OPTION AND PURCHASE
AGREEMENT
THIS OPTION AND PURCHASE AGREEMENT (hereinafter referred to as this
"Agreement") is entered into effective as of the 31st day of December, 1997, by
and between FORELAND CORPORATION, a Nevada corporation (hereinafter "Foreland")
on the one hand, and PETRO SOURCE CORPORATION, a Utah corporation, PETRO SOURCE
REFINING CORPORATION, a Utah corporation, and PETROSOURCE TRANSPORTATION, a Utah
corporation, on the other (collectively, "PSC"), based on the following:
PREMISES
A. Among other things, PSC is engaged in the business of refining,
processing, and transporting crude and refined hydrocarbons and associated
products and desires to grant an option for the sale of and, if exercised, to
sell, as a going concern, substantially all of its assets and operations
associated with a crude oil refinery/asphalt manufacturing plant located in
Nevada, known as the Eagle Springs Refinery; a crude oil and/or transmix
refinery facility producing primarily diesel fuel, residual fuel oil, and/or
gasoline located in Tonopah, Nevada; a common carrier trucking operation
conducted under the name "Petrosource Transportation," consisting of truck
tractors and specialized combination trailers for hauling crude oil and refinery
products; and a roofing asphalt blower and associated equipment currently
located at Fredonia, Arizona, all as more particularly described in this
Agreement.
B. Foreland desires to obtain an option to purchase and, if it elects to
exercise such option, to acquire through a wholly owned subsidiary to be
organized for such purpose, Foreland Refining Corporation, the assets of PSC
described above for the agreed consideration and on the terms and conditions set
forth in this Agreement, and to continue to operate the businesses acquired.
AGREEMENT
NOW, THEREFORE, based on the stated premises, which are incorporated
herein by reference, and for and in consideration of the mutual covenants and
agreements hereinafter set forth and the mutual benefit to the parties to be
derived herefrom, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
In this Agreement, the following terms have the meanings specified or
referred to in this Article I. Such definitions shall be equally applicable to
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"Assumed Obligations" means the obligations under the contracts, leases,
and agreements which are assumed by Foreland, all as more particularly
described in Section 3.03.
"Business" means the business, operations, and the Business Assets and
Assumed Obligations, including the tangible and intangible real and
personal property owned or leased by PSC and
used in connection with the Business Assets, excluding, however, the
Excluded Assets, all as more particularly described in Section 3.01.
"Business Assets" means the tangible and intangible real and personal
assets of the Business as more particularly described in Section 3.01.
"Business Executive" means management and executive level salaried
employees of PSC engaged for all or substantially all of their working time
in the management and operation of the Business.
"Closing" has the meaning set forth in Section 3.07.
"Closing Date" has the meaning set forth in Section 3.07.
"Closing Exhibits" means the updated PSC Exhibits delivered by PSC at or
prior to the Closing.
"Closing Schedules" means the updated PSC Schedules delivered by PSC at or
prior to the Closing.
"Due Diligence Period" means the 30 days after the date of delivery of the
PSC Exhibits and PSC Schedules during which Foreland may inspect such PSC
Exhibits and PSC Schedules.
"EBITDA" means earnings before interest, taxes, depreciation, and
amortization, as determined in accordance with GAAP, applied consistently
with the financial statements of the Business included in the PSC
Schedules, all as determined in accordance with the calculation methodology
contained in Appendix "A," initialed by the parties for identification,
attached hereto, and incorporated herein by reference.
"Effective Time" has the meaning set forth in Section 3.08.
"Environmental Laws" means the federal, state, and local laws and
regulations governing the generation, marketing, refining, recycling,
treatment, handling, use, storage, transportation, disposal, and cleanup of
hazardous, radioactive, reactive, flammable, infectious, toxic, or
dangerous materials or the protection of public health or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980; the Resource Conservation and
Recovery Act of 1976; the Toxic Substances Control Act; the Clean Air Act,
the Federal Water Pollution Control Act; the Safe Drinking Water Act; the
Hazardous Material Transportation Act; the Federal Insecticide, Fungicide,
Rodentcide Act; the Occupational Safety and Health Act; and any similar
state or local law, regulation, or ordinance and all permits and regulatory
approvals issued thereunder.
"ES Production" means Eagle Springs Production Limited Liability Company, a
Nevada limited liability company and a wholly owned subsidiary of Foreland.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the regulations promulgated thereunder.
"Exercise Date" means the date of exercise of the Option granted pursuant
to this Agreement as set forth in Section 2.04.
"Exercise Period" has the meaning set forth in Section 2.03.
"Exercise Period Quarter" means the successive calendar quarters ending on
March 15, June 15, September 15, and December 15, 1998.
"Foreland Stock" means shares of common stock of Foreland, par value $0.001
per share.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Option Consideration" has the meaning set forth in Section 2.02.
"Option Period" means the period starting with the date of this Agreement
and ending at 11:59 p.m., Mountain Time, December 31, 1998, or at the end
of any Exercise Period Quarter with respect to which Foreland has not
fulfilled its obligations as set forth in Article II.
"Option Shares" has the meaning set forth in Section 2.02.
"PSC Exhibits" means the documents describing in detail the items more
generally described in Article III.
"PSC Schedules" means the disclosures as set forth in Section 2.07.
"Purchase Price" has the meaning set forth in Section 3.05.
"Refining" means Foreland Refining Corporation, a corporation to be
organized by, and as a subsidiary of, Foreland for the purpose of
purchasing the Business and Business Assets.
"Registration Statement" means a registration statement filed under the
provisions of the Securities Act as provided in Section 2.02.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations promulgated thereunder.
"Shares" means either or both the Option Shares or Purchase Shares, as the
case may be.
ARTICLE II
OPTION TO PURCHASE
Section 2.01 Grant of Option. For and in consideration of the Crude Oil
Purchase Agreement entered into this date by and between PSC and Foreland, the
Option Consideration as set forth in Section 2.02, and the benefits to the
parties arising under this Agreement, PSC hereby grants to Foreland the
irrevocable right and option (the "Option"), exercisable at any time during the
Exercise Period set forth in Section 2.03, to purchase the Business and Business
Assets for the Purchase Price set forth in Section 3.05.
Section 2.02 Option Consideration. In consideration of the Option
granted by PSC pursuant to this Agreement, Foreland agrees to pay to PSC an
aggregate of $520,000 (the "Option Consideration") as follows:
(a) On or before January 15, 1998, Foreland shall deliver to Petro
Source Refining Corporation ("PSRC"), an aggregate of 130,000 shares (the
"Option Shares") of Foreland Stock, which shall be registered in the name
of PSRC, but held and disposed of in accordance with the terms and
conditions hereof.
(b) At the earliest practicable date, Foreland shall file, at its
sole cost, and utilize its best efforts to obtain the effectiveness of, by
acceleration, the Registration Statement on such form as Foreland may
select under the Securities Act covering the resale of the Option Shares by
and for the account of PSRC, which shall be named as a selling shareholder
in the Registration Statement, all as more particularly set forth in
Article IX hereof. Foreland shall utilize its best efforts to obtain the
effectiveness of the Registration Statement at the earliest practicable
date and to maintain its effectiveness throughout the Exercise Period.
(c) On or before the expiration of each Exercise Period Quarter,
Foreland may pay the $130,000 Option Consideration installment for such
quarter in immediately available funds by wire transfer to PSC at the
following account:
Bank of America NT&SA, Concord, CA
ABA no. 000000000
Petro Source Refining Corporation Account
Account no. 12331-15325 Reference Co. 80
(d) If Foreland elects not to pay the $130,000 in cash in accordance
with the provisions of paragraph (c) above on or before the end of any
Exercise Period Quarter, and the Registration Statement is then effective,
PSC may cause to be sold, at any time and from time-to-time and in
accordance with the Registration Statement, that number of Option Shares
that yields proceeds, net of brokerage and other usual and customary
transaction costs, the amount of $130,000 as payment in full of the Option
Consideration installment for such Exercise Period Quarter.
(e) If (i) the Registration Statement is not effective on or before
the date on which PSC would be able to cause Option Shares to be sold
thereunder but for its lack of effectiveness, or (ii) insufficient Option
Shares are held by PSRC such that the net proceeds therefrom would not
equal $130,000, PSRC may demand that Foreland pay in cash the $130,000
Option Consideration installment for that quarter, in which case Foreland
shall pay such amount in cash in immediately available funds within five
days after such demand, and the Option Shares attributable to such quarter
shall be returned to Foreland.
(f) If at the end of the Option Period any Option Shares remain
unsold, such shares shall be returned to Foreland for cancellation. If
Option Shares have been sold for net proceeds in excess of the Option
Consideration due to PSC under the terms of this Agreement, such excess
proceeds shall also be delivered to Foreland.
Section 2.03 Exercise Period. The Option may be exercised at any time on
or before December 31, 1998, provided that as of the date of exercise all Option
Consideration required to have been paid as of such date in accordance with the
requirements of Section 2.02 has been paid in full.
Section 2.04 Manner of Exercise. The Option shall be exercised by notice
thereof from Foreland to PSC in the manner for giving notices as hereinafter
provided. The Exercise Date shall be the date such notice shall be deemed to be
given in accordance with Section 13.02.
Section 2.05 Effect of Exercise. On the timely exercise of the Option by
Foreland, this Agreement shall become a binding, bilateral agreement between PSC
and Foreland or, at Foreland's election, Refining, for the sale and purchase of
the Business and Business Assets on the terms and conditions hereinafter set
forth.
Section 2.06 Access and Information; Noncompetition. During the Option
Period:
(a) PSC shall (i) afford Foreland and its respective officers,
directors, partners, managers, members, employees, accountants,
consultants, legal counsel, agents, and other representatives
(collectively, the "Foreland Representatives") reasonable access at
reasonable times, upon reasonable prior notice, to the Business and
Business Assets and the officers, directors, employees, agents, offices and
facilities of PSC and to the books and records relating to such Business
and Business Assets; and (ii) furnish promptly to Foreland and the Foreland
Representatives such information concerning the business, properties,
contracts, records, and personnel of the Business and Business Assets and
PSC insofar as related to the Business and Business Assets (including
financial, operating and other data and information) as may be reasonably
requested, from time to time, by any Foreland or such Foreland
Representatives.
(b) PSC grants to Foreland and the Foreland Representatives a non-
exclusive license to enter into and upon the Real Property (as defined
below) for the purpose of completing an environmental site assessment, all
as more particularly set forth in Section 4.07(d).
