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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
SPF ENERGY, INC.
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(Exact name of registrant as specified in its charter)
NORTH DAKOTA 45-0444266
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 1847, MINOT, NORTH DAKOTA 58702
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (701) 852-1194
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Securities to be registered pursuant to Section 12(b) of the Act:
<Table>
<S> <C>
Title of each class Name of each exchange on which
To be so registered each class is to be registered
COMMON STOCK PACIFIC STOCK EXCHANGE
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</Table>
Securities to be registered pursuant to Section 12(g) of the Act:
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(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS
DESCRIPTION OF THE BUSINESS
SPF ENERGY, INC. ("SPF" OR THE "COMPANY") was incorporated on March 13, 1996, in
North Dakota to maintain a 100% ownership interest in Superpumper, Inc. and
Farstad Oil, Inc. following their merger on June 30, 1996. SPF also owns a 100%
interest in Farstad Gas & Oil, LLC and Farstad Energy Services, LLC through
Farstad Oil, Inc. SPF also owns a 99% interest in Fabrication Services, LLC
through Farstad Oil, Inc. SPF is a holding company and has no direct operations.
Our corporate headquarters are located at 100 NE 27th Street, Minot, North
Dakota 58701 and our telephone number at this location is 701-852-1194.
Superpumper, Inc. operates retail gasoline and convenience stores in North
Dakota, Minnesota, South Dakota, and Montana. Farstad Oil, Inc. is primarily a
wholesaler of petroleum products with principal markets in North Dakota,
Montana, Minnesota, and Wyoming. Farstad Gas & Oil, LLC, Farstad Energy
Services, LLC, and Fabrication Services, LLC currently have no ongoing
operations.
SUPERPUMPER, INC. ("SI"), founded in 1983, is a regional convenience store chain
with corporate offices located in Minot, North Dakota. SI currently operates
sixteen locations, five of which include car washes, five of which have fast
food programs, two of which are truck stops, and one that operates as an
unattended fueling site. SI does business in North Dakota (11 sites) under the
name Superpumper, while in Minnesota (2 sites), South Dakota (2 sites), and
Montana (1 site) SI does business under the name SPF Stores. A majority of the
stores operate under national petroleum brand affiliations (Conoco, Amoco, and
Exxon). SI also participates with three locations on a commission pumper basis
whereby SI owns the tanks, pumping equipment and petroleum inventory, the
operator controls the site and provides the labor, and the petroleum product
revenues are shared. SI currently employs approximately 175 people on a full or
part time basis.
Twelve of the convenience store locations are open on a 24-7 basis in order to
provide maximum convenience to the customers who utilize those stores.
Currently, our other locations do not economically justify being open around the
clock and are, instead, open from 7 AM to 11PM. By matching the operating hours
with the customers served, we can better utilize available resources.
Being located in the upper Midwest, SI is subject to certain seasonal variations
in its business. These variations can include weather, vacation driving and
agricultural use. The most profitable and highest volume period is the third
quarter of the calendar year. The other quarters, from highest to lowest, are as
follows; the second quarter, the fourth quarter and the first quarter. These
rankings can vary somewhat in our different locations, depending upon the
individual market.
The market area of SI includes the entire state of North Dakota, the area of
South Dakota north of and adjacent to Interstate 90, the portion of Montana that
is within 100 miles of the North Dakota border and the portion of Minnesota that
is within 100 miles of North Dakota and north of Highway 12. This market has an
area of approximately 160,000 square miles and a population of approximately 1.5
million people.
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Regionally, sales have remained fairly constant for the latest three year period
with approximately 55% of sales being made in North Dakota and 15% of sales
being made in each of the of the other states where our retail outlets are
located (Minnesota, South Dakota and Montana). With the sale/closure of our four
Billings, Montana locations in May of 2001, we expect that there will be a
significant decrease in the Montana percentage of sales.
SI's revenues are generally derived from individuals residing in the areas in
which their stores are located or from customers traveling through the area.
Most of the sites are located in high traffic areas with convenient access to
allow the customer to easily get to our stores.
At the current time, SI's sister company, Farstad Oil, Inc., is the sole
supplier for all of the petroleum products sold at our convenience stores.
Farstad Oil's array of suppliers, supply contracts, and supply points virtually
ensures that petroleum product will be available for delivery to all of the SI
locations in the foreseeable future. Product for inside sales (groceries, candy,
soft drinks, etc.) at the SI outlets is purchased from various suppliers and
there should be no reason for any shortage of convenience items for sale.
FARSTAD OIL, INC. ("FOI"), founded in 1938, began as a family owned bulk oil
business. Wholesale operations were added in the 1960's with tremendous growth
in market share and geographic area occurring in the 1980's. Today, FOI is a
regional petroleum product wholesaler with principal markets in North Dakota,
South Dakota, Montana, Minnesota, and Wyoming. FOI corporate headquarters are
located in Minot, North Dakota. FOI markets refined petroleum products,
including gasoline, distillates, propane and lubricating oils.
Minot also serves as a sales branch for the middle portion of our market area.
Likewise, our Billings, Montana branch office services our western market
territory, while our Fargo, North Dakota branch offices services our eastern
market territory. FOI currently has approximately 100 full or part time
employees. FOI also operates its own fleet of approximately thirty-five delivery
trucks that allows the company to provide prompt and efficient delivery service
to its customers.
Regionally, sales have remained fairly constant over the latest three-year
period with approximately 46% of the total sales being generated through our
Minot office, 31% of the total sales being generated through our Fargo office
and 23% of the total sales being generated through our Billings office.
Sales were mildly seasonal during the latest three-year period. Only one month
had less than 5% of the annual sales and no month had greater than 10.75% of the
annual sales. Generally, sales are weakest in the first three months of the
year, averaging 6.2% per month of annual sales and strongest from August through
October, averaging 10.6% per month of annual sales.
Sales volumes for the past three years have remained fairly constant at an
average of approximately 230,000,000 gallons of gas and fuel and approximately
20,000,000 gallons of propane sold each year. Various factors can impact on the
volumes sold, such as, availability of supply, agricultural use and the regional
weather.
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FOI's revenues are generally derived from sales to associate jobbers, associate
dealers, contractors, and industrial users. As a wholesale company, FOI
typically does not sell product to end user consumers.
FOI deals with over twenty-five different suppliers on a continuing basis.
Amoco, Cenex, Conoco, ExxonMobil, Koch, and Sinclair are among the major
domestic suppliers that we currently do business with. A vast majority of the
light end products are picked up by tanker trucks either at the refinery or from
a pipeline and delivered directly to the customer. This method of delivery
requires very little inventory to be carried by our company. FOI does have
storage capacity at its Minot facility of approximately 1,700,000 gallons.
In the early 1970's FOI obtained a license that allowed our company to import
product in from Canada to the United States. Last year we imported approximately
50,000,000 gallons or about 20% of our total purchases. These imported gallons
help supplement our domestic supply and give us further flexibility in supplying
the northern tier of our market area. Federated Coop, Imperial Oil, PetroCanada
and Shell are among the Canadian suppliers that we currently do business with.
Lubricating oil accounts for approximately 2,000,000 gallons of our annual
sales. In Minot we have one of the largest lubricant facilities in the region as
we have over 35,000 square feet of heated warehouse space along with bulk
storage capacity in excess of 200,000 gallons. All bulk tanks have individual
lines and pumps to ensure against product contamination. Recently, we were given
exclusive marketing rights for certain territories by ExxonMobil that will help
to bring our volumes to higher levels and gain economies of scale. FOI also has
smaller scale warehousing in Billings and Fargo that aide our ability to cover
our entire marketing area.
DISCONTINUED OPERATIONS
FABRICATION SERVICES, LLC ("FS") is a 99% owned subsidiary of Farstad Oil, Inc.,
a subsidiary of SPF Energy, Inc. FS was formed in 1993 by Farstad Oil, Inc. to
fabricate petroleum holding tanks, portable fractionation skids and various
other petroleum related equipment in the Denver, Colorado area. Operations did
not meet expectations and, in 1996, FS operations were shut down. FS currently
has no ongoing operations or costs.
FARSTAD GAS & OIL, LLC ("FGO") is a wholly owned subsidiary of Farstad Oil,
Inc., a subsidiary of SPF Energy, Inc. FGO was formed by Farstad Oil, Inc. in
1994 to diversify the company into natural gas liquid processing in the Permian
Basin of Western Texas. A fractionation facility was constructed in various
stages over the next 3 years. As start up operating losses and construction
costs escalated, it became apparent that neither FGO nor its parent companies
were in a position to continue operations in this market. In August of 1997, the
facility was sold to Marcum Midstream 1997-1 Business Trust ("MMBT"). SPF
Energy, Inc. retained a 15% interest in the operation, which was reflected as a
$1,600,000 investment in affiliate. In September of 1998, MMBT closed the
fractionation facility and the $1,600,000 investment in affiliate was determined
to be completely impaired and was written off. FGO currently has no ongoing
operations.
FARSTAD ENERGY SERVICES, LLC ("FES") is a wholly owned subsidiary of Farstad
Oil, Inc., a subsidiary of SPF Energy, Inc. FES was formed by Farstad Oil, Inc.
in 1997 to further diversify
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the company into the petroleum industry. Specifically, a process was
developed using a by-product produced at the FGO fractionation plant and
injecting it into oil wells in the Permian Basin to aid in the breakdown in
paraffin, thereby increase pumping rates. Start up losses and capital
expenditures proved to be a strain on the Company's finances. When the FGO
fractionation facility was sold, the decision was made to also get out of the
well service business. FES currently has no ongoing operations.
ITEM 2. SELECTED FINANCIAL INFORMATION
The following selected financial data of SPF Energy, Inc. for the five years
ended December 31, 2000 are derived from audited financial statements of the
Company and should be used in conjunction with the Consolidated Financial
Statements and notes thereto appearing elsewhere in this registration statement.
<Table>
<Caption>
Year Ended December 31
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data
Net Sales $270,789,787 $192,568,780 $160,646,841 $208,741,104 $220,477,188
Earnings (loss) before
discontinued operations 465,044 (24,197) (1,360,811) (340,105) 817,618
Net loss (104,180) (303,230) (2,769,030) (1,452,458) (53,591)
Dividends - Preferred Stock 57,570 57,570 57,570 47,426 0
Consolidated Balance Sheet Data
Total Assets 29,740,375 28,442,677 24,540,649 29,577,969 40,115,138
Total long-term debt and
capital lease obligations 6,529,342 6,789,198 8,099,703 6,794,441 6,633,010
Consolidated Per Share Data
(basic and diluted)
Earnings (loss) before
discontinued operations .14 (.01) (.37) (.09) .22
Net Loss (.05) (.10) (.76) (.39) (.01)
</Table>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPF ENERGY, INC. OVERVIEW
NET EARNINGS
Net losses for fiscal 2000 decreased to $104,180 from $303,230 in the prior
year. During 2000, several transactions impacted net earnings from operations
and discontinued entities that were not viewed as ongoing operational earnings.
These transactions included a legal reserve relating to a product dispute with a
former customer of Farstad Gas & Oil, LLC and continued wind down costs
associated with the discontinued subsidiaries of Farstad Gas & Oil, LLC and
Farstad Energy Services, LLC. Refer to Note 4 in SPF's Consolidated Financial
Statements for further information.
Net losses for fiscal 1999 showed a marked improvement of $2,465,800 over the
previous year. This large change was due in part to a substantial pre-tax charge
off of $1,600,000 in fiscal 1998 that was related to a Farstad Gas & Oil, LLC
investment which was deemed to be worthless. Additionally, in 1998, Superpumper,
Inc. recognized impairment in value on two of the convenience store locations.
In 1999, Farstad Oil, Inc. shifted away from leasing it's own aircraft. Instead,
it is now sharing an aircraft with another company resulting in a savings to the
Company of almost $385,000. Other items that factored into the improvement in
earnings were improved product margins on the wholesale side and decreased
selling expenses on the retail side.
<Table>
<Caption>
SPF-NET EARNINGS COMPONENTS 2000 1999 1998
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<S> <C> <C> <C>
Earnings/(Losses) before discontinued operations $ 465,044 $ (24,197) $ (1,360,811)
Impairments/Losses of discontinued entities (569,224) (279,033) (1,408,219)
--------------------------------------------
Net Losses $ (104,180) $ (303,230) $ (2,769,030)
============================================
</Table>
EARNINGS
Earnings before discontinued operations in 2000 increased to $465,044 from a
loss of $24,197 in 1999. The $489,241 increase in earnings before discontinued
operations in 2000 compared to 1999 resulted primarily from slightly higher
product margins on the wholesale side of the business and lower operational
expenses on the retail side of the business due in part to administrative
staffing reductions.
These preceding positive factors were partially offset by higher interest costs.
The wholesale business of Farstad Oil, Inc. involves carrying customer's account
balances for 10 to 30 days. As a result of increased product price the total
amount of these accounts has expanded significantly. These increased customer
balances created additional borrowing requirements and thus caused interest
costs to escalate. In 2000 Farstad Oil, Inc.'s interest expense totaled
$948,774, which is
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a $282,089 increase over the prior year. As with other petroleum
distributors, our prices are impacted by the world market for oil prices.
Earnings in 1999 improved by $1,336,614 over 1998 results. The large improvement
in earnings is partially attributable to increased product volumes and margins
on the wholesale side of the business while being able to hold operational
expenses fairly constant. Additionally, selling expenses were reduced on the
retail side due to the sale of two convenience stores during 1999 with their
accompanying expenses being eliminated during the year.
Losses resulting from prior operations have created a Net Operating Loss (NOL)
for income tax purposes. This NOL is an accumulation of the income tax benefits
as reflected in the attached financial statements. As of December 31, 2000, the
NOL carryover is $4,187,658. As such, we do not anticipate incurring any cash
outlays relating to income taxes in the next several years.
OVERALL RISK FACTOR
Like other petroleum dealers, our operations are subject to changing federal and
state environmental regulations governing air emissions, wastewater discharges,
and solid and hazardous waste management activities. Our policy is to accrue
environmental and related clean-up costs of a non-capital nature when it is both
probable that a liability has been incurred and that an amount can be reasonably
estimated. There were no material matters of this nature during the 3 years
ended December 31, 2000, and management believes that there are currently no
such matters that would materially impact future operations.
The Company's sales are primarily generated in the north central states of North
Dakota, South Dakota, Minnesota and Montana. The economy of this region is
highly dependent on the agricultural industry that can vary based on weather
conditions, national and world markets and legislative programs. As such,
economic conditions in, and other factors relating to, these geographic areas,
including supply and demand for petroleum products and competition from other
dealers, could adversely affect performance. To the extent general economic or
social conditions in any of these areas deteriorate, the Company's results of
operations and ability to pay amounts due on debt could be adversely affected.
The Company is subject to the normal risks associated with debt financing,
including the risk that cash flow will be insufficient to meet required payments
of principal and interest, the risk that indebtedness will not be renewed,
repaid or refinanced when due or that the terms of any renewal or refinancing
will not be as favorable as the terms of such current indebtedness. If debt
cannot be refinanced on acceptable terms, or at all, the disposal of assets may
be required on disadvantageous terms, which might result in losses. Such losses
could have an adverse effect on operations and the Company's ability to pay
amounts due on current debt.
The Company has incurred, and expects to incur in the future, indebtedness that
bears interest at a variable rate. Accordingly, increases in interest rates
would increase our interest costs, which could have an adverse effect on
operations. In addition, increasing product costs causes the amount of customer
receivables and inventory to rise without changes in sales volume. This
situation requires additional financing in order to carry these higher balances.
The result is increased interest cost that could adversely affect operations.
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SUPERPUMPER, INC.
The following table presents a summary of Superpumper, Inc.'s financial results
over the last three fiscal years:
<Table>
<Caption>
SUPERPUMPER, INC. - SUMMARY OF RESULTS 2000 1999 1998
-------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Sales $ 47,539,390 $ 42,735,108 $ 40,459,151
Cost of Sales 39,623,409 34,834,918 31,849,368
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Gross Margin 7,915,981 7,900,190 8,609,783
Depreciation & Amortization 1,043,776 1,139,586 1,255,872
Interest Expense 619,239 668,401 652,314
Selling Expense 6,148,921 6,377,119 6,831,237
General and Administrative Expense 636,600 908,387 935,581
Other Income (Expense) 31,471 81,103 120,822
Provision (Benefit) for Income Tax (176,280) (371,699) 187,918
-------------------------------------------------
Loss before Non-Recurring/Impairment Losses (324,804) (740,501) (1,132,317)
Non-Recurring/Impairment Losses (10,980) (150,179) (142,766)
-------------------------------------------------
Net Loss $ (335,784) $ (890,680) $ (1,275,083)
=================================================
</Table>
SALES
Sales for fiscal 2000 increased by over $4,800,000, an 11.2% increase from
reported sales in 1999. The sales increase was primarily the result of increased
petroleum product prices as volumes dipped approximately 5.5%. The Company's
average selling price for product was $1.57 per gallon for 2000, compared to
$1.25 per gallon reported for 1999.
Sales for fiscal 1999 increased by slightly over $2,275,000, a 5.6% increase
from reported sales in 1998. The sales increase was the result of increased
product volumes that rose by 6.3%. The selling price per gallon remained
relatively constant at an average of $1.25 per gallon in 1999 versus an average
of $1.23 per gallon in 1998.
Regionally, sales have remained fairly constant for the three year period ended
December 31, 2000 with approximately 55% of sales being made in North Dakota and
15% of sales being made in each of the of the other states where our retail
outlets are located (Minnesota, South Dakota and Montana).
Sales are only mildly seasonal, as the lowest month in the three-year period was
6.2% of annual sales while the highest month garnered 10.2% of annual sales. As
would be expected with an industry related to driving, sales are somewhat
stronger in the summer months as customers are likely to consume more gasoline
during peak vacation periods. However, fluctuations were only found to be about
10% higher in the highest 6 months of May through October, when compared to the
lowest 6 months of November through April.
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EXPENSES
Overall expenses for fiscal 2000 decreased by just under $645,000, a decrease of
7.0% from expenses reported in 1999. The decrease was attributable to various
factors including decreases in salaries and benefits of approximately $425,000,
administrative corporate downsizing and the sale of two convenience stores
during 1999. The sale of the convenience stores also impacted the selling
expense and helped to decrease the property expense approximately $185,000.
Expenses for fiscal 1999 decreased by slightly more than $580,000, a decrease of
6.0% from expenses reported in 1998. A majority of the decrease, $455,000, can
be tied to a large decrease in selling expenses that resulted mainly from the
sale of two of the convenience store locations during 1999.
OUTLOOK
Although results from 2000 operations still showed a loss, SI has realized
continued improvement in net results. Management has put into place several
items to enhance results for the coming year. Among the implementations for the
upcoming year are:
o Additional personnel changes.
o Reductions in labor hours at the convenience stores.
o Advertising program adjustments.
o Reworking incentive structures.
o Investigating additional products that may fit within our
structure.
An area of concern for SI has been the substantial operating losses that have
been generated by our four convenience stores in the Billings, Montana market.
These stores have been operated similarly to our other locations and the losses
are not attributable to operational deficiencies. However, fierce localized
competition has dampened the margins received on product sold in this market for
more than 3 years. Due to continued uncertainty in this market area, three of
the locations were sold and the other location was closed effective May 31,
2001. Although the sales/closing will generate a book loss, the overall effect
of this action should positively impact SI in both net operating results and
cash flow in the ensuing years.
RISK FACTOR
Convenience stores face stiff competition from within the industry, especially
with the advent of hyper-marketers. This new style of marketers are more
concerned with drawing consumers to their locations in anticipation that they
will induce additional consumer traffic into their related grocery or discount
stores than they are with making a fair profit on their gasoline sales. Our
company believes that we will be able to withstand this competition through
efficient service, niche locations and a willingness to make changes when
necessary.
FARSTAD OIL, INC.
The following table presents a summary of Farstad Oil, Inc.'s financial results
over the last three fiscal years.
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<Table>
<Caption>
FARSTAD OIL, INC. - SUMMARY OF RESULTS 2000 1999 1998
-------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Sales $ 249,183,723 $ 165,439,650 $ 132,419,723
Cost of Sales 239,028,584 155,844,500 123,545,783
----------------------------------------------------
Gross Margin $ 10,155,139 $ 9,595,150 $ 8,873,940
Depreciation & Amortization 257,557 251,820 464,748
Interest Expense 948,774 666,685 963,292
Selling Expense 6,115,387 5,712,372 5,107,235
General and Administrative Expense 2,211,029 2,336,127 3,086,189
Other Income 683,741 659,558 1,206,591
Provision for Income Tax 477,827 402,138 213,654
----------------------------------------------------
Net Earnings $ 828,306 $ 885,566 $ 245,413
====================================================
</Table>
SALES
Sales for the fiscal 2000 increased just under $83,745,000, an increase of
slightly more than 50% of sales reported in 1999. The increase was primarily the
result of an overall increase petroleum product price of approximately 53% as
sales volumes decreased approximately 3.4%.
Sales for fiscal 1999 increased by slightly over $33,000,000, an increase of
close to 25% over sales reported in 1998. The increase is partially due to an
8.6% growth in sales volumes along with a rise in overall product price of
approximately 17.5%.
The Company's average selling price per gallon for gasoline was $0.979 in fiscal
2000, compared to $0.655 in fiscal 1999 and $0.549 in fiscal 1998. The average
selling price per gallon for diesel fuel was $0.941 in fiscal 2000, compared to
$0.600 in fiscal 1999 and $0.498 in fiscal 1998. The average selling price per
gallon for propane was $0.636 in fiscal 2000, compared to $0.335 in fiscal 1999
and $0.288 in fiscal 1998. The average selling price per gallon for lube oil was
$4.55 in fiscal 2000, compared to $4.12 in fiscal 1999 and $4.08 in fiscal 1998.
Regionally, sales have remained fairly constant over the three-year period with
approximately 46% of the total sales being generated through our Minot, North
Dakota office, 31% of the total sales being generated through our Fargo, North
Dakota office and 23% of the total sales being generated through our Billings,
Montana office.
Sales were mildly seasonal during the three-year period. Only one month had less
than 5% of the annual sales and no month had greater than 10.75% of the annual
sales. Generally, sales are weakest in the first three months of the year,
averaging 6.2% per month of annual sales and strongest from August through
October, averaging 10.6% per month of annual sales.
EXPENSES
Overall expenses for fiscal 2000 increased by approximately $565,000, an
increase of 6.3% from expenses reported in 1999. The increase was mainly
attributable to $282,000 of increased interest charges due to higher interest
rates and increased borrowings of operating funds and
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$272,000 of increased property expenses resulting mainly from higher fuel
usage costs by our product delivery fleet. All other costs remained relatively
constant from 1999 to 2000.
Overall expenses for fiscal 1999 decreased by approximately $655,000, a decrease
of 6.8% from expenses reported in 1998. The decrease can be attributed to
several key items that include lower interest expense of $296,607, lower
depreciation of $212,928, and lower general and administrative expense of
$750,000. These decreases can be further explained as a result of downsizing
that occurred with the discontinuation of the southern operations (Farstad Gas &
Oil, LLC and Farstad Energy Services, LLC), the change from leasing an airplane
to sharing an airplane with another company within the aviation department, and
the termination of a long term consulting contract.
OUTLOOK
Although net results from 2000 were down about 6%, the Company was satisfied
that it had performed well under the pressure of substantially increased product
costs. The Company continues to strive to work with the major oil companies and
was recently awarded an exclusive sales market area for lubricants from
ExxonMobil, one of the newly merged petroleum conglomerates.
RISK FACTOR
The profitability of FOI's wholesale business is influenced by refined petroleum
price levels that are difficult to predict and impossible to control. With
increased product prices comes an additional need for operating money, putting a
squeeze on working capital levels that have already been eroded by past
subsidiary cash needs.
Operational financing is necessary for the Company to transact business as
usual. Currently the company has a loan agreement with Wells Fargo Business
Credit, a major asset based lender, whereby the Company can borrow a maximum
of $10,000,000 including outstanding letters of credit. As of December 31,
2000 the outstanding loan balance was $7,283,590 and letters of credit
totaled $1,652,028. The outstanding balance is due upon demand and the
agreement may be terminated with 30 days written notice. The loan is
collateralized by all inventories, receivables and equipment and has been
guaranteed by Jeffrey Farstad, majority stockholder of the Company. The terms
of the agreement include certain requirements and restrictive covenants. As
of December 31, 2000, all of the requirements and restrictive covenants of
this agreement have either been waived or complied with.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FIRST SIX MONTHS OF 2001
RESULTS FROM OPERATIONS
Results from operations for the six months ended June 30, 2001 were negative,
with a net loss of $526,953. These results included a one-time net loss of over
$500,000 on the sale/closure of retail assets that are further discussed in the
"Other" section. The Company's results as a whole, including the one-time loss
previously discussed, deteriorated by slightly over $331,000 as compared to the
first six months of 2000.
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REVENUES
Total sales dollars for the six months of 2001 were up $3,410,865 or
approximately 2.8% over the sales from the first six months of 2000. Most of the
change was a direct result of an increase in the per gallon selling (and
purchasing) price of product. The Company's current selling price is
approximately ten cents per gallon higher for the current period than it was a
year ago. Volume of sales (gallons) decreased by about 7,675,000 gallons or just
over 6% when compared to the same period of last year.
GROSS MARGIN
Gross margin increased for the first six months of 2001 by $393,160 or
approximately 4.75% over the gross margin from the first six months of 2000.
This increase was the result of a slightly increased margin on product sold,
.0039 per gallon, and additional margins garnered on our inside sales
convenience store items.
EXPENSES
Operating expenses for the first six months of 2001 increased by $116,775 or
approximately 1.45% when compared to the first six months of 2000. One
significant factor in the change was increased fuel costs for our delivery fleet
that was brought upon by the higher price of product. G&A expenses and
depreciation expenses remained relatively constant when comparing the two
periods. Interest expense increased by $30,704 or approximately 4% when
comparing the two periods. The additional interest charges were brought about by
higher product prices. This resulted in higher accounts receivable balances
which caused additional operating money borrowing. The effect of the increased
borrowing would have been more pronounced if the interest rates had remained at
previous higher levels. The Company also incurred additional interest
charges/penalties due to operating collateral being insufficient at times to
back the operating loan. This shortfall in collateral caused our lender to
impose penalties when the Company was exceeding the established advance rates.
NET INCOME
Net loss for the first six months of 2001 increased by $331,353 as compared to
the first six months of 2000. Management anticipates that the historical pattern
of the first six months being a poorer performer than the last six months will
be followed again this year.
OTHER
As a result of continued losses in the Billings, Montana retail market, a
decision was made to sell three of the Billings' retail locations and cease
operations at another as of May 31, 2001. This transaction resulted in a
one-time write off on the sales/closure of the assets relating to the
aforementioned locations of over $500,000 after allowing for tax benefits on the
loss. There were no other significant changes in operations for the first six
months of 2001. Also, there were no other material acquisitions or disposals of
any type.
FINANCIAL CONDITION
There are several balance sheet items that changed significantly when comparing
June 2001 with December 2000. Most of the changes appear to be related to the
fact that, historically, the first six month period is the Company's lower sales
volume period and the decreased sales can cause certain accounts to fluctuate.
As a result of this seasonal slowdown, accounts receivable declined by
$1,763,010 or 11%, accounts payable declined by $972,136 or 9.5%, and fuel taxes
payable declined by $426,269 or 24% for the period as sales slowed, cash was
collected from customers and paid to vendors, lenders and tax authorities.
Additionally, property and equipment decreased by $1,846,725 or 12% due mainly
to the sale of the Company's Billings, Montana convenience store assets. The
loss on the sale of the convenience store assets was the main reason that
retained earnings dropped by $555,740 or 162%
11
<Page>
ITEM 3. PROPERTIES
Superpumper, Inc. has long-term operating leases on buildings and land at
various store locations in North Dakota, Minnesota, South Dakota and Montana.
The Company is committed to pay rentals on these properties for various terms
through 2022. The Company also has an operating lease on former corporate
headquarters in Minot, North Dakota, which is currently vacant. The Company is
committed to pay rental on this property through 2001. The Company also has an
auto lease through 2002. Payments made under these operating leases totaled
$988,826, $925,355 and $1,092,433 in 2000, 1999 and 1998, respectively.
Farstad Oil, Inc.'s transportation and other equipment and branch sales office
space are leased under three to five year lease agreements. Payments made under
these operating leases totaled $943,521, $898,015 and $1,174,523 in 2000, 1999
and 1998, respectively.
The following is a schedule by years of future minimum rental payments on
operating leases as of December 31, 2000:
Year Ending December 31,
2001 $ 1,832,145
2002 1,539,191
2003 1,351,536
2004 1,178,404
2005 995,339
Thereafter 6,736,895
-----------
Total minimum future rentals $13,633,510
===========
The Company owns its headquarters office/warehouse facility in Minot, North
Dakota. This is situated on a nine acre site, which includes approximately
200,000 of bulk storage capacity. This property is subject to a mortgage loan,
with a balance on July 1, 2001 of $621,989 and bearing a variable interest rate
currently at 7.25% annually. Monthly payments are $5,964, and the loan will be
paid off in March, 2015.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-12-
<Page>
The following table sets forth certain information regarding the ownership of
the Common Stock as of July 1, 2001 (i) by each person known to the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock, (ii) by each of the Company's executive officers named in the Executive
Compensation table, (iii) by each of the Company's directors, and (iv) by all
of the executive officers and directors as a group:
<Table>
<Caption>
Shares Beneficially Owned
-------------------------
Name and Address of Beneficial Owners Number Percent
------------------------------------- ------ -------
<S> <C> <C>
FIVE PERCENT STOCKHOLDERS
Terry and Cynthia Domres (1) 218,837 (2) 6.36%
2400 - 11th Avenue Northwest
Minot, ND 58703
John I. Havnvick Trust 239,824 6.97%
c/o Westbrand & Co., Trustee
P.O. Box 1090
Minot, ND 58702
DIRECTORS AND EXECUTIVE OFFICERS
Jeffrey Farstad 2,010,182 (2) 58.44%
P.O. Box 1842
Minot, ND 58702
Paulette D. Andrews 511,495 14.87%
1085 Saddle Lake Court
Roswell, GA 30076
Dennis Kruger 939 (2) *
Bruce Hest 870 (2) *
Kris Wolla 1,203 (2) *
All directors and executive officers as a group 2,524,589 73.39%
(five in number)
*Less than 1%
(1) Includes 113,026 shares held by Terry Domres and 104,286 shares held by
Cynthia Domres, who are husband and wife.
(2) Includes shares held in the Company's 401(k) Profit-Sharing Plan.
</Table>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company's executive officers, key employees and directors are as follows:
<Table>
<Caption>
Name Age Position
---- --- --------
<S> <C> <C>
Jeffrey Farstad 47 President, Chief Executive Officer
and Chairman of the Board
Dennis Krueger 55 Vice President, Chief Operating
Officer, Director
-13-
<Page>
Bruce Hest 42 Secretary/Treasurer, Chief Financial
Officer, Director
Kris Wolla 33 General Manager, Superpumper, Inc.,
Director
Paulette Andrews 55 Director
BIOGRAPHICAL INFORMATION
------------------------
JEFF FARSTAD
Education:
----------
o Minot High School, 1971, Minot, North Dakota.
Business Experience:
--------------------
o 1971-1982 Secretary/Treasurer, Farstad Oil, Inc., Minot, North Dakota.
o 1982-1996 Chairman/Chief Executive Officer, Farstad Oil, Inc., Minot,
North Dakota.
o 1996-Present Chairman/Chief Executive Officer, SPF Energy, Inc., Minot,
North Dakota
DENNIS KRUEGER
Education:
----------
o Sawyer High School, 1964, Sawyer, North Dakota.
o Minot Business College (Business Administration), 1966, Minot, North
Dakota.
Business Experience:
--------------------
o 1966-1977 Supply/Distribution Manager, Westland Oil, Inc., Minot, North
Dakota.
o 1977-1982 Eastern Marketing Manager, Flying J, Inc., Williston, North
Dakota.
o 1982-1996 Chief Operating Officer, Farstad Oil, Inc., Minot, North
Dakota.
o 1996-present Chief Operating Officer, SPF Energy, Inc., Minot, North
Dakota
BRUCE HEST
Education:
----------
o Hendrum High School, 1977, Hendrum, Minnesota.
o Moorhead State University (B.S. Accounting), 1981, Moorhead, Minnesota.
Business Experience:
--------------------
o 1982-1984 Trainee/Business Manager, Village Family Service Center,
Fargo, North Dakota.
o 1984-1996 Assistant Controller, Farstad Oil, Inc., Minot, North Dakota.
o 1997-1999 Controller, Farstad Oil, Inc., Minot, North Dakota.
</Table>
-14-
<Page>
o 2000-Present Chief Financial Officer, SPF Energy, Inc./Farstad Oil,
Inc., Minot, North Dakota.
KRIS WOLLA
Education:
----------
o Minot High School, 1987, Minot, North Dakota.
o Minot State University (B.S. Business Administration), 1993, Minot,
North Dakota
o Bismarck State College, (Construction Tech Teaching Certificate), 1995,
Bismarck, North Dakota
Business Experience:
--------------------
o 1993-1994 Construction Manager, Corp of Engineers, Minot (MAFB), North
Dakota
o 1994-1995 Site Coordinator/Instructor, Burdick Job Corps Center, Minot,
North Dakota
o 1995-2000 Construction/Property Manager, Superpumper, Inc., Minot,
North Dakota
o 2001-Present General Manager, Superpumper, Inc., Minot, North Dakota
PAULETTE ANDREWS
Education:
----------
o Highland High School, 1964, Sacramento, California.
o Josef's (Cosmetology Degree), 1965, Fargo, North Dakota
Business Experience:
--------------------
o 1966-1985 Owner/Operator, El Rancho Salon, Williston, North Dakota
o 1985-1989 Owner/Operator, Treasure Island Gift & Decorating, Williston,
North Dakota
o 1990-1995 Marketing Director, Superpumper, Inc., Minot, North Dakota
o 1995-1998 Chief Operating Officer, Superpumper, Inc., Minot, North
Dakota
o 1998-Present Director, SPF Energy, Inc., Minot, North Dakota
Directors and executive officers serve indefinite terms which expire when their
successors are appointed, or until their prior resignation, removal or
incapacity.
ITEM 6. EXECUTIVE COMPENSATION
The following table summaries compensation paid by the Company to its most
highly compensated executive officers earning over $100,000 for services
rendered in all capacities during the last three years.
-15-
<Page>
<Table>
<Caption>
Base Other Total
Office and Position Year Salary Compensation (1) Compensation
------------------- ---- ------ ---------------- ------------
<S> <C> <C> <C> <C>
Jeffrey Farstad 2000 334,264 780 335,044
President & CEO 1999 318,347 780 319,127
1998 303,187 780 303,967
Dennis Krueger 2000 225,000 1,905 226,905
Vice President & COO 1999 200,000 1905 201,905
1998 200,000 1905 201,905
Terry Domres 2000 185,000 780 185,780
General Manager, Superpumper, Inc. 1999 185,000 780 185,780
(terminated) 1998 185,000 780 185,780
</Table>
(1) Other compensation consists of personal use of autos and, in Mr. Krueger's
case, insurance provided to the employee with a beneficiary outside the
Company.
BONUS PLAN
The bonus plan is based upon after-tax (after said bonuses) return on January 1
equity. The bonus percentages are expressed as a percentage of base salary. The
bonus amounts were based upon the percentages from the 1996 NACS Compensation
Survey. The plan applies to the CEO, the CFO and the COO(s). Mr. Farstad is
contractually prohibited from receiving a bonus until the return on equity
exceeds 20%, but he will be made whole once income exceeds that level. No
bonuses have been paid pursuant to this plan.
<Table>
<Caption>
Bonus % for Executives
Return on Jan 1 Equity except for Jeff Farstad Bonus % for Jeff Farstad
---------------------- ----------------------- ------------------------
<S> <C> <C>
10% 10% 0%
15% 25% 0%
16% 30% 0%
17% 35% 0%
18% 40% 0%
19% 45% 0%
20% 50% 50%
21% 55% 55%
22% 60% 60%
Each additional 1% Additional 5% Additional 5%
</Table>
AGREEMENTS WITH OFFICERS
Effective July 1, 1996, the Company entered into an employment agreement with
Mr. Farstad. The current agreement continues through December 31, 2005.
Pursuant to the agreement, Mr. Farstad is to receive an initial annual salary
of $275,000. This salary is to be increased each year by an amount equal to 5%
of the preceding year's compensation. Mr. Farstad shall be eligible
-16-
<Page>
additional compensation in the form of the executive bonus plan as set forth by
the Board. Mr. Farstad shall also be compensated for his personal guarantee of
the Company's financial obligations. Said guarantee compensation are determined
by the board and are not considered compensation for personal services. During
the last three fiscal years, Mr. Farstad has been paid a total of $115,762.56
per year in monthly installments of $9,646.88.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has contractually agreed to repurchase shares from Terry and
Cynthia Domres, Paulette Andrews and the John Havnvick Trust at the greater of
a preset amount or 92% of the market price under specific circumstances. As of
June 30, 2001, the number of shares that could be redeemed under these
agreements, with various terms through the year 2008, is no greater than
953,476 shares at a total redemption amount of $4,867,311. In 2000, a total of
130,897 shares were redeemed at a total purchase price of $641,130.20.
The Company is in arrears in repurchasing stock redemption options for Paulette
Andrews in accordance with the redemption agreements and a settlement or prior
arrearages. The amount in arrears as of December 31, 2000 totaled $311,570.
Jeff Farstad, the majority shareholder, has borrowed funds from the Company
periodically at market interest rates. Balances of $375,000 and $372,404 were
due on the above borrowing at December 31, 2000 and December 31, 1999,
respectively. Interest paid or accrued to the Company by Jeff Farstad amounted
to $35,842 and $28,649 in 2000 and 1999, respectively, accruing at a rate of
11% annually.
The Company is currently leasing the usage of an airplane owned by Rice Lake
Products, LLC (RLP). Jeff Farstad is the owner of RLP. Payments made by the
Company to RLP for airplane use amounted to $171,870 and $164,329 in 2000 and
1999, respectively.
In addition, RLP owed the Company $730 as of December 31, 1999, for land
purchased from the Company in 1998. On December 31, 1999, $2,217 of interest
income was recognized on notes receivable from RLP. The note was paid off in
2000. (See Note 3)
Eliance Corporation, formerly known as Dacotah Marketing and Research, LLC, of
which Jeff Farstad is a minority owner, utilized the Company's leased airplane
for a short time in 1999. Payments made to the Company by eliance for airplane
use amounted to $36,459 in 1999.
During 2000 and 1999, the Company leased gas plants from F&F, LLC. This entity
is owned by close relatives of Jeff Farstad, the majority shareholder of SPF
Energy, Inc. Payments made under this lease totaled $84,000 in 2000 and
$117,000 in 1999.
ITEM 8. LEGAL PROCEEDINGS
A complaint was filed in Colorado state court as a purported class action in or
about January of 2001, seeking to recover damages resulting from the sale of
units in the Marcum Midstream 1997-1 Business Trust ("Trust") from March 31,
1997 through October 27, 1997. Farstad Oil,
-17-
<Page>
Inc., Farstad Gas & Oil LLC and Jeff Farstad (the "Farstad defendants") were
named as defendants in this matter with other defendants including the Trust,
Meretek Technologies, Inc., Marcus Gas Transmission, Inc., Marcum Resources,
Inc., W. Philip Marcum and others (the "Marcum defendants"). The Complaint
alleges that the Trust was formed in February of 1997 to purchase a natural
gas liquids processing facility from defendant Farstad Gas & Oil, LLC. Money
for the purchase was obtained from selling units in the Trust to investors,
including the plaintiff. Plaintiff has asserted that defendants are liable
under the Colorado Securities Act, CR ss. 11-51-101, et seq. for
misrepresentations in the sale of the Trust units. The Farstad defendants
brought a motion to dismiss the claims against them for failure of the
Complaint to state a claim. The court in its Order of May 11, 2001,
dismissed, without prejudice, Farstad Oil, Inc. and Farstad Gas & Oil, LLC.
Subsequent to the dismissal the plaintiff filed a motion seeking leave to
amend the Complaint and the Marcum as have filed cross claims, and in third
party complaint against the Farstad defendants for contribution and
indemnification, and other claims allegedly arising from the purchase of the
natural gas facility. The Farstad defendants deny any liability and have
instructed their attorneys to continue to vigorously defend them.
A complaint was filed in California state court by a number of plaintiffs and
served upon Farstad Oil, Inc., Farstad Gas & Oil, LLC, and Jeff Farstad
individually, on or about June 8, 2001. The Complaint is similar to the
Colorado Complaint alleging violation of various California state laws in
connection with the offer and sale of units of the same Marcum Midstream 1997-1
Business Trust. The substance of plaintiffs' claims are again
misrepresentations in the sale of these units to the plaintiffs. The defendants
in the California matter include the Trust, Meretek Technologies, Inc., and
related Marcum companies and individuals, as well as various brokers and
dealers who are alleged to have participated in the sale of the Trust units.
Farstad Oil, Inc., Farstad Gas & Oil, LLC and Jeff Farstad again deny any
liability and have instructed their attorneys to vigorously defend the matter.
The Farstad defendants have filed a motion to quash service of process for lack
of jurisdiction in the California courts, which motion is currently pending.
A former customer of FGO filed a lawsuit against the Company alleging damages
for disputed product left on board of railcars. The case was taken to
arbitration and although, in the Company's opinion, industry standards were
followed in regards to the product left on board, an unfavorable ruling was
made. Based upon the opinion of legal counsel, the Company has recorded a
reserve for the contract settlement in the amount of $630,000. As negotiations
are still in process, it is currently unknown as to when this claim will be
paid out.
The Company is party to other legal actions. The Company estimates that none of
these actions would have a material adverse effect on the Company. As the
ultimate outcomes of these actions are unknown at the present time, no
provision for any asset or liability has been made in the accompanying
consolidated financial statements.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's common stock.
The Company has filed an application to list its common stock for trading on
the Pacific Stock Exchange, but no assurance can be given that such listing
will be granted or, if it is, that any substantial trading market will develop.
-18-
<Page>
There are no outstanding warrants, options or rights to purchase the Company's
common stock, and there are no outstanding securities convertible into common
stock. All of the Company's outstanding common stock is eligible for sale
pursuant to the Securities and Exchange Commission's Rule 144.
The Company has never paid any dividends on any of its common stock, and it does
not anticipate doing so in the foreseeable future. The Company has paid $57,570
in dividends on its preferred stock in each of the last three fiscal years
pursuant to its terms.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On August 1, 2001, the Company issued 100 shares of Common Stock to all of
its employees (a total of 18,300 shares to 183 employees) for services
rendered and to be rendered. These shares were issued in reliance upon the
exemption provided by SEC Rule 701, and all employees were given a copy of
the written plan pursuant to which the shares were granted. The Company has
made no other sales of securities in the last three years.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMMON STOCK
As of September 5, 2001, there were 3,438,050 shares of Common Stock
outstanding and held of record by 501 stockholders. There are a total of
10,000,000 shares of Common Stock, par value $.01 per share, authorized.
The holders of Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders, and have cumulative
voting rights when voting for directors. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding Preferred Stock. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares offered by the Company in this offering will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 2,500,000 shares of Preferred Stock in one or more
series. Each such series shall have such rights and preferences, including
voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors. The
rights of the
-19-
<Page>
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of holders of any Preferred Stock that may be issued in the future.
Issuance of the Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Company has issued a total of
57,570 shares of Preferred Stock. Holders of Preferred Stock are entitled to
receive an annual, cumulative dividend of $1.00 per share, paid quarterly.
This dividend is treated as a liquidation preference upon any liquidation of
the Company. The Preferred Stock is non-voting. The Company has no present
plans to issue any additional shares of Preferred Stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 10-19.1-50 of the North Dakota Business Corporation Act
generally requires a corporation to indemnify its directors, officers, and
employees against judgments, penalties, fines, and expenses, including
attorney's fees incurred in connection with their official capacities, provided
that such person (i) has not been indemnified by another with respect to the
same matter, (ii) acted in good faith, (iii) received no improper personal
benefit, (iv) had no reasonable cause to believe that his conduct was unlawful,
and (v) reasonably believed that his conduct was in the best interests of the
corporation.
The Company carries directors and officers liability insurance in the
amount of $1,000,000 per occurrence, which insures the directors and officers of
the Company against claims made against them in their capacities as such.
-20-
<Page>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SPF ENERGY, INC. AND SUBSIDIARIES
Minot, North Dakota
CONSOLIDATED FINANCIAL STATEMENTS
AS OF
DECEMBER 31, 2000, 1999 AND 1998
AND
INDEPENDENT AUDITOR'S REPORT
F-1
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<Table>
<Caption>
PAGES
-----
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5-6
Consolidated Statements of Cash Flows F-7-8
NOTES TO FINANCIAL STATEMENTS F-9-24
SUPPLEMENTAL INFORMATION
Independent Auditor's Report on Supplemental Information F-25
Selected Financial Data. F-26
Quarterly Results of Consolidated Operations (unaudited) F-27
</Table>
<Page>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
SPF Energy, Inc. and Subsidiaries
Minot, North Dakota
We have audited the accompanying consolidated balance sheets of SPF
Energy, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 2000, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SPF Energy, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2000, 1999 and 1998, in conformity with auditing standards
generally accepted in the United States of America.
BRADY, MARTZ & ASSOCIATES, P.C.
