FINANCING AGREEMENT
Dated as of January 6, ▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇ PRODUCTION LIMITED-LIABILITY COMPANY
and
ENERGY INCOME FUND, L.P.
THIS FINANCING AGREEMENT IS TO BE
GOVERNED BY MASSACHUSETTS LAW
TABLE OF CONTENTS
Page No.
FINANCING AGREEMENT..........................................................1
ARTICLE 1 - DEFINITIONS......................................................2
1.1 Definitions. ................................................2
1.2 Accounting Terms.............................................14
1.3 Petroleum Terms..............................................14
1.4 Singular and Plural..........................................14
1.5 Amendment of Defined Instruments.............................14
ARTICLE 2 - THE LOANS.......................................................15
2.1 Refinancing Loan.............................................15
2.2 Development Loan and Initial Funding.........................15
2.3 Acquisition Loan.............................................17
2.4 The Notes....................................................18
2.5 Interest.....................................................18
2.6 Interest Upon Default........................................18
2.7 Repayment of Principal and Interest on Refinancing Loan......18
2.8 Repayment of Principal and Interest on Development Loan......19
2.9 Repayment of Principal and Interest on the Acquisition Loan..19
2.10 Prepayment...................................................20
2.11 Payment Procedure............................................20
2.12 Overriding Royalty...........................................20
2.13 Collateral Reevaluation......................................21
2.14 Collateral/Indebtedness Ratio................................22
ARTICLE 3 - ADDITIONAL FINANCING RIGHT OF FIRST REFUSAL.....................23
3.1 Additional Financing Right of First Refusal..................23
3.2 Termination of Right of First Refusal........................24
ARTICLE 4 - SECURITY AND ASSIGNMENT.........................................25
4.1 Collateral...................................................25
4.2 Assignment...................................................27
4.3 Limitation on Recourse.......................................29
4.4 Definition of Collateral.....................................30
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF BORROWERS.....................31
5.1 Organization; Charter and Bylaws of Organizational Documents.31
5.2 Authority....................................................31
5.3 No Violation.................................................31
5.4 Litigation...................................................31
5.5 Financial Statements.........................................32
5.6 Compliance with Licenses and Laws............................32
5.7 Investments and Guaranties...................................32
5.8 Title to Properties..........................................32
5.9 Casualties; Taking of Properties.............................33
5.10 ERISA........................................................33
5.11 Environmental Liabilities....................................34
5.12 Taxes........................................................35
5.13 Securities Filings...........................................35
5.14 No Event of Default..........................................36
5.15 Investment Company Act.......................................36
5.16 Public Utility Holding Company Act...........................36
5.17 Location of Business and Offices.............................36
5.18 No Misstatement..............................................36
5.19 Foreign Person...............................................36
5.20 Arrangements Relating to Hydrocarbons........................36
5.21 Hydrocarbon Contracts........................................36
5.22 No Indebtedness to Shareholders, Members, Officers,
Directors, Managers or Affiliates............................37
5.23 Capitalization...............................................37
ARTICLE 6 - THE CLOSINGS; CONDITIONS PRECEDENT..............................38
6.1 Time and Place of Closings...................................38
6.2 Conditions Precedent to the Funding of Each Loan.............38
(a) Corporate Documents................................38
(c) Representations and Warranties True................39
(d) Compliance with Covenants..........................39
(e) Absence of Event of Default........................39
(f) Opinion of Borrowers' Counsel......................39
(g) Financial Condition................................40
(h) Asset Coverage.....................................40
(i) Legal Matters......................................40
(j) Access to Information; Due Diligence...............40
(k) Purchasers of Production...........................40
(l) Other Matters......................................41
6.3 Conditions Precedent to Refinancing Loan Closing, the
Development Loan Closing and the Initial Funding.............41
(a) Loan Documents.....................................41
(b) Bank Loan..........................................41
(c) Security Instruments Recorded......................42
(d) Title..............................................42
(e) No Liens...........................................42
(f) Initial Overriding Royalty Interests...............42
(g) Transfer Orders and Letters in Lieu................42
(h) Warrants...........................................42
(i) Operating Agreements for Existing Properties.......42
(j) AFEs...............................................42
(k) Seismic Data.......................................42
6.4 Conditions Precedent to Funding Subsequent Advances Under
the Development Loan.........................................43
(a) Development Plan and Budget........................43
(b) Seismic Data.......................................43
(c) Results of Prior Development.......................43
(d) Secondary Overriding Royalty Interests.............43
(e) Miscellaneous......................................43
6.5 Conditions Precedent to the Acquisition Loan.................43
(a) Development Plan and Budget........................43
(b) Results of Prior Development.......................43
(c) Purchase Agreements................................44
(d) Security Instruments Recorded......................44
(e) Title..............................................44
(f) No Liens...........................................44
(g) Transfer Orders and Letters in Lieu................44
(h) AFE................................................44
(i) Request for Escrow Disbursement....................44
6.6 Conditions Precedent to Release of Funds from Escrow
Account......................................................44
(a) AFE................................................45
(b) Request for Escrow Disbursement....................45
ARTICLE 7 - COVENANTS OF BORROWER...........................................46
7.1 Punctual Payment and Performance.............................46
7.2 Records and Accounts.........................................46
7.3 Financial Statements, Certificates and Information...........46
7.4 Existence; Maintenance of Collateral.........................48
7.5 Title to Properties..........................................48
7.6 Mineral Interests............................................48
7.7 Contract Approval............................................49
7.8 Insurance....................................................49
7.9 Taxes and Other Claims.......................................49
7.10 Securities Filings...........................................49
7.11 Inspection of Properties and Books...........................50
7.12 Compliance with Laws, Contracts, Licenses and Permits........50
7.13 Litigation...................................................50
7.14 Further Assurances...........................................50
7.15 Notices......................................................51
7.16 Use of Proceeds..............................................51
7.17 Dividends, Distributions and Redemptions.....................51
7.18 Nature of Business...........................................51
7.19 Restrictions on Liens........................................51
7.20 Collateral Sales.............................................51
7.21 Sale or Discount of Receivables..............................52
7.22 Affiliate Transactions.......................................52
7.23 Financial Covenants..........................................52
7.24 Key Employee.................................................53
7.25 Preliminary Site Assessment Inspection.......................53
7.26 Environmental Laws Compliance................................53
7.27 Corporate Name and Address...................................54
7.28 Mergers and Sales of Assets..................................54
7.29 Change of Control............................................54
7.30 Operation of Assets..........................................54
7.31 Borrower as Operator.........................................54
7.32 ERISA Compliance.............................................54
7.33 Additional Information.......................................55
7.34 No Loans or Guarantees to Officers, Directors, Managers or
Shareholders/Partners........................................56
7.35 Bonuses......................................................56
7.36 G&A Budget...................................................56
7.37 Foreclosure..................................................56
7.38 Updates to Purchasers of Production Information..............57
7.39 Warrants.....................................................57
ARTICLE 8 - EVENTS OF DEFAULT; ACCELERATION.................................58
ARTICLE 9 - INDEMNIFICATION.................................................61
9.1 Environmental Indemnity......................................61
9.2 General Indemnity............................................62
ARTICLE 10 - EXPENSES......................................................63
ARTICLE 11 - NOTICES; MISCELLANEOUS.........................................63
11.1 Notices......................................................63
11.2 Miscellaneous................................................64
(a) Entire Agreement...................................64
(b) Governing Law......................................64
(c) Headings...........................................65
(d) Parties in Interest................................65
(e) No Third Party Beneficiaries.......................65
(f) Severability.......................................65
(g) Counterparts.......................................65
(h) Renewal, Extension or Rearrangement................65
(i) Cumulative Rights..................................65
(j) Consents, Amendments, Waivers, Etc.................65
(k) Jurisdiction.......................................66
(l) Waiver of Jury Trial, Punitive Damages, Etc........66
(m) Waiver of Consumer Rights..........................66
(n) Agent for Service..................................66
EXHIBITS....................................................................68
SCHEDULES...................................................................69
FINANCING AGREEMENTAGREEMENT
FINANCING AGREEMENT ("Agreement"), dated as of this 6th day of
January 1998, by and between Foreland Corporation, a Nevada corporation
("Foreland"), Eagle Springs Production Limited-Liability Company, a Nevada
limited liability company ("Eagle Springs"), (together, the "Borrowers"), and
Energy Income Fund, L.P., a Delaware limited partnership ("EIF").
R E C I T A L S
WHEREAS, Borrowers have requested EIF to make a loan to Borrowers
described herein as the "Refinancing Loan" to refinance a loan from Colorado
National Bank to Foreland;
WHEREAS, Borrowers intend: to install a high pressure air injection
system and to drill ▇▇▇▇▇ on its interests in the oil and gas properties located
in the Eagle Springs Area as described in Exhibit A hereto (the "Eagle Springs
Properties"); to conduct a three-dimensional seismic analysis of and drilling on
their interests in the oil and gas properties located in the Pine Creek Area as
described in Exhibit A hereto (the "Pine Creek Properties"); to drill ▇▇▇▇▇ on
their interests in the oil and gas properties located in the Eagle Springs Area
as described in Exhibit A hereto (the "Ghost Ranch Properties"); to explore and
drill ▇▇▇▇▇ on their interests in the oil and gas properties located in the
Eagle Springs Area as described in Exhibit A hereto (the "Ghost Ranch East
Properties"); and to conduct a three-dimensional seismic analysis of and
drilling on their interests in the oil and gas properties located in the Hay
Ranch Area as described in Exhibit A hereto (the "Hay Ranch Properties")
(collectively, the "Existing Properties")
WHEREAS, Borrowers have requested EIF to consider making a further
loan to Borrowers described herein as the "Development Loan" to finance certain
exploration and development costs relating to the Existing Properties;
WHEREAS, Borrowers may negotiate the purchase of certain additional
undivided interests in the oil and gas properties located in Nevada and
described in Exhibit B hereto, which interests are commonly known as the
▇▇▇▇▇▇▇, the ▇▇▇▇▇▇▇▇▇, the Crysen, the Petro Source and the Trap Springs
acquisitions (collectively, the "New Properties");
WHEREAS, Borrowers have requested EIF to consider making a further
loan to Borrowers described herein as the "Acquisition Loan" to finance a
portion of the cost of acquiring the New Properties;
WHEREAS, Borrowers have agreed to pledge all of their interests in the
Eagle Springs Properties, the Ghost Ranch Properties, the Ghost Ranch East
Properties and the Pine Creek Properties and the other assets and items
described herein as collateral for the loans; and
WHEREAS, EIF is willing to make the requested loans on the terms and
conditions hereinafter specified;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration the adequacy of which is expressly acknowledged, the
parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms shall have the meanings
set forth herein:
"Acquisition Loan" shall mean the acquisition loan made by EIF to
Borrowers pursuant to Section 2.3 of this Agreement.
"Acquisition Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of the Acquisition Loan, as set forth in
Sections 6.2 and 6.3 of this Agreement.
"Acquisition Loan Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Acquisition Note" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Additional Loan" shall have the meaning set forth in Section 3.1(a)
of this Agreement.
"Advance Notice" shall mean, with respect to each advance to be made
under the Loans, a written request from Borrowers to EIF to fund such advance
setting forth the amount to be advanced and the purpose of the advance.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person and any other Person
that is an officer, director, or full time employee of such other Person.
"AFE" shall mean, with respect to each development and acquisition
project to be paid for by Borrowers with the proceeds of portions of the
Development and Acquisition Loans, as more fully described in Sections 2.2 and
2.3 of this Agreement, a document that is referred to as the Authority for
Expenditure. Such document must have received all required approvals of the
participating working interest owners as required by any applicable operating
agreement relating to the property to be developed or acquired.
"Agreement" shall mean this Financing Agreement, including all
exhibits and schedules attached hereto.
"Bank" shall mean Colorado National Bank located in Denver, Colorado.
"Bank Lien" shall mean those certain liens on certain of the Existing
Properties securing the Bank Loans.
"Bank Loans" shall mean that certain Promissory Note dated November
13, 1996 in the original principal amount of Ten Million Dollars ($10,000,000)
made by Borrowers to the Bank, and secured by a Mortgage, Security Agreement,
Assignment, Financing Statement and Fixture Filing dated November 13, 1996,
covering certain of the Existing Properties located in ▇▇▇ County, Nevada.
"Bank Loans Financing" shall have the meaning set forth in Section 2.1
of this Agreement.
"Borrower" shall mean either of Foreland or Eagle Springs.
"Borrowers" shall mean Foreland and Eagle Springs.
"Business Day" shall mean any day on which national banking
institutions in Massachusetts are open for the transaction of banking business.
"Change of Control" shall mean any transaction that results in, or as
a consequence of which, the power to direct the management or policies, whether
through ownership of voting securities, by merger, by agreement, or otherwise of
Borrower, or Borrower is acquired directly or indirectly by any Person
("Acquiring Person"), or by any group of which such Acquiring Person is a
member. For purposes of this definition, the term "group" has the meaning
ascribed thereto under Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended. Without limiting the generality of the foregoing, the power to
direct the management or policies of Borrowers shall be deemed to include any
transaction whereby
(A) any such Acquiring Person or group in which such Acquiring
Person is a member acquires in the aggregate beneficial ownership of
more than fifty percent (50%) of the outstanding voting securities or
other ownership interests carrying voting rights of Borrowers; or
(B) any such Acquiring Person or group in which such Acquiring
Person is a member acquires the right to appoint or cause to be
appointed or elected a majority of the directors of Foreland.
"Closing" shall mean any of the Refinancing Loan Closing, the
Development Loan Closing or the Acquisition Loan Closing.
"Closing Date" shall mean any of the Refinancing Loan Closing Date,
the Development Loan Closing Date or the Acquisition Loan Closing Date.
"Closing Financing" shall mean the Phase I Closing Financing.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and published interpretations thereunder.
Section references to the Code and its regulations are to those provisions as in
effect at the date of this Agreement, together with any subsequent provisions of
the Code that amend, supplement, or replace the provisions to which reference is
made.
"Collateral" shall have the meaning set forth in Section 4.1 of this
Agreement, subject to the limitation described in Section 4.4 of this Agreement.
"Default" shall have the meaning set forth in Section 8.1 of this
Agreement.
"Default Rate" shall mean the interest rate chargeable upon default,
as described in Section 2.6 of this Agreement.
"Description of Collateral" shall mean a description of the
Collateral owned at the time in question by Borrowers, containing such
information as may be acceptable to EIF, and in legally sufficient form for
creation of an EIF Lien thereon.
"Development Loan" shall mean the exploration and development loan
made by EIF to Borrowers pursuant to Section 2.2 of this Agreement.
"Development Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of the first advance of the Development
Loan, as set forth in Sections 6.2 and 6.3 of this Agreement.
"Development Loan Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Development Note" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Development Plan and Budget" shall mean a quarterly development plan
and budget prepared by Borrowers and approved by EIF that describes each
development and acquisition project, together with the expected cost, that
Borrowers desire to finance with the Development and Acquisition Loans.
"Eagle Springs" shall mean Eagle Springs Production Limited-Liability
Company, a Nevada limited liability company.
"Eagle Springs Area" shall mean certain oil and gas properties located
in ▇▇▇ County, Nevada, including the Eagle Springs Field, the Ghost Ranch Field
and the Ghost Ranch East Area.
"Eagle Springs Field" shall mean certain oil and gas properties
located in ▇▇▇ County, Nevada.
"Eagle Springs Properties" shall mean the Borrowers' interests in the
oil and gas properties in the Eagle Springs Area as set forth on Exhibit A under
the heading "Eagle Springs Properties."
"EIF" shall mean Energy Income Fund, L.P., a Delaware limited
partnership.
"EIF Liens" shall mean Liens in favor of EIF securing the Loans.
"Employee Benefit Plan" shall mean any deferred compensation,
retirement, severance, health or other plan or program constituting an "employee
benefit plan" as defined in Section 3(3) of ERISA maintained or previously
maintained for employees of Borrowers or any ERISA Affiliate, or in which any
such employees participate or participated, other than a Multiemployer Plan.
"Employee Benefit Plan" shall include plans that would otherwise be exempted
from Section 3(3) of ERISA by Department of Labor Regulation Section 2510.3-3
(as plans covering only partners or other self-employed individuals).
"Environmental Complaint" shall mean any citation, complaint, demand,
order, or notice by any person, association, entity, or governmental authority
alleging, asserting or claiming that either Borrower or any of the Properties:
(i) is in material violation of applicable Environmental Laws, (ii) does not
comply in all material respects with applicable Environmental Laws, or (iii)
does not have or maintain all material permits, licenses, and/or approvals
required under applicable Environmental Laws.
"Environmental Laws" shall mean any one or more of the following: (i)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42
U.S.C. Section 9601 et seq. ("CERCLA"), (ii) the Resource Conservation and
Recovery Act, as amended by the Hazardous and Solid Waste Amendment of 1984, 42
U.S.C. Section 6901 et seq. ("RCRA"), (iii) the Clean Air Act, 42 U.S.C.
Section 7401 et seq., (iv) the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq., (v) the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., (vi) the Federal Safe Drinking Water Act, 42 U.S.C.
SectionSection 300f to 300j-11, (vii) the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Section 1101 et seq., (viii) the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801 et seq., and (ix) all other
foreign, federal, state, tribal and local laws (whether common or statutory),
rules, regulations, consent agreements, compliance schedules, and orders
directly and/or indirectly relating to public health and safety, air pollution,
water pollution, noise control, wetlands, oceans, waterways, and/or the
presence, use, generation, manufacture, transportation, processing, treatment,
handling, discharge, release, disposal, or recovery of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or materials and/or
underground storage tanks, as each of the foregoing laws, rules, regulations and
orders may be amended, supplemented, and/or reauthorized from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder. Section references to ERISA and its regulations are
to those provisions as in effect at the date of this Agreement, together with
any subsequent provisions of ERISA that amend, supplement, or replace the
provisions to which reference is made.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) that, together with either Borrower, would be treated as a single
employer under Section 4001(b) of ERISA or that would be deemed to be a member
of the same "controlled group" within the meaning of Section 414(b), (c), (m),
and (o) of the Code (provided, however, that when the subject of the provision
is a Multiemployer Plan only subsections (b) and (c) of Section 414 shall be
taken into account).
"Escrow Account" shall mean the account into which a portion of the
proceeds of the Development Loan and the Acquisition Loan is placed, as set
forth in Sections 2.2(c) and 2.3(b) of this Agreement.
"Escrow Agreement" shall mean the agreement pursuant to which a
portion of the proceeds of the Development Loan and the Acquisition Loan placed
in escrow and released to Borrowers, as set forth in Sections 2.2(c) and 2.3(b)
of this Agreement.
"Event of Default" shall have the meaning set forth in Section 8.1 of
this Agreement.