(c) Notwithstanding the foregoing provisions of this Section 2.06,
PSC shall not be required to grant access or furnish information to
Foreland or the Foreland Representatives to the extent that such access to
or the furnishing of such information is prohibited by law or a valid order
by a court of competent jurisdiction. No investigation by Foreland hereto
made heretofore or hereafter shall affect the representations and
warranties of PSC which are herein contained, and each such representation
and warranty shall survive such investigation.
(d) The information received pursuant to this section shall be
deemed to be "Confidential Information." Foreland agrees that it will
treat in confidence all documents, materials and other Confidential
Information which it shall have obtained regarding the Business, Business
Assets, or PSC during the course of the negotiations leading to the
consummation of the transactions contemplated hereby (whether obtained
before or after the date of this Agreement), the investigation provided for
herein, and the preparation of this Agreement and other related documents.
Such documents, materials and other Confidential Information shall not be
communicated to any third person (other than to counsel, accountants,
financial advisors or lenders who have agreed to treat the information as
Confidential Information) and shall not be used for any purpose to the
detriment of PSC. Foreland shall not use any Confidential Information in
any manner whatsoever except solely for the purpose of evaluating the
possible business relationship with PSC. Neither Foreland nor any Foreland
Representative will, during the term of this Agreement or at any time
during the two years thereafter, irrespective of the time, manner, or cause
of termination of this Agreement, use, disclose, copy, or assist any other
person or firm in the use, disclosure, or copying of any documents,
materials or other Confidential Information of PSC. This provision is not
intended to supercede the Confidentiality Agreement between PSC and
Foreland dated August 25, 1997, and, in addition to the covenants hereof,
information received pursuant to this section shall be deemed to be
"Confidential Information" under that agreement.
Section 2.07 PSC Schedules and Exhibits.
(a) On or before January 15, 1998, PSC shall prepare and deliver to
Foreland a revised set of exhibits and schedules updating the exhibits
provided under the terms of Article III (the "PSC Exhibits") and the
schedules limiting the representations of PSC set forth in Article IV or
otherwise required by the terms of this Agreement (the "PSC Schedules").
(b) Foreland shall have until 30 days after the date of delivery of
the revised PSC Exhibits and PSC Schedules (the "Due Diligence Period") in
which to inspect such PSC Exhibits and PSC Schedules. If, within the Due
Diligence Period, Foreland reasonably determines and advises PSC in writing
of respects in which the revised PSC Exhibits or PSC Schedules are
materially and adversely different from the PSC Exhibits and Schedules
attached hereto ("Objections"), PSC shall have the right to attempt to cure
all valid Objections within 30 days after the expiration of such Due
Diligence Period; Foreland shall have no obligation to cure such
Objections. If PSC does undertake to cure such Objections, such curative
measures shall be set forth in writing and shall be specifically
enforceable by Foreland. If valid Objections are not reasonably resolved
within such 30 day cure period, Foreland may void this Agreement by written
notice thereof to PSC within seven days after the expiration of such cure
period. If this Agreement is voided, (i) all amounts previously paid or
delivered by the parties under the terms of this Agreement shall be
returned within ten days; and (ii) the Purchase Contract Confirmation of
even date herewith shall be null and void and the existing crude oil
purchase agreement shall be reinstated effective as of December 15, 1997,
and any overpayments shall be paid within ten days. If Foreland does not
so void this Agreement, it shall be deemed to have accepted such revised
PSC Exhibits and PSC Schedules. If, at the end of the Due Diligence Period,
Foreland has not delivered written objection to the revised PSC Exhibits or
PSC Schedules pursuant to this subsection, Foreland will be deemed to have
accepted the revised PSC Exhibits and PSC Schedules as submitted by PSC.
The revised PSC Exhibits and PSC Schedules accepted or deemed to have been
accepted by Foreland shall be attached to and become part of this Agreement
and shall be the effective PSC Exhibits and Schedules under the provisions
of Article IV and other relevant sections of this Agreement.
Section 2.08 Affirmative Covenants of PSC. PSC hereby covenants and agrees
that during the Option Period and, if this Option is timely exercised, then
until the Effective Time, unless otherwise expressly contemplated by this
Agreement or consented to in writing by Foreland, PSC will, insofar as it
relates to the Business or Business Assets:
(a) continue to operate the Business in the ordinary course
consistent with past practices, subject to such changes in operations as
are necessary or advisable, and consistent with prudent business practices;
(b) use all reasonable efforts to preserve substantially intact
its business organization, maintain its material rights, permits, and
franchises, retain the services of its executives, senior managers, and
employees, and maintain its relationships with its material customers and
suppliers to the extent that a prudent business person would do so;
(c) maintain and keep its material properties and the Business
Assets in as good of repair and working condition as at present, ordinary
wear and tear excepted, and maintain supplies and inventories of products
based on its customary business practice;
(d) continue to operate the Business and Business Assets in
compliance with all laws and regulations applicable thereto, including all
Environmental Laws;
(e) pay all obligations, taxes, and liens with respect to the
Business and Business Assets as they come due;
(f) keep adequate records and books of account with complete
entries sufficient for the preparation and auditing of financial statements
in accordance with the requirements of GAAP;
(g) timely pay its accounts payable associated with the Business
and Business Assets in the ordinary course, consistent with prior
practices;
(h) use reasonable efforts to timely collect its accounts
receivable in the ordinary course, consistent with past practices; and
(i) use all reasonable efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
Section 2.09 Negative Covenants of PSC. Except as expressly contemplated
by this Agreement or as otherwise consented to in writing by Foreland (which
consent will not be unreasonably withheld), during the Option Period and, if the
Option is timely exercised, then until the Effective Time, PSC will not:
(a) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or encumber, or agree to do any of the foregoing with respect
to the Business or Business Assets, except for the sale of inventory or
similar dispositions in the ordinary course, consistent with prior
practice;
(b) knowingly take, or agree to commit to take, any action that
would make any representation or warranty of PSC contained herein or in the
PSC Disclosure Schedules inaccurate in any material respect at the Closing
Date, or as of any time during the Option Period and, if the Option is
timely exercised, then until the Effective Time;
(c) except in the ordinary course of business, enter into any
agreement or arrangement to extend the time covered by an agreement to
purchase crude oil, hydrocarbons, or other feedstock or supplies for the
Business and Business Assets, which agreement has a term in excess of one
year, or to increase the price paid to a supplier of such items;
(d) enter into any agreement or arrangement that is not cancelable
on 30 days' notice with respect to Petrosource Transportation, except for
the replacement of obsolete or worn equipment and the purchase of equipment
on the termination of leases, all in accordance with past practice and
prudent business;
(e) permit the presence, use, disposal, storage, or release of
hazardous materials on, in, or under the Business Assets except in the
ordinary course and in accordance with conditions that are generally
recognized as safe and appropriate and that are in strict compliance with
all Environmental Laws;
(f) except as provided above, make any capital expenditures to
increase or improve the Business Assets in excess of $100,000;
(g) increase the wages or salary of any employee associated with
the Business other than in the ordinary course, consistent with past
practice or enter into any collective or individual employment bargaining
process or employee agreements; or
(h) agree in writing or otherwise to do any of the foregoing items
2.09 (a) - (g).
Section 2.10 PSC Employees.
(a) During the Option Period and with prior notice to PSC,
Foreland may discuss with management and executive level salaried employees
of PSC engaged for all or substantially all of their working time in the
management and operation of the Business (the "Business Executives") the
possible terms under which such Business Executives may be offered
employment by Foreland or Refining after the Effective Time. If this
Option is not exercised and the purchase of the Business is not Closed as
contemplated hereby, for a period of two years subsequent to the
termination of the Option Period neither Foreland nor any affiliated entity
will offer any employment or consulting position to any Business Executive
or induce or attempt to induce or persuade any such Business Executive to
terminate his or her employment relationship with PSC or assist any other
person or entity in doing the foregoing, except that Foreland shall not be
precluded from considering and accepting unsolicited applications from such
Business Executives or applications from such Business Executives in
response to a general solicitation of employment not specifically directed
to employees of PSC. Prior to the exercise of the Option, Foreland will not
offer employment or discuss the existence of the Option with employees who
are not Business Executives without PSC's prior written consent, which
shall not be unreasonable withheld.
(b) If Foreland does exercise its Option to purchase the Business,
Foreland will offer employment to (i) each of the Business Executives
employed by PSC at the Effective Time, and (ii) each PSC employee who
devotes substantially all of his or her working time to the Business. Such
offers will provide for (iii) a salary or hourly rate equivalent to the
salary or hourly rate in effect as of the date hereof or such higher rate
approved by Foreland, (iv) employee benefits equal to the standard employee
benefit package provided by Foreland to its other employees, and (v) past
service credit under the Foreland employee benefit plans for the time that
such employee was employed by PSC. Foreland shall not be responsible for
any accrued and unused vacation or sick leave or for any pension,
retirement, or employee benefit obligation of PSC arising prior to the
Effective Time.
2.11 Non-Circumvention of Option. During the Option Period and, if
the Option is timely exercised, then until the Effective Time, PSC shall not,
directly or indirectly:
(a) Enter into any transaction or enter into or continue negotiations
with any party other than Foreland relative to any disposition by PSC of
the Business or Business Assets;
(b) Solicit or encourage submission of inquiries, proposals, or
offers from any other party relative to any disposition by PSC of the
Business or Business Assets;
(c) Provide further information to any party other than Foreland
relating to any possible disposition by PSC of its interest in the Business
or Business Assets;
(d) Disclose to any third party, other than its attorney or other
professional advisors, or bankers or other lenders on a confidential basis,
PSC's willingness to sell the Business or Business Assets or discuss the
existence or substance of this Agreement with any such third party; or
(e) Take any action, the reasonable and foreseeable consequence of
which would be to materially frustrate the purpose, intent, or financial
benefit to Foreland of this Agreement and the transactions contemplated
hereby.
If, during the Option Period, PSC receives an offer or proposal relating to the
possible acquisition of the Business or Business Assets or any part thereof, it
will immediately notify Foreland of said offer or proposal, the identity of the
party making the offer or proposal, and the specific terms of such offer or
proposal.
