (if to the Subtenant), or to 215 South State Street, Suite
500, Salt Lake City, Utah, 84111-2346 and to 555 Seventeenth Street, Suite 3200,
Denver, Colorado, 80202-3279, Attention: Executive Director (if to the
Sublandlord), or to such other address as may have been-designated in a notice
given in accordance with the provisions of this Section 7.4.
7.5 All amounts payable hereunder by Subtenant shall be
payable directly to Sublandlord.
7.6 Sublandlord shall deliver the Subleased Premises to
Subtenant in its current "as is" condition.
<PAGE>
7.7 Subtenant shall not be required to remove any improvements
located in the Subleased Premises upon the expiration of the Term.
8. Early Termination.
a. By Sublandlord.
i) Sublandlord shall have the right to terminate this
Sublease, at its sole discretion, at any time after the expiration of eighteen
(18) months from the date hereof upon the giving of written notice to Subtenant
of Sublandlord's intent to so terminate (the "Sublandlord Notice"). Subtenant
shall have six (6) months after the date of the Sublandlord Notice to vacate the
Subleased Premises. Subtenant shall be obligated to pay all rents as described
in Section 3 hereof up to, and including, six (6) months after the Sublandlord
Notice.
ii) If Sublandlord exercises its right to terminate
this Sublease in accordance with this Section, Sublandlord shall have the option
to either: (A) sublease from Subtenant that certain space, consisting of
approximately 2,303 square feet more particularly described on Exhibit "C",
attached hereto and by this reference made a part hereof, which Subtenant
currently leases from Landlord (the "Subtenant Premises") on the same terms and
conditions as set forth in the lease between Landlord and Subtenant ("Subtenant
Lease"), or (B) retain the Subleased Premises only and reconstruct the dividing
wall between the Subleased Premises and the Subtenant Premises and make such
other improvements at Sublandlords expense as are reasonably necessary to
separate the Subleased Premises and the Subtenant Premises and leave the
Subtenant Premises in such condition as is reasonably necessary to permit the
Subtenant Premises to be subleased or occupied by Subtenant.
b. By Subtenant.
i) Subtenant shall have the right to terminate this
Sublease, at its sole discretion, at any time after the expiration of eighteen
(18) months from the date hereof upon the giving of written notice to
Sublandlord of Subtenant's intent to so terminate (the "Subtenant Notice").
Sublandlord shall have six (6) months after the date of the Subtenant Notice to
occupy the Subleased Premises. Subtenant shall be obligated to pay all rents as
described in Section 3 hereof up to, and including, six (6) months after the
Subtenant Notice.
ii) If Subtenant exercises its rights to terminate
this Sublease in accordance with this Section, Sublandlord shall have the right,
but not obligation, to Sublease the Subtenant Premises on the same terms and
conditions as set forth in the lease between Landlord and Subtenant. If
Subtenant exercises its right to terminate this Sublease and Sublandlord does
not exercise its right to sublease the Subtenant Premises, Subtenant shall
<PAGE>
reconstruct the dividing wall between the Subleased Premises and the Subtenant
Premises and make such other improvements, at Subtenant's expense, as are
reasonably necessary to separate the Subleased Premises and the Subtenant
Premises and leave the Subleased Premises in such condition as is reasonably
necessary to permit the Subleased Premises to be subleased or occupied by
Sublandlord.
9. Indemnity. Subtenant hereby agrees to indemnify and hold Sublandlord
harmless from and against any and all claims, losses and damages, including,
without limitation, reasonable attorneys' fees and disbursements, which may at
any time be asserted against Sublandlord by (a) the Landlord for failure of
Subtenant to perform any of the covenants, agreements, terms, provisions or
conditions contained in the Master Lease which by reason of the provisions of
this Sublease Subtenant is obligated to perform, or (b) any person by reason of
Subtenant's use and/or occupancy of the Subleased Premises. The provisions of
this Section 9 shall survive the expiration or earlier termination of the Master
Lease and/or this Sublease, except to the extent any of the foregoing is caused
or by the negligence of Sublandlord.