"Existing Properties" shall mean Borrowers' interests in the oil and
gas properties described in Exhibit A.
"Final Payment Date" shall mean January 1, 2002, the date on which the
final installment of principal and interest on the Loans is due and payable.
"Financial Statements" shall have the meaning set forth in Section 5.5
of this Agreement.
"Foreland" shall mean Foreland Corporation, a Nevada corporation.
"Funding" shall mean the transmittal of funds by EIF under any Loan.
"Funding Date" shall mean the date on which any Funding occurs.
"Ghost Ranch East Area" shall mean certain oil and gas properties
located in ▇▇▇ County, Nevada.
"Ghost Ranch East Properties" shall mean the Borrowers' interests in
the oil and gas properties in the Eagle Springs Area as set forth on Exhibit A
under the heading "Ghost Ranch East Properties."
"Ghost Ranch Field" shall mean certain oil and gas properties located
in ▇▇▇ County, Nevada.
"Ghost Ranch Properties" shall mean the Borrowers' interests in the
oil and gas properties in the Eagle Springs Area as set forth on Exhibit A under
the heading "Ghost Ranch Properties."
"Hay Ranch Area" shall mean certain oil and gas properties located in
Elko and Eureka Counties, Nevada.
"Hay Ranch Properties" shall mean the Borrowers' interests in the oil
and gas properties in the Hay Ranch Area, as set forth on Exhibit A under the
heading "Hay Ranch Properties," and any leasehold or other interests
subsequently acquired by Borrowers adjacent or contiguous to interests in the
Hay Ranch Properties (such additional interest to immediately become part of the
Hay Ranch Properties).
"Hazardous Materials" shall mean any one or more of the following
substances, wastes and materials:
(a) Any substance, waste or material defined as a "hazardous
substance," "hazardous material," "hazardous waste," "pollutant,"
"contaminant," "toxic material," or "toxic substance," in any of the
applicable Environmental Laws, or in the standards, criteria, rules
and/or regulations promulgated pursuant to any of said Environmental
Laws (including without limitation Hydrocarbons); and
(b) Any substance, waste or material, the presence of which requires
investigation or remediation under any Environmental Laws.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate and all other liquid and gaseous
hydrocarbons produced or to be produced in conjunction therewith, and all
products, by-products and all other substances derived therefrom or the
processing thereof.
"Indebtedness" shall mean, as to any Person, all items that would, in
conformity with generally accepted accounting principles, be classified as
liabilities or contingent liabilities of such Person, but in any event including
without limitation (a) all obligations under leases that have been, or under
generally accepted accounting principles are required to be, capitalized, (b)
all indebtedness endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse, and (c) all indebtedness in
effect guaranteed, directly or indirectly, by such Person.
"Indemnified Party" shall have the meaning set forth in Section 9.1 of
this Agreement.
"Initial Funding" shall mean the Funding of the Refinancing Loan and
Phase I of the Development Loan.
"Initial Overriding Royalty Interests" shall have the meaning set
forth in Section 2.12(a) of this Agreement.
"Internal Reserve Report" shall mean a report prepared by Borrowers'
internal engineers, which report shall, among other things, (a) identify the
▇▇▇▇▇ covered thereby, (b) specify such engineers' estimate of the total volume
of reserves (the "available reserves") of Hydrocarbons (using the categories
"proved developed producing reserves," "proved developed nonproducing reserves,"
and "proved and undeveloped reserves") attributable to the Collateral and (c)
set forth such engineers' estimate with respect to the projected future rate of
production of the available reserves.
"▇▇▇▇ Springs Properties" shall mean Borrowers' interests in the oil
and gas properties set forth on Exhibit A uner the heading "▇▇▇▇ Springs
Properties."
"Lien" shall mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the lien or security interest arising from a mortgage, deed of trust,
lease, claim or right of a mechanic or materialman supplying materials or labor,
encumbrance, pledge, hypothecation, assignment, conditional sale, trust receipt,
deposit arrangement, charge, encumbrance, statute or other security agreement or
arrangement of any kind or nature whatsoever creating in favor of any creditor a
right in respect of any particular asset that is prior to the right of any other
creditor in respect of such asset. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property.
"Loans" shall mean the loans made by EIF to Borrowers pursuant to this
Agreement, including the Refinancing Loan, the Development Loan and the
Acquisition Loan.
"Loan Documents" shall mean this Agreement, the Notes, all Security
Instruments, all documents creating, evidencing, and perfecting the Overriding
Royalty Interests, and all other agreements, certificates, instruments, or other
documents required to be executed and delivered by Borrowers under the terms of
this Agreement.
"Mineral Interests" shall mean rights, estates, titles and interests
in and to oil, gas or other mineral (or any combination thereof) leases (and all
extensions, amendments, ratifications and subleases thereof or thereunder) and
any mineral interests, royalty and overriding royalty interests, production
payment and net profits interests, mineral fee interests and rights therein,
including, without limitation, any reversionary or carried interests relating to
the foregoing, together with rights, titles and interests created by or arising
under the terms of any unitization, communitization and pooling agreements or
arrangements, pooling designations and pooling orders, and all properties,
rights and interests covered thereby, whether arising by contract, by order or
by operation of law, which now or hereafter include all or any part of the
foregoing.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"New Properties" shall mean the interests in the oil and gas
properties described in Exhibit B.
"Notes" shall mean the Refinancing Note, the Development Loan Note,
the Acquisition Note and any other promissory note described in this Agreement.
"Overriding Royalty Interests" shall mean the Initial Overriding
Royalty Interests and the Secondary Overriding Royalty Interests.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA or other applicable
federal law.
"Permits" shall mean all governmental licenses, permits, certificates,
orders, concessions, grants, franchises, approvals and authorizations necessary
for the conduct of the business of Borrower.
"Permitted Liens" shall mean (a) Liens to secure taxes, assessments,
and other governmental charges or claims for labor, material or supplies
(including but not limited to Liens granted under operating agreements) in
respect of obligations not overdue, not delinquent or that are being diligently
contested in good faith and by appropriate proceedings, provided that Borrower
shall have set aside on its books adequate reserves therefor; (b) matters
affecting title to the Collateral disclosed in Exhibit C hereto, including, but
not limited to, easements and rights of way granted by Borrowers or any of
Borrowers' predecessors in title to the Collateral to the extent necessary to
conduct operations thereon.
"Person" shall mean any natural person, sole proprietorship,
corporation, general partnership, limited partnership, limited liability
company, union, association, court, agency, government, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
"Phase I Closing Financing" shall have the meaning set forth in
Section 2.2(a)(i)(E) of this Agreement.
"Phase I of the Development Loan" shall have the meaning set forth in
Section 2.2(a)(i) of this Agreement.
"Phase I Pine Creek Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(i)(D) of this Agreement.
"Phase I Pine Creek Seismic Financing" shall have the meaning set
forth in Section 2.2(a)(i)(C) of this Agreement.
"Phase I Eagle Springs Air Injection Financing" shall have the meaning
set forth in Section 2.2(a)(i)(A) of this Agreement.
"Phase I Eagle Springs Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(i)(B) of this Agreement.
"Phase II Ghost Ranch Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(ii)(D) of this Agreement.
"Phase II Hay Ranch Seismic Financing" shall have the meaning set
forth in Section 2.2(a)(ii)(E) of this Agreement.
"Phase II of the Development Loan" shall have the meaning set forth in
Section 2.2(a)(ii) of this Agreement.
"Phase II Pine Creek Additional Drilling Financing" shall have the
meaning set forth in Section 2.2(a)(ii)(C) of this Agreement.
"Phase II Eagle Springs Air Injection Financing" shall have the
meaning set forth in Section 2.2(a)(ii)(A) of this Agreement.
"Phase II Eagle Springs Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(ii)(B) of this Agreement.
"Phase III Hay Ranch Seismic Financing" shall have the meaning set
forth in Section 2.2(a)(iii)(A) of this Agreement.
"Phase III Hay Ranch Drilling Financing" shall have the meaning set
forth in Section 2.2(a)(iii)(C) of this Agreement.
"Phase III of the Development Loan" shall have the meaning set forth
in Section 2.2(a)(iii) of this Agreement.
"Phase III Eagle Springs Drilling Financing" shall have the meaning
set forth in Section 2.2(a)(iii)(B) of this Agreement.
"Pine Creek Area" shall mean certain oil and gas properties, located
in the Pine Valley, Elko and Eureka Counties, Nevada.
"Pine Creek Properties" shall mean the Borrowers' interests in the oil
and gas properties in the Pine Creek Area, as set forth on Exhibit A under the
heading "Pine Creek Properties," and any leasehold or other interests
subsequently acquired by Borrowers adjacent or contiguous to interests in the
Pine Creek Properties (such additional interest to immediately become part of
the Pine Creek Properties).
"Pine Valley" shall mean that certain oil and gas producing area
located in Elko and Eureka Counties, Nevada within Township 28 North - Range 51
East, Township 28 North - Range 52 East, Township 29 North - Range 51 East, and
Township 29 North - Range 52 East.
"Proceeds of Runs" shall have the meaning set forth in Section 4.2 of
this Agreement.
"Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"Properties" shall mean the Existing Properties and the New
Properties, collectively.
"Proposed Gas Contracts" shall have the meaning set forth in Section
7.7 of this Agreement.
"Railroad Valley" shall mean that certain oil and gas producing area
located in ▇▇▇ County, Nevada within Township 8 North - Range 57 East and
Township 9 North - Range 57 East.
"Refinancing Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of the Refinancing Loan, as set forth in
Section 6.1(a) of this Agreement.
"Refinancing Loan Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Refinancing Note" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Reportable Event" shall mean any event described in Section 4043(b)
of ERISA with respect to an Employee Benefit Plan subject to Title IV of ERISA,
other than those as to which the PBGC has waived the notice requirement.
"Request for Escrow Disbursement" shall mean, with respect to each
drawdown form the Escrow Account, a written request from Borrowers substantially
in the form set forth in Exhibit L.
"Requirement of Law" shall mean, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person and any law, treaty, rule or regulation, any determination of an
arbitrator or a court or other governmental authority or agency, or the terms of
any license, permit, certificate, authorization or other direction or
requirement (including, without limitation, any of the foregoing which relate to
energy regulations, drilling or production regulations, occupational, safety and
health standards or controls, and Requirements under the Environmental Laws), in
each case applicable to or binding upon such Person or to which any of its
property is subject.
"Reserve Report" shall mean a report prepared by Mohajir & Associates,
an independent engineering firm (or such other engineering firm as is mutually
agreed upon by EIF and Borrowers), on the basis of findings and data as of the
last day of each calendar year and on the basis of product price assumptions
equal to the trailing twelve (12) month weighted average wellhead price held
flat for the life of the ▇▇▇▇▇, which report shall, among other things, (a)
identify the ▇▇▇▇▇ covered thereby, (b) specify such engineers' estimate with
respect to the total volume of reserves (the "available reserves") of
Hydrocarbons (using the terms or categories "proved developed producing
reserves," "proved developed nonproducing reserves" and "proved and undeveloped
reserves") attributable to the Collateral, (c) set forth such engineers'
estimate with respect to the present worth of the projected cash flow from such
reserves, and (d) set forth such engineers' estimate with respect to the
projected future rate of production of the available reserves.
"Secondary Overriding Royalty Interests" shall have the meaning set
forth in Section 2.12(b) of this Agreement.
"Security Instruments" shall mean such instruments or documents that
grant EIF a Lien in the Collateral, including, but not limited to, deeds of
trust or mortgages, security agreements, collateral mortgage notes, collateral
mortgages, collateral assignments, subordination agreements, financing
statements, waivers, and assignments.
"Termination Event" shall mean (i) a Reportable Event; (ii) the
withdrawal of either Borrower or any ERISA Affiliate from a Multiple Employer
Plan during a plan year in which it was a "substantial employer," as such term
is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by
either Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan; (iii) submission to a governmental
authority of a request for a waiver of minimum funding standards required by
ERISA or the Code, with respect to any Employee Benefit Plan; (iv) the existence
or likely creation of a lien under ERISA or the Code on Borrowers or any ERISA
Affiliate on account of any Employee Benefit Plan; (v) the disclosure to
affected parties of a notice of intent to terminate an Employee Benefit Plan
under Section 4041 of ERISA other than in a "standard termination" within the
meaning of Section 4041 of ERISA; (vi) the institution of proceedings by the
PBGC to terminate an Employee Benefit Plan under Section 4042 of ERISA; (vii)
any other event or condition that might reasonably constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Employee Benefit Plan; (viii) the commencement or, to the
knowledge of Borrowers, likely commencement of a proceeding against either
Borrower or any ERISA Affiliate under Section 515 of ERISA to collect a
delinquent contribution to a Multiemployer Plan; or (ix) any other event or
condition reasonably indicating that either Borrower or any ERISA Affiliate will
or may incur any liability (including any contingent or secondary liability) to
or on account of the termination of or withdrawal from an Employee
Benefit Plan or Multiemployer Plan under Section 4062, 4063, 4064, 4201, or 4204
of ERISA.
"UCC" shall mean the Uniform Commercial Code as adopted by the State
of Nevada.
"Unfunded Current Liability" of any Employee Benefit Plan shall mean
the amount, if any, by which the present value of the accrued benefits under the
plan as of the close of its most recent plan year exceeds the value, determined
in accordance with Section 412 of the Code, of the plan's assets.
"Value," when used in reference to the Collateral, shall mean the
discounted present worth of the net revenues from the proved oil and gas
properties (using a discount rate of 15% and the risk adjustments to different
categories of proved reserves as follows: 100% of proved developed producing
reserves; 70% of proved developed non-producing reserves and proved behind pipe
reserves; and 50% of proved undeveloped reserves) and product price assumptions
equal to the trailing twelve (12) month weighted average wellhead price held
flat for the life of the ▇▇▇▇▇ as projected in the most recent Reserve Report.
In cases where operational or cash flow history from an oil or gas property is
deemed by EIF, in its sole discretion, to be insufficient to be used as the
basis for valuation, Value shall be the acquisition cost of the Collateral at
the most recent arms length purchase of that asset.
"Warrant No. 1" shall mean a warrant issued by Foreland to EIF for
Seven Hundred Fifty Thousand (750,000) shares of common stock of Foreland with
an exercise price of Six Dollars ($6) per share.
"Warrant No. 2" shall mean a warrant issued by Foreland to EIF for Two
Hundred Fifty Thousand (250,000) shares of common stock of Foreland with an
exercise price of Ten Dollars ($10) per share.
"Warrants" shall mean Warrant No. 1 and Warrant No. 2.
"Withdrawal Liability" shall have the meaning given such term under
Part 1 of Subtitle E of Title VI of ERISA.
1.2 Accounting Terms. Accounting terms used herein and not
otherwise defined herein shall be construed in accordance with generally
accepted accounting definitions and principles consistently applied.
1.3 Petroleum Terms. As used herein, the terms "proved
reserves," "proved developed reserves," "proved developed producing reserves,"
"proved developed non-producing reserves" and "proved undeveloped reserves"
shall have the meaning given such terms from time to time and at the time
in question by the Society of Petroleum Engineers of the American Institute
of Mining Engineers.
1.4 Singular and Plural. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa.
1.5 Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement that refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize or commit
EIF to any such renewal, extension, modification, amendment or restatement.
ARTICLE 2
THE LOANS
2.1 Refinancing Loan. Subject to the terms and conditions set
forth in this Agreement, EIF agrees to make a loan (the "Refinancing Loan")
to Borrowers of up to Six Hundred Eighty Thousand Dollars ($680,000) to
refinance the outstanding principal and accrued interest due on the Bank
Loans ("Bank Loans Financing")
2.2 Development Loan and Initial Funding.
(a) Subject to the terms and conditions set forth in this
Agreement, EIF agrees to make a loan (the "Development Loan") to Borrowers
in the principal amount of up to Thirteen Million Eight Hundred Ninety-Three
Thousand Dollars ($13,893,000), for the purposes set forth below.
(i) The initial phase of the Development Loan ("Phase
I of the Development Loan") shall consist of:
(A) up to One Million Seven Hundred Eighty Thousand
Dollars ($1,780,000) to finance the implementation of the high
pressure air injection program, including the financing of
compressors and buildings, in the Eagle Springs Properties
("Phase I Eagle Springs Air Injection Financing");
(B) up to One Million Nine Hundred Fifty Thousand
Dollars ($1,950,000) to finance the drilling and completion of
three proved undeveloped ▇▇▇▇▇ in the Eagle Springs Properties
("Phase I Eagle Springs Drilling Financing");
(C) up to Three Hundred Twenty-Five Thousand Dollars
($325,000) to finance the three-dimensional seismic program on
the Pine Creek Properties ("Phase I Pine Creek Seismic
Financing");
(D) up to Five Hundred Forty Six Thousand Dollars
($546,000) to finance the drilling and completion of a well in
the Pine Creek Properties based upon the evaluation of the three-
dimensional seismic data ("Phase I Pine Creek Drilling
Financing"); and
(E) up to Three Hundred Thousand Dollars ($300,000) to
finance certain of EIF's costs related to the closing of the
Refinancing Loan and Phase I of the Development Loan pursuant to
Article X of this Agreement ("Phase I Closing Financing").
(ii) The second phase of the Development Loan ("Phase
II of the Development Loan") shall consist of:
(A) up to Two Million Dollars ($2,000,000) to finance
the purchase and installation of additional equipment, including
compressors and buildings, in connection with the high pressure
air injection program in the Eagle Springs Properties ("Phase II
Eagle Springs Air Injection Financing");
(B) up to One Million Three Hundred Thousand Dollars
($1,300,000) to finance the drilling and completion of two proved
undeveloped ▇▇▇▇▇ in the Eagle Springs Properties ("Phase II
Eagle Springs Drilling Financing");
(C) up to One Million Ninety Two Thousand Dollars
($1,092,000) to finance the drilling and completion of two
additional ▇▇▇▇▇ in the Pine Creek Properties ("Phase II Pine
Creek Additional Drilling Financing");
(D) up to Eight Hundred Thousand Dollars ($800,000) to
drill and complete a well in the Ghost Ranch East Properties
("Phase II Ghost Ranch Drilling Financing"); and
(E) up to Two Hundred Thousand Dollars ($200,000) to
conduct preliminary survey and archeological work for the three-
dimensional seismic program on the Hay Ranch Properties ("Phase
II Hay Ranch Seismic Financing").