ARTICLE III
PURCHASE OF ASSETS
Section 3.01 The Purchase. Foreland shall have the right to exercise the
Option at any time during the Option Period as set forth in Article II of this
Agreement. On such timely exercise, PSC shall be obligated to sell, and
Foreland shall be obligated to purchase the Business and Business Assets as set
forth in this Article III. Except as set forth in section 3.02 of this
Agreement, and on the terms and conditions contained in this Agreement, PSC
shall sell, assign, transfer, convey, set over, and deliver to Foreland, and
Foreland shall purchase from PSC, the Business and the Business Assets,
consisting of the following:
(a) (i) all tangible personal property owned by PSC and located at,
or used in connection with, the operation of the Eagle Springs Refinery,
the Tonopah Refinery (including the emulsifier), or Petrosource
Transportation, (ii) the asphalt blower equipment located at the Fredonia
Terminal (provided Foreland, at its own expense, removes such equipment
from PSC's property within 24 months after the Closing Date, otherwise the
ownership of such equipment shall revert to PSC), and (iii) the rights of
PSC as lessee of all tangible personal property leased, including the
equipment, tools, vehicles, furniture and fixtures, and supplies described
in Exhibit "A" (the "Tangible Personal Property");
(b) all of PSC's rights as lessee to the real property and all
buildings and improvements thereon on which the Eagle Springs Refinery and
the Tonopah Refinery are located, as more particularly described in Exhibit
"B" (the "Real Property");
(c) all inventory of PSC existing as of the Effective Time which was
purchased in furtherance of the Business, as described in Exhibit "C" (the
"Inventory");
(d) all of the notes and trade and other accounts receivable
associated with the Eagle Springs Refinery, the Tonopah Refinery, or
Petrosource Transportation existing as of the
Effective Time, and all cash and cash equivalents in payment thereof
received after the Effective Time, as described in Exhibit "D" (the
"Accounts Receivable");
(e) all of PSC's rights under (i) those crude oil and transmix
purchase contracts and agreements described in Exhibit "E" which were
entered into by PSC in the ordinary course of business and are executory,
and (ii) all contracts and agreements intended to facilitate the sale of
asphalt or other refinery products manufactured at the Eagle Springs or
Tonopah refineries, together (the "Contract Rights");
(f) lists of current and past (within the preceding two years)
customers and lists of prospective customers (i.e., persons with whom PSC
has discussed potential sales and from whom PSC has received what PSC
believes to be serious expressions of interest) of the Business compiled by
PSC including, to the extent the same is in the possession of PSC, the
name, address, contact person, and telephone number of each such customer
or prospective customer (the "Customer Lists"), set forth on Exhibit "F";
(g) all lists of current and past (within the preceding two years)
suppliers and all files, records, and data used in connection with the
Business;
(h) those prepaid expenses, fees, deposits, letters of credit, or
bonds with respect to the Business or Business Assets, including those set
forth on Exhibit "G," (the "Prepaid Expenses");
(i) all federal, state, or local licenses, permits, or approvals
granted or used in connection with the operation of the Business or the
Business Assets;
(j) all of PSC's rights under warranties covering the Tangible
Personal Property being transferred hereunder to the fullest extent
permitted by such warranties;
(k) all intellectual property of PSC necessary to the operation of
the Business, including the proprietary scheduling software used in
connection with Petrosource Transportation and the right to use any trade
secrets, confidential or proprietary information, or general processes used
by PSC in the conduct of the Business, together with a non-exclusive right
to use the process and name "Melt PacTM," to sell asphalt manufactured at
either the Eagle Springs Refinery or the Tonopah Refinery in the states of
Arizona, California, Colorado, Nevada, New Mexico and Utah only, provided
Foreland pays PSC a royalty equal to $2.00 per ton of roofing asphalt sold
in Melt PacTM bags., all as described in Exhibit "H" (the "Intellectual
Property");
(l) the current telephone number(s) used in connection with the
Business at its locations in Eagle Springs and Tonopah, Nevada, and
telephone and other directory listings used by PSC in the operation of the
Business other than the Salt Lake City numbers;
(m) to the extent permitted by the carrier, all contracts of
insurance relating to the Business or Business Assets and all claims,
casualties, or other occurrences prior to the Closing Date and prepaid
premiums or deposits related thereto, which policies are specific to and
separately maintained for the Business Assets, as described in Exhibit "I"
(the "Insurance Policies");
(n) originals or copies of all accounting, operating, management, and
other business records in documentary or electronic form relating to the
Business (provided, however, PSC may maintain a record copy of any such
items);
(o) the rights of PSC under all confidentiality, non-competition, or
similar agreements with present or former employees, consultants, and
others associated with PSC insofar as related to the Business;
(p) the goodwill of PSC associated with the Business; and
(q) all other assets of PSC used to carry out the Business or
Business Assets not included in any specific provision of the foregoing
subsections existing as of the Effective Time which are not excluded in
section 3.02.
Section 3.02 Excluded Assets. Notwithstanding the provisions of Section
3.01, the assets conveyed hereunder shall not include the following:
(a) the two asphalt spreader trucks currently in the name of
Petrosource Transportation or Petro Source Refining Partners;
(b) the bank accounts maintained by PSC on behalf of the Business;
(c) all corporate books and records not relating to the Business or
the Business Assets purchased hereunder, including the minute books and
stock transfer books and the corporate seal of PSC;
(d) PSC's employee benefit agreements, plans, or similar
arrangements;
(e) The office furniture and equipment used by any PSC employee
who works on Business matters, but is not hired by Foreland;
(f) Software which is not used by PSC exclusively for the Business
such as PSC's general ledger and accounting, and revenue distribution
systems; and
(g) The items listed in Exhibit J.
Section 3.03 Assumed Obligations. On the Closing Date, Foreland shall
assume and agree to discharge the following obligations and liabilities of PSC
with respect to the Business Assets, in accordance with their respective terms
and subject to the respective conditions thereof:
(a) all obligations of PSC under the leases set forth on Exhibit K-1
relating to the Tangible Personal Property or the Real Property;
(b) all current trade accounts payable and other current liabilities
as of the Effective Time, that arose in the ordinary course of the
Business, all to be set forth in Exhibit K-2 of the Closing Exhibits;
(c) all liabilities and obligations of PSC to be paid or performed
after the Effective Time under the contracts and other agreements set forth
on Exhibit K-3 relating to the Business and Business Assets being conveyed
hereunder;
(d) all liabilities in respect of any taxes for the period
beginning on the Effective Time, and any other accrued, but unpaid, as of
the Effective Time and set forth in the Closing Schedule. Real and personal
property taxes shall be prorated between the parties as of the Effective
Time; and
(d) other obligations listed on Exhibit K-4.
Section 3.04 Excluded Liabilities. Except to the extent that such
liabilities operate to reduce the purchase price pursuant to Section 3.05,
neither Foreland nor Refining shall assume or be obligated to pay, perform or
otherwise discharge the following:
(a) any liability or obligation of PSC, direct or indirect, known or
unknown, absolute or contingent, not expressly assumed by Foreland pursuant
to section 3.03 or otherwise pursuant to this Agreement;
(b) any liability for accrued bonuses, vacation, personal leave, or
other amounts for the benefit of employees of the Business (the "Employee
Benefits");
(c) taxes for any period prior to the Effective Time; and
(d) the accounts payable listed on Schedule 3.04.
Section 3.05 Amount of Purchase Price. The consideration payable by
Foreland for the purchase (the "Purchase Price") of the Business and Business
Assets shall be the greater of either:
(a) Five million dollars ($5,000,000); or
(b) Four times the annualized Adjusted EBIDTA of the Business, as set
forth below, based on the six months preceding the month in which the
Option is exercised, as calculated in accordance with the following
formula:
(Adjusted EBIDTA for preceding six months) x 2 x 4 = Purchase Price
For purposes of the foregoing formula:
"Adjusted EBIDTA" means the earnings of the Business before
interest, taxes, depreciation, and amortization, as determined in
accordance with GAAP, based on the six months prior to the
Exercise Date, adjusted (1) to credit the Business with an amount
equal to the difference between Amoco's Southwest Wyoming Sweet
Crude Oil posted price less $6.15 per barrel and the amount paid
per barrel for oil purchased from Foreland that is produced from
the Ghost Ranch number 48-35 currently producing well during such
period by PSC under the Crude Oil Purchase Agreement entered
contemporaneous with the execution of this Agreement as compared
to the amount that would have been paid per barrel of oil
purchased under the immediately preceding agreement, and (2) to
substitute for actual general and administrative expenses
incurred in the operation of the Business an amount equal to
$800,000 per month.
plus, in the case of either (a) or (b) above, the total of
(u) the sum of capital expenditures incurred by PSC to improve or add
to the Business Assets between the date hereof and the Effective Time;
(v) a negative amount equal to the sum of proceeds from the sale of
any property, plant and/or equipment which is a component of the Business
Assets to a third party by PSC between the date hereof and the Effective
Time;
(w) the sum of the current assets, as determined in accordance with
GAAP (except that finished goods inventory will be valued at market),
assigned to Foreland hereunder;
(x) a negative amount equal to the sum of the current liabilities, as
determined in accordance with GAAP, assumed by Foreland hereunder,
excluding, however, the current portion of long term liabilities or
liabilities under operating leases assumed by Foreland hereunder that is
not properly attributable to the period prior to the Effective Date in
accordance with GAAP;
(y) any unpaid portion of the Option Consideration; and
(z) 100,000 shares of Foreland Stock, the resale of which by PSC
shall be covered by an effective Registration Statement in accordance with
Article IX.
Section 3.06 Payment of Purchase Price. In consideration of the purchase
of the Business Assets, at the Closing Foreland shall or shall cause Refining
to:
(a) pay to PSC the cash portion of the Purchase Price in immediately
available funds by wire transfer in accordance with Section 2.02(c); and
(b) deliver to PSC one or more stock certificate(s) registered in the
name of PSC or its designee for the 100,000 shares of Foreland Stock
constituting a portion of the Purchase Price.
That amount of the Purchase Price consisting of the unpaid portion of the Option
consideration shall be paid in accordance with Section 2.02.
Section 3.07 Closing; Closing Date. Subject to timely exercise by
Foreland of the Option, the consummation of the sale and purchase of the
Business and Business Assets as contemplated hereby (the "Closing") shall take
place at the offices of Xxxxx, Xxxxx & Xxxxxxx, L.L.C., at 00 Xxxx Xxxxxxxx,
Xxxxxx Xxxxx, Xxxx Xxx Xxxxx, Xxxx Xxxx Xxxx, Xxxx 00000, or such other place as
is mutually acceptable to the parties hereto as soon as practicable within 20
days after the Effective Time, but in any event on or before December 31, 1998.
The date on which the Closing takes place shall be the "Closing Date."