February 16, 2001
F-3
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
<Table>
<Caption>
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 509,650 $ 895,351
Accounts receivable 16,128,857 14,002,739
Inventories 2,596,348 2,423,087
Prepaid expenses 519,005 541,571
Current portion of notes receivable 464,976 491,660
----------- -----------
Total current assets $20,218,836 $18,354,408
----------- -----------
PROPERTY AND EQUIPMENT
Land $ 320,651 $ 290,651
Buildings and development cost 2,198,261 2,059,646
Leasehold improvements 2,758,862 2,646,739
Equipment and fixtures 9,769,922 9,534,839
Property held under capital leases 700,591 700,591
----------- -----------
$15,748,287 $15,232,466
Less accumulated depreciation and amortization (9,002,242) (8,055,055)
----------- -----------
Total property and equipment $ 6,746,045 $ 7,177,411
----------- -----------
OTHER ASSETS
Notes receivable, net of current portion $ 278,975 $ 294,835
Intangibles (net of amortization) 1,496,329 1,577,608
Deferred tax benefit 728,451 771,248
Other assets 271,739 267,167
----------- -----------
Total other assets $ 2,775,494 $ 2,910,858
----------- -----------
TOTAL ASSETS $29,740,375 $28,442,677
=========== ===========
</Table>
F-4
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 2000 AND 1999
<Table>
<Caption>
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $10,195,880 $ 7,793,246
Short-term notes payable 7,431,440 7,816,739
Fuel taxes payable 1,765,070 1,939,284
Other accrued liabilities 584,695 376,855
Current portion of long-term liabilities 921,437 1,111,483
----------- -----------
Total current liabilities $20,898,522 $19,037,607
----------- -----------
LONG-TERM LIABILITIES
Long-term debt $ 6,525,407 $ 6,740,773
Obligations under capital leases 3,935 48,425
Deferred revenue 647,211 913,741
Reserve for contract settlement 630,000 0
Commitments and contingencies (See Note 16) - -
Less current portion (921,437) (1,111,483)
----------- -----------
Total long-term liabilities $ 6,885,116 $ 6,591,456
----------- -----------
TOTAL LIABILITIES $27,783,638 $25,629,063
----------- -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES $ (4,709) $ (4,709)
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 10,000,000 shares authorized, $.01 par value; 3,453,071 and
3,598,088 shares issued and outstanding at December 31, 2000 and 1999,
respectively $ 34,531 $ 35,981
Non-voting, $1 cumulative preferred stock, 2,500,000
shares authorized $.01 par value; 57,570 shares
issued and outstanding at December 31, 2000 and 1999 576 576
Additional paid-in capital 1,583,710 2,277,387
Retained earnings 342,629 504,379
----------- -----------
Total stockholders' equity $ 1,961,446 $ 2,818,323
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,740,375 $28,442,677
=========== ===========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-5
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<Table>
<Caption>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
SALES $270,789,787 $192,568,780 $160,646,841
COST OF SALES 252,729,060 175,073,440 142,714,081
------------ ------------ ------------
GROSS PROFIT $ 18,060,727 $ 17,495,340 $ 17,932,760
============ ============ ============
OPERATING EXPENSES
Selling $ 12,253,915 $ 12,089,491 $ 12,356,594
General and administrative 2,847,683 3,244,388 4,205,383
Depreciation and amortization 1,328,974 1,419,048 1,786,099
------------ ------------ ------------
Total operating expenses $ 16,430,572 $ 16,752,927 $ 18,348,076
============ ============ ============
EARNINGS (LOSS) BEFORE
OTHER INCOME(EXPENSE) $ 1,630,155 $ 742,413 $ (415,316)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of assets $ 31,182 $ (67,106) $ 13,428
Loss on impairment of assets 0 0 (412,259)
Interest expense (1,582,595) (1,335,086) (1,650,847)
Interest income 221,015 282,996 315,953
Miscellaneous income 452,036 374,592 645,410
------------ ------------ ------------
Total other income (expense) $ (878,362) $ (744,604) $ (1,088,315)
============ ============ ============
TOTAL EARNINGS (LOSS) BEFORE
MINORITY INTEREST AND
INCOME TAX EFFECT $ 751,793 $ (2,191) $ (1,503,631)
MINORITY INTEREST IN
LOSSES OF SUBSIDIARIES 0 178 293
INCOME TAX (PROVISION) BENEFIT (286,749) (22,184) 142,527
------------ ------------ ------------
EARNINGS (LOSS) BEFORE
DISCONTINUED OPERATIONS $ 465,044 $ (24,197) $ (1,360,811)
------------ ------------ ------------
DISCONTINUED OPERATIONS
Additional costs from discontinued division $ 183,177) $ (398,551) $ (9,228)
Loss from settlement of contract (630,000) 0 0
Loss on impairment of assets 0 0 (1,600,000)
Income tax benefit on discontinued operations 243,953 119,518 201,009
------------ ------------ ------------
Total loss from discontinued operations $ (569,224) $ (279,033) $ (1,408,219)
============ ============ ============
NET LOSS $ (104,180) $ (303,230) $ (2,769,030)
============ ============ ============
NET LOSS PER SHARE
Basic $ (.05) $ (.10) $ (.75)
Dilutive $ (.05) $ (.10) $ (.75)
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-6
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<Table>
<Caption>
Common Stock
------------
Additional
Number of Paid-In
Shares Par Value Capital
--------- --------- ----------
<S> <C> <C> <C>
BALANCE JANUARY 1, 1998 3,778,968 $37,789 $2,770,677
Issuance of common stock 16,841 169 96,667
Dividends - preferred 0 0 0
Stock redeemed (141,583) (1,416) (796,305)
Net loss 0 0 0
--------- ------- ----------
BALANCE DECEMBER 31, 1998 3,654,226 $36,542 $2,071,039
Dividends - preferred 0 0 0
Stock redeemed (56,138) (561) (324,338)
Net loss 0 0 0
--------- ------- ----------
BALANCE, DECEMBER 31, 1999 3,598,088 $35,981 $1,746,701
Dividends - preferred 0 0 0
Stock redeemed (145,017) (1,450) (693,677)
Net loss 0 0 0
--------- ------- ----------
BALANCE, DECEMBER 31, 2000 3,453,071 $34,531 $1,053,024
========= ======= ==========
</Table>
F-7
<Page>
<Table>
<Caption>
PREFERRED STOCK
---------------
Additional
Number of Paid-In Retained
Shares Par Value Capital Earnings TOTAL
------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
57,570 $576 $530,686 $ 3,691,779 $7,031,507
0 0 0 0 96,836
0 0 0 (57,570) (57,570)
0 0 0 0 (797,721)
0 0 0 (2,769,030) (2,769,030)
------ ---- -------- ----------- ----------
57,570 $576 $530,686 $ 865,179 $3,504,022
0 0 0 (57,570) (57,570)
0 0 0 0 (324,899)
0 0 0 (303,230) (303,230)
------ ---- -------- ----------- ----------
57,570 $576 $530,686 $ 504,379 $2,818,323
0 0 0 (57,570) (57,570)
0 0 0 0 (695,127)
0 0 0 (104,180) (104,180)
------ ---- -------- ----------- ----------
57,570 $576 $530,686 $ 342,629 $1,961,446
====== ==== ======== =========== ==========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-8
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<Table>
<Caption>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (104,180) $ (303,230) $(2,769,030)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 1,155,776 1,248,156 1,610,153
Amortization 175,698 174,126 181,484
(Gain) loss on sale of assets (31,182) 97,267 (18,191)
Loss on impairment of assets 0 0 2,012,259
Decrease in minority interest in consolidated
subsidiaries 0 (178) (293)
Effects on cash flows from operating activities
due to changes in:
Accounts receivable (2,126,118) (4,655,250) 3,322
Inventories (173,261) (131,909) 479,950
Other current assets 22,566 202,735) 127,941
Other non-current assets (56,194) (80,679) (557,540)
Accounts payable 2,402,634 2,085,663 (301,133)
Accrued liabilities (232,904) 164,645 (155,758)
Reserve for contract settlement 630,000 0 0
----------- ----------- -----------
Net cash provided (used) by operating activities $ 1,662,835 $(1,604,124) $ 613,164
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ 76,269 $ 1,099,363 $ 1,383,994
Purchase of property and equipment (769,497) (1,296,452) (2,224,643)
Notes receivable additions (316,296) (533,980) (641,861)
Notes receivable repayments 358,840 559,046 1,805,025
----------- ----------- -----------
Net cash provided (used) by investing activities $ (650,684) $ (172,023) $ 322,515
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdraft $ 0 $ (40,961) $ (452,307)
Increase (decrease) in short-term notes payable (385,299) 3,929,060 (3,025,607)
Principal payments on capital leases (44,490) (40,596) (104,367)
Proceeds from issuance of long-term debt 1,123,669 0 7,130,768
Principal payments on long-term debt (1,339,035) (1,248,616) (3,271,708)
Proceeds from issuance of common stock 0 0 96,836
Dividends paid on preferred stock (57,570) (57,570) (57,570)
Stock redeemed (695,127) (324,899) (797,721)
----------- ----------- -----------
Net cash provided (used) by financing activities $(1,397,852) $ 2,216,418 $ (481,676)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (385,701) $ 440,271 $ 454,003
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 895,351 455,080 1,077
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 509,650 $ 895,351 $ 455,080
=========== =========== ===========
</Table>
F-9
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<Table>
<Caption>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest $1,566,164 $1,319,738 $1,685,916
Income taxes 1,000 0 0
</Table>
SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES
SPF Energy, Inc. sold various assets in 2000, 1999 and 1998. A
summary of the sales transactions is as follows:
<Table>
<S> <C> <C> <C>
Sales price of property and equipment and intangibles $76,269 $1,458,491 $ 2,713,426
Note received 0 (100,000) 0
Liabilities reduced 0 (259,128) (1,309,021)
Interest paid 0 0 (20,411)
------- ---------- -----------
Cash received $76,269 $1,099,363 $ 1,383,994
======= ========== ===========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-10
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of SPF Energy, Inc.
and subsidiaries is presented to assist in understanding the Company's
consolidated financial statements. These accounting policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of the consolidated financial
statements.
HISTORY AND NATURE OF OPERATIONS - SPF Energy, Inc. was incorporated
on March 13, 1996 to maintain a 100% ownership interest in both Superpumper,
Inc. and Farstad Oil, Inc. followed by their merger on June 30, 1996. SPF
Energy also owns a 100% interest in Farstad Gas & Oil, LLC and Farstad Energy
Services, LLC through Farstad Oil, Inc. SPF Energy also owns a 99% interest in
Fabrication Services, LLC through Farstad Oil, Inc. SPF Energy, Inc. is a
holding company and has no direct operations. Superpumper, Inc. operates retail
gasoline and convenience stores in North Dakota, Minnesota, South Dakota, and
Montana. Revenues of Superpumper, Inc. are generally derived from individuals
residing in those states or traveling through the area and comprise
approximately 16% of consolidated revenues. Farstad Oil, Inc. is primarily a
petroleum wholesaler with principal markets in North Dakota, Montana,
Minnesota, and Wyoming. Revenues of Farstad Oil, Inc. are generally derived
from sales to retail outlets in those areas and comprise approximately 84% of
consolidated revenues. Farstad Gas & Oil, LLC, Farstad Energy Services, LLC,
and Fabrication Services, LLC currently have no ongoing operations.
PRINCIPLES OF CONSOLIDATION - Upon merger, SPF Energy, Inc. shares
were exchanged for the shares of Superpumper, Inc. and Farstad Oil, Inc.
Superpumper, Inc. shares were exchanged for 1,555,000 shares of SPF Energy,
Inc. Under the purchase method of accounting for business combinations, the
acquisition of Superpumper, Inc. shares was accounted for as a purchase and as
such $361,179 of goodwill was recognized.
As part of the merger agreement, Jeff Farstad was issued 2,332,500
shares in SPF Energy, Inc. in exchange for his 100% interest in Farstad Oil,
Inc. Of this total, 647,917 shares were issued on a contingent basis and
323,958 of these shares were canceled in 1997 to complete the transaction.
All material intercompany accounts and transactions occurring after
the date of the merger have been eliminated.
ACCOUNTS RECEIVABLE - Management believes substantially all accounts
receivable are collectible. Therefore, the Company has not included a provision
for uncollectible accounts. Any accounts deemed uncollectible will be charged
to expense when that determination is made.
INVENTORIES - Superpumper, Inc. retail inventories are stated at the
lower of cost (retail inventory method) or market. Farstad Oil, Inc.
inventories are valued at the lower of cost or market. Cost is determined using
principally the first-in, first-out method.
F-11
<Page>
NOTE 1 - (CONTINUED)
PROPERTY AND EQUIPMENT - are stated at cost less accumulated
depreciation. Depreciation and amortization of property and equipment are
provided primarily as follows:
Asset Method Estimated Lives
----- ------ ---------------
Buildings Straight-line and 10-39 years
declining balance
Leasehold improvements Straight-line 7-21 years
Equipment and fixtures Straight-line 5-20 years
Property held under Straight-line 7-15 years
capital leases
INTANGIBLE ASSETS - consist of goodwill, non-compete agreements and a
gas contract, which are amortized on a straight-line basis. The cost of
goodwill is amortized over a period of seven to fifteen years. Non-compete
covenant costs are being amortized on a straight-line basis over five years.
The gas contract is amortized over ten years.
CASH EQUIVALENTS - For the purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
DEFERRED REVENUE - consists of a rebate on a five-year supply
agreement and an upfront brand incentive payment. Revenue is realized as volume
commitments are met on a monthly schedule.
INCOME TAXES - Certain items of income and expense are recognized in
different periods for financial reporting purposes than for purposes of
computing income taxes currently payable. The income tax effects of
transactions are recognized for financial reporting purposes in the year in
which they enter into the determination of reported income, regardless of when
they are recognized for income tax purposes. Accordingly, applicable income
taxes in the statement of operations include charges for deferred income taxes
relating to these timing differences which principally relate to operating loss
carryovers, depreciation methods, deferred compensation, losses on impairment
of assets and alternative minimum tax credits. Deferred taxes are computed
using the asset and liability approach as prescribed in FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassification - Certain previously reported amounts have been
reclassified to conform with the current financial statement presentation. The
most significant of these reclassifications is the separation of the loss from
discontinued operations.
F-12
<Page>
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company sells principally to customers in North Dakota, Minnesota,
South Dakota, Montana and Wyoming. Due to the pervasive nature of agriculture
and energy in the economy of this area, all credit is impacted by these factors.
In addition, the Company maintains cash balances at several financial
institutions located in North Dakota, Minnesota, South Dakota, and Montana.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 2000, 1999 and 1998, the Company's
uninsured cash balance totaled $1,238,616, $956,528 and $1,414,851,
respectively.
NOTE 3 - NOTES RECEIVABLE
Details pertaining to the Company's notes receivable at December 31,
2000 and 1999 are as follows:
<Table>
<Caption>
Interest Due Current
Rate Date Portion 2000 1999
---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Paul Behm 6.0% 06/01/01 $ 4,844 $ 4,844 $ 14,108
Moore Oil 0.0% 01/01/02 6,500 13,000 15,500
Big Sky Petroleum 11.0% Demand 0 0 8,013
Jeff Farstad* 11.0% Demand 375,000 375,000 372,404
Rice Lake Products* 10.0% 12/01/99 0 0 730
Rice Lake Products* 10.0% 02/28/99 0 0 0
Barbara Van Ekeren 8.0% 08/01/09 7,569 90,803 97,792
Hall's Standard 12.0% Demand 0 0 3,077
Dawn-2-Dusk 0.0% 09/22/00 0 0 3,264
Zora, Inc. 10.0% 12/31/05 24,639 152,137 173,107
Rod Tec, Inc. 10.0% 05/10/01 3,993 3,993 8,500
Garrison Bay 12.5% 06/30/04 12,431 44,174 0
MAYSA 9.0% 01/01/01 30,000 60,000 90,000
-------- -------- --------
Total $464,976 $743,951 $786,495
======== ======== ========
*See Note 10
</Table>
F-13
<Page>
The aggregate amount of estimated future principal receipts from
payments on the above notes receivable at December 31, 2000 are as follows:
Year ending December 31,
2001 $464,976
2002 83,665
2003 52,250
2004 49,730
2005 47,192
Thereafter 46,138
--------
Total future principal receipts $743,951
========
NOTE 4 - DISCONTINUED OPERATIONS/IMPAIRMENT
In August 1997, a major portion of the Midland, Texas operation of
Farstad Gas & Oil was sold to Marcum Midstream 1997-1 Business Trust.
On September 30, 1998, Marcum Midstream 1997-1 Business Trust closed
the Midland, Texas operation. This closure terminated the operating agreement
which directed Farstad Gas & Oil to perform operator activities. All employees
associated with the Midland, Texas operation were terminated. All other Farstad
Gas & Oil operations were terminated on December 31, 1998.
The losses incurred during the closing of the activities totaled
$183,177, $398,551 and $9,228 during the years ended December 31, 2000, 1999 and
1998, respectively, are reported separately as discontinued operations in the
Consolidated Statement of Operations. At the time of the closure, the value of
Farstad Gas & Oil's $1,600,000 investment in affiliate was determined to be
completely impaired. This loss is also reflected in the Consolidated Statements
of Operations under discontinued operations as "Loss on impairment of assets".
A former customer has filed a lawsuit against the Company alleging
damages for disputed product left on board of railcars. The Company, based on
the opinion of legal counsel, estimates that it will have to pay approximately
$630,000 to the former customer. This commitment has been included in long-term
liabilities, as legal counsel estimates that this amount will not actually be
paid until the year 2002.
Also, in 1998 the following assets were determined to be impaired. The
total losses are reflected under continuing operations under the classification
"Loss on impairment of assets". The losses included the sale or closure of
Superpumper stores in the amount of $365,319 and the settlement on a note
receivable due Fabrication Services, LLC, in the amount of $46,940. There were
no additional impairments of assets during the years ended December 31, 2000 and
1999.
F-14
<Page>
NOTE 5 - PROPERTY AND EQUIPMENT
Details pertaining to property and equipment and accumulated
depreciation at December 31, 2000 and 1999, are as follows:
<Table>
<Caption>
Cost Less
Accumulated Accumulated
2000 Cost Depreciation Depreciation
---- ---- ------------ ------------
<S> <C> <C> <C>
Land $ 320,651 $ 0 $ 320,651
Buildings and development cost 2,198,261 838,729 1,359,532
Leasehold improvements 2,758,862 891,794 1,867,068
Equipment and fixtures 9,769,922 6,758,991 3,010,931
Property held under capital
leases 700,591 512,728 187,863
----------- ---------- ----------
$15,748,287 $9,002,242 $6,746,045
=========== ========== ==========
1999
----
Land $ 290,651 $ 0 $ 290,651
Buildings and development cost 2,059,646 763,682 1,295,964
Leasehold improvements 2,646,739 706,184 1,940,555
Equipment and fixtures 9,534,839 6,129,615 3,405,224
Property held under capital
leases 700,591 455,574 245,017
----------- ---------- ----------
$15,232,466 $8,055,055 $7,177,411
=========== ========== ==========
</Table>
NOTE 6 - INTANGIBLE ASSETS
Details pertaining to intangible assets and accumulated amortization
at December 31, 2000 and 1999 are as follows:
<Table>
<Caption>
Cost less
Accumulated Accumulated
2000 Cost Amortization Amortization
---- ---- ------------ ------------
<S> <C> <C> <C>
Goodwill $2,067,228 $765,712 $1,301,516
Supply agreement 200,000 45,000 155,000
Non-compete 61,250 21,437 39,813
---------- -------- ----------
$2,328,478 $832,149 $1,496,329
========== ======== ==========
1999
----
Goodwill $1,972,808 $616,137 $1,356,671
Supply agreement 200,000 25,000 175,000
Non-compete 61,250 15,313 45,937
---------- -------- ----------
$2,234,058 $656,450 $1,577,608
========== ======== ==========
</Table>
F-15
<Page>
NOTE 7 - INVENTORIES
Details pertaining to inventories at December 31, 2000 and 1999 are as
follows:
<Table>
<Caption>
2000 1999
---- ----
<S> <C> <C>
Gasoline and fuel $ 584,629 $ 603,109
Convenience store products 762,255 751,784
Grease and lubricating oils
(including drums-pallets) 1,246,773 1,053,090
Tanks, parts and miscellaneous 2,691 15,104
---------- ----------
Total inventories $2,596,348 $2,423,087
========== ==========
</Table>
NOTE 8 - SHORT-TERM NOTES PAYABLE
Farstad Oil, Inc. has a loan agreement with Wells Fargo Business
Credit, Inc. whereby it can borrow a maximum of $10,000,000 less outstanding
advances totaling $7,283,590 and $7,216,739 at December 31, 2000 and 1999,
respectively. The outstanding balance is due on demand and the agreement may be
terminated by Wells Fargo Business Credit, Inc. with 30 days written notice.
Interest is payable monthly at a rate equal to the Wells Fargo Bank -
Minneapolis base rate plus 1.0%. The interest rate in effect on December 31,
2000 was 10.5%. The loan is collateralized by all inventories, receivables and
equipment and has been guaranteed by Jeff Farstad, majority stockholder of the
Company. The terms of the agreement include certain requirements and restrictive
covenants. All of the requirements and restrictive covenants of this agreement
have either been waived or complied with at December 31, 2000.
Farstad Oil, Inc. had a loan agreement with Jeff Farstad. The balance
was $200,000 at December 31, 1999. This note was paid off in 2000.
Superpumper, Inc. has a loan agreement with Jeff Farstad. The balance
was $147,850 and $200,000 at December 31, 2000 and 1999, respectively. This note
carries an interest rate of 10% and is due on demand.
Superpumper, Inc. also had a loan agreement with Wells Fargo Bank
North Dakota, NA whereby it could borrow a maximum of $500,000 less outstanding
advances totaling $200,000 at December 31, 1999. Interest was payable monthly at
a rate of 9.0%. The outstanding balance was paid off in 2000.
NOTE 9 - PROFIT-SHARING PLANS
SPF Energy, Inc. sponsors a defined contribution 401(k) plan that
covers substantially all of its employees who have been with the Company over
one year. Contributions to the plan are based on a percentage of gross salaries.
For 2000, contributions to the plan were $385,952, of which $249,350 was
contributed by the employees and $136,602 was contributed by the Company. For
1999, contributions to the plan were $413,511, of which $263,952 was contributed
by the employees and $149,559 was contributed by the company. For 1998,
contributions to the plan were $488,788, of which $306,123 was contributed by
the employees and $182,665 was contributed by the company. Total covered payroll
for 2000, 1999 and 1998 was $4,030,924, $4,371,898 and $5,496,731, respectively.
F-16
<Page>
NOTE 10 - RELATED PARTY TRANSACTIONS
Jeff Farstad, the majority shareholder, borrows funds from the Company
periodically at market interest rates. Balances of $375,000 and $372, were due
on the above borrowing at December 31, 2000 and 1999, respectively. Interest
paid or accrued to the Company by Jeff Farstad amounted to $35,842, $28,649 and
35,256 in 2000, 1999 and 1998, respectively. (See Note 3)
Eliance, of which Jeff Farstad is an owner, owed the Company for a
note receivable which resulted from the sale of assets in 1995. The note
receivable was paid in full during 1998. Interest paid or accrued to the Company
by Eliance amounted to $84,883 in 1998.
The Company periodically borrowed money from Eliance throughout 1998.
Interest paid by the Company to Eliance amounted to $96,630 in 1998. No balance
was owed by the Company to Eliance at December 31, 2000 or 1999. Eliance
utilized the Company's leased airplane throughout 1998 and a short time in 1999.
Payments made to the Company by Eliance for airplane use amounted to $36,459 and
$105,415 in 1999 and 1998, respectively. Eliance did not use the Company's
leased airplane in 2000.
The Company sold its aviation assets to Rice Lake Products, LLC (RLP),
which is owned by Jeff Farstad, on December 31, 1998. RLP owes the Company
$101,769 as of December 31, 1998. This balance was paid off in 1999. (See Note
3)
The Company is currently leasing the usage of an airplane owned by
RLP. Payments made by the Company to RLP for airplane use amounted to $171,870
and $164,329 in 2000 and 1999, respectively.
During 2000 and 1999 and 1998, the Company leased gas plants from F&F,
LLC. This entity is owned by close relatives of Jeff Farstad, the majority
shareholder of SPF Energy, Inc. Payments made under this lease totaled $84,000,
$117,000 and $150,000 in 2000, 1999, and 1998, respectively.
NOTE 11 - OPERATING LEASE RECEIPTS
The Company leases storage tanks to customers under operating leases
requiring fixed monthly rental payments with various expiration dates.
The cost of the storage tanks leased to customers was $194,762,
$182,996 and $202,490 with accumulated depreciation of $167,667, $161,692 and
$166,438 as of December 31, 2000, 1999 and 1998, respectively.
The Company also leased a portion of its Minot facility to Farmers
Union Oil Co. of Minot. The lease required rental payments of $2,000 per month
commencing January 1, 1995. The term of this lease was for six years. The lease
terminated December 31, 2000. That portion of the facility is now operating as
an unmanned fueling center under Superpumper. Revenue under operating leases
for the years ended December 31, 2000, 1999 and 1998 was $24,000 in each year.
F-17
<Page>
NOTE 12 - CAPITAL LEASES
The Company is the lessee of equipment and fixtures under capital
leases expiring in 2001. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair market value of the asset. The assets, with a cost of $700,591 and
accumulated depreciation of $512,728, are amortized over the lower of their
related lease terms or their estimated productive lives. Amortization of assets
under capital leases is included in depreciation and amortization expense.
Minimum future lease payments under capital leases as of December 31, 2000 are
as follows:
<Table>
<S> <C>
Year ending December 31,2001 $ 3,935
================
</Table>
Interest rates on capitalized leases are 9.26% and are imputed based
on the lower of the Company's incremental borrowing rate at the inception of
each lease or the lessor's implicit rate of return.
Certain capital leases provide for purchase options. Generally,
purchase options are at prices representing the expected fair value of the
property at the expiration of the lease term.
NOTE 13 - LEASE OBLIGATIONS
Superpumper, Inc. has long-term operating leases on buildings and land
at various store locations in North Dakota, Minnesota, South Dakota, and
Montana. The Company is committed to pay rentals on these properties for various
terms through 2022. The Company also has an operating lease on corporate
headquarters in Minot, North Dakota. The Company is committed to pay rental on
this property through 2001, with two five year renewal options. The Company also
has an auto lease through 2002. Payments made under these operating leases
totaled $988,826, $925,355, and $1,092,433 in 2000, 1999 and 1998, respectively.
Farstad Oil, Inc.'s transportation and other equipment and branch
sales office space are leased under three to five year lease agreements.
Payments made under these operating leases totaled $943,521, $898,015 and
$1,174,523 in 2000, 1999 and 1998, respectively.
The following is a schedule by years of future minimum rental payments
on operating leases as of December 31, 2000:
<Table>
<S> <C>
Year ending December 31,
2001 $ 1,832,145
2002 1,539,191
2003 1,351,536
2004 1,178,404
2005 995,339
Thereafter 6,736,895
-----------
Total minimum future rentals $13,633,510
===========
</Table>
F-18
<Page>
NOTE 14- LONG-TERM DEBT
Details pertaining to the Company's long-term debt as of December 31,
2000, and 1999 are as follows:
<Table>
<Caption>
2000 1999
---------- ----------
<S> <C> <C>
9.65% note to Enterprise Mortgage Acceptance Corporation,
Westport, CT - due in 2013, payable in monthly
installments of $50,435, including interest,
collateralized by equipment $4,271,411 $4,454,602
10.5% note to Bremer Bank, Minot, ND - due in 2002,
payable in monthly installments of $27,942, including
interest, collateralized by equipment 578,172 837,598
Variable rate (9.75% at December 31, 2000)
note to Bremer Bank, Minot, ND - due in 2015, payable
in monthly installments of $6,666, including interest,
collateralized by property 633,136 0
Variable rate (9.25% at December 31, 2000) note to First
International Bank, Minot, ND - due in 2002, payable in
monthly installments of $5,810, including interest,
collateralized by equipment 121,884 177,662
7.75% note to Twin Jims, Inc., Jamestown, ND -
due in 2009, payable in monthly installments of $1,802,
including interest, collateralized by real estate 136,049 140,733
9.0% note to D. Wayne Christensen, Billings, MT -
due in 2002, payable in monthly installments of
$9,341, including interest, unsecured 164,876 257,523
Variable rate (12.5% at December 31, 2000) to Terry
Domres, Minot, ND - payable in monthly installments of
$3,970, including Interest, and a balloon payment due
in 2005, Collateralized by real estate 433,118 0
Two 12.26% notes to GMAC, Billings, MT - due in 2003,
payable in monthly installments of $1,314, including
interest, collateralized by vehicles 39,249 0
Various rates from 6.75% to 8.25% to various
individuals, due in 2000-2001, interest and
principal due at maturity, unsecured 147,512 168,258
10.641% note to Firstar Equipment Finance, Minnetonka, MN
- due in 2001, payable in monthly installments of
$27,868, including interest, collateralized by equipment 0 322,374
F-19
<Page>
9.48% note to United Community Bank, Burlington, ND - due
in 2006 payable in monthly installments of $6,465,
including interest, collateralized by real estate 0 382,023
---------- ----------
Total long-term debt $6,525,407 $6,740,773
Less current portion 917,502 1,066,964
---------- ----------
Total $5,607,905 $5,673,809
========== ==========
</Table>
The principal maturities on long-term debt as of December 31, 2000 are
as follows:
<Table>
<S> <C>
2001 $ 917,502
2002 715,131
2003 331,354
2004 325,479
2005 357,201
Thereafter 3,878,740
----------
Total $6,525,407
==========
</Table>
NOTE 15 - PREFERRED STOCK
The Company has 2,500,000 authorized shares of $1.00 cumulative,
non-voting preferred stock, each with a par value of one cent ($0.01). Holders
of shares of non-voting preferred stock are not entitled to vote on any matters
to be voted upon by shareholders nor do they have preemptive rights with respect
to the issuance of additional shares of any stock of the Corporation. The
holders of non-voting preferred stock are entitled to share ratably in any
distribution made in the event of a liquidation, dissolution or winding up of
the Company, after payment of all liabilities and other senior securities then
outstanding. There were no dividends in arrears at December 31, 2000, 1999 or
1998.
F-20
<Page>
NOTE 16 - INCOME TAXES
The income tax provision reported in the statements of operations for
the years ended December 31, 2000, 1999 and 1998 includes the following
components:
<Table>
<Caption>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Continuing operations
Current income tax expense $ 1,000 $ 0 $ 0
Deferred income tax
expense (benefit) 285,749 22,184 (142,527)
--------- --------- ---------
Total income tax expense from
continuing operations $ 286,749 $ 22,184 $(142,527)
--------- --------- ---------
Discontinued operations
Current income tax benefit $ 0 $ 0 $ 0
Deferred income tax benefit (243,953) (119,518) (201,009)
--------- --------- ---------
Total income tax benefit from
discontinued operations $(243,953) $(119,518) $(201,009)
--------- --------- ---------
Total income tax expense (benefit) $ 42,796 $ (97,334) $(343,536)
========= ========= =========
</Table>
The sources of the timing differences resulting in deferred income
taxes are depreciation, deferred compensation, loss on impairment of assets and
alternative minimum tax credits. Accelerated depreciation is used for tax
purposes while straight-line methods are used for financial reporting. Deferred
compensation is recognized as accrued for financial reporting and as paid for
tax purposes. Losses are recognized on the impairment of asset value for
financial reporting while these losses are not deductible for tax purposes until
disposed of. Alternative minimum taxes are not reflected for financial reporting
as credits will be realized as they reverse. Deferred income tax balances as of
December 31, 2000 and 1999 are categorized as follows:
<Table>
<Caption>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets $ 1,778,459 $ 2,061,658
Deferred tax liabilities (1,050,008) (1,290,410)
----------- -----------
Net deferred tax asset $ 728,451 $ 771,248
=========== ===========
</Table>
The reconciliation between applicable income taxes and the amount
computed at the applicable statutory federal rate is as follows:
<Table>
<Caption>
2000 1999 1998
---- ----- ----
<S> <C> <C> <C>
Tax expense (benefit) at statutory
federal income tax rate $19,174 $(119,891) $(1,058,376)
Non-deductible expenses 23,622 22,557 45,591
Other, including goodwill/impairment
adjustments 0 0 669,249
------- --------- -----------
Applicable income tax benefit $42,796 $ (97,334) $ (343,536)
======= ========= ===========
</Table>
F-21
<Page>
NOTE 17 - COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
During 1998, the Company entered into a 5-year supply agreement for
liquid fuel products. The agreement calls for the Company to take delivery of a
minimum monthly and annual number of gallons of these products. As
consideration for this commitment, the Company received an upfront rebate of
$1,200,000. The contract includes provisions for additional rebates if the
minimum gallon commitments are exceeded and penalties if the minimum gallon
commitments are not met. The Company amortizes the deferred revenue and accrues
the related bonus rebate or penalty for delivery of more or less than the
minimum requirements on a monthly basis. At December 31, 2000, 1999 and 1998,
the unearned balances of the deferred revenue were $640,000, $880,000 and
$1,120,000, respectively. The accrued rebate was $50,321 and $48,116 at
December 31, 2000 and 1999, respectively, and the accrued penalty was $4,219 at
December 31, 1998.
In 1999, through the branding of a store, an upfront brand incentive
payment of $41,250 was received. This incentive is based on a two year volume
prediction. Revenue will be recognized, based on volume, over a two year period
beginning in October 1999. In 2000 and 1999, $26,530 and $7,509 has been
recognized, respectively, leaving deferred revenue of $7,211 and $33,741 at
December 31, 2000 and 1999, respectively, related to this incentive.
The Company has contractually agreed to repurchase shares from
certain minority shareholders at the greater of a preset amount or 92% of the
market price under specific circumstances. The number of shares that could be
redeemed under these agreements, with various terms through the year 2008, is
up to 106,465 shares per year for the next five years, with total redemptions
no greater than 981,066 shares.
The Company is in arrears in repurchasing 2000 stock redemption
options for certain shareholders in accordance with their redemption
agreements. The amount that they are in arrears as of December 31, 2000 totals
$311,570.
LITIGATION
A former customer has filed a lawsuit against the Company alleging
damages for disputed product left on board of railcars. The case was taken to
arbitration. Although a final amount has not been established, based on the
opinion of legal counsel, the Company estimates that it will have to pay
approximately $630,000 to the former customer. Legal counsel estimates that
this amount will not actually be paid until the year 2002. A reserve for
contract settlement of $630,000 has been recorded as of December 31, 2000.
The Company is party to other legal actions. The Company estimates
that none of these actions would have a significant effect on the financial
statements. As the ultimate outcomes of these actions are unknown at the
present time, no provision for any asset or liability has been made in the
accompanying consolidated financial statements.
OTHER
The Company has several sites that both Amoco and Conoco have
advanced funds for various image and incentive programs. If the Company fails
to comply with the conditions set forth in these programs, which expire on
various dates through 2007, repayment of portions of the funds will be
required. These contingent liabilities totaled $1,059,873 at December 31, 2000.
F-22
<Page>
NOTE 17 - (CONTINUED)
Like other petroleum distributors, the Company's operations are
subject to changing federal and state environmental regulations governing air
emissions, waste water discharges, and solid and hazardous waste management
activities. The Company's policy is to accrue environmental and related
clean-up costs of a non-capital nature when it is both probable that a
liability has been incurred and that the amount can be reasonably estimated.
Management believes that no such matters will have a material impact on the
Company's financial position or results of future operations and no liabilities
have been accrued at December 31, 2000, 1999 or 1998.
The Company maintained several unused letters of credit which totaled
$1,652,028 at December 31, 2000. These letters have expiration dates which
range from January 22, 2001 to June 20, 2001.
Under provisions of its 401(k) defined contribution profit sharing
plan, the Company has a contingent liability for the potential redemption of
Company stock for separated employees in the amount of approximately $148,500.
The Company has a contingent liability for the maximum claims payable
under its self-insured group health plan before reinsurance coverage becomes
effective. This contingency totaled approximately $168,000, $238,000 and
$37,000 at December 31, 2000, 1999 and 1998, respectively.
NOTE 18 - ADVERTISING COSTS
Advertising costs, which were expensed as incurred, totaled $135,414,
$108,780 and $114,670 for the years ended December 31, 2000, 1999 and 1998,
respectively.
NOTE 19 - OPERATING SEGMENTS
Operating segments are defined as components of an enterprise which
separate financial information is available that is evaluated by the chief
decision makers in deciding how to allocate resources and in assessing
performance. Operating segments of the Company generally include wholesale
distribution and retail sales of petroleum products. Generally, segmental
information follows the same accounting policies utilized for consolidated
reporting, except, certain expenses, such as depreciation, are not allocated to
segments for management purposes.
The following information summarizes the Company's segment reporting
for Wholesale Distribution and Retail Sales. In additional, there are several
items that are individually insignificant included in a segment entitled Other.
Also included are the reconciliations to the consolidated financial statements:
F-23
<Page>
NOTE 19 - (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
<Table>
<Caption>
Intercompany
Wholesale Retail Other Eliminations Total
------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
SALES $ 249,183,723 $ 47,539,390 $ 0 $(25,933,326) $ 270,789,787
COST OF SALES (239,028,584) (39,623,409) 0 25,922,933 (252,729,060)
------------- ------------ ---------- ------------ -------------
GROSS PROFIT $ 10,155,139 $ 7,915,981 $ 0 $ (10,393) $ 18,060,727
OPERATING EXPENSES
Selling expenses $ 6,115,387 $ 6,148,921 $ 0 $ (10,393) $ 12,253,915
General and administrative 2,211,029 636,600 54 0 2,847,683
Depreciation and amortization 257,557 1,043,776 27,641 0 1,328,974
------------- ------------ ---------- ------------ -------------
Total operating expenses $ 8,583,973 $ 7,829,297 $ 27,695 $ 0 $ 16,430,572
------------- ------------ ---------- ------------ -------------
EARNINGS (LOSS) BEFORE
OTHER INCOME(EXPENSE) $ 1,571,166 $ 86,684 $ (27,695) $ 0 $ 1,630,155
OTHER INCOME (EXPENSE)
Gain (loss) on sale/impairment $ 42,162 $ (10,980) $ 0 $ 0 $ 31,182
Interest expense (948,774) (619,240) (14,581) 0 (1,582,595)
Interest income 213,233 7,782 0 0 221,015
Miscellaneous Income 428,346 23,690 0 0 452,036
------------- ------------ ---------- ------------ -------------
Total other income (expense) $ (265,033) $ 598,748) $ (14,581) $ 0 $ (878,362)
------------- ------------ ---------- ------------ -------------
TOTAL EARNINGS (LOSS) BEFORE
INCOME TAX EFFECT $ 1,306,133 $ (512,064) $ (42,276) $ 0 $ 751,793
INCOME TAX (PROVISION)
BENEFIT (477,827) 176,280 14,798 0 (286,749)
------------- ------------ ---------- ------------ -------------
EARNINGS (LOSS) BEFORE
DISCONTINUED OPERATIONS $ 828,306 $ (335,784) $ (27,478) $ 0 $ 465,044
DISCONTINUED OPERATIONS 0 0 (569,224) 0 (569,224)
------------- ------------ ---------- ------------ -------------
NET EARNINGS (LOSS) $ 828,306 $ (335,784) $ (596,702) $ 0 $ (104,180)
============= ============ ========== ============ ============
TOTAL ASSETS $ 22,840,793 $ 9,789,135 $3,409,262 $ (6,298,815) $ 29,740,375
============= ============ ========== ============ ============
CAPITAL EXPENDITURES $ 326,696 $ 442,801 $ 0 $ 0 $ 769,497
============= ============ ========== ============ ============
</Table>
F-24
<Page>
NOTE 19 - (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
<Table>
<Caption>
Intercompany
Wholesale Retail Other Eliminations Total
------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
SALES $ 165,439,650 $ 42,735,108 $ 0 $(15,605,978) $ 192,568,780
COST OF SALES (155,844,500) (34,834,918) 0 15,605,978 (175,073,440)
------------- ------------ ---------- ------------ -------------
GROSS PROFIT $ 9,595,150 $ 7,900,190 $ 0 $ 0 $17,495,340
OPERATING EXPENSES
Selling expenses $ 5,712,372 $ 6,377,119 $ 0 $ 0 $ 12,089,491
General and administrative 2,336,127 908,387 (126) 0 3,244,388
Depreciation and amortization 251,820 1,139,586 27,642 0 1,419,048
------------- ------------ ---------- ------------ -------------
Total operating expenses $ 8,300,319 $ 8,425,092 $ 27,516 $ 0 $ 16,752,927
------------- ------------ ---------- ------------ -------------
EARNINGS (LOSS) BEFORE
OTHER INCOME (EXPENSE) $ 1,294,831 $ (524,902) $ (27,516) $ 0 $ 742,413
OTHER INCOME (EXPENSE)
Gain (loss) on sale/impairment $ 83,073 $ (150,179) $ 0 $ 0 $ (67,106)
Interest expense (666,685) (668,401) 0 0 (1,335,086)
Interest income 278,197 4,799 0 0 282,996
Miscellaneous Income 298,288 76,304 0 0 374,592
------------- ------------ ---------- ------------ -------------
Total other income (expense) $ (7,127) $ (737,477) $ 0 $ 0 $ (744,604)
------------- ------------ ---------- ------------ -------------
TOTAL EARNINGS (LOSS) BEFORE
MINORITY INTEREST AND
INCOME TAX EFFECT $ 1,287,704 $ (1,262,379) $ (27,516) $ 0 $ (2,191)
MINORITY INTEREST IN LOSSES
OF SUBSIDIARIES 0 0 178 0 178
INCOME TAX (PROVISION)
BENEFIT (402,138) 371,699 8,255 0 (22,184)
------------- ------------ ---------- ------------ -------------
EARNINGS (LOSS) BEFORE
DISCONTINUED OPERATIONS $ 885,566 $ (890,680) $ (19,083) $ 0 $ (24,197)
DISCONTINUED OPERATIONS 0 0 (279,033) 0 (279,033)
------------- ------------ ---------- ------------ -------------
NET EARNINGS (LOSS) $ 885,566 $ (890,680) $ (298,116) $ 0 $ (303,230)
============= ============ ========== ============ =============
TOTAL ASSETS $ 20,083,556 $ 10,114,762 $ 787,036 $ (2,542,677) $ 28,442,677
============= ============ ========== ============ =============
CAPITAL EXPENDITURES $ 354,228 $ 942,224 $ 0 $ 0 $ 1,296,452
============= ============ ========== ============ =============
</Table>
F-25
<Page>
NOTE 19 - (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
<Table>
<Caption>
Intercompany
Wholesale Retail Other Eliminations Total
------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
SALES $ 132,419,723 $ 40,459,151 $ 615,715 $(12,847,748) $ 160,646,841
COST OF SALES (123,545,783) (31,849,368) (166,678) 12,847,748 (142,714,081)
------------- ------------ ----------- ------------ -------------
GROSS PROFIT $ 8,873,940 $ 8,609,783 $ 449,037 $ 0 $ 17,932,760
OPERATING EXPENSES
Selling expenses $ 5,107,235 $ 6,831,237 $ 418,122 $ 0 $ 12,356,594
General and administrative 3,086,189 935,581 183,613 0 4,205,383
Depreciation and amortization 464,748 1,255,872 65,479 0 1,786,099
------------- ------------ ----------- ------------ -------------
Total operating expenses $ 8,658,172 $ 9,022,690 $ 667,214 $ 0 $ 18,348,076
------------- ------------ ----------- ------------ -------------
EARNINGS (LOSS) BEFORE
OTHER INCOME (EXPENSE) $ 215,768 $ (412,907) $ (218,177) $ 0 $ (415,316)
OTHER INCOME (EXPENSE)
Gain (loss) on sale/impairment $ (2,873) $ (142,766) $ (253,192) $ 0 $ (398,831)
Interest expense (963,292) (652,314) (35,241) 0 (1,650,847)
Interest income 315,846 9,144 (9,037) 0 315,953
Miscellaneous Income 893,618 111,678 (359,886) 0 645,410
------------- ------------ ----------- ------------ -------------
Total other income (expense) $ 243,299 $ (674,258) $ (657,356) $ 0 $ (1,088,315)
------------- ------------ ----------- ------------ -------------
TOTAL EARNINGS (LOSS) BEFORE
MINORITY INTEREST AND
INCOME TAX EFFECT $ 459,067 $ (1,087,165) $ (875,533) $ 0 $ (1,503,631)
MINORITY INTEREST IN LOSSES
OF SUBSIDIARIES 0 0 293 0 293
INCOME TAX (PROVISION)
BENEFIT (213,654) (187,918) 544,099 0 142,527
------------- ------------ ----------- ------------ -------------
EARNINGS (LOSS) BEFORE
DISCONTINUED OPERATIONS $ 245,413 $ (1,275,083) $ (331,141) $ 0 $ (1,360,811)
DISCONTINUED OPERATIONS 0 0 (1,408,219) 0 (1,408,219)
------------- ------------ ----------- ------------ -------------
NET EARNINGS (LOSS) $ 245,413 $ (1,275,083) $(1,739,360) $ 0 $ (2,769,030)
============= ============ =========== =========== =============
TOTAL ASSETS $ 14,459,621 $ 10,878,050 $ 2,045,794 $(2,852,816) $ 24,540,649
============= ============ =========== =========== =============
CAPITAL EXPENDITURES $ 282,193 $ 1,551,409 $ 391,041 $ 0 $ 2,224,643
============= ============ =========== =========== =============
</Table>
F-26
<Page>
NOTE 20 - PER SHARE DATA
Basic loss per share is computed by dividing the earnings available to
stockholders by the weighted average number of shares outstanding during the
period. There were no potential dilutive securities outstanding during the years
presented. The following tables reconcile amounts reported in the consolidated
financial statements for the years ended December 31, 2000, 1999 and 1998:
<Table>
<Caption>
2000 1999 1998
---------- ---------- -----------
<S> <C> <C> <C>
Numerator
Net loss $ (104,180) $ (303,230) $(2,769,030)
Deduct dividends on preferred shares (57,570) (57,570) (57,570)
---------- ---------- -----------
Numerator for basic loss per share $ (161,750) $ (360,800) $(2,826,600)
---------- ---------- -----------
DENOMINATOR
Weighted average outstanding shares:
Common stock 3,409,008 3,667,917 3,774,167
LOSS PER SHARE
Basic $ (.05) $ (.10) $ (.76)
========== ========== ===========
Dilutive $ (.05) $ (.10) $ (.76)
========== ========== ===========
</Table>
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's $743,381 carrying value of
long-term notes receivable approximated $733,000 at December 31, 2000. At
December 31, 1999, the estimated fair value of the Company's $786,495 carrying
value of long-term notes receivable approximated $778,000. The estimated fair
value of the Company's $6,525,407 carrying value of long-term debt approximated
$6,554,000 at December 31, 2000. At December 31, 1999, the estimated fair value
of the Company's $6,740,773 carrying value of long-term debt was $6,783,000.
Fair values were estimated based on prices of similar securities with comparable
maturities and credit risks.
The fair values of the Company's cash and cash equivalents, accounts
receivable, prepaid expenses, deferred tax assets, other assets, accounts
payable, short-term notes payable, fuel taxes payable, other accrued
liabilities, obligations under capital leases, deferred revenue, and reserve for
contract settlement approximate fair value due to the short maturity of these
instruments.
F-27
<Page>
SUPPLEMENTAL INFORMATION
F-28
<Page>
INDEPENDENT AUDITOR'S REPORT
ON SUPPLEMENTAL INFORMATION
Board of Directors
SPF Energy, Inc. and Subsidiaries
Minot, North Dakota
Our report on our audit of the basic consolidated statements of SPF
Energy, Inc. and Subsidiaries for the years ended December 31, 2000, 1999 and
1998 appears on page 1. Those audits were conducted for the purpose of forming
an opinion on such consolidated financial statements taken as a whole. The
information on page 27 relates to the 2000, 1999 and 1998 consolidated financial
statements is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. Such information,
except for information on page 28 that is marked "unaudited" on which we express
no opinion, has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements, and, in our opinion, the
information is fairly presented in all material respects in relation to the
basic consolidated financial statements for the years ended December 31, 2000,
1999 and 1998, taken as a whole.
We also have previously audited, in accordance with auditing standards
generally excepted in the United States of America, the consolidated balance
sheets of SPF Energy, Inc. and Subsidiaries, taken as of December 31, 1997 and
1996, and the related statements of operations and cash flows for each of the
two years then ended, none of which is presented herein, and we expressed
unqualified opinions on those consolidated statements. In our opinion, the
information on page 27 relating to the 1997 and 1996 consolidated financial
statements is fairly stated in all material respects in relation to the basic
consolidated financial statements from which has been derived.
Brady, Martz & Associates, P.C.
February 16, 2001
F-29
<Page>
SPF ENERGY, INC.
SELECTED FINANCIAL DATA
<Table>
<Caption>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data
Net Sales $270,789,787 $192,568,780 $160,646,841 $208,741,104 $220,477,188
Earnings (loss) before
discontinued operations $ 465,044 $ (24,197) $ (1,360,811) $ (340,105) $ 817,618
Net loss $ (104,180) $ (303,230) $ (2,769,030) $ (1,452,458) $ (53,591)
Dividends - Preferred Stock $ 57,570 $ 57,570 $ 57,570 $ 47,426 $ 0
Consolidated Balance Sheet Data
Total Assets $ 29,740,375 $ 28,442,677 $ 24,540,649 $ 29,577,969 $ 40,115,138
Total long-term debt and
capital lease obligations $ 6,529,342 $ 6,789,198 $ 8,099,703 $ 6,794,441 $ 6,633,010
Consolidated Per Share Data
(basic and diluted)
Earnings (loss) before
discontinued operations $ .14 $ (.01) $ (.37) $ (.09) $ .22
Net Loss $ (.05) $ (.10) $ (.76) $ (.39) $ (.01)
</Table>
F-30
<Page>
SPF ENERGY, INC.
QUARTERLY RESULTS OF CONSOLIDATED OPERATIONS (unaudited)
<Table>
<Caption>
QUARTER ENDED
03/31/00 06/30/00 09/30/00 12/31/00
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $55,874,585 $56,478,775 $91,052,238 $67,384,189
Gross profit $ 3,929,709 $ 4,323,094 $ 5,173,370 $ 4,634,554
Net Income (loss) $ (205,486) $ 9,886 $ 461,385 $ (369,965)
Per share (basic and diluted)
net income (loss) $ (.06) $ .00 $ .12 $ (.11)
QUARTER ENDED
03/31/99 06/30/99 09/30/99 12/31/99
-------- -------- -------- --------
Net sales $34,150,741 $46,293,705 $59,818,890 $52,305,444
Gross profit $ 3,899,156 $ 4,356,815 $ 4,895,987 $ 4,343,382
Net Income (loss) $ (424,527) $ 10,719 $ 388,694 $ (278,116)
Per share (basic and diluted)
net income (loss) $ (.12) $ 0 $ .10 $ (.08)
QUARTER ENDED
03/31/98 06/30/98 09/30/98 12/31/98
-------- -------- -------- --------
Net sales 37,544,787 $42,802,006 $45,792,867 $34,507,181
Gross profit $ 4,413,407 $ 4,759,336 $ 5,299,117 $ 3,460,900
Net Income (loss) $ (370,945) $ (213,829) $ 236,235 $(2,420,491)
Per share (basic and diluted)
net income (loss) $ (.10) $ (.06) $ .06 $ (.66)
</Table>
THE ABOVE FINANCIAL INFORMATION IS UNAUDITED. IN THE OPINION OF
MANAGEMENT, ALL ADJUSTMENTS (WHICH ARE OF A NORMAL RECURRING NATURE) HAVE BEEN
INCLUDED FOR A FAIR PRESENTATION.