(iii) The third phase of the Development Loan (Phase III
of the Development Loan") shall consist of:
(A) up to One Million Five Hundred Thousand Dollars
($1,500,000) to finance the three-dimensional seismic program on
the Hay Ranch Properties ("Phase III Hay Ranch Seismic
Financing"); and
(B) up to One Million Three Hundred Thousand Dollars
($1,300,000) to finance the drilling of two proved undeveloped
▇▇▇▇▇ in the Eagle Springs Properties ("Phase III Eagle Springs
Drilling Financing");
(C) up to Eight Hundred Thousand Dollars ($800,000) to
finance the drilling and completion of a well in the Hay Ranch
Properties ("Phase III Hay Ranch Drilling Financing").
The Development Loan shall consist of advances to be made by EIF to Borrowers on
or before December 31, 1998. Borrowers shall deliver an Advance Notice to EIF
with respect to each requested advance of the Development Loan. Each Advance
Notice shall specify the amount requested (subject to the limits set forth in
this Section), which amount shall be not less than Five Hundred Thousand Dollars
($500,000) or such lesser amount as remains undisbursed under the Development
Loan. Subject to satisfaction of the conditions precedent contained in this
Agreement, each advance of the Development Loan shall be made within thirty (30)
days of EIF's receiving an Advance Notice from Borrowers.
(b) The Initial Funding shall be for Five Million Four Hundred
Twenty-Five Thousand Two Hundred Seventy-Nine and 34/100 Dollars
($5,425,279.34) and includes the proceeds for the Bank Loans Financing, the
Phase I Eagle Springs Air Injection Financing, the Phase I Eagle Springs
Drilling Financing, the Phase I Pine Creek Seismic Financing, the Phase I Pine
Creek Drilling Financing, and One Hundred Fifty Thousand Dollars ($150,000) of
the Phase I Closing Financing. The remaining One Hundred Fifty Thousand Dollars
($150,000) of the Phase I Closing Financing shall be funded at such times and in
such amounts as the parties mutually agree.
(c) The amounts funded by EIF for the Phase I Pine Creek
Drilling Financing (Five Hundred Forty-Six Thousand Dollars ($546,000)), up to
One Million Three Hundred Thousand Dollars ($1,300,000) of the Phase I Eagle
Springs Drilling Financing, Phase II of the Development Loan, and Phase III of
the Development Loan shall be subject to the limits set forth in subsection (a)
hereof and shall be deposited at the time of the related Funding into an escrow
account located at Peoples Bank, Holyoke, Massachusetts (the "Escrow Account")
pursuant to an escrow agreement (the "Escrow Agreement") substantially in the
form set forth in Exhibit D. Disbursements of the Development Loan proceeds
from the Escrow Account will be made to Borrowers in connection with the
development upon satisfaction of certain conditions set forth in the Escrow
Agreement, including without limitation execution of releases and other
documents requested by the Escrow Agent, all in form and substance satisfactory
to the Escrow Agent.
2.3 Acquisition Loan.
(a) Subject to the terms and conditions set forth in this
Agreement, EIF agrees to make a loan (the "Acquisition Loan") to Borrowers in
the principal amount of up to Two Million Three Hundred Twenty-Seven Thousand
Dollars ($ 2,327,000), for the acquisition of additional producing property
interests in Nevada subject to EIF's approval that the terms of those
acquisitions are in form and substance satisfactory to EIF.
(b) Certain Fundings of the Acquisition Loan are subject to
the limits set forth in subsection (a) hereof and may be deposited at the time
of the related Funding into the Escrow Account. Disbursements of the
Acquisition Loan proceeds from the Escrow Account will be made to Borrowers in
connection with the acquisitions upon satisfaction of certain conditions set
forth in the Escrow Agreement, including without limitation execution of
releases and other documents requested by the Escrow Agent, all in form and
substance satisfactory to the Escrow Agent. Any amounts under the Acquisition
Loan which are not funded by December 31, 1999 will be canceled effective
December 31, 1999.
2.4 The Notes. The Refinancing Loan shall be evidenced by the
promissory note of Borrowers in substantially the form of Exhibit E hereto
(the "Refinancing Note"), the Development Loan shall be evidenced by the
promissory note of Borrowers in substantially the form of Exhibit F hereto
(the "Development Note"), and the Acquisition Loan shall be evidenced by
the promissory note of Borrowers in substantially the form of Exhibit G
hereto (the "Acquisition Note"), each to be dated the date of this
Financing Agreement. Every term contained in the Notes shall be deemed
incorporated into this Agreement. To the extent any provision of the Notes
shall be deemed to be inconsistent with the provisions of this Agreement,
however, the provisions of this Agreement shall control.
2.5 Interest.
(a) The unpaid principal amounts advanced under the Loans,
plus any accrued but unpaid interest, outstanding from time to time shall bear
interest at the rate of twelve percent (12%) per annum for the actual number of
days such amount is outstanding based on a 360-day year.
(b) Nothing contained in this Agreement shall be deemed to
require the payment of interest at a rate in excess of the maximum rate
permitted by applicable law. In the event that the amounts required to be paid
hereunder for any month exceed the maximum rate permitted by law, such amount
shall be automatically reduced for such month to the maximum rate permitted by
law.
2.6 Interest Upon Default. Upon the occurrence and during the
continuation of an Event of Default, any unpaid principal amount of the Loans,
and any overdue interest, shall bear interest at a rate of fifteen percent
(15%) per annum, computed for the actual number of days such amount is
outstanding based on a 360-day year (the "Default Rate").
2.7 Repayment of Principal and Interest on Refinancing Loan. The
first payment on the funds advanced under the Refinancing Loan shall be due and
payable on February 1, 1998 (the "First Interest Only Payment Date") and shall
be a payment of interest only, the payment of which has accrued through such
date, but not principal, such payment to be the amount of interest accrued from
the date on which the Refinancing Loan is first funded until the First Interest
Only Payment Date. The next eight (8) payments on the Refinancing Loan shall
be made on the first Business Day of each of the eight (8) calendar months
following the First Interest Only Payment Date and shall be a payment of
accrued interest only and not principal. (The date on which the last of such
payments is due will be hereinafter referred to as the "Last Interest Only
Payment Date.") The principal amount of and the interest accrued on the
Refinancing Loan shall then be repaid in thirty-nine (39) monthly installments,
each payment (other than the final payment) equal to an amount set forth in a
schedule to be provided to Borrowers at the Initial Funding, sufficient to
amortize the principal amount of the Loan over forty-eight (48) months. Such
payments will be due in arrears on the first day of each month, beginning on
November 1, 1998, unless such day is not a Business Day, in which event payment
shall be due on the first Business Day thereafter, with the final payment of
interest and all outstanding principal due on January 1, 2002. All unpaid
principal and accrued and unpaid interest shall be due and payable on the
Final Payment Date.
2.8 Repayment of Principal and Interest on Development Loan.
Beginning on the first day of the calendar month following the first advance
on the Development Loan (unless such day is not a Business Day, in which event
payment shall be due on the first Business Day thereafter), interest and, with
respect to payments due after the Last Interest Only Payment Date, principal
on the Development Loan shall be repaid by Borrowers in equal monthly
installments in an amount sufficient to amortize the principal amount of the
Development Loan over the remaining term of the Refinancing Loan. Prior to
Funding each additional advance under the Development Loan, EIF shall prepare
and deliver to Borrowers a payment schedule for the Development Note cumulating
payment obligations arising by reason of the additional advance so as to
provide for the payment of interest and principal on all advances on an
interest only basis for payments due prior to and through the Last Interest
Only Payment Date, and for subsequent payments, in equal monthly installments
over the period ending January 1, 2002, with all payments other than the final
payment being in an amount sufficient to amortize the principal amount through
September 1, 2002, and the final payment being sufficient to repay all
outstanding principal and interest as of January 1, 2002. Unless Borrowers
object to the payment schedule in writing prior to the Funding of the relevant
advance, Borrowers shall be deemed to have accepted the payment schedule and
agreed to pay to EIF the monthly installments set forth therein. EIF and
Borrowers agree that, upon the Funding of the relevant advance, Borrowers
authorize EIF to affix such payment schedule to the Development Note as
evidence of (1) the amount of the Development Note then outstanding, and
(2) the schedule according to which Borrowers must pay principal and interest
on such outstanding amount, as previously agreed to by the parties. Such
payments shall be due in arrears on the first day of each month, unless
such day is not a Business Day, in which event payment shall be due on the
first Business Day thereafter.
2.9 Repayment of Principal and Interest on the Acquisition Loan.
Interest and principal on the Acquisition Loan shall be repaid by Borrowers
pursuant to a repayment schedule to be mutually agreed upon by Borrowers and
EIF, provided, however, that the Final Payment Date shall not be later than
January 1, 2002. Prior to Funding each additional advance under the
Acquisition Loan, EIF shall prepare and deliver to Borrowers a payment
schedule for the Acquisition Note cumulating payment obligations arising by
reason of the additional advance so as to provide for the payment of interest
and principal on all advances in equal monthly installments over the period
ending on the Final Payment Date. Unless Borrowers object to the payment
schedule in writing prior to the Funding of the relevant advance, Borrowers
shall be deemed to have accepted the payment schedule and agreed to pay to
EIF the monthly installments set forth therein. EIF and Borrowers agree
that, upon the Funding of the relevant advance, Borrowers authorize EIF to
affix such payment schedule to the Acquisition Note as evidence of (1) the
amount of the Acquisition Note then outstanding, and (2) the schedule
according to which Borrowers must pay principal and interest on such
outstanding amount, as previously agreed to by the parties. Such payments
shall be due in arrears on the first day of each month, unless such day is not
a Business Day, in which event payment shall be due on the first Business Day
thereafter. All unpaid principal and accrued and unpaid interest shall be due
and payable on the Final Payment Date.
2.10 Prepayment. At any time, Borrowers may prepay the Loans,
in full, (i) upon thirty (30) days written notice to EIF ("Notice Date") and
(ii) upon payment of a prepayment premium equal to the sum of interest
payments for the Loans for the twenty-four installments next following the
Notice Date as set forth on the payment schedule then in effect minus the
earnings that would be received by EIF if it reinvested the principal amount
of the Loans so prepaid on the date of prepayment, in United States Treasury
securities having principal amounts and maturities equivalent to the monthly
principal installments on the Loans for such twenty-four installments. At
EIF's option, the amount of the prepayment premium shall be used within five
(5) days from the date of prepayment (i) to exercise the warrant, in whole
or in part, or (ii) to reduce the aggregate Exercise Price of the Warrants,
applied on a per warrant basis, by the amount of the prepayment premium.
2.11 Payment Procedure. All cash payments made by Borrowers
under the Notes or this Agreement shall be made to EIF and wired to the
following account prior to 12:00 o'clock noon, Eastern time, on the date that
such payment is required or permitted to be made:
First National Bank of Boston
ABA# ▇▇▇-▇▇▇-▇▇▇
Worldwide Custody/Canton
Energy Income Fund, L.P. - Account #▇▇▇▇▇▇▇
Borrowers shall provide EIF with notice of Borrowers' intent to wire payments
into the above-mentioned account at least twenty-four (24) hours before such
payments are deposited into such account. Notice to EIF shall be given by
facsimile, with the notice addressed as follows:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Energy Income Fund, L.P.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any payment received by EIF after 12:00 o'clock noon, Eastern time, on any day
shall be considered for all purposes (including the calculation of interest, to
the extent permitted by applicable law) as having been made on the next
following Business Day. Payments shall be first applied to costs and expenses
due EIF, then to accrued interest on the Notes, and then to principal.
2.12 Overriding Royalty.
(a) In consideration of EIF's agreement to make the Loans,
Borrowers at the Refinancing Loan Closing shall assign to EIF overriding royalty
interests at the royalty rate of three percent (3%) in and to the gross revenues
(calculated after payment of state severance taxes) received by Borrowers from
the sale of Hydrocarbons produced from Borrowers' net revenue interests in the
Eagle Springs Properties, the Ghost Ranch Properties, the Ghost Ranch East
Properties and the ▇▇▇▇ Springs Properties (the "Initial Overriding Royalty
Interests"). The Initial Overriding Royalty Interests shall be effective as of
the first day of the month in which the Refinancing Loan closes at 7:00 a.m.,
local time.
(b) In consideration of EIF's agreement to make the Loans,
Borrowers shall assign to EIF overriding royalty interests at the royalty rate
of one percent (1%) in and to the gross revenues (calculated after payment of
state severance taxes) received by Borrowers from the sale of Hydrocarbons
produced from Borrowers' net revenue interests in the Pine Creek Properties, the
Hay Ranch Properties, and from ▇▇▇▇▇ drilled after evaluation of
three-dimensional seismic data funded, in whole or in part, by EIF (the
"Secondary Overriding Royalty Interests"). The Secondary Overriding Royalty
Interests shall be effective as of 7:00 a.m. on the earlier to occur of the
first day of the month (i) in which a three-dimensional seismic program is
funded with respect to that Property, or (ii) in which EIF funded the drilling
of a well on that Property.
(c) The Overriding Royalty Interests shall be evidenced by
appropriate instruments of conveyance in form and substance satisfactory to EIF
and its counsel. The assignment by Borrowers to EIF of the Overriding Royalty
Interests is intended to be and shall be an absolute and unconditional
assignment and not merely a pledge or creation of a lien or security interest,
and shall be perpetual and survive the payment or satisfaction of the Loans.
(d) At the request of EIF, Borrowers shall execute,
acknowledge and deliver transfer orders or letters in lieu thereof directing all
purchasers of production to make payment to EIF of proceeds attributable to the
Overriding Royalty Interests.
(e) All proceeds received by Borrowers that shall be due to
EIF shall be held by Borrowers under the terms of an express trust for the
benefit of EIF, and shall be paid to EIF at the earlier of (i) for proceeds
received before the twenty-fifth (25th) day of any calendar month, the first day
of the calendar month following the calendar month in which those proceeds were
received, and for proceeds received on or after the twenty-fifth (25th) day of
any calendar month, the first day of the second calendar month following the
calendar month in which those proceeds were received, or (ii) the date required
by applicable law. Any amounts not paid when due shall bear, and Borrowers
agree to pay, interest at the rate of fifteen percent (15%) per annum computed
for the actual number of days such amount is outstanding based on a 360-day
year, or the rate as provided under applicable law, whichever is higher.
2.13 Collateral Reevaluation. It is expressly understood and
agreed by and between EIF and Borrowers that EIF is lending money to Borrowers
pursuant to this Agreement on the condition that Borrowers' total outstanding
Indebtedness to EIF shall at no time exceed 80% of the Value of the Collateral.
In the event Borrowers shall notify EIF Borrowers wish to treat appreciation
in the Value of the Collateral as a portion of its equity contribution towards
additional advances of the Development Loan or Acquisition Loan, EIF shall, as
soon as requisite geological, geophysical and engineering data is available,
review and reevaluate the Value of the Collateral. The requisite geological,
geophysical and engineering data shall be compiled in a Reserve Report by an
independent engineering firm mutually agreeable to Borrowers and EIF, with th
cost of such Reserve Report to be paid by Borrowers. After such review and
reevaluation, EIF shall determine in EIF's sole and absolute discretion whether
it considers there to have been an appreciation in the Value of the Collateral
that could suitably be recognized as such an equity contribution. The
obligation assumed by EIF hereunder is solely to review the Value of the
Collateral in good faith. Nothing in this provision shall create any
obligation on the part of EIF to accept appreciation in the Collateral as
an equity contribution by Borrowers to support future advances of the
Development Loan or Acquisition Loan.
2.14 Collateral/Indebtedness Ratio. It is expressly understood
and agreed by and between EIF and Borrowers that EIF is lending money to
Borrowers pursuant to this Agreement on the condition that Borrowers' total
outstanding Indebtedness to EIF shall at no time exceed 80% of the Value of the
Collateral. Should EIF in its sole discretion determine at any time that the
total outstanding Indebtedness of Borrowers to EIF exceeds 80% of the Value of
the Collateral, EIF shall so notify Borrowers, and Borrowers shall, within ten
(10) Business Days of such notification, either (i) make a mandatory prepayment
of principal and interest to EIF equal to the amount necessary to cause the
total outstanding Indebtedness to be less than or equal to 80% of the Value of
the Collateral, or (ii) grant and convey to, and create in favor of, EIF,
perfected first priority EIF Liens in, to, and on all of Borrowers' right, title
and interest in additional collateral that is both satisfactory in nature and
value to EIF in its sole discretion, and sufficient in value to raise the Value
of the Collateral such that the total outstanding Indebtedness shall be less
than or equal to 80% of the Value of the Collateral or (iii) submit a plan,
reasonably acceptable to EIF, to cure such deficiency through the issuance of
equity or other means with ninety (90) days after such notification. Any
mandatory prepayment made pursuant to this Section shall not be subject to the
prepayment penalty set forth in Section 2.10 of this Agreement.
ARTICLE 3
ADDITIONAL FINANCING RIGHT OF FIRST REFUSAL
3.1 Additional Financing Right of First Refusal. Until the Loans
are paid in full, Borrowers hereby grant EIF the right of first refusal to
provide additional debt financing to Borrowers for the purpose of acquiring
additional oil and gas properties or gathering and processing assets or
developing by industry accepted methods (including infill drilling, well
deepening and recompletion of behind pipe zones) additional oil and gas
reserves on the Properties and any other properties acquired by Borrowers,
subject to the following terms and conditions:
(a) In the event that Borrowers determine, either directly
or through an Affiliate, to seek or obtain financing from any Person other than
EIF to make capital expenditures for the purposes set forth herein, it shall so
notify EIF. Any such notice shall be accompanied by relevant geological,
geophysical and engineering studies, environmental assessments, cost estimates,
and other information and data on the basis of which Borrowers propose to
proceed with such acquisition or development. EIF shall have the right, in its
sole discretion, for a period of sixty (60) days after receipt of the notice
from Borrowers, to elect by written notice to Borrowers to make loans to
Borrowers (any such loan referred to as an "Additional Loan") for eighty percent
(80%) of such acquisition and development costs (or such lesser percentage as
may be agreed to between EIF and Borrowers), provided that EIF will be required
to be in a position to advance funds within sixty (60) days after it notifies
Borrowers of its election to provide such financing.
(b) If EIF elects to make an Additional Loan, Borrowers will
accept such Additional Loan to finance eighty percent (80%) (or such lesser
percentage as may be agreed to between EIF and Borrower) of such acquisition and
development costs on terms and conditions substantially similar to the terms and
conditions set forth in this Agreement.
(c) If EIF determines not to provide the Additional Loan or
fails to notify Borrowers of its election to do so within sixty (60) days after
receipt of notice from Borrowers, Borrowers may obtain financing from other
sources.
(d) If Borrowers are prepared to accept the Additional Loan
from EIF on terms and conditions substantially similar to the terms and
conditions set forth in this Agreement and EIF declines to actually make such
Additional Loan, Borrowers may obtain financing from other sources.
(e) EIF may, at its sole discretion, assign all of its
rights under this Section 3.1 to an Affiliate of EIF.