Section 3.08 Effective Time. The Closing shall be effective (the
"Effective Time") as of midnight, Nevada time, on the last day of the month
during which Petro Source receives Foreland's notice of Option Exercise.
Section 3.09 Closing Events. At the Closing, each of the respective
parties hereto shall execute, acknowledge, and deliver (or shall cause to be
executed, acknowledged, and delivered) (i) the deeds, bills of sale,
assignments, and other documents and instruments of conveyance and transfer, all
in form and substance reasonably satisfactory to Foreland and its counsel,
necessary to vest, subject to any scheduled condition subsequent, marketable
title in Foreland to all the rights, interests, assets, and properties to be
acquired by Foreland pursuant to this Agreement; (ii) originals or copies of all
of PSC's agreements, contracts, and commitments assumed by Foreland hereunder;
(iii) a list of all of the customers and suppliers of PSC relevant to the
Business, including addresses and telephone numbers; (iv) all certificates,
opinions, schedules, agreements, resolutions, or other instruments required by
this Agreement to be so delivered at or prior to the Closing; and (v) such other
items as may be reasonably requested by the parties hereto and their respective
legal counsel in order to effectuate or evidence the transactions contemplated
hereby. In addition, at the Closing, Foreland shall deliver to PSC the Purchase
Price in accordance with Section 3.06.
Section 3.10 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Business Assets according to the Schedule 3.11. PSC and
Foreland agree to prepare all financial reports of the transactions contemplated
herein, including all federal and state tax returns, in accordance with the
allocation of the Purchase Price set forth in such Schedule and hereby indemnify
each other against any loss which such other party may incur by reason of the
Indemnifying Party's failure to comply with this section. Upon request, each
party agrees to provide to the other photocopies of any forms filed with any
taxing authority in which the results of this transaction are reported.
Section 3.11 Further Assurances. At the Closing or at any time
thereafter, each party shall execute and deliver to the other such opinions,
certificates, consents, and other documents required herein and execute and
deliver such other documents, and take such other actions, as may be reasonably
requested to carry out the terms of this Agreement, all as the other party
hereto may reasonably require.
Section 3.12 Registration of Purchase Price Shares. Foreland will, at
its sole cost, in any registration statement filed with the SEC for the sale of
Foreland Shares after the Closing, include the Shares issued to PSC as part of
the purchase price ("Purchase Shares") and cover the resale of such Shares by
and for the account of PSRC, which shall be named as a selling shareholder in
such registration statement, all as more particularly set forth in Article IX
hereof, and shall use its best efforts to maintain its effectiveness throughout
for at least three months. If Foreland has not filed such a registration
statement within one year of the date of Closing, Foreland shall file, at its
sole cost, and utilize its best efforts to obtain the effectiveness of, by
acceleration, a registration on such form as Foreland may select under the
Securities Act covering the resale of the Purchase Shares by and for the account
of PSRC, which shall be named as a selling shareholder in such registration
statement, all as more particularly set forth in Article IX hereof. Foreland
shall utilize its best efforts to obtain the effectiveness of such Registration
Statement at the earliest practicable date and to maintain its effectiveness for
a period of at least three months.
Section 3.13 Covenants Not to Compete. At the time of Closing, the
parties shall enter into one or more agreements providing that: (i) PSC and its
affiliates will not compete with Foreland for (x) the refining of Nevada crude
hydrocarbons or (y) the processing of transmix in the states of California,
Utah, Arizona, or Nevada for a period of three years after the Closing Date; and
(ii) Foreland and its affiliates will not manufacture or sell emulsions in the
state of Nevada for a period of two years after the Closing Date.
ARTICLE IV
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF PSC
PSC hereby represents, covenants, and warrants to Foreland, such
representations, covenants, and warranties to be made as of the date hereof and
at and as of the Closing Date and to survive the Closing and continue in
accordance with the terms hereof (except as otherwise expressly set forth in
Article VII hereof), as follows:
Section 4.01 Organization. Petro Source Corporation, Petro Source
Refining Corporation and Petrosource Transportation are each corporations duly
organized, validly existing, and in good standing under the laws of the state of
Utah and have the corporate power and are duly authorized, qualified,
franchised, and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to own all of their properties and assets and to
carry on their business in all material respects as it is now being conducted.
There is no jurisdiction in which any of such companies is not so qualified in
which the character and location of the assets owned by it or the nature of the
business transacted by it requires qualification, except where failure to do so
would not have a material adverse effect on the business or properties of such
company. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement in accordance
with the terms hereof will not, violate any provision of such companies'
articles of incorporation or bylaws. Each of such companies has taken all
action required by law, its articles of incorporation, its bylaws, or otherwise
to authorize the execution and delivery of this Agreement and the consummation
of the transactions herein contemplated.
Section 4.02 Approval of Agreement. The board of directors and
shareholders of each of Petro Source Corporation, Petro Source Refining
Corporation and Petrosource Transportation have authorized the execution and
delivery of this Agreement and have approved the consummation of the
transactions contemplated hereby. This Agreement is the legal, valid, and
binding agreement of PSC enforceable between the parties in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency, or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity.
Section 4.03 Financial Statements.
(a) Included in Schedule 2.03 to this Agreement are the audited
balance sheets of Petro Source Refining Partners ("PSRP") as of December
31, 1995 and 1996, and the related statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1995 and 1996,
respectively, including the notes thereto and the reports of Deloitte &
Touche. Such schedule also includes the unaudited balance sheet of PSRP as
of October 31, 1997 ("PSRP's Current Balance Sheet"), and the related
statements of operations, cash flows, and partners' equity for the ten
months ended October 31, 1997, which present fairly the results of
operations and financial position of PSC for the periods and as of the
dates indicated in all material respects. All such financial statements
have been prepared in accordance with GAAP consistently applied throughout
the periods involved as explained in the notes to such financial
statements, except that PSRP's Current Balance Sheet does not contain all
of the footnote disclosures required by GAAP.
(b) Such financial statements, as of their respective dates, fairly
reflect in all material respects the financial position of the Business as
of such date and the results of operations for the periods presented.
Except as reflected on the most recent balance sheet, the Business did not
have any liability or obligation (absolute or contingent) which should be
reflected in a balance sheet or the notes thereto prepared in accordance
with GAAP. All assets reflected on PSRP's Current Balance Sheet are
properly reported and present fairly in all material respects the assets of
the Business in accordance with GAAP, except that PSRP's Current Balance
Sheet does not contain all of the footnote disclosures required by GAAP.
(c) The books and records, financial and otherwise, with respect to
the Business are in all material respects complete and correct and have
been maintained in such a fashion as to permit the preparation and audit of
financial statements (at Foreland's expense) for at least two full years in
accordance with GAAP.
(d) Except as set forth on the most recent Balance Sheet or in the
Notes thereto, or Schedule 4.03, PSC has:
(i) good and marketable title to its receivables, free of any
security interests or liens and free of any material defenses,
counterclaims, and set-offs, and all of such receivables are actual
and bona fide receivables representing obligations for the total
dollar amount thereof shown on its books; and
(ii) has no material contingent liability, direct or indirect,
matured or unmatured.
The receivables set forth on the most recent Balance Sheet arose in
the ordinary course of business and are collectable in all material
respects upon the continuation of reasonable collection efforts by
employees of the Business, without resorting to litigation.
(e) PSC represents that the financial statements of PSRP are of
limited applicability because they pertain to a partnership that was
terminated as of the end of October 1997 when PSRC acquired all of the
partnership interest of the only other partner in PSRP, and PSRP owned
assets in addition to the Business Assets, including, but not limited to,
the Fredonia terminal and the Melt PacTM patents and licenses.
Section 4.04 Absence of Certain Changes or Events. Except as set forth
in Schedule 4.04 to this Agreement, since the date of PSRP's Current Balance
Sheet described in Section 4.03, there has not been (i) any material adverse
change in the business, operations, properties, level of inventory, assets, or
condition of the Business or (ii) any damage, destruction, or loss to Business
Assets (whether or not covered by insurance) materially and adversely affecting
the business, operations, properties, assets, or conditions of the Business,
including any:
(a) material adverse change in the liabilities or assets of PSC
relating to the Business or Business Assets;
(b) change in the manner in which PSC carries on its business or
preserves its business organization and existing business relations, which
might affect the Business or the Business Assets in any material way;
(c) transaction by PSC relating to the Business or Business Assets,
except in the ordinary course of business as conducted on the date of
PSRP's Current Balance Sheet;
(d) failure to maintain in full force and effect substantially the
same level and types of insurance coverage as in effect on the date of
PSRP's Current Balance Sheet or any destruction, damage to, or loss of any
of the Business Assets (whether or not covered by insurance) materially and
adversely affecting the business or prospects of PSC relating to the
Business or the Business Assets;
(e) sale, assignment, transfer of any tangible or intangible assets
of PSC associated with the Business, including any rights to intellectual
property, except in the ordinary course of business;
(f) mortgage, pledge, or other encumbrance of any tangible or
intangible assets of PSC relating to the Business; or
(g) written or oral agreement by PSC to take any of the actions
described above.
Section 4.05 Governmental Authorizations. PSC has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its businesses in all material respects as
conducted on the date of this Agreement. No authorization, approval, consent,
or order of, or registration, declaration, or filing with, any court or other
governmental body is required in connection with the execution and delivery by
PSC of this Agreement and the consummation by PSC of the transactions
contemplated hereby. Schedule 4.05 sets forth a list of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary or convenient to own, lease and
operate its properties and to carry on the Business (collectively, the "Business
Permits"), and there is no action, proceeding or investigation pending or
threatened of which PSC has received actual notice regarding suspension or
cancellation of any of the Business Permits, except where the failure to
possess, or the suspension or cancellation of, such Business Permits would not
have a material adverse effect on the Business or Business Assets. PSC is not
in conflict with, or in default or violation of any law applicable to the
Business or Business Assets. During the three-year period prior to the date of
this Agreement, PSC has not received from any governmental entity any written
notification with respect to possible conflicts, defaults or violations of Laws,
except as set forth in Schedule 4.05 of the PSC Disclosure Schedule and except
for written notices relating to possible conflicts, defaults or violations that
would not have a material adverse effect on the Business or Business Assets.
Section 4.06 Accounts Receivable; Inventories. All of the Accounts
Receivable of PSC included in the Business Assets have arisen from bona fide
transactions by PSC in the ordinary course of its business and are good and
collectible in the ordinary course of business at the aggregate recorded amounts
thereof. The Inventory of PSC (including raw materials, supplies, work-in-
process, finished goods and other materials), a description of which is included
in an exhibit to this Agreement as provided above, is in good, merchantable,
resalable, and usable condition.