F-31
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
Minot, North Dakota
CONSOLIDATED BALANCE SHEETS
AS OF
JUNE 30, 2001 AND DECEMBER 31, 2000
AND
CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2001 and 2000
AND
ACCOUNTANT'S REPORT
F-32
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<Table>
<Caption>
PAGES
<S> <C>
ACCOUNTANT'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statement of Stockholders Equity 5
Consolidated Statements of Cash Flows 6
</Table>
F-33
<Page>
ACCOUNTANT'S REPORT
Board of Directors
SPF Energy, Inc. and Subsidiaries
Minot, North Dakota
We have compiled the accompanying consolidated balance sheet of SPF Energy, Inc.
and Subsidiaries as of June 30, 2001, and the related consolidated statements of
operations and cash flows for the six months ended June 30, 2001 and 2000, and
the consolidated statement of stockholders equity for the six months ended June
30, 2001 in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The balance sheet as of December 31, 2000, was previously audited by us, and we
expressed an unqualified opinion on it in our report dated February 16, 2001,
but we have not performed any auditing procedures since that date.
Management has elected to omit substantially all of the disclosures and
statements of stockholders equity required by accounting principle generally
accepted in the United States of America. If the omitted disclosures and
statements were included in the financial statements, they might influence the
user's conclusions about the company's financial position, results of
operations, and cash flows. Accordingly, these financial statements are not
designed for those who are not informed about such matters.
BRADY, MARTZ & ASSOCIATES, P.C.
August 8, 2001
F-34
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(See Accountant's Report)
<Table>
<Caption>
ASSETS
06/30/01 12/31/00
------------------ ----------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 625,714 $ 509,650
Accounts receivable 14,365,847 16,128,857
Inventories 2,635,885 2,596,348
Prepaid expenses and other current receivables 732,966 519,005
Current portion of notes receivable 436,820 464,976
---------------- ------------------
Total current assets $ 18,797,232 $ 20,218,836
---------------- -----------------
PROPERTY AND EQUIPMENT
Land $ 315,651 $ 320,651
Buildings and development cost 1,606,793 2,198,261
Leasehold improvements 2,874,438 2,758,862
Equipment and fixtures 8,884,699 9,769,922
Property held under capital leases 665,269 700,591
---------------- ----------------------
$ 13,901,562 $ 15,748,287
Less accumulated depreciation and amortization (8,772,147) (9,002,242)
---------------- ------------------
Total property and equipment $ 5,129,415 $ 6,746,045
---------------- ------------------
OTHER ASSETS
Notes receivable, net of current portion $ 221,222 $ 278,975
Intangibles (net of amortization) 1,301,957 1,496,329
Deferred tax benefit 728,451 728,451
Other assets 241,243 271,739
---------------- ------------------
Total other assets $ 2,492,873 $ 2,775,494
---------------- ------------------
TOTAL ASSETS $ 26,419,520 $ 29,740,375
================ =================
</Table>
F-35
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<Table>
<Caption>
LIABILITIES AND STOCKHOLDERS' EQUITY
06/30/01 12/31/00
----------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 9,223,744 $ 10,195,880
Short-term notes payable 7,263,417 7,431,440
Fuel taxes payable 1,338,801 1,765,070
Other accrued liabilities 393,133 584,695
Current portion of long-term liabilities 770,981 921,437
---------------- ------------------
Total current liabilities $ 18,990,076 $ 20,898,522
---------------- -----------------
LONG-TERM LIABILITIES
Long-term debt $ 5,775,124 $ 6,525,407
Obligations under capital leases 0 3,935
Deferred revenue 520,802 647,211
Reserve for contract settlement 630,000 630,000
Less current portion (770,981) (921,437)
------------------ ------------------
Total long-term liabilities $ 6,154,945 $ 6,885,116
---------------- ------------------
TOTAL LIABILITIES $ 25,145,021 $ 27,783,638
---------------- ------------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES $ (4,710) $ (4,709)
------------------ ------------------
STOCKHOLDERS' EQUITY
Common stock 10,000,000 shares authorized, $.01 par value;
3,425,6__ and 3,453,071 shares issued and outstanding at
June 30, 2001 and December 31, 2000, respectively $ 34,256 $ 34,531
Non-voting, $1 cumulative preferred stock, 2,500,000
shares authorized $.01 par value; 57,570 shares
issued and outstanding at June 30, 2001 and
December 31, 2000, respectively 576 576
Additional paid-in capital 1,457,488 1,583,710
Retained earnings (accumulated deficit) (213,111) 342,629
------------------ ------------------
Total stockholders' equity $ 1,279,209 $ 1,961,446
---------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,419,520 $ 29,740,375
================ =================
</Table>
F-36
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(See Accountant's Report)
<Table>
<Caption>
06/30/01 06/30/00
-------------------- ---------------
<S> <C> <C>
SALES $ 125,761,225 $ 122,350,360
COST OF SALES 117,115,263 114,097,558
----------------- ----------------
GROSS PROFIT $ 8,645,962 $ 8,252,802
------------------- ----------------
OPERATING EXPENSES
Selling $ 6,079,308 $ 5,930,883
General and administrative 1,433,332 1,452,663
Depreciation and amortization 651,318 663,637
-------------------- ----------------
Total operating expenses $ 8,163,958 $ 8,047,183
-------------------- ----------------
EARNINGS (LOSS) BEFORE
OTHER INCOME(EXPENSE) $ 482,004 $ 205,619
------------------- -----------------
OTHER INCOME (EXPENSE)
Gain (loss) on sale of assets $ (884,928) $ (10,730)
Interest expense (774,760) (744,056)
Interest income 122,453 99,156
Miscellaneous income 273,929 202,198
------------------- ----------------
Total other income (expense) $ (1,223,306) $ (453,432)
-------------------- -----------------
TOTAL LOSS BEFORE INCOME TAX EFFECT $ (741,302) $ (247,813)
INCOME TAX BENEFIT 289,154 99,180
------------------- -----------------
LOSS BEFORE DISCONTINUED OPERATIONS $ (452,148) $ (148,633)
-------------------- -----------------
DISCONTINUED OPERATIONS
Additional costs from discontinued division $ (122,630) $ (76,999)
Income tax benefit on discontinued operations 47,825 30,032
-------------------- -----------------
Total loss from discontinued operations $ (74,805) $ (46,967)
--------------------- ------------------
NET LOSS $ (526,953) $ (195,600)
==================== =================
NET LOSS PER SHARE
Basic $ (.XX) $ (.XX)
Dilutive $ (.XX) $ (.XX)
</Table>
F-37
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(See Accountant's Report)
<Table>
<Caption>
COMMON STOCK
-------------------------------------------------------------
Additional
Number of Paid-In
Shares Par Value Capital
------------------- ------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 2000 3,453,071 $ 34,531 $ 1,053,024
Dividends - preferred 0 0 0
Stock redeemed () (275) (126,222)
Net loss 0 0 0
----------------- ----------------- ------------------
BALANCE, JUNE 30, 2001 3,439,234 $ 34,256 $ 926,802
================= ================= =================
</Table>
<Table>
<Caption>
PREFERRED STOCK
------------------------------------------------------------------
Additional
Number of Paid-In Retained
Shares Par Value Capital Earnings Total
------------------ -------------- --------------- --------------------- ------------------
<S> <C> <C> <C> <C>
57,570 $ 576 $ 530,686 $ 342,629 $ 1,961,446
0 0 0 (28,787) (28,787)
0 0 0 0 (126,497)
0 0 0 (526,953) (526,953)
----------------- ------------- --------------- -------------------- ---------------
57,570 $ 576 $ 530,686 $ (213,111) $ 1,279,209
================= ============= =============== =================== ===============
</Table>
F-38
<Page>
SPF ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(See Accountant's Report)
<Table>
<Caption>
06/30/01 06/30/00
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (526,953) $ (195,600)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 652,568 664,887
(Gain) loss on sale of assets 844,928 10,730
Effects on cash flows from operating activities due to changes in:
Accounts receivable 1,763,010 (900,290)
Inventories (39,536) (154,677)
Other assets (213,962) (77,787)
Accounts payable (972,135) 2,525,028
Accrued liabilities (617,835) (66,450)
-------------- ----------------
Net cash provided by operating activities $ 888,835 $ 1,836,661
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment $ 550,000 $ 18,270
Purchase of property and equipment (228,530) (184,112)
Notes receivable additions () ()
Notes receivable repayments 57,753 75,838
--------------- --------------
Net cash used by investing activities $ 379,223 $ (111,361)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term notes payable $ (168,024) $ (525,658)
Principal payments on capital leases (3,935) (21,746)
Proceeds from issuance of long-term debt 0 650,000
Principal payments on long-term debt (750,283) (971,677)
Dividends paid on preferred stock (28,787) (28,785)
Stock redeemed (126,497) ()
--------------- ---------------
Net cash used by financing activities $ (1,077,526) $ (1,190,193)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ 190,532 $ (39,210)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF QUARTER 509,650 895,350
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 625,714 $ 1,420,996
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for: Interest $ 434,087 $ 390,758
</Table>
F-39
<Page>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
F-40
<Page>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
<Table>
<Caption>
(a) FINANCIAL STATEMENTS
Pages
-----
<S> <C>
INDEPENDENT AUDITOR'S REPORT.................................................................................... F-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2000 and 1999........................................... F-4
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999
and 1998............................................................................................ F-6
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000,
1999 and 1998....................................................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999
and 1998............................................................................................ F-8
NOTES TO FINANCIAL STATEMENTS................................................................................... F-9
SUPPLEMENTAL INFORMATION
Independent Auditor's Report on Supplemental Information............................................... F-26
Selected Financial Data................................................................................ F-27
Quarterly Results of Consolidated Operations (unaudited)............................................... F-28
Six Month Financial Information Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000.. F-35
Consolidated Statements of Operations, Stockholders Equity and Cash Flows for the six-months
ended Jun. 30, 2001 and 2000........................................................................ F-37
</Table>
(b) LIST OF EXHIBITS
3.(a) Amended and Restated Articles of Incorporation of Registrant
3.(b) Governing Provisions (Bylaws) of Registrant, as amended
4. Form of Common Stock Certificate of Registrant
10A. Agreement for Sales of Products between Koch Refining Company, L.P. and
Farstad Oil, Inc. dated September 8, 1998
10B. Petroleum Marketer Agreement between Conoco Inc. and Farstad Oil, Inc.
dated April 1, 1999
10C. Branded Jobber Contract between Amoco Oil Company and Farstad Oil Co.,
Inc. dated December 15, 1998
10D. Distributor Sales Contract between Sinclair Oil Corporation and Farstad
Oil, Inc. dated November 1, 1998
-22-
<Page>
10E. Distributor Sales Agreement (Branded) between Exxon Company, U.S.A. (a
division of Exxon Corporation) and Farstad Oil, Inc. covering the
period April 1, 1999 to March 31, 2002
10F. U.S. Small Business Administration Note between the Company and Bremer
Bank, N.A.
10G. Amended and Restated Credit and Security Agreement by and between
Farstad Oil, Inc. and Norwest Credit, Inc. dated December 8, 1997
10H. Employment Agreement among Jeff Farstad, Farstad Oil, Inc.,
Superpumper, Inc. and SPF, Inc. dated as of July 1, 1996
10I. Employment, Nondisclosure and Noncompetition Agreement by and between
Superpumper, Inc. and Terry A. Domres dated June 21, 1996
10J. Amendment to Employment, Nondisclosure and Noncompetition Agreement by
and between Superpumper, Inc. and Terry A. Domres dated January 30,
2001
10K. Noncompetition and Nondisclosure Agreement by and between SPF Energy,
Inc. and Cynthia L. Domres dated June 21, 1996
10L. Stock Redemption Agreement by and between Terry A. Domres and SPF
Energy, Inc. dated June 21, 1996; with attached Stock Repurchase
Agreement
10M. Stock Redemption Agreement by and between Cynthia L. Domres and SPF
Energy, Inc. dated June 21, 1996; with attached Stock Repurchase
Agreement
10N. Shareholders' Stock Redemption and Option Agreement among Jeff Farstad,
Paulette Havnvick, and the John Havnvick Trust u/a February 7, 1995 and
SPF Energy, Inc. dated June 25, 1996
10O. Employment and Stock Option Agreement among Paulette Havnvick,
Superpumper, Inc. and SPF Energy, Inc. dated July 1, 1996
10P. Amendment to Shareholders' Stock Redemption and Option Agreement
between Jeff Farstad, Paulette Andrews and the John Havnvick Trust u/a
February 7, 1995 and SPF Energy, Inc. effective October 6, 2000
10Q. Settlement Agreement by and between Paulette Andrews, Superpumper, Inc.
and SPF Energy, Inc. effective March 10, 2000
10R. Interim Share Repurchase Agreement by and between Paulette Andrews and
SPF Energy, Inc. effective January 1, 2001
21. Subsidiaries of the Registrant
23. Consent of Brady, Martz and Associates, P.C.
27. Financial Data Schedule
-23-
<Page>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): SPF Energy, Inc.
---------------------------------------
Date: September 6, 2001
-----------------------------------------------
By (Signature)*: /s/ Jeffrey Farstad
------------------------------------
Jeffrey Farstad, President and Chief Executive
Officer
*Print name and title of the signing officer under this signature.
-24-
<Page>
AMENDED AND RESTATED
--------------------
ARTICLES OF INCORPORATION
-------------------------
OF
--
SPF ENERGY, INC.
----------------
The following Amended and Restated Articles of Incorporation of SPF Energy,
Inc. are hereby adopted to supersede the original articles and all amendments
thereto:
Article 1. The name of said corporation shall be SPF Energy, Inc.
Article 2. The purposes for which the corporation are organized are to
engage in diversified business activities in the petroleum energy industry, and
to engage in any other business which may lawfully be conducted by a North
Dakota business corporation.
Article 3. The address of the registered agent for the corporation is 3520
North Broadway, P.O. Box 1847, Minot, ND 58702; the name of its registered agent
at that address is Vern Lysford.
Article 4. The aggregate number of shares which the corporation shall have
authority to issue is Ten Million (10,000,000) Common shares of One Cent ($0.01)
par value per share, and Two Million Five Hundred Thousand (2,500,000) of
Preferred shares of One Cent ($0.01) par value per share, and with the following
rights and preferences.
A. VOTING. Preferred shares shall be nonvoting shares.
PRINGLE & HERIGSTAD, P.C.
P.O. BOX 1000
MINOT, NORTH DAKOTA 58702
1
<Page>
B. PREFERENCES. The holders of record of Preferred shares shall be entitled
to preferences in matters as provided by the Board of Directors.
Neither Common nor Preferred shares include pre-emptive rights with respect
to the issuance of additional shares of any stock of the corporation.
No shares in the corporation in the corporation have been issued.
The undersigned incorporator of SPF Energy, Inc. declares that no shares of
the corporation have been issued and that no directors have been elected, and
that he has acted to amend and restate its Articles of Incorporation pursuant to
the provisions of Sections 10-19.1-18, -21, and -30 of the North Dakota Century
Code.
Dated this 1st day of July, 1996.
/s/ Vern Lysford
---------------------------------
Vern Lysford, Incorporator
PRINGLE & HERIGSTAD, P.C.
P.O. BOX 1000
MINOT, NORTH DAKOTA 58702
2
<Page>
GOVERNING PROVISIONS
(BYLAWS)
OF
SPF ENERGY, INC.
ARTICLE I. STATUTORY PROVISIONS
The following provisions of the North Dakota Business Corporations Act
(N.D.C.C. Sections 10-19.1-10 and 26), govern this corporation:
Section A. The corporation has the powers set forth in this section,
subject to any limitations provided in any law of the State of North Dakota or
in its articles of incorporation.
1. The corporation may purchase, lease, or otherwise acquire,
own, hold, improve, use and otherwise deal in and with, real
or personal property, or any interest therein, wherever
situated.
2. The corporation may sell, convey, mortgage, create a security
interest in, lease, exchange, transfer or otherwise dispose of
all or any part of its real or personal property, or any
interest therein, wherever situated.
3. The corporation may purchase, subscribe for, or otherwise
acquire, own, hold, vote, use, employ, sell, exchange,
mortgage, lend, create a security interest in, or otherwise
dispose of and otherwise use and deal in and with, securities
or other interests in or obligations of, a person or direct or
indirect obligations of any domestic or foreign government or
instrumentality thereof.
4. The corporation may make contracts and incur liabilities,
borrow money, issue its securities and secure any of its
obligations by mortgage of or creation of a security interest
in all or any of its property, franchises, and income.
5. The corporation may invest and reinvest its funds.
1
<Page>
6. The corporation may take and hold real and personal property,
whether or not of a kind sold or otherwise dealt in by the
corporation, as security for the payment of money loaned,
advanced or invested.
7. The corporation may conduct its business, carry on its operations,
have offices and exercise its powers anywhere in the universe.
8. Except as otherwise prohibited by law, the corporation may
make donations, irrespective of corporate benefit, for the
public welfare; for social, community, charitable, religious,
educational, scientific, civic, literary and testing for
public safety purposes, and for similar or related purposes;
for the purpose of fostering national or international amateur
sports competition; and for the prevention of cruelty to
children and animals.
9. The corporation may pay pensions, retirement allowances, and
compensation for past services to and for the benefit of, and
establish, maintain, continue, and carry out, wholly or
partially at the expense of the corporation, employee or
incentive benefit plans, trusts and provisions to or for the
benefit of, any or all of its and its related corporations'
officers, directors, employees, and agents and the families,
dependents and beneficiaries of any of them. It may indemnify
and purchase and maintain insurance for and on behalf of a
fiduciary of any of these employee benefit and incentive
plans, trusts and provisions.
10. The corporation may participate in any capacity in the
promotion, organization, ownership, management and operation
of any organization or in any transaction, undertaking or
arrangement that the participating corporation would have
power to conduct by itself, whether or not the participation
involves sharing or delegation of control with or to others.
11. The corporation may provide for its benefit life insurance and
other insurance with respect to the services of any or all of
its officers, directors, employees and agents, or on the life
of a shareholder for the purpose of acquiring at the death of
the shareholder any or all shares in the corporation owned by
the shareholder.
2
<Page>
12. The corporation may lend money to, guarantee an obligation of,
become a surety for, or otherwise financially assist persons.
13. The corporation may make advances to its directors, officers and
employees and those of its
subsidiaries.
14. The corporation shall indemnify persons against certain expenses
and liabilities only as provided in N.D.C.C. Section 10-19.1-19.
15. The corporation may conduct all or part of its business under one
or more trade names.
16. The corporation may have and exercise all other powers necessary or
convenient to effect any or all of the business purposes for which
the corporation is incorporated.
Section B. The power to adopt, amend or repeal governing provisions
(bylaws) is vested in the board as provided in Article IX.
Section C. The affirmative vote of a majority of directors present is
required for an action of the board.
Section D. A written action by the board taken without a meeting must be
signed by all directors.
Section E. The board may authorize the issuance of securities and rights to
purchase securities.
Section F. All common shares are entitled to vote and are of one (1) class
and one (1) series. Preferred shares shall be nonvoting shares.
Section G. All shares have equal rights and preferences in all matters not
otherwise provided for by appropriate action of the Board of Directors as
provided in subdivisions a and b of subsection 2 of section 10-19.1-61 of the
North Dakota Business Corporations Act.
Section H. The board may issue shares for any consideration or for no
consideration to effectuate share dividends or splits, and determine the value
of nonmonetary consideration.
Section I. The corporation may issue rights to purchase securities whose
terms, provisions and conditions are fixed by the board.
3
<Page>
Section J. The affirmative vote of the holders of majority of the voting
power of the shares present and entitled to vote at a duly held meeting is
required for an action of the shareholders, except where the affirmative vote of
a majority of the voting power of all shares entitled to vote is required by
law, the articles of incorporation or these governing provisions.
Section K. Shares of the corporation acquired by the corporation may be
reissued.
Section L. Directors serve for an indefinite term that expires upon the
election and qualification of a successor.
Section M. The compensation of directors is fixed by the board.
Section N. If the board fails to select a place for a board meeting, it
must be held at the principal executive office.
Section O. A director may call a board meeting, and the notice of the
meeting shall state the purpose of the meeting.
Section P. A majority of the board is a quorum for a board meeting.
Section Q. A committee must consist of one (1) or more persons, who need
not be directors, appointed by the directors.
Section R. Officers may delegate some or all of their duties and powers, if
not prohibited by the board from doing so.
Section S. Regular meetings of shareholders shall be held annually, and
special meetings may be held, upon demand by shareholders under certain
conditions as provided in Section IV D.2.
Section T. No fewer than ten (10) nor more than fifty (50) days' notice is
required for a meeting of shareholders.
Section U. The number of shares required for a quorum at a shareholders'
meeting is a majority of the voting power of the shares entitled to vote at the
meeting.
Section V. The board may fix a date up to fifty (50) days before the date
of a shareholders meeting as the date for a determination of the holders of
shares entitled to notice of an entitled vote at the meeting.
4
<Page>
Section W. Each common share has one vote, and preferred shares are
nonvoting shares, as provided in the articles of incorporation.
Section X. The corporation may, but need not, have a corporate seal. The
use or nonuse of a corporate seal does not affect the validity of a document or
act. If the corporation has a corporate seal, the use of the seal by the
corporation on a document is not necessary.
Certain provisions of the articles of incorporation or subsequent articles
of these governing provisions may repeat certain of the foregoing provisions in
the context of particular subjects. In the case of any inconsistency between a
provision of the articles of incorporation and this Article I of governing
provisions, the articles of incorporation shall control. In the case of any
inconsistency between any provision of subsequent articles of these governing
provisions and this Article I, the subsequent article of these governing
provisions shall control.
ARTICLE II. BOARD OF DIRECTORS
Section A. THE BOARD.
1. The business and affairs of the corporation must be managed by or
under the direction of the board, subject to subsection 2 and
Article VIII. The members of the first board may be elected by the
shareholders.
2. The holders of the shares entitled to vote for directors of the
corporation may, by unanimous affirmative vote, take any action
that law, the articles of incorporation or other governing
provisions require or permit the board to take or the shareholders
to take after action or approval of the board. As to an action
taken by the shareholders in that matter:
a. The directors have no duties, liabilities or responsibilities
as directors with respect to or arising from the action.
b. The shareholders collectively and individually have all of the
duties, liabilities and responsibilities of directors with
respect to and arising from the action.
5
<Page>
c. If the action relates to a matter required or permitted to be
approved or adopted by the board, either with or without
approval or adoption by the shareholders, the action is deemed
to have been approved or adopted by the board.
Section B. NUMBER. The board must consist of seven (7) directors. The
number of directors may be increased or, subject to Section H, decreased at any
time by amendment in the manner provided in Article IX.
Section C. QUALIFICATIONS. Directors must be individuals.
Section D. TERMS. A director serves for a one (1) year term that expires at
the next regular meeting of the shareholders or until a successor is elected and
has qualified, or disqualification of the director.
Section E. COMPENSATION. The board may fix the compensation of the
directors.
Section F. CUMULATIVE VOTING FOR DIRECTORS. Each shareholder entitled to
vote for directors has the right to cumulate those votes in all elections of
directors by giving written notice of intent to cumulate those votes to any
officer of the corporation before the meeting, or to the presiding officer at
the meeting at which the election is to occur at any time before the election of
directors at the meeting, in which case:
1. The presiding officer at the meeting shall announce, before the
election of directors, that shareholders may cumulate their votes;
and
2. Each shareholder shall cumulate those votes either by casting for
one (1) candidate the number of votes equal to the number of
directors to be elected multiplied by the number of votes
represented by the shares entitled to vote, or by distributing all
of those votes on the same principle among any number of
candidates.
Section G. RESIGNATION. A director may resign at any time by giving written
notice to the corporation. The resignation is effective without acceptance when
the notice is given to the corporation, unless a later effective time is
specified in the notice.
6
<Page>
Section H. REMOVAL OF DIRECTORS.
1. The provisions of this section apply unless modified by an
agreement described in Article VIII.
2. A director may be removed at any time, with or without cause, if:
a. The director was named by the board to fill a vacancy;
b. The shareholders have not elected directors in the interval
between the time of the appointment to fill a vacancy and the
time of the removal; and
c. A majority of the remaining directors present affirmatively
vote to remove the director.
3. Any one (1) or all of the directors may be removed at any time,
with or without cause, by the affirmative vote of the holders of
the proportion or number of the voting power of the shares of the
classes or series the director represents sufficient to elect them.
If less than the entire board is to be removed, no one (1) of the
directors may be removed if the votes of a sufficient number of
shares are cast against the director's removal which, if then
cumulatively voted at an election of the entire board of directors,
would be sufficient to elect the director.
4. New directors may be elected at a meeting at which directors are
removed.
Section I. VACANCIES.
1. Vacancies on the board resulting from the death, resignation,
removal or disqualification of a director may be filled by the
affirmative vote of a majority of the remaining directors, even
though the remaining directors constitute less than a quorum; and
2. Vacancies on the board resulting from newly created directorships
may be filled by the affirmative vote of a majority of the
directors serving at the time of the increase.
7
<Page>
3. Each director elected under this section to fill a vacancy holds
office until a qualified successor is elected by the shareholders
at the next regular or special meeting of the shareholders.
Section J. BOARD MEETINGS.
1. Meetings of the board may be held from time to time as provided by
board resolution at any place within or without the state that the
board may select or by any means described in subsection 2. If the
board fails to select a place for a meeting, the meeting must be
held at the principal executive office.
2. A board meeting may be conducted by:
a. A conference among directors using any means of communication
through which the directors may simultaneously hear each other
during the conference constitutes a board meeting, if the same
notice is given of the conference as would be required by
subsection 3 for a meeting, and if the number of directors
participating in the conference would be sufficient to
constitute a quorum at a meeting. Participation in a meeting
by that means constitutes presence in person at the meeting;
or
b. Any means of communication through which the director, other
directors so participating, and all directors physically
present at the meeting may simultaneously hear each other
during the meeting. Participation in a meeting by that means
constitutes presence in person at the meeting.
3. A director may call a board meeting by giving ten (10) days' notice
to all directors of the date, time and place of the meeting. The
notice shall state the purpose of the meeting unless the director
calling the meeting is chairman of the board or president of the
corporation.
4. If the day or date, time and place of a board meeting have been
announced at a previous meeting of the board, no notice is
required. Notice of an adjourned meeting need not be given other
than by announcement at the meeting at which adjournment is taken.
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5. A director may waive notice of a meeting of the board. A waiver of
notice by a director entitled to notice is effective whether given
before, at or after a meeting, and whether given in writing or by
attendance. Attendance by a director at a meeting is a waiver of
notice of that meeting, except where the director objects at the
meeting to the transaction of business because the meeting is not
lawfully called or convened and does not participate thereafter in
the meeting.
Section K. ABSENT DIRECTORS. A director may give advance written consent or
opposition to a proposal to be acted on at a board meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition must be counted as a vote in favor of or against the
proposal and must be entered in the minutes or other record of action at the
meeting, if the proposal acted on at the meeting is substantially the same or
has substantially the same effect as the proposal to which the director has
consented or objected.
Section L. QUORUM. A majority of the directors currently holding office is
a quorum for the transaction of business. In the absence of a quorum, a majority
of the directors present may adjourn a meeting from time to time until a quorum
is present. If a quorum is present when a duly called or held meeting is
convened, the directors present may continue to transact business until
adjournment, even though the withdrawal of a number of directors originally
present leaves less than the proportion or number otherwise required for a
quorum.
Section M. ACT OF THE BOARD. The board shall take action by the affirmative
vote of a majority of the directors present at a duly held meeting, except where
law or the articles of incorporation require the affirmative vote of a larger
proportion or number than is required by law for a particular action, the
articles control.
Section N. ACTION WITHOUT MEETING.
1. An action required or permitted to be taken at a board meeting may
be taken by written action signed by all of the directors.
2. The written action is effective when signed by the required number
of directors, unless a different effective time is provided in the
written action.
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Section O. COMMITTEES.
1. A resolution approved by the affirmative vote of a majority of the
entire board may establish committees having the authority of the
board in the management of the business of the corporation only to
the extent provided in the resolution. Committees are subject at
all times to direction and control of the board.
2. Committee members must be individuals. A committee must consist
of one (1) or more persons, who need not be directors, appointed by
affirmative vote of a majority of the entire board of directors.
3. Sections J, K and L apply to committees and members of committees
to the same extent as those sections apply to the board of
directors.
4. Minutes, if any, of committee meetings must be made available upon
request to members of the committee and to any director.
ARTICLE III. OFFICERS
Section A. OFFICERS. The officers of the corporation must consist of a
president, one (1) or more vice presidents as may be prescribed by the board, a
secretary and a treasurer, each of whom must be elected by the board at such
time and in such manner as may be provided in the bylaws. Any other officers,
assistant officers and agents, as necessary, may be elected or appointed by the
board or chosen in such other manner as may be prescribed by the board.
Section B. DUTIES OF OFFICERS AND AGENTS. All officers and agents of the
corporation, as between themselves and the corporation, have such authority and
must perform such duties in the management of the corporation as may be provided
in the bylaws, or as may be determined by resolution of the board not
inconsistent with the bylaws.
Section C. MULTIPLE OFFICES. Any number of offices or functions of those
offices may be held or exercised by the same person. If a document must be
signed by persons holding different offices or functions and a person holds or
exercises more than one (1) of those offices or functions, that person may sign
the document in more than one (1) capacity, but only if the document indicates
each capacity in which the person signs.
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Section D. CONTRACT RIGHTS. The election or appointment of a person as an
officer or agent does not, of itself, create contract rights. However, a
corporation may enter into a contract with an officer or agent. The resignation
or removal of an officer or agent is without prejudice to any contractual rights
or obligations.
Section E. RESIGNATION, REMOVAL AND VACANCIES.
1. An officer may resign at any time by giving written notice to the
corporation. The resignation is effective without acceptance when
the notice is given to the corporation, unless a later effective
date is specified in the notice.
2. An officer may be removed at any time, with or without cause, by a
resolution approved by the affirmative vote of a majority of the
entire board of directors, subject to the provisions of a
shareholder control agreement.
3. A vacancy in an office because of death, resignation, removal,
disqualification, or other cause may be filled for the unexpired
portion of the term in the manner determined by the board.
Section F. DELEGATION. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the entire board of directors, an officer
elected or appointed by the board may, without the approval of the board,
delegate some or all of the duties and powers of an office to other persons. An
officer who delegates the duties or powers of an office remains subject to the
standard of conduct for an officer with respect to the discharge of all duties
and powers so delegated.
ARTICLE IV. SHARES AND SHAREHOLDERS
Section A. SHARE CERTIFICATES. The shares of the corporation must be
represented by certificates signed by the president or by a vice president, and
by the secretary or by an assistant secretary of the corporation. A certificate
signed as provided herein is prima facie evidence of the ownership of the shares
referred to in the certificate.
A new share certificate may be issued pursuant to N.D.C.C. Section 41-08-41
in place of one that is alleged to have been lost, stolen or destroyed.
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Section B. PRE-EMPTIVE RIGHTS. To the extent allowed by Section 9 of
Article XII of the Constitution of North Dakota, a shareholder of a corporation
has the pre-emptive rights provided in N.D.C.C. Section 10-19.1-65.
Section C. RESTRICTION ON TRANSFER OR REGISTRATION OF SECURITIES. A
restriction on the transfer or registration of transfer of securities of the
corporation may be imposed by a resolution adopted by the shareholders, or by an
agreement among or other written action by a number of shareholders or holders
of other securities or among them and the corporation. A restriction is not
binding with respect to securities issued prior to the adoption of the
restriction, unless the holders of those securities are parties to the agreement
or voted in favor of the restriction. A restriction shall be noted conspicuously
on the face or back of the certificate.
Section D. REGULAR MEETINGS OF SHAREHOLDERS.
1. Regular meetings of shareholders shall be held annually, at such
place in the State of North Dakota and at such time between April 1
and June 30 of each calendar year as the board of directors shall
determine.
2. At each regular meeting of shareholders there must be an election
of qualified successors for directors within three (3) months after
the date of the meeting. No other particular business is required
to be transacted at a regular meeting. Any business appropriate for
action by the shareholders may be transacted at a regular meeting.
Section E. SPECIAL MEETINGS OF SHAREHOLDERS.
1. Special meetings of the shareholders may be called for any purpose
or purposes at any time, by:
a. The president;
b. Two (2) or more directors; or
c. A shareholder or shareholders holding ten percent (10%) or
more of the voting power of all shares entitled to vote.
2. A shareholder or shareholders holding five percent (5%) or more of
the voting power of all shares entitled to vote may demand a
special meeting of shareholders by written notice of demand given
to
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the president or secretary of the corporation and containing the
purposes of the meeting. Within thirty (30) days after receipt by
one of those officers of the demand, the board shall cause a
special meeting of shareholders to be called. If the board fails to
cause a special meeting to be called as required by this
subsection, the shareholder or shareholders making the demand may
call a special meeting by giving notices as required by Section F.
All necessary expenses of the notice and the meeting shall be paid
by the corporation.
3. Special meetings must be held on the date and at the time and place
fixed by the president or the board, except that a special meeting
called by or at the demand of a shareholder or shareholders
pursuant to subsection 2 must be held in the county where the
principal executive office is located.
4. The business transacted at a special meeting is limited to the
purposes stated in the notice of the meeting. Any business
transacted at a special meeting that is not included in those
stated purposes is voidable by or on behalf of the corporation,
unless all of the shareholders have waived notice of the meeting in
accordance with subsection 4 of Section F.
Section F. NOTICE.
1. Notice of all meetings of shareholders must be given to every
holder of shares entitled to vote, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were
announced at the time of adjournment.
2. The notice must be given at least ten (10) days before the date of
the meeting, and not more than fifty (50) days before the date of
the meeting.
3. The notice must contain the date, time and place of the meeting,
and any other information required by law. In the case of a special
meeting, the notice must contain a statement of the purposes of the
meeting. The notice may also contain any other information required
by the bylaws or deemed necessary or desirable by the board or by
any other person or persons calling the meeting.
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4. A shareholder may waive notice of a meeting of shareholders. A
waiver of notice by a shareholder entitled to notice is
effective whether given before, at or after the meeting, and
whether given in writing, or by attendance. Attendance by a
shareholder at a meeting is a waiver of notice of that meeting,
except where the shareholder objects at the beginning of the
meeting to the transaction of business because the meeting is
not lawfully called or convened, or objects before a vote on an
item of business because the item may not lawfully be considered
at that meeting and does not participate in the consideration of
the item at that meeting.
Section G. ACT OF THE SHAREHOLDERS. The shareholders shall take action by
the affirmative vote of the holders of a majority of the voting power of the
shares present and entitled to vote, except where law or the articles of
incorporation require a larger proportion or number. If the articles of
incorporation require a larger proportion or number than is required by law for
a particular action, the articles control.
Section H. ACTION WITHOUT A MEETING. An action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting by written
action signed by all of the shareholders entitled to vote on that action. The
written action is effective when it has been signed by all of those
shareholders, unless a different effective time is provided in the written
action.
Section I. QUORUM. The holders of a majority of the voting power of the
shares entitled to vote at a meeting are a quorum for the transaction of
business. If a quorum is present when a duly called or held meeting is convened,
the shareholders present may continue to transact business until adjournment,
even though the withdrawal of a number of shareholders originally present leaves
less than the proportion or number otherwise required for a quorum.
Section J. VOTING RIGHTS.
1. The board may fix a date not more than fifty (50) days before the
date of a meeting of shareholders as the date for the determination
of the holders of shares entitled to notice of and entitled to vote
at the meeting. When a date is so fixed, only shareholders on that
date are entitled to notice of and permitted to vote at that
meeting of shareholders.
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2. A resolution approved by the affirmative vote of a majority of the
directors present may establish a procedure whereby a shareholder
may certify in writing to the corporation that all or a portion of
the shares registered in the name of the shareholder are held for
the account of one (1) or more beneficial owners. Upon receipt by
the corporation of the writing, the persons specified as beneficial
owners, rather than the actual shareholder, are deemed the
shareholders for the purposes specified in the writing.
3. A shareholder of common shares has one (1) vote for each common
share held.
4. Shares owned by two (2) or more shareholders may be voted by any
one (1) of them unless the corporation receives written notice from
any one (1) of them denying the authority of that person to vote
those shares.
5. A holder of shares entitled to vote may vote any portion of the
shares in any way the shareholder chooses. If a shareholder votes
without designating the proportion or number of shares voted in a
particular way, the shareholder is deemed to have voted all of the
shares in that way.
Section K. VOTING LIST. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at the meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to the meeting, must be kept on
file at the registered office of the corporation and is subject to inspection by
any shareholder at any time during usual business hours. The list must also be
produced and kept open at the time and place of the meeting and is subject to
the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books are prima facie evidence as to who are the
shareholders entitled to examine the lists or transfer books or to vote at any
meeting of shareholders. Failure to comply with the requirements of this section
does not affect the validity of any action taken at the meeting. Any officer or
agent having charge of the stock transfer books who fails to prepare the list of
shareholders, or keep it on file for a period of ten (10) days, or produce and
keep it open for inspection at the meeting, as provided in this section, is
liable to any
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shareholder suffering damage on account of such failure, the extent of such
damage.
Section L. VOTING OF SHARES BY ORGANIZATIONS AND LEGAL REPRESENTATIVES.
1. Shares of the corporation registered in the name of another
domestic or foreign corporation may be voted by the president or
another legal representative of that corporation.
2. Shares under the control of a person in a capacity as a personal
representative, an administrator, executor, guardian, conservator
or attorney in fact may be voted by the person, either in person or
by proxy, without registration of those shares in the name of the
person. Shares registered in the name of a trustee of a trust or in
the name of a custodian may be voted by the person, either in
person or by proxy, but a trustee of a trust or a custodian may not
vote shares held by the person unless they are registered in the
name of the person.
3. Shares registered in the name of a trustee in bankruptcy or a
receiver may be voted by the trustee or receiver either in person
or by proxy. Shares under the control of a trustee in bankruptcy
or a receiver may be voted by the trustee or receiver without
registering the shares in the name of the trustee or receiver, if
authority to do so is contained in an appropriate order of the
court by which the trustee or receiver was appointed.
4. Shares registered in the name of an organization not described in
subsections 1 through 3 may be voted either in person or by proxy
by the legal representative of that organization.
5. A shareholder whose shares are pledged may vote those share until
the shares are registered in the name of the pledgee.
Section M. PROXIES.
1. A shareholder may cast or authorize the casting of a vote by filing
a written appointment of a proxy with an officer of the corporation
at or before the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two
(2) or more shareholders is
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valid if signed by any one (1) of them, unless the corporation
receives from any one (1) of those shareholders written notice
either denying the authority of that person to appoint a proxy or
appointing a different proxy.
2. The appointment of a proxy is valid for eleven (11) months, unless
a longer period is expressly provided in the appointment. No
appointment is irrevocable unless the appointment is coupled with
an interest, including a security interest, in the shares or in the
corporation.
3. An appointment may be terminated at will, unless the appointment is
coupled with an interest, in which case it may not be terminated
except in accordance with the terms of an agreement, if any between
the parties to the appointment. Termination may be made by filing
written notice of the termination of the appointment with an
officer of the corporation, or by filing a new written appointment
of a proxy with an officer of the corporation. Termination in
either manner revokes all prior proxy appointments and is effective
when filed with an officer of the corporation.
4. The death or incapacity of a person appointing a proxy does not
revoke the authority of the proxy, unless written notice of the
death or incapacity is received by an officer of the corporation
before the proxy exercises the authority under that appointment.
5. Unless the appointment specifically provides otherwise, if two (2)
or more persons are appointed as proxies for a shareholder:
a. Any one (1) of them may vote the shares on each item of
business in accordance with specific instructions contained in
the appointment; and
b. If no specific instructions are contained in the appointment
with respect to voting the shares on a particular time of
business, the shares must be voted as a majority of the
proxies determine. If the proxies are equally divided, the
shares may not be voted.
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6. Unless the appointment of a proxy contains restriction, limitation
or specific reservation of authority, the corporation may accept a
vote or action taken by a person named in the appointment. The vote
of a proxy is final, binding, and not subject to challenge, but the
proxy is liable to the shareholder or beneficial owner for damages
resulting from a failure to exercise the proxy or from an exercise
of the proxy in violation of the authority granted in the
appointment.
Section N. VOTING TRUSTS. Shares in the corporation may be transferred to
a, trustee pursuant to written agreement, for the purpose of conferring on the
trustee the right to vote and otherwise represent the beneficial owner of those
shares for a period not exceeding ten (10) years, except that if the agreement
is made in connection with an indebtedness of the corporation, the voting trust
may extend until the indebtedness is discharged. Unless otherwise specified in
the agreement, the voting trust may be terminated at any time by the beneficial
owners of a majority of the voting power of the shares held by the trustee. A
signed original of the agreement must be filed with the corporation.
Section O. SHAREHOLDER VOTING AGREEMENTS. A written agreement solely among
persons who are then shareholders or subscribers for shares to be issued,
relating to the voting of their shares, is valid and specifically enforceable by
and against the parties to the agreement. The agreement may override the
provisions of Section M regarding proxies and is not subject to the provisions
of Section N regarding voting trusts.
ARTICLE V. OFFICE AND RECORDS
Section A. PRINCIPAL OFFICE. The corporation's principal office shall be in
the city of Minot, North Dakota.
Section B. BOOKS AND RECORDS - INSPECTION.
1. The corporation shall keep at its principal executive office, or at
another place or places within the United States determined by the
board, a share register not more than one (1) year old, containing
the names and addresses of the shareholders and the number and
classes of shares held by each shareholder. The corporation shall
also keep at its principal executive office, or at another place or
places within the United States determined by the board, a record
of the dates on which certificates were issued.
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2. The corporation shall keep at its principal executive office or, if
its principal executive office is outside of this state, shall make
available at its registered office within ten (10) days after
receipt by an officer of the corporation of a written demand for
them made by a person described in subsection 4 or 5 originals or
copies of:
a. Records of all proceedings of shareholders for the last three
(3) years;
b. Records of all proceedings of the board for the last three (3)
years;
c. Its articles of incorporation and all amendments currently in
effect;
d. Its bylaws and all amendments currently in effect;
e. Financial statements required by Section C and the financial
statements for the most recent interim period prepared in the
course of the operation of the corporation for distribution to
the shareholders or to a governmental agency as a matter of
public record;
f. Reports made to shareholders generally within the last three
(3) years;
g. A statement of the names and usual business addresses of its
directors and principal officers;
h. Voting trust agreements described in Section IV.N; and
i. Shareholder control agreements described in Article VIII.
3. The corporation shall keep appropriate and complete financial
records.
4. A shareholder or a holder of a voting trust certificate has an
absolute right, upon written demand, to examine and copy, in person
or by a legal representative, at any reasonable time:
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a. The share register; and
b. All documents referred to in subsection 2.
5. A shareholder or a holder of a voting trust certificate who has
been a shareholder for a least six (6) months immediately preceding
the shareholder's demand or who is the holder of record of at least
five percent (5%) of all the outstanding shares of the corporation
has a right upon written demand, to examine and copy, in person or
by a legal representative, other corporate records at any
reasonable time only if the shareholder, beneficial owner or holder
of a voting trust certificate demonstrates a proper purpose for the
examination. A "proper purpose" is one reasonably related to the
person's interest as a shareholder, beneficial owner or holder of a
voting trust certificate of the corporation.
6. Copies of all documents referred to in subsection 2 must be
furnished at the expense of the corporation. A copy of the most
recently generated share register must be furnished at the expense
of the corporation if the requesting party shows a proper purpose.
In all other cases, the corporation may charge the requesting party
a reasonable fee to cover the expenses of providing the copy.
7. The records maintained by the corporation, including its share
register, financial records and minute books, may utilize any
information storage technique, including, for example, punched
holes, printed or magnetized spots or microimages, even though that
makes them illegible visually, if the records can be converted
accurately and within a reasonable time, into a form that is
legible visually and whose contents are assembled by related
subject matter to permit convenient use by people in the normal
course of business. The corporation shall convert any of the
records referred to in subsection 4 upon the request of the
conversion shall be borne by the person who bears the expense of
copying pursuant to subsection 7. A copy of the conversion is
admissible in evidence, and must be accepted for all other
purposes, to the same extent as the existing or original records
would be if they were legible visually.
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Section C. FINANCIAL STATEMENTS. The corporation shall, upon written
request by a shareholder, furnish annual financial statements, including at
least a balance sheet as of the end of each fiscal year and a statement of
income for the fiscal year, which must be prepared on the basis of accounting
methods reasonable in the circumstances and may be consolidated statements of
the corporation and one (1) or more of its subsidiaries. In the case of
statements audited by a public accountant, each copy must be accompanied by a
statement of the treasurer or other person in charge of the corporation's
financial records stating the reasonable belief of the person that the financial
statements were prepared in accordance with accounting methods reasonable in the
circumstances, describing the basis of presentation, and describing any respects
on a basis consistent with those prepared for the previous year.
ARTICLE VI. DISTRIBUTIONS
Section A. DEFINITION. "Distribution" means a direct or indirect transfer
of money or other property, other than its own shares, with or without
consideration, or an incurrence or issuance of indebtedness, by the corporation
to any of its shareholders in respect of its shares. A distribution may be in
the form of a dividend or a distribution in liquidation, or as consideration for
the purchase, redemption or other acquisition of its shares, or otherwise.
Section B. DISTRIBUTIONS.
1. The board may authorize and cause the corporation to make a
distribution only if the board determines, in accordance with
subsection 2, that the corporation will be able to pay its debts in
the ordinary course of business after making the distribution and
the board does not know before the distribution is made that the
determination was or has become erroneous, and the corporation may
make the distribution if it is able to pay its debts in the
ordinary course of business after making the distribution. The
effect of a distribution on the ability of the corporation to pay
its debts in the ordinary course of business after making the
distribution shall be measured in accordance with subsection 3. The
right of the board to authorize, and the corporation to make,
distributions may be prohibited, limited or restricted by, or the
rights and priorities of persons to receive distributions may be
established by, the articles or bylaws or an agreement.
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2. A determination that the corporation will be able to pay its debts
in the ordinary course of business after the distribution is
presumed to be proper if the determination is made in compliance
with the standard of conduct provided in N.D.C.C. Section
10-19.1-50 on the basis of financial information prepared in
accordance with accounting methods, or a fair valuation or other
method reasonable in the circumstances.
3. In the case of a distribution made by the corporation in connection
with a purchase, redemption, or other acquisition of its shares,
the effect of the distribution must be measured as of the date on
which money or other property is transferred, or indebtedness
payable in installments or otherwise is incurred, by the
corporation, or as of the date on which the shareholder ceases to
be a shareholder of the corporation with respect to the shares,
whichever is the earliest. The effect of any other distribution
must be measured as of the date of its authorization if payment
occurs one hundred twenty (120) days or less following the date of
authorization, or as of the date of payment if payment occurs more
than one hundred twenty (120) days following the date of
authorization.
4. Indebtedness of a corporation incurred or issued in a distribution
in accordance with this section to a shareholder who as a result of
the transaction is no longer a shareholder is on a parity with the
indebtedness of the corporation to its general unsecured creditors,
except to the extent subordinated, agreed to or secured by a pledge
of any assets of the corporation or a related corporation, or
subject to any other agreement between the corporation, or subject
to any other agreement between the corporation and the shareholder.
ARTICLE VII. TRANSFER OF ASSETS
Section A. The corporation, by affirmative vote of a majority of the entire
board of directors, may sell, lease, transfer or otherwise dispose of all or
substantially all of its property and assets in the usual and regular course of
its business and grant a security interest in all or substantially all of its
property and assets whether or not in the usual and regular course of its
business, upon those terms and conditions and for those considerations, which
may be money, securities or other instruments for the payment of
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money or otherproperty, as the board deems expedient, in which case no
shareholder approval is required.
Section B. The corporation, by affirmative vote of a majority of the entire
board of directors, may sell, lease, transfer or otherwise dispose of all or
substantially all of its property and assets, including its good will, not in
the usual and regular course of its business, upon those terms and conditions
and for those considerations, which may be money, securities, or other
instruments for the payment of money or other property, as the board deems
expedient, when approved at a regular or special meeting of the shareholders by
the affirmative vote of the holders of a majority of the voting power of the
shares entitled to vote. Written notice of the meeting must be given to all
shareholders whether or not they are entitled to vote. Written notice of the
meeting must be given to all shareholders whether or not they are entitled to
vote at the meeting. The written notice must state that a purpose of the meeting
is to consider the sale, lease, transfer or other disposition of all or
substantially all of the property and assets of the corporation.