(f) Nothing contained in this Article shall be construed to
create any obligation or commitment by EIF to make an Additional Loan. Any
Additional Loan shall be subject to the negotiation and execution of definitive
loan documentation satisfactory to EIF and Borrowers. If EIF elects to make an
Additional Loan, on the terms set forth in Section 3.1(b) of this Agreement, or
other mutually agreed terms, Borrowers shall not obtain financing from any other
source with respect to such expenditures.
3.2 Termination of Right of First Refusal. The rights granted to
EIF under Section 3.1 of this Agreement shall terminate on the date the Loans
are paid in full.
ARTICLE 4
SECURITY AND ASSIGNMENT
4.1 Collateral. To secure full and complete payment and
performance of the Loans and performance of Borrowers' obligations hereunder
and under the other Loan Documents, Borrowers hereby grant and convey to,
and creates in favor of, EIF, perfected first priority EIF Liens, in, to,
and on all of Borrowers' right, title and interest, whether now owned or
hereafter acquired, in the following items and types of property:
(a) The oil and gas leases, fee interests, Mineral
Interests, working interests, operating interests, net revenue interests,
production payment interests, Overriding Royalty Interests and any other rights,
title, estates or interests in the Properties of whatever kind or character and
any additions, replacements, or substitutions thereto; it being intended by
Borrowers and EIF to cover and affect hereby all interests Borrowers may now own
or hereinafter acquire in and to the Properties, including new leases that are
located in Railroad Valley or Pine Valley;
(b) All presently existing and future unitization,
communitization, pooling agreements and declarations of pooled units and the
units created thereby (including all units created under orders, regulations,
rules or other acts of any Federal, State or other governmental agency having
jurisdiction and any pooling agreements, units, or similar arrangement created
solely among working interest owners pursuant to operating agreements or
otherwise) which may affect all or any portion of the Properties including,
without limitation, the properties now or hereafter pooled or unitized with the
Properties;
(c) All Hydrocarbons in and under and which may be produced
and saved from or attributable to the Properties, the lands pooled or unitized
therewith, including Borrowers' interest in Hydrocarbons from time to time
located in storage or transportation facilities in or near the site of any gas
plants or in tanks or other storage facilities owned, operated or used by
Borrowers in connection with all or any portion of the Collateral and Borrowers'
interest in all rents, issues, profits, proceeds, products, revenues and other
income from or attributable to the Properties, the lands pooled or unitized
therewith and Borrowers' interests therein which are subjected or required to be
subjected to the liens and security interests of this Agreement;
(d) All tenements, hereditaments, appurtenances and
properties in anyway appertaining, belonging, affixed or incidental to the
Properties, rights, titles, interests and estates described or referred to in
paragraphs (a), (b) and (c) above, which are now owned or which may hereafter be
acquired by Borrowers, including, without limitation, any and all property, real
or personal, now owned or hereafter acquired and situated upon, used, held for
use, or useful in connection with the operating, working or development of any
of such Properties or the lands pooled or unitized therewith (excluding drilling
rigs, trucks, automotive equipment or other personal property which may be taken
to the premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil ▇▇▇▇▇, gas ▇▇▇▇▇, injection ▇▇▇▇▇
or other ▇▇▇▇▇, buildings, structures, field separators, liquid extraction
plants, plant compressors, pumps, pumping units, pipelines, sales and flow
lines, gas processing plants and all compressors, scrubbers, absorbers,
dehydrators, tanks, reabsorbers, accumulators, stills, condensers, cooling
towers, regulators, meters, heaters, coolers, deethanizers, depropanizers,
debutanizers, boilers, pumps, heat exchangers, valves, controls, pipes and
lines, floating racks, heating, lighting and power plants, transmission lines,
buildings, housing and improvements, together with all other machinery,
equipment and apparatus of whatsoever character or description located on the
lands above-described or located elsewhere and used in the operation, conduct
and maintenance of such gas processing plants, all pipeline gathering systems
utilized in connection with such gas processing plants, together with all
equipment, fittings, fixtures, pipe, machinery, pumps, appliances, valves,
meters, tanks and other personal or real property appertaining to the said
pipeline gathering systems, field gathering systems, salt water disposal
facilities, tanks and tank batteries, and all other fixtures, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, equipment, appliances,
tools, implements, cables, wires, towers, casing, tubing and rods, surface
leases, rights-of-way, easements, servitudes, licenses tenements, hereditaments,
appurtenances and other surface and subsurface rights together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing properties;
(e) All operating agreements, production sales or other
contracts, farmout agreements, farm-in agreements, area of mutual interest
agreements, equipment leases and other agreements and contracts which relate to
any of the Properties or interests in the Properties or to the production, sale,
purchase, exchange, processing, handling, storage, transporting or marketing of
the Hydrocarbons from or attributable to such Properties or interests;
(f) All geological, geophysical, engineering, accounting,
legal and other information and rights therein and thereto in the possession of
Borrowers or to which Borrowers have access or has any rights therein concerning
the Properties including, without limitation, lease files, abstracts of title,
title opinions, geological and geophysical information (unless such geological
or geophysical information is restricted as to transfer or use by an existing
license or agreement concerning proprietary rights identified in this
Agreement), reserve or reservoir studies and well logs, engineering data and
reports, production records and all magnetic media and computer data relating to
the Collateral;
(g) All rights of Borrowers to liens and security interests
securing payment of proceeds from the sale of production from the Collateral;
together with Borrowers' interest in any and all renewals and extensions of any
of the Properties' rights, titles, interests or estates; Borrowers' interest in
all contracts and agreements supplemental to or amendatory of or in substitution
for the contracts and agreements described or referred to in this Agreement; and
any and all additional interests of any kind hereafter acquired by Borrowers in
and to the Properties' rights, titles, interests or estates;
(h) All accounts, contract rights, inventory, general
intangibles, insurance contracts and insurance proceeds constituting a part of,
relating to or arising out of those portions of the Collateral which are
described in paragraphs (a) through (g) above and Borrower's interest in all
proceeds and products of all such portions of the Collateral and payments in
lieu of production (such as "take or pay" payments), whether such proceeds or
payments are goods, money, documents, instruments, chattel paper, securities,
accounts, general intangibles, fixtures, real property, or other assets.
(i) All proceeds and payments attributable to all judgments
entered by courts (by agreement or otherwise), in contract or tort, arising out
of or attributable to the ownership of any of the Collateral;
(j) All of Borrowers' right, title and interest in the
Escrow Agreement and all funds deposited and held by the Escrow Agent in the
Escrow Account;
together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, any of the same, or of any instrument relating thereto, and
all rights-of-way, franchises, easements, tenements, hereditaments and
appurtenances now existing or in the future obtained in connection with any of
the aforesaid, with all reversions, remainders, rents, revenues, issues,
proceeds, earnings, incomes, products and profits thereof, and all proceeds from
the sale of any of the aforesaid, and all the estate, title, interests, rights
and claims whatsoever, at law as well as in equity, which Borrowers now have or
may hereafter acquire in and to the aforesaid, and all other interest of every
kind and character in all of the real and personal properties respectively above
described or referred to which Borrowers may now own or at any time hereafter
acquire (including, without limitation, all interests which Borrowers may now or
at any time hereafter own in the Hydrocarbons and other minerals in and under
the Properties), and all other things of value and incident thereto which
Borrowers might at any time have or be entitled to, all the aforesaid
properties, rights and interests, together with any additions thereto which may
be subjected to the lien of this instrument by means of supplements hereto, all
of the properties, interests and rights described above in this Section 4.1
being herein collectively referred to as the "Collateral."
Any additional right, title or interest which Borrowers may hereafter
acquire or become entitled to in the Collateral shall inure to the benefit of
and be covered by this Agreement and constitute "Collateral" the same as if
expressly described and conveyed herein.
4.2 Assignment. Borrowers hereby absolutely and unconditionally
TRANSFER, ASSIGN, WARRANT and CONVEY to EIF, effective as of January 6, 1998
at 7:00 a.m. local time, all of the interest of Borrowers in all Hydrocarbons
and all other minerals which are thereafter produced, saved or sold from the
Properties, or allocated thereto pursuant to pooling or unitization of oil
and gas leases or otherwise, all revenues and proceeds from the sale thereof
(the "Proceeds of Runs"), including all payments in lieu of production such
as "take or pay" payments and settlements, and all accounts, contract rights,
and other general intangibles under which such proceeds may arise. Borrowers
shall deliver to EIF signed letters in lieu of transfer order executed in
blank, substantially in the form of Exhibit H. The following terms and
conditions shall apply to the Proceeds of Runs:
(a) EIF shall have the right, exercisable anytime, and from
time to time, after an Event of Default, to give written or telegraphic notice
(in the form of a transfer order of letter in lieu signed by Borrowers or any
other form of notice signed by EIF) to all of the parties producing, purchasing,
taking, processing or receiving any Hydrocarbons and other minerals produced or
to be produced from or allocated to the Properties, or having in their
possession any such Hydrocarbons and other minerals belonging to Borrowers or
such proceeds for which they or others are accountable to EIF by virtue of the
provisions of this Section 4.2, to hold and dispose of such Hydrocarbons and
other minerals for the account of EIF and to make payment of such proceeds
directly to EIF at its principal office, and EIF shall thereafter receive,
collect and retain, as part of the Properties, all such Hydrocarbons and other
minerals, all for the benefit and further security of the Loans.
(b) In the event that, for its convenience, EIF should
elect, with respect to particular properties or contracts constituting the
Properties, not to exercise immediately upon an Event of Default its right to
receive payment to it directly of all or any portion of the assigned Proceeds of
Runs or production, then the oil or gas purchasers, or other persons obligated
to make such payment shall continue to make payment of such proceeds to
Borrowers until such time as they are notified by EIF. At such time, EIF shall
also notify Borrowers that EIF has made such written or telegraphic demand. Any
failure to notify shall not in any way waive the right of EIF to receive any
payments not theretofore paid out to Borrowers before the giving of written or
telegraphic notice. In this regard, then, if at the request of EIF, payments
are, for a period or periods of time, paid to Borrowers, EIF shall nevertheless
have the right, effective upon notice, to require that any future payments be
again made to EIF.
(c) All parties producing, purchasing or receiving any such
Hydrocarbons or other minerals, or having such, or proceeds therefrom, in their
possession for which they or others are accountable to EIF by virtue of the
provisions of this Section, are authorized and directed to treat and regard EIF
as the assignee and transferee of Borrowers and entitled in Borrowers' place and
stead to receive such Hydrocarbons and other minerals and all proceeds
therefrom; and said parties and each of them shall be fully protected in so
treating and regarding EIF, and shall be under no obligation to see to the
application by EIF of any such proceeds or payments received by it.
(d) The foregoing provisions of this Section 4.2 shall
constitute an absolute and present assignment of all of Borrowers' interest in
the Hydrocarbons. EIF grants to Borrowers a conditional license to receive and
sell such Hydrocarbons and the proceeds therefrom, and to use the same in
accordance with the terms of this Financing Agreement until EIF delivers written
notice to purchasers of production as provided hereinabove at which time such
conditional license shall terminate without further notice or action on the part
of EIF. The existence or exercise of such conditional license shall not operate
to subordinate this assignment, in whole or in part, to any subsequent
assignment by Borrowers permitted hereunder, and any such subsequent assignment
by Borrowers shall be subject to the rights of EIF hereunder.
4.3 Limitation on Recourse. The Notes shall be without recourse
to Borrowers and EIF shall look solely to the Collateral for the payment of
such principal and interest and shall not seek a deficiency or other personal
judgment against Borrowers in the event that any sale of the Collateral shall
be insufficient to satisfy the Loans. Nothing herein contained shall, however,
impair any right, remedy or security of EIF with respect to the Collateral
under any Loan Document, nor limit Borrowers' obligations to perform any of
Borrowers' other obligations hereunder, including without limitation
Borrowers' obligation to indemnify EIF as set forth in Article 9.
Notwithstanding the foregoing limitation of liability, Borrowers will remain
fully and personally liable for the Loans and all other obligations arising
under this Agreement if Borrower engages in or permits any of the following:
(a) fraud, breach of trust, or any material
misrepresentation by Borrowers in the Loan Documents or the Security
Instruments, or any other documents or instruments evidencing, securing or
relating to the Loans;
(b) waste of a material nature to any part of the Properties
caused by Borrower's gross negligence or willful and wanton neglect or abuse of
the Collateral or by failure to exert reasonable control appropriate for an
owner that is not also the operator;
(c) failure to pay taxes, insurance, assessments, charges
for labor or materials, or other charges, fees or assessments that can create or
result in liens on any portion of the Collateral or to comply with the
requirements of Section 7.6 hereof;
(d) any breaches of warranty or defects of title of the
Collateral, other than Permitted Liens;
(e) any breach of warranty or representation contained in
the Security Instruments, or failure to perform any covenant or other agreement
contained in the Security Instruments, or any indemnity contained in the
Security Instruments;
(f) any attempt to communicate in any manner with the
purchasers of production from the Collateral after the delivery to such
purchasers of a letter in the form of Exhibit H in an attempt to hinder or
interfere with the rights of EIF as stated in Section 4.2 above and as restated
in the Security Instruments; and
(g) the return of, or reimbursement for, all monies received
by Borrowers from the purchasers of production for monies attributable to
production after receipt by any such purchaser of a letter in the form of
Exhibit H.
(h) any attempt to hinder or interfere with the exercise of
the power of sale granted in any of the Security Instruments, including without
limitation the filing of a lis pendens, the initiation of any lawsuit or the
requesting of injunctive relief from any court or tribunal, having the effect of
hindering or delaying the exercise by EIF of any right or remedy under this
Agreement or any Security Instrument; and
(i) after an Event of Default, Borrowers shall fail or
refuse to execute and deliver to EIF any instrument reasonably requested by EIF
and prepared at its expense, which is necessary to fully vest title to the
Properties in EIF or the purchaser(s) of all or part of the Properties pursuant
to any sale as provided for in the Security Instruments.
Borrowers shall be fully and personally liable for all attorneys' fees and costs
and expenses incurred by EIF arising out of any of the foregoing sections (a)
through (i).
4.4 Definition of Collateral. From the time of the Initial Funding
up until the Funding of the Acquisition Loan, the term "Collateral" shall only
include the Existing Properties. After the first Funding of the Acquisition
Loan, the term "Collateral" shall include the Existing Properties, and any
other New Properties after they are acquired by Borrowers.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BORROWERS
Borrowers represent and warrant to EIF as follows:
5.1 Organization; Charter and Bylaws of Organizational Documents.
Borrowers are a corporation or a limited liability company validly existing and
in good standing under the laws of Nevada and have the requisite power to own,
lease and operate their respective properties and to carry on their business as
now being conducted. Borrowers are duly qualified to do business and are in
good standing in each jurisdiction in which the character or location of the
properties owned or leased by Borrowers or the nature of the business conducted
by Borrowers makes such qualification necessary or where the failure to so
qualify would have a material adverse effect on the assets, business, financial
condition or prospects of Borrowers.
5.2 Authority. Borrowers have the requisite power to execute,
deliver and perform the Loan Documents, and to consummate the transactions
contemplated thereby. The execution and delivery of the Loan Documents by
Borrowers and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary action on the part of Borrowers. Each
of the Loan Documents has been duly executed and delivered by Borrowers and
constitutes a legal, valid and binding obligation of Borrowers and is
enforceable against Borrowers in accordance with its terms except (i) that
such enforcement may be subject to bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights and (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which
any proceedings therefor may be brought.
5.3 No Violation. The execution and delivery of the Loan
Documents by Borrowers do not, and the performance of the Loan Documents will
not, (i) conflict with or result in a breach of the articles of incorporation,
bylaws, operating agreement, articles of organization or other governing
documents of Borrowers, or (ii) violate, or conflict with, or constitute a
default under, or (except for EIF Liens created pursuant to the Loan Documents)
result in the creation or imposition of any security interest, mortgage,
pledge, lien, encumbrance, claim, restriction, or other charge upon any
property or assets of Borrowers under any mortgage, indenture or agreement to
which either Borrower is a party or by which the property or assets of either
Borrower is bound, or (iii) violate any Requirement of Law, the effect of
which violation would be material and adverse to the business, assets or
financial condition of either Borrower, or (iv) violate any permit,
concession, grant, franchise, license, or other governmental authorization
or approval necessary for the appropriate conduct of the business of either
Borrower, the effect of which violation would be material and adverse to the
business, assets or financial condition of either Borrower.
5.4 Litigation. Except as provided in Schedule 5.4 hereto, there
are no actions, suits, proceedings or governmental investigations or inquiries
pending, or to the knowledge of Borrowers threatened against either Borrower
or any of its Affiliates or their respective properties, assets, operations
or businesses (i) that might reasonably prevent or interfere with the
consummation of the transactions contemplated hereunder or (ii) that might
reasonably, either singly or in the aggregate, result in any material adverse
effect on the prospects, results of operation, properties, liabilities,
assets, financial condition or business of either Borrower. In the event
any such actions, suits, proceedings, claims or assessments arise or are
asserted prior to any Funding Date, Borrowers shall promptly notify EIF of
the same.
5.5 Financial Statements. The financial statements of Borrowers
included in filings with the Securities Exchange Commission (the "Financial
Statements") fairly represent the financial condition of Borrowers as of the
date thereof and for the periods reflected therein. Since the date of such
Financial Statements, there has been no material adverse change in the
assets, business, financial condition or prospects of Borrowers.
5.6 Compliance with Licenses and Laws. Except as disclosed in
writing to EIF by Borrowers, Borrowers possess all Permits, and Borrowers are in
compliance with the Permits and all Requirements of Law except where the failure
to possess any Permits or the failure to be in compliance with the Permits or
Requirements of Law would not, singly or in the aggregate, have a material
adverse effect on the business, assets, financial condition or operations of
Borrowers. There are no proceedings pending or, to the knowledge of either
Borrower, threatened that may result in the revocation, cancellation, or
suspension or any materially adverse modification of any of the aforementioned
Permits. Borrowers have not received any written notice to the effect that, or
otherwise been advised that, it is not in compliance with any Permit or
Requirement of Law. Except as set forth in Schedule 5.6 hereto, no consent,
approval or authorization of, or declaration, filing or registration with, any
United States federal, state, or local governmental or regulatory authority is
required to be made or obtained by either Borrower in connection with the
execution, delivery and performance of any Loan Document or the consummation by
Borrowers of the transactions contemplated thereunder.
5.7 Investments and ▇▇▇▇▇▇▇▇▇▇.▇▇▇▇▇▇▇▇▇▇▇ and Guaranties. At the
date of this Agreement, Borrowers have not made investments in, advances to or
guaranties of the obligations of any Person not otherwise disclosed on the
Financial Statements or on Schedule 5.23.