Section 4.07 Real Property.
(a) PSC will obtain, pay for, and deliver to Foreland, within 30 days
after execution of this Agreement, a commitment for a policy of title
insurance respecting the leasehold interests in the Real Property issued by
a title insurance company reasonably acceptable to Foreland, accompanied by
a copy of all documents listed as exceptions to good and clear marketable
title in such commitment (the "Title Report"). PSC shall pay any title
commitment cancellation charge incurred in connection with the Title
Report. PSC shall also deliver to Foreland (i) a copy of all leases
affecting such Real Property not expiring before the Closing Date, (ii) a
copy of a survey of the Real Property, if PSC has one, and (iii) a copy of
each environmental assessment or survey of any of the Real Property in the
care, custody, or control of PSC. The Title Report and the other documents
and information described above, which shall be included in Schedule 2.07
to this Agreement, are hereinafter referred to as the "Real Property
Disclosures."
(b) PSC warrants marketable title to the Real Property, save and
except for only the exceptions to title set forth in the Title Report that
are acceptable to Foreland as not impairing good and clear marketable title
together with the printed exceptions and exclusions referred to in such
Title Report; private, public, and utility easements; roads and highways,
if any; the special taxes or assessments for improvements not yet
completed; installments not yet due at the date hereof or any special tax
or assessment for improvements heretofore completed; rights-of-way for
drainage ditches, feeders and laterals; zoning laws and ordinances; all
matters, including but not limited to encroachments which would be
disclosed by an accurate survey and/or inspection of the Real Property; and
all acts or omissions of Foreland and all governmental authorities and
those acting by, through, or under such parties.
(c) Foreland shall have until 30 calendar days after the date of delivery
of the Real Property Disclosures (the "Real Property Due Diligence Period")
in which to inspect the Real Property and the Real Property Disclosures.
If, within the Real Property Due Diligence Period, Foreland advises PSC in
writing of reasonable objections to the status of title to or that the
condition of the Real Property is in violation of laws, ordinances, rules
or regulations, PSC shall have the right to attempt to cure such objections
within 30 calendar days after the expiration of such Real Property Due
Diligence Period; Foreland shall have no obligation to cure such
objections. If PSC does undertake to cure such objections of Foreland,
such curative measures shall be set forth in writing and shall be
specifically enforceable by Foreland. If Foreland's objections are not
resolved to its reasonable satisfaction within such 30 calendar day cure
period, Foreland may void this Agreement by written notice thereof to PSC
within seven calendar days after expiration of such 30 day cure period,
provided, however, to the extent that the objection is in respect to (i)
title defects, or (ii) the Business Assets' conformity to environmental
laws or regulations, but such objectional condition is of a nature that an
ordinary purchaser of refining facilities would accept such condition in
light of an indemnity from a seller similar to PSC, PSC may cure the
objection by indemnifying Foreland against any loss, cost or expense
incurred by Foreland with respect to such condition in excess of $100,000.
During the Real Property Due Diligence Period, Foreland shall have the
right to terminate this Agreement if Foreland reasonably determines PSC's
representations and warranties are false in any respect material to the
transaction, taken as a whole. If, at the end of the Real Property Due
Diligence Period, this Agreement is not terminated by Foreland in the
manner provided above, or Foreland has not delivered written objection to
the PSC pursuant to this subsection, at the Closing, if any, Foreland will
be deemed to have accepted the Real Property in "as is, where is" condition
in accordance with the provisions set forth herein.
(d) For the purposes set forth in this section, PSC hereby grants
Foreland a limited license to inspect the Real Property at reasonable times
agreeable to PSC, so long as such inspection does not damage the
improvements and other property located on the Real Property or interfere
with the ordinary conduct of PSC's business. Foreland agrees to indemnify,
defend, and hold PSC harmless from any cost, expense, damage, liability, or
claim arising out of or in connection with the exercise by the Foreland of
the rights conferred under the provisions of this section. Notwithstanding
the above or anything else herein, if Foreland desires to have the Real
Property inspected for the presence of hazardous materials beyond a
standard Phase I Environmental Assessment or have the surface penetrated in
any manner for any purpose (such as soils tests), it shall first inform PSC
in writing of such desires. Thereafter, PSC and Foreland shall meet to
discuss how and when such inspection(s) shall be undertaken, it being
understood and agreed that PSC is concerned about the confidentiality of
any such inspection and resulting reports, if any, and potential damage to
or interference with the Real Property.
(e) The Real Property, a description of which is included in an
exhibit to this Agreement as provided above, constitutes all interests in
any real property, options to acquire any such interest, or easements,
rights of way, or similar rights with respect to real property owned by PSC
and used in or relating to the operation of the Business. There are no
leases, subleases, tenancies or other rights of occupancy affecting such
Real Property. The Real Property and improvements owned by PSC and used in
or relating to the Business are in good operating condition and repair, are
suitable for the purposes for which they are being used, and no such
improvement, or any appurtenance thereto or equipment therein, violates any
restrictive covenant or any provisions of any federal, state or local law,
ordinance or zoning regulation, or encroaches on any property owned by
others. PSC has the right, power, and authority to transfer good and clear
marketable title in its leasehold interests in the real property comprising
the Real Property to Foreland, without the consent of any other person or
entity, as contemplated by this Agreement.
(f) At the Closing, PSC shall deliver possession of the Real Property
broom clean and free of debris and personal property not to be conveyed
pursuant hereto.
Section 4.08 Tangible Personal Property. The list of Tangible Personal
Property, a description of which is included in an exhibit to this Agreement as
provided above, is a complete and accurate list of all machinery, equipment,
vehicles, furniture and other tangible property owned or leased by PSC and used
in or relating to the Business. Except as disclosed in Schedule 4.08, the
Tangible Personal Property (a) is in good operating condition and repair and is
suitable for the purposes for which it is being used. The Tangle Personal
Property includes all of the assets and property necessary and convenient to
operate the Business in the ordinary course in the fashion in which it has been
operated by PSC. Unless otherwise stated in such exhibit, all of such Tangible
Personal Property is located on the Real Property. All leases for tangible
property are in full force and effect, have an unexpired term as set forth in
the lease agreements, and there is no outstanding default or event that with the
passage of time or notice would constitute a default, on behalf of PSC or any
other party to the lease agreements. The remaining obligations of PSC under the
terms of each lease for Tangible Personal Property do not exceed the current
fair market value of the personal property subject to such lease. PSC has the
right, power, and authority to transfer all of the tangible and intangible
property comprising the Business Assets to Foreland, without the consent of any
other person or entity, as contemplated by this Agreement. At the Closing, PSC
will deliver possession of the Tangible Personal Property to Foreland with all
equipment and vehicles in working order.
Section 4.09 Intellectual Property. The list of Intellectual Property, a
description of which is included in an exhibit to this Agreement as provided
above, is a complete and accurate list of all of the trade secrets, technology,
know-how, tradenames, trademarks, servicemarks, and other proprietary
information owned by or used in connection with the business of PSC, including
all copyrights, patents, patent applications, registrations, and applications
with respect. Except as set forth in the above referenced exhibit, PSC owns the
entire right, title, and interest in and to such Intellectual Property, and such
Intellectual Property is not subject to the payment of royalties or any other
obligation to any other person or entity. Except as set forth in the above
referenced exhibit, none of the employees of PSC owns, directly or indirectly,
any right, title, or interest in or to the Intellectual Property. To the best
knowledge of PSC, none of the Intellectual Property is subject to any order,
decree, judgment, stipulation, settlement, encumbrance, or attachment. There
are no pending or threatened proceedings, litigation, or other adverse claims of
which PSC is aware affecting or with respect to the Intellectual Property. The
Intellectual Property does not infringe on the copyright, patent, trade secret,
know-how, or other proprietary right of any other person or entity and comprises
all such rights necessary to permit the operation of the business of PSC as now
being conducted.
Section 4.10 Employees and Related Agreements; ERISA.
(a) Schedule 4.10 contains a description of each "employee pension
benefit plan" (as such term is defined in Section 3(2) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or "welfare
benefit plan" (as such term is defined in Section 3(1) of ERISA),
maintained by PSC, or with respect to which PSC is required to contribute,
on behalf of any employees of PSC. Each of the plans described in such
schedule which is intended to qualify under Section 401(a) of the Internal
Revenue Code (the "Code"), other than any "multiemployer plan" (as such
term is defined in Section 3(37) of ERISA) has received a favorable
determination letter from the IRS, and no event has occurred which would
cause any such plan to cease being so qualified. Each of the plans
described on such schedule (other than any multiemployer plans) complies in
form in all material respects in accordance with the requirements of ERISA
and, where applicable, the Code. To the best knowledge of PSC, each
multiemployer plan is qualified under Section 401(a) of the Code and
complies in form in all material respects and has been administered in all
material respects in accordance with the requirements of ERISA and, where
applicable, the Code.
(b) None of PSC's employee plans subject to Title IV of ERISA has
terminated; no proceeding has been initiated to terminate any such plan;
and there has been no "reportable event" (within the meaning of Section
4043(b) of ERISA). PSC has not incurred any liability on account of a
"partial withdrawal" or a "complete withdrawal" (within the meaning of
Sections 4203 and 4205, respectively, of ERISA) from any multiemployer
plan, and PSC is not aware of any events which could result in any such
partial or complete withdrawal. None of PSC's employee plans which is a
defined benefit plan has incurred any "accumulated funding deficiency"
(within the meaning of Section 412 of the Code), whether or not waived.
Assuming that each of PSC's employee plans which is subject to Title IV of
ERISA (other than multiemployer plans) were terminated as of the Closing
Date, PSC would not have any liability under Title IV of ERISA as a result
of such termination. The PSC has no obligations under any of PSC's employee
plans or otherwise to provide health benefits to former employees of PSC,
except as specifically required by law.
(c) Except as to multiemployer plans (as to which this representation
and warranty is made to the best knowledge of PSC), neither PSC nor, to the
best knowledge of PSC, any other "disqualified person" (within the meaning
of Section 4975 of the Code) or "party in interest" (within the meaning of
Section 3(14) of ERISA) has engaged in any "prohibited transaction" (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) with
respect to any of PSC's employee plans which could subject any such plan
(or its related trust) or PSC, or any officer, director or employee of PSC
to the penalty or tax under Section 402(i) of ERISA or Section 4975 of the
Code.