10. Cancellation of Master Lease. In the event of the cancellation or
termination of the Master Lease for any reason whatsoever or of the involuntary
surrender of the Master Lease by operation of law prior to the expiration date
of this Sublease, Subtenant agrees to make full and complete attornment to the
Landlord under the Master Lease for the balance of the term of this Sublease and
upon the then executory terms hereof at the option of the Landlord at any time
during Subtenant's occupancy of the Premises, which attornment shall be
evidenced by an agreement in form and substance reasonably satisfactory to the
Landlord. Subtenant agrees to execute and deliver such an agreement at any time
within ten (10) business days after request of the Landlord, and Subtenant
waives the provisions of any law now or hereafter in effect which may give
Subtenant any right of election to terminate this Sublease or to surrender
possession of the Subleased Premises in the event any proceeding is brought by
the Landlord under the Master Lease to terminate the Master Lease.
11. Certificates. Each party hereto shall at any time and from time to
time as requested by the other party upon not less than ten (10) days prior
written notice, execute, acknowledge and deliver to the other party, a statement
in writing certifying that this Sublease is unmodified and in full force and
effect (or if there have been modifications that the same is in full force and
effect as modified and stating the modifications, if any) certifying the dates
to which rent and any other charges have been paid and stating whether or not,
to the knowledge of the person signing the certificate, that the other party is
not in default beyond any applicable grace period provided herein in performance
of any of its obligations under this Sublease, and if so, specifying each such
default of which the signer may have knowledge, it being intended that any such
statement delivered pursuant hereto may be relied upon by others with whom the
party requesting such certificate may be dealing.
<PAGE>
12. Assignment or Subletting. Subject further to all of the rights of
the Landlord under the Master Lease and the restrictions contained in the Master
Lease, Subtenant shall not be entitled to assign this Sublease or to sublet all
or any portion of the Premises without the prior written consent of Sublandlord,
which consent may be withheld by Sublandlord in its sole discretion.
13. Default. It is expressly understood and agreed, by and between the
Parties, that if the rent above reserved, or any part thereof, shall be behind
or unpaid, or if default shall be made in any of the covenants or agreements,
Sublandlord shall notify the Subtenant in writing of the condition or default
and upon notification, the Subtenant shall have twenty (20) days from the date
the notice is received, to correct the condition or default and, upon
Subtenant's failure to so correct the condition or default, it shall and may be
lawful for Sublandlord, or its attorney to declare this Term canceled.
14. Risk of Loss. Each of the Parties will bear its own risk of loss
for liability and neither party agrees to insure, defend or indemnity the other.
15. Severability. If any term or provision of this Sublease or the
application thereof to any person or circumstances shall, to any extent, be
invalid and unenforceable, the remainder of this Sublease or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
or provision of this Sublease shall be valid and be enforced to the fullest
extent permitted by law.
16. Entire Agreement; Waiver. This Sublease contains the entire
agreement between the parties hereto and shall be binding upon and inure to the
benefit of their respective heirs, representatives, successors and permitted
assigns. Any agreement hereinafter made shall be ineffective to change, modify,
waive, release, discharge, terminate or effect an abandonment hereof, in whole
or in part, unless such agreement is in writing and signed by the parties
hereto.
17. Captions and Definitions. Captions to the Sections in this Sublease
are included for convenience only and are not intended and shall not be deemed
to modify or explain any of the terms of this Sublease.
18. Further Assurances. The parties hereto agree that each of them,
upon the request of the other party, shall execute and deliver, in recordable
form if necessary, such further documents, instruments or agreements and shall
take such further action that may be necessary or appropriate to effectuate the
purposes of this Sublease.
19. Governing Law. This Sublease shall be governed by and in all
respects construed in accordance with the internal laws of the State of Utah.