Section C. Confirmatory deeds, assignments or similar instruments to
evidence a sale, lease, transfer or other disposition may be signed and
delivered at any time in the name of the transferor by its current officers or,
if the corporation no longer exists, by its last officers.
ARTICLE VIII. AMENDMENTS
The power to amend or repeal any of the foregoing governing provisions or
to adopt additional governing provisions is vested in the board, provided that
any board action to amend, repeal or adopt governing provisions shall be
reported to the shareholders and may be countermanded by the vote of the holders
of a majority of the voting power of the shares entitled to vote, and provided
that provisions affecting quorum requirements for shareholder meetings and
shareholders voting rights may be amended only the vote of the holders of a
majority of the voting power of the shares entitled to vote.
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FIRST AMENDED GOVERNING PROVISIONS
(BYLAWS)
OF
SPF ENERGY, INC.
The following Amended Governing Provisions of the incorporation of SPF
Energy, Inc. was adopted to supersede the original article effective June 30,
1999:
ARTICLE II. BOARD OF DIRECTORS
Section B. NUMBER. The board must consist of five (5) directors. The number
of directors may be increased or decreased subject to Section H, decreased at
anytime by amendment in the manner provided in Article VIII of these bylaws.
<Page>
Incorporated under the Laws of the State of North Dakota
NUMBER [LOGO] SHARES
SPF ENERGY, INC.
COMMON STOCK
PAR VALUE $0.01
THIS CERTIFIES THAT STOCKHOLDER NAME IS THE OWNER OF ONE SHARE OF THE COMMON
SHARES OF SPF ENERGY, INC., TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION
BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED.
THESE FULLY PAID AND NON-ASSESSABLE COMMON SHARES ARE SUBJECT TO ALL THE
PROVISIONS OF THE ARTICLES OF INCORPORATION AND THE BY-LAWS OF THE
CORPORATION.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THE CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS THIS ____ DAY OF ______________, 20___
____________________________________ _____________________________________
Jeff Farstad, Chairman Bruce A Hest, Secretary/Treasurer
<Page>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THESE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE MADE SUBJECT TO
A SECURITY INTEREST, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT
OF 1933 OR AN OPINION OF COUNSEL FOR SPF ENERGY, INC. THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT OR ANY APPLICABLE SECURITIES ACT OF ANY STATE."
STOCK
CERTIFICATE 1
1
SHARES OF
COMMON STOCK
STOCKHOLDER NAME
__________, 20__
FOR VALUE RECEIVED, ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
_______________________________ THE SHARES OF COMMON STOCK OF SPF ENERGY,
INC. REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT _____________________________________________ TO
TRANSFER THE SAID STOCK ON THE BOOKS OF SPF ENERGY, INC. WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED _______________, 20_____.
BY:
______________________________
IN THE PRESENCE OF:
______________________________
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AGREEMENT FOR SALE OF PRODUCTS
This Agreement ("Agreement") is made and entered into as of the 8th day of
SEPTEMBER, 1998 by and between KOCH REFINING COMPANY, L.P., a limited liability
company organized under the laws of Delaware and headquartered in Wichita,
Kansas ("Koch") and FARSTAD OIL, INC., P.O. Box 1842, Minot, ND 58702 ("Buyer").
Koch has developed and offers a long-term committed volume program for the sale
of fuels products. Buyer has met the qualifications for this program and desires
to purchase product from Koch pursuant to the terms and conditions of this
Agreement:
1. TERM
1.1 This Agreement shall have an initial term of five (5) years (the
"Initial Term"). The Initial term shall be from September 1, 1998
through August 31, 2003.
1.2 At the end of the Initial Term, this Agreement shall automatically
continue for consecutive one year periods unless terminated by
either party upon written notice thirty (30) days prior to the
expiration of the existing period.
2. PURCHASE AND SALE
2.1 During the Term of this Agreement, and any successive renewals,
Koch shall sell to Buyer, and Buyer shall purchase from Koch, the
following products (all together defined as "Products"):
UNBRANDED PRODUCTS
All Gasolines
All Distillates
Ethanol
BRANDED PRODUCTS
Arctic Premium Diesel
Performance Gold Diesel
Supreme Performance Diesel
3. QUALIFICATION/MINIMUM VOLUMES
3.1 The pricing and other terms of this Agreement are based on Buyer's
commitment to buy, and actually lifting, a minimum of 32,000,000
gallons of Product per year (the "Annual Minimum Volume") during
the Term of this Agreement. In addition, the pricing and other
terms of this Agreement are based on Buyer's commitment to lift a
minimum of 5.5% of the Annual Minimum Volume per month during each
year of
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the Term of this Agreement, i.e. 1,760,000 gallons of
Product per month (the "Monthly Minimum Volume"). The Annual
Minimum Volume and Monthly Minimum Volume wiI1 be determined by the
combined total of the respective Products purchased at all
locations listed above. Volumes will be measured on a gross gallon
basis.
3.2 "Year" or "Contract Year" as used in this Agreement, shall be
defined as follows: the first year shall be a calendar year
beginning on the first day of the Initial Term of this Agreement.
All subsequent "years" or "Contract Years" shall be calendar years
beginning on the respective anniversary date of the first day of
the Initial Term of this Agreement.
3.3 Buyer may, on a quarterly basis, request to increase the Annual
Minimum Volume. Any such request shall be subject to Koch's
approval, and must be based on a demonstrated increase in Buyer's
volume needs. If Koch agrees to increase Buyer's Annual Minimum
Volume, Buyer shall receive an additional Asset Growth Enhancement
Allowance ("AGEA"), in accordance with Section 6, based on the
proportional increase in volume and reduced time to take delivery,
to be paid at the time Koch agrees to the volume increase. In
addition, if Koch agrees to increase Buyer's Annual Minimum Volume,
Buyer shall be obligated to lift a minimum of 5.5% of such
Increased Annual Minimum Volume per month during each year in which
Buyer commits to the Increased Annual Minimum Volume.
4. PRICE
4.2 The price payable by Buyer for Product purchased hereunder shall be
Koch Refining Company, L.P.'s daily rack posted price at the
terminal from which Product is taken by Buyer.
5. DELIVERIES
5.1 Buyer may take delivery of Products hereunder from the following
terminal locations, subject to product availability:
Fargo, ND - Williams Pipeline Co.
Grand Forks, ND - Williams Pipeline Co.
Alexandria, MN - Williams Pipeline Co.
5.2 Koch shall have no obligation to transfer Product from one terminal
to another. All freight and transportation costs shall be for
Buyer's account. Title and risk of loss for the Product shall
transfer to Buyer at the time of loading of Product into Buyer's
assigned transportation vehicle.
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6. ASSET GROWTH ENHANCEMENT ASSISTANCE (AGEA)
6.1 As partial consideration for Buyer's commitment to purchase the
Annual Minimum Volume and Monthly Minimum Volume for the Term of
this Agreement, Koch shall provide Buyer with a one-time, up front,
rebate to the Price for Product hereunder (the "AGEA") as set forth
in this Section 6.
6.2 Upon execution of this Agreement, Koch shall provide AGEA in an
amount equal to $0.0075 per gallon for the Annual Minimum Volume
commitment made by Buyer during the Initial Term of this Agreement.
This AGEA will be calculated as follows:
160,000,000 GALS. (MIN. VOLUME REQUIREMENT COMMITTED TO BY
X $0.0075 BUYER DURING THE INITIAL TERM)
------------
$1,200,000 (AGEA PAYMENT MADE BY KOCH TO BUYER UPON EXECUTION
OF THIS AGREEMENT)
6.3 In the event that Buyer lifts in excess of the Annual Minimum
Volume (or Increased Annual Minimum Volume, as the case may be)
during any year of the Term of this Agreement, Koch shall pay
additional AGEA in an amount equal to $0.0075 per gallon for
volumes in excess of the Annual Minimum Volume (or Increased Annual
Minimum Volume, as the case may be), up to 165% of the Annual
Minimum Volume (or Increased Annual Minimum volume, as the case may
be). Buyer shall invoice Koch for such payment subsequent to the
Contract Year at issue and Koch shall make payment within ten (10)
days of such invoice. An example follows:
IN ANY GIVEN YEAR, BUYER LIFTS 35,000,000 GALLONS OF PRODUCT, AN OVERAGE OF
3,000,000 GALLONS OF THE ANNUAL MINIMUM VOLUME. AT THE END OF THE YEAR IN WHICH
THIS OVERAGE OCCURS, KOCH WILL MAKE AN ADDITIONAL AGEA PAYMENT TO THE BUYER AS
FOLLOWS:
3,000,000 GALS. (OVERAGE)
X $0.0075
---------
$22,500 (ADDITIONAL AGEA PAYMENT DUE BUYER BY KOCH)
NO ADDITIONAL AGEA WILL BE PAID BY KOCH FOR VOLUMES LIFTED IN EXCESS OF 165% OF
THE ANNUAL MINIMUM VOLUME (OR INCREASED ANNUAL MINIMUM VOLUME, AS THE CASE MAY
BE) IN A CONTRACT YEAR.
6.4 In the event that Buyer lifts less than the Monthly Minimum Volume
(or Increased Monthly Minimum Volume, as the case may be) during
any month of the Term of this Agreement, Buyer shall refund AGEA to
Koch in the amount of $0.0110 per gallon for such shortage. Koch
shall invoice Buyer for such payment subsequent to the month at
issue and
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Buyer shall make payment within ten (10) days of such
invoice. An example follows:
IN ANY GIVEN MONTH, BUYER LIFTS 1,000,000 GALLONS OF PRODUCT, A SHORTFALL OF
760,000 GALLONS OF THE MINIMUM MONTHLY VOLUME. AT THE END OF THE MONTH IN WHICH
THIS SHORTFALL OCCURS, BUYER WILL MAKE PAYMENT TO KOCH AS FOLLOWS:
760,000 GALS (SHORTFALL)
X$0.0110
---------
$8,360 (PAYMENT DUE KOCH BY BUYER)
For any shortfall, Koch shall additionally be entitled to any and all remedies
it may have at law, in equity, or under this Agreement. Buyer shall be
responsible for all tax or reporting consequences of the AGEA.
6.5 The AGEA payment as stated in this Section 6 is made in reliance upon
the Buyer lifting at least the Minimum Annual Volume (or Increased
Minimum Annual Volume, as the case may be) and the Minimum Monthly
Volume (or Increased Minimum Monthly Volume, as the case may be)
stated herein for the entire Term of this Agreement. In the event of
early termination or default of this Agreement for whatever reason by
Buyer (including, but not limited to, those circumstances set forth in
Section 14 of this Agreement), Koch shall be entitled to a refund of
the unrecouped AGEA paid to Buyer, calculated as follows: [Total
Contract Volume - Volume Purchased as of Termination Date] X $.0110.
An example follows:
ASSUME BUYER PURCHASED A TOTAL OF 96,000,000 GALLONS OF PRODUCT FROM KOCH
PRIOR TO EARLY TERMINATION/DEFAULT AT THE END OF THE THIRD YEAR OF THE INITIAL
TERM. THIS IS A 64,000,000 SHORTFALL OF THE TOTAL CONTRACT VOLUME OF 160,000,000
GALLONS WHICH SHOULD HAVE BEEN PURCHASED PURSUANT TO THIS AGREEMENT (ASSUMING NO
INCREASED ANNUAL VOLUME WAS AGREED TO BETWEEN THE PARTIES). IN ADDITION TO ANY
OTHER REMEDY AVAILABLE TO KOCH PURSUANT TO THIS AGREEMENT, AT LAW OR IN EQUITY,
KOCH WOULD BE ENTITLED TO REIMBURSEMENT OF THE AGEA PAID, CALCULATED AS FOLLOWS:
[160,000,000 - 96,000,0001] X $0.0110
[64,000,000] X $0.0110 = $704,000.00 PAYMENT DUE TO KOCH, UNAMORTIZED NO
PENALTIES OR INTEREST
Koch shall have a right to set off any such unpaid reimbursement against any
other debt or obligation owed by Koch to Buyer. This right of set off is in
addition to any other rights which Koch may have at law, equity, or under this
Agreement
6.6 In the event of early termination or default of this Agreement for
whatever reason by Koch (including, but not limited to, those
circumstances set forth in Section 14 of this Agreement), except for
termination arising out of Buyer's default which will be handled
consistent with Section 6.5,
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Koch shall be entitled to a refund of the unrecouped AGEA paid to
Buyer, calculated as follows: [Total Contract Volume - Volume
Purchased as of Termination Date] X $.0075. An example follows:
ASSUME BUYER PURCHASED A TOTAL OF 96,000,000 GALLONS OF PRODUCT FROM KOCH PRIOR
TO EARLY TERMINATIONLDEFAULT AT THE END OF THE THIRD YEAR OF THE INITIAL TERM.
THIS IS A 64,000,000 SHORTFALL OF THE TOTAL CONTRACT VOLUME OF 160,000,000
GALLONS WHICH SHOULD HAVE BEEN PURCHASED PURSUANT TO THIS AGREEMENT (ASSUMING NO
INCREASED ANNUAL VOLUME WAS AGREED TO BETWEEN THE PARTIES). IN ADDITION TO ANY
OTHER REMEDY AVAILABLE TO KOCH PURSUANT TO THIS AGREEMENT, AT LAW OR IN EQUITY,
KOCH WOULD BE ENTITLED TO REIMBURSEMENT OF THE AGEA PAID, CALCULATED AS FOLLOWS:
[160,000,000 - 96,000,000] X $.0075
[64,000,000] X $.0075 = $480,000.00 PAYMENT DUE TO KOCH, UNAMORTIZED, NO
PENALTIES OR INTEREST
Koch shall have a right to set off any such unpaid reimbursement against any
other debt or obligation owed by Koch to Buyer. This right of set off is in
addition to any other rights which Koch may have at law, equity, or under this
Agreement
7. SPECIAL REQUIREMENTS APPLICABLE TO BRANDED PRODUCTS
7.1 Buyer desires to purchase certain of Koch's branded Products as
identified above. Koch has invested money, time and effort to
develop name recognition for its brands and has taken great care to
ensure that its branded products are associated with high quality,
high performance products. Koch desires to preserve and continue to
enhance the value of its brands and their continued association
with quality and performance. Koch is willing to sell Buyer the
Branded Products identified above only upon Buyer's compliance with
all of the terms of this Agreement and additional compliance with
the following terms and conditions:
(a) During the Term of the Agreement only, Buyer is permitted to
display Koch's trademarks solely to designate the origin of the
Branded Products. Buyer will only display materials, signs, or
other decorative materials which have been pre-approved by Koch
in connection with Koch's trade names or trademarks. Upon
termination, Buyer shall remove and cease displaying any such
Koch materials, signs, or other decorative materials;
(b) Buyer will not sell the petroleum products of others under any
trade name, trademark, brand name, label, insignia, symbol, or
imprint owned by, used by, or associated with Koch;
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(c) Buyer will only sell Branded Products which meet Koch's
specifications, under the trade name or trademark associated
with those Products; Buyer will not sell any Product which does
not meet Koch's specifications under any trade name or
trademark owned by, used by, or associated with Koch;
(d) Buyer will maintain the quality of all Koch Branded Products
purchased and resold by Buyer to others. These efforts include,
but not limited to, storing the Products in segregated storage,
ensuring the Products are not contaminated, and ensuring the
Products are not otherwise caused to fail to meet Koch's
specifications. Buyer shall not mix, commingle or otherwise
change the composition of any Branded Products purchased from
Koch and resold by Buyer;
(e) Buyer shall promptly, courteously and appropriately respond to
any customer complaints raised in connection with Buyer's
resale of Koch's Products (Branded or Unbranded), or use of
Koch's trade name and trademarks, and shall promptly notify
Koch of any such complaints;
(f) Koch reserves the right to change, alter, amend or eliminate
any of the trade names, trademarks or brands of its Branded
Products, or any of the descriptive material associated with
such trade names, trademarks or brands. Koch reserves the right
to change, alter, modify, or eliminate any of the Branded
Products, or any of the specifications, or product qualities
associated with such Branded Products;
(g) Buyer understands and acknowledges that certain of the Branded
Products are seasonal in nature, and only manufactured and
offered for sale by Koch during certain times of the year as
determined by Koch;
(h) In the event Koch discontinues the manufacture of any Branded
Product (other than for temporary inactivity as described in
subpart (g) above), Koch shall notify Buyer of the
discontinuance of such Branded Product, and this Agreement
shall terminate as to such Branded Product on the effective
date of the notice;
(i) Buyer shall not reverse engineer, or otherwise attempt to
recreate, duplicate or discover the specifications,
formulations, techniques, blends, components or ingredients of
Koch's Branded Products, except only for the purpose of
verifying that the Product meets the specification represented
by Koch. Buyer shall not disclose to any third person or use
any of the information it may discover, learn or obtain
regarding the composition of Koch's Branded Products, and shall
maintain any such information in confidence at all times.
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8. TERMINATION
8.1 The price, terms and volumes offered by Koch and committed to by
Buyer hereunder are based on Buyer's commitment to honor the terms
of this Agreement for the full Initial Term. Accordingly, Buyer may
terminate this Agreement only after expiration of the Initial Term,
and then only upon thirty (30) days prior notice given before the
expiration of the Initial Term or any subsequent extensions.
8.2 Koch may terminate this Agreement: (i) after expiration of the
Initial Term, upon thirty (30) days prior notice given before the
expiration of the Initial Term or any subsequent extensions; (ii)
at anytime due to Buyer's uncured failure to purchase the Annual
Minimum Volume or Monthly Minimum Volume or for any other breach of
this Agreement by Buyer, in which event Koch may also assert any
other remedies it may have against Buyer including but not limited
to the remedies stated in this Agreement; and (iii) at anytime due
to a material change in circumstances (whether foreseeable or
unforeseeable) which makes this Agreement impossible or impractical
for Koch to continue to perform. By way of illustration only, and
without limitation of the preceding clause in any way, examples of
such change in circumstances include, but are not limited to, a
shutdown or breakdown of Koch's refinery or other assets necessary
to enable Koch to supply product; a sale (voluntary or involuntary)
of Koch's refinery or other material assets; a material change in
ownership of Koch; governmental regulations; a material reduction
of supply or withdrawal from the market by Koch; or any similar
change in circumstances. In no event shall Koch be obligated to
procure product from any other person or entity for delivery to
Buyer.
9. PAYMENT
9.1 Buyer shall pay Koch for Product net 10 days on an electronic fund
transfer basis. Buyer shall pay Koch's invoice within 10 days of
the date on the Bill of Lading.
10. LIMITED WARRANTIES/REMEDIES
10.1 Koch warrants only that Koch has good and marketable title to the
Products sold to Buyer and that the Products shall conform, at the
time of loading, to the typical specifications for such Products.
ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND/OR OF FITNESS FOR PURPOSE ARE
EXCLUDED.
10.2 Koch's liability, and Buyer's sole and exclusive remedy, for any
cause of action arising out of or related to the sale of Product
under this
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Agreement is expressly limited at Koch's option to (a)
replacement of a nonconforming product FOB point of delivery; or
(b) payment not to exceed the purchase price for the shipment which
is the subject of the claim or cause of action. WITHOUT LIMITATION
ON THE FOREGOING, KOCH SHALL NOT BE OBLIGATED FOR LOST PROFITS,
ECONOMIC LOSS, OR ANY OTHER SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHETHER ARISING UNDER WARRANTY, FAILURE OF ESSENTIAL
PURPOSE, AGREEMENT, GUARANTEE, TORT (INCLUDING BUT NOT LIMITED TO
NEGLIGENCE), STRICT LIABILITY, VIOLATION OF LAW, OR OTHERWISE.
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11. ALLOCATION RIGHTS
11.1 In periods of shortage of Product for whatever cause(s) or
reason(s), Koch shall be entitled to allocate available supply
among itself, its affiliated, subsidiary and parent companies, and
any customers, Buyer included, in a fair and reasonable manner.
12. GROUNDS FOR DISQUALIFICATION
12.1 Koch may take such action as it deems appropriate, including
immediate termination of this Agreement, at any time for cause,
including, but not limited to: (i) any claim to a discount to which
Buyer is not entitled; (ii) any failure by Buyer to keep
confidential all terms of this Agreement, or the fact that it has
entered into this Agreement with Koch; or (iii) any failure by
Buyer to comply with the terms or intentions of this Agreement, and
a failure to cure within a reasonable time thereafter, not to
exceed thirty (30) days.
13. SECURITY INTEREST
13.1 Buyer grants Koch a security interest in all Products purchased,
and the proceeds from the sale by Buyer of such Products, to secure
any outstanding indebtedness to Koch. Buyer shall execute any
documentation which Koch may require to perfect its security
interest.
13.2 Buyer will comply with Koch's credit terms, and if Buyer exceeds
the allocated credit line while attempting to fulfill this
Agreement, at Koch's request Buyer will provide any or all, but not
exclusively, the following: wire transfer, letter of credit, and
prepayments. Each party shall have the right to offset any
payments, obligations or debts due to the other party under this
Agreement or any other agreement between the parties.
14. EXCUSED PERFORMANCE
14.1 Except for the payment of money owed, neither Koch nor Buyer shall
be liable to the other for any delay or failure of performance
which is caused, in whole or predominately by, only the following:
act of God, fire, explosion, earthquake, storm, flood, serious and
adverse weather conditions, war, riot, insurrection, or any similar
unpredictable adverse event or condition which is reasonably beyond
the control of the party whose performance is delayed or prevented
thereby, provided that such party gives the other party prompt
notice, confirmed in writing, of the existence of any such force
majeure event, and similar notice of the cessation of such force
majeure event.
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15. NOTICE
15.1 All notices pursuant to this Agreement shall be delivered to the
following persons on behalf of each party, unless either party
notifies the other of a new recipient for notice purposes.
Koch: Koch Refining Co. L.P. Buyer: Farstad Oil
P.O. Box 64596 P.O. Box 1842
St. Paul, MN 55164-0596 Minot, ND 58702
Attention: Todd Craig Attention: Dennis Krueger
--------------
16. MISCELLANEOUS PROVISIONS
16.1 ASSIGNMENT. This Agreement shall not be assigned or transferred by
Buyer without the written consent of Koch, such consent not to be
unreasonably withheld. This Agreement shall be binding upon the
parties hereto, and their respective heirs, administrators,
executors, and assigns.
16.2 AMENDMENTS AND WAIVER. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by either party
therefrom, shall be effective unless the same is in writing and
signed by Koch and Buyer, and such waiver or consent shall be
effective only in the specific instance and for the specified
purpose for which given.
16.3 ENFORCEABILITY. Each party hereby waives, with full knowledge and
understanding of the consequences of such waiver, any claim, cause
of action or right which it might otherwise be entitled to assert
against the other party regarding the validity or enforceability of
the Agreement under any applicable laws or regulations.
16.4 CONSTRUCTION. This Agreement has been negotiated and prepared at
the joint request, direction and construction of the parties, at
arms length, with the advice and participation of counsel for each
party, and will be interpreted in accordance with its terms without
favor to any party.
16.5 SEVERABILITY. If any provision or any portion of any provision of
this Agreement or the application of any such provision or any
portion thereof to any person or circumstance, is held invalid or
unenforceable, the remaining portion of such provision and the
remaining provisions shall remain in full force and effect.
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16.6 GOVERNING LAW. This Agreement shall be deemed in all respects to
have been created and entered into under the laws of the State of
Kansas.
16.7 ENTIRE AGREEMENT. This Agreement and Koch Refining Company, L.P.'s
Standard Product Sales Terms and Conditions dated May 1998
constitute the entire agreement between the parties. All prior
agreements with respect to the subject matter of this Agreement are
hereby superseded and replaced. Where the Standard Product Sales
Terms and Conditions are inconsistent with the specific provisions
of this Agreement, this Agreement shall control.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
by an authorized representative as of the date above stated.
FARSTAD OIL, INC. KOCH REFINING COMPANY, L.P.
By: /s/ Dennis Krueger By: /s/ Todd D. Craig
----------------------------- --------------------------------
Title: CEO Title: Regional Marketing Mgr
----------------------------- --------------------------------
Date: 9/8/98 Date: 9/10/98
----------------------------- --------------------------------
Brad Ragasz
--------------------------------
Vice President Northern Region
Marketing
9/11/98
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KOCH REFINING COMPANY, L.P.
STANDARD PRODUCT SALES TERMS AND CONDITIONS
1. TITLE: On sales FOB Koch's location, title and risk of loss shall pass
to Buyer as product passes through the flange connection between the delivery
line and Buyer's receiving line. On sales FOB Buyer's location, title and risk
of loss shall pass to Buyer as product leaves delivery vessel.
2. TAXES: Buyer shall pay, or reimburse Koch for all taxes, duties and
other governmental charges of whatever kind (except for income taxes) imposed on
any transaction of product sold hereunder. Without limitation on the foregoing,
Buyer shall bear the effect of all Federal Goods and Services Tax on or with
respect to this Agreement or the transactions or products hereunder.
3. MARINE: (a) Notices - Notice of estimated time of arrival (ETA) and name
of vessel or barge tow shall be given to receiving or loading party a reasonable
time before arrival at port. Any change in ETA shall be reported promptly. If a
berth is not available for the latest ETA, a berth will be scheduled for the
next earliest time a berth is open on the dock's schedule. Upon arrival in port,
notice of readiness to load or discharge shall be given, with allowed free time
being three hours for barge tows and six hours for vessels. Laytime shall
commence at the earlier of becoming all fast at berth or expiration of the
respective three or six hour period.
(b) Berth - Barge tow or vessel shall not exceed the maximum draft or
length allowed by dock operator. Receiving or loading party shall provide a
berth that tow or vessel may safely proceed to, lie at always afloat, and safely
depart from. Receiving or loading shall be done within the time, or at the rate,
agreed to by the parties. Seller shall pay wharfage fee, if any. Buyer shall pay
all fees or charges assessed against a vessel or barge.
(c) Demurrage - Seller is liable for demurrage caused by Seller's sole
fault. Buyer shall be liable for all other demurrage.
4. QUANTITY: All quantities shall be measured according to then prevailing
practices and methods generally used by Seller at its locations. Each party may
have its representative observe all measurements, sample taking and testing.
5. SCHEDULING: (a) Cooperation - To the extent flexibility is allowed by
this Agreement for time or size of deliveries, the parties shall cooperate to
the extent reasonable to coordinate period(s) and time(s) for deliveries
hereunder; and Buyer shall give reasonable prior notice as to quantities and
scheduling desired.
(b) Lots - Seller may deliver in lots. Failure of Seller to deliver shall
not relieve Buyer from accepting and paying for conforming lots tendered.
6. CREDIT: Seller's duty to perform, and Buyer's right to purchase,
hereunder are at all times subject to approval, and continuing approval, of
Buyer's credit by Seller. No assurance or guarantee is made of, or of
continuation of, any particular credit; and Seller without limitation reserves
the right to sell on pre-paid, COD, standby letter of credit, or other secured
or collaterally assured basis acceptable to Seller. Unless credit is approved
and arranged by Buyer with Seller payment shall be due in full in cash prior to
loading of product. Without limitation on Seller's rights and remedies on credit
issues or any other cause(s), if Buyer fails to pay any amount promptly when due
hereunder or if Seller needs assurance, or further assurance, of Buyer's credit
worthiness, Seller may cancel this Agreement, demand different payment terms,
suspend or recall deliveries or shipments, impose different credit terms, or
impose different requirements for collateral assurance of payment. ANY SUCH
DEMAND MAY BE MADE ORALLY AT SELLER'S ELECTION. Seller is hereby given an
express right to set-off against any amount whatsoever owing or becoming due to
Buyer, any amount owing by or becoming due from Seller or any company that is
directly or indirectly subsidiary to, parent of, or affiliated with Seller.
7. WARRANTIES AND LIMITATIONS: Seller warrants only that--(a) content of
product conforms at the time of loading to Seller's then current, standard
specifcation therefor; and (b) Seller has good title to the product at the time
of loading hereunder.
ALL OTHER WARRANTIES OF SELLER, EXPRESSED OR IMPLIED, AND ALL
REPRESENTATIONS, GUARANTEES, INSTRUCTIONS, PROMISES, DESCRIPTIONS AND SAMPLES
FROM SELLER OF, OR PERTAINING TO, PRODUCT QUALITY, COMPOSITION, CHARACTERISTICS,
ENVIRONMENTAL OR HUMAN SAFETY OR HAZARD OR HEALTH AFFECTS, PERFORMANCE, OR LIKE
MATTERS ARE EXCLUDED. WITHOUT LIMITATION ON THE FOREGOING SENTENCE, ALL IMPLIED
WARRANTIES OF FITNESS FOR PURPOSE AND OF MERCHANTABILITY AND ALL WARRANTIES OF
SELLER OF FREEDOM FROM PATENT INFRINGEMENT ARE EXCLUDED.
8. ACCEPTANCE: All quantities of product shall, unless otherwise agreed, be
determined in accordance with the following and adjusted to a standard
temperature of sixty (60) degrees Fahrenheit in compliance with applicable
A.S.T.M. methods. Quantities delivered to vessels shall be determined by shore
tank measurements at the point of delivery or receipt or, if unavailable, by
vessel loaded or discharge figures as adjusted by the appropriate vessel
experience factor as determined by an independent petroleum inspector.
Quantities delivered into or by pipelines shall be determined by meter. The term
"barrel" as used herein shall mean forty two (42) U.S. gallons. The term
"gallon" as used herein shall mean a U.S. gallon of two hundred thirty one (231)
cubic inches. All quality determinations shall be made by an independent
inspector to be employed at the equally shared expense of the parties.
Acceptance shall be deemed to have irrevocably occurred when the governing
sample of the product for purpose of quality determination has been found by the
independent inspector to conform to the specification required hereby.
9. EXCUSED PERFORMANCE: (a) Beyond Reasonable Control - The parties shall
be excused from their respective performances hereunder if performance has been
prohibited or delayed by any foreseeable or unforeseeable cause(s) beyond the
reasonable control of the party claiming excuse. Such shall include without
limitation any failure of mechanical or chemical function or equipment
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normally used by Seller for manufacturing, handling or delivering of
product covered hereby, acts of God, fire, explosion, strike, serious and
adverse weather conditions, civil or public disturbance, riots, inability
to obtain necessary authorizations, failure of supply or ability to produce
supply, governmental regulations or requirements. Promptly after a party
determines to claim excuse of performance, the party shall notify the other
of the circumstances and consequences claimed and shall use reasonable
means to remove the cause(s) in question. But in no event shall either party
be obligated to settle any demands of, or disputes with, laborers; nor
shall either party be excused from paying monies due or complying with
credit terms of Seller. Quantities affected by such cause(s) shall be
dropped from this Agreement, but this Agreement shall otherwise continue in
force and effect. In periods of shortage of product due to such cause(s),
Seller shall be entitled to allocate available supply among itself and its
affiliated, subsidiary and parent companies and customers, Buyer included.
(b) Impracticability - Seller shall have the right to cancel this Agreement
without liability to Seller if for any reason Seller shuts down the unit(s) in,
or the plant at, which the product is made or if a change in circumstances
(whether foreseeable or unforeseeable) causes Seller to incur a loss on a full
cost basls at any time on the sale of product hereunder.
(c) Alternate Supply - Under no circumstances shall Seller be obligated to
obtain product for delivery hereunder from any person or entity that is not an
affiliate, subsidiary or parent company of Seller.
10. LIMITED REMEDIES: Seller's liability, and Buyer's exclusive remedy, for
any cause of action (whether in contract, warranty, guarantee, failure of
essential purpose, tort [including but not limited to negligence], violation of
law, strict liability, or otherwise) arising out of or related to this Agreement
is expressly limited at Seller's option to - (a) replacement of a nonconforming
product FOB Seller's point of delivery; or (b) payment not to exceed the
purchase price for the shipment which is the subject of the claim or cause of
action.
WITHOUT LIMITATION ON THE FOREGOING, SELLER SHALL NOT BE OBLIGATED FOR LOST
PROFITS, ECONOMIC LOSS, OR ANY OTHER SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES WHETHER ARISING UNDER WARRANTY, FAILURE OF ESSENTIAL PURPOSE, AGREEMENT,
GUARANTEE, TORT (INCLUDING BUT NOT LIMITED TO NEGLIGENCE), STRICT LIABILITY,
VIOLATION OF LAW, OR OTHERWISE.
Solely as a means of early identification of any possible problems or
disputes and not by way of limitation of Seller's rights hereunder nor in
mitigation of acceptance hereunder, on each shipment Buyer shall sample and test
such prior to use or resale or other transfer thereof by Buyer in order to
independently determine conformity at as early a time as possible; and if Buyer
determines or suspects nonconformity, Buyer shall not use or resell or
otherwise transfer the same unless Seller gives Buyer written notice to proceed
with use or resale. Seller shall be reasonably prompt in giving any instruction
to Buyer concerning such.
11. INDEMNITY: Buyer shall indemnify and defend and hold harmless Seller as
to any breach of this Agreement by Buyer and from any liability and/or remedy,
of whatever nature or kind, to which Seller might become subject directly or
indirectly resulting from Buyers negligence or willful misconduct. Buyer agrees
without limitation to promptly and properly provide to its employees, customers
and community representatives, as appropriate, any information provided by
Seller relating to human health or human or environmental safety on the product
sold hereunder.
12. LAW AND JURISDICTION: This Agreement shall be governed by the laws of
the State of Kansas, excluding rules of conflict of law, and by applicable
United States federal law and by INCOTERMS.
13. COMPLIANCE WITH LAW: Vessels shall fully comply (or hold necessary
waivers if not in compliance) with all applicable U.S. Coast Guard regulations
in effect as of the date vessel berths. Vessels shall comply with all local,
state and federal environmental laws and regulations while berthed at the
terminal, including the U.S. Federal Water Pollution Control Act, as amended,
and shall have secured and carry aboard the vessel a current U.S. Coast Guard
Certificate of Financial Responsibility (Water Pollution) (The "Certificate").
Terminal shall not be liable for demurrage or other expenses during any time
lost as a result of failure to obtain or maintain the Certificate. If any vessel
fails to comply with such laws and regulations, the vessel may be required to
leave the terminal. Any vessel delay time caused by the vessel's failure to meet
such laws and regulations shall not count as used laytime.
14. OIL POLLUTION AVOIDANCE: In the event of an escape or discharge of oily
water, oil ballast, or oil in any form occurring at the Terminal (regardless of
cause), Seller shall immediately notify Buyer and shall cooperate with Buyer in
jointly effecting a cleanup, or other resolution to the spill and necessary
notifications. Buyer agrees to keep Seller advised of the nature and extent of
the measures to be undertaken by it. Any of the aforementioned measures
undertaken shall be at the expense of the party causing the discharge. The above
shall not be considered to be inderogation of any other such right as Buyer or
Seller may have or acquire by law or international convention.
15. WAIVERS: Waivers by Seller or Buyer of a breach by the other party of
any provision of this Agreement shall not be deemed a waiver of future
compliance therewith. No delay or failure on Seller's or Buyer's part to enforce
any right or claim which it may have hereunder shall constitute a waiver on
Seller's or Buyer's part of such right or claim.
16. EXPORT/IMPORT: Buyer shall be the exporter and importer of record with
respect hereto and shall have the duty and risk of determining and complying
with all export and import laws.
17. ASSIGNMENT: Buyer shall not assign this Agreement or any part hereof
except upon, and according to, such prior, written consent as Seller may choose
to give in its sole discretion.
18. MISCELLANEOUS: These sale terms constitute the entire agreement and
contract of the parties and shall control over any other terms except that, to
the limited extent that any separate writing of the parties - (i) relates
expressly and directly hereto; (ii) is mutually executed by respective officers
of Seller and Buyer; and (iii) is intended by the parties to replace or
supersede, rather than to supplement, a
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specific portion of these sales terms, then such specific replacing or
superseding term shall control over the term hereof in question but not
otherwise.
THESE STANDARD TERMS AND CONDITIONS OF SALE ARE DEEMED AN OFFER FOR SALE BY
SELLER. IF BUYER DOES NOT ACCEPT THIS OFFER BY EXECUTION HEREON OR OTHERWISE IN
WRITING WITHOUT ALTERATION HEREOF OR ADDITION HERETO, BUYER SHALL BE DEEMED TO
HAVE ACCEPTED THIS OFFER BY PURCHASING, OR TAKING DELIVERY OF, PRODUCT FROM
SELLER. ANY ACCEPTANCE IS EXPRESSLY LIMITED TO THESE TERMS AND CONDITIONS EXCEPT
SUCH AS MEETS THE REQUIREMENTS OF THE FIRST PARAGRAPH OF THIS SECTION 19.
Without limitation on Seller's rights, no term in Buyer's purchase order or any
other document, correspondence or communication from Buyer which conflicts with
the terms of this Agreement is, or shall be, accepted by Seller except in a
separate writing executed by an officer of Seller. Headings are provided for
convenience, and are not part of the Agreement of the parties. Seller's rights
and remedies hereunder are in addition to, and not in lieu of. Seller's other
rights and remedies.
(P980523/ KRCLPTRMS.DOC) May, 1998
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CONOCO INC.
PETROLEUM MARKETER AGREEMENT
This Agreement, effective on the 1 day of April, 1999 ("Effective
Date"), by and between Conoco Inc., a Delaware corporation (hereinafter called
"Conoco"), and FARSTAD OIL, INC. (hereinafter called "Marketer"), whose mailing
address is P. O. BOX 1842, City of MINOT, State of ND, Zip 58702.
WITNESSETH:
WHEREAS, Conoco is engaged in the business of oil exploration,
production, refining and marketing under Conoco trademarks and trade names, and
has made a significant investment over the years in developing quality products
and promoting the Conoco trademarks and trade names; and
WHEREAS, Marketer recognizes that Conoco has a protectible business
interest in ensuring that Marketer's distribution of Conoco-branded products
under this Agreement will be accomplished in a manner which respects the high
standards, reputation, and integrity of the Conoco trademarks and trade names
which Conoco has created over the years; and
WHEREAS, Conoco's ability to recover its costs and investment in
its relationship with Marketer are dependent on its sales of petroleum products
to Marketer under this Agreement, it is specifically understood and agreed by
Marketer that the minimum volume requirements set forth in Exhibit A hereof are
reasonable and of material significance to this Agreement, and Marketer further
understands that Conoco may adjust said minimum volume requirements upon any
renewal of this Agreement in order to assure an economic relationship between
Conoco and Marketer; and
WHEREAS, Conoco and Marketer desire to set out the terms and
conditions under which Conoco shall sell to Marketer and Marketer shall purchase
from Conoco various petroleum products for resale by Marketer to Marketer's
customers under Conoco's trademark and trade names; and
WHEREAS, Marketer's failure to carry out its responsibilities
hereunder jeopardizes the reputation of Conoco, and Marketer acknowledges that
adherence to the terms of this Agreement is a matter of mutual importance and
consequence to Marketer, to Conoco, and to all other Conoco-branded marketers.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived by Conoco and Marketer from the execution of this Agreement, the parties
hereto agree that the above recitals are a part of this Agreement and further
agree as follows:
1. SELLING RIGHTS. As long as this Agreement shall remain in effect,
Marketer shall have the right to purchase from Conoco (according to the
provisions of this Agreement and the Exhibits attached hereto) and to sell to
its customers petroleum products bearing the Conoco brand or certain other
brands owned by Conoco (hereinafter called "Conoco products").
2. DURATION. This Agreement shall be effective for a term of three (3)
years from the Effective Date of this Agreement.
A. Marketer shall have the absolute right to cancel this
Agreement without cause at the end of the three (3) year term by giving
Conoco written notice at least 3 months in advance of such cancellation.
B. Conoco shall have the right not to renew this Agreement at
the end of the term and the right to terminate this Agreement at any time
during the term upon 90 days' written notice, or upon a lesser period of
notice where 90 days' notice is unreasonable, for any of the grounds
permitted by the Petroleum Marketing Practices Act.
3. NO EXCLUSIVE TERRITORY. NOTHING CONTAINED HEREIN SHALL BE CONSTRUED
AS GRANTING MARKETER AN EXCLUSIVE TERRITORY OR AN EXCLUSIVE GROUP OF CUSTOMERS.
CONOCO RESERVES THE RIGHT TO SELL ITS PRODUCTS TO ANY CUSTOMER OF ITS CHOOSING.
IN ORDER TO PROMOTE THE GROWTH OF THE CONOCO BRAND AND ENHANCE CONSUMER
AWARENESS OF THE BRAND FOR THE BENEFIT OF ALL CONOCOBRANDED OUTLETS, CONOCO
FURTHER RESERVES THE RIGHT TO BRAND OR CHOOSE NOT TO BRAND, IN ITS SOLE
DISCRETION, COMPANY-OWNED OUTLETS, OR OUTLETS OWNED AND/OR OPERATED BY MARKETER,
ANY OTHER MARKETER, OR BY ANY RETAILER SUPPLIED BY MARKETER OR ANY OTHER
MARKETER, AT ANY LOCATION IT CHOOSES, REGARDLESS OF ANY PRIOR AGREEMENTS,
UNDERSTANDINGS, MARKETING COMMUNICATIONS, OR COURSES OF DEALING, WHETHER
WRITTEN, ORAL OR IMPLIED, WHICH ARE SUPERSEDED BY THIS AGREEMENT AND WHICH ARE
NO LONGER VALID OR ENFORCEABLE.
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4. USE OF TRADEMARKS AND TRADE NAMES.
A. Conoco hereby gives Marketer permission to use Conoco's
trademarks, trade names and brand names in conjunction with the advertising,
distribution or sale of Conoco branded products or other products selected by
Conoco for sale under the Conoco trademarks or trade names, in accordance with
the standards set forth in Conoco's Image and Programs Manuals. Subject to the
terms of this Agreement, Conoco shall make available to Marketer and authorize
it to display signs and insignia bearing Conoco's trademarks and/or Conoco trade
names. Marketer shall prominently display such Conoco trademarks and trade
names. Marketer acknowledges and recognizes Conoco's interest in all its
trademarks and trade names and the exclusive right of Conoco to control the use
of these trademarks or trade names.
B. For the benefit of consumers, Marketer shall display in or
on the retail outlet building, in a prominent, conspicuous location, the name of
the outlet's operator and the outtet's address, as more specifically set out in
the Conoco Image Manual, which is incorporated herein by this reference.
Furthermore, if Marketer uses Conoco's trademarks or trade names in conjunction
with advertising or forms, Marketer must properly identify itself as a "Products
Marketer" adjacent to Conoco's marks.
C. Upon the termination or nonrenewal of this Agreement,
Marketer shall immediately cease holding itself out to the public as a Conoco
marketer; and upon such termination or nonrenewal, or the debranding for any
reason of an individual retail outlet, Marketer shall immediately discontinue,
and ensure that any affected retailer supplied by Marketer discontinues, the use
of trademarks, trade names, and trade dress of Conoco, and remove from the
premises and surrender to Conoco, at Marketer's risk and expense, any and all
trademark and trade name identification, including credit card imprinters, which
makes it appear that Marketer is an authorized Conoco-branded distributor. If a
retailer supplied by Marketer, and listed on Exhibit A-1 hereunder, refuses to
cooperate in the removal of the Conoco trademarks, trade names, and trade dress
(such as, but not limited to, pump skirts), Marketer, at Marketer's expense,
shall be responsible for such removal and for taking appropriate measures to
ensure that Conoco's brand identifcation is removed from all affected outlets.
If Marketer fails to remove such Conoco brand identifcation from the premises,
Conoco may enter and remove it at the expense of Marketer, including any
reasonable attorneys' fees and costs.
D. Marketer shall obtain prior written approval from a Conoco
Marketing Manager - Wholesale of all retail outlets which Marketer desires to
brand Conoco, and keep Conoco informed of the current volumes of its
Conoco-branded retail outlets, set forth on Exhibit "A-1." Marketer acknowledges
Conoco's right to approve or disapprove the branding of any retail outlet in its
sole discretion.
E. Marketer shall obtain for each Conoco-branded retail
outlet supplied by Marketer and operated by a party other than Marketer, an
executed copy of Exhibit "C." Marketer shall return one copy of such exhibit to
Conoco. So long as Marketer supplies a Conoco-branded retail outlet, Marketer
shall also obtain, and ensure that Conoco receives, an executed Exhibit "C" from
each and every subsequent retailer who operates the Conoco-branded retail
outlet.
F. Marketer shall not, without Conoco's prior consent, offer
for sale nor sell any petroleum products under any of Conoco's brands,
trademarks, service marks, or trade names, unless such products were purchased
from Conoco. With Conoco's prior consent, Marketer may sell other than Conoco
petroleum products (but not "unbranded Conoco products") under the Conoco
brands, trademarks, service marks, or trade names for limited periods, provided
the other products meet Conoco's specifications, and Conoco shall have the right
to test and inspect such other products. Marketer may not sell "unbranded Conoco
products" under any of Conoco's brands, trademarks, service marks, or trade
names, even though such "unbranded Conoco products" are purchased from Conoco.
Marketer shall use Conoco's brands, trademarks, services marks, or trade names
only in a form and manner approved by Conoco, and shall not sell any products,
whether purchased from Conoco or not, under any brand, trademark, service mark,
or trade name which is confusingly similar to any Conoco brand, trademark,
service mark, or trade name, or under any circumstances likely to cause
confusion, mistake, or deception as to the origin, source, or sponsorship of the
products.
G. Conoco reserves the right at any time to change its
product line and specifcations, trade dress, trade names, and trademarks or to
change or withdraw any services offered in connection with any products such as,
but not limited to, credit card acceptance. In the event of such change, Conoco
shall be relieved of all obligation to sell such discontinued product, etc., to
Marketer; and if Conoco shall market any other brand or product in lieu of the
discontinued items, this Agreement shall embrace such new brands or products.
Conoco shall not be liable to Marketer by reason of any such changes.
5. BRAND AND IMAGE STANDARDS. Consistent with the principles herein
set forth, including but not limited to Section 18 of this Agreement,
Marketer shall conduct its independent business operations in compliance
with the standards set forth below, which will promote the continuing good
reputation of Conoco and all other Conoco marketers. Marketer shall ensure
to Conoco that the operators and/or retailers of Conoco-branded retail
outlets supplied by Marketer also comply with these standards.
A. All persons on Conoco-branded premises must be treated
fairly, honestly, and courteously, and customer complaints must be handled in
accordance with Section 6 below. Likewise, in addition to the public, Marketer
shall conduct its operation to provide effcient, courteous, and diligent service
to its retailers and other customers.
B. Marketer shall comply with the provisions of Conoco's Image
Manual, which is incorporated herein by this reference, and which may be
revised from time to lime at Conoco's sole discretion.
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C. Each retail outlet, in its entirety, including the grounds,
must be clean, in good repair, and well maintained.
D. Each retail outlet must complement the community and the
environment. Furthermore, each retail outlet must not allow any offensive
merchandise or activity which may bring the Conoco brand into disrepute.
E. Each retail outlet must be operated with personnel who are
well groomed and wear clean, appropriate apparel.
F. Each retail outlet must make best efforts to prominently
display and sell Conoco-branded motor oils.
G. Marketer and the operators and/or retailers of retail
outlets supplied by Marketer shall comply with all applicable petroleum
product regulations, including, without limitation, those set forth in
Exhibit "B" of this Agreement, as revised from time to time
H. To ensure consistent quality and brand image, each retail
outlet must attain passing grades in Conoco's Image Evaluation Program,
described in Conoco's Image Manual. The Image Execution form in use on the
date of this Agreement may be obtained from Conoco at any time, and is
incorporated into this Agreement by this reference. If an outlet fails an
image evaluation (hereinafter referred to as the "primary image
evaluation"), it will be re-evaluated approximately 45 days after the
primary image evaluation. If the outlet fails the re-evaluation, it will be
debranded. It is understood and agreed that a retail outlet will also be
debranded for habitual failures if it fails three (3) primary image
evaluations in a row even though the outlet is able to pass each
re-evaluation. Marketer specifcally understands and agrees that the image
requirements contained in this Agreement are reasonable and of material
significance to this Agreement Conoco reserves the right to amend the Image
Evaluation Program set forth above or the Image Execution form at any time
upon 30 days' written notice to Marketer.
I. Any exception to the above standards in this Section 4
requires the written approval of the appropriate Conoco Branded Marketing
management.