(d) There is no pending or, to the best knowledge of PSC, threatened
claim which alleges any violation of ERISA or any other law (i) by or on
behalf of any of PSC's plans or (ii) by any employee of PSC or any plan
participant or beneficiary against any such plan.
Section 4.11 Employee Relations. The PSC has complied in respect of the
Business in all material respects with all applicable laws, rules and
regulations that relate to prices, wages, hours, harassment, disabled access,
and discrimination in employment and collective bargaining and to the operation
of its business and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. PSC believes that
its relations with the employees of PSC are satisfactory.
Section 4.12 Litigation and Proceedings. Except as set forth on Schedule
4.12, there are no actions, suits, or proceedings pending or, to the knowledge
of PSC, threatened by or against, or affecting the Business or Business Assets,
at law or in equity, before any court or other governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind; PSC
does not have any knowledge of any default on its part with respect to any
judgment, order, writ, injunction, decree, award, rule, or regulation of any
court, arbitrator, or governmental agency or instrumentality.
Section 4.13 Material Contract Defaults. PSC is not in default in any
respect under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets, or
condition of PSC, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which PSC has not taken adequate steps to prevent such a default from
occurring.
Section 4.14 Taxes. All federal, state, local, and foreign tax returns
and tax reports required to be filed by or on behalf of PSC have been filed with
the appropriate governmental agency and all jurisdictions in which such reports
are required to be filed and all taxes which have become due pursuant to such
tax returns or to any assessment which has become payable have been paid. Proper
and accurate amounts of taxes have been withheld by or on behalf of PSC with
respect to all compensation paid to employees of PSC for all periods ending on
or before the date hereof, and all deposits required with respect to
compensation paid to such employees have been made, in complete compliance with
the provisions of all applicable federal, state, and local tax and other laws.
Section 4.15 Third-Party Consents. Except as set forth in Schedule
Section 4.15, no contract, agreement, lease, or other commitment, written or
oral, to which PSC is a party or to which any of its properties or assets are
subject require the consent of the other party in order to consummate the
transactions herein contemplated, except where the failure to obtain such
consent would not have a material adverse effect on the Business Assets. In the
event a supply or sales contracts may not be assigned without the consent of the
other party to the agreement, which consent cannot be obtained before Closing,
PSC will remain the party to the contract, and purchase products from Foreland
with respect to sales contracts, and sell products to Foreland with respect to
purchase contracts, in either case at PSC's cost so as to maintain the economic
value of the contract. PSC will remain a party to such contracts as nominee for
the account of Foreland, and Foreland will otherwise fulfill all obligations
with respect to such contracts and will hold PSC harmless from any loss, cost or
expense with respect thereto. The failure to obtain a consent in such a case
will not be considered a material adverse event, or otherwise give Foreland the
right to terminate this Agreement.
Section 4.16 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which PSC is a
party or to which any of its properties or operations are subject, except where
such breach or default would not have a material adverse effect on the assets
transferred pursuant hereto.
Section 4.17 Compliance With Laws and Regulations. PSC has complied with
all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or condition of PSC or except to the extent that noncompliance would not
result in the incurrence of any material liability for PSC.
Section 4.18 Hazardous Substances.
(a) The following words and phrases shall have the meanings
indicated:
(i) "Current Actual Knowledge" shall mean that no information
that would give PSC current actual knowledge of the inaccuracy of any
statements has come to the attention of PSC's officers and directors;
however, no special or independent investigation has been undertaken
to determine the accuracy of such statements.
(ii) "Environment" shall mean soil, surface waters, groundwaters,
land, stream sediments, surface or subsurface strata, ambient air, and
any environmental medium.
(iii) "Environmental Law" shall mean any environmental
related law, regulation, rule, ordinance, or bylaw at the federal,
state, or local level, existing as of the date hereof.
(iv) "Hazardous Material" shall mean any pollutant, toxic
substance, hazardous waste, hazardous material, hazardous substance,
or oil as currently defined in the Resource Conservation and Recovery
Act, as amended; the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended; the Federal Clean Water
Act, as amended; or any other federal, state, or local environmental
law, regulation, ordinance, rule, or bylaw, existing as of the date
hereof.
(v) "Permit" shall mean environmental permit, license, approval,
consent, or authorization issued by a federal, state, or local
governmental entity.
(vi) "Premises" shall mean the real property owned or leased by
PSC on which it currently conducts the business of PSC.
(vii) "Release" shall mean any releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, disposing, or dumping into the Environment.
(viii) "Threat of Release" shall mean a substantial likelihood
of a Release which requires action to prevent or mitigate damage to
the Environment which may result from such Release.
(b) Except as set forth on Schedule 4.18, to PSC's Current Actual
Knowledge, (i)PSC has no liability under any Environmental Law applicable
to the Premises and the facilities and operations thereon, and (ii) there
are not currently any violations of Environmental Laws existing on the
Premises or with respect to any facilities or operations thereon.
(c) Except as set forth on Schedule 4.18, to PSC's Current Actual
Knowledge, PSC has not violated and is in compliance with all Environmental
Laws applicable to the Premises and the facilities and operations thereon
and has not generated, manufactured, refined, transported, treated, stored,
handled, disposed, transferred, produced, processed, or Released any
Hazardous Material on the Premises, except in compliance with such
Environmental Laws, and has no Current Actual Knowledge of the Release or
Threat of Release of any Hazardous Material on the Premises in violations
of such Environmental Laws.
(d) Except as set forth on Schedule 4.18, within the last three
years, PSC has not:
(i) Entered into or been subject to any consent decree,
compliance, order, or administrative order with respect to the
Premises or any facilities or operations thereon;
(ii) Received notice under the citizen suit provision of any
violation of any Environmental Law in connection with the Premises or
any facilities or operations thereon;
(iii) Received any request for information, notice, demand
letter, administrative inquiry, or claim with respect to a violation
of any Environmental Law relating to the Premises or any facilities or
operations thereon;
(iv) Been subject to or threatened with any governmental or
citizen enforcement action with respect to a violation of any
Environmental Law on the Premises or at any facilities or operations
thereon; or
(v) Received notice of any civil action with respect to any
damages claimed to result from a Release of any Hazardous Material on
the Premises.
Section 4.19 Insurance. The list of Insurance Policies, a description of
which is included as an exhibit to this Agreement as provided above, is a
complete and accurate description (including nature of coverage, limits,
deductibles, premiums and the loss experience for the most recent five years
with respect to each type of coverage) of all policies of insurance maintained,
owned or held by PSC on the date hereof with respect to the Business Assets or
the business of PSC. All of the insurable properties of PSC are insured for the
benefit of PSC in the amount of their full replacement value (subject to
reasonable deductibles) against losses due to fire and other casualty, with
extended coverage, and other risks customarily insured against by persons
operating similar properties in the localities where such properties are located
and under valid and enforceable policies issued by insurers of recognized
responsibility. Such policy or policies containing substantially equivalent
coverage will be outstanding and in full force at the Closing Date, as
hereinafter defined. PSC makes no representation, warranty, or covenant as to
whether any of the Insurance Policies or the benefits thereof may be conveyed to
Foreland. In the event any such insurance policy cannot be assigned, either by
the express terms of such policy or the governing practices or policies of the
issuer thereof, PSC shall convey to Foreland any premium or deposit refund
received as a result of the termination or cancellation of such policy.
Section 4.20 Customers and Suppliers. There exists no actual or
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship of PSC with any customer or group of
customers of PSC, or whose purchases individually or in the aggregate are
material to the operations of the business of PSC, or with any supplier or group
of suppliers of PSC, or whose sales individually or in the aggregate are
material to the operations of the business of PSC, and there exists no present
or future condition or state of facts or circumstances involving customers,
suppliers or sales representatives which PSC can now reasonably foresee would
materially adversely affect the business of PSC or prevent the conduct of such
business after the consummation of the transactions contemplated by this
Agreement in essentially the same manner in which it has heretofore been
conducted.
Section 4.21 Broker's Fees. The PSC has not engaged or entered into any
agreement with any broker or finder in connection with any of the transactions
contemplated by this Agreement requiring the payment of any fee or compensation.
Section 4.22 PSC Schedules. PSC has delivered to Foreland the following
disclosure schedules, which are collectively referred to as the "PSC Schedules":
(a) A schedule required by Section 4.03 with respect to balance
sheet;
(b) A schedule required by Section 4.04 with respect to material
changes;
(c) A schedule required by Section 4.05 with respect to governmental
authorizations;
(d) A schedule required by Section 4.10 with respect to employee
plans;
(e) A schedule required by Section 4.12 with respect to litigation;
and
(f) A schedule required by Section 4.15 with respect to real
property.
PSC shall cause the exhibits to this Agreement, the PSC's Schedules, and the
other documents, instruments, and data delivered to Foreland hereunder to be
updated after the date hereof and prior to the Closing Date.
ARTICLE V
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF FORELAND
Foreland hereby represents, warrants, and covenants to PSC, as follows:
Section 5.01 Organization, Standing and Power of Foreland. Foreland is a
corporation duly organized, validly existing, and in good standing under the
laws of the state of Utah and has the power and is duly authorized, qualified,
franchised, and licensed under all applicable laws, regulations, ordinances, and
orders of public authorities to own all of its properties and assets and to
carry on its business in all material respects as it is now being conducted and
is proposed to be conducted immediately following the Closing.
Section 5.02 Reports; Financial Statements.
(a) Xxxxx Xxxxx 00, 0000, Xxxxxxxx and its subsidiaries have filed
all forms, reports, statements and other documents required to be filed
with (A) the Securities and Exchange Commission (the "SEC") including (1)
all Annual Reports on Form 10-K, (2) all Quarterly Reports on Form 10-Q,
(3) all proxy statements relating to meetings of stockholders (whether
annual or special), (4) all Current Reports on Form 8-K and (5) all other
reports, schedules, registration statements or other documents and (B) any
applicable state securities authorities and all forms, reports, statements
and other documents required to be filed with any other applicable federal
or state regulatory authorities, except where the failure to file any such
forms, reports, statements or other documents would not have a material
adverse effect (all such forms, reports, statements and other documents in
clauses (i) and (ii) of this Section 5.02(a) being referred to herein,
collectively, as the "Foreland Reports"). The Foreland Reports, including
all Surgical Reports filed after the date of this Agreement and prior to
the Effective Time, (x) were or will be prepared in accordance with the
requirements of applicable Law (including the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Foreland Reports) and (y) did not at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in Foreland Reports filed
prior to the Effective Time, have been or will be prepared in accordance
with the published rules and regulations of the SEC and generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except (a) to the extent required by changes in generally
accepted accounting principles; (b) with respect to Foreland Reports filed
prior to the date of this Agreement, as may be indicated in the notes
thereto; and (c) with respect to interim financial statements as may be
permitted by Article 10 of Regulation S-X) and fairly present or will
fairly present the consolidated financial position of Surgical and its
subsidiaries as of the respective dates thereof and the consolidated
results of operations and cash flows for the periods indicated (including
reasonable estimates of normal and recurring year-end adjustments), except
that (x) any unaudited interim financial statements were or will be subject
to normal and recurring year-end adjustments and (y) any pro forma
financial statements contained in such consolidated financial statements
are not necessarily indicative of the consolidated financial position of
Surgical and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods
indicated. [The foregoing are intended as factual disclosures in
connection with the issuance of securities. The obligations under this
Agreement are Foreland's, with the assets conveyed to Refining for
operating purposes.]