<PAGE>
20. Consent of Landlord. The validity of this Sublease shall be subject
to the Landlord's prior written consent hereto pursuant to the terms of the
Master Lease, and if Landlord's consent shall not be obtained and a copy thereof
delivered to Subtenant within thirty (30) days of the date hereof, Subtenant
shall have the option to cancel this Sublease by notice to Sublandlord within
forty (40) days from the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed as of the day and year first above written.
"Sublandlord":
Holland & Hart LLP
a Colorado limited liability partnership,
By: Lawrence Jensen
Its: Managing Partner
" Subtenant":
Crown Energy Corporation,
a Utah corporation
By: Jay Mealey
Its: President
Exhibit No. 10.27
August 23, 1996
Mr. Jay Mealey
President
Crown Energy Corporation
215 South State, Suite 550
Salt Lake City, Utah 84111
Dear Jay:
Pursuant to our conversation, this letter agreement (the "Agreement") sets forth
an arrangement regarding the engagement of EnCap Investments L.C. ("EnCap") as
exclusive financial advisor for Crown Energy Corporation ("Crown"or the
"Company") for the purpose of (i) raising $4-6 million of equity capital (the
"Equity Capital"), and (ii) assisting Crown to obtain project debt financing
("Project Financing"). The terms and conditions of the engagement are:
1. The Company hereby engages EnCap as the Company's exclusive
financial advisor for the purpose of providing financial
advisory or investment banking services in connection with
raising the Equity Capital. In this role, EnCap will help set
the strategy for approaching the market, assist in the
preparation of marketing materials, solicit institutional or
otherwise accredited investors and assist in the structuring,
negotiation and closing process.
2. To the extent requested by the Company, EnCap will also assist
Crown to obtain Project Financing to fund the capital costs
associated with the construction and implementation of its
mining and production facility. In this capacity, EnCap will
<PAGE>
identify and approach potential lenders and help the Company
negotiate the structure, terms and conditions of such financing.
3. This engagement will be effective upon execution of this
Agreement and will be effective for a 90 day period thereafter.
Either the Company or EnCap may terminate this engagement
hereunder by giving the other party at least 30 days prior
written notice; provided however, the Company shall remain
responsible for the reimbursement of EnCap's expenses as
described under sub-paragraph 4.d. and the obligations of the
Company as described under paragraph 7 shall survive.
4. As compensation for the services rendered hereunder, the Company
agrees to pay EnCap the following fees and expenses:
a. Retainer Fee In lieu of a cash retainer, the Company
------------ shall pay EnCap a one-time Retainer Fee of
50,000 unregistered shares of the Company's
Common Stock, $.02 par value ("Common
Stock") with free piggyback rights. The
Company shall deliver the Common Stock to
EnCap within 30 days of execution of this
Agreement.
b. Equity Fee Upon closing and receipt of funds from
---------- investor(s) identified by EnCap, the Company
shall pay EnCap an Equity Fee equal to 7.0%
of the gross Equity Capital proceeds raised
or committed to the Company payable in cash
immediately upon receipt of funds from
investors. Additionally, the Company shall
also issue five year warrants to purchase
100,000 unregistered shares of Common Stock
to EnCap at closing exercisable at the
lesser of the Company's closing stock price
on the day of closing or $1.00 per share.
EnCap will have the right to demand that the
Company use its best efforts to file a
registration statement on the underlying
Common Stock at EnCap's request anytime
after the initial production facility
becomes commercially viable.
c. Project Upon closing and receipt of funds from
------- lender(s) identified
Financing Fee by EnCap, the Company shall pay EnCap a
------------- Project Financing Fee equal to 1.0% of the
gross proceeds raised or committed to the
Company payable in cash immediately upon
receipt of funds from lenders identified by
EnCap. In the event that either ING Capital
Corporation, Transamerica Business Credit or
Corpfinance Ltd. provides Project Financing,
the Company will not be obligated to pay
EnCap a Project Financing Fee.
d. Expense The Company shall also reimburse EnCap for
------- its reasonable
<PAGE>
Reimbursement and itemized out-of-pocket expenses
------------- previously approved by the Company in
performing its services under this
Agreement. Such reimbursement shall be
payable within 30 days of presentation of an
invoice for such expenses. These expense
shall be paid regardless of whether the
transaction is ultimately consummated as a
result of EnCap's efforts.