6. CUSTOMER COMPLAINTS. Marketer shall manage customer complaints in
accordance with Conoco's customer complaint process that will be provided
to Marketer from time to time. Marketer shall ensure that all retail stores
supplied by Marketer are aware of and comply with the customer complaint
process. Marketer is responsible for providing feedback to Conoco, within
five (5) business days from receipt of the complaint, concerning the
corrective action which Marketer has taken or will take. If the corrective
action requires more than five (5) business days, Marketer shall provide
Conoco with status updates within each 5-day business period until the
corrective action is complete. In situations where the severity of the
complaint, in Conoco's opinion, requires more timely response, the Marketer
shall respond as requested by Conoco. In situations where the customer
complaint involves allegations of abusive language, sexual harassment,
discriminatory treatment, physical altercation, or personal injury,
Marketer will contact Conoco's Customer Service group within 24 hours.
Marketer agrees that the provisions contained in this Section 6 are
reasonable and of matenal significance to this Agreement, and further
understands and acknowledges that it is reasonable for Conoco to debrand
any retail outlet if Marketer fails to take reasonable action to satisfy
customer complaints as outlined in this Section with regard to such retail
outlet.
7. PROGRAMS.
A. Conoco shall provide to Marketer and Marketer shall comply
with the provisions of Conoco's Programs Manual, which is incorporated
herein by this reference, and which Conoco may revise from time to time at
its sole discretion.
B. Conoco shall make available to Marketer, on such terms as
Conoco and Marketer may agree and within the confines of existing laws and
regulations, advertising and promotional materials, including materials
Marketer may require to participate in such promotional plans as Conoco may
undertake to sponsor, and materials necessary for participation in such
promotional plans as Conoco may provide and Marketer may sponsor.
8. PRODUCT IDENTIFICATION. Consistent with the principles herein set
forth, including but not limited to Section 18 of this Agreement. Marketer
shall conduct its independent business operations in compliance with the
standards set forth below, which will promote the continuing good
reputation of Conoco and all other Conoco marketers. Marketer shall ensure
to Conoco that the operators and/or retailers of Conoco-branded retail
outlets supplied by Marketer also comply with these standards:
A. As stated in more detail in Section 4 above, Marketer may
only use the Conoco trademarks and/or trade names in connection with any
advertising, distribution or sale of Conoco-branded products or other
products selected by Conoco for sale under the Conoco trademark.
B. Marketer may not adulterate, misbrand or mislabel motor
fuels sold hereunder.
C. Marketer agrees not to sell any Gasoline or Distillate
under the Conoco brand which does not contain the additives which are
required by Conoco at any given time.
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D. Marketer understands and agrees that, except for octane
blending of pure gasolines, no blended gasolines shall be sold hereunder
unless previously approved by Conoco in writing.
E. No alternative motor fuel as defined by the Energy Policy
Act of 1992 shall be sold from a premises displaying the Conoco trademarks
or trade names unless the alternative motor fuel is supplied by Conoco or
by a supplier approved in writing by Conoco. Additionally, there is a
separate agreement which must be executed before selling alternative motor
fuels from a premises or dispenser displaying the Conoco trademarks or
trade names.
Alternative fuels sold as non-motor fuel must not be in the
Conoco trade dress, must not be sold from the pump islands or in close
proximity to the pump islands, and must be clearly marked with a non-Conoco
trademark.
F. Marketer agrees that the provisions contained in this
Section 8 are reasonable and of material significance to this Agreement.
Marketer further understands and acknowledges that, given the seriousness
of the violation, it is reasonable for Conoco to debrand any retail outlet
which is in violation of said provisions, or to terminate this Agreement in
its entirety where the violation involves multiple retail outlets, upon ten
(10) days' written notice to Marketer.
G. Notwithstanding Conoco's right to debrand or terminate in
Section F above, the first time that Conoco determines that a violation of
the provisions contained in this Section 8 has occurred at one or more
Conoco-branded retail outlets supplied by Marketer, Conoco shall give
Marketer an election of either (1) debranding or termination as set forth
above or (2) a one-time warning and Marketer's payment to Conoco of a fine
of $5,000 per violating outlet, via EFT. If Marketer elects to pay the
fine, but in fact does not do so, Conoco may immediately debrand the
violating outlet(s) or terminate this Agreement in its entirety, whichever
is applicable. If, at the same Conoco-branded retail outlet(s), a second
violation of the provisions of this Section 8 occurs, or the violation is
continuing, Conoco shall debrand such outlet(s) or terminate this Agreement
in its entirety, whichever is applicable, upon giving Marketer ten (10)
days' written notice. Conoco reserves the right to terminate this Agreement
in whole or with regard to particular retail outlet(s) without first giving
Marketer such election in situations where Conoco, in its sole discretion,
deems the violation to be so serious or widespread that a right to cure is
unreasonable.
9. RIGHT TO INSPECT. Marketer shall permit such inspection of
Marketer's business operations by Conoco, its employees and agents, as may
reasonably be required to determine whether Marketer is in compliance with the
Agreement. To ensure the integrity of Conoco-branded products, Conoco reserves
the right to take samples, to take meter readings, and to inspect bills of
lading and other relevant business records during business hours at Marketer's
place of business or at any retail unit supplied by Marketer hereunder with
Conoco-branded products. Marketer shall ensure on a timely basis that Marketer,
its employees and agents, as well as Conoco, its employees and agents, are
permitted to inspect Conoco-branded retail outlets (excluding all subsurface
equipment) supplied by Marketer at Marketer's and/or Conoco's discretion, as
may be reasonably required to determine whether the retail outlets are in
compliance with this Agreement.
10. PRICE. For Gasoline or Distillate sold and/or delivered hereunder,
Marketer shall pay Conoco's established branded marketer rack price or such
other price, as Conoco deems appropriate and in effect for such Gasoline or
Distillate on the date of such delivery, subject to the provisions regarding
imposition of federal, state, or local taxes, license fees, inspection fees, or
other charges imposed by any governmental authority or agency. Discounts, when
applicable, will be allowed on the amount of the invoice less all such taxes,
fees or charges.
11. PAYMENT TERMS.
A. Normal payment terms apply for so long as Marketer is
approved by Conoco for a line of credit. Normal payment terms hereunder shall be
Conoco's established payment terms for Gasoline and Distillate sold to branded
marketers, as established from time to time. As set forth in Section 12 below,
assigned credit card invoices shall be automatically applied to Marketer's
outstanding account balance for product purchases and other amounts owing to
Conoco. All payments and other fees or charges due from Marketer shall be made
through and in accordance with Conoco's Preauthorized Payment System (Electronic
Funds Transfer or "EFT") or in a manner otherwise designated by Conoco.
B. Normal payment terms do not apply to purchases that cause
Marketer to exceed its approved credit limit. Notwithstanding payment terms
printed on any invoice, if Marketer's outstanding payment obligations exceed the
credit limit, payment terms for the overlimit amount shall be immediate payment
in advance of due dates, unless Conoco's Treasury Department approves a
temporary higher credit limit. The payment shall be made by wire transfer in an
amount sufficient to bring such payment obligations within the credit limit.
C. Conoco may assess a delinquency charge on all overdue sums
owing to Conoco. Such delinquency charge shall be determined in accordance
with applicable law.
D. If Conoco refers Marketer's account for collection, Marketer
agrees to pay all collection costs permitted by applicable law, including any
and all reasonable attorneys' fees, court costs, and allowable interest
necessary to secure collection, in addition to the outstanding balance. In the
event this Agreement is terminated for nonpayment or for failure to pay timely
all sums due Conoco, then no liability shall exist for any undelivered products
hereunder.
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12. CREDIT CARDS.
A. Marketer shall grant credit, and shall cause the Retailers it
supplies to grant credit, to holders of all Conoco accepted credit cards at
Marketer's and its retailers' places of business where Conoco marketing
standards are maintained, as outlined in the Credit Card Guide, and subject to
the terms thereof. "Conoco accepted credit cards" are described in the Conoco
Credit Card Guide for Dealers and Retail Stores, which is incorporated herein by
this reference and which may be revised from time to time or discontinued at
Conoco's sole discretion, and which may be supplemented with "Credit Facts",
DTN/Easy Link Messages, and other forms of notification to Marketer and retail
outlets supplied by Marketer (all referred to collectively as the "Credit Card
Guide"). Examples within the Credit Card Guide include, but are not limited to
Conoco Standard, Conoco Premium, Conoco Visa, Conoco Fleet, Visa, Mastercard,
American Express, Discover, Voyager, PHH, Donlen, and Wright Express. Marketer
agrees to pay processing fees associated with the acceptance of third party
cards, which are referenced in the Programs Manual.
B. Marketer shall ensure that each retail outlet it supplies,
whether owned and/or operated by Marketer or a retailer supplied by Marketer,
has and uses a Conoco-approved Electronic Point of Sale ("EPOS") System. Each
retail outlet must process, at a minimum, Conoco Standard, Conoco Premium,
Conoco Visa, Conoco Fleet, Voyager, PHH, Donlen, and Wright Express cards
through the EPOS network designated by Conoco. Marketer agrees to pay EPOS
system and network fees associated with the processing of credit card
transactions electronically, which are referenced in the Programs Manual.
C. Conoco shall accept assignment of Conoco credit card invoices
from all Conoco accepted credit cards, subject to the terms and conditions in
the Credit Card Guide. Marketer shall refuse to honor Conoco credit cards for
purchases made at locations other than those approved by Conoco and listed on
Exhibit A-1, and shall not assign invoices to Conoco for sales or purchases made
at outlets not previously approved by Conoco. Marketer shall accept and promptly
reimburse Conoco for invoices refused by Conoco in accordance with the
provisions of the Credit Card Guide. Except as otherwise stated in this
Subsection C., assigned credit card invoices shall be automatically applied to
Marketer's outstanding account balance for product purchases and other amounts
owing to Conoco.
13. FINANCIAL RESPONSIBILITY. When requested by Conoco, Marketer
agrees to provide periodic personal financial statements, periodic business
balance sheets, and income statements, in addition to applicable notes and
schedules, and other information necessary for Conoco to render a decision
on a line of credit, and/or to furnish reasonable collateral, guarantees,
and/or other security to support a line of credit. Provided, however,
nothing herein shall give Marketer the right to receive credit, unless it
is expressly granted by Conoco. Similarly, nothing herein shall give
Marketer the right to exceed any credit limit established for Marketer by
Conoco.
Marketer's failure to provide such financial information and/or
collateral satisfactory to Conoco may result in Conoco's denial of credit to
Marketer. Furthermore, if in Conoco's sole judgment, Marketer's ability to
pay/creditworthiness is unsatisfactory or deteriorates, or if Marketer fails to
fulfll the payment terms, Conoco may without prejudice to any other lawful
remedy, defer shipment until payment is made, deny credit and demand cash
payment, or immediately terminate or non-renew this Agreement pursuant to
paragraph 2.B of this Agreement.
If Marketer fails to make a timely payment of any amount due, in
accordance with the terms hereof, then Conoco shall, in addition to any other
rights or remedies available to it, have the right, but not the obligation, to
recoup or set off against any amount then or thereafter due to Marketer,
including, but not limited to, any amounts due Marketer for the assignment to
Conoco of credit card invoices pursuant to paragraph 3 of this Agreement, up to
the total amount outstanding.
EXECUTION OF THIS AGREEMENT BY CONOCO SHALL NOT CONSTITUTE
APPROVAL OF A LINE OF CREDIT FOR MARKETER.
14. TAXES. Marketer shall pay to Conoco, in addition to applicable
prices hereunder, any applicable taxes, license fees, inspection fees,
environmental fees or other charges imposed by any governmental or regulatory
authority or agency on, or measured by, gross receipts from any products sold
hereunder, or levied on the production, manufacture, transportation, sale,
delivery, or levied on volumes sold or delivered, or other handling of products
under this Agreement. Failure of Conoco to add any such tax, fee or charge to
the invoice shall not relieve Marketer from liability therefor. Marketer shall
reimburse Conoco for any interest and/or penalty assessed by any governmental or
regulatory authority or agency when the penalty and/or interest is assessed as
the result of false, incorrect or delinquent certification(s) made to Conoco by
Marketer.
15. TERMS OF DELIVERY AND ALLOCATION. The sale by Conoco and purchase
by Marketer of Conoco products shall be accomplished in accordance with
Exhibit "A." The amount of product to be supplied to Marketer shall be
subject to any good faith allocation program which Conoco may find
necessary to effect for any reason, including, but not limited to, shortage
of product or government regulations. Conoco shall have the right to impose
a surcharge on any gallons purchased which exceed 100 % of Marketer's
allocation.
In the event Conoco's inventory, ability to refine or sources of
supply of crude petroleum or refined petroleum products are not suffcient to
meet demand at Marketer's normal or assigned distribution points (regardless of
whether Conoco may have diverted supply to other distribution points to
alleviate shortages at such other distribution points). Conoco shall not be
bound to acquire by purchase or otherwise additional quantities of crude
petroleum or refined petroleum products from other suppliers or to take any
other action which is uneconomic to Conoco. No allocation pursuant to this
paragraph shall operate to extend the period of this Agreement and Conoco shall
not be obligated to make available any quantities omitted due to any allocation
program.
5
<Page>
All orders will be filled with reasonable promptness but Conoco
shall not be held responsible when deliveries are delayed or prevented by fire,
storm, flood, strike, riots, wars or political disturbances in this or any other
country, differences with or refusal of any employees of Conoco or of its agent
or distributor to deliver, disruption or breakdown of transportation, or any
cause beyond Conoco's control, whether of any class of causes referred to or
not. If by reason of any of said causes Conoco shall be unable to supply the
requirements of all of its customers of any product covered hereby in the area
in which sales are to be made hereunder. Conoco's obligation while such
inability exists shall at its option be reduced with allocation in accordance
with this paragraph.
Marketer will receive Conoco products from a supply point
designated by Conoco and Conoco shall have the right at any time to change
Marketer's designated supply point or to limit or otherwise control the volume
of Marketer's Exhibit "A" volume which Conoco will make available at any supply
point.
All shipments shall be invoiced as of date shown on Bill of Lading.
Invoices will be rendered on a net basis (normal temperature 60 degrees
Fahrenheit with gallonage adjustments as provided for in the abridged Volume
Correction Table for Petroleum Oils), or in accordance with any existing state
law. In the absence of state law to the contrary, Marketer may elect annually,
for each state where Marketer purchases products from Conoco, to purchase on a
basis other than net, by mutual written agreement between Conoco and Marketer.
If Marketer transports its own product from the terminal or other
supply point, Marketer shall qualify with Conoco or the terminal operator to
enter on the premises and Marketer shall execute necessary documents. Minimum
transport quantity shall be the minimum set by the terminal operator.
16. TRANSFER OF AGREEMENT. This Agreement is personal to Marketer and
assignable or transferable by Marketer only with the prior written consent of
Conoco, which consent shall not be unreasonably withheld. Marketer understands,
however, that Conoco may condition its consent to any assignment upon the
agreement of the proposed assignee to: (1) enter into a Trial Franchise in
conformity to the provisions of the Petroleum Marketing Practices Act; and (2)
simultaneously therewith, enter into a Mutual Cancellation of this Agreement.
Refusal of the proposed assignee or transferee to enter into such Trial
Franchise and Mutual Cancellation shall conclusively be adequate reason for
Conoco to withhold its consent to the assignment.
17. NONWAIVER. Subject to the provisions of the Petroleum Marketing
Practices Act and any other applicable provision of law, no course of dealing
between the parties or any delay on the part of a party to exercise any right it
may have under this Agreement shall operate as a waiver of any of the rights
provided hereunder or by law or equity, nor shall any waiver of any prior breach
or default operate as the waiver of any subsequent breach or default, and no
express waiver will affect any term or condition other than the one specified in
such waiver and the express waiver will apply only for the time and manner
specifically stated.
EXECUTION OF THIS AGREEMENT BY CONOCO SHALL NOT CONSTITUTE
AUTOMATIC APPROVAL OF THE IMAGE OF ANY CONOCO-BRANDED RETAIL OUTLET OR
CONSTITUTE A WAIVER OF THE REQUIREMENT THAT EVERY CONOCO-BRANDED RETAIL OUTLET
MUST COMPLY WITH CONOCO'S IMAGE STANDARDS, AS SET FORTH HEREIN.
18. RELATIONSHIP OF THE PARTIES. Marketer is an independent business
and is not, nor are its employees, an employee of Conoco. Conoco and
Marketer are completely separate entities. They are not partners, general
partners, limited partners, joint venturers, nor agents of each other in any
sense whatsoever and neither has the power to obligate or bind the other.
Further, nothing herein contained is intended, nor shall it be
construed as reserving to Conoco rights or powers to exercise control over the
business practices of Marketer or to direct the manner in which its business
operations shall be conducted; except, Conoco may take reasonable actions to
promote compliance with the standards set forth above and may provide such
instructions, guidance, and recommendations as may be necessary and desirable to
promote the mutual objectives of Conoco and Marketer, including the promotion of
public goodwill toward Conoco, its trademarks and trade names, and the
reputation of Conoco products. Conoco shall have no control whatsoever over
Marketer's resale prices of the products purchased hereunder.
19. SEVERABILITY. Any provision of this Agreement prohibited by law or
by court decree in any locality or state shall be ineffective to the extent
of such prohibition without in any way invalidating or otherwise affecting
the remaining provisions of this Agreement within states and localities where
not prohibited by law or court decree.
20. NOTICES. Any notice in connection with this Agreement shall be made
in writing and sent by certified mail or delivered personally to Conoco at
the office of the appropriate business region Conoco Marketing
Manager-Wholesale at one of the following addresses:
a) P.O. Box 4784
Houston, TX 77210-4784
b) 1000 South Pine, 5200 CB
Ponca City, OK 74603
6
<Page>
c) 6855 South Havana St., Suite 600
Englewood, CO 80112
and to Marketer at its address above noted. The deposit in the United States
mail of a properly addressed and postage pre-paid communication shall be deemed
delivery to the party addressed.
Where the notice concerns termination or nonrenewal of this
Agreement, the notice shall contain:
A. A statement of intention to terminate or not to renew,
together with the reasons therefor;
B. The date on which such termination or nonrenewal will take
effect; and
C. A copy of the Summary of Title I of the Petroleum Marketing
Practices Act, prepared and published by the Secretary of Energy.
21. PREVIOUS AGREEMENTS. THIS AGREEMENT SUPERSEDES ALL PRIOR AND
CURRENT PETROLEUM MARKETER AGREEMENTS BETWEEN THE PARTIES AND IT CONTAINS
EACH AND EVERY UNDERSTANDING OF THE PARTIES RELATING TO THE SUBJECT COVERED
HEREBY. NO VERBAL REPRESENTATIONS, STATEMENTS OR AGREEMENTS OF ANY NATURE
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR TO ANY RELATIONSHIP
BETWEEN THE PARTIES WILL BE CONSIDERED VALID OR ENFORCEABLE.
22. INDEMNITY. Marketer hereby agrees to indemnify, defend and hold
Conoco, and its affiliates, officers, directors, employees, agents, and
representatives, harmless from any and all claims, demands, suits, actions
or other loss or liability, including all reasonable attorney's fees and
legal expenses, fines, and penalties (hereinafter collectively the
"Liabilities"), arising out of any claim or cause of action at law or in
equity, or any administrative or judicial action, concerning or relating to
any loss, loss of use of, remediation of, or damage to property or natural
resources (including, but not limited to, that arising from storage tank
leaks or spills, waste disposal, or air emissions), personal injuries,
death, violation of any governmental laws, regulations, or orders or patent
or trademark infringement or environmental claims arising in any manner out
of Marketer's or Marketer's retailer's operations, including but not limited
to, the loading, transportation, unloading, storage, handling, sale, or use
of Conoco products sold hereunder, or from Marketer's performance or
failure to perform under this Agreement, whether or not Marketer was
negligent or otherwise at fault. Provided, however, such indemnifcation
obligations shall not apply:
A. To the percentage of such Liabilities, if any, attributable
to Conoco's negligence or willful misconduct, or
B. When such Liabilities are caused by defects in the Conoco
product not caused or contributed to by any act or omission of Marketer or
Marketer's employees, contractors, agents or retailers,
Conoco shall have the right, but not the duty, to participate
in the defense of any claim or litigation with attorneys of Conoco's
selection. Once Marketer has assumed the defense of Conoco, Conoco
shall-have the right to participate in the defense of the claims or
litigation, but it shall do so at its own expense.
Marketer's obligations in this Section 22 shall survive any
termination or nonrenewal of this Agreement.
23. WARRANTIES. Conoco warrants that the products it delivers
hereunder shall meet Conoco's then current product specifications for the
respective products and shall be in merchantable condition. UNDER NO
CIRCUMSTANCES SHALL CONOCO BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR PUNITIVE DAMAGES.
24. MARKETER CLAIMS/LAWSUITS. Conoco shall not be liable to Marketer
for breach of this Agreement or for any other claim by Marketer, unless
Marketer provides Conoco with written notice of the incident (which forms
the basis of the alleged breach or claim) within 90 days of the occurrence
of the incident and files suit within 1 year after the occurrence of the
incident.
Notwithstanding the above paragraph, Conoco shall not be
liable to Marketer for any defect in quality or shortage in quantity of any
product delivered hereunder unless (a) Marketer notifies Conoco of
Marketer's claim immediately but no later than within 24 hours after
delivery thereof, or in the case of any latent defect in quality,
immediately but no later than within 24 hours after Marketer's discovery of
such defect, and (b) Conoco is given a reasonable opportunity to inspect
the product and to take and test samples thereof. Marketer's failure to
specify any shortage, defect or nonconformity shall constitute a waiver of
that defect or nonconformity.
25. AMENDMENT. Except as otherwise specified herein, this Agreement
can only be amended by an agreement in writing which is signed by both
parties.
26. EXHIBITS. Exhibits "A" through "D" are attached hereto and are
made a part of this Agreement.
7
<Page>
27. BINDING EFFECT. This Agreement shall inure to the benefit of and
be binding upon the heirs, executors, administrators, successors, and
assigns of the respective parties hereto.
28. PETROLEUM MARKETING PRACTICES ACT. Conoco and Marketer hereby
expressly reserve their rights under the Petroleum Marketing Practices Act
(75 US.C. 2807 et seq.). No omission of any reference herein to any such
specific right shall constitute a waiver.
29. YEAR 2000 COMPLIANCE.
A. The parties to this Agreement warrant that their performance
will not be adversely affected by the improper processing of date-related data
by their computer systems, software or other equipment. Further, each party
agrees to obtain a similar warranty from their contractors, subcontractors,
and suppliers whose performance is material to that party's contractual
obligations. The parties will use reasonable commercial efforts to cooperate
and share information to minimize the impact of any Year 2000 Problem on
performance of this Agreement. Further, each party will inform the other party
of any possible obstacle to compliance with this article and the steps being
taken to avoid or overcome the obstacle.
B. If a party complies with Subsection A, then it will not be
liable for a breach of this Agreement to the extent such breach arises out of
a Year 2000 problem by the party's suppliers/subcontractors or arises out or
circumstances beyond the party's control (e.g. a failure on the party of a
governmental entity).
C. A "Year 2000 Problem" means a failure to correctly perform,
process and handle date related data which adversely impacts the use and/or
operation of software, equipment or a computer system.
30. SPECIAL CONDITIONS.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
CONOCO INC. FARSTAD OIL, INC.
By: J. E. Souls By: Vern Lysford
-------------------------------------- -------------------------
(Name Printed) (Name Printed)
Signature: /s/ J. E. Souls Signature: /s/ Vern Lysford
-------------------------------- -------------------
Title: Branded Marketing Manager, Rockies Title: CFO
----------------------------------- -----------------------
8
<Page>
[LOGO OF CONOCO]
--------------------------------------------------------------------------------
INTEROFFICE COMMUNICATION
To Farstad - Dennis
From Audrey Steffan, Englewood
Data 6.15.01
Subject Permanent Contract Change
Attached is your copy of the latest permanent contract change for your
jobbership. You do not need to sign or return anything to me or your account
manager, l have sent a copy to him as well.
If you have any questions, comments or concerns, please feel free to call your
account manager, customer service representative or me.
Thanks,
/s/ Audrey
Audrey
<Page>
CONOCO PETROLEUM MARKETER AGREEMENT
EXHIBIT "A"
This Exhibit "A" effective June 1, 2001, to be attached to and become a
part of the Petroleum Marketer Agreement ("Agreement"), effective April 1, 1999,
between Conoco Inc., a Delaware corporation (hereinafter called "Conoco"), and
FARSTAD OIL, INC., P.O. BOX 1842, MINOT, ND, 58702 (hereinafter called
"Marketer").
1. CONOCO-BRANDED GASOLINE
Conoco agrees to sell to Marketer at supply points designated by Conoco,
and Marketer agrees to buy from Conoco, such monthly quantities of
Conoco-branded gasoline ("Gasoline") listed below:
<Table>
<S> <C>
January 1,463,500
February 1,409,500
March 1,784,500
April 1,885,500
May 2,111,500
June 2,548,500
July 2,784,500
August 2,594,500
September 2,235,500
October 2,112,500
November 1,856,500
December 1,955,500
Annual Gallons 24,742,000
</Table>
Set out in Exhibit "A-1," attached hereto and made a part hereof, is a list
of the Conoco-branded retail outlets supplied by Marketer, the annual
requirements of Gasoline sold by each retail outlet, and Marketer's other
requirements for Gasoline.
2. DISTILLATE
Conoco agrees to sell to Marketer at supply points designated by Conoco,
and Marketer agrees to buy from Conoco, such monthly quantities of
distillate ("Distillate") listed below:
<Table>
<S> <C>
January 416,000
February 316,000
March 467,000
April 667,000
May 517,000
June 417,000
July 667,000
August 787,000
September 517,000
October 667,000
November 616,000
December 666,000
Annual Gallons 6,720,000
</Table>
3. FAILURE TO PURCHASE
A. AGREEMENT TERMINABLE UPON FAILURE TO PURCHASE. Failure to purchase at
least 90% of the sum of the above listed monthly Gasoline volumes for
each 3 month period beginning every January 1, April 1, July 1, and October 1
shall be a violation of this Agreement, unless Marketer has obtained Conoco's
approval for a temporary volume change for the applicable quarter. The first
such quarterly violation under this Agreement shall result in Marketer's
receipt of a warning letter. Any further quarterly violation, after a grace
quarter (which is the quarter next following the quarter in which the first
violation occurred), shall result in the termination of this Agreement upon
Conoco's giving 90 days' written notice to Marketer.
B. RATABLE LIFTINGS - GASOLINE. Marketer agrees to purchase the
specified monthly volumes of Gasoline ratably. Conoco, at its option, may,
without notice, impose a surcharge on any gallons purchased in excess of 120%
of each monthly volume. Marketer hereby acknowledges and agrees that the
purchase and ratable lifting of the monthly quantities of Gasoline specified
herein by Marketer are reasonable, important, and of material significance to
the franchise relationship.
A-1
<Page>
C. RATABLE LIFTINGS - DISTILLATE. Marketer agrees to purchase the
specified monthly volumes of Distillate ratably. If Marketer does not buy its
monthly volumes of Distillate, then upon 30 days' written notice to Marketer.
Conoco may reduce the appropriate monthly volumes and annual gallons of
Distillate to reflect the actual purchases. Conoco, at its option, may,
without notice, impose a surcharge on any gallons purchased in excess of
120% of each monthly volume.
D. MINIMUM CONTRACT VOLUME REQUIREMENT. Annual minimum contract volume
for Conoco branded marketers shall not be less than 2 million gallons of
Gasoline or, alternatively, 3,500,000 gallons of Gasoline and Distillate
combined. If Marketer's annual minimum contract volume is below such volumes,
Conoco may terminate this Agreement.
This Exhibit "A" shall be effective on the date above written, and supersedes
and cancels all previous Exhibits "A" to this Petroleum Marketer Agreement.
Conoco's failure to exercise any of its rights hereunder or any of those
reserved to it by the Agreement to which this is an exhibit shall not constitute
a waiver of any such rights by Conoco.
CONOCO INC.
By:__________________________________________
Title:_______________________________________
FARSTAD OIL, INC.
By:__________________________________________
Title:_______________________________________
A-2
<Page>
Conoco Branded Retail Unit Volume
MARKETER#: 068259
MARKETER : FARSTAD OIL, INC.
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------------
RETAILER ANNUAL
CODE TYPE PROGRAMS RETAILER NAME PHYSICAL ADDRESS CITY STATE VOLUME
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
969921816 IE BIP B & N OIL 600 S WASHINGTON GRAND FORKS ND 1,700,000
969921006 IE FIPI BEHM'S TRUCK STOP 3800 HIGHWAY 2 & 52 WEST MINOT ND 1,246,000
CRIND
CR
969921600 TS FIPB BIG SOUIX TRAVEL PLAZA 4401 32ND AVE S GRAND FORKS ND 1,200,000
CR
969921253 IE CR BILL'S CONOCO 1738 S BROADWAY MINOT ND 300,000
969921790 JO CRIND BUCKHORN GROCERY & GAS 723 DAYTON RANCHESTER WY 444,000
FIPB
CR
969921782 IE CR CORNER EXPRESS 1010 CENTRAL AVE NE E GRAND FORKS MN 1,200,000
FIPB
CRIND
969921535 IE FIPI DALE'S CASH SUPPLY HIGHWAY 3&5 DUNSEITH ND 400,000
969921519 1E CRIND DAN'S INTERSTATE CONOCO 494 & HIGHWAY 85 BELFIELD ND 640,000
FIPB
CR
969921402 IE FIX'S OIL CO 109 HIGHWAY 12 WEST BOWMAN ND 360,000
969921774 BP GOULDINGS INC. HIGHWAY 2 EAST ELK DR DEVILS LAKE ND 0
969921717 IE CR GOULDINGS ONE STOP 4TH & 6TH AVE DEVILS LAKE ND 300,000
969921741 IE CRIND GOULDING'S ONE STOP 120 10TH ST E HARVEY ND 600,000
CR
969921022 IE FIPB GUSTAFSON OIL 201 MAIN AVE E ROLLA ND 480,000
CRIND
CR
969921683 IE CRIND GUSTAFSON OIL/BOTNO 601 11TH ST W BOTTINEAU ND 600,000
NC
CR
969921766 IE JIM'S CONOCO SERVICE CENTER 740 HILL AVE GRAFTON ND 320,000
969921725 IE JOE'S CORNER MART 310 COLLEGE DRIVE DEVILS LAKE ND 300,000
969921808 IE KEL'S CONOCO HIGHWAY 83 MAX ND 300,000
969921071 IE NAPOLEON CONOCO 102 BROADWAY NAPOLEON ND 200,000
969921394 IE FIPI OK TIRE 3117 2ND STREET W WILLISTON ND 640,000
CRIND
CR
969921444 IE CRIND OK CONOCO 4203 2ND AVE WEST WILLISTON ND 1,200,000
FIPI
CR
969921618 IE CR ONE STOP MARKET HIGHWAY 5 WEST BELCOURT ND 480,000
96992999 IE OTHER 0
969921204 IE R & S OIL CO 90 LINCOLN AVENUE UNDERWOOD ND 350,000
969921626 JO FIPB SPF #16 3275 S HIGHWAY 79 RAPID CITY SD 1,080,000
CR
969921097 JO CR SPF #26 1-94 & HWY 281 SOUTH JAMESTOWN ND 1,200,000
969921634 JO FIPB SPF #27 2215 N HAINES AVE RAPID CITY SD 1,500,000
CR
969921659 JO FIPI SPF #28 1046 NORTH 27TH STREET BILLINGS MT 720,000
CRIND
BR
</Table>
<Page>
MARKETER#: 068259
MARKETER : FARSTAD OIL, INC.
<Table>
<Caption>
----------------------------------------------------------------------------------------------------------------------------
RETAILER ANNUAL
CODE TYPE PROGRAMS RETAILER NAME PHYSICAL ADDRESS CITY STATE VOLUME
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
969921667 JO FIP SPF #29 1 MACARTHUR AVE BILLINGS MT 450,000
CRIND
BR
969921675 JO FIPB SPF #30 16 SHILOH RD BILLINGS MT 800,000
CRIND
BR
969921642 JO FIPB SPF #31 1544 BROADWATER AVE BILLINGS MT 720,000
CRIND
BR
969921584 IE FIPI THE FRIENDLY CORNER 718 ELLIOTT AVE HYSHAM MT 400,000
CRIND
CR
969921691 JO FIPB THE WAVE CAR CARE CENTER 2900 KING AVE W BILLINGS MT 1,200,000
CR
969921329 JO FIPI TOAD'S RIDE-N-SHINE 1105 S BROADWAY MINOT ND 1,500,000
CRIND
969921758 IE TORGERSON OIL CO. 309 PARK ST E PARK RIVER ND 360,000
969921279 IE FIPI T-REX CONOCO INC 1107 3RD AVE W DICKINSON ND 700,000
FIPB
CRIND
CR
969921477 IE CRIND XPRESS MART 725 27TH ST SE MINOT ND 650,000
CR
----------
MARKETER TOTAL 24,742,000
==========
</Table>
<Page>
MAS LOCATION: 068259
MARKETER FARSTAD OIL, INC.
MAILING ADDRESS: P.O.BOX 1842
MINOT, ND 58702
<Table>
<Caption>
------------------------------------------------------
RETAILER EFFECTIVE
CODE RETAILER NAME DATE
------------------------------------------------------
<S> <C> <C>
969921816 B & N OIL 06/01/01
</Table>
<Page>
MAS LOCATION: 068259
MARKETER FARSTAD OIL, INC.
MAILING ADDRESS: P.O.BOX 1842
MINOT, ND 58702
<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------------------------
RETAILER BRAND INSTALL INSTALL
CODE RETAILER NAME PHYSICAL ADDRESS CITY ST EQUIPMENT QTY DATE DATE COST
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
969921006 BEHM'S TRUCK STOP 3800 HIGHWAY 2 & 52 MINOT ND 12 FT. CAPSULE 1 04/01/1993 08/01/1992 $0
WEST
20 FT. CAPSULE 1 $0
8 FT. CAPSULE 2 08/01/1992 $0
IMPRINTER 1 $0
969921600 BIG SOUIX TRAVEL 4401 32ND AVE S GRAND FORKS ND 28 FT CAPSULE 1 12/01/1994 12/01/1994
PLAZA
8 FT. CAPSULE 4 12101/1994
IMPRINTER 1 12/01/1994
969921253 BILL'S CONOCO 1738 S BROADWAY MINOT ND 12 FT. CAPSULE 1 04/01/1993 $0
20 FT. CAPSULE 1 $0
6 FT. CAPSULE 2 08/01/1992 $0
IMPRINTER 1 $0
969921790 BUCKHORN GROCERY & G723 DAYTON RANCHESTER WY 12 FT. CAPSULE 1 07/01/1996 07/01/1996
20 FT. CAPSULE 1 07/01/1996
8 FT. CAPSULE 1 07/01/1996
IMPRINTER 1 07/01/1996
969921782 CORNER EXPRESS 1010 CENTRAL AVE NE E GRAND FORKS MN 12 FT. CAPSULE 1 10/01/1999 10/01/1999 $4,166
20 FT. CAPSULE 1 10/01/1999 10/01/1999 $14,775
8 FT. CAPSULE 3 10/01/1999
IMPRINTER 1 10/01/1999
959921535 DALE'S CASH SUPPLY HIGHWAY 3 & 5 DUNSEITH ND 12 FT. CAPSULE 2 04/01/1993 $0
IMPRINTER 1 $0
969921519 DAN'S INTERSTATE 1-94 & HIGHWAY 85 BELFIELD ND 12 FT. CAPSULE 1 04/01/1993 $0
CONO
28 FT. CAPSULE 1 01/01/1998
6FT. CAPSULE 2 $0
IMPRINTER 1 $0
969921402 FIX'S OIL CO 109 HIGHWAY 12 WEST BOWMAN ND 12 FT. CAPSULE 1 04/01/1993 $0
IMPRINTER 1 $0
969921774 GOULDINGS INC. HIGHWAY 2 EAST ELK DR DEVILS LAKE ND IMPRINTER 1 04/01/1993 $0
969921717 GOULDINGS ONE STOP 4TH & 6TH AVE DEVILS LAKE ND IMPRINTER 1 04/01/1993 06/01/1989 $0
MONUMENT 1 06/01/1989 $0
969921741 GOULDING'S ONE STOP 120 10TH ST E HARVEY ND 12 FT. CAPSULE 1 04/01/1993 $0
IMPRINTER 1 $0
969921022 GUSTAFSON OIL 201 MAIN AVE E ROLLA ND 12 FT. CAPSULE 1 03/01/1991 03/01/1991 $0
6 FT. CAPSULE 2 08/07/1992 $0
IMPRINTER 1 $0
969921683 GUSTAFSON OIL/BOTNO 601 11TH ST W BOTTINEAU ND 12 FT CAPSULE 1 09/01/1997 10/01/1999 $4,920
8 FT. CAPSULE 2 09/01/1997
IMPRINTER 1 09/01/1997
969921766 JIM'S CONOCO SERVICE C740 HILL AVE GRAFTON ND 12 FT. CAPSULE 1 01/01/1992 01/01/1992 $2,450
IMPRINTER 1 01/01/1992 $0
969921725 JOE'S CORNER MART 310 COLLEGE DRIVE DEVILS LAKE ND 28 FT. CAPSULE 1 04/01/1993 07/01/1984 $0
8 FT. CAPSULE 1 05/01/1990 $0
IMPRINTER 1 $0
969921808 KEL'S CONOCO HIGHWAY 83 MAX ND 12 FT. CAPSULE 1 04/01/1993 $0
6 FT. CAPSULE 2 11/01/1994 $0
IMPRINTER 1 $0
969921071 NAPOLEON CONOCO 102 BROADWAY NAPOLEON ND 12 FT. CAPSULE 1 04/01/1993 $0
IMPRINTER 1 $0
969921394 O K TIRE 3117 2ND STREET W WILLISTON ND 12 FT. CAPSULE 1 04/01/1993 $0
6 FT. CAPSULE 1 01/01/1995 $0
IMPRINTER 1 $0
969921444 OK CONOCO 4203 2ND AVE WEST WILLISTON ND 12 FT. CAPSULE 1 04/01/1993 06/01/1992 $0
28 FT. CAPSULE 0 $0
6 FT CAPSULE 2 $0
</Table>
<Page>
MAS LOCATION: 068259
MARKETER FARSTAD OIL, INC.
MAILING ADDRESS: P.O.BOX 1842
MINOT, ND 58702
<Table>
<Caption>
------------------------------------------------------------------------------------------------------------------------------------
RETAILER BRAND INSTALL INSTALL
CODE RETAILER NAME PHYSICAL ADDRESS CITY ST EQUIPMENT QTY DATE DATE COST
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
969921444 OK CONOCO 4203 2ND AVE WEST WILLISTON ND IMPRINTER 1 04/01/1993 $0
969921618 ONE STOP MARKET HIGHWAY 5 WEST BELCOURT ND 12 FT. CAPSULE 1 01/01/1995 01/01/1995
6 FT. CAPSULE 2 01/01/1995
IMPRINTER 1 01/01/1995
969921204 R & S OIL CO. 90 LINCOLN AVENUE UNDERWOOD ND 12 FT. CAPSULE 1 04/01/1993 $0
28 FT. CAPSULE 1 $0
IMPRINTER 1 $0
969921626 SPF #16 3275 S HIGHWAY 79 RAPID CITY SD 12 FT. CAPSULE 1 02/01/1996 02/01/1996
8 FT. CAPSULE 2 02/01/1996
IMPRINTER 1 02/01/1996
969921097 SPF #26 I-94 & HWY 281 SOUTH JAMESTOWN ND 12 FT. CAPSULE 1 08/01/1991 $0
28 FT. CAPSULE 1 $0
8 FT. CAPSULE 4 $0
IMPRINTER 1 $0
969921634 SPF #27 2215 N HAINES AVE RAPID CITY SD 12 FT. CAPSULE 1 02/01/1996 02/01/1996
28 FT. CAPSULE 1 02/01/1996
8 FT. CAPSULE 3 02/01/1997
IMPRINTER 1 02/01/1996
969921659 SPF #28 1046 NORTH 27TH STREET BILLINGS MT 12 FT. CAPSULE 1 05/01/1992 01/01/1998
8 FT. CAPSULE 2 09/01/1992 $0
IMPRINTER 1 $0
969921667 SPF #29 1 MACARTHUR AVE BILLINGS MT 12 FT. CAPSULE 1 05/01/1992 09/01/1992 $0
IMPRINTER 1 $0
969921675 SPF #30 16 SHILOH RD BILLINGS MT 12 FT. CAPSULE 1 05/01/1992 09/01/1992 $0
8 FT. CAPSULE 3 07/01/1998 $0
IMPRINTER 1 $0
969921642 SPF #31 1544 BROADWATER AVE BILLINGS MT 12 FT. CAPSULE 1 07/01/1993 07/01/1993 $0
IMPRINTER 1 $0
969921584 THE FRIENDLY CORNER 718 ELLIOTT AVE HYSHAM MT 12 FT. CAPSULE 0 04/01/1993 $0
8 FT. CAPSULE 3 07/01/1998 $2,478
IMPRINTER 1 $0
969921691 THE WAVE CAR CARE CEN 2900 KING AVE W BILLINGS MT IMPRINTER 1 01/01/1999 01/01/1999
MONUMENT 1 01/01/1999
969921329 TOAD'S RIDE-N-SHINE 1105 S BROADWAY MINOT ND 12 FT. CAPSULE 1 04/01/1993 02/17/1998 $3,850
6 FT. CAPSULE 2 $0
IMPRINTER 1 $0
969921758 TORGERSON OIL CO. 309 PART ST E PARK RIVER ND 8 FT. CAPSULE 1 04/01/1993 03/01/1989 $0
IMPRINTER 1 03/01/1989 $0
969921279 T-REX CONOCO INC 1107 3RD AVE W DICKINSON ND 12 FT. CAPSULE 1 04/01/1993 $0
20 FT. CAPSULE 1 10/01/1996 $2,488
8 FT. CAPSULE 2 $0
IMPRINTER 1 $0
969921477 XPRESS MART 725 27TH ST SE MINOT ND 12 FT. CAPSULE 1 04/01/1993 11/01/1999 $0
6 FT. CAPSULE 3 03/01/1993 $0
IMPRINTER 1 $0
</Table>
<Page>
MARKETING MANAGER:52 PERSONAL PROPERTY AGREEMENT AND RECEIPT
PROPERTY LIST EXHIBIT D DATE: 06/14/2001
--------------------------------------------------------------------------------
MAS LOCATION: 068259
MARKETER: FARSTAD OIL, INC.
MAILING ADDRESS: P. O. BOX 1842
MINOT, ND 58702
--------------------------------------------------------------------------------
<Table>
<Caption>
MAINTENANCE FEE SCHEDULE
EQUIPMENT QTY FEE TOTAL FEE
------------------------------------------------------------
<S> <C> <C> <C>
MONUMENT 2 $20.00 $40.00
IMPRINTER 34 $5.00 $170.00
6 FT. CAPSULE 18 $15.00 $270.00
28 FT. CAPSULE 6 $95.00 $570.00
20 FT. CAPSULE 5 $75.00 $375.00
12 FT. CAPSULE 28 $25.00 $700.00
8 FT. CAPSULE 33 $25.00 $825.00
---------
MARKETER TOTAL $2,950.00
=========
</Table>
MARKETER APPROVAL:________________________ DATE: _________________
CONOCO APPROVAL:________________________ DATE: _________________
EFFECTIVE DATE:________________________
<Page>
[Amoco logo] Jobber Number
Petroleum Products 80001339
Marketing ----------------------------------------
BRANDED JOBBER CONTRACT
Form 26-930-GD (3-98) E
----------------------------------------
(State "Trial Franchise," if applicable)
This branded jobber contract("Contract"),dated 12/15/78 is by and between Amoco
Oil Company ("Amoco"), a Maryland corporation with a principal office located
at 5001 W. 80TH STREET, SUITE 801, MINNEPOLIS, MN 55437
---------------------------------------------------------------------------
(State complete Amoco address including street address, city and zip code)
and FARSTAD OIL CO INC ("Jobber")
--------------------------------------------------------
(State exact legal name of Jobber)
a CORPORATION with its principal offices located at
-----------------------------------------
(Slate type of legal entity: sole proprietorship, partnership or corporation)
100 NE 27TH STREET, MINOT, ND 58701-1842
--------------------------------------------------------------------------------
(State complete address of Jobber's principal office including street address,
city and zip code. A post office box is NOT sufficient.)
Now, Therefore, Amoco and Jobber, intending to be legally bound, agree to the
following:
1. TERM. The term covered by this Contract shall be for a period beginning on
JANUARY 1 1999 and ending on DECEMBER 31 2001, unless terminated earlier by
law or by the terms of this contract or unless extended by Amoco upon written
notice, subject to Jobber's rights under Schedule A.
2. PRODUCTS AND QUANTITIES (SCHEDULE A). Amoco agrees to sell and Jobber agrees
to purchase and receive Amoco's currently offered and available branded
petroleum products ("Products"), as determined and designated by Amoco in its
sole discretion and as more fully and specifically set forth in Schedule A, a
copy of which is attached to and incorporated in this Contract. Jobber agrees to
purchase these Products in the quantities set forth in Schedule A, as amended
from time to time.
3. PURCHASE AND SALE OF PRODUCTS.
(a) PRICES. The price per gallon which Jobber shall pay for each Product
sold under this Contract shall be Amoco's Jobber Buying Price, as
recorded at the applicable Amoco regional office, business unit
office or such other office as Amoco may designate from time to
time, in effect on the date of sale from the respective Amoco
terminal(s) assigned to Jobber ("Jobber's Assigned Terminal's)").
Jobber's Assigned Terminal(s) shall be determined and designated by
Amoco in its sole discretion and set forth in Schedule A, as amended
from time to time.
(b) TITLE AND RISK OF LOSS. Title and risk of loss to all Products sold
to Jobber under this Contract shall pass to Jobber f.o.b. Jobber's
Assigned Terminal(s).
4. PAYMENT TERMS.
(a) CREDIT. Nothing in this Contract shall be construed as obligating
Amoco to extend credit to Jobber. In the event Amoco does extend
credit to Jobber, such extension of credit shall be subject to the
following requirements, including but not limited to: paying for all
Product purchases by electronic funds transfer ("EFT"); submitting
an annual financial statement; and executing an unlimited personal
guaranty. Jobber shall also provide Amoco with a letter of credit or
other form of security, upon Amoco's request. Amoco reserves the
right to change its credit terms at any time either for the class of
trade generally or for Jobber individually. In no instance shall the
terms of any sale discounts apply to taxes, inspection fees and the
like. One or more incidents of failure by Jobber to make payment
according to established credit terms, including checks or EFTs
which are dishonored for nonsufficient or uncollected funds, or
failure to supply financial information or documentation as
required, shall entitle Amoco to suspend deliveries, impose C.O.D.
terms, and/or terminate this Contract, in addition to exercising any
other rights Amoco may have under this Contract or at law.
(b) FINANCE AND SERVICE CHARGES. Amoco shall, at its election, assess
finance charges on all amounts not paid by Jobber on the net due
date. Finance charges shall be assessed at the monthly periodic rate
established by Amoco for Jobber's class of trade and the respective
Product. Amoco shall impose a service charge for each check and/or
EFT which is dishonored for nonsufficient or uncollected funds,
whether or not subsequently paid by Jobber.
Page 1
<Page>
5. AMOCO'S TRADEMARKS.
(a) USE OF MARKS GENERALLY. Jobber shall be permitted to use, and shall be
permitted to allow the reseller/dealer-customers it supplies with
Products purchased under this Contract ("Jobber-Dealers") to use, on a
limited and non-exclusive basis, Amoco's trademarks, service marks,
companion marks, trade names, brand names, trade dress symbols, logos,
color schemes, design schemes, insignia, image standards and the like
("Marks") in connection with the advertising, distribution and/or
resale of the Products authorized by, supplied by and/or purchased from
Amoco under this Contract.
(b) USE OF MARKS GOVERNED BY THIS CONTRACT AND RELATED AGREEMENTS. The
permission to use Amoco's Marks shall be governed by the terms and
conditions of this Contract and all related contracts, including all
schedules, appendices and amendments attached to and incorporated in
those agreements. In addition, Amoco's Marks shall only be used in
accordance with the guidelines, policies, procedures, requirements,
specifications and standards issued by Amoco, as amended from time to
time, including but not limited to Amoco's Policy for Proper Handling
of Amoco-branded Motor Fuels by Amoco Jobbers.