5.8 Title to Properties.
(a) At the Refinancing Loan Closing Date and at each Funding
Date, (i) Borrowers shall have full authority to create EIF Liens on the
Collateral, and (ii) all Mineral Interests that comprise a part of the
Collateral will be valid, subsisting and in full force and effect, and all
rentals, royalties and other amounts due and payable in respect thereof will
have been duly paid or accounted for.
(b) Except as specifically disclosed in Schedule 5.8(b),
at the Refinancing Loan Closing Date and at each Funding Date, Borrowers'
ownership interest in the Collateral shall consist of good and marketable
title, free and clear of all Liens except Permitted Liens.
5.9 Casualties; Taking of Properties. Since the date of the
Financial Statements, neither the businesses nor the properties of Borrowers
have been adversely affected as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits or
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
5.10 ERISA. Each Employee Benefit Plan, if any, is in substantial
compliance with the applicable provisions of ERISA and the Code. Neither
Borrower nor any ERISA Affiliate maintains, contributes to or is obligated to
contribute to, nor have either Borrower or any ERISA Affiliate ever maintained,
contributed to or been obligated to contribute to, any Employee Benefit Plan
subject to Title IV. Neither Borrower nor any ERISA Affiliate maintains or
contributes to, nor have either Borrower or any ERISA Affiliate ever maintained
or contributed to, any Employee Benefit Plan subject to the funding
requirements of Section 302 of ERISA or Section 412 of the Code. No Employee
Benefit Plan provides death or medical benefits (including insured benefits)
to employees beyond their retirement or other termination of service, except
death or medical benefits required by law or death benefits under a plan
qualified under Section 401(a) of the Code.
(a) Neither Borrower nor any ERISA Affiliate maintains or
contributes to or has an obligation to contribute to, nor have either Borrower
or any ERISA Affiliate ever maintained or contributed to or had an obligation to
contribute to, any Multiemployer Plan.
(b) Neither Borrower or any ERISA Affiliate or any fiduciary
of any Employee Benefit Plan has engaged in any transaction or conduct that
could, directly or indirectly, result in any material liability of either
Borrower pursuant to Sections 409, 502(c) or 502(i) of ERISA, or Sections 4975,
4976, or 4980B of the Code.
(c) The consummation of the transactions contemplated by
this Agreement will not result in any Prohibited Transaction for which an
exemption is not available.
(d) All of the Employee Benefit Plans maintained by
Borrowers are identified on Schedule 5.10 hereto. Borrowers have not
contributed to or do not maintain any profit sharing, deferred compensation,
bonus, health, life, medical, hospitalization or other employee benefit plan or
program for the benefit of employees or partners of Borrowers, or their
dependents or beneficiaries, except for the Employee Benefit Plans disclosed on
Schedule 5.10 hereto.
(e) The Employee Benefit Plans are administered in
accordance with their respective terms. The Employee Benefit Plans and the
terms thereof conform in all material respects to all applicable laws, rules,
regulations and orders. All contributions or payments required to be made by
Borrowers under the Employee Benefit Plans have been made. There are no
unfunded obligations under the Employee Benefit Plans. Neither Borrower nor any
ERISA Affiliate has or has had any obligations under any collective bargaining
agreement. The persons classified by Borrowers as independent contractors do
satisfy and have satisfied the requirements of law to be so classified, and
Borrowers have fully and accurately reported their compensation on IRS Forms
1099 when required to do so.
(f) Borrowers are and have been in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, including
without limitation any such laws respecting employment discrimination, workers'
compensation, family and medical leave, the Immigration Reform and Control Act,
tax withholding and reporting, and occupational safety and health requirements.
5.11 Environmental Liabilities.
(a) The Properties are, and to the best of Borrowers'
knowledge, at all times have been (except as set forth in Schedule 5.11(a)),
operated in compliance with all applicable Environmental Laws; and to the best
of Borrowers' knowledge, no condition exists with respect to the Collateral or
other property owned or operated by Borrowers or any Affiliate of Borrower that
would or could reasonably be expected to subject either Borrower, any Affiliate
of either Borrower, or EIF to any damages (including without limitation, actual,
consequential, exemplary and punitive damages), liability (absolute or
contingent, determined or determinable), penalties, injunctive relief or cleanup
costs under any applicable Environmental Laws, or that require or could
reasonably be expected to require cleanup, removal, remedial action or other
response by either Borrower, any Affiliate of either Borrower, or EIF pursuant
to applicable Environmental Laws.
(b) Borrowers have not received and, to the best of
Borrowers' knowledge, none of their Affiliates have received, and to the best of
Borrowers' knowledge none of Borrowers' or their Affiliates' predecessors in
title to the Properties have received, any notice from a governmental agency
asserting or alleging a violation of any Environmental Laws as they relate to
the Properties, except as set forth in Schedule 5.11(a).
(c) There are no pending or, to the best of Borrowers'
knowledge, threatened suits, actions, claims or proceedings against either
Borrower or their Affiliates or, to the best of Borrowers' knowledge, Borrowers'
or their Affiliates' predecessors in title, arising from or related to, directly
or indirectly, any Environmental Laws as they relate to the Properties.
(d) Neither Borrower, any Affiliate of either Borrower, any
part of the Properties, nor, to the best of Borrowers' knowledge, Borrowers' or
any Affiliate's predecessors is subject to any judgment, decree, order or
citation related to or arising out of any Environmental Laws, and neither
Borrower nor any Affiliate has been named or listed as a potentially responsible
party by any governmental or other entity in a matter arising under or relating,
directly or indirectly, to any Environmental Laws.
(e) Borrowers have obtained or caused to be obtained all
permits, licenses, and approvals required under all Environmental Laws to
operate the Properties.
(f) There are not now, nor to the best of Borrowers'
knowledge have there ever been except as set forth on Schedule 5.11(a),
Hazardous Materials discharged, leaked, spilled or released in, on, to, from or
at the Properties or other properties owned or operated by Borrowers or any of
their Affiliates or stored, treated, or recycled at or in tanks or other
facilities thereon or related thereto which give rise or could reasonably be
expected to give rise to liability under any Environmental Laws.
(g) The use which Borrowers make and intend to make of the
Properties will not result in: (i) the use or storage of any Hazardous
Materials on, in or in connection with the Properties, or disposal of any
Hazardous Materials from the Properties except in compliance with all applicable
Environmental Laws, or (ii) the treatment, processing, discharge or release of
any Hazardous Materials on, in, to or from the Properties except in compliance
with all applicable Environmental Laws.
(h) There are no underground storage tanks surface
impoundments, or wastewater injection ▇▇▇▇▇ located on or in the Properties.
5.12 Taxes. Borrowers have filed or caused to be filed within
the times and within the manner prescribed by law (including the period of
any permitted extensions), all federal, state, local and foreign tax returns
and tax reports that are required to be filed by, or with respect to,
Borrowers. Such returns and reports reflect accurately all liability for
taxes of Borrowers for the periods covered thereby, and all federal, state,
local and foreign income, profits, franchise, sales, use, occupancy, excise
and other taxes and assessments (including interest and penalties) payable
by, or due from, Borrowers have been fully paid or adequately disclosed and
fully provided for in the books and Financial Statements of Borrowers to the
extent required by generally accepted accounting principles. No examination
of any tax return of Borrowers is currently in progress, and there are no
unpaid taxes in any material amount claimed to be overdue by the taxing
authority of any jurisdiction. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any tax
return of either Borrower.
5.13 Securities FilingsSecurities Filings. Borrowers have
filed or caused to be filed, within the times and within the manner
prescribed by law, all federal and state securities and blue sky filings
that are required to be filed by, or with respect to, Borrower, including
without limitation all filings required to be made pursuant to the Securities
Exchange Act of 1934, except to the extent that any claims based on such
filing is otherwise barred by the applicable statute of limitations.
5.14 No Event of Default. No Default or Event of Default has
occurred and is continuing.
5.15 Investment Company Act. Neither Borrower is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
5.16 Public Utility Holding Company Act. Neither Borrower
is a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
5.17 Location of Business and Offices. Borrowers' principal
places of business and chief executive offices are located at the addresses
indicated in Section 11.1 of this Agreement.
5.18 No Misstatement. No information, exhibit or report furnished
to EIF by Borrowers in connection with the negotiation of this Agreement
contains any material misstatement of fact or omits to state any material fact
necessary to make the statement contained therein not misleading.
5.19 Foreign Person. Neither Borrower is a non-resident alien,
foreign corporation, foreign partnership, foreign trust, foreign estate or
foreign person within the meaning of Sections 1445 or 7701 of the Internal
Revenue Code of 1986, as amended, or the regulations thereto.
5.20 Arrangements Relating to Hydrocarbons. Borrowers have
made arms-length arrangements with respect to marketing, sales, transportation,
treating and processing, and any other arrangements necessary to dispose of the
Hydrocarbons to be produced from the Properties on and immediately after the
Refinancing Loan Closing Date. Borrowers are not in breach of any such
arrangements.
5.21 Hydrocarbon Contracts. Borrowers (a) are not obligated in
any material respect by virtue of any prepayment made under any contract
containing a "take or pay" or "prepayment" provision, or under any similar
agreement to deliver Hydrocarbons produced from or allocated to any of the
Properties at some future date without receiving full payment therefor at the
time of delivery and (b) have not produced Hydrocarbons in any material amount
subject to, and neither Borrower nor any of the Properties is subject to,
balancing rights of third parties or balancing duties under Requirements of
Law, except as set forth in Schedule 5.21.
5.22 No Indebtedness to Shareholders, Members, Officers, Directors,
Managers or Affiliates. Neither Borrower owes Indebtedness to any of its
respective Affiliates, or any shareholder, member, officer, director, manager
or Affiliate of such person, except as set forth in Schedule 5.22.
5.23 Capitalization. The authorized capital of Foreland consists
of (i) 50,000,000 shares of common stock, $0.001 par value (the "Shares"),
of which 8,665,364 Shares are issued and outstanding as of the date hereof,
and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of
which 2,000,000 preferred shares are designated as 1991 Series Convertible
Preferred Stock with 40 of such preferred shares issued and outstanding
(convertible into 13,333 Shares), 1,650,000 preferred shares are designated
as 1994 Series Convertible Redeemable Preferred Stock with 165,140 of such
preferred shares issued and outstanding (convertible into 55,047 Shares),
1,000,000 preferred shares are designated as 1995 Series Convertible
Preferred Stock with 556,667 of such preferred shares issued and outstanding
(convertible into 185,556 Shares), 1,500 preferred shares are designated as
1996 Series 6% Convertible Preferred Stock with none of such preferred
shares issued and outstanding, 10,000 preferred shares are designated
as 1996-2 Series 6% Convertible Preferred Stock with none of such preferred
shares issued and outstanding, 6,000 preferred shares are designated as 1996-3
Series 8% Convertible Preferred Stock with none of such preferred shares issued
and outstanding, 500 preferred shares are designated as the 1996-4 Series
Preferred Stock with none of such preferred shares issued and outstanding, and
50,000 preferred shares are designated as Series A Preferred Stock with none of
such preferred shares issued and outstanding, and 282,000 preferred shares are
not designated (the "Capital). Foreland has no other Shares or capital stock of
any class or other equity securities or equity equivalents authorized, issued or
outstanding. Foreland has reserved a sufficient number of authorized Shares for
issuance pursuant to the Warrants. Except as set forth in Schedule 5.23, there
are no outstanding or authorized options, warrants, calls, subscriptions,
rights, agreements or commitments of any character obligating Borrower to issue
any Shares or securities convertible into or exchangeable for or evidencing the
right to purchase or subscribe for any Capital of Borrower.
ARTICLE 6
THE CLOSINGS; CONDITIONS PRECEDENT
6.1 Time and Place of Closings.
(a) The closing of the Refinancing Loan (the "Refinancing
Loan Closing") will take place at the offices of Associated Energy Managers,
Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ on January 6, 1998 (the
"Refinancing Loan Closing Date") at 12:30 p.m. Eastern time or at such other
time and date as the parties may agree.
(b) The closing of the Development Loan (the "Development
Loan Closing") will take place at the offices of Associated Energy Managers,
Inc., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ on January 6, 1998 (the
"Development Loan Closing Date") at 12:30 p.m. Eastern time or at such other
time and date as the parties may agree. The Initial Funding shall take place at
such time as may be specified by EIF and at such place as the parties may
mutually agree.
(c) The closing of the Acquisition Loan (the "Acquisition
Loan Closing") and the Funding of the first advance thereunder will take place
at such time as may be specified by EIF (the "Acquisition Loan Closing Date")
and at such place as the parties may mutually agree. The Funding of each
subsequent advance under the Acquisition Loan will take place at such time as
may be specified by EIF and at such place as the parties may mutually agree.
6.2 Conditions Precedent to the Funding of Each Loan. The
obligations of EIF to make the Refinancing Loan, the Development Loan, the
Acquisition Loan and any Fundings thereunder are subject to the following
conditions precedent, one or more of which may be waived by EIF with respect
to any particular Funding in EIF's sole discretion:
(a) Corporate Documents. At or prior to each Funding
Date, each Borrower shall have delivered or caused to be delivered to EIF:
(i) a certificate of the Secretary of State of the
Borrower's state of incorporation or organization dated not earlier
than the tenth (10th) day preceding the applicable Funding Date, to
the effect that such Borrower is a corporation or limited liability
company validly existing and in good standing under the laws of such
state as of such date;
(ii) a certificate of the Secretary of State of each
state where such Borrower is required to qualify to do business
(including without limitation, the states where the Collateral is
located), dated not earlier than the tenth (10th) day preceding the
applicable Funding Date, to the effect that such Borrower is a
corporation or limited liability company duly licensed or qualified to
do business in such state and is in good standing as a foreign
corporation or foreign limited liability company under the laws of
such state as of such date; and
(iii) certificates of the Secretary or Assistant
Secretary of such Borrower including (A) copies of the Articles of
Incorporation or Organization and By-laws or Operating Agreement of
such Borrower as then in effect or a certification that there has been
no change in such instruments since the last such certification
delivered to EIF pursuant to this Agreement, (B) duly enacted
resolutions of the Board of directors or consents of the Managers or
Members in form and substance satisfactory to EIF approving the Loan
Documents and authorizing officers or Managers of such Borrower to
execute and deliver instruments required to be delivered hereunder as
a condition precedent to the Funding, or a certification that there
has been no amendment or revocation of such resolutions since the last
such certification delivered to EIF pursuant to this Agreement, and
(C) specimen signatures of the officers or Managers of Borrower
authorized to sign such instruments to the extent such specimen
signatures have not previously been delivered to EIF.
(b) Representations and Warranties True. The
representations and warranties of Borrowers contained in this Agreement shall
be true on and as of each Funding Date, except for inaccuracies that are not
in the aggregate material, and Borrowers shall have delivered to EIF a
certificate signed on Borrowers' behalf by their President and Manager, or
other appropriate officer, dated as of the Funding Date to such effect.
(c) Compliance with Covenants. Borrowers shall have
performed, and be in compliance with, in all material respects, all of its
agreements and covenants under this Agreement and Borrowers shall have
delivered to EIF a certificate signed on Borrower's behalf by their President
and Manager, or other appropriate officer, dated as of the Funding Date to
such effect.
(d) Absence of Event of Default. No Default or Event
of Default shall exist, and Borrowers shall have delivered to EIF a
certificate signed on Borrowers' behalf by their President and Manager, or
other appropriate officer, dated as of the Funding Date to such effect.
(e) Opinion of Borrowers' Counsel. At or prior to each
Funding, EIF shall have received an opinion of ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.C.,
dated as of the relevant Funding Date, substantially in the form of Exhibit I.
(f) Financial Condition. Borrowers shall have furnished
such information concerning the financial condition and reputation of
Borrowers as EIF shall reasonably request, including without limitation, the
information requested in the form of Officer's Certificate and the Financial
Covenants Calculations set forth in Exhibit J, and such information shall be
satisfactory to EIF and its representatives. Such information shall include
evidence that there has been no adverse change in the financial condition of
Borrowers since the immediately preceding Funding Date. There shall not then
be pending against Borrowers any petition in bankruptcy, whether voluntary or
otherwise, any assignment for the benefit of creditors, any petition seeking
reorganization or arrangement under the bankruptcy, insolvency, reorganization
or similar laws of the United States or of any state thereof, or any other
action affecting the rights of creditors of Borrowers brought under the
aforesaid laws. Borrowers shall have delivered to EIF a certificate signed
on Borrowers' behalf by its President and Manager, or other appropriate officer,
dated as of the Funding Date to such effect.
(g) Asset Coverage. EIF shall be satisfied, based upon
all relevant available information including advice received by EIF from
petroleum engineers selected by EIF and EIF's own estimate of cash flows
available from all Collateral available to it under the Loans, that all
amounts outstanding under the loans shall not exceed 80% of the Value of
the Collateral.
(h) Legal Matters. All proceedings in connection with
the Loans, all documents incident thereto, and all legal matters in connection
with the transactions by Borrowers to be financed hereunder shall be
satisfactory in form and substance to EIF and EIF's counsel, and EIF shall
have received all approvals, opinions or documents that EIF or its counsel
may reasonably have requested in connection with the Funding, all in form
and substance satisfactory to EIF.
(i) Access to Information; Due Diligence. EIF and its
representatives shall have had access to such information and records of
Borrowers as EIF shall have reasonably requested, including without limitation
leases and other records relating to the Properties and all contract files
pertaining to oil and gas production from the Properties, all technical
data (including, but not limited to, logs, seismic data, drilling reports,
production reports, and test results), and all such information and records
shall be satisfactory to EIF and its representatives.
(j) Purchasers of Production. Borrowers shall furnish to
EIF at each Closing and upon each Funding if there has been a change since the
previous Funding, the following information:
(i) The name, address, telephone number and fax number
of all purchasers of production from the Collateral, including the
name of the person responsible for effecting changes of ownership at
such purchaser.
(ii) The owner number assigned to Borrowers by each
such purchaser of production.
(iii) The property number assigned by each purchaser of
production to each Property comprising the Collateral of Borrowers.
(iv) The net revenue-decimal interest of Borrowers
assigned by each purchaser of production in each Property on which the
purchaser is remitting payments to Borrowers.
(v) Copies of all division orders signed by Borrowers
with each purchaser of production.
(k) Other Matters. EIF shall have received from Borrowers
such other agreements, certificates, instruments and documents as EIF may
reasonably request to evidence or carry out the transactions contemplated by
this Agreement.
6.3 Conditions Precedent to Refinancing Loan Closing, the
Development Loan Closing and the Initial Funding. The obligations of EIF to
make the Refinancing Loan and any Fundings thereunder, and to make the
Development Loan and any Fundings thereunder are subject to the following
conditions precedent set forth in Section 6.2 of this Agreement and the
following conditions precedent:
(a) Loan Documents. EIF shall have received the following
instruments, each duly and validly executed and delivered by Borrowers:
(i) the Refinancing Note;
(ii) the Development Note;
(iii) the Acquisition Note;
(iv) the Escrow Agreement
(v) Security Instruments;
(vi) such other agreements, certificates, instruments
or other documents as EIF may reasonably request to evidence or carry
out the transactions contemplated by this Agreement.
(b) Bank Loans. Borrowers shall have provided evidence
satisfactory to EIF and its counsel that the Bank will accept payment in full
of the Bank Loans, including payoff figures, and the Bank shall have delivered
a release and cancellation of the Bank Loans and of any Liens securing the Bank
Loans, in a form acceptable to EIF and its counsel.
(c) Security Instruments Recorded. Security Instruments or
requisite evidence of the security interests created thereby, containing a
description of the Collateral, shall have been executed and delivered in such
places and in such form as may be necessary to perfect EIF's security interest
in the Collateral.
(d) Title. EIF shall have received an opinion in form and
substance satisfactory to EIF and its counsel, stating the fee, surface,
working and net revenue interests of Borrowers in the Properties and such other
information, including title abstracts and copies of all other information
available to Borrowers reasonably requested by EIF and its counsel with respect
to title to such properties, and EIF and its counsel shall be satisfied with
the state of title to such properties.
(e) No Liens. Borrowers shall have furnished evidence
satisfactory to EIF and its counsel that any Liens (other than Permitted Liens)
affecting the Collateral have been discharged, released or subordinated prior
to, or will be discharged, released or subordinated to EIF concurrently with,
the Refinancing Loan Closing.
(f) Initial Overriding Royalty Interests. Borrowers
shall have duly and validly executed and delivered to EIF all documents, in form
and substance satisfactory to EIF, and such documents shall have been filed in
such places, necessary or appropriate to effect the assignment and conveyance of
the Initial Overriding Royalty Interests.
(g) Transfer Orders and Letters in Lieu. Borrowers
shall have furnished to EIF copies of all Division Orders, Transfer Orders and
letters in lieu signed by Borrowers and stating its interest in the Hydrocarbons
comprising the Collateral.
(h) Warrants. Foreland shall have executed and delivered to
EIF the Warrants in substantially the form of Exhibit K hereto.
(i) Operating Agreements for Existing Properties. Borrowers
shall have delivered an executed copy of the operating agreements for each of
the Existing Properties.
(j) AFEs. Borrowers shall have delivered to EIF an AFE for
each development project to be completed with the proceeds of the Initial
Funding.
(k) Seismic Data. At the request of EIF, Borrowers shall
make available to EIF all three-dimensional seismic reports and data received
by Borrowers which pertain to any of the Properties.
6.4 Conditions Precedent to Funding Subsequent Advances Under the
Development Loan. The obligations of EIF to fund any advance of the
Development Loan after the Initial Funding are subject to the satisfaction the
conditions precedent set forth in Sections 6.2 and 6.3 of this Agreement and the
following additional conditions precedent:
(a) Development Plan and Budget. Borrowers shall have
delivered to EIF the Development Plan and Budget for the applicable quarter
for any development to be made with the proceeds of the Development Loan and
such budget shall be acceptable to EIF in its sole discretion.
(b) Seismic Data. At the request of EIF, Borrowers shall
make available to EIF all three-dimensional seismic reports and data received
by Borrowers which pertain to any of the Properties.
(c) Results of Prior Development. The results of the
development drilling completed with the proceeds of the previous Funding of the
Development Loan shall be satisfactory to EIF, in its sole discretion.
Borrowers shall have also provided evidence satisfactory to EIF that the
expenditures for the development pursuant to the Development Loan did not exceed
110% of the amount stated in the AFEs.
(d) Secondary Overriding Royalty Interests. Borrowers
shall have duly and validly executed and delivered to EIF, pursuant to
Section 2.12(b) of this Agreement, all documents, in form and substance
satisfactory to EIF, and such documents shall have been filed in such places,
necessary or appropriate to effect the assignment and conveyance of the
Secondary Overriding Royalty Interests.
(e) Miscellaneous. All proceedings in connection with the
Refinancing Loan, the Development Loan and all documents incident thereto shall
be satisfactory in form and substance to EIF and EIF's counsel.
6.5 Conditions Precedent to the Acquisition Loan. The obligations
of EIF to close the Acquisition Loan and to make any Fundings thereunder are
subject to the satisfaction of the conditions precedent set forth in Sections
6.2, 6.3 and 6.4 of this Agreement and the following conditions precedent:
(a) Development Plan and Budget. Borrowers shall have
delivered to EIF the Development Plan and Budget for any acquisitions and
development to be made with the proceeds of the Acquisition Loan and such
budget shall be acceptable to EIF in its sole discretion.
(b) Results of Prior Development. The results of the
development drilling completed with the proceeds of the Development Loan and
Acquisition Loan shall be satisfactory to EIF, in its sole discretion.
Borrowers shall have also provided evidence satisfactory to EIF that the
expenditures for the development pursuant to the Development Loan and did not
exceed 110% of the amount stated in their respective AFEs.
(c) Purchase Agreements. EIF and its counsel shall be
satisfied as to the form and content of any relevant purchase agreements.
(d) Security Instruments Recorded. Security Instruments
or requisite evidence of the security interests created thereby, containing a
Description of the Collateral, shall have been executed and delivered in such
places and in such form as may be necessary to perfect EIF's security interest
in the Collateral.
(e) Title. EIF shall have received an opinion from
Borrowers' counsel in form and substance satisfactory to EIF and its counsel,
stating the fee, surface, working and net revenue interests of Borrowers in
the Properties and such other information, including title abstracts and
copies of all other information available to Borrowers reasonably requested
by EIF and its counsel with respect to title to such properties, and EIF and
its counsel shall be satisfied with the state of title to such properties.
(f) No Liens. Borrowers shall have furnished evidence
satisfactory to EIF and its counsel that any Liens (other than Permitted
Liens) affecting the Collateral have been discharged, released or
subordinated prior to, or will be discharged, released or subordinated to
EIF concurrently with, the Refinancing Loan Closing.
(g) Transfer Orders and Letters in Lieu. Borrowers
shall have furnished to EIF copies of all Division Orders, Transfer Orders and
letters in lieu signed by Borrowers and stating their interest in the
Hydrocarbons comprising the Collateral.
(h) AFE. EIF shall have received an AFE for each of the
acquisition projects for which such release of funds is sought at least twenty
(20) days prior to the date proposed by Borrowers for the release of such funds
that must be in conformance with the Development Plan and Budget, or otherwise
approved by EIF. Borrowers shall not materially amend any AFE if the amendment
would cause the AFE to not conform to the Development Plan and Budget without
obtaining EIF's prior written consent.
(i) Request for Escrow Disbursement. Upon completion of
the work contemplated by the AFE, Borrowers shall submit a Request for Escrow
Disbursement, together with supporting documentation. Provided the amounts
specified in the Request for Escrow Disbursement do not exceed 110% of the
amounts set forth in the AFE, then EIF shall instruct the Escrow Agent to
disburse payments directly to Borrowers in the amounts specified by written
instructions executed by EIF.
6.6 Conditions Precedent to Release of Funds from Escrow Account.
Subject to the satisfaction of the conditions precedent provided in Sections
6.2, 6.3, 6.4 and 6.5 of this Agreement, if EIF has required any funds to be
deposited into the Escrow Account, EIF agrees to direct the Escrow Agent to
release certain funds from the Escrow Account provided that Borrowers shall
have provided the following items:
(a) AFE. EIF shall have received an AFE for each of the
development or acquisition projects for which such release of funds is sought
at least twenty (20) days prior to the date proposed by Borrowers for the
release of such funds that must be in conformance with the Development Plan
and Budget, or otherwise approved by EIF. Borrowers shall not materially amend
any AFE if the amendment would cause the AFE to not conform to the Development
Plan and Budget without obtaining EIF's prior written consent.
(b) Request for Escrow Disbursement. Upon completion of
the work contemplated by the AFE, Borrowers shall submit a Request for Escrow
Disbursement, together with supporting documentation. Provided the amounts
specified in the Request for Escrow Disbursement do not exceed 110% of the
amounts set forth in the AFE, then EIF shall instruct the Escrow Agent to
disburse payments directly to Borrowers in the amounts specified by written
instructions executed by EIF.
ARTICLE 7
COVENANTS OF BORROWER
Borrowers hereby covenant and agree that, so long as the Loans are
outstanding or any party has any obligations pursuant to this Agreement or any
other Loan Document:
7.1 Punctual Payment and Performance. Borrowers shall duly
and punctually pay the principal and interest on the Loans, the overriding
royalty payments and all other amounts provided for in this Agreement, or any
other Loan Document, and shall perform all its obligations and covenants under
all Loan Documents.
7.2 Records and Accounts. Borrowers shall keep true and accurate
records and books of account in which full, true and correct entries will be
made in accordance with generally accepted accounting principles ("GAAP") and
shall maintain adequate accounts and reserves for all taxes (including income
taxes) and loan amortization.
7.3 Financial Statements, Certificates and Information. Borrowers
shall deliver to EIF:
(a) As soon as practicable, but in any event not later than
ninety (90) days (or, in the event an extension has been obtained in accordance
with the rules of the Securities Exchange Commission, one hundred five (105)
days) after the end of each fiscal year of Borrowers, the balance sheets of
Borrowers as at the end of such fiscal year, and the related statements of
income and statements of cash flow for such year, each setting forth in
comparative form the figures for the previous fiscal year, all such statements
to be in reasonable detail, prepared in accordance with GAAP, and all such
statements to be certified by independent certified public accountants
satisfactory to EIF, together with a written statement from such accountants to
the effect that they have read a copy of this Agreement, and that, in making the
examination necessary to said certification, they have obtained no knowledge of
any Default or Event of Default, or, if such accountants shall have obtained
knowledge of any then existing Default or Event of Default, they shall disclose
in such statement any such Default or Event of Default; provided that such
accountants shall not be liable to EIF for failure to obtain knowledge of any
Default or Event of Default;
(b) As soon as practicable, but in any event not later than
forty-five (45) days (or, in the event an extension has been obtained in
accordance with the rules of the Securities Exchange Commission, fifty (50)
days) after the end of each calendar quarter of each fiscal year of Borrowers,
the unaudited balance sheets of Borrowers as at the end of such quarter, and the
related statements of income and statements of cash flow for the portion of
Borrowers' fiscal year then elapsed, all in reasonable detail and prepared in
accordance with GAAP, subject to year-end adjustments, together with a
certification by the principal financial or accounting officer of Borrowers that
the information contained in such financial statements is true and accurate;
(c) Simultaneously with the delivery of the financial
statements referred to in (b) above, a certification by the principal financial
or accounting officer of Foreland that (i) a review of the activities of
Borrowers has been made under such officer's supervision with a view to
determining whether Borrowers have fulfilled all obligations under the Loan
Documents; (ii) Borrowers have fulfilled all obligations under such Loan
Documents and all representations made herein or therein continue to be true and
correct (or specifying the nature of any change), or if a Borrower shall be in
Default, specifying any Default and the nature and status thereof; and (iii) to
the extent requested from time to time by EIF, Borrowers have complied with any
and all of its representations or obligations under such Loan Documents. The
certificate shall also include each Borrower's calculation of the financial
covenants set forth in Section 7.23 of this Agreement.
(d) As soon as practicable, but in any event not later than
forty-five (45) days after the end of each fiscal quarter of Borrowers, a report
(in a form reasonably satisfactory to EIF) from the principal financial or
accounting officer of each Borrower that (i) itemizes each expenditure of the
proceeds of the Loans during such fiscal quarter, on a well-by-well, project-by-
project and asset-by-asset basis, and (ii) certifies that such expenditures,
when aggregated with all prior expenditures of the proceeds of the Loans, do not
exceed one hundred ten percent (110%) of the projected acquisition and
development costs approved by EIF prior to funding the Loans. If the
development costs for any well or project shall have exceeded one hundred ten
percent (110%) of the projected development costs approved by EIF for such well
or project, then the Treasurer shall identify such well(s) or projects and shall
explain the reason(s) for such cost overruns.
(e) Within sixty (60) days after the end of any calendar
year, Borrowers shall provide information necessary for a Reserve Report to be
prepared by Mohajir & Associates, or such other independent engineering firm as
shall be mutually agreeable to EIF and Borrowers (with the cost of preparing
such report to be borne by Borrowers).
(f) Promptly after receipt by Borrowers, copies of any other
independent reserve reports with respect to the Collateral;
(g) Promptly after preparation by Borrowers, copies of any
Internal Reserve Report with respect to the Collateral;
(h) Within ninety (90) days of the close of Borrowers'
fiscal years, an annual operations report, and, within forty-five (45) days of
the close of each fiscal quarter of Borrowers, a quarterly operations statement,
each setting forth for the applicable period the production results of the
Properties on a well-by-well and asset-by-asset basis, and, within ten (10) days
of the end of any calendar month, a report describing the volumes of production
of Hydrocarbons for the most recent month for which information is available and
any other material operating developments and any other information of the type
that would be provided a working interest owner;
(i) Within forty-five (45) days of the end of any of
Borrowers' fiscal quarters, a report listing each Collateral well or Property
and Borrowers' then current decimal ownership interest therein if a change has
occurred during such fiscal quarter;
(j) Borrowers shall deliver to EIF, at least fifteen (15)
days prior to July 1 and January 1 of each calendar year, a Development Plan and
Budget acceptable to EIF in its sole discretion; and
(k) From time to time, such engineering data and other
information regarding the business, affairs, oil and gas properties, and other
assets or financial condition of Borrowers as EIF may reasonably request.
7.4 Existence; Maintenance of Collateral. Borrowers shall
do or cause to be done all things necessary to preserve and keep in full force
and effect their existence, rights and franchises, except when failure to do so
would not have a material adverse effect on Borrowers. Borrowers shall cause
all of the Collateral and their businesses to be maintained and kept, in
accordance with sound field practices, in good condition, repair and working
order and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments, and improvements
thereof.
7.5 Title to Properties. Borrowers shall maintain their good
and marketable title to the Collateral, free and clear of all Liens, except
for Permitted Liens and EIF Liens. Borrowers shall warrant and forever defend
their right, title and interest in and to the Collateral against the claims and
demands of every Person whatsoever claiming or which may claim the same or any
part thereof.
7.6 Mineral Interests. Borrowers shall continuously maintain and
perpetuate all Mineral Interests now owned or hereafter acquired by Borrowers
that are Collateral under this Agreement, in accordance with the best usage and
custom in the industry and in compliance (in all material respects) with
applicable Requirements of Law.
(a) Borrowers shall not (i) permit the surrender,
abandonment, release or termination, in whole or in part, of any Mineral
Interest now owned or hereafter acquired by Borrowers which is Collateral at
such time, unless Borrowers reasonably determine that continuation of such
Mineral Interest would not be economically prudent and gives EIF forty-five (45)
days' notice of such determination, or (ii) enter into any agreement related to,
or any amendment or modification of, any Mineral Interest now owned or hereafter
acquired by Borrower subject to this Agreement, or any operating agreement, unit
agreement, easement, license, franchise, permit or other similar contract or
agreement of any character in respect to title to or operation of such Mineral
Interests, without EIF's consent, which consent will not be unreasonably
withheld.
7.7 Contract Approval. Borrowers shall submit to EIF for its
review and approval at least ten (10) days in advance of the date Borrowers
intend to enter into a contract (including a modification or amendment of any
existing contract), each proposed contract for the sale and/or transportation
of Hydrocarbons produced from the Properties if such contract was not in effect
as of the date of this Agreement and has a term of ninety (90) days or more
("Proposed Hydrocarbon Contracts"). Borrowers shall not enter into any
Proposed Hydrocarbon Contracts that establish pricing and have a term of one
year or more or make deliveries thereunder without obtaining EIF's prior
written approval, which approval shall not be unreasonably withheld if EIF's
security position is not adversely affected thereby.
7.8 Insurance. Borrowers shall acquire and continue to maintain,
with financially sound and reputable insurers, insurance with respect to their
properties and business against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated;
provided, however, that Borrowers shall maintain liability insurance in the
amount of not less than $2,000,000 with a deductible not to exceed $500 per
claim. Borrowers shall furnish or cause to be furnished copies of binders
relating to such insurance to EIF prior to Funding and from time to time a
summary of the insurance coverage of Borrowers in form and substance
satisfactory to EIF and if requested will furnish EIF copies of the
applicable policies. In the case of any fire, accident or other casualty
causing loss or damage to the properties of Borrowers, the proceeds of such
policies shall be used (i) to repair or replace the damaged property, or (ii)
subject to EIF's prior written consent and notwithstanding any restriction on
prepayment, to prepay the Loans without premium or penalty.
7.9 Taxes and Other Claims. Borrowers shall duly pay and
discharge before the same shall become overdue all taxes, assessments and
other governmental charges imposed upon Borrowers and its properties, sales
and activities, or any part thereof, or upon the income or profits therefrom,
or burdening the Properties or Collateral, as well as all claims for labor,
materials, or supplies, including all such claims incurred in connection with
operation of the Properties or Collateral or the drilling of ▇▇▇▇▇ thereon or
the production, storing or marketing of gas or other Hydrocarbons therefrom,
which if unpaid might by law become a lien or charge upon any of its property;
provided, however, that any such tax, assessment, charge, levy or claim need
not be paid if the validity or amount thereof shall currently be contested by
Borrowers in good faith by appropriate proceedings and if Borrowers shall
have set aside on their books adequate reserves with respect thereto; and
provided, further, that Borrowers shall pay all such taxes, assessments,
charges, levies or claims forthwith upon the commencement of proceedings to
foreclose any material lien which may have attached as security therefor.
7.10 Securities Filings. Borrowers shall duly file or cause to
be filed, within the times and within the manner prescribed by law (including
all permitted extensions), all federal and state securities and blue sky
filings that are required to be filed by, or with respect to, Borrowers,
including without limitation all filings required to be made pursuant to the
Securities Exchange Act of 1934. Borrowers shall deliver to EIF copies of
all filings made with the Securities Exchange Commission and any state
securities commission or agency within three (3) days of such filing. If
a filing to be made by Borrowers with the Securities Exchange Commission
or a state securities commission or agency refers to EIF, preliminary
copies of such filing shall be delivered to EIF and to EIF's counsel no
later than two (2) Business Days prior to such filing with a final copy
delivered to EIF at the time of filing. Borrowers shall also deliver to EIF
copies of all press releases at the time of release; unless such release refers
to EIF, in which case advance copies shall be delivered to EIF and to EIF's
counsel no later than two (2) Business Days prior to such release.
7.11 Inspection of Properties and Books. Borrowers shall
permit EIF and its authorized representatives to (a) visit and inspect any of
its properties and to examine their books and records (and to make copies
thereof and extracts therefrom, provided that EIF will use its reasonable
efforts to preserve the confidentiality of any information derived therefrom),
and (b) discuss the affairs, finances and accounts of Borrowers with, and to be
advised as to the same by, the officers of Borrowers, independent accountants,
and independent engineers all at such reasonable times and intervals as EIF may
reasonably request.
7.12 Compliance with Laws, Contracts, Licenses and Permits.
Borrowers shall comply with (i) all Permits and Requirements of Law, (ii) the
provisions of its charter or organizational documents and bylaws operating
agreement, (iii) all agreements and instruments by which they or any of their
properties may be bound, and (iv) all applicable decrees, orders, and
judgments, except in each case where noncompliance would not have a material
adverse effect on the business, assets or financial condition of Borrowers.
If at any time while any Loan or any Note is outstanding, any authorization,
consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that Borrowers may fulfill any of its obligations hereunder, Borrowers shall
immediately take all reasonable steps within their power to obtain such
authorization, consent, approval, permit or license and furnish EIF with
evidence thereof.
7.13 Litigation. Borrowers shall promptly give EIF notice of
all legal or arbitral proceedings, and of all proceedings before any
governmental or regulatory authority or agency, to which either Borrower is
a party or which affects either Borrower and of which either Borrower is
aware, except for proceedings before any governmental or regulatory authority
or agency occurring in the ordinary course of Borrowers' business, and
that would not have a material adverse effect upon either Borrower's business or
the Collateral if determined adversely to such Borrower.
7.14 Further Assurances. Borrowers shall cooperate with EIF
and execute such further instruments and documents as EIF shall reasonably
request to carry out to EIF's satisfaction the transactions contemplated by
this Agreement or the Loan Documents, including, without limitation, curing
any defects in the Loan Documents and executing and delivering to EIF such
further instruments and documents appropriate to further evidence and more
fully describe the Collateral, to correct any omissions in the Loan Documents,
to fully state the security obligations described in this Agreement or the
Loan Documents, to perfect, protect or preserve any EIF Liens created pursuant
to any of the Loan Documents, or to make any recordings, to file any notices,
or to obtain any consents appropriate to carry out the transactions
contemplated by this Agreement or the Loan Documents.
7.15 Notices. Borrowers shall promptly after acquiring knowledge
thereof notify EIF in writing of the occurrence of any Default or Event of
Default and of any material adverse change in the business, assets or
financial condition of either Borrower. If any Person shall give any notice
or take any other action in respect of a claimed default (whether or not
constituting an Event of Default) under this Agreement or any other note,
evidence of indebtedness, indenture or other obligation to which or with
respect to which either Borrower is a party or obligor, whether as principal
or surety, Borrowers shall forthwith give written notice thereof to EIF,
describing the notice or action and the nature of the claimed default.
7.16 Use of Proceeds. Borrowers shall use the proceeds of the
Loans for the purposes set forth in Sections 2.1, 2.2 and 2.3 of this
Agreement. Borrowers shall maintain any funds that have been advanced for
such purposes, but not expended, at a depository institution satisfactory
to EIF and will deliver copies of all invoices for expenditure of such
funds to EIF. Borrowers shall not, without EIF's prior written approval,
make any expenditure of the Development Loan in an amount in excess of
110% of the amount stated in the AFE pertaining to such expenditure
that was approved by EIF.
7.17 Dividends, Distributions and Redemptions. Borrowers
shall not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, or
return any capital or make any other distribution to their stockholders
or members, except to the extent such declaration, payment, purchase,
redemption, acquisition or return is solely between the Borrowers.
7.18 Nature of Business. Borrowers shall not engage in any
business other than oil and gas exploration, development, production,
processing, transportation and marketing, and business activities
ancillary thereto.
7.19 Restrictions on Liens. Borrowers shall not create or
incur, or suffer to be created or incurred or to exist, any Lien (other
than EIF Liens or Permitted Liens) upon any of the Collateral, whether now
owned or hereafter acquired, or upon the proceeds, income or profits therefrom,
and shall pay all vendor payables and other trade payables when due.
7.20 Collateral Sales. Except as set forth in Sections 7.6 and
7.7 of this Agreement, Borrowers shall not sell, lease, assign, transfer or
otherwise dispose of any of the Collateral, except (i) for sales of
Hydrocarbons in the ordinary course of Borrowers' business and (ii) as
otherwise permitted pursuant to the Security Instruments.
7.21 Sale or Discount of Receivables. Borrowers shall not
discount or sell any of their notes receivable or accounts receivable.
7.22 Affiliate Transactions. Borrowers shall not engage in any
transaction with any of their Affiliates, except on terms no less favorable
than are obtainable in arms-length transactions with third parties.
7.23 Financial Covenants.
(a) The ratio of (i) Borrower's total liabilities to (ii)
its shareholders' equity less (A) any portion thereof attributable to preferred
stock with respect to which any sinking fund or redemption payments are required
on or before the termination of the Loans and (B) the amount of all items that
would be treated as intangible assets under generally accepted accounting
principles, shall not exceed 1 to 1.
(b) Until December 31, 1998, the ratio of Borrower's (i)
current assets to (ii) current liabilities, exclusive of any portion of the
Loans that has been classified as current, shall not be less than 1 to 1.
Effective January 1, 1999, Borrowers' current assets shall at all times be
$200,000 more than current liabilities, exclusive of any portion of the Loans
that has been classified as current.
(c) As of the last day of each fiscal quarter starting with
the second calendar quarter of 1998, the ratio of Borrower's (i) net income
before income taxes, plus interest expense, depreciation, depletion, and
amortization and other non-cash expense items used in or provided by operating
activities deducted in determining such net income to (ii) total debt service
expense, shall not be less than 1 to 1. Effective as of the first fiscal
quarter of 1999, the ratio of Borrower's (i) net income before income taxes,
plus interest expense, depreciation, depletion, and amortization and other non-
cash expense items used in or provided by operating activities deducted in
determining such net income to (ii) total debt service expense, shall not be
less than 1.2 to 1.
(d) Borrower shall not incur any additional debt including
operating or financing leases (excluding trade payables incurred in the ordinary
course of business) without the prior written consent of EIF.
(e) For the calendar year 1998, Borrower's exploration
expense and general and administrative overhead expenses will not exceed
$400,000 per fiscal quarter. For the calendar year 1999 and thereafter,
Borrower's general and administrative overhead expenses will not exceed fifteen
percent (15%) of Borrower's net income before income taxes, plus interest
expense, depreciation, depletion, amortization and other non-cash expense items
used in or provided by operating activities , and general and administrative
expenses deducted in determining such net income, calculated on the last day of
each fiscal quarter. For the calendar year 1999 and thereafter, Borrower's
exploration expenses will not exceed 15% of Borrower's net income before income
taxes, plus interest expense, depreciation, depletion, amortization, and other
non-cash expense items used in or provided by operating activities, exploration
expense and general and administrative expenses deducted in determining such net
income, calculated on the last day of each fiscal quarter.
7.24 Key Employee. Borrowers shall continue to employ N. ▇▇▇▇▇▇
▇▇▇▇▇▇ as President of Foreland on a full-time basis with substantially the
same responsibilities as of the date of this Agreement.
7.25 Preliminary Site Assessment Inspection. Borrowers will
comply with the recommendations set out in that certain Preliminary Site
Assessment Inspection report dated December 1997, prepared by WZI Inc. of
Bakersfield, California, by April 1, 1998.
7.26 Environmental Laws Compliance. Borrowers shall:
(a) Comply with all applicable Environmental Laws as they
relate to the Properties and shall maintain and obtain, or cause to be
maintained and obtained, all permits, licenses, and approvals now or hereafter
required under all applicable Environmental Laws as they relate to the
Properties;
(b) Not do or permit anything to be done that will subject
the Properties, Borrowers or EIF to any liability under any applicable
Environmental Laws as they relate to the Properties, assuming disclosure to
governmental authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the Properties;
(c) Promptly notify EIF in writing of any Environmental
Complaint relating to the Properties which is known to Borrowers, or any other
existing, pending, or threatened investigation or inquiry by any governmental
authority relating to the Properties known to Borrowers and in connection with
any applicable Environmental Laws;
(d) Take, or cause to be taken, all steps necessary to
determine that no Hazardous Materials have been: (i) used or stored on, in or
in connection with any Properties that Borrowers acquires with any funds that
Borrowers receive from EIF in accordance with this Agreement, or disposed from
such Properties, or (ii) treated, processed, discharged, or released on, to, in
or from such Properties, except, in each case, in full compliance with all
applicable Environmental Laws;
(e) Not cause or permit: (i) the use or storage of
Hazardous Materials on, in or in any manner in connection with the Properties,
or (ii) the treatment, processing, discharge, or release of any Hazardous
Materials on, to, in or from the Properties, except, in each case, in full
compliance with all applicable Environmental Laws;
(f) Keep, or cause the Properties to be kept, free of any
and all Hazardous Materials, and shall remove the same (or if removal is
prohibited by applicable law, shall take whatever action is required by
applicable law) promptly upon discovery of such Hazardous Materials at
Borrowers' sole cost and expense, except in full compliance with all applicable
Environmental Laws; and
(g) Provide, upon EIF's reasonable request, at any time, and
from time to time inspections, tests and audits of the Properties from an
engineering or consulting firm approved by EIF indicating the presence or
absence of Hazardous Materials on the Properties and compliance with all
applicable Environmental Laws.
7.27 Corporate Name and Address. Neither Borrower shall change
its name or change the address of its principal place of business or executive
office unless it has provided not less than thirty (30) days' prior written
notice to EIF of such change.
7.28 Mergers and Sales of Assets. Without the prior written
approval of EIF, Borrowers shall not merge or consolidate with or into any
other entity unless such Borrower is the surviving entity and no Event of
Default has occurred or will occur as a result of such merger or consolidation.
Borrowers shall not lease, sell or transfer all, or substantially all, of its
property, assets or business to any other Person, or dispose of or sell any
material portion of its assets, property or business, or dispose of any equity
in any subsidiary.
7.29 Change of Control. Borrowers shall utilize their best
efforts to not permit a Change of Control to occur and shall notify EIF within
five (5) business days of obtaining information that a Change in Control may
occur or is contemplated by any Person.
7.30 Operation of Assets. Borrowers shall operate, or (if
Borrowers are not the operator thereof) shall use its best efforts to cause
the operator thereof to operate, the Properties and all ▇▇▇▇▇ hereafter drilled
upon or affecting the Properties continuously, in good and workmanlike manner,
in accordance with the best usages of operators of leases in the area where
the Properties are located and in accordance with the rules and regulations
of all Requirements of Law.
7.31 Borrower as Operator. Borrowers shall use their best efforts
to become and remain the operator of the New Properties.
7.32 ERISA Compliance. Borrowers will make, and, if reasonably
within its control, will cause each ERISA Affiliate to make, all payments or
contributions to the Employee Benefit Plans and Multiemployer Plans required
under the terms thereof and in accordance with the funding requirements
applicable to such plans under ERISA and the Code and applicable collective
bargaining agreements. Borrowers will cause all Employee Benefit Plans that
they sponsor, and, if reasonably within their control, will cause each ERISA
Affiliate to cause all Employee Benefit Plans that such ERISA Affiliate
sponsors, to be maintained in substantial compliance with ERISA and the Code
and, if applicable, to maintain the qualified status of each Employee Benefit
Plan under the Code. Borrowers will not engage, and, if reasonably within
their control, will not permit or suffer any ERISA Affiliate or fiduciary of
any Employee Benefit Plan to engage, in any Prohibited Transaction for which
an exemption is not available and that is likely to give rise to liability to
Borrowers or any ERISA Affiliates.
(a) Borrowers will notify EIF promptly of any Reportable
Event or Termination Event or any partial or complete withdrawal from any
Multiemployer Plan that may result in any Withdrawal Liability of Borrowers or
any ERISA Affiliate or upon learning of any insolvency, reorganization status,
or termination of a Multiemployer Plan that may result in liability of Borrowers
or any ERISA Affiliate, together with the actions proposed to be taken by
Borrowers or any ERISA Affiliate. Borrowers will furnish to EIF a copy of any
request for waiver of the minimum funding standards required by ERISA or the
Code promptly after submission thereof to a governmental authority.
(b) Borrowers covenant and agree with EIF that, so long as
this Agreement shall remain in effect, unless EIF otherwise consents in writing,
which consent shall not be unreasonably withheld, Borrowers will not:
(i) Cause any Employee Benefit Plan to become subject to
Title IV or Section 302 of ERISA or Section 412 of the Code, except those plans
to which those sections apply as of the date of this Agreement;
(ii) Adopt any new plan, fund, or other arrangement that
would be subject to Title IV or Section 302 of ERISA or Section 412 of the Code;
or
(iii) Adopt or incur any new obligation to contribute to
any Multiemployer Plan.
7.33 Additional Information. For so long as the Loans remain
outstanding, Borrowers shall permit EIF to substantially participate in, and
influence the conduct of, management of Borrowers through the exercise of any
and all of the following rights (provided, however, that EIF shall have no right
to direct the management of Borrowers):
(a) promptly provide to EIF such information as EIF shall
reasonably request regarding Borrowers' business, financial condition and
prospects;
(b) if EIF reasonably believes that financial or other
developments affecting Borrowers have impaired or are likely to impair
Borrowers' ability to perform their obligations under this Agreement, permit
EIF, upon request, reasonable access to Borrowers' management and/or Board of
Directors to present its views with respect to such developments;
(c) provide to EIF the financial information required in
Section 7.3 of this Agreement; and
(d) permit EIF to make the examinations and inspections of
properties, books and records, and to consult with Borrower's officers, as
required in Section 7.11 of this Agreement.
7.34 No Loans or Guarantees to Officers, Directors, Managers or
Shareholders/Partners. Borrowers shall not, directly or indirectly, make any
guarantee, loan, advance, extension of credit, commitment to fund, or
commitment to satisfy in any way, any debt, liability, or other obligation
to any Person (except for the other Borrower), including its officers,
directors, managers, employees, shareholders, partners or any Affiliate of
such person, including, without limitation (a) an obligation to any bank under
any letter of credit, (b) an obligation to maintain working capital or equity
capital of the business other than the initial investment, or (c) an obligation
to otherwise maintain the net worth or solvency of the business, with respect
to any business in which Borrowers are engaged other than the business
described in Section 7.18 of this Agreement. Neither Borrower shall make any
repayment on any Indebtedness owed to any of their respective Affiliates, or any
shareholder, member, officer, director, manager or Affiliate of such person,
except that repayment may be made to the individuals set forth on Schedule 5.22
for the amounts set forth on such schedule.
7.35 Bonuses. Borrowers may pay bonuses to executive officers,
general partners or managers or materially change the current compensation
arrangements so long as Borrowers are in compliance with the terms of
Section 7.23 of this Agreement.
7.36 G&A Budget. On or before March 1 of each year, Borrowers
shall submit an annual General and Administrative Budget to EIF that includes
the salaries of each officer and significant employee, together with all
consulting fees and arrangements, all of which shall be approved by EIF.
Failure to (i) comply with such budget, or (ii) submit to EIF for approval,
shall constitute an Event of Default pursuant to this Agreement. Borrowers
shall not use proceeds of any Loan to pay any salaries, consulting fees or
other arrangements, unless such proceeds are specifically allocated to such
purpose in the AFE.
7.37 Foreclosure. After an Event of Default, Borrowers agree
that they will not attempt in any way to hinder or interfere with the exercise
of the power of sale granted in any of the Security Instruments, including
without limitation the filing of a lis pendens, the initiation of any lawsuit
or the requesting of injunctive relief from any court or tribunal, or any
other action which would have the effect of hindering or delaying the
exercise by EIF of any right or remedy under this Agreement or any Security
Instrument, and Borrowers shall execute and deliver to EIF any instrument
reasonably requested by EIF and prepared at their expense, which is necessary
to fully vest title to the Properties in EIF or the purchaser(s) of all or
part of the Properties pursuant to any sale as provided for in the
Security Instruments.
7.38 Updates to Purchasers of Production Information. Borrowers
shall notify EIF in writing and within thirty (30) days of any changes to the
information provided in Section 6.2(k) of this Agreement.
7.39 Warrants. If equity securities in Eagle Springs, or any
successor thereto, are registered pursuant to the Securities Act of 1933
and/or pursuant to section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") (a "Public Company"), Borrowers shall, if EIF so elects,
cause such Public Company to issue warrants to EIF within thirty (30) days
of such election with substantially similar terms and conditions as Warrant
No. 1 and Warrant No. 2 (the "Eagle Springs Warrants") and upon issuance of the
Eagle Springs Warrants, EIF will deliver Warrant No. 1 and Warrant No. 2 to
Foreland for cancellation.
If, during the term of the Warrant No. 1, Foreland issues additional
shares of common stock at a price of less than Six Dollars ($6) per share,
Foreland shall deliver to EIF within five (5) days of such issuance an
additional warrant in the form of Warrant No. 1 for common stock of Foreland
equal to ten percent (10%) of the shares so issued. If Foreland issues
securities convertible or exercisable into common stock of Foreland at a
conversion or exercise price of less than Six Dollars ($6) per share and such
securities are converted or exercised into common stock or repurchased by
Foreland during the term of Warrant No. 1, Foreland shall deliver to EIF within
five (5) days of such conversion or exercise an additional warrant in the form
of Warrant No. 1 for common stock of Foreland equal to ten percent (10%) of the
shares issued pursuant to such conversion or exercise. If, during the term of
Warrant No. 2, Foreland issues additional shares of common stock at a price
between Six Dollars ($6) and Ten Dollars ($10) per share (inclusive), Foreland
shall deliver to EIF within five (5) days of such issuance an additional warrant
in the form of Warrant No. 2 for common stock of Foreland equal to ten percent
(10%) of the shares so issued. If Foreland issues securities convertible or
exercisable into common stock of Foreland at a conversion or exercise price
between Six Dollars ($6) and Ten Dollars ($10) per share (inclusive) and such
securities are converted or exercised into common stock or repurchased by
Foreland during the term of Warrant No. 2, Foreland shall deliver to EIF within
five (5) days of such conversion or exercise an additional warrant in the form
of Warrant No. 2 for common stock of Foreland equal to ten percent (10%) of the
shares issued pursuant to such conversion or exercise. The foregoing provisions
of this paragraph shall not apply to securities issued pursuant to options,
warrants, calls, subscriptions, rights, agreements or commitments set forth on
Schedule 5.23.
If, during the term of the Warrants, Foreland (i) issues additional
shares of common stock at a price of Three Dollars Seventy-Five Cents ($3.75)
per share or less, or (ii) issues securities convertible or exercisable into
common stock of Foreland at a conversion or exercise price of Three Dollars
Seventy-Five Cents ($3.75) per share or less and such securities are converted
or exercised into common stock or repurchased by Foreland during the term of the
Warrants, the provisions of the second paragraph of this Section shall not
apply. In such instance, Foreland shall deliver to EIF within five (5) days of
such issuance of common stock or conversion or exercise of the convertible or
exercisable security, a warrant in the form of Warrant No. 1 and Warrant No. 2
for the number of shares represented by Warrant No. 1 and Warrant No. 2 on such
issuance date at an exercise price equal to the sales, conversion price or
exercise of such issuance. Upon issuance thereof, EIF will deliver Warrant No.
1 and Warrant No. 2 to Foreland for cancellation. Further, the foregoing
provisions of this Section shall not apply: (1) if Foreland issues additional
securities, the proceeds of which, either partially or in full, are used to
repay the Loans in full within thirty (30) days, or (ii) if Foreland issues
equity securities in one offering with net proceeds to Foreland of Twenty
Million Dollars ($20,000,000) or more.
ARTICLE 8
EVENTS OF DEFAULT; ACCELERATION
8.1 If any of the following events (an "Event of Default," or, if
the giving of notice or the lapse of time or both is required, then, prior to
such notice and/or lapse of time, a "Default") shall occur:
(a) Borrowers shall fail to make any payment of principal or
interest on any Loan within five (5) Business Days after the date that such
payment is due;
(b) Borrowers shall fail to pay any fees, overriding royalty
payments or other sums due hereunder or under any Loan Document within ten (10)
days after the date that any such payment is due;
(c) Borrowers shall fail to either (i) make a prepayment to
EIF, or (ii) grant and convey to EIF additional collateral, in compliance with
the terms of Section 2.14 of this Agreement within the time period on which
Section 2.14 requires Borrowers to take such action;
(d) Borrowers shall fail to perform any other term, covenant
or agreement contained herein or in any Loan Document and such failure shall
continue for thirty (30) days after written notice of such failure has been
given to Borrower by EIF;
(e) An event of default entitling EIF to accelerate any
other loan from EIF to Borrower shall occur;
(f) Any representation or warranty of Borrowers in this
Agreement or in any document or instrument delivered pursuant to or in
connection with this Agreement or any other Loan Document shall prove to have
been false in any material respect upon the date when made;
(g) Either Borrower shall default in the payment of any
principal of or interest on any Indebtedness aggregating $25,000 or more beyond
any period of grace provided with respect thereto unless the validity or amount
of such Indebtedness shall currently be contested by such Borrowers in good
faith by appropriate proceedings and unless such Borrower shall have set aside
on its books adequate reserves with respect thereto; or any other event shall
occur which is specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness if the effect of such event is
to cause or to permit the holder or holders of such Indebtedness to cause
(assuming the giving of any notice and the lapse of any time period commencing
on the giving of notice) such Indebtedness to become due prior to its stated
maturity;
(h) Either Borrower shall: (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property; (ii) be
generally unable to pay its debts as such debts become due; (iii) make a general
assignment for the benefit of its creditors; (iv) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect); (v)
file a petition seeking to take advantage of any other law of any jurisdiction
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or readjustment of debts; (vi) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against such Borrower in
an involuntary case under the United States Bankruptcy Code; or (vii) take any
action for the purpose of effecting any of the foregoing;
(i) A proceeding or case shall be commenced, without the
application or consent of Borrowers, in any court of competent jurisdiction,
seeking (i) either Borrower's liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of either
Borrower or of all or any substantial part of such Borrower's assets, or (iii)
similar relief in respect of such Borrower under any law of any jurisdiction
relating to bankruptcy, insolvency, reorganization, winding-up, or the
composition or readjustment of its debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect for a
period of sixty (60) days; or an order for relief against either Borrower shall
be entered in an involuntary case under any bankruptcy, insolvency,
reorganization, winding-up, composition, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction; or
(j) A Change of Control of either Borrower shall occur;
(k) There shall remain in force, undischarged, unsatisfied
or unstayed, for more than sixty (60) days, any final judgment against either
Borrower that, with other outstanding final judgments, undischarged, against
Borrower exceeds in the aggregate $25,000;
(l) Any breach of a representation, warranty, or covenant
contained herein regarding any Employee Benefit Plan that, in the opinion of
EIF, could subject either Borrower to any material tax, penalty or other
liability; any Employee Benefit Plan or Multiemployer Plan shall fail to
maintain the minimum funding standard required for any plan year or part thereof
or extension of any amortization period is sought or granted under Section 412
of the Code; any Employee Benefit Plan or Multiemployer Plan is, shall have
been, or is likely to be terminated or the subject of termination proceedings
under ERISA; any Prohibited Transaction shall occur involving any Employee
Benefit Plan; any Termination Event shall occur with respect to any Employee
Benefit Plan; any Employee Benefit Plan shall have an Unfunded Current
Liability; provided that there shall result from any such event or events the
imposition of a lien upon the assets of either Borrower or any ERISA Affiliate,
the granting of a security interest, or a liability or a material risk of
incurring a liability to the PBGC or a Multiemployer Plan or an Employee Benefit
Plan or a trustee appointed under ERISA or a penalty under Section 4971 of the
Code (or any combination thereof), which, in the opinion of EIF, will have a
material adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of either Borrower or any ERISA Affiliate.
Then, and in any such event, so long as the same may be continuing, EIF may, by
notice in writing to Borrowers, declare all amounts owing with respect to this
Agreement and the Notes to be, and they shall thereupon forthwith become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by Borrowers; provided
that in the event of any Event of Default specified in paragraphs (h) and (i)
hereof, all such amounts shall become immediately due and payable automatically
and without any requirement of notice from EIF. In addition, upon the
occurrence of an Event of Default, EIF may exercise any of its rights and
remedies under any of the Security Instruments.
ARTICLE 9
INDEMNIFICATION
9.1 Environmental Indemnity. Borrowers shall indemnify, defend,
and hold harmless EIF, its Affiliates, and their respective directors, officers,
shareholders, partners, employees, consultants and agents (herein individually
called an "Indemnified Party," and collectively called "Indemnified Parties")
from and against, and shall reimburse and pay Indemnified Parties with respect
to, any and all claims, demands, liabilities, losses, damages (including without
limitation actual, consequential, exemplary and punitive damages), causes of
action, judgments, penalties, fees, costs and expenses (including without
limitation attorneys' fees, court costs and legal expenses and consultant's and
expert's fees and expenses) of any and every kind or character, known or
unknown, fixed or contingent, that may be imposed upon, asserted against, or
incurred or paid by or on behalf of any Indemnified Party on account of, in
connection with, or arising out of (a) the breach of any representation or
warranty of Borrowers relating to Environmental Laws or Hazardous Materials, or
(b) the failure of Borrowers to perform any agreement, covenant or obligation
required to be performed by Borrowers relating to Environmental Laws or
Hazardous Materials, (c) any violation of or failure to comply with any
Environmental Law now existing or hereafter occurring, (d) the removal of
Hazardous Materials from the Properties (or if removal is prohibited by law, the
taking of whatever action is required by law), (e) any act, omission, event or
circumstance existing or occurring or resulting from or in connection with the
ownership, construction, occupancy, operation, use or maintenance of the
Properties, regardless of whether the act, omission, event or circumstance
constituted a violation of or failure to comply with any Environmental Law at
the time of its existence or occurrence, and (f) any and all claims or
proceedings (whether brought by private party or governmental agency) for bodily
injury, property damage, abatement or remediation, environmental damage, or
impairment or any other injury or damage resulting from or relating to any
Hazardous Material located upon or migrating into, on, from or through the
Properties (whether or not any or all of the foregoing was caused by Borrowers,
a prior owner of the Properties, an operator or prior operator of the
Properties, their respective tenants or subtenants, or any third party and
whether or not the alleged liability is attributable to the handling, storage,
use, treatment, processing, distribution, manufacture, generation, discharge,
transportation or disposal of such Hazardous Material or the mere presence of
such Hazardous Material on the Properties). Without limiting the generality of
the foregoing, it is the intention of Borrowers and Borrowers agree that the
foregoing indemnities shall apply to each Indemnified Party with respect to
claims, demands, liabilities, losses, damages (including without limitation
actual, consequential, exemplary and punitive damages), causes of action,
judgments, penalties, fees, costs, court costs and legal expenses and
consultant's and expert's fees and expenses, of any kind or character, known or
unknown, fixed or contingent, that in whole or in part are caused by or arise
out of the negligence of such Indemnified Party; however, such indemnities shall
not apply to any Indemnified Party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such Indemnified Party. The foregoing indemnities shall be
perpetual and shall survive the payment or satisfaction of the Loans and the
release, foreclosure or other termination of the Security Instruments. Any
amount to be paid hereunder by Borrowers to EIF or for which Borrowers have
indemnified an Indemnified Party shall be a demand obligation owing by Borrower
to EIF and shall bear interest at the Default Rate until paid, and shall
constitute a part of the obligations of Borrowers under this Agreement and shall
be indebtedness evidenced by this Agreement and secured by the Security
Instruments.
9.2 GENERAL INDEMNITY. BORROWERS AGREE TO INDEMNIFY EIF UPON
DEMAND, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS
(INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS)
OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED
"LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE
IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST EIF GROWING OUT OF, RESULTING
FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN
DOCUMENTS, OR THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR
DEFENSE THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES
AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY
ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY EIF, PROVIDED ONLY THAT EIF
SHALL NOT BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION FOR THAT
PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY CAUSED BY ITS
OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL
JUDGMENT. IF ANY PERSON (INCLUDING BORROWERS OR ANY OF THEIR AFFILIATES) EVER
ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY EIF, THE INDEMNIFICATION
PROVIDED FOR IN THIS SECTION SHALL NONETHELESS BE PAID UPON DEMAND, SUBJECT TO
LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS A COURT OF COMPETENT
JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF THE ALLEGED
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY AMOUNT TO BE PAID HEREUNDER BY
BORROWERS TO EIF, OR FOR WHICH BORROWERS HAVE INDEMNIFIED AN INDEMNIFIED PARTY,
SHALL BE A DEMAND OBLIGATION OWING BY BORROWERS TO EIF AND SHALL BEAR INTEREST
AT THE DEFAULT RATE UNTIL PAID, AND SHALL CONSTITUTE A PART OF THE OBLIGATIONS
OF BORROWERS UNDER THIS AGREEMENT AND SHALL BE INDEBTEDNESS EVIDENCED BY THIS
AGREEMENT AND SECURED BY THE SECURITY INSTRUMENTS. AS USED IN THIS SECTION THE
TERM "EIF" SHALL REFER NOT ONLY TO THE PERSON DESIGNATED AS SUCH IN THIS SECTION
BUT ALSO TO EACH DIRECTOR, OFFICER, PARTNER, AGENT, ATTORNEY, EMPLOYEE,
REPRESENTATIVE AND AFFILIATE OF SUCH PERSON.
ARTICLE 10
EXPENSES
10.1 Upon written request of EIF, Borrowers shall pay all
reasonable costs and expenses incurred in connection with (i) EIF's due
diligence review, and (ii) the preparation, execution and delivery,
administration, amendment, and enforcement of this Agreement, the Notes, the
Loan Documents, the Security Instruments, and any agreements or documents
prepared in connection therewith, including but not limited to the reasonable
fees and out-of-pocket expenses of EIF's attorneys and engineers.
ARTICLE 11
NOTICES; MISCELLANEOUS
11.1 Notices. All notices and other communications made or
required to be given pursuant to this Agreement or the Notes shall be in
writing and shall be deemed given if delivered personally or by facsimile
transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or mailed by registered
or certified mail (return receipt requested), postage prepaid, to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall
be effective only upon receipt thereof):
(i) To Borrowers, as follows:
Foreland Corporation
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: N. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) To EIF:
Energy Income Fund, L.P.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Copies of all notices other than reports or other routine
communications shall be delivered to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Any notice hereunder delivered in person or by facsimile (if receipt
is confirmed by the facsimile operator of the recipient) shall be deemed given
on the date thereof, any notice by registered or certified mail shall be deemed
given three days after the date of mailing; and any notice by overnight courier
shall be deemed given two days after shipment or the date of receipt, whichever
is earlier.
11.2 Miscellaneous.
(a) ENTIRE AGREEMENTAGREEMENT. THIS AGREEMENT SUPERSEDES
ALL PRIOR AGREEMENTS BETWEEN THE PARTIES (WRITTEN OR ORAL) AND IS INTENDED AS
A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS OF THE AGREEMENT BETWEEN THE
PARTIES. THIS AGREEMENT MAY BE AMENDED OR MODIFIED ONLY BY A WRITTEN
INSTRUMENT DULY EXECUTED BY THE PARTIES.
(b) GOVERNING LAW. THIS AGREEMENT AND THE NOTES ARE
CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND TOGETHER
WITH ALL MATTERS ARISING UNDER OR GROWING OUT OF THIS AGREEMENT OR THE
NOTES SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO ITS PRINCIPLES OF
CONFLICTS OF LAWS, EXCEPT AS TO ENFORCEMENT OF THE SECURITY INSTRUMENTS. IN
ADDITION, EXCEPT AS TO THE VALIDITY AND ENFORCEMENT OF THE SECURITY INSTRUMENTS:
BORROWERS AND EIF AGREE THAT THE TRANSACTIONS CONTEMPLATED HEREBY
("TRANSACTIONS") BEAR A REASONABLE RELATIONSHIP TO THE COMMONWEALTH OF
MASSACHUSETTS AND THAT THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS GOVERNS (I)
ISSUES RELATING TO THE TRANSACTIONS, INCLUDING THE VALIDITY AND ENFORCEABILITY
OF AN AGREEMENT RELATING TO SUCH TRANSACTIONS OR A PROVISION OF AN AGREEMENT,
AND (II) THE INTERPRETATION OR CONSTRUCTION OF AN AGREEMENT RELATING TO THE
TRANSACTIONS OR A PROVISION OF AN AGREEMENT.
(c) Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) Parties in Interest. All the terms of this Agreement
and the Notes shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns;
provided, that Borrowers may not assign or transfer their rights hereunder
without the express prior written consent of EIF.
(e) No Third Party Beneficiaries. Except as expressly
provided herein, nothing in this Agreement shall entitle any person other than
Borrowers or EIF or their respective successors and assigns permitted hereby
to any claim, cause of action, remedy or right of any kind.
(f) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement in such or any other jurisdiction, so
long as the purposes of this Agreement can still be accomplished in the manner
anticipated by Borrowers and EIF, or Borrowers and EIF can agree to an
acceptable modification to this Agreement. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, no one of which needs to be executed by both parties,
and this Agreement shall be binding upon both parties with the same force and
effect as if both parties had signed the same document, and each such signed
counterpart shall constitute an original of this Agreement.
(h) Renewal, Extension or Rearrangement. All provisions
of this Agreement and of any Security Instruments relating to the Notes or
Loans shall apply with equal force and effect to each and all promissory notes
hereinafter executed that in whole or in part represent a renewal, extension
for any period, increase or rearrangement of any part of the Loans originally
represented by the Notes or of any part of such other Indebtedness.
(i) Cumulative Rights. The rights and remedies of EIF
under the Notes, this Agreement, each Security Instrument and each other Loan
Document shall be cumulative, and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any
other right or remedy.
(j) Consents, Amendments, Waivers, Etc. Except as
otherwise expressly provided in this Agreement, any consent or approval
required or permitted by this Agreement to be given by EIF may be given,
and any term of this Agreement or of any other instrument related hereto
or mentioned herein may be amended, and the performance or observance by
Borrowers of any terms of this Agreement or such other instrument or the
continuance of any Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or prospectively) with, but
only with, the express written consent of EIF. No waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of EIF in
exercising any right shall operate as a waiver thereof or otherwise be
prejudicial thereto. No notice to or demand upon Borrowers shall entitle
Borrowers to other or further notice or demand in similar or other
circumstances.
(k) Jurisdiction. Any judicial proceeding brought
against any of the parties hereto, with respect to this Agreement, may
be brought in any court of competent jurisdiction in the Commonwealth of
Massachusetts, irrespective of where such party may be located at the time of
such proceeding, and by execution and delivery of this Agreement, each of the
parties hereto hereby consents to the jurisdiction of any such court and waives
any defense or opposition to such jurisdiction.
(l) WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH
PARTY HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS
OR ANY TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR
AFTER MATURITY OF THE LOANS; (b) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
(m) Agent for Servicefor Service. Borrowers hereby
appoint CT Corporation as their agent to receive on their behalf service of
process in connection with this Agreement in the Commonwealth of Massachusetts
and shall pay any and all fees required by CT Corporation to act in such
capacity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement under
seal as of the date first set forth above.
FORELAND CORPORATION
By /s/ N. ▇▇▇▇▇▇ ▇▇▇▇▇▇
N. ▇▇▇▇▇▇ ▇▇▇▇▇▇
President
EAGLE SPRINGS PRODUCTION LIMITED-LIABILITY
COMPANY
By /s/ N. ▇▇▇▇▇▇ ▇▇▇▇▇▇
N. ▇▇▇▇▇▇ ▇▇▇▇▇▇
Manager
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
A Managing Director
EXHIBITS
Exhibit A Description of Existing Properties
Exhibit B Description of New Properties
Exhibit C Description of Permitted Liens
Exhibit D Form of Escrow Agreement
Exhibit E Form of Refinancing Note
Exhibit F Form of Development Note
Exhibit G Form of Acquisition Note
Exhibit H Form of letter in lieu of transfer order
Exhibit I Form of opinion of Borrower's counsel
Exhibit J Form of Officer's Certificate and Financial Covenants
Calculations
Exhibit K Form of Warrant
Exhibit L Form of Request for Escrow Disbursement
SCHEDULES
Schedule 5.4 Description of litigation
Schedule 5.6 Description of consents, approvals, etc. required by law
Schedule 5.8(b) Description of defects and encumbrances to Borrower's title
to the Collateral
Schedule 5.10 Description of Employee Benefit Plans
Schedule 5.11(a) Description of Past Environmental Liabilities
Schedule 5.21 Description of Hydrocarbon contracts, balancing rights, and
balancing duties to which the Collateral is subject
Schedule 5.22 Description of Indebtedness to Shareholders, Members,
Officers, Directors, Managers or Affiliates
Schedule 5.23 Description of capital structure of Borrower