Section 5.03 Authority. The execution, delivery, and performance of this
Agreement has been duly and validly authorized and approved by Foreland's board
of directors and shareholder(s). The execution of and delivery of this
Agreement do not, and the consummation of the transactions described herein will
not, result in or constitute a default, breach or violation of Foreland's
articles of incorporation or bylaws or any other agreement to which Foreland is
a party.
Section 5.04 Broker's Fees. Foreland has not engaged or entered into any
agreement with any broker or finder in connection with any of the transactions
contemplated by this Agreement requiring the payment of any fee or compensation.
Section 5.05 Material Misstatements or Omissions. To the best of
Foreland's knowledge and belief, no representation, warranty, or statement of
Foreland in this Agreement or in any document, certificate, or exhibit furnished
under this Agreement or in connection with the transactions contemplated hereby,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained therein not misleading.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FORELAND
The obligation of Foreland to purchase the Business Assets and assume the
Obligations is subject to the satisfaction, at or before Closing, of each of the
conditions set out below except for any condition which has been waived in a
writing signed by Foreland at or prior to the Closing.
Section 6.01 Performance by PSC. PSC shall have substantially performed
all conditions of this Agreement unless the requirement has been waived in
writing by Foreland.
Section 6.02 Corporate Approval. The board of directors and shareholders
of PSC shall have approved the transactions described in this Agreement and
resolutions setting forth those approvals shall have been certified to Foreland
by an officer of PSC.
Section 6.03 Satisfaction of Condition of Title to Real Property.
Foreland shall not have timely terminated this Agreement pursuant to the
provisions of Section 4.07.
Section 6.04 No Material Adverse Change Through the Closing Date. There
shall not have been any material adverse change in the financial condition or in
the results of operations of the Business, and there shall not have been any
material loss or damage to the Business Assets or Business, whether or not
insured, materially affecting PSC's ability to conduct a material part of the
Business.
Section 6.05 Absence of Litigation. No action, suit, or proceeding
before any court or any governmental body or authority pertaining to the
acquisition of the Business Assets or Business by Foreland or materially
affecting the Business Assets or Business shall have been instituted or
threatened on or before the Closing.
Section 6.06 Closing Date Review and Deliveries. On and as of the
Closing Date, PSC shall, together with one or more representatives of Foreland,
undertake a Closing Date review of PSC's books, records, and physical inventory.
The PSC shall have provided Foreland with a true, correct, and complete list
and amount, as of Closing Date, of:
(a) the Inventory;
(b) the Tangible Personal Property;
(c) PSC's Accounts Receivable with respect to the Business and a list
of all shipped but unbilled shipments as of the Closing Date, including an
aging thereof;
(d) PSC's trade accounts payable, accrued current liabilities, and
the Assumed Obligations with respect to the Business;
(e) all unfilled customer orders with respect to the Business; and
(f) all shipments made with respect to the Business during the period
from the date of this Agreement to the Closing Date;
none of which information shall, in Foreland's sole reasonable discretion, be
materially different from the information supplied by PSC in the Exhibits and
Schedules delivered to Foreland on or before January 15, 1998.
Section 6.07 Closing Date Prorations. Foreland and PSC shall prorate, as
of the Closing Date, all charges and items of expense (including those charges
and items of expense that were prepaid and are unamortized) with respect to the
Business Assets that Foreland has either expressly assumed or is otherwise
obligated to pay in accordance with the terms of this Agreement, with PSC
bearing the proportionate expense attributable to the period prior to the
Closing Date in accordance with the terms of this Agreement. Within 30 days
after the Closing Date, Foreland and PSC shall jointly prepare or cause to be
prepared a schedule of prorations in accordance with this Agreement showing the
net amount due to Foreland or PSC, as the case may be. The net amount shown on
such schedule shall be paid to the party entitled thereto within 60 days after
the Closing Date. Any amounts subject to proration determined more than 30 days
after the Closing Date shall be prorated, as set forth above, by the end of each
calendar month and paid within 15 days thereafter.
Section 6.08 Third Party Consents. Subject to the provisions of Section
4.15, PSC shall have obtained consents of all third parties whose consent is
required to the transfer of any Business Assets or Business described herein,
including any consents reasonably requested by Foreland.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PSC
The obligation of PSC to sell the Business Assets is subject to Foreland's
satisfaction, at the time of Closing, of the conditions set out below, except
for any condition which has been waived in writing by PSC at or prior to the
Closing.
Section 7.01 Performance by Foreland. Foreland shall have substantially
performed all the conditions of this Agreement, unless the requirement has been
waived in writing by PSC.
Section 7.02 Corporate Approval. The board of directors and
shareholder(s) of Foreland shall have approved the transactions described in
this Agreement and resolutions setting forth those approvals shall have been
certified to PSC by an officer of Foreland.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in Articles IV and V shall be
continuing and shall survive the Closing, but shall expire 24 months after the
Closing Date; provided, however, that if a claim for indemnification has been
asserted pursuant to Article VII prior to or as of the expiration date of such
24-month period, such representations and warranties shall remain in full force
and effect until full and complete resolution of such claim. Notwithstanding
the foregoing, however, the time for making a claim based upon such
representation or warranty shall expire 24 months after the Closing Date.
ARTICLE IX
REGISTRATION OF SHARES
Section 9.01 Obligations of Foreland. Whenever, in accordance with the
terms of this Agreement, Foreland is required to file a Registration Statement,
it shall proceed diligently and in good faith to:
(a) Prepare and file with the SEC a Registration Statement with
respect to such securities and use commercially reasonable best efforts to
cause such Registration Statement to become effective, and keep such
Registration Statement effective until all Option Consideration has been
received by PSC from the sale of Shares or until the sale of such
securities is no longer required to be registered by reason of rule 144(k)
adopted under the Securities Act.
(b) Use commercially reasonable best efforts to prepare and file with
the SEC such amendments and supplements to such Registration Statement and
the prospectus used in connection with such Registration Statement as may
be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all Shares during the period that Foreland is
obligated to keep the Registration Statement effective.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Shares on their behalf.
(d) Use commercially reasonable best efforts to register and qualify
the securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that, Foreland is not required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions.
(e) Notify PSC at any time when a prospectus relating to the resale
of the Shares is required to be delivered under the Securities Act, of the
happening of any event that limits PSC's ability to rely on such
Registration Statement, including any event that results in the prospectus
included in such Registration Statement, as then in effect, containing an
untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; any stop
order issued by the SEC or any state securities agency; or the suspension
or limitation of any preemption or exemption from state registration or
other qualification on which Foreland and PSC are relying. In any such
event, Foreland shall use commercially reasonable best efforts to file an
amendment to update the Registration Statement to the extent necessary or
to take other remedial action.
(f) Cause all such Shares registered hereunder to be listed on each
securities exchange on which similar securities issued by Foreland are then
listed.
Section 9.02 Cooperation by PSC.
(a) PSC shall furnish to Foreland in writing such information and
affidavits as Foreland may reasonably require from PSC in connection with
any registration, qualification, or compliance with respect to such Shares.
It shall be a condition precedent to the obligations of Foreland to take
any action pursuant to this Agreement with respect to the Shares of any
selling Holder that PSC shall furnish to Foreland such information
regarding PSC, the Shares and other securities in Foreland held, and the
intended method of disposition of such securities as shall be required to
effect the registration of PSC's Shares.
(b) PSC, upon receipt of any notice from Foreland of the happening of
any event of the kind described in paragraph (f) of section 3, will
forthwith discontinue disposition of the Shares until PSC's receipt of the
copies of the supplemented or amended prospectus contemplated by paragraph
(f) of section 3 or until it is advised in writing by Foreland that the use
of such prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in
such prospectus, and if so directed by Foreland, PSC will, or will request
the managing underwriter or underwriters, if any, to, deliver to Foreland
all copies, other than permanent file copies then in PSC's possession, of
the prospectus covering such Shares current at the time of receipt of such
notice.
(c) At the end of any periods during which Foreland is obligated to
keep any Registration Statement current and effective as provided herein,
PSC shall discontinue sales of securities pursuant to such Registration
Statement upon receipt of notice from Foreland of its intention to remove
from registration the securities covered by such Registration Statement
which remain unsold, and PSC shall notify Foreland of the number of
securities registered which remain unsold promptly after receipt of such
notice from Foreland.
(d) PSC acknowledges that the registration of the sale of the Shares
or the availability of an exemption from registration in certain states may
impose certain limitations and conditions on the manner and nature of such
sales. Foreland shall advise PSC in writing of such registration or
exemption and the related limitations and conditions from time to time.
PSC shall be solely responsible for PSC's own compliance with such
limitations and conditions.
Section 9.03 Expenses of Registration. All expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications, including (without limitation) all
registration, filing and qualification fees, printer's and accounting fees, and
fees and disbursements of counsel for Foreland, shall be borne by Foreland.
Section 9.04 Delay of Registration. PSC shall not have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
Section 9.05 Indemnification. In the event any Shares are included in a
Registration Statement in which PSC is included as a Selling Shareholder is
filed:
(a) To the extent permitted by law, Foreland will indemnify and hold
harmless PSC, whose Shares are included in a Registration Statement, any
underwriter (as defined in the Securities Act) for PSC, and each person, if
any, who controls PSC or underwriter within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages, or
liabilities to which they may become subject under the Securities Act,
insofar as such losses, claims, damages, or liabilities arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement,
including any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
Violation or alleged violation by Foreland of the Securities Act or any
rule or regulation promulgated under the Securities Act; and Foreland will
pay to each PSC, underwriter or controlling person, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Foreland (which consent shall
not be unreasonably withheld), nor shall Foreland be liable in any such
case for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for use
in connection with such registration by any PSC, underwriter, or
controlling person.