(c) USE OF MARKS ON SIGNAGE. Jobber shall be permitted to acquire and
display approved signage bearing Amoco's Marks, in connection with the
advertising, distribution and/or resale of Products under this
Contract, on a retail site specific basis. Under no circumstances will
Jobber be allowed to relocate signage bearing Amoco's Marks to another
retail site without Amoco's consent. Jobber shall provide Amoco with a
list of all signage bearing Amoco's Marks in Jobber's possession and/or
control and the location of said signage, upon Amoco's request. In
addition to the terms and conditions of this Contract, the use of
Amoco's Marks on all signage and the use of that signage generally
shall be governed by a Trademark Agreement (Jobber) (form 26-950-TA), a
copy of which is attached to and incorporated in this Contract.
(d) USE OF MARKS IN CONJUNCTION WITH THE SALE OF REPRESENTATIVE AMOUNTS OF
CERTAIN PRODUCTS. At all times and at each retail site, including
Jobber-Dealer sites, Jobber shall offer for sale, or cause to be
offered for sale, representative amounts of each grade of Amoco-branded
gasoline, currently offered to Jobber, necessary to satisfy public
demand ("Representative Amounts"). If Jobber ceases to offer or make
available one or more of these gasolines in the required Representative
Amounts at a retail site supplied by Jobber, Jobber shall cease using
or displaying, or cause its Jobber-Dealer to cease using or displaying,
Amoco's Marks at that site.
(e) USE OF MARKS IN CONJUNCTION WITH AMOCO'S IMAGE PROGRAMS AND STANDARDS.
At each retail site, including Jobber-Dealer sites, Jobber shall comply
with, and ensure that all of its Jobber-Dealers comply with, Amoco's
image programs and standards, as amended from time to time. If a retail
site fails to conform to Amoco's image standards, Amoco may revoke its
approval to identify the retail site as provided in paragraph 6(b)
below in which case Jobber shall cease using or displaying, or cause
its Jobber-Dealer to cease using or displaying, Amoco's Marks at that
site.
(f) USE OF TORCH AND OVAL IN CONJUNCTION WITH JOBBER'S NAME. Jobber shall
be permitted to display the Amoco (or, if applicable, Standard) torch
and oval trademark ("T&O") in conjunction with Jobber's name on
equipment and materials directly related to the advertising,
distribution and/or resale of Products under this Contract. The words
"Products Jobber" or "Products Distributor" must, however, appear
adjacent to the T&O so as to read: [T&O] Products Jobber or [T&O]
Products Distributor. Amoco shall have the right to approve such use of
the T&O in advance or to revoke its approval at any time and for any
reason.
(g) MISUSE OF MARKS WITH JOBBER'S NAME. Jobber shall not use any of Amoco's
Marks as part of Jobber's corporate name or as part of Jobber's own
trademarks. If Jobber has incorporated using any of Amoco's Marks, it
shall be required to amend its articles of incorporation so as to
delete Amoco's Marks from its corporate name.
(h) MISUSE OF MARKS IN CONNECTION WITH CERTAIN SALES. Jobber shall not use
any of Amoco's Marks in connection with the advertising, distribution
and/or resale of: (1) any dilution or adulteration of a Product
authorized by, supplied by and/or purchased from Amoco; (2) any mixture
or blend of Products authorized by, supplied by and/or purchased from
Amoco, without Amoco's prior written consent (which consent may be
revoked at any time and for any reason); (3) any Product authorized by,
supplied by and/or purchased from Amoco but sold under an incorrect or
inappropriate Amoco Mark or sold through unapproved or disapproved
packages, containers or equipment; or (4) any product not authorized
by, supplied by and/or purchased from Amoco.
(i) AMOCO'S RIGHT TO AUDIT. As part of Amoco's compliance program(s),
Jobber agrees and acknowledges that Amoco shall have the right, at all
times, to audit records in the possession or control of Jobber or its
Jobber-Dealers and the right, at all times, to inspect and sample all
Products in the possession or control of Jobber and/or its
Jobber-Dealers. Jobber shall cooperate fully and completely throughout
the audit and inspection processes, and ensure that its Jobber-Dealers
cooperate fully and completely also.
(j) DISCONTINUED USE OF MARKS UPON EXPIRATION OR TERMINATION OF THIS
CONTRACT. Upon the expiration or termination of this Contract, for any
reason, Jobber shall immediately cease using or displaying, and cause
its Jobber-Dealers to cease using or displaying, Amoco's Marks and
shall dispose of all signage in accordance with the Trademark
Agreement. All remaining evidence of Amoco's Marks shall be immediately
obliterated by Jobber. If Jobber does not immediately cease using or
displaying, and cause its Jobber-Dealers to cease using or displaying,
Amoco's Marks, Amoco shall have the irrevocable right to use any means
necessary to remove, cover or obliterate the Marks, including entering
upon the relevant premises or filing a legal action, with Jobber's full
and complete cooperation and at Jobber's expense.
Page 2 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
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Farstad Oil Co Inc
<Page>
6. SITE APPROVAL.
(a) USE OF AMOCO'S MARKS AT EACH RETAIL SITE. It is and shall be a
condition of the right to use Amoco's Marks that Jobber must first
obtain Amoco's prior written consent for each and every retail site
which Jobber intends to identify, or causes to identify, with Amoco's
Marks, including Jobber-Dealer sites. This approval shall be within
Amoco's sole discretion and shall be based, among other things, upon
the appearance, location and mode of operation of the site. Amoco also
expressly reserves the right to determine the appropriate geographic
density of all sites identified and/or to be identified with Amoco's
Marks. Amoco's right of approval shall apply to all requests to
identify regardless of the site's intended location within or outside
Jobber's Schedule B area of primary marketing responsibility ("Schedule
B area"). In order to obtain Amoco's approval to identify a retail site
outside Jobber's Schedule B area, it shall be a further requirement
that Jobber has used and/or is using its best efforts to develop
Jobber's Schedule B area as provided in paragraph 8(a) below.
(b) SITE APPROVAL REVOKED. Amoco shall have the right, in its sole
discretion, to revoke its approval to identify any retail site if the
site fails to conform to the terms or conditions of this Contract or
Amoco's policies or to any relevant law or regulation. If Amoco revokes
its approval, Jobber shall immediately cease using or displaying, or
cause to cease using or displaying, Amoco's Marks at that location.
(c) JOBBER'S RIGHT TO SUPPLY DISAPPROVED OR REVOKED SITES. Nothing in this
Contract shall prevent Jobber from supplying a disapproved retail site
or a retail site at which Amoco's approval has been revoked provided
that Jobber does not permit Amoco's Marks to be displayed at that
location.
(d) AMOCO'S RIGHT TO HAVE SIGNAGE REMOVED. Amoco shall have the right to
cause any and all signage bearing Amoco's Marks to be removed, or to
cause Amoco's Marks on said signage to be removed, covered or
obliterated, from any disapproved retail site or from any retail site
at which Amoco's approval has been revoked. If Jobber does not
immediately cease using or displaying, or cause its Jobber-Dealer to
cease using or displaying, Amoco's Marks after Amoco's request to do
so, Amoco shall have the irrevocable right to use any means necessary
to remove, cover or obliterate the Marks, including entering upon the
relevant premises or filing a legal action, with Jobber's complete
cooperation and at Jobber's expense.
(e) JOBBER TO PROVIDE LIST OF ALL APPROVED SITES. Jobber shall provide
Amoco with a list, upon Amoco's request, which shall indicate all
retail sites supplied by and/or operated by Jobber which are identified
with Amoco's Marks.
7. AMOCO'S DIRECTLY-SUPPLIED RESELLER/DEALER RETAIL SITES. Jobber shall not
sell Products covered by this Contract to any retail site which is directly-
supplied by Amoco or which is designated by Amoco as a directly-supplied site.
8. AREA OF PRIMARY MARKETING RESPONSIBILITY (SCHEDULE B).
(a) JOBBER TO USE BEST EFFORTS TO MARKET IN THE SCHEDULE B AREA. Jobber
shall use its best efforts to market the Products covered by this
Contract and develop its Schedule B area, as determined and designated
by Amoco in its sole discretion and as more fully and specifically set
forth in Schedule B, a copy of which is attached to and incorporated in
this Contract.
(b) SCHEDULE B AREA NOT EXCLUSIVE. Subject to Amoco's site approval and
direct supply rights as provided above in paragraphs 6 and 7
respectively, nothing shall prevent Jobber from selling or soliciting
the sale of the Products covered by this Contract outside its Schedule
B area or confer upon Jobber exclusive marketing and/or trademark
rights within such area. Amoco shall, at all times and for any reason,
maintain its sole and unlimited right to make other provisions for the
marketing of its Products under any of its Marks within Jobber's
Schedule B area including, but not limited to, establishing its own
directly-operated retail sites, establishing its own directly-supplied
reseller/dealer retail sites, and/or approving retail sites to be
operated or supplied by other jobbers.
9. ADDITIONAL JOBBER RESPONSIBILITIES.
(a) BULK PLANTS. Jobber shall operate, where necessary, one or more bulk
storage plants so as to efficiently perform its supply and distribution
functions under this Contract.
(b) TRANSPORT AND TANK TRUCKS. Jobber shall operate or cause to operate,
where necessary, a sufficient number of transport and/or tank trucks so
as to efficiently perform its delivery functions under this Contract.
(c) DELIVERIES FOR AMOCO. From time to time, Amoco may request that Jobber
make deliveries, from Jobber's inventories of Products purchased under
this Contract, to other Amoco customers. If Jobber elects to make any
such deliveries, Amoco shall pay Jobber a mutually agreed upon handling
fee. Jobber shall invoice Amoco for the quantities of product
delivered, at Amoco's price for the respective Product applicable to
Jobber and in effect on the date Jobber makes delivery, plus the
handling fee.
Page 3 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
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<Page>
10. JOBBER AS INDEPENDENT BUSINESS/SALE OF COMPETITIVE PRODUCTS.
(a) INDEPENDENT BUSINESS. Amoco and Jobber are and shall remain separate
and independent businesses. None of the provisions of this Contract are
intended to provide Amoco with any management direction or control over
the Jobber's business or business operations. Likewise, Jobber shall
not place or allow the placement of any signage upon or near any
premises owned, operated or supplied by Jobber which might indicate
that Amoco is the owner or operator of the business conducted by
Jobber.
(b) SALE OF COMPETITIVE PRODUCTS. Nothing in this Contract shall prevent
Jobber from purchasing and reselling the Products of Amoco's
competitors. In the event that Jobber does purchase and resell
competitive-brand Products, it shall comply with the applicable terms
and conditions of this Contract and all applicable guidelines,
policies, procedures, requirements, specifications and standards issued
by Amoco, as amended from time to time, including Amoco's Policy and
Dealer and Jobber Guidelines for Proper Handling of Non-Amoco Motor
Fuels.
11. JOBBER-DEALERS.
(a) ACTS AND OMISSIONS OF JOBBER-DEALERS IMPUTED TO JOBBER. Jobber shall
inform those Jobber-Dealers permitted to use Amoco's Marks of the
specific terms and conditions of this Contract and all related
contracts, including all schedules, appendices and amendments attached
to and incorporated in those agreements which pertain to the use of
Amoco's Marks and related matters. In addition, Jobber shall inform
those Jobber-Dealers of the specific guidelines, policies, procedures,
requirements, specifications and standards periodically issued by
Amoco, as amended from time to time, which pertain to the use of
Amoco's Marks and related matters. Notwithstanding the Jobber's best
efforts to ensure its Jobber-Dealers' compliance, and regardless of any
contractual relationship between Jobber and its Jobber-Dealer, any act
or omission by a Jobber-Dealer that, if committed or omitted by Jobber
would place Jobber in violation of this Contract or related contracts,
shall be imputed to Jobber and may cause Amoco, at its sole discretion,
to take appropriate action against Jobber up to and including the
termination of this Contract.
(b) ACTIONS AGAINST JOBBER-DEALERS. Nothing in this Contract shall prevent
or preclude Amoco from exercising any legal or equitable rights against
a Jobber-Dealer directly, separate and apart from any actions taken
against Jobber.
12. RIGHT OF FIRST REFUSAL AND RIGHT TO PURCHASE JOBBER'S AMOCO-BRANDED ASSETS.
(a) AMOCO'S RIGHT OF FIRST REFUSAL. Jobber shall not sell, lease or
otherwise transfer the assets in its possession or control, or portions
thereof, which are related to this Contract and which, at any time
during the franchise relationship, have been identified with or by
Amoco's Marks including but not limited to Jobber-owned retail sites;
bulk plant and terminal facilities; transport and tank trucks; and all
related real and personal property, contract rights, or good will
("Jobber's Amoco-Branded Assets") without first giving Amoco a right to
purchase or otherwise acquire the assets for consideration consisting
solely of cash, or cash and notes, upon the same terms and conditions
as set forth in a bona fide, arms' length agreement executed by and
between Jobber and a third-party purchaser ("Right of First Refusal").
(b) AMOCO'S RIGHT OF FIRST REFUSAL/INFORMATION JOBBER MUST PROVIDE.
Pursuant to paragraph 12(a) above, Jobber agrees to promptly submit to
Amoco complete and fully executed copies of all contract documents
which comprise the proposed agreement and any additional information,
facts and data required by Amoco: (1) to evaluate the bona fide nature
of the agreement and, (2) should the proposed agreement include
Jobber's request to assign the Contract, to evaluate the third-party
purchaser's qualifications to be an Amoco jobber. Amoco shall
thereafter have sixty (60) days within which to exercise its Right of
First Refusal, by written notice to Jobber. Closing shall be held at a
time and place agreeable to Amoco and Jobber, but no later than
sixty (60) days after Amoco elects to exercise its Right of First
Refusal. Jobber shall convey all real property with good and
marketable title and all other property in contractual form(s)
acceptable to Amoco, subject only to such liens and encumbrances which
were acceptable to the third-party purchaser.
(c) EXCEPTION TO AMOCO'S RIGHT OF FIRST REFUSAL. Notwithstanding paragraph
12(a) above, Jobber shall be permitted to sell, lease or otherwise
transfer Jobber's Amoco-Branded Assets to: (1) a spouse, child,
stepchild, parent, brother or sister ("Immediate Family Member"), if
Jobber is a sole proprietorship; (2) an Immediate Family Member of a
partner's immediate family, if Jobber is a partnership; or (3) an
Immediate Family Member of a stockholder's immediate family, if Jobber
is a corporation, without providing Amoco with a Right of First
Refusal; provided, however, that each Immediate Family Member who
receives assets hereunder, is at least twenty-one (21) years of age
with at least one (1) year of active management experience in Jobber's
business and, provided further, that no agreement executed in
accordance with this paragraph 12(c) shall operate as a mere means or
device to transfer control or ownership of the assets to a
non-Immediate Family Member without providing Amoco with its Right of
First Refusal.
(d) AMOCO'S RIGHT TO PURCHASE IF JOBBER IS A CORPORATION OR PARTNERSHIP. If
Jobber is a corporation, any sale, conveyance, alienation, transfer or
other change of legal or beneficial interest in, or legal or beneficial
title to, more than fifty percent (50%) of its voting stock, or, if
Jobber is a partnership, any sale, conveyance, transfer or other change
of partnership interest resulting in a change in control of the
partnership, at any time during the franchise relationship, either
voluntarily or involuntarily, by operation of law, by merger or by or
through any other type of proceedings: (1) shall trigger Amoco's right
to purchase the entirety of Jobbers Amoco-Branded Assets for a cash
price equal to the fair market value of those assets ("Right to
Purchase"), as determined by the average of three independent
appraisals made pursuant to paragraph 12(e) below, and (2) shall be
considered a request to assign the Contract.
Page 4 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
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<Page>
(e) AMOCO'S RIGHT TO PURCHASE/AMOCO'S ELECTION TO APPRAISE/INFORMATION
CORPORATION OR PARTNERSHIP MUST PROVIDE. Pursuant to paragraph 12 (d)
above, Jobber shall promptly provide Amoco with written notice of a
change in stock ownership or partnership control, whichever the case
may be. Amoco shall thereafter have sixty (60) days within which to
exercise its Right to Purchase, by written notice to Jobber. Upon
Amoco's written request, made no later than ten (10) days after the
commencement of this sixty (60) day exercise period, three independent
Appraisal Institute MAI - designated ("MAI") appraisers (one chosen by
Amoco within ten (10) days of the commencement of the exercise period,
one chosen by Jobber within twenty (20) days of said commencement and
one chosen by the other two MAI appraisers within thirty (30) days of
said commencement) shall appraise the entirety of Jobber's
Amoco-Branded Assets. Each appraiser shall provide Amoco with a
written appraisal within ten (10) days of being chosen and the average
of these appraisals shall be the price Amoco shall pay, should Amoco
elect to purchase. Jobber shall cooperate fully and completely with
Amoco and provide any information, facts and data required by Amoco
and/or the appraisers to evaluate and appraise Jobber's Amoco-Branded
Assets. Amoco and Jobber shall each pay for their own appraiser and
shall each pay one-half (1/2) of the third appraiser's fee. Closing
shall be in accordance with paragraph 12(b) above.
(f) EXCEPTION TO AMOCO'S RIGHT TO PURCHASE. Notwithstanding paragraph 12(d)
above, Jobber shall be permitted to: (1) effect a sale, conveyance,
alienation, transfer or other change of legal or beneficial interest
in, or legal or beneficial title to, more than fifty percent (50%) of
its voting stock to an Immediate Family Member of a stockholder's
immediate family, if Jobber is a corporation, or (2) effect a sale,
conveyance, transfer or other change of partnership interest resulting
in a change in control of the partnership to an Immediate Family Member
of a partner's immediate family, if Jobber is a partnership, without
triggering Amoco's Right to Purchase; provided, however, that each
Immediate Family Member who receives stock or a partnership interest,
whichever the case may be, is at least twenty-one (21) years of age
with at least one (1) year of active management experience in Jobber's
business and, provided further, that no transaction executed in
accordance with this paragraph 12(f) shall operate as a mere means or
device to transfer control or ownership of the assets to a
non-Immediate Family Member without providing Amoco with its Right to
Purchase.
(g) AMOCO'S RIGHT TO VERIFY JOBBER'S CORPORATE OR PARTNERSHIP INTEREST.
From time to time, Amoco may request and Jobber shall provide a
confirmation of all shareholder interest (legal and beneficial) or
partnership interest, whichever the case may be, on a form acceptable
to and/or provided by Amoco. Such confirmation shall include the names
of all shareholders or partners, whichever the case may be.
(h) STATUS OF CONTRACT AFTER SALE OF JOBBER'S AMOCO-BRANDED ASSETS. In the
event of any sale of Jobber's Amoco-Branded Assets, this Contract shall
continue in full force and effect unless terminated by Amoco, upon
written notice, or unless assigned by Jobber, upon Amoco's written
consent. Amoco's decision not to exercise its Right of First Refusal or
its Right to Purchase in accordance with this paragraph 12 shall not
prevent Amoco from withholding its consent to assign this Contract to
any third-party purchase. Likewise, any sale of Jobber's Amoco-Branded
Assets to an Immediate Family Member in accordance with paragraph 12(c)
above shall not prevent Amoco from withholding its consent to assign
this Contract to said Immediate Family Member.
(i) AMOCO MAY ASSIGN ITS RIGHT OF FIRST REFUSAL AND/OR ITS RIGHT TO
PURCHASE. Amoco shall have the right to assign its Right of First
Refusal and/or its Right to Purchase to a third-party purchaser of its
choosing.
13. ASSIGNMENT.
(a) JOBBER'S PRIOR WRITTEN REQUEST AND AMOCO'S WRITTEN CONSENT REQUIRED.
Jobber acknowledges and understands that the current ownership and
control of Jobber is a material element in Amoco's willingness to enter
into this Contract. Jobber, therefore, agrees that it shall not assign
or transfer its interest in this Contract, or any franchise
relationship attendant thereto, without a prior written request and
without Amoco's corresponding written consent; provided, however, that
Amoco shall not unreasonably withhold its consent, and further
provided, that in giving its consent to any assignment, whether
voluntarily or by operation of law, Amoco may, at its election,
condition the consent upon: (1) the agreement of the proposed assignee
or transferee to enter into a trial franchise;(2) the agreement of the
Jobber to simultaneously enter into a mutual cancellation of this
Contract and related contracts; and (3) the satisfaction of all
indebtedness owed by Jobber to Amoco.
(b) AMOCO MAY WITHHOLD CONSENT. Refusal of the proposed assignee or
transferee to enter into a trial franchise and/or the Jobber to enter
into a mutual cancellation shall be adequate reason for Amoco to
withhold its consent to the assignment. In addition, nothing stated in
this paragraph 13 shall limit Amoco's right to withhold its consent to
any assignment proposed by Jobber or limit Amoco's right to impose
other or additional conditions on its consent.
(c) EFFECT OF ASSIGNMENT WITHOUT AMOCO'S CONSENT. Jobber agrees and
acknowledges that any attempted or purported assignment or transfer of
this Contract without Amoco's knowledge and/or Amoco's prior written
consent may result in the termination of this Contract and the
non-renewal of any franchise relationship.
Page 5 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
For
Farstad Oil Co Inc
<Page>
14. INDEMNITY. Jobber shall, to the fullest extent permitted by law, indemnify,
defend and hold Amoco, including but not limited to Amoco's parent, affiliates
and all officers, directors, shareholders, employees and agents of Amoco, its
parent and affiliates, harmless from and against any and all losses, suits,
claims, demands, causes of action, liabilities, fines, penalties, costs or
expenses (including reasonable attorney's fees and all other costs of defense)
of whatever kind or nature, directly or indirectly arising in whole or in part
out of; (a) any default or breach by Jobber of any obligation contained in this
Contract or any other agreement with Amoco; (b) the receipt, shipment, delivery,
storage, handling, use, sale, dispensing, labeling, invoicing, advertising or
promoting of the Products by Jobber; (c) the use of any Amoco property (real or
personal) by Jobber or its Jobber-Dealers; (d) any allegation of agency or other
alleged legal relationship by which Amoco is being held or might be held
responsible for the acts or omissions of Jobber or its Jobber-Dealers; (e) the
use of Amoco's Marks by Jobber or its Jobber-Dealers, including the use of said
Marks on signage and in the advertising or promoting of Products sold or
services rendered by Jobber or its Jobber-Dealers; (f) the violation of any
federal, state or local law, rule, regulation, court order or government
directive by Jobber, its Jobber-Dealers or its other customers; (g) all taxes
incurred and owed by Jobber or its Jobber-Dealers of whatever kind and nature;
(h) or any other act or omission of Jobber, its Jobber-Dealers, or its other
customers, or their agents, employees, contractors, invitees, licensees,
customers or business associates, regardless if caused by the joint, concurrent,
or contributory fault or negligence of Amoco, except that Jobber shall assume no
liability for the sole acts, omissions, negligence or fault of Amoco.
15. INSURANCE.
(a) TYPES OF COVERAGE REQUIRED. Jobber shall obtain and maintain, at its
sole cost and expense, primary insurance coverage through an insurer
and in a form acceptable to Amoco as follows: (1)
Comprehensive/commercial general liability insurance of not less than
One Million Dollars ($1,000,000) combined single limit, including
coverage for contractual liability, bodily injury, property damage,
fire liability, premises and operations liability, products completed
operations hazard liability, independent contractor's liability, garage
keeper's liability, medical expense liability, liquor liability and
personal and advertising injury; (2) Worker's compensation and
employer's liability insurance, as required by law, but in no event
less than One Million Dollars ($1,000,000) combined single limit; (3)
Business automobile liability insurance, including coverage on all
vehicles owned, hired or used in the performance of this Contract, of
not less than One Million Dollars ($1,000,000) combined single limit.
(b) REQUIREMENTS FOR EACH TYPE OF COVERAGE. All insurance policies required
under this Contract shall: (1) name Amoco as an additional insured; (2)
include an endorsement containing an express waiver of any right of
subrogation or other recovery, by Jobber or any insurance company,
against Amoco; (3) include an endorsement stipulating that Jobber's
insurance policies are primary to, not contributory with and not excess
to any other policies or self-insurance; (4) provide that no policy
shall be materially changed, amended or cancelled except after thirty
(30) days' written notice to Amoco; and (5) provide that Jobber shall
be solely responsible for the payment of any premium or assessment,
with no recourse against Amoco.
(c) PROOF OF COVERAGE REQUIRED. Each time Jobber renews the insurance
coverage required under this Contract, but no less than annually, and
at any time requested by Amoco, Jobber shall provide such proof of
coverage as Amoco, in its sole discretion, determines is necessary for
verification purposes including, but not limited to certificates of
insurance or copies of the polices themselves. If Jobber fails to
provide acceptable proof of insurance, as determined by Amoco, then
Amoco may, at its option and in addition to all other remedies
available to it under this Contract or at law, after ten (10) days
notice to Jobber, obtain coverage to protect Amoco's interests only and
charge the cost of such coverage to Jobber.
(d) ENVIRONMENTAL COVERAGE. If required by any applicable law, Jobber must
obtain environmental impairment coverage in the amount and of the type
required by such law.
(e) INDEMNITY NOT LIMITED BY INSURANCE. The existence or non-existence of
any insurance as required by this Contract shall not limit the Jobber's
indemnity or other obligations under this Contract.
16. TERMINATION AND NON-RENEWAL.
(a) AMOCO'S BREACH. Jobber may terminate this Contract if Amoco fails to
comply with any material provision of this Contract, upon ninety (90)
days prior written notice; provided, however, that Jobber shall provide
Amoco with a reasonable opportunity to exert good faith efforts to
carry out such provision.
(b) JOBBER'S BREACH/PMPA. Amoco may terminate this Contract and non-renew
any franchise relationship in accordance with Title I of the Petroleum
Marketing Practices Act ("PMPA"), 15 US.C. 2801 et seq., as amended,
and/or other applicable federal, state and/or local laws of the same
nature and effect. Amoco expressly reserves all of its respective
rights under the PMPA and Jobber acknowledges and agrees that no
omission by Amoco of any specific reference to any specific PMPA right
shall constitute a waiver of that right. In addition, Jobber agrees and
acknowledges that Amoco's rights and remedies under the PMPA shall be
without prejudice to all other rights and remedies available to Amoco
at law or in equity.
Page 6 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
For
Farstad Oil Co Inc
<Page>
(c) PROCEDURES FOR TERMINATION AND NON-RENEWAL BY AMOCO. If Jobber fails to
comply with any of the terms and conditions of this Contract and/or
related contracts, including all schedules, appendices, and amendments
attached to and incorporated in those agreements, or if any other
ground for termination and/or non-renewal shall present itself, Amoco
shall, at its election, terminate this Contract and/or non-renew any
franchise relationship upon ninety (90) days written notice (or upon
less than ninety (90) days notice as may be reasonable under a
particular circumstance). In the case of a market withdrawal, as
defined in the PMPA, Amoco shall terminate this Contract and/or
non-renew any franchise relationship upon 180 days written notice.
(d) PHYSICAL OR MENTAL INCAPACITY AND DEATH. For purposes of emphasis and
elaboration, but without limitation, it is acknowledged and agreed by
and between Amoco and Jobber that the following shall constitute
grounds for termination of this Contract and non-renewal of any
franchise relationship, subject to the applicable provisions of any
relevant state law: death or continuous, severe physical or mental
disability (of at least three months duration) (1) of the owner of the
business, if Jobber is a sole proprietorship; or (2) of one of the
partners, if Jobber is a partnership; or (3) of the beneficial
owner(s) of more than fifty percent (50%) of Jobber's voting stock if
Jobber is a corporation unless the death or other incapacity of said
beneficial owner(s) results in the contemporaneous transfer of more
than fifty percent (50%) of said voting stock to an Immediate Family
Member at least twenty-one (21) years of age with at least one (1) year
of active management experience in the Jobber's business.
(e) FAILURE TO PURCHASE PRODUCT QUANTITIES. For purposes of emphasis and
elaboration but without limitation, it is acknowledged and agreed by
and between Amoco and Jobber that the following shall constitute
grounds for termination of this Contract and non-renewal of any
franchise relationship: failure of Jobber to purchase the applicable
stated quantity of any Product during any 12-month period, or portion
thereof, as set forth in Schedule A.
(f) AMOCO'S EQUITABLE REMEDIES. Jobber agrees that money damages may not be
a sufficient remedy for its breach of this Contract and that,
therefore, in addition to all remedies available at law, Amoco shall be
entitled to specific performance, injunctive relief, declaratory
judgment and/or other equitable remedies, as appropriate. Jobber agrees
to waive any requirement for the posting of any bond in connection with
Amoco's effort to seek an equitable remedy.
17. DELIVERIES.
(a) AMOCO'S RIGHT TO LIMIT MONTHLY DELIVERY QUANTITIES. Unless otherwise
specified in the schedules, appendices or amendments to this Contract,
deliveries of each Product hereunder shall be in relatively equal
monthly quantities, subject to weekly or daily prorating. Amoco shall
not be obligated to deliver to Jobber in any given month more than an
amount equal to one-twelfth (1/12) of the respective 12-month quantity
for each such Product as set forth on Schedule A. Should Jobber at any
time or for any month order in quantities less than such prorated
amount, Amoco shall not be obligated to deliver the deficiency at any
time Should Jobber at any time or for any month require more than said
prorated amount, Amoco shall have the right, at its option, to supply
such excess requirement, but if Amoco supplies same it shall not be
obligated to do so again in the future.
(b) AMOCO'S RIGHT TO SPECIFY MINIMUM DELIVERY QUANTITIES. Amoco shall have
the right to specify minimum delivery quantities and either refuse to
make deliveries in quantities less than such minimums or, at Amoco's
option, charge extra for making such deliveries.
(c) CHANGES IN AND AT JOBBER'S ASSIGNED TERMINAL(S). Amoco shall have the
right at any time to change Jobber's Assigned Terminal(s) and/or to
limit the quantity of Product that Amoco shall make available to Jobber
at any of said terminals. Amoco shall have the right to determine and
designate the percentage of Jobber,s Schedule A quantities that Amoco
will make available to Jobber at Jobber's Assigned Terminal(s).
18. DETERMINATION OF QUANTITIES. The quantities of Products sold hereunder
shall be determined on the basis of the temperature thereof at 60(degree)F in
accordance with "Table No. 6B of API Standard 2540, Manual of Petroleum
Measurement Standards, Chapter 11.1--Volume Correction Factors--Volume II" (or
any API/ASTM reissue or replacement thereof in effect at the time of
measurement), or at Amoco's option, on the basis of gross volume, as established
by Amoco for Jobber's class of trade in the applicable geographic area, or as
otherwise required by law.
19. DEMURRAGE. Jobber shall pay any and all demurrage accruing on any barges,
tank cars, transport and/or tank trucks or other means of transportation at the
prevailing rates therefor, at the time of the particular delay. Jobber shall
also pay to Amoco a tank car and/or truck transport rental at Amoco's then
prevailing rates for each chargeable demurrage day.
20. REJECTION OF PRODUCTS AND NOTICE OF BREACH.
(a) REJECTION MUST OCCUR WITHIN 48 HOURS OF RECEIPT. Jobber shall have 48
hours after receipt of the Products sold under the Contract to inspect
and either accept or reject said Products. If Jobber retains the
Products in its possession for a period in excess of 48 hours after
receipt without rejecting said Products, this shall be regarded as an
irrevocable acceptance by Jobber.
Page 7 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
For
Farstad Oil Co. Inc.
<Page>
(b) REQUIRED PROCEDURES IF PRODUCTS REJECTED. If Products are rejected,
notice must be given to Amoco so that it is received no later than five
(5) business days after delivery of the Products to Jobber, fully
specifying all claimed shortages, defects and/or nonconformities. The
failure to specify any shortage, defect and/or nonconformity shall
constitute a waiver of that shortage, defect or nonconformity.
(c) REQUIRED PROCEDURES IF BREACH DISCOVERED AFTER ACCEPTANCE. In the event
that the Products are accepted pursuant to the terms of this paragraph
20, Jobber agrees to notify Amoco in writing of any subsequently
discovered breach of warranty which could not have reasonably been
discovered by careful inspection at the time of delivery. Such notice
shall be given within seven (7) days after discovery of the breach and
must specify the facts constituting the alleged breach. Failure to give
such notice shall be deemed conclusive evidence that Jobber has no
valid claim for breach of warranty.
21. EXPRESS WARRANTIES, DISCLAIMERS AND DAMAGE LIMITS.
(a) AMOCO WARRANTIES. Amoco warrants that the Products sold to Jobber under
this Contract shall meet Amoco's then current specifications for the
respective Product and that said Product shall be in merchantable
condition.
(b) NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE.
(c) RIGHT TO DAMAGES LIMITED. Under no circumstances shall Amoco be liable
for incidental, special, punitive or consequential damages whether
under warranty, tort, contract, strict liability or otherwise.
22. FORCE MAJEURE AND ALLOCATION.
(a) FORCE MAJEURE. Amoco shall be excused from delay or nonperformance in
the event of a refinery turnaround, whether partial or complete, or if
it is otherwise unable to meet the demand for its Products at Amoco's
normal and usual distribution points for supplying Jobber (regardless
of whether or not Amoco may have diverted certain supplies from such
distribution points in order to alleviate shortages at other
distribution points), or in the event of failure or delay in delivery
due to exhaustion, reduction or unavailability of Product, or stock or
component necessary in the manufacture or production of such Product.
Either party shall be excused from delay or nonperformance in the event
of any condition whatsoever beyond said party's reasonable control,
including without limitation: unavailability, failure, or delay of
transportation; Acts of God, labor difficulties; explosions; storms;
breakdown of machinery or equipment; fire; riots; war conditions in
this or any other country; and compliance with any law or governmental
order, regulation, recommendation, request or allocation program
(whether voluntary or involuntary) affecting directly or indirectly
said party's ability to perform hereunder.
(b) ALLOCATION. In the event of any of the contingencies or conditions
referred to in paragraph 22(a) above, Amoco shall have the right to
curtail deliveries or allocate its supply of Product for sale among its
customers in any manner which in its sole discretion is fair and
reasonable in the circumstances, and shall not be obligated to obtain
or purchase other supplies of Product or to in any way make up any
Product not delivered. Jobber shall not hold Amoco responsible in any
manner for any losses or damages which Jobber may claim as a result of
any such curtailment or allocation by Amoco.
23. DISCONTINUANCE OF PRODUCT OR SERVICES. Amoco, at its sole option,
at any time may: (a) discontinue the production or sale of any Product
covered hereby; (b) change the specifications of any such Product; (c)
replace any such Product with another Product; (d) change or withdraw
the trademark applicable to any such Product; (e) change or withdraw
services offered in connection with any such Product, including but
not limited to, credit card privileges; and/or (f) withdraw from
marketing any such Product in the geographic area encompassing
Jobber's Schedule B area and/or in which Jobber's bulk plants or any
of Jobber's Assigned Terminal(s) are located. Amoco shall not be
liable to Jobber by reason of any such discontinuance, replacement,
change or withdrawal.
24. COMPLIANCE WITH LAWS.
(a) COMPLIANCE WITH LAWS GENERALLY. Jobber shall comply fully, and require
its Jobber-Dealers and other customers to comply fully, with any and
all applicable laws and regulations of any and all governmental
authorities regarding the receipt, shipment, delivery, storage,
handling, use, sale, dispensing, labeling, invoicing, advertising
and/or promoting of the Products purchased under this Contract. Without
limiting the foregoing, Jobber shall comply, fully, and require its
Jobber-Dealers and other customers to comply fully, with any and all
applicable laws and regulations, promulgated by any and all
governmental occupational, health and safety agencies and/or
environmental protection agencies.
(b) COMPLIANCE WITH CLEAN AIR ACT REGULATIONS. Jobber shall comply with all
of the obligations imposed by the following federal Clean Air Act
regulations and any corresponding state counterparts, as amended: (1)
40 C.F.R. Part 80, Subpart D, regarding reformulated gasoline; (2) 40
C.F.R. Part 80, Subpart C, regarding oxygenated gasoline (3) 40 C.F.R.
Part 80, Subpart B (specifically 40 C.F.R. sections 80.27 and 80.28),
regarding gasoline volatility; (4) 40 C.F R. Part 80, Subpart B
(specifically 40 C.F.R. sections 80.29 and 80.30), regarding sulphur
content in diesel fuel; and (5) 40 C. F. R. Part 80, Subpart G,
regarding deposit control additives in gasoline.
Page 8 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
For
Farstad Oil Co. Inc.
<Page>
(c) AMOCO'S RIGHT TO MONITOR COMPLIANCE. As part of Amoco's compliance
programs, Jobber acknowledges and agrees that Amoco shall have the
right to enter upon any premises in or upon which any records necessary
to demonstrate Jobber's compliance with the contractual obligations
required in paragraph 24(b) above are kept. Jobber also grants to Amoco
the right to obtain and/or copy any records, inspect any monitoring
equipment or method and sample any Products covered by this Contract.
25. TAXES. Jobber shall pay, or shall reimburse Amoco for Amoco's payment of,
any tax, inspection or environmental fee, duty, tariff or other like charge
(including penalty and interest, if any) imposed, levied, or assessed by
federal, state, local, Native American, or foreign authority upon the Products
covered by this Contract, or upon the import, manufacture, storage, sale, use,
transportation, delivery, or export of the Products covered by this Contract, or
upon the privilege of doing any of these activities, whether imposed on or
measured by the volume, price, or proceeds of sale of the Products covered by
this Contract.
26. NOTICES. All notices given under this Contract shall be deemed properly
served if delivered in writing personally or sent by certified mail (return
receipt requested) to Amoco or Jobber at the addresses indicated in the
introduction to this Contract. The date of notice shall be the date deposited in
the U.S. mail or, if delivered personally, the date of delivery. Any change of
address of a party shall be communicated to the other party by written notice in
accordance with the terms of this paragraph 26.
27. ENTIRE AGREEMENT. This Contract cancels and supersedes all prior written and
unwritten agreements, schedules, appendices, amendments and understandings
between the parties pertaining to the matters covered in this Contract and
contains the entire agreement between the parties. No representations or
statements, other than those expressly set forth in this Contract were relied
upon by the parties in entering into this Contract. No modification or waiver
of, addition to, or deletion from the terms of this Contract shall be effective
unless reduced to writing and signed by Jobber and a representative of Amoco
authorized to execute this Contract.
28. SEVERABILITY. In the event one or more paragraphs of this Contract, or
portions of any paragraph, are declared or adjudged invalid or void by a court
of competent jurisdiction, the remaining paragraphs of this Contract, or
remaining portions of any paragraph, shall remain in full force and affect.
Amoco may, in the alternative and at its sole discretion, cancel this Contract
with due notice to Jobber.
29. NO WAIVER. No course of dealing and no failure to act on any incident of
breach under this Contract shall be construed against Amoco as a waiver of its
right to act in the future. The waiver of any breach of any term or condition in
this Contract shall not be construed as a waiver of any subsequent breach of the
same or other term or condition. Any failure by Amoco to enforce its rights or
to seek remedies under this Contract shall not prejudice its rights or available
remedies for any subsequent breach by Jobber.
30. PARAGRAPH TITLES. The titles and subtitles of paragraphs in this Contract
are for reference and identification purposes only. They are not intended to
modify, restrict or expand upon the content of the paragraphs themselves.
31. EXECUTION. This Contract shall not be binding upon Amoco unless and until it
is signed by Amoco's authorized representative and a fully executed copy is
returned to Jobber.
In Witness Whereof, the parties hereto have executed this Contract on the date
stated.
Jobber: Farstad Oil Co Inc
--------------------------------------
By: /s/ ILLEGIBLE
--------------------------------------
Title: PRESIDENT
--------------------------------------
Amoco Oil Company
By: /s/ ILLEGIBLE
--------------------------------------
Title: JOBBER SALES MANAGER
--------------------------------------
Page 9 - ELECTRONIC BRANDED JOBBER CONTRACT (26-930-GD)
For
Farstad Oil Co. Inc.
<Page>
AMOCO
PETROLEUM PRODUCTS SCHEDULE A TO BRANDED JOBBER CONTRACT
MARKETING BUSINESS GROUP PRODUCT, QUANTITIES AND
JOBBER'S ASSIGNED TERMINAL(S)
This schedule A ("Schedule A") dated the second day of November, 1998 is made
part of and shall be attached to the branded jobber contract ("Contract")
dated the first day of January, 1999 by and between Amoco Oil Company ("Amoco")
and FARSTAD OIL, PO BOX 1842, MINOT, ND 58702 ("Jobber") pursuant to the
applicable paragraphs of said Contract.
NOW, THEREFORE, Amoco and Jobber, intending to be legally bound, agree to the
following:
1. THIS SCHEDULE A SUPERSEDES ALL PRIOR SCHEDULES. This Schedule A
shall cancel and supersede any and all prior Schedule A schedules.
2. PRODUCTS AND QUANTITIES.
(a) CONTRACTS LONGER THAN ONE (1) YEAR. The branded petroleum products
("Products") and the quantities of those Products covered by the
Contract shall be as set forth below for twelve (12) month periods
beginning on the first day of the Contract term and each anniversary
thereof. These Products and quantities shall be subject to changes at
the end of each twelve (12) month period, at Amoco's option, with the
submission to Jobber of an amended Schedule A. Within twenty (20) days
after receiving an amended Schedule A, Jobber shall have the right to
cancel the Contract upon thirty (30) days written notice. If Jobber
does not cancel within this twenty (20) day period, it is expressly
agreed and understood the Jobber shall abide by the terms and
conditions of the amended Schedule A.
(b) CONTRACTS OF ONE (1) YEAR OR LESS. In the case of a Contract with a
term of one (1) year or less, the Products and the quantities of those
Products covered by the Contract shall be as set forth below for the
twelve (12) month period beginning on the first day of the Contract
term and ending on the last day of said term.
3. JOBBER'S ASSIGNED TERMINAL(S). The Amoco terminals assigned to Jobber
("Jobber's Assigned Terminal(s)") shall be as set forth below. Amoco shall
have the right at any time or times to change Jobber's Assigned Terminal(s)
and/or to limit the quantity of any Product that Amoco shall make available
to Jobber at Jobber's Assigned Terminal(s) including, but not limited to,
the right to limit Jobber's supply of any Product to the monthly quantities
set forth below and the right to further limit Jobber's supply of any
Product by prorating said monthly quantities on a weekly or daily basis.
4. SUBMISSION OF SCHEDULE A DOES NOT GUARANTEE RENEWAL. No language in this
Schedule A or any amendment shall be considered a commitment by either
party that the franchise relationship will be renewed upon the expiration
of the current Contract.
<Table>
<S> <C>
Total Gasoline: 14,850.2 MGals
Total Distillate: 6,279.7 MGals
</Table>
<Table>
<Caption>
--------------------------------------------------------------------------------
Terminal: JMSTN/AMOCO 00211-058 AOC-JAMESTOWN
<S> <C> <C>
REGULAR GASOLINE Jan-1999 71.9 MGals
Feb-1999 125.0 MGals
Mar-1999 104.6 MGals
Apr-1999 43.6 MGals
May-1999 44.2 MGals
Jun-1999 30.2 MGals
Jul-1999 55.7 MGals
Aug-1999 95.2 MGals
<Page>
Sep-1999 69.3 MGals
Oct-1999 76.4 MGals
=======
Total 715.7 MGals
MID-GRADE GASOLINE Jan-1999 6.9 MGals
Feb-1999 9.7 MGals
Mar-1999 5.1 MGals
Apr-1999 5.5 MGals
May-1999 2.0 MGals
Jun-1999 8.0 MGals
Jul-1999 11.0 MGals
Aug-1999 20.2 MGals
Sep-1999 6.0 MGals
Oct-1999 22.6 MGals
=======
Total 97.2 MGals
PREMIUM GASOLINE Jan-1999 27.1 MGals
Feb-1999 34.7 MGals
Mar-1999 7.91 MGals
Apr-1999 8.61 MGals
May-1999 26.3 MGals
Jun-1999 17.9 MGals
Jul-1999 22.6 MGals
Aug-1999 29.0 MGals
Sep-1999 8.5 MGals
Oct-1999 21.0 MGals
=======
Total 203.5 MGa1s
PREMIER DIESEL FUEL (HS) Jan-1999 49.5 MGals
Feb-1999 63.1 MGals
Mar-1999 40.4 MGals
Apr-1999 71.0 MGals
May-1999 114.9 MGals
Jun-1999 35.1 MGals
Jul-1999 65.2 MGals
Aug-1999 122.5 MGals
Sep-1999 100.9 MGals
Oct-1999 88.3 MGals
=======
Total 751.0 MGals
HS NO1 DISTILLATE Jan-1999 14.2 MGals
Oct-1999 3.0 MGals
=======
Total 17.2 MGals
HS N02 DISTILLATE Jan-1999 112.1 MGals
Feb-1999 16.7 MGals
Mar-1999 35.0 MGals
Apr-1999 35.5 MGals
May-1999 11.4 MGals
Jul-1999 12.1 MGals
Aug-1999 9.0 MGals
Sep-1999 2.2 MGals
Oct-1999 40.4 MGals
=======
Total 274.4 MGals
<Caption>
--------------------------------------------------------------------------------
Terminal: MANDN/AMOCO 00084-048 AOC-MANDAN
<S> <C> <C>
REGULAR GASOLINE Jan-1999 139.3 MGals
Feb-1999 177.5 MGals
Mar-1999 213.9 MGals
Apr-1999 62.6 MGals
May-1999 62.8 MGa1s
Jun-1999 153.0 MGals
<Page>
Jul-1999 3564.6 MGals
Aug-1999 524.5 MGals
Sep-1999 191.9 MGals
Oct-1999 148.2 MGals
=======
Total 2,028.4 MGals
MID-GRADE GASOLINE Jan-1999 113.8 MGals
Feb-1999 67.3 MGals
Mar-1999 105.5 MGals
Apr-1999 84.3 MGals
May-1999 99.1 MGals
Jun-1999 88.6 MGals
Jul-1999 128.9 MGals
Aug-1999 103.2 MGals
Sep-1999 95.9 MGals
Oct-1999 101.0 MGals
=======
Total 987.4 MGa1s
PREMIER GASOLINE Jan-1999 98.3 MGals
Feb-1999 81.0 MGals
Mar-1999 136.4 MGals
Apr-1999 96.0 MGals
May-1999 104.9 MGals
Jun-1999 124.4 MGals
Jul-1999 150.9 MGals
Aug-1999 138.9 MGals
Sep-1999 124.6 MGals
Oct-1999 105.5 MGals
=======
Total 1,161.0 MGals
PREMIER DIESEL FUEL (HS) Jan-1999 95.5 MGals
Feb-1999 165.1 MGals
Mar-1999 222.2 MGals
Apr-1999 259.3 MGals
May-1999 288.0 MGals
Jun-1999 119.4 MGals
Jul-1999 143.3 MGals
Aug-1999 327.3 MGals
Sep-1999 216.9 MGals
Oct-1999 95.7 MGals
=======
Total 1,932.8 MGals
HS NO1 DISTILLATE Jan-1999 16.6 MGals
Feb-1999 4.5 MGals
Mar-1999 21.9 MGals
Jul-1999 5.0 MGals
Aug-1999 1.6 MGals
Sep-1999 10.9 MGals
Oct-1999 41.6 MGals
=======
Total 102.0 MGals
HS NO2 DISTILLATE Jan-1999 115.5 MGals
Feb-1999 110.7 MGals
Mar-1999 101.1 MGals
Apr-1999 284.3 MGals
May-1999 273.2 MGals
Jun-1999 160.0 MGals
Jul-1999 321.7 MGals
Aug-1999 561.1 MGals
Sep-1999 177.5 MGals
Oct-1999 110.3 MGals
=======
Total 2,215.3 MGals
<Page>
HEAVY FUEL OIL May-1999 5.5 MGals
=======
Total 5.5 MGals
<Caption>
--------------------------------------------------------------------------------
Terminal: MINOT/CENEX 05143-099 CENEX-MINOT
<S> <C> <C>
REGULAR GASOLINE Jan-1999 539.4 MGals
Feb-1999 540.4 MGals
Mar-1999 636.1 MGals
Apr-1999 660.5 MGals
May-1999 743.4 MGals
Jun-1999 707.7 MGals
Jul-1999 700.6 MGals
Aug-1999 591.7 MGals
Sep-1999 638.3 MGals
Oct-1999 626.2 MGals
=======
Total 6,384.3 MGals
LS NO1 DISTILLATE Jan-1999 12.2 MGals
Mar-1999 3.0 MGals
Sep-1999 1.1 MGals
=======
Total 16.3 MGals
LS NO2 DISTILLATE Jan-1999 5.6 MGals
Feb-1999 26.6 MGals
Mar-1999 14.7 MGals
Apr-1999 19.4 MGals
May-1999 32.0 MGals
Jun-1999 59.2 MGals
Jul-1999 132.6 MGals
Aug-1999 49.7 MGals
Sep-1999 17.2 MGals
Oct-1999 28.4 MGals
=======
Total 385.4 MGals
<Caption>
--------------------------------------------------------------------------------
Terminal: MORHD/AMOCO 00210-058 AOC-MOORHEAD
<S> <C> <C>
REGULAR GASOLINE Jan-1999 24.2 MGals
Feb-1999 32.0 MGals
Mar-1999 31.9 MGals
Apr-1999 42.2 MGals
May-1999 46.2 MGals
Jun-1999 49.8 MGals
Jul-1999 59.8 MGals
Aug-1999 83.7 MGals
Sep-1999 46.3 MGals
Oct-1999 48.0 MGals
=======
Total 464.1 MGals
REGULAR OXYGENATED Jan-1999 174.2 MGals
Feb-1999 141.9 MGals
Mar-1999 187.8 MGals
Apr-1999 213.6 MGals
May-1999 229.3 MGals
Jun-1999 234.2 MGals
Jul-1999 272.0 MGals
Aug-1999 257.6 MGals
Sep-1999 223.4 MGals
Oct-1999 207.7 MGals
=======
Total 2,141.8 MGals
MID-GRADE GASOLINE Jan-1999 5.7 MGals
Feb-1999 3.1 MGals
Mar-1999 6.6 MGals
<Page>
Apr-1999 5.5 MGals
May-1999 6.3 MGals
Jun-1999 8.0 MGals
Jul-1999 9.4 MGals
Aug-1999 12.9 MGals
Sep-1999 7.3 MGals
Oct-1999 6.5 MGals
======
Total 71.2 MGals
MID-GRADE OXYGENATED Jan-1999 13.0 MGals
Feb-1999 13.8 MGals
Mar-1999 16.7 MGals
Apr-1999 14.8 MGals
May-1999 20.9 MGals
Jun-1999 17.7 MGals
Jul-1999 22.1 MGals
Aug-1999 23.4 MGals
Sep-1999 11.4 MGals
Oct-1999 17.5 MGals
=======
Total 171.2 MGals
PREMIUM GASOLINE Jan-1999 6.2 MGals
Mar-1999 5.0 MGals
Apr-1999 2.8 MGals
May-1999 14.7 MGals
Jun-1999 1.5 MGals
Jul-1999 17.0 MGals
Aug-1999 40.3 MGals
Sep-1999 4.7 MGals
Oct-1999 4.5 MGals
=======
Total 96.7 MGals
PREMIUM OXYGENATED Jan-1999 22.1 MGals
Feb-1999 25.5 MGals
Mar-1999 21.9 MGals
Apr-1999 28.9 MGals
May-1999 24.4 MGals
Jun-1999 39.4 MGals
Jul-1999 52.1 MGals
Aug-1999 37.1 MGals
Sep-1999 30.8 MGals
Oct-1999 32.4 MGals
=======
Total 314.6 MGals
PREMIER DIESEL FUEL (HS) Jan-1999 21.7 MGals
Feb-1999 28.9 MGals
Mar-1999 11.3 MGals
Apr-1999 15.8 MGals
May-1999 12.9 MGals
Jun-1999 16.5 MGals
Jul-1999 40.3 MGals
Aug-1999 19.0 MGals
Sep-1999 17.3 MGals
Oct-1999 8.6 MGals
=======
Total 192.3 MGals
HS NO1 DISTILLATE Jan-1999 13.8 MGals
Feb-1999 11.2 MGals
Mar-1999 3.6 MGals
Apr-1999 2.0 MGals
Aug-1999 2.1 MGals
Oct-1999 8.8 MGals
=======
Total 41.4 MGals
<Page>
HS NO2 DISTILLATE Jan-1999 40.0 MGals
Feb-1999 20.0 MGals
Mar-1999 47.3 MGals
Apr-1999 51.5 MGals
May-1999 16.2 MGals
Jun-1999 11.0 MGals
Jul-1999 36.7 MGals
Aug-1999 34.8 MGals
Sep-1999 40.4 MGals
Oct-1999 33.9 MGals
=======
Total 331.8 MGals
LS NO2 DISTILLATE Apr-1999 1.7 MGals
Jun-1999 1.7 MGals
=======
Total 3.4 MGals
<Caption>
--------------------------------------------------------------------------------
Terminal: MORHD/PLWIL 06749-057 WILLIAMS P/L-FARGO
<S> <C> <C>
LS NO2 DISTILLATE Aug-1999 10.9 MGals
=======
Total 10.9 MGals
<Caption>
--------------------------------------------------------------------------------
Terminal: RAPCY/PLKAN 00631-057 KANEB P/L-RAPID CITY
<S> <C> <C>
REGULAR GASOLINE Apr-1999 11.8 MGals
=======
Total 11.8 MGals
<Caption>
--------------------------------------------------------------------------------
Terminal: SAUKC/AMOCO 00209-058 AOC-SAUK CENTERE
<S> <C> <C>
PREMIUM GASOLINE Jun-1999 1.5 MGals
=======
Total 1.5 MGals
</Table>
<Page>
[SINCLAIR LOGO]
SINCLAIR OIL CORPORATION
#280935
DISTRIBUTOR SALES CONTRACT
THIS DISTRIBUTOR SALES CONTRACT (this "Contract"), dated as of the 1st day of
November,1998 (the "Effective Date"), is between SINCLAIR OIL CORPORATION, a
Wyoming corporation with an address of 550 East South Temple, P.O. Box 30825,
Salt Lake City, Utah 84130 ("Sinclair"), and Farstad Oil, Inc., a (check
applicable box) /x/ corporation / / partnership / / limited liability company
/ / limited liability partnership organized under the laws of the State of
North Dakota / / a sole proprietorship doing business a ____________________
with an address of County Road 19 North, PO Box 1842, Minot, North Dakota
58701 ("Distributor"). For and in consideration of the mutual undertakings
herein contained, Sinclair and Distributor agree as follows:
1. CONTRACT PERIOD
The term of this Contract (the "Contract Period") shall begin on the
Effective Date and end on the date that is Three (3) Years after the Effective
Date, or, if earlier, the date upon which this Contract is duly terminated by
either party hereto under the provisions hereof. Sinclair may, in its
discretion, extend the Contract Period by a cumulative total of up to 180
additional days. Except for the period of any extension that may be made by
Sinclair pursuant to the preceding sentence or by a written agreement executed
by Sinclair and Distributor, no action, failure to act, course of dealing, oral
statement or other circumstance of the parties hereto or either of them shall be
effective to extend or renew the term of this Contract. Upon the expiration of
the Contract Period, all rights, authorizations and privileges in favor of each
party hereunder shall immediately cease, and neither party shall have any
further duty or obligation to the other hereunder, except as follows: (a) each
party shall retain all rights and remedies it may have as the result of any
breach or default hereunder on the part of the other party to the extent such
breach or default occurred prior to the end of the Contract Period, or relates
to a duty or obligation which, by the express terms of this Contract, is to be
performed at or after the end of the Contract Period; (b) Sinclair shall retain
all of its rights, and Distributor shall continue to be bound, under Sections
14, 16 and 18 of this Contract; and (c) Sinclair shall retain the right to
receive payment for, and, if applicable interest on, any Product delivered by
Sinclair to Distributor.
2. PURCHASE AND SALE OF PRODUCTS
A. PURCHASE AND SALE COMMITMENT. During the Contract Period,
Distributor shall purchase from Sinclair and Sinclair shall sell to Distributor,
upon the terms and conditions set forth in this Contract, such quantities of
Sinclair's gasoline and distillates (individually, a "Product" and collectively,
the "Products") as Distributor shall request, subject to the minimum and maximum
quantities stated below.
B. QUANTITIES. During each month and year during the Contract Period,
Distributor shall purchase from Sinclair not less than ninety percent (90%) of
the applicable monthly and annual quantities of the Products stated below.
Sinclair shall have no obligation, however, to sell to Distributor during any
month or year during the Contract Period in excess of one hundred ten percent (1
10%) of the applicable monthly and annual quantities of the Products stated
below.
(Quantities are Shown in Thousands of Gallons)
<Table>
<Caption>
PRODUCT JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gasoline 126 211 263 126 143 168 176 197 163 155 119 24 1871
Distillates 44 13 21 102 47 14 9 19 27 83 99 3 481
</Table>
If the Contract Period begins other than on the first day of a calendar month or
ends other than on the last day of a calendar month, the minimum and maximum
quantities for the calendar month in which the Contract Period begins or ends,
as applicable, shall be pro rated based upon the actual number of days of such
calendar month that are within the Contract Period. For purposes of applying
annual maximum and minimum quantities, the applicable annual periods shall be
the one year period beginning on the Effective Date, and each consecutive one
year period thereafter. The purchase by Distributor of not less than the minimum
quantities of the Products specified above is of the essence of this Contract.
Upon any failure by Distributor to purchase the minimum quantity of any Product
specified above for any month or any annual period, Sinclair shall be entitled,
in addition to any other rights or remedies it may have as the result of such
default, to terminate this Contract.
C. MEASUREMENT. For purposes of this Contract, Product volumes shall be
measured on the basis of gross volume as actually loaded and measured at the
point of shipment.
D. PRODUCT SHORTAGES. If Sinclair shall experience, or, in Sinclair's
sole judgment, anticipate, a shortage of any Product or any grade or type of
Product, Sinclair may allocate the available quantity of such Product or grade
or type thereof among Sinclair's purchasers or facilities of Sinclair, including
Distributor, in such manner as Sinclair, in its sole discretion, deems
reasonable. Notwithstanding anything in this Contract to the contrary, no
failure of Sinclair to sell or deliver to Distributor any Product as the direct
or indirect result of shortages of Products available to Sinclair shall
constitute a breach or default hereunder on the part of Sinclair, nor entitle
Distributor to terminate this Contract or exercise any other remedy. Distributor
shall be excused of its obligation under Subsection B of this Section 2 to
purchase any minimum quantity of Product for any month or annual period to the
extent, only to the extent, that such failure resulted from Sinclair's inability
to sell or deliver such Product to Distributor.
<Page>
E. CHANGE IN PRODUCT SPECIFICATION. Sinclair reserves the right to
change, at any time and from time to time, the specifications and constituent
components of the Products, including, without limitation, the relative
proportions of the constituent components contained within each Product.
3. PRICE
A. PRODUCTS. Distributor shall pay to Sinclair the Branded Rack Price(
as defined hereinafter) for each Product sold by Sinclair to Distributor under
this Contract. The "Branded Rack Price" for a given Product shall be the price
for such Product for Distributor's class of trade established by Sinclair in its
Price Schedule-Branded Prices, or any replacement or substitute price list, as
in effect on the date and at the place such Product is loaded at the refinery or
terminal. Sinclair shall have the right to change, at any time and from time to
time, the Branded Rack Prices for the Products to reflect changes in market
prices, as such market price changes are determined by Sinclair, in its sole
discretion, or to reflect the addition or deletion of pricing areas or classes
of trade, which additions or deletions shall be determined by Sinclair, in its
sole discretion. The Branded Rack Price is "freight on board" at the refinery
or terminal. Distributor shall be responsible for, shall timely pay, and shall
indemnify and hold harmless Sinclair from and against, all costs of transporting
products from the refinery or terminal.
B. TAXES, EXCISES, DUTIES, CHARGES AND FEES. In addition to the Branded
Rack Prices, Distributor shall pay to Sinclair amounts equal to any and all
Taxes (as defined hereinafter) that are now or may hereafter be directly or
indirectly imposed upon Sinclair or which Sinclair is now, or may hereafter be
required to collect. "Taxes" shall include sales taxes, use taxes, gross
receipts taxes and all other taxes, excises, duties, charges and inspection and
other fees imposed, levied or assessed by any domestic or foreign governmental
authority, jurisdiction, agency or state on, against or in respect of Products
sold or delivered by Sinclair or any third party exchange supplier of Sinclair
(an "Exchange Supplier") to Distributor or the constituents of such Products, or
the importation, exportation, sale, transportation, delivery or other handling
thereof, but shall not include Sinclair's income taxes. All such amounts with
respect to any given Product shall be due and payable at the same time as the
Branded Rack Price of such Product is due and payable or, if specified by
Sinclair, at the time Sinclair is required to pay or collect the corresponding
Taxes; provided, however, Sinclair may, in its sole discretion, specify a later
date by which such amounts shall be due and payable. If Distributor is entitled
to purchase any Products free of Taxes, Distributor shall furnish to Sinclair
exemption certificates or other documentation meeting the requirements
of applicable law establishing such exemption and such other verification of
Distributor's entitlement to such exemption as Sinclair may request, all in form
and substance reasonably satisfactory to Sinclair. If such an exemption applies
and where applicable law permits, Sinclair may require Distributor to
nevertheless pay to Sinclair the Taxes that would otherwise be due. In such
case, Distributor may seek a refund of such Taxes from the applicable taxing
entity. Sinclair bills Taxes based on the same number of gallons of Product (net
or gross) on which it bills the purchase price of the Product. Due to accounting
requirements and exchange agreements, Sinclair may remit a higher or lower
amount to its Exchange Suppliers or to taxing authorities.
4. TERMS OF PAYMENT
A. PAYMENT METHOD. Distributor shall pay all amounts owed by it to
Sinclair under Section 3 of this Contract by electronic funds transfer debit
entries ("Automatic Drafts") submitted by Sinclair from time to time for payment
by Distributor's bank. Distributor shall maintain sufficient funds on deposit
with, and shall otherwise cause, its bank to pay in full the Automatic Draft or
Drafts with respect to the Product or Products in each given shipment on the
12th day after the date on which such shipment is delivered by Sinclair "freight
on board" at the refinery or terminal (the date on which a shipment is so
delivered is referred to herein as the "Delivery Date"). Sinclair shall use its
best efforts to deliver each Automatic Draft to Distributor's bank on the 12th
day after the Delivery Date of the Product to which it applies; provided,
however, no delivery by Sinclair of any Automatic Draft before or after such
12th day shall constitute a default or breach on the part of Sinclair hereunder
or affect Sinclair's entitlement to the payment reflected by such Automatic
Draft. Distributor shall be entitled to a discount of one percent (1%) of the
Branded Rack Price of all Products as to which payment is timely made by
Automatic Draft pursuant to the foregoing provisions of this Subsection A.
Sinclair may elect at any time, by giving written notice of such election to
Distributor, to discontinue using the Automatic Draft system, in which case
Distributor shall pay, without notice or demand and by wire transfer or such
other payment method as may be designated by Sinclair, all amounts due pursuant
to Section 3 of this Contract with respect to each shipment of Product or
Products on the 10th day after the Delivery Date of such shipment.
B. INTEREST. Distributor shall pay to Sinclair interest on all amounts
not paid when due under this Contract at the rate of eighteen percent (18%) per
annum, or, if less, the maximum interest rate permitted by law, which interest
shall be calculated by compounding monthly. Interest on delinquent amounts owed
pursuant to Section 3 hereof shall accrue from the 10th day after the Delivery
Date of the Product as to which each such amount relates until paid. Interest on
all other amounts shall accrue from the due date thereof until paid. Interest
provided for under this Subsection B shall be due on demand.
C. CREDIT LINE. Sinclair may, in its sole discretion, establish,
increase or decrease from time to time or terminate a credit line for
Distributor. In order to assist Sinclair in making decisions relative to
Distributor's credit line, Distributor shall provide to Sinclair, at such
reasonable intervals as may be specified by Sinclair, such financial statements
and other documents showing Distributor's financial condition as Sinclair may
request. Sinclair will notify Distributor of the establishment or termination of
any such credit line and of any increase or decrease in the amount thereof.
Distributor shall not be entitled to make any purchases of Products on a credit
or account basis if, by doing so, the outstanding balance owed by Distributor to
Sinclair under this Contract would exceed Distributor's credit line amount then
in effect. If at any time Distributor exceeds such credit line amount, the
excess shall be immediately due and payable, notwithstanding anything in this
Section 4 to the contrary. If, in the sole opinion of Sinclair, the financial
condition of Distributor becomes impaired or unsatisfactory, Distributor shall,
if required by Sinclair, prepay before delivery, in cash, the Branded Rack Price
of, and Taxes relating to, any Products purchased by Distributor under this
Contract thereafter or furnish security in a form and in an amount satisfactory
to Sinclair before any further deliveries are made hereunder. Distributor shall
not be excused from the timely performance of its obligations under this
Contract, including, without limitation, its obligation to purchase the minimum
quantities of Products specified in Section 2 of this Contract, as the result of
Sinclair's exercise or non-exercise of its rights or taking of any action
permitted under this Subsection C. Failure or refusal by Distributor to comply
with each requirement Sinclair may impose pursuant to this Subsection C shall
entitle Sinclair to suspend deliveries hereunder during such failure or refusal
and to terminate this Contract. Suspension of deliveries or termination of this
Contract under any of such circumstances shall not in any manner prejudice
Sinclair's claims against Distributor for damages.
2
<Page>
5. DELIVERY
Title to and risk of loss for all Products sold hereunder to
Distributor shall pass from Sinclair to Distributor as such Products leave the
loading flange for delivery into transport vehicles at the loading rack or at
such later time as may be specified by Sinclair, in writing. Distributor is
authorized to receive the Products included in any order or shipment only at the
Sinclair facility or facilities designated in the Sales Order Authorization,
signed by a designated agent for Sinclair, that relates to such order or
shipment. Sinclair reserves the right, in Sinclair's sole discretion, to revoke
or alter Distributor's access to any facility and to change delivery methods or
terms.
6. USE AND HANDLING OF PRODUCTS
A. AIRCRAFT USE. Distributor shall not, and shall cause its dealer
customers ("Dealers") to not, use, or resell for use, in any aircraft any of the
Products sold by Sinclair to Distributor under this Contract.
B. ALTERATION. Distributor shall not, and shall cause its Dealers to
not, change or alter by any means whatsoever the nature, quality or appearance
of any of the Products nor shall Distributor contaminate, adulterate, mislabel
or misbrand any Product. Distributor shall not, and shall cause its Dealers to
not, make any representation, or take or fail to take any action that may create
the impression that any product was purchased from or manufactured by Sinclair
if such is not the case.
C. COMPLIANCE WITH LAWS. Distributor shall comply, and shall cause all
of its Dealers and other customers to comply, with all applicable laws,
regulations, rules, ordinances, requirements and orders (collectively, "Laws"),
including, without limitation, all applicable Environmental Laws (as defined
hereinafter), of any governmental entity, jurisdiction, agency or body, and
instructions issued by Sinclair or any of Sinclair's suppliers, relating to the
transportation, storage, use, dispensing, release or disposal of the Products or
constituents thereof, including, without limitation, lead, any other anti-knock
compounds, or other fuel additives such as oxygenates or ethanol. For purposes
of this Contract, "Environmental Laws" shall mean (i) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendment and Reauthorization Act and otherwise, the Resource
Conservation and Recovery Act, the Clean Air Act, the Toxic Substances Control
Act, the Safe Drinking Water Act, the Federal Water Pollution Control Act, as
such Acts may be amended or supplemented from time to time hereafter, and all
other existing and future federal Laws relating to the environment, health,
safety, or the regulation of or contamination by any toxin, hazardous material,
substance or waste, contamination, pollutant, radioactive material,
polychlorinated biphenyl (PCB), asbestos or hydrocarbon (collectively,
"Hazardous Materials"); (ii) all existing and future state and local Laws that
are analogous to such federal Laws or otherwise relate to the environment,
natural resources, health, safety or the regulation of or contamination by
Hazardous Materials: (iii) all existing and future regulations, permits, orders,
decrees, official interpretations, binding agreements, and other binding
obligations relating to the administration of such federal, state and local
Laws; and (iv) all existing and future common-law requirements that relate to
the environment, health, safety, or the regulation of or contamination by any
Hazardous Materials.
D. UNLEADED GASOLINE REGULATIONS. Distributor shall comply, and shall
cause all of its Dealers and other customers to comply, with all regulations of
the United States Environmental Protection Agency ("EPA"), as in effect from
time to time, with respect to unleaded gasoline. The regulations currently
require that unleaded gasoline delivered at the retail pump contain not more
than 0.05 grams of lead per gallon and not more than 0.005 grams of phosphorous
per gallon.
E. VOLATILITY REGULATIONS. Distributor shall comply, and shall cause
all of its Dealers and other customers to comply, with all regulations ofthe EPA
and of each applicable state agency, as such regulations are in effect from time
to time, with respect to gasoline volatility. As of July 1, 1996, the standard
that applies to various geographical areas is set forth in Part 80.27 of Title
40 of the Code of Federal Regulations. Distributor shall be solely responsible
for determining whether and ensuring that Products received by it from Sinclair
meet the applicable standard. Based upon the geographical region in which
Distributor will conduct its business, Distributor requests that gasoline
received by it from Sinclair during the summertime control period for gasoline
volatility meet the standard that is checked (check one):
/x/ 9.0 psi RVP
/ / 7.8 psi RVP
/ / 7.2 psi RVP
/ / O Other (please specify) __________ psi RVP
F. FUEL ADDITIVE REGULATIONS. Distributor shall comply, and shall cause
all of its Dealers and other customers to comply, with all regulations of each
applicable state, regional, or local agency, as such regulations are in effect
from time to time, with respect to fuel additives and content. Such fuel
additive and content regulations can include the requirement that Wintertime
fuel in non-attainment areas contain a specific percentage of oxygenate or
ethanol and that retailers label pumps accordingly.
G. DIESEL FUEL REGULATIONS. Distributor shall comply, and shall cause
all of its Dealers and other customers to comply, with all regulations of the
EPA and of each applicable state agency, as such regulations are in effect from
time to time, with respect to diesel fuel. Such EPA regulations specify, as of
July 1, 1996, that diesel fuel shall have a sulfur percentage, by weight, no
greater than 0.05 percent and shall have a cetane index of at least 40 or a
maximum aromatic content of 35 volume percent. Additionally such EPA regulations
contain requirements and limitations regarding the use of dyes in diesel fuel.
H. COMPLIANCE. Distributor shall establish, implement and enforce
testing and other procedures that are effective to monitor and assure compliance
by Distributor and its Dealers with the Laws described in the immediately
preceding Subsections C, D, E, F and G. Sinclair may, in its sole discretion,
establish from time to time reasonable testing and other procedures to monitor
and assure such compliance and Distributor shall comply, and cause its Dealers
to comply, with all such procedures as may be in effect. Sinclair shall not be
responsible or
3
<Page>
liable to Distributor or any other party whatsoever as the result of any failure
by Sinclair to establish any such procedure, nor as the result of any such
procedure established by Sinclair being inadequate, ineffective or defective, it
being intended that any such procedure established by Sinclair shall be for the
sole benefit and protection of Sinclair.
I. RESPONSIBILITY FOR DETERMINING APPLICABLE LAW. It shall be
Distributors sole responsibility to become familiar with and ascertain the Laws
that are applicable for purposes of its compliance with the immediately
preceding Subsections C, D, E, F and G, including, without limitation, the
applicable gasoline volatility standard that applies to Distributor. Sinclair
makes no representation or warranty that any information that has been or may
hereafter be provided by Sinclair to Distributor regarding such Laws or
procedures for compliance therewith is or will be complete or current, nor shall
Sinclair have any obligation to update any such information after it is provided
to Distributor. Distributor shall be responsible to consult with its own legal
counsel or obtain such other legal advice as it deems necessary regarding such
matters. The reference to certain specific Laws in the immediately preceding
Subsections D, E, F and G, shall not, in any manner, limit the generality of, or
Distributor's obligation to fully comply with, the immediately preceding
Subsection C.
7. GROUNDS FOR TERMINATION
Sinclair may terminate this Contract upon a breach, default or
misrepresentation hereunder on the part of Distributor in accordance with the
provisions of the federal "Petroleum Marketing Practices Act," 15 U.S.C.
Sections 2801, ET SEQ. (the "PMPA"). In addition to all other grounds for
termination expressed in this Contract or otherwise provided by law, this
Contract may be terminated by Sinclair for any cause set forth below:
(a) Upon any ground for which termination is permitted by the
PMPA, regardless of whether or not such ground is expressly
mentioned in this Contract;
(b) Distributor's failure to comply with any provision of this
Contract;
(c) Distributor's failure to exert good faith efforts to carry out
the provisions of this Contract if Distributor fails to cure
such failure after reasonable notice;
(d) The occurrence of any event that is relevant to the
contractual relationship established under this Contract and
as a result of which termination of this Contract is
reasonable;
(e) Fraud or criminal misconduct by Distributor relevant to the
operation of its business or the operation of any location at
which any of its Dealers conduct business (a "Site");
(f) Distributor's declaration of bankruptcy or judicial
determination of insolvency of Distributor or any principal of
Distributor (if Distributor is other than a natural person);
(g) The death of Distributor or any principal of Distributor (if
Distributor is other than a natural person);
(h) Continuing physical or mental disability of Distributor, or
any principal of Distributor (if Distributor is other than a
natural person), if such disability renders Distributor unable
to provide for the continued proper operation of its business
or any Site;
(i) Sinclair's loss of the right to grant the right to use the
Sinclair Trademark;
(j) Distributor's failure to pay to Sinclair in a timely manner
all sums to which Sinclair is legally entitled;
(k) Distributor's knowing failure to comply with any applicable
existing or future federal, state or local Law relevant to the
conduct of its business or the operation of any Site;
(l) Distributor's willful adulteration, misbranding or mislabeling
of motor fuel sold by Distributor or the commission of other
trademark violations by Distributor;
(m) Conviction of Distributor, or any principal of Distributor
(if Distributor is other than a natural person), of any
felony involving moral turpitude;
(n) Sinclair's good faith decision, made in the normal course of
business, to withdraw from the marketing of motor fuel through
retail outlets in the relevant geographic market area in which
any Site is located;
(o) Distributor's continuing failure to properly operate any Site
or its business in general;
(p) Distributor's abandonment of or failure to operate its
bushiness; or
(q) Distributor's breach of any other agreement between
Distributor and Sinclair.
8. CONTRACT RENEWAL.
Sinclair shall have no obligation to renew this Contract, or to enter
into any similar agreement or arrangement with Distributor after the termination
or expiration of this Contract, except to the extent Sinclair is required to do
so under the PMPA.
9. ACTIONS UPON TERMINATION OR NON-RENEWAL
4
<Page>
Upon termination of this Contract pursuant to Section 7 hereof, or upon
the expiration of the Contract Period if this Contract is not renewed,
Distributor shall promptly: (a) return to Sinclair all of Sinclair's property
previously delivered to Distributor by Sinclair together with all items
specified in Subsection 16D(i) hereof; and (b) take the actions specified is
Subsections 16D(ii) and (iii) hereof. Distributor agrees to return the property
described in the immediately preceding clause (a) to Sinclair in its condition
when received by Distributor, reasonable wear and tear incident to proper use
thereof excepted. If Distributor shall fail to return any of such property, it
shall replace the same with similar property of like value or pay Sinclair the
market price therefor, as specified by Sinclair.
10. RIGHTS AND REMEDIES
In addition to any other rights or remedies that maybe available to
Sinclair as the result of any misrepresentation, breach or default hereunder on
the part of Distributor, whether such rights and remedies arise under this
Contract, at law or in equity, Sinclair shall have the following rights and
remedies upon any such misrepresentation, breach or default, which may be
exercised at such times and in such order and combination as Sinclair elects:
(a) The right to recover from Distributor all of its damages,
including direct, indirect, special and consequential damages,
resulting from any such misrepresentation, breach or default
which right shall not be adversely affected by any election by
Sinclair to terminate or not renew this Contract;
(b) The right to recover from Distributor any and all costs and
expenses incurred by Sinclair in protecting the Sinclair
Trademarks (as defined hereinafter) or Sinclair's other
property from any adverse consequences resulting from such
misrepresentation, breach or default or any other acts or
omissions of Distributor;
(c) The right to obtain injunctive relief to restrain Distributor,
or anyone acting for or on its behalf, from violating any
covenants relating to the Confidential Information (as defined
hereinafter) or the Sinclair Trademarks, it being hereby
acknowledged by Distributor that the violation of any such
covenant will cause irreparable damage to Sinclair, the exact
amount of which may not be subject to reasonable or accurate
ascertainment; and
(d) The right to recover from Distributor any and all costs
incurred by Sinclair in enforcing or terminating this
Contract, including reasonable attorney's fees, expert witness
fees and court costs, regardless of whether any legal action
is filed.
11. QUALITY OF PRODUCT/CLAIMS FOR ERRORS/WARRANTY DISCLAIMER
Sinclair shall cause the quality of all Products sold to Distributor
hereunder to be of the quality prevailing at the terminal or refinery where
delivery of such Products occurs. EXCEPT AS OTHERWISE SET FORTH IN THE PRECEDING
SENTENCE, SINCLAIR MAKES NO REPRESENTATIONS, WARRANTIES OR COVENANTS, WHETHER
EXPRESS OR IMPLIED, REGARDING THE QUALITY OF THE PRODUCTS, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. Any and all claims for errors, deficiencies, shortages, failure of
Products to meet specifications or imperfections must be made by Distributor to
Sinclair by telefax or similar means prior to unloading of the Product.
Distributor's failure to so provide Sinclair notice of any such error,
deficiency, shortage or failure shall constitute a waiver by Distributor
thereof.
12. OPERATING STANDARDS
A. DISTRIBUTOR ACKNOWLEDGMENTS. Distributor acknowledges that Sinclair
has made a significant investment in developing quality products, promoting the
Sinclair trademarks and trade names and creating goodwill with the general
public and that Sinclair has a significant and protectible business interest in:
(i) assuring that Distributor's sale of Sinclair-branded products will be
accomplished in a manner consistent with the high standards, reputation and
brand N -aloe that Sinclair has created; (ii) protecting the Sinclair trade
name, color schemes, designs, logos and other features identifying Sinclair's
products and services; and (iii) assuring that Sinclair-branded products are
distributed only through service station locations that are clean, safe, healthy
and inviting to the general public.
B. DISTRIBUTOR OPERATIONS. In addition to fully complying with each
covenant of Distributor set forth elsewhere in this Contract, Distributor shall:
(i) conduct its business operations and cause the business operations at each
Site to be conducted in a manner consistent with the protection and promotion of
the interests of Sinclair referenced in the immediately preceding Subsection A;
(ii) use reasonable efforts to promptly resolve in a fair and equitable manner
legitimate customer complaints arising out of Distributor's business operations
or operations at any Site; and (iii) cause its properties and each Site to be
maintained and operated in a professional, clean, safe and healthy manner,
through properly trained and qualified personnel and appropriate facilities.
C. NO EXCLUSIVITY RIGHTS. Distributor acknowledges that Sinclair has
not granted to it, nor promised to grant to it, any, exclusive territory or
clientele or any other exclusive rights with respect to the promotion, marketing
or sale of Sinclair products.
13. EXCUSE FOR NON-PERFORMANCE
The performance by either party hereto of any of its duties or
obligations under this Contract, other than the timely payment of any amount
owed by either party to the other party, shall be excused so long as there
exists any one of the following causes which materially and directly affects
such party's ability to perform such duty or obligation: (a) any failure or
interruption of any means or facilities OF transportation; (b) acts of God;
earthquakes; fire; flood or the elements; malicious mischief; insurrection;
riot; strikes; lockouts; boycotts; picketing; disputes among or with Sinclair's
work force; accidents; civil commotion; war conditions; mechanical breakdowns in
refineries, pipelines, terminals or other facilities; or acts of foreign or
domestic governmental authority, including, but not limited to, any system of
priority or price controls, allocations or requisitions; (c) seizure or
appropriation of any of Sinclairs property or of the management or operation
thereof; (d) compliance with any federal, state or municipal Law or with any
request or suggestion of governmental agencies or authorities or (e) any other
cause similar to those descried in the immediately preceding clauses (a) through
(d) to the extent such cause is beyond the control of the party whose
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performance is affected thereby. The failure of a party to settle a labor
dispute because of such party's refusal to agree to settlement terms
unacceptable to it shall be deemed a cause reasonably beyond the control of such
party.
14. CONFIDENTIAL INFORMATION
During the Contract Period, Distributor may have access to confidential
or proprietary memoranda, notes, information, records, research results,
business projections, customer lists, trade secrets, data, specifications,
formulas, know-how, methods of operation and business ideas and other
information of a confidential nature belonging to Sinclair (the "Confidential
Information"). Distributor shall hold all Confidential Information in
confidence, and shall not disclose or directly or indirectly use, copy, digest
or summarize any Confidential Information, except as directed or authorized in
writing by Sinclair. In furtherance of this provision, Distributor agrees to
disclose Confidential Information to any employees of Distributor only on a
"need to know" basis and, in addition, to cause Distributor's employees, agents,
Dealers, independent contractors or other individuals or entities which may have
access to the Confidential Information through Distributor to execute
confidentiality agreements in a form approved by Sinclair, which agreements
shall incorporate covenants between Distributor and such parties on the same
basis as the covenants set forth in this Section 14. The protection granted
hereunder shall be in addition to and not in lieu of all other forms of
protection for such trade secrets and confidential information as may otherwise
be afforded at law or in equity. Confidential Information which Distributor can
demonstrate lawfully came to the attention of Distributor prior to its
disclosure by Sinclair, or which legally is or has become part of the public
domain, is excluded from the provisions of this Section 14.
15. RIGHT OF FIRST REFUSAL
A. OFFER NOTICE RELATING TO SALE OF ASSETS. Prior to selling, leasing
or otherwise transferring Distributor's petroleum business or any material
portion thereof, or Distributor's property used in connection with its petroleum
business or any material portion of such property, Distributor shall provide
Sinclair written notice (an "Offer Notice") describing the property and assets
to which the proposed transaction relates (the "Subject Assets"), stating the
terms and conditions of such proposed transaction and containing a copy of any
offer, proposed purchase contract, proposed lease or other document setting
forth such terms and conditions. Sinclair shall have aright of first refusal to
purchase, lease or otherwise have transferred to it the Subject Assets to which
such Offer Notice relates upon the terms and conditions of the proposed
transaction stated in the Offer Notice. In order to exercise such right of first
refusal, Sinclair shall provide Distributor written notice of such exercise
within sixty (60) days after the Offer Notice is given to Sinclair. If Sinclair
does not timely exercise its right of first refusal as to the Subject Assets
described in any such Offer Notice, Distributor may, within ninety (90) days
after such right of first refusal expires, sell, lease or otherwise transfer
such Subject Assets in a bona fide transaction on the terms and conditions, but
no terms or conditions more favorable to the purchaser, lessee or transferee
than those, of the proposed transaction stated in the Offer Notice. If
Distributor fails to consummate such a transaction within such ninety (90) day
period, then Distributor shall be required to again provide Sinclair an Offer
Notice and provide Sinclair a right of first refusal in the manner described in
this Section 15 before selling, leasing or otherwise transferring such Subject
Assets, or any portion thereof, to any third party.
B. OFFER NOTICE RELATING TO SALE OF STOCK OR OTHER OWNERSHIP INTEREST.
If Distributor is a corporation, partnership, limited liability company or other
legal entity (other than a natural person), prior to or within twenty (20) days
after any sale or other transfer of stock or any other interest representing
ownership in Distributor (such stock or other such ownership interest is
referred to herein as an "Interest"), which either individually or collectively
with all other Interests sold or transferred subsequent to the Effective Date
represents greater than 49 percent of all outstanding Interests in Distributor,
Distributor shall provide Sinclair an Offer Notice describing all of the
property then owned by Distributor, which, for purposes of such Offer Notice
shall constitute the Subject Assets. Sinclair shall have a right of first
refusal to purchase the Subject Assets to which such Offer Notice relates for a
purchase price equal to the fair market value of such Subject Assets, which fair
market value shall be determined in the manner described in the immediately
following Subsection C. In order to exercise such right of first refusal,
Sinclair shall provide Distributor written notice of such exercise within sixty
(60) days after the date on which the fair market value OF the Subject Assets is
determined pursuant to the immediately following Subsection C. If Sinclair does
not timely exercise its right of first refusal as to the Subject Assets
described in such Offer Notice, Sinclair shall not again have a right of first
refusal to purchase the Subject Assets as the result of any sale or transfer of
any Interest until the Interests sold or transferred subsequent to the date such
Offer Notice is given reflect, in the aggregate, greater than 49 percent of all
outstanding Interests in Distributor. For purposes of this Subsection B, no
transfer of any Interest shall be taken into account if such Interest is
transferred to the spouse, child or grandchild of the person holding such
Interest, or to a trust or entity for the sole benefit of Distributor or any
such other person, or any combination thereof, regardless of whether such
transfer is by succession upon death, gift or sale.
C. DETERMINATION OF FAIR MARKET VALUE. For purposes of the immediately
receding Subsection B, the fair market value of the Subject Assets shall be such
amount as may be agreed to be the fair market value thereof-by Sinclair and
Distributor. If, however, both parties cannot agree upon the fair market value
of the Subject Assets within twenty (20) days after the Offer Notice is given,
each party shall, within thirty (30) days after the Offer Notice is given,
retain an appraiser meeting the requirements set forth below and provide the
other party written notice of the name, address and telephone number of such
appraiser. Thereupon, each of the two appraisers shall, within sixty (60) days
after the Offer Notice is given, prepare and submit to each OF the patties
hereto and the other appraiser a written appraisal setting forth such appraisers
estimate of the fair market value of the Subject Assets. If the estimate of the
one appraiser is within five percent of the estimate of the other appraiser,
then the fair market value OF the Subject Assets shall be the average of the two
estimates. If the two estimates differ by more than five percent, then the two
appraisers shall appoint, within seventy (70) days after the Ofer Notice is
given, a third appraiser, who shall, as soon as reasonably possible thereafter,
prepare and submit to each of the parties hereto and the other two appraisers a
written appraisal setting forth such third appraisers estimate of the fair
market value of the Subject Assets. If a third appraiser is so appointed, the
fair market value of the Subject Assets shall be the average of the two of the
three estimates that are closest in amount. Notwithstanding anything in this
Subsection to the contrary, if either party is required under this Subsection to
retain an appraiser and fails to timely do so, or if the appraiser retained by a
party fails to timely prepare and submit his appraisal, then the fair market
value of the Subject Assets shall be the estimate thereof set forth in the
appraisal of the appraiser retained by the other party, so long as the appraiser
retained by such other party was timely retained and timely prepared and
submitted his appraisal as required above. Each appraiser retained or appointed
under this Subsection C shall meet each of the following criteria: (i) the
appraiser shall have had at least five (5) years prior experience appraising
properties similar to the Subject Assets; and (b) the appraiser shall not be
related to or affiliated, whether as a family member, employee, owner, vendor,
partner or otherwise,
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with either party to this Contract. Each party shall pay the fees and costs of
the appraiser retained by it, and, if the appointment of a third appraiser is
required, each party shall pay 50 percent of the fees and costs of such third
appraiser.
D. EXERCISE OF RIGHT OF FIRST REFUSAL. If Sinclair timely exercises its
right of first refusal as to the Subject Assets described in any Offer Notice,
Distributor shall promptly deliver to Sinclair evidence of title acceptable to
Sinclair showing that Distributor holds good and marketable title, and in the
case of real property, fee simple record title, to such Subject Assets, free and
clear of all liens, encumbrances and adverse claims. If the transaction as to
which Sinclair exercises its right of first refusal is a sale or other transfer,
Distributor shall convey all of the Subject Assets to Sinclair by general
warranty deed and such other instruments, in each such case containing full
title warranties, as may be reasonably specified by Sinclair, which deed and
other instruments shall be in form and substance reasonably satisfactory to
Sinclair. If the transaction as to which Sinclair exercises its right of first
refusal is a lease, Sinclair shall submit to Distributor a lease containing the
terms and conditions set forth in the Offer Notice, together with other
appropriate provisions not inconsistent therewith, for execution by the parties.
Substantial damage to or total destruction of the Subject Assets, or the
happening of any event which would prevent the use of same in the petroleum
business, occurring after the exercise by Sinclair of its right of first refusal
with respect thereto but before the transfer of the Subject Assets to Sinclair,
shall, at Sinclairs election, excuse Sinclair from performance of the contract
resulting from Sinclair's exercise of its right of first refusal.
16. TRADEMARKS
A. AUTHORIZATION TO USE TRADEMARKS. Sinclair hereby grants
non-exclusive, non-assignable authorization to Distributor to use solely during
the Contract Period such trademarks and service marks as to which Sinclair is
empowered to make such grant (hereinafter collectively referred to as "Sinclair
Trademarks"), but solely upon the condition that Distributor shall only use the
Sinclair Trademarks: (i) pursuant to the terms and conditions hereof or as
otherwise authorized from time to time by Sinclair in writing; (ii) for the
identification or advertising of Products and services designated by Sinclair;
(iii) in colors and designs and in connection with Products and services
designated by Sinclair; and (iv) to identify Products whose specifications
conform precisely to those established by Sinclair.
B. DEALER TRADEMARK USE. Sinclair Trademarks maybe used by any of
Distributor's Dealers only after: (i) Distributor and such Dealer have entered
into a Sinclair Trademark Agreement in form and substance specified by Sinclair
from time to time (a "Sinclair Trademark Agreement"); (ii) a copy of such fully
executed Sinclair Trademark Agreement has been delivered to Sinclair; and (iii)
Sinclair has provided its written notice that it has approved such Dealer's use
of Sinclair's Trademarks. No approval by Sinclair of the use of Sinclair
Trademarks by any such Dealer shall relieve Distributor of its duties and
obligations to Sinclair under this Contract with respect to the use of Sinclair
Trademarks, including, without limitation, use of the same by such Dealer.
Distributor shall enforce each such Sinclair Trademark Agreement, and shall
promptly notify Sinclair of any breach or default on the part of the Dealer
under any such Agreement.
C. REVOCATION OF AUTHORITY. Sinclair may revoke, by giving written
notice of such revocation to Distributor, the non-exclusive, non-assignable
authorization granted to Distributor under this Section 16. Sinclair may, in its
sole discretion make any such revocation effective as to Distributor and all of
Distributor's Dealers, or as to a specific Dealer or Dealers. Any revocation
shall become effective upon any date set forth by Sinclair in such notice,
provided, such date may not be less than sixty (60) days after the date upon
which the notice is given.
D. RETURN OF ITEMS BEARING TRADEMARKS. No later than the 10th business
day after the first to occur of the date upon which any revocation under the
immediately preceding Subsection C becomes effective, the date of any
termination of this Contract pursuant to Section 7 hereof or the last day of the
Contract Period if this Contract is not renewed, Distributor will:
(i) return or turn over to Sinclair all unused retail sales forms
and all other unused business fortes and documents and all
signs, displays and devices of any kind whatsoever in
Distributor's or its Dealers' possession or control which bear
or otherwise include any Sinclair Trademarks, except as
provided in clause (ii) of this Subsection;
(ii) effectively obliterate and render unrecognizable any and all
Sinclair Trademarks on all signs, displays and devices of any
kind in Distributor's or Distributor's Dealers' possession or
control, the nature of which renders it physically
impracticable or impossible to return or turn over the same to
Sinclair, and
(iii) in all respects discontinue the use of Sinclair Trademarks
and the sale and advertising of products or services bearing
or connected with the same.
E. DISTRIBUTOR ACTIONS. Distributor shall not claim any right, title or
interest in or to any Sinclair Trademark or directly or indirectly deny or
assail or assist in denying or assailing the sole and exclusive ownership of
Sinclair therein. Distributor shall not adopt as its own property or use any
marks or trade names confusingly similar to or resembling any of the Sinclair
Trademarks or the trade names of Sinclair as would be likely to cause confusion
or mistake or to deceive. Sinclair shall have the right at any time to change,
alter, amend or discontinue the use of any of the Sinclair Trademarks
encompassed by the non-exclusive, non-assignable authorization granted herein
and Distributor agrees to promptly conform its use thereto.
F. REMEDIES FOR NON-COMPLIANCE. Notwithstanding the requirement that
Sinclair give not less than sixty (60) days prior written notice of revocation
of the non-exclusive, non-assignable authorization granted herein, failure or
refusal by Distributor to comply with the terms and conditions set forth herein
shall entitle Sinclair to suspend immediately further deliveries of Product
hereunder and to terminate this Contract, including such authorization, but such
termination shall not in any manner prejudice Sinclair's claim for damages or
other relief. Such sixty (60) day notice period shall not be applicable to
situations where Distributor has violated Sinclair's trademark rights or
committed misbranding, adulteration or other acts which violate the PMPA or the
federal "Lanham Act," 15 U.S.C. Sections 1051, ET SEQ.
G. CONTINUATION OF SINCLAIR TRADEMARK AGREEMENTS. If, effective as of
the end of the Contract Period, Sinclair and Distributor renew or extend the
term of this Contract or enter into a new agreement that is of substantially the
same substance as this Contract, including, without limitation, with respect to
the provisions of this Section 16, and provided Sinclair has not terminated
Distributor's authorization to use
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Sinclair Trademarks pursuant to the immediately preceding Subsection C: (i)
Distributor's authorization to use Sinclair Trademarks granted pursuant to this
Section 16 shall be deemed to have continued in effect, without interruption,
from the end of the Contract Period to the beginning of the term of such
renewal, extension or new agreement, subject to any limitations or restrictions
on such authorization reflected in any such renewal, extension or new agreement,
and (ii) Distributor shall not be required to again comply with the provisions
of clauses (i), (ii) or (iii) of the immediately preceding Subsection B with
respect to any Dealer as to whom Distributor has complied with such provisions
during the Contract Period, unless Sinclair has previously terminated the
authority granted to Distributor under this Section 16 with respect to such
Dealer. The immediately preceding clause (ii) shall be applicable with respect
to a particular Dealer only if the Sinclair Trademark Agreement then in effect
between Distributor and such Dealer continues, by its terms or by operation of
law, in full force and effect into the term of such renewal, extension or new
agreement. It is the intention of this Subsection G to eliminate the need for
Distributor to enter into new Sinclair Trademark Agreements with its Dealers
upon each renewal, extension or replacement of this Contract so long as the
existing Sinclair Trademark Agreements between Distributor and its Dealers
remain in effect and Distributor continues to be authorized to use Sinclair
Trademarks under the same terms or substantially similar terms to those set
forth in this Section 16.
17. CREDIT CARD PURCHASES
Sinclair hereby authorizes Distributor and Distributor's Dealers to
accept credit cards approved by Sinclair for its distributors and their dealers
for purchases of the types of products and services that Sinclair may from time
to time designate. Such authorization shall be subject to, and Distributor shall
comply with and be bound by, the following terms and conditions:
(a) The honoring of Sinclair credit cards by Distributor and its
Dealers and the acceptance by Sinclair of authorized invoices,
drafts or other evidence of debt issued thereon ("Items") for
sales of products and services made by Distributor or its
Dealers to cardholders shall be subject in all respects to the
terms, conditions and procedures established by Sinclair from
time to time, as set forth in the Sinclair document entitled
"Credit Card Instructions" or any other applicable Sinclair
document or publication. Sinclair may charge back to
Distributor or refuse to accept any Item pursuant to such
terms, conditions and procedures. Sinclair may now or
hereafter impose upon Distributor various service charges on
Items submitted by Distributor to Sinclair for processing and
on certain functions relating to the Sinclair point of sale
authorization system. Distributor shall timely pay all such
service charges.
(b) Distributor shall accept, and shall cause each of
Distributor's Dealers to accept, Sinclair credit cards for all
products and services as to which Distributor and its Dealers
are authorized to accept Sinclair credit cards under this
Section 17. Distributor shall cause each of its Dealers to
comply with the terms and conditions of this Section 17 that
are applicable to such Dealers.
(c) Only Distributor shall be entitled to submit to Sinclair Items
that are generated by Distributor or its Dealers. Sinclair
shall have no obligation to accept or process Items submitted
to it by any of Distributor's Dealers.
(d) Distributor shall cause all credit card transactions,
including, without limitation, such transactions conducted by
its Dealers, that are capable thereof to be processed
electronically through electronic point of sale authorization
equipment meeting Sinclair's specifications. All imprinters,
forms and receipts used by Distributor or its Dealers in
connection with the acceptance of credit cards and processing
of credit card sales shall meet Sinclair's specifications.
(e) Sinclair, at its option, may at any time terminate
Distributor's and its Dealers' authorization to accept credit
cards under this Section 17 and Sinclair's obligation to
process Items generated on any or all credit cards, by giving
written notice of such termination to Distributor. Any such
termination may be effective as to Distributor and all of its
Dealers, or only as to one or more of its Dealers.
(f) Distributor shall not, and shall cause its Dealers and every
person acting on behalf of Distributor or its Dealers to not,
bill any cardholder for, or otherwise attempt to collect from
any cardholder, the charges represented by any Item, except
for Items which have been charged back to or repurchased by
Distributor.
(g) By presenting any Item for purchase by Sinclair hereunder,
Distributor shall be deemed to have represented and warranted
to Sinclair that it has no knowledge: (i) that the signature
on the Item or use of the applicable credit card is
unauthorized; (ii) that the applicable credit card is not
genuine; (iii) that the Item has been altered subsequent to
its signature; or (iv) that any portion of such Item was
fraudulently completed.
(h) Distributor shall cooperate, and cause its Dealers to
cooperate, with Sinclair in recovering canceled or stolen
credit cards. For successful recoveries of such credit cards,
Sinclair shall pay rewards to Distributor in such amounts and
otherwise in accordance with Sinclair's reward policy, as in
effect from time to time.
(i) Distributor shall not, and shall cause its Dealers to not,
discriminate in any manner against Sinclair credit card
holders as compared to the holders of any other credit cards,
such as bank credit cards, which Distributor or its Dealers
accept or honor.
(j) Distributor will only tender to Sinclair for purchase
electronic batches of Items that are in balance. All costs of
balancing shall be the sole responsibility of Distributor.
Sinclair will grant Distributor credit in the form of credit
memos for batches of Items that are balanced and otherwise
comply with the terms and conditions of this Contract.
(k) 1t shall be the responsibility of Distributor to insure that
only qualified and trained personnel participate in credit
card sales.
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(l) If Distributor or any of its Dealers accept any credit card,
it shall be fully subject to and shall comply with all
agreements in force between Sinclair and the issuer of such
credit card.
(m) Sinclair shall have no obligation to purchase Items from
Distributor submitted to Sinclair later than the tenth (10th)
day after, or for transactions that occurred after, the last
day of Contract Period. Distributor's obligation to repurchase
Items charged back to it shall not be extinguished by the
expiration or termination of this Contract.
(n) Distributor shall not, and shall cause its Dealers to not,
accept Sinclair credit cards at, and Distributor shall not
submit to Sinclair for processing any Item from, any location
which is not Sinclair branded location or that is not operated
by Distributor or any of its Dealers that are authorized to
accept Sinclair credit cards.
18. INDEMNITY
A. DEFINITIONS. For purposes of this Section 18:
(i) "Affiliated Person" shall mean with respect to Distributor,
including, without limitation, with respect to Distributor as an Indemnifying
Party or Indemnified Party (as such terms are defined hereinafter), each owner,
director, officer, employee, agent or representative of Distributor, each of
Distributor's Dealers, and each of their respective successors and assigns; and
(ii) "Affiliated Person" shall mean with respect to Sinclair,
including, without limitation, with respect to Sinclair as an Indemnifying Party
or Indemnified Party, each owner, director, officer, employee, agent or
representative of Sinclair, and each OF their respective successors and assigns,
but shall not include Distributor or any Affiliated Person with respect to
Distributor.
B. MUTUAL INDEMNIFICATION OBLIGATION. Each of Sinclair and Distributor (an
"Indemnifying Party") shall defend, indemnify and hold harmless the other (an
"Indemnified Party"), and each Affiliated Person with respect to the Indemnified
Party, from and against any and all claims, causes of action, demands,
liabilities, damages, injuries (including, without limitation, death or physical
injury to any person and other personal injuries of any type or nature), losses,
fines, penalties, assessments and costs (including reasonable attorney's fees,
court costs, expert witness fees, remediation costs and consultant's fees) of,
to, in favor of, or asserted, incurred or suffered by, any person or entity
(including, without limitation, the Indemnified Party, any Affiliated Person
with respect to the Indemnified Party or any governmental entity,jurisdiction,
agency or body) arising out of, related to, connected with or caused in whole or
in part by any of the following: (i) any negligence or wrongful act or wrongful
omission of the Indemnifying Party or any Affiliated Person with respect to the
Indemnifying Party; (ii) any violation by the Indemnifying Party or any
Affiliated Person with respect to the Indemnifying Party of any Environmental
Law or other Law, including, but not limited to, any Law governing REID Vapor
Pressure, sulfur content of diesel fuel, reformulated gasoline or gasoline
detergent additives, of any governmental entity, jurisdiction, agency or body;
or (iii) any breach or default under this Contract on the part of the
Indemnifying Party. Additionally, Distributor shall defend, indemnify and hold
harmless Sinclair and each Affliated Person with respect to Sinclair from and
against any and all claims, causes of action, demands, liabilities, damages,
injuries (including, without limitation, death or physical injury to any person
and other personal injuries of any type or nature), losses, fines, penalties,
assessments and costs (including reasonable attorney's fees, court costs, expert
witness fees, remediation costs and consultant's fees) of, to, in favor of, or
asserted, incurred or suffered by, any person or entity (including, without
limitation, Sinclair, any Affiliated Person with respect to Sinclair or any
governmental entity, jurisdiction, agency or body) arising out of, related to,
connected with or caused in whole or in part by any release, leakage, seepage or
discharge into the environment of, or fire or explosion caused by or involving,
any Product after title thereto has transferred to Distributor pursuant Section
5 hereof or any Hazardous Material in the possession or control, or used in
connection with the business, of Distributor or any Affiliated Person with
respect to Distributor.
C. PROPORTIONATE FAULT. If any matter with respect to which any person would
be entitled to be defended, indemnified or held harmless pursuant to the
immediately preceding Subparagraph B is attributable partially to the fault of
Sinclair or one or more Affiliated Persons with respect to Sinclair and
partially to the fault of Distributor or one or more Affiliated Persons with
respect to Distributor, the respective obligations of Sinclair and Distributor
under such Subparagraph shall be equitably adjusted to reflect the degree to
which Sinclair and such Affiliated Persons with respect to Sinclair were at
fault relative to the degree to which Distributor and such Affiliated Persons
with respect Distributor were at fault. For purposes of determining relative
fault under this Subsection C, any matter referenced in the last sentence of the
immediately preceding Subsection B shall be conclusively considered as having
arisen solely due to the fault of Distributor and Affiliated Persons with
respect to Distributor.
19. WAIVER
The parties to this Contract understand and agree that all duties and
obligations contained in any of the provisions of this Contract are of material
significance to the contractual relationship created hereby. Subject to the
provisions of the PMPA and any other applicable provisions of law, the failure
of Sinclair in any instance to insist on the strict compliance with any of the
terms or conditions of this Contract, or to exercise any right or privilege
herein conferred, or any other forbearance, sufferance or indulgence, however
long continued, shall not be construed as thereafter waiving any such term,
condition, right or privilege, but the same shall continue and remain in full
force and effect and Sinclair retains the right at any subsequent time to demand
strict, full and punctual performance of Distributor's obligations hereunder.
20. NOTICES
Except as otherwise provided in the PMPA or in this Contract, all notices
given under this Contract shall be in writing and shall either be delivered
personally to the party to whom directed, or delivered by telefax, nationally
recognized overnight courier service or United States certified mail, return
receipt requested. All notices delivered by overnight courier service or mail
shall be sent postage or delivery charges prepaid and addressed to the party to
whom directed at the address for such party set forth in the initial paragraph
of this Contract; provided, however, either party may change the address to
which notices to it are to be directed by providing notice of such change to the
other party in accordance with this Section 20. A notice shall be deemed given
only upon actual receipt by the party to whom the notice is directed, if
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delivered personally or by telefax, and otherwise shall be deemed given upon
delivery to the overnight courier service or deposit in the United States mail,
duly addressed. with proper postage stamps or labels affixed and otherwise in
compliance with this Section 20.
21. INDEPENDENT INVESTIGATION
Distributor acknowledges that Distributor has conducted an independent
investigation of Sinclair and its distributorship program and recognizes that
the transactions contemplated by this Contract involve business risks and the
success of any business venture involving the use of Sinclair Trademarks or the
sale of Sinclair products will be dependent upon the business abilities of
Distributor, market forces and other factors. Sinclair expressly disclaims the
making of, and Distributor acknowledges that it has not received, any
representation, warranty or guaranty, express or implied, as to potential
volume, profits or success of any business venture involving the use of Sinclair
Trademarks or the sale of Sinclair products.
22. ARBITRATION
Any controversy or claim arising out of or relating to this Contract, or
any breach thereof, including, without limitation, any claim that this
Contractor or any portion thereof is invalid, illegal or otherwise voidable
shall be submitted to arbitration before and in accordance with the rules of the
American Arbitration Association and judgment upon the award maybe entered in
any court having jurisdiction thereof; provided, however, that this clause shall
not: (i) limit Sinclair's right to obtain any provisional or equitable remedy,
including, without limitation, injunctive relief, writs for recovery of
possession or similar relief, from any court of competent jurisdiction, as may
be necessary, in Sinclair's sole judgment, to protect its trademarks,
copyrights, patents or other property rights; (ii) apply to the extent it is
contrary to the PMPA; or (iii) prevent Sinclair from commencing and pursuing an
action for a judicial determination of its right to terminate or not renew this
Contract. The site of the arbitration proceedings shall be the office of the
American Arbitration Association located in Salt Lake City, Utah. Only the
matters specifically stated in this Section 22 shall be subject to arbitration
and no others.
23. ACCEPTANCE
Sinclair shall not be bound by this Contract until this Contract has been
executed on its behalf by an authorized officer or manager of Sinclair and the
original Contract or a duplicate hereof so executed is returned to Distributor.
The delivery or shipment of any of the Products described herein by Sinclair to
Distributor prior to such execution and delivery shall not be construed as an
acceptance of this Contract by Sinclair.
24. RELATIONSHIP OF PARTIES
Distributor is engaged in a business that is independent of and separate
from the businesses of Sinclair. Neither Sinclair nor Distributor is a general
partner, limited partner, joint venturer or agent of the other, rid neither of
them has or shall have any right or authority to bind or act on behalf of the
other. Neither Sinclair nor Distributor shall be responsible for the debts or
obligations of the other. Nothing to this Contract shall be construed as
granting to Sinclair, nor shall Sinclair otherwise have, any right or authority
whatsoever to: (a) control Distributor's business or operations or the manner in
which the same shall be conducted; (b) control or establish the prices
Distributor charges upon its resale of Products; or (c) supervise, manage,
direct, hire or terminate officers or employees of Distributor. Nothing in the
preceding sentence shall be construed as limiting or otherwise affecting
Sinclair's right to enforce this Contract against Distributor, or the exercise
by Sinclair of its rights and remedies upon any misrepresentation, breach or
default on the part of Distributor hereunder. Sinclair may rake reasonable
actions to promote compliance with the standards set forth herein and may
provide such instructions, guidance and recommendations as may be necessary and
desirable to promote the mutual objectives of Sinclair and Distributor,
including the promotion of public goodwill toward Sinclair, its trademarks and
trade names, the reputation and image of Sincl6ir and its products and the
facilitating of clean, safe and healthful operations.
25. ENTIRE AGREEMENT
The counterpart of this Contract held by Sinclair shall be considered the
original and shall be the governing Contract in case of a variance between it
and any other signed original. This Contract constitutes a merger of all
proposals, negotiations and representations with reference to the subject matter
and provisions hereof, and may be amended or modified only in a writing signed
by Distributor and by an authorized officer of Sinclair.
26. INTERPRETATION AND CONSTRUCTION
This Contract shall be governed by and construed according to the Laws of
the State of Utah. The titles and subtitles of the various sections and
subsections of this Contract are inserted for convenience and shall not be
deemed to affect the meaning or construction of any of the terms, provisions,
covenants and conditions of this Contract. The language of this Contract shall,
in all cases, be construed simply according to its fair meaning, and not
strictly for or against Sinclair or Distributor.
27. INCORPORATION OF FEDERAL PETROLEUM MARKETING PRACTICES ACT
The provisions of the PMPA which relate to grounds for termination and
non-renewal, notification and cure period requirements, including, without
limitation, any limitations or conditions imposed by the PMPA upon Sinclair's
ability to terminate or not renew this Contract, are hereby incorporated herein
by this reference, and shall supplement or supersede any term or provision of
this Contract to the extent necessary to eliminate any conflict between the PMPA
and this Contract No failure to expressly mention in this Contract any right
afforded to Sinclair under the PMPA shall constitute a waiver of any such right.
28. ASSIGNMENT
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The terms, conditions and provisions hereof shall extend to and be
binding upon the respective parties hereto, their successors, assigns and heirs;
provided however, that Distributor shall not assign this Contract or any
interest herein without the prior written consent of Sinclair, signed by an
authorized officer of Sinclair and notarized which consent may be withheld by
Sinclair, in its sole discretion. The sale or transfer, either in one
transaction or multiple transactions, of any Interests in Distributor, which, in
the aggregate, represent greater than 49 percent of all outstanding Interests in
Distributor shall be deemed an assignment by Distributor of this Contract and
shall require the prior written consent of Sinclair pursuant to the preceding
sentence.
29. IDENTITY OF DISTRIBUTOR.
Distributor acknowledges that this Contract is personal and understands
that Sinclair is relying on the credit worthiness and capabilities of
Distributor or its principals (if Distributor is not a natural person) in
entering into this Contract. Furthermore, Distributor acknowledges that it is
the person or type of business entity described in the first paragraph on the
front page of this Contract and that Sinclair agreed to sell products to that
specified entity so described therein. If Distributor desires to change either
its name or its type of business entity from that specified hereinabove,
Distributor shall give written notice of such change to Sinclair by certified
mail; provided, however, that Sinclair shall not be bound by any such change
prior to the receipt by Distributor of a written consent of Sinclair to such
change signed by an officer of Sinclair or the designee of any such officer and
notarized, which consent in no event shall become effective before thirty (30)
days following Sinclair's receipt of Distributor's written notice.
IN WITNESS WHEREOF, the parties hereto have executed this Contract on the
dates indicated.
"SINCLAIR"
SINCLAIR OIL CORPORATION, a Wyoming corporation
By: /s/ B. J. Dockstader
-----------------------------------------------
Print Name: B. J. Dockstader
-----------------------------------
Title: General Manager, Wholesale Sales
----------------------------------------
Date: 5-26-99
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"DISTRIBUTOR"
Farstad Oil, Inc.
------------------
By: /s/ D. L. Krueger
-----------------------------------------------
Print Name: D. L. Krueger
-----------------------------------
Title: Vice President
----------------------------------------
Date: 4-22-99
----------------------------------------
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DISTRIBUTOR SALES AGREEMENT (BRANDED)
EXXON COMPANY, U.S.A.
This CONTRACT and AGREEMENT made and entered into by and between Exxon Company,
U.S.A. (a division of Exxon Corporation), having an office and place of business
at 800 Bell, Houston, Texas 77002-7426 hereinafter called "Seller", and FARSTAD
OIL, INC. having an office at 100 N.E. 27TH STREET, MINOT, ND 58701, hereinafter
called "Buyer".
1. PERIOD: Unless sooner terminated as provided elsewhere herein, this
Agreement shall be in full force and effect for the period of three (3) years
beginning on April 1, 1999, and ending on March 31, 2002.
2. QUANTITIES:
(a) Seller agrees to sell to Buyer branded motor gasoline and branded diesel
of the kinds and in the quantities and under the terms and conditions set forth
herein and in the MOTOR FUEL PRODUCT SCHEDULE TO DISTRIBUTOR SALES AGREEMENT
(BRANDED) (hereinafter "Product Schedule") annexed hereto and made a part hereof
and Buyer agrees to purchase, receive and pay for the same on the terms and
conditions herein stated and in the Product Schedule.
(b) By mutual consent this Agreement may, from time to time, be amended by
the addition to or deletion herefrom of additional or revised Product
Schedule(s). Any such additional or revised Schedule(s) shall be marked as such
and signed by the duly authorized representatives of the parties and shall
thereupon be affixed to and become a part of this Agreement from and after the
effective date appearing on such additional or revised Schedule(s).
(c) The amount of any such products that Seller is obligated to sell to
Buyer is subject to all of Seller's other rights and/or obligations to: (A)
allocate supplies of available products; and (B) allocate products pursuant to
any regulation, direction, or request (whether valid or invalid) made by any
governmental authority or any person purporting to act for any governmental
authority.
3. PRICE: The price of the products covered by this Agreement shall be as
provided in the Product Schedule.
4. PAYMENT:
(a) Unless Seller notifies Buyer otherwise, Buyer will pay Seller for any
products and other charges by electronic funds transfer at the time Seller
designates. Seller has the ongoing right to periodically give Buyer notice of a
different method, time, or place of paying for any products or other charges.
(b) Nothing herein shall be construed as obligating Seller to extend any
credit to Buyer. If Seller in its sole determination does elect to extend credit
to Buyer, such extension of credit shall be made only in writing and on the
following terms and conditions:
(1) Method of payment shall be electronic funds transfer, unless
otherwise specified by Seller, at or to the payment location
specified by Seller.
(2) In the event Seller does not receive payment on or before the due
date, Seller may impose and Buyer will pay, a late payment charge
for each day that passes between the due date and the date Seller
receives payment. This late payment charge will be in addition to
Seller's other remedies, and will not exceed the lesser of: (A) the
maximum allowed by law, or (B) a fixed rate that may vary from state
to state in Seller's discretion, but that will not be less than
eighteen per cent (18%) PER ANNUM prorated over the period that
credit is outstanding.
(3) Seller may furnish to Buyer statements of Buyer's account on a
monthly basis. Payment of any such bills shall not prejudice the
right of Buyer to question the correctness thereof; provided
however, all bills and statements rendered to Buyer by Seller during
any month shall conclusively be presumed to be true and correct
after ninety (90) days following the end of any such month, unless
within said ninety (90) day period Buyer delivers to Seller's
accounting office issuing said statement written exception thereto
setting forth the item or items questioned and the basis therefor.
Time is of the essence in complying with this provision.
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(4) In the event there are additional business transactions between
Buyer and Seller including without limitation those relating to (i)
credit sales of products other than those identified herein, (ii)
promissory notes, or (iii) real estate, unless it is clearly
indicated in writing by Buyer as to how payments received by Seller
from Buyer are to be applied, then such payments shall be applied by
Seller in the following order of priority: (i) trade accounts, (ii)
promissory notes, (iii) rentals or other amounts due under any other
agreement or transaction.
(5) Seller reserves the right to withdraw such credit immediately at any
time on giving to Buyer notice thereof. In the event credit is
withdrawn, all amounts then due and owing shall become payable, and
all future sales by Seller to Buyer shall be for cash (or at
Seller's option certified or cashier's check, money order,
electronic funds transfer, or other means approved by Seller).
(6) Seller has the right, but not the obligation, to offset any amounts
owed by Buyer to Seller, whether arising from the sale of products
under this Agreement, or arising under any other agreement or
business transaction between the parties.
(c) When Buyer takes delivery of any product sold hereunder, Buyer
represents to Seller that Buyer is solvent and able to pay for such product.
Additional evidence of Buyer's solvency shall be the written confirmation of
Buyer's purchase.
5. CARD ADMINISTRATION:
(a) Seller may issue Seller Cards and process and pay for Seller Card sales
tickets submitted to Seller in accordance with the terms of the applicable card
guide. Seller may authorize third party issuers (Third Party Issuer(s)) to issue
Seller Cards and other cards and process and pay Buyer for Seller Cards and
other card sales tickets submitted to Third Party Issuer in accordance with the
terms of an applicable card guide or agreement. Seller has the right, but not
the obligation, to change at any time its methods or terms of issuing, or
authorizing the issuance of, Seller Cards and other cards and its methods or
terms of processing and paying, or authorizing the processing and payment of,
Seller Cards and other card sales tickets. Nothing in this Agreement obligates
Seller or Third Party Issuer to issue Seller Cards and other cards or to process
for payment Seller Cards and other card sales tickets.
(b) Buyer agrees to be bound by and comply with all terms and conditions of
any card guide or agreement under which Seller or Third Party Issuer agrees to
process and pay for Seller Cards and other card sales tickets. The terms of such
card guide or agreement may be amended and/or supplemented at any time by Seller
or Third Party Issuer(s).
(c) If Third Party Issuer agrees to pay Buyer for Seller Card or other card
sales tickets submitted for payment in accordance with the terms of the
applicable card guide or agreement, Buyer will look solely to Third Party Issuer
and not to Seller for such payment. Should Seller elect to or otherwise pay all
or any portion of any card sales ticket charged back by Third Party Issuer to
Buyer, upon demand from Seller, Buyer shall immediately reimburse Seller for any
such payments made by Seller.
(d) Seller has the right, but not the obligation, to offset any amounts owed
by Seller to Buyer against any amounts owed by Buyer to Seller, whether arising
under a contract or from any other business transaction between the parties.
Seller has the right, but not the obligation, to instruct a Third Party Issuer
to pay Seller rather than Buyer for Seller Card and other card sales tickets
submitted by Buyer to Third Party Issuer, to apply against the payment of any
amounts owed by Buyer to Seller whether arising under a contract or from any
other business transaction between the parties.
(e) If Buyer requests Seller or Third Party Issuer to accept assignment of
credit or debit card tickets from, and make return payment directly to Buyer's
customers, and Seller or Third Party Issuer agrees to accept such assignments,
Buyer agrees that such assignments shall be treated for all purposes as if
assigned directly by Buyer, that chargebacks of reassigned credit or debit sales
tickets received from Buyer's customers shall be the responsibility of Buyer,
and that such chargebacks may be deducted from sums owed by Seller or Third
Party Issuer to Buyer.
6. DELIVERY: Delivery of the product(s) covered by this agreement and passage
of title and risk of loss shall be as stated in the applicable Product Schedule.
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7. TAXES: In addition to the price charged by Seller for products purchased
hereunder, Buyer will pay to Seller any foreign or domestic tax, fee or other
charge (except taxes based on income), whether or not of the same class or kind
as those listed below, whenever imposed or assessed that any municipal, county,
state, federal or other laws (now in effect or hereafter enacted) directly or
indirectly require Seller or Seller's suppliers to collect or pay related to
the production, manufacture, sale, inspection, transport, storage, delivery, or
use of products covered by this Agreement. These charges include, without
limitation (A) duty taxes; (B) sales taxes; (C) excise taxes; and (D) taxes on
or measured by gross receipts.
8. FAILURE TO PERFORM:
(a) Any delays in or failure of performance of either party hereto shall not
constitute default hereunder or give rise to any claims for damages if and to
the extent that such delay or failure is caused by occurrences beyond the
control of the party affected, including, but not limited to, acts of God or the
public enemy; expropriation or confiscation of facilities; compliance with any
order or request of any governmental authority; acts of war, rebellion or
sabotage or damage resulting therefrom; embargoes or other import or export
restrictions; fires, floods, explosions, accidents, or breakdowns; riots;
strikes or other concerted acts of workers, whether direct or indirect;
reduction of transportation capacity; inability to obtain necessary industrial
supplies, energy, or equipment; or any other causes whether or not of the same
class or kind as those specifically above named which are not within the control
of the party affected and which, by the exercise of reasonable diligence, said
party is unable to prevent or provide against. A party whose performance is
affected by any of the causes set forth in the preceding sentence shall give
prompt written notice thereof to the other party.
(b) If for any reason Seller's supplies of product deliverable under this
Agreement are inadequate to meet Seller's contract obligations to its customers
for such products, or if Seller determines, in its sole discretion, in
consideration of the uncertainties of worldwide raw material availability or
refining capacity limitations or other factors, that it is appropriate to impose
a plan of allocation (by grade or otherwise), then Seller shall have the right
to impose such a plan and the right to include one or more of the following:
(1) Seller's "customers" for products of the kind deliverable
hereunder shall be deemed to include (i) purchasers pursuant to
current contracts, (ii) purchasers whose contracts have expired where
Seller, at its sole option, determines to continue sales, (iii)
purchasers to whom sales have been made on a regular and recurring
basis to whom contracts have not been submitted and (iv) new customers
to whom Seller determines to commence selling at its sole option.
(2) Seller shall have the right to give preference in allocation to
those customers whose needs (including resellers who sell for similar
needs) are related to (i) protection of life or health, (ii)
production and transportation of food and energy, (iii) mass
transportation customers, and (iv) national defense.
(3) Seller's allocation plans may be put into effect on such
geographical basis (including treating one geographic area differently
than another one) as Seller may determine, without regard for the
specific inventory at the place or places from which products
deliverable hereunder are normally produced, shipped or delivered.
(4) Seller shall have sole discretion to determine the proportions in
which it will manufacture various products from the raw material
available to it and to determine the level of inventories which it
maintains for all raw materials and all products. Seller shall have no
obligation to purchase or otherwise obtain additional products of the
kind deliverable hereunder or raw materials from which such products
are derived, and Seller shall have complete discretion as to the
disposition of any raw materials or products which Seller may buy.
(5) Seller's allocation plans shall be applied after making provisions
for Seller's own requirements for products of the kind deliverable
hereunder. In the context of this subsection "Seller" shall include
Exxon Corporation and all of its divisions, subsidiaries, and
affiliates whether wholly or partially controlled and whether domestic
or foreign.
(c) Seller shall be under no obligation to make sales hereunder at any time
when in Seller's sole judgment it has reason to believe that making of such sale
would be likely to cause strikes to be called against it or cause its properties
to be picketed.
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(d) Seller shall not be required to make up sales omitted on account of any
of the causes set forth in this Section.
(e) Nothing in this Section shall excuse Buyer from making payment when due
for sales under this Agreement.
(f) Seller shall be under no obligation to make sales hereunder at any time
when in Seller's sole judgment Buyer's equipment, is unsafe for the delivery of
product(s). Buyer accepts full responsibility for all damages to any person or
property in any way resulting from Buyer's failure to provide safe premises and
equipment, including tanks safe and fit for the storage or handling of motor
fuels, whether such failure is known or unknown to Seller or Seller's
representative, and Buyer indemnifies and holds Seller harmless with respect to
any such damages or any cause of action arising therefrom.
9. PRICE ADJUSTMENT: Buyer shall pay to Seller in addition to the prices
provided for herein any foreign or domestic duty, tax, sales tax, excise tax,
gross receipts tax, fee or other charge, whether or not for the same class or
kind, now in effect or thereafter imposed or assessed (but exclusive of taxes
based on net income) which Seller or Seller's supplier, direct or indirect, may
be required by any municipal, state, federal or foreign government law, rule,
regulation or order, to collect or pay with respect to the production,
manufacture, sale, transportation, storage, delivery or use of products sold
hereunder, and which is not otherwise given effect in Seller's applicable
prices.
10. NEW OR CHANGED REGULATIONS: The parties are entering into this Agreement in
reliance on the regulations, law and arrangements with governments or
governmental instrumentalities (hereinafter called "regulations") in effect on
the date of execution by Seller affecting the products (including the raw
materials, manufacturing or distribution facilities used therefor) sold
hereunder insofar as said "regulations" affect Buyer, Seller or Seller's
suppliers. If the effect of any change in any regulation or of any new
"regulation" (1) is not covered by any other provision of this Agreement, and
(2) in the affected party's judgment, either (a) has an adverse effect upon the
party (or if Seller, upon Seller's suppliers) or (b) increases the risk to the
party of performance under this Agreement, the affected party may request
renegotiation of the terms of this Agreement. The affected party has the right
to terminate this Agreement on written notice, effective ninety (90) days after
the request for renegotiation, if the renegotiation is not satisfactorily
completed. Such right to request renegotiation or, upon failure to agree, to
terminate, shall without limitation also be available if "regulations":
(a) Inhibit Seller from freely establishing, by increasing or decreasing,
prices of products covered by this Agreement:
(b) Prohibit Seller from collecting the price adjustment provided for above
under "Price Adjustment";
(c) Regulate the prices or recipients of products covered by this
Agreement;or
(d) Affect Seller's liability.
11. TRADEMARKS:
(a) Buyer is permitted to display Seller's trademarks solely to designate
the origin of said products and Buyer agrees that petroleum products of others
(or unbranded petroleum products purchased from Seller) will not be sold by
Buyer under any trade name, trademark, trade dress, brand name, label, insignia,
symbol, or imprint owned by Seller or used by Seller in its business
(collectively "Exxon Identification"). Upon termination of this Agreement or
prior thereto upon demand by Seller, Buyer shall discontinue the posting,
mounting, display or other use of Exxon Identification except only to the extent
they appear as labels or identification of products manufactured or sold by
Seller and still in the containers or packages designed and furnished by Seller.
Buyer is not a licensee of Seller's trademarks. Without Seller's prior written
authorization, Buyer shall not mix, commingle, adulterate, or otherwise change
the composition of any of the products purchased hereunder and resold by Buyer
under said Exxon Identification. Seller is hereby given the right to examine at
any time, and from time to time, the contents of Buyer's tanks or containers in
which said product(s) purchased hereunder are stored and to take samples
therefrom, and if in the opinion of Seller any samples thus taken are not said
product(s) and in the condition in which delivered by Seller to Buyer, then
Seller may at its option cancel and terminate this Agreement. If there shall be
posted, mounted, or otherwise displayed on or in connection with the premises
any sign, poster, placard, plate, device or form of advertising matter whether
or not received from Seller, consisting in
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whole or in part of the name of Seller or any Exxon Identification, Buyer agrees
at all times to display same properly and not to diminish, dilute, denigrate, or
otherwise adversely affect same and to discontinue the posting, mounting or
display of same immediately upon Buyer's ceasing to sell Seller's branded motor
fuels (or other branded products of Seller) or in any event upon demand by
Seller. Buyer further agrees to take no action which will diminish or dilute the
value of such trademarks or other identifications owned or used by the Seller.
(b) Buyer or Buyer's customers shall not sell non-Exxon branded motor
gasoline under any Exxon-identified canopy or at any fueling island where Buyer
or Buyer's customer is selling Exxon branded motor gasoline. Provided, however,
that "non-Exxon branded motor gasoline" as used in the preceding sentence shall
not be construed to apply to gasohol or other synthetic motor fuels of similar
usability, to the extent provided for in the Gasohol Competition Act of 1980,
Pub. L. 96-493.
(c) Without affecting Buyer's obligations under Section 11 (b) above, if
Buyer offers non-Exxon products for sale, Buyer agrees to protect the identity
of Exxon branded products and Exxon's trademarks by all reasonable methods which
would prevent customer confusion or misinformation. Buyer agrees to conform to
Exxon's deidentification requirements, as same may be revised from time to time,
including but not limited to posting of Exxon approved signs which clearly
distinguish Exxon products from non-Exxon products, disclaiming any product
liability of Seller for damage resulting from use of non-Exxon products, and
removing or covering any signs which may mislead, confuse, or misinform some
customers or reduce their goodwill toward the Exxon Identification. In addition,
Buyer agrees to comply with any additional steps beyond the Exxon
deidentification requirements required by any applicable law, ordinance or
regulation regarding the labeling of petroleum products.
(d) In furtherance of its obligations as set forth in the preceding
paragraphs of this Section, Buyer agrees that it will for itself, and as to any
of its customers to whom Seller's trademark symbol has been provided or who is
permitted the display of such trademark or other Exxon Identification require of
such customers that they will, while identifying the source of the products sold
at their premise(s), or any location operated directly by Buyer, with Seller's
trademark or other Exxon Identification comply with the foregoing, and will
incorporate in its arrangements with such customers the undertakings provided in
this section and will assist in the enforcement thereof. Such assistance
includes, but is not limited to the authorization to Seller to commence legal
proceedings in Buyer's name, and at Buyer's expense, for the purposes of
enforcing Buyer's obligations in this paragraph. Buyer further agrees to
immediately-notify Seller of any customers failing to comply with this section.
(e) Buyer shall have neither the right to use or display at marinas, nor the
right to authorize or permit the use or display at marinas, Exxon Identification
in connection with the sale of products purchased hereunder.
(f) To permit Seller to carry out its right and obligation to protect its
trademark from diminution, dilution, or destruction by misuse or failure by
those to whom permission to display it has been granted hereunder, Buyer agrees
that upon request by Seller (but not more frequently than once each year) it
will provide Seller with a list of the names and addresses to which Buyer has
provided Seller's trademark symbol or other Exxon Identification and where such
locations are displaying Seller's trademark or other Exxon Identification of
Seller as the source of the products sold, it being understood and agreed that a
breach of any provision of this Section 11 is an event which is relevant to the
franchise relationship as defined in the Petroleum Marketing Practices Act (15
U.S.C.A. 2801 et seq.) and as a result of which termination of the franchise or
nonrenewal of the franchise relationship as defined is reasonable.
(g) If Buyer, for whatever reason, ceases to display or authorize the
display of Exxon Identification at any location, then Buyer will notify Seller
in writing within thirty (30) days of that event.
12. MARKET DEVELOPMENT AND REPRESENTATION:
(a) A primary business purpose of Seller is to optimize effective and
efficient distribution and representation of its branded motor fuel products in
the interbrand motor fuel market through planned market development and image
improvement. In furtherance of this business purpose, Buyer and Seller agree as
follows:
(i) While it is not a requirement of this Agreement, Seller believes
that it is important for Buyer to have, and periodically update,
a market development plan. The plan should provide for the
selection and acquisition of "key sites" and "special opportunity
sites" (both as defined from time to time by Seller) and the
development of optimal facilities, effective operating
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practices, and the necessary financial and management resources.
If Buyer, or key person of Buyer, has not attended a market
development seminar given by Seller, then Buyer, or key person of
Buyer will attend any such seminar if requested to do so by
Seller.
(ii) Unless pursuant to specific prior written authorization from
Seller, Buyer agrees not to display, or to authorize or permit
Buyer's customers to display Exxon Identification in connection
with the sale of motor fuel at any retail motor fuel store. This
subparagraph (ii) shall not apply to Exxon branded motor fuel
stores validly operated by Buyer on March 31, 1987, or to stores
at which Buyer validly authorized Buyer's customers to display
Exxon Identification on such date.
(iii) Unless pursuant to specific prior written authorization from
Seller, Buyer shall not, directly or indirectly, sell or supply,
or cause to be sold or supplied, any motor fuels purchased from
Seller to any person or entity currently having a branded motor
fuels supply agreement directly with Seller, which supply
agreement pertains to a specific retail outlet. The reference to
"entity" in the preceding sentence shall be deemed to include any
other entity owned or controlled by the person or entity having
the aforementioned supply agreement directly with Seller.
(b) Buyer shall cause all retail stores which Buyer supplies with Seller's
branded motor fuels to meet the following minimum conditions, or Buyer shall
lose the right to use or display Exxon Identification, or to grant to its
customers the right to use or display Exxon Identification, at any such store:
(i) Paved driveways with safe and good ingress and egress;
(ii) Permanent building which is structurally sound and complies with
all fire, building and zoning codes and ordinances;
(iii) Clean premises free of debris, trash, and fire hazards;
(iv) Modern restrooms for men and women available to the general
public;
(v) Offer three (3) grades of Exxon branded motor gasoline.
(vi) Posting, at all times, of actual motor fuel prices, in numerals,
in all Exxon Retail Identification (RID) price sign systems
located on the premises.
(vii) Compliance with applicable standards as described in Attachment
A--Facility Requirements to Distributor Sales Agreement
(Branded), which is incorporated herein and made a part of this
Agreement.
13. PROMOTION OF PRODUCTS:
(a) Buyer agrees to diligently promote the sale of gasoline and other motor
fuel purchased hereunder.
(b) In order to facilitate the promotion of Exxon products, Buyer agrees
that Seller may charge an advertising fee of up to $.001 (one tenth of one cent)
per gallon on each invoice for all branded motor gasoline purchases. Exxon
agrees to match such fees collected and spend the total of the sums for
advertising expenditures. Advertising expenditures include, but are not limited
to, the production and placement of spot TV ads, network cable TV ads, radio
ads, sports marketing, store point-of-sale (POS), market wide promotions and
outdoor billboards.
14. CUSTOMER SERVICE AND COMPLAINTS: While using any Exxon Identification of
Seller, as set forth in Section 11, Buyer agrees:
(a) To render appropriate, prompt, efficient, and courteous service at the
premises to Buyer's customers for such products, to respond expeditiously to all
complaints of such customers, making fair adjustment when appropriate, and
otherwise conduct Buyer's business in such products in a fair and ethical manner
and maintain the premises' facilities, all in a manner which will foster
customer acceptance of and desire for the products sold by Seller to Buyer;
(b) To provide sufficiently qualified and neatly dressed store personnel in
uniform as appropriate to render first class service to customers;
(c) To keep the restrooms clean, orderly, sanitary and adequately furnished
with rest room supplies; and
(d) To assist in maintaining a high level of customer acceptance of the
Seller's trademarks by keeping the premises open for dispensing of products
associated with such trademark during such hours each day and days a
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week as are reasonable considering customer convenience, competitive conditions
and economic consequences to Buyer.
Buyer also agrees that as to any of its customers to whom it sells product
purchased from Seller hereunder and to whom Exxon Identification has been
provided or who is permitted the use of such Exxon Identification, Buyer will
include in its arrangements with such customers the undertaking provided in this
section and will undertake the enforcement thereof. Buyer further agrees that
Seller may revoke the right of Buyer to display, or permit the display at
Buyer's customers, Exxon Identification at any location which, after reasonable
notice by Seller to Buyer to cure, continues to be in violation of this Section
14.
15. DETERMINATION OF QUANTITY AND QUALITY: The quantity and quality of products
sold hereunder shall be for all purposes conclusively deemed to be the quantity
and quality set forth in Seller's documents of delivery unless within seven (7)
days of the date of delivery Buyer delivers to Seller written notice of any
claimed shortage in quantity or claimed deviation in quality. Time is of the
essence in complying with this provision.
16. QUALITY, GRADE, SPECIFICATION, OR NAME OF PRODUCT: Seller shall have the
right at its sole discretion at any time during the life of this Agreement to
change, alter, amend or eliminate any of the grades, trade names, trademarks or
brands of petroleum products covered by this Agreement. Seller may also, in its
sole discretion, change or alter the quality of specification of any of the
products covered by this Agreement. If any such change or alteration materially
affects the performance of the products or need of Buyer therefor for the
purposes intended by Buyer, Buyer may terminate this Agreement as to any
products so affected on thirty (30) days' prior written notice to Seller;
however, Buyer may not terminate this Agreement for any change in quality or
specification of any said products resulting from compliance with governmental
regulations. Seller shall give Buyer written notice of discontinuance of the
manufacture of any products covered by this Agreement. The Agreement shall
terminate as to such products when such notice is effective. Seller shall have
the right to enter the premises of the Buyer or of any of the Buyer's customers
who have purchased product sold to Buyer under this Agreement and being offered
for sale by such customer under Exxon Identification during normal business
hours for the purpose of obtaining a sample or samples of any product available
for the sale under Exxon Identification or other Exxon Identification by paying
Buyer or customer of Buyer the current retail price therefor. Buyer will include
in its arrangements with its customers the right of Seller to enter the premises
of such customers for the sole purpose stated in the preceding sentence of this
paragraph and agrees to assist in the enforcement thereof.
17. ASSIGNMENT: This Agreement shall not be transferred or assigned by Buyer in
whole or in part, directly or indirectly. Seller may assign this Agreement in
whole or in part upon ten (10) days prior written notice to Buyer.
18. WAIVER: No waiver by either party of any breach of any of the covenants or
conditions herein contained to be performed by the other party shall be
construed as a waiver of any succeeding breach of the same or any other covenant
or conditions. All waivers must be in writing.
19. LAWS:
(a) Buyer agrees that in receiving, storing, handling, offering for sale,
selling, delivering for use or using itself products purchased from Seller under
this Agreement, Buyer will comply, and instruct his employees with respect to
same, with all applicable federal, state, county and local laws, statutes,
ordinances, codes, regulations, rules, orders, and permits.
(b) Buyer will indemnify and hold Seller, its employees, agents, successors,
and assigns, from and against any and all expenses, costs (including, without
limitation, professional fees), penalties, fines (without regard to the amount
of such fines), liabilities, claims, demands, and causes of action, at law or in
equity (including, without limitation, any arising out of the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA), the Resource
Conservation and Recovery Act (RCRA), or the Clean Air Act) for Buyer's failure
to comply with Section 19(a), and such failure by Buyer to comply shall also
entitle Seller to terminate this Agreement.
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(c) If at any time Seller determines that due to governmental regulations,
it is unable to increase the price of any of the products deliverable under this
Agreement by an amount which is sufficient in Seller's judgment to reflect
increase in either (a) the cost of such product(s) to Seller or Seller's
supplier or (b) the fair market value of such product(s), which have occurred
since the date of this Agreement or the date of the last increase in the price
of such product(s) whichever is later, Seller may cancel this Agreement upon
thirty (30) days written notice to Buyer, or may suspend this Agreement while
such limitation is in effect.
20. NOTICES: All written notices required or permitted to be given by this
Agreement shall be deemed to be duly given if delivered personally or sent by
certified mail to Seller or to Buyer, as the case may be, at the address set
forth above or to such other address as may be furnished by either party to the
other in writing in accordance with the provisions of this Section. The date of
mailing shall be deemed the date of giving such notice, except for notice of
change of address, which must be received to be effective.
21. TERMINATION:
(a) This agreement shall terminate upon expiration of term stated in
Section 1.
(b) This Agreement may be terminated by Seller:
(1) Upon assignment of the agreement by Buyer contrary to Section 17.
(2) If Buyer or any of its key persons, managers, or stockholders
makes any material false or misleading statement or representation
(by act or by omission) which induces Seller to enter into this
Agreement, or which is relevant to the relationship between the
parties hereto;
(3) If Buyer becomes insolvent;
(4) If possession of the business location(s) of the Buyer is
interrupted by an act of any government or agency thereof;
(5) If Buyer fails to pay in a timely manner any sums when due
hereunder;
(6) 1f Buyer fails to purchase any products covered by this agreement
during any calendar month;
(7) If Buyer defaults in any of its obligations under this Agreement:
(8) If Buyer is declared incompetent to manage his property or affairs
by any court, or if Buyer is mentally or physically disabled for
three (3) months or more to the extent that Buyer is unable to
provide for the continued proper operation of the business of the
Buyer;
(9) Under the circumstances described in causes for termination by
Seller in any Section of this agreement;
(10) If Buyer dies;
(11) If Buyer or any of its key persons, managers, or stockholders
engages in fraud or criminal misconduct relevant to the operation
of the business of the Buyer;
(12) If Buyer or any of its key persons, managers, or stockholders is
convicted of felony or of a misdemeanor involving fraud, moral
turpitude or (commercial dishonesty, whether or not the crime
arose from the operation of the business of the Buyer; or
(13) If Buyer breaches Section 11 (a) by willfully committing an act of
misbranding of motor fuels;
(14) If there occurs any other circumstance under which termination of
a franchise is permitted under the provisions of the Petroleum
Marketing Practices Act (15 U.S.C.A. 2801 et seq.)
(15) Seller loses the right to grant the right to use the EXXON
trademark;
(c) If Seller has cause to believe that Buyer has engaged in fraudulent,
unscrupulous or unethical business practices (which shall include but not be
limited to practices forbidden by federal, state or local laws or regulations),
Seller may, at its sole discretion, give Buyer written notice of its belief.
Following the receipt of such notice, Buyer shall be given reasonable
opportunity to discuss the matter with Seller's representatives. In following
such discussions (or reasonable opportunity therefor) and after such
investigation of the matter as is reasonable under the circumstances, Seller
reaches a good faith conclusion that Buyer has engaged in one or more such
practices, Seller shall have the right to terminate this Agreement.
(d) Any termination of this Agreement shall be preceded by such notice from
Seller as may be required by law.
(e) Upon the expiration of the term hereof or upon termination hereof,
Seller shall have the right, at its option, to enter upon any premises at which
the Exxon Identification is displayed, and to remove, paint out, or
-8-
<Page>
obliterate any signs, symbols or colors on said premises or on the buildings
or equipment thereof which in Seller's opinion would lead a purchaser to believe
that Seller's products are being offered for sale at the premises.
(f) In the event Buyer is terminated pursuant to Section 21(b)(13) for
willful misbranding (whether said willful misbranding is the sole reason for
termination or is cited in combination with other reasons), Seller will suffer
substantial damages which are anticipated to be difficult and time consuming to
prove with exactitude. Furthermore, both parties are desirous of avoiding what
they believe will be the disproportionate cost of possible litigation and legal
fees which a future dispute over the magnitude of such damages would engender.
The parties, therefore, have determined that if Buyer is terminated as
aforesaid, it must pay to Seller as liquidated damages, and not as a penalty,
within thirty days of demand by Seller a sum to be determined in the following
manner:
The monthly average of the number of gallons of Exxon branded
motor fuel purchased by Buyer from Seller during the number of
whole months from the beginning date of this Agreement until
the effective date of the termination will be determined. This
monthly gallonage average will be multiplied by $0.01 (one
cent). The resulting amount will be multiplied by the number
of whole months remaining between the effective date of the
termination and the ending date stated in Section 1 of the
Agreement.
Both Buyer and Seller agree that such a calculation of damages will yield
liquidated damages which arc reasonable in light of the anticipated or actual
harm to Seller, whenever in this three year Agreement a termination as aforesaid
may occur.
(g) Termination of this Agreement by either party for any reason shall not
relieve the parties of any obligation theretofore accrued under this Agreement.
22. ACCORD: The parties to this Agreement have discussed the provisions herein
and find them fair and mutually satisfactory; and further agree that in all
respects the provisions are reasonable and of material significance to the
relationship of the parties hereunder, and that any breach of a provision by
either party hereto or a failure to carry out said provisions in good faith
shall conclusively be deemed to be substantial.
23. NATURE OF AND MODIFICATION OF AGREEMENT:
(a) In consideration of the granting and execution of this Agreement, the
parties understand and agree that they are not contractually obligated to extend
or renew in any way the period or terms of this Agreement, that this Agreement
shall not be considered or deemed to be any form of "joint venture" or
"partnership" at the premise(s) of Buyer or elsewhere.
(b) Buyer agrees to provide sixty (60) days' prior written notice of any
change in the name or legal form of buyer.
(c) This Agreement may be modified only by a writing signed by both of the
parties or their duly authorized agent.
24. COMPLIANCE WITH LAWS: SEVERABILITY OF PROVISIONS: Both parties expressly
agree that it is the intention of neither party to violate statutory or common
law and that if any section, sentence, paragraph, clause or combination of same
is in violation of any law, such sentences, paragraphs, clauses or combination
of same shall be inoperative and the remainder of this Agreement shall remain
binding upon the patties hereto unless in the judgment of either party hereto,
the remaining portions hereof are inadequate to properly define the rights and
obligations of the parties, in which event such party shall have the right, upon
making such determination, to thereafter terminate this Agreement upon the
notice to the other.
25. EXPRESS WARRANTIES: EXCLUSION OF OTHER WARRANTIES: Seller warrants that the
product(s) supplied hereunder will conform to the promises and affirmations of
fact made in Seller's current technical literature and printed advertisements
related specifically to such product(s); that it will convey good title to the
product(s) supplied hereunder, free of all liens, and that the products supplied
hereunder meet such specifications as have been expressly made a part of this
Agreement. THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
WARRANTIES, WHETHER WRITTEN, ORAL OR IMPLIED. THE
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WARRANTY OF MERCHANTABILITY, IN OTHER RESPECTS THAN EXPRESSLY SET FORTH
HEREIN, AND WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, IN OTHER RESPECTS THAN
EXPRESSLY SET FORTH HEREIN, ARE EXPRESSLY EXCLUDED AND DISCLAIMED.
26. ENTIRE AGREEMENT: This writing is intended by the parties to be the final,
complete and exclusive statement of this agreement about the matters covered
herein. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR WARRANTIES
AFFECTING IT.
27. DAMAGES: NO CLAIM SHALL BE MADE UNDER THIS AGREEMENT FOR SPECIAL, OR
CONSEQUENTIAL DAMAGES, EXCEPT AS PROVIDED OTHERWISE BY LAW.
28. PRIOR AGREEMENT: This Agreement cancels and supersedes any prior agreements
between the parties thereto, covering the purchase and sale of product(s)
covered by this Agreement.
29. QUALITY ASSURANCE PROCEDURES: Seller has provided Buyer a copy of "QUALITY
CONTROL PROCEDURES FOR UNLEADED GASOLINE." Buyer agrees that this document and
any revisions thereof provided to Buyer by Seller shall be a part of this
Agreement and Buyer further agrees in the storage, handling, sale and dispensing
of unleaded gasoline to comply with the procedures contained in this document
and in any revisions thereof. In the event Buyer fails to