5. If, during the 12-month period immediately following
termination of the Agreement (the "Protection Period"), an
investor or lender that had been contacted by EnCap provides
Equity Capital or Project Financing to the Company, the Equity
Fee described in sub-paragraph 4.b. or the Project Financing
Fee described in sub-paragraph 4.c. shall be payable by Crown
to EnCap.
6. The initial list of investors and lenders identified by EnCap
and approved by Crown is enclosed in Exhibit A. During the
term of this Agreement, EnCap may periodically submit new
investors or lenders to Exhibit A agreed to by Crown and
EnCap.
7. In connection with this engagement, Crown, for itself and its
successors and affiliates, hereby (i) agrees to use its best
efforts to assure that any information furnished or to be
furnished to EnCap by or on behalf of Crown in connection with
this engagement does not and will not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not
misleading, and (ii) covenants and agrees to indemnify and
hold harmless EnCap, its subsidiaries and affiliates, and the
respective successors, assigns, heirs, beneficiaries and legal
representatives of each indemnified entity and person from and
against any and all damage, loss, cost, expense, obligation,
claim or liability, including attorney's fees and expenses,
suffered by any indemnified person or entity as a result of
any breach of the letter or as a result of any other matter
related to the services provided (whether or not consummated)
by EnCap hereby; provided that Crown shall have no obligation
to indemnify EnCap with respect to any act or omission of
EnCap or of its officers, directors, employees or agents that
constitutes gross negligence or willful misconduct.
If the foregoing correctly sets forth the understanding and agreement between
EnCap and the Company, please confirm your acceptance and agreement by signing
and returning the enclosed duplicate of this letter, which will thereupon
constitute a binding agreement between us.
Very truly yours,
ENCAP INVESTMENTS L.C.
Gary R. Petersen
<PAGE>
Managing Director
Agreed to and Approved this ____ day of August, 1996.
CROWN ENERGY CORPORATION
Jay Mealey
President
cc: James A. Middleton
Chairman of the Board, Chief Executive Officer
Exhibit 21
CROWN ENERGY CORPORATION
Subsidiaries of the Company
1) Applied Enviro Systems, Inc., an Oregon corporation.
2) Crown Asphalt Corporation, formerly known as, BuenaVentura
Resources Corporation, a Utah corporation.
4) Crown Asphalt Products Company, formerly known as Energy
Technologies Corporation, a Utah corporation.
Exhibit 24
CROWN ENERGY CORPORATION
POWER OF ATTORNEY
We, the undersigned directors and officers of Crown Energy Corporation
("the Company"), do hereby constitute and appoint Richard Rawdin as our true and
lawful attorney and agent to sign an Annual Report on Form 10-K to be filed with
the Securities and Exchange Commission, and to do any and all acts and things
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorney and agent may deem necessary or advisable
to enable the Company to comply with the Securities and Exchange Act of 1934, as
amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with such Annual Report on Form 10-K,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names and in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto; and we do hereby ratify
and confirm all that the said attorney and agent shall do or cause to be done by
virtue of this power of attorney.
Executed below by the following persons in the capacities and on the dates
indicated:
Jay Mealey James Middleton
Jay Mealey James Middleton
Chief Operating Officer and Director Chief Executive Officer and Director
Dated: March ___, 1998 Dated: March ___, 1998
<PAGE>
Richard Rawdin
Richard Rawdin
Secretary and Treasurer
Dated: March ___, 1998
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