(b) To the extent permitted by law, PSC will indemnify and hold
harmless Foreland, each of its directors, each of its officers who has
signed the Registration Statement, each person, if any, who controls
Foreland within the meaning of the Securities Act, any underwriter, any
other Selling Shareholder selling securities in such Registration Statement
and any controlling person of any such underwriter or other Selling
Shareholder, against any losses, claims, damages, or liabilities to which
any of the foregoing persons may become subject under the Securities Act or
the Exchange Act, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written
information furnished by PSC expressly for use in connection with such
registration; and PSC will pay any legal or other expenses reasonably
incurred by any person intended to be indemnified in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of PSC, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing
provision, PSC's indemnification obligation under this subparagraph shall
not exceed the amount received by PSC on the sale of securities pursuant to
the Registration Statement.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this paragraph, deliver to the indemnifying
party a written notice of the commencement thereof, and the indemnifying
party shall have the right to participate in, and to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interest between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this paragraph, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this paragraph.
(d) If the indemnification provided for in this section is held by a
court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim,
damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. Notwithstanding the foregoing provision, the contribution
obligation of PSC shall not exceed the amount received by PSC from the sale
of securities pursuant to the Registration Statement.
(e) The obligations of Foreland and PSC under this paragraph shall
survive the completion of any offering of Shares pursuant to a
Registration Statement.
ARTICLE X
INDEMNIFICATION
Section 10.01 By Foreland and PSC. Foreland, on the one hand, and PSC on
the other hand, each hereby agrees to indemnify and hold harmless the other
party against all claims, damages, losses, liabilities, costs, and expenses
(including settlement costs and any legal, accounting, or other expenses for
investigating or defending any actions or threatened actions) reasonably
incurred by the indemnified party in connection with each and all of the
following:
(a) any breach by the indemnifying party of any representation or
warranty in this Agreement;
(b) any breach of any covenant, agreement, or obligation of the
indemnifying party contained in this Agreement or any other agreement,
instrument, or document contemplated by this Agreement; and
(c) any misrepresentation contained in any statement, exhibit,
certificate, or schedule furnished by the indemnifying party pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement.
Section 10.02 By PSC. The PSC agrees to indemnify and hold harmless
Foreland from any and all claims, damages, liabilities, costs, and expenses
(including settlement costs and any legal, accounting, or other expenses for
investigating or defending any actions or threatened actions) reasonably
incurred by the indemnified party in connection with each and all of the
following:
(a) any claims against, or liabilities or obligations of, PSC or
against the Business or Business Assets not specifically assumed by
Foreland pursuant to this Agreement which, in the aggregate, exceed
$100,000; and
(b) any and all claims, damages, losses, liabilities, costs, and
expenses including settlement costs and any legal, accounting, or other
expenses for investigating or defending any actions or threatened actions)
reasonably incurred by Foreland in connection with any warranty claim or
product liability claim relating to (i) products manufactured or sold by
PSC prior to the Closing Date, or (ii) PSC's business or operations prior
to the Closing Date.
Section 10.03 Claims for Indemnification. Whenever any claim shall arise
for indemnification hereunder, the party seeking indemnification (the
"Indemnified Party"), shall promptly notify, in writing, the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the event of any
such claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by any party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the Indemnifying
Party, when shall not be unreasonably withheld, unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control of
such suit after notification thereof as provided in section 10.04 hereof.
Section 10.04 Defense by Indemnifying Party. In connection with any claim
giving rise to indemnity hereunder resulting from or arising out any claim or
legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party, at its sole cost and expense may, upon written notice to the
Indemnified Party, assume the defense of any such claim or legal proceeding if
it acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate (but not control) the defense
of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made:
(a) the Indemnified Party may defend against such claim or litigation
in such manner as it may deem appropriate, including, but not limited to,
settling such claim or litigation, after giving notice of the same to the
Indemnifying Party, on such terms as the Indemnified Party may deem
appropriate; and
(b) the Indemnifying Party shall be entitled to participate in (but
not control) the defense of such action, with its counsel and at its own
expense. If the Indemnifying Party thereafter seeks to question the manner
in which the Indemnified Party defended such third party claim or the
amount or nature of any such settlement, the Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that the
Indemnified Party did not defend or settle such third party claim in a
reasonably prudent manner.
ARTICLE XI
SPECIAL COVENANTS
Section 11.01 Obligations After Closing. For a period of 18 months
following the Closing Date, Foreland shall have access to and the right to copy
all business records necessary to permit the preparation and audit of the
financial statements required by the Securities Act and/or the Exchange Act with
respect to the Business. The officers, directors, and employees will cooperate,
to the extent necessary, to assist in the preparation and audit of such
financial statements. In addition, PSC and Foreland shall have access to and
the right to copy all of the records of each other relative to the Business as
maybe necessary for preparation of employee or corporate tax returns, employee
tax reports, and customary accounting functions. Additionally, PSC and Foreland
shall agree to make available to the other, at reasonable times and upon
reasonable advance notice, relevant records and personnel in connection with the
preparation of a defense or the participation in a defense, participation in the
prosecution of claim or litigation, and negotiation of a settlement relating to
any pending, future, or threatened litigation, or government agency proceeding
(including a tax audit) involving the conduct of the Business before or after
the Closing, as the case may be, or in the perfection, registration, or
transferring of any copyright, trademark right, or other proprietary information
or right acquired by Foreland hereunder.
Section 11.02 Waiver of Bulk Sale. Foreland hereby waives compliance by
PSC with the provisions of the Nevada Commercial Code applicable to bulk
transfers.
Section 11.03 Financial Statements Respecting the Business. PSC shall
utilize its best efforts to make available to Foreland PSC's financial
statements, related information, and access to PSC's accountants and auditors,
at Foreland's expense, to the extent reasonably required for Foreland to meet
the requirements under applicable securities laws for providing financial
statements on acquired businesses.
ARTICLE XII
SPECIFIC PERFORMANCE
The parties hereto agree the failure of any party to perform any
obligation or duty which each has agreed to perform shall cause irreparable harm
to the parties willing to perform the obligations and duties herein, which harm
cannot be adequately compensated for by money damages. It is further agreed by
the parties hereto an order of specific performance against a party in default
under the terms of this Agreement would be equitable and would not work a
hardship on the defaulting party. Accordingly, in the event of default by any
party hereto, the non-defaulting party, in addition to whatever other remedies
are available at law or in equity, shall have the right to compel specific
performance by the defaulting party of any obligation or duty herein.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 Costs. Foreland and PSC shall each pay all of their own
costs and expenses incurred or to be incurred by each in negotiating and
preparing this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
Section 13.02 Notices. Any notice, demand, request, or other
communication under this Agreement shall be in writing and shall be deemed to
have been given on the date of service if personally served or by facsimile
transmission (if receipt is confirmed by the facsimile operator of the
recipient), or delivered by overnight courier service or on the third day after
mailing if mailed by certified mail, return receipt requested, addressed as
follows:
If to PSC, to: A. Xxxxxx XxXxxxxx
President and CEO
Petro Source Refining Corporation
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
With copies to: Xxxxxx X. Xxxx III
Vice-President, General Counsel and
Secretary
Petro Source Refining Corporation
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
If to Foreland, to: Foreland Corporation
Attn: N. Xxxxxx Xxxxxx, President
00000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
With copies to: Xxxxx X. Xxxxx, Esq.
Xxxxx, Xxxxx & Xxxxxxx, L.L.C.
Eighth Floor, Bank Xxx Xxxxx
00 Xxxx Xxxxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Telecopy: (000) 000-0000
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder, and any such notice,
demand, request, or other communication shall be deemed to have been given as of
the date so delivered or sent by facsimile transmission (if receipt is confirmed
by the facsimile operator of the recipient), three days after the date so
mailed, or one day after the date so sent by overnight delivery.
Section 13.03 Governing Law. This Agreement shall be governed by,
enforced and construed under and in accordance with the laws of the United
States of America and, with respect to matters of state law, with the laws of
the state of Utah. Venue for all actions regarding this Agreement shall be in
Salt Lake County, Utah. The parties hereby submit to the personal jurisdiction
of such court for the purpose of resolving any dispute arising under this
Agreement.
Section 13.04 Attorneys' Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
Section 13.05 Schedules and Exhibits; Knowledge. Whenever in any section
of this Agreement reference is made to information set forth in the exhibits or
the PSC Schedules, such reference is to information specifically set forth in
such exhibits or schedules and clearly marked to identify the section of this
Agreement to which the information relates. Whenever any representation is made
to the "knowledge" of any party, it shall be deemed to be a representation that
no officer or director of such party, after reasonable investigation, has any
knowledge of such matters.
Section 13.06 Entire Agreement. This Agreement, together with the
documents to be delivered pursuant hereto, represent the entire agreement
between the parties relating to the subject matter hereof. There are no other
courses of dealing, understanding, agreements, representations, or warranties,
written or oral, except as set forth herein.
Section 13.07 Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing.
Section 13.08 Form of Execution; Counterparts. A valid and binding
signature hereto or any notice or demand hereunder may be in the form of a
manual execution or a true copy made by photographic, xerographic, or other
electronic process that provides similar copy accuracy of a document that has
been executed. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall be but a
single instrument.
Section 13.09 Amendment or Waiver. Every right and remedy provided herein
shall be cumulative with every other right and remedy, whether conferred herein,
at law, or in equity, and may be enforced concurrently herewith, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance thereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.
Section 13.10 Waiver of Jury Trial. Each party hereby (a) knowingly,
voluntarily, intentionally, and irrevocably waives, to the maximum extent not
prohibited by law, any right it may have to a trial by jury in respect of any
litigation based hereon, or directly or indirectly at any time arising out of,
under, or in connection with this Agreement or any transaction contemplated
hereby or associated herewith; and (b) acknowledges that it has been induced to
enter into this Agreement and the transactions contemplated hereby by, among
other things, the mutual waivers and certifications contained in this section.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FORELAND CORPORATION
By /s/ N. Xxxxxx Xxxxxx, President
PETRO SOURCE CORPORATION
By /s/ Xxxxxx X. Xxxx III, Vice-President
PETRO SOURCE REFINING CORPORATION
By /s/ Xxxxxx X. Xxxx III, Vice-President
PETROSOURCE TRANSPORTATION
By /s/ Xxxxxx X. Xxxx III, Vice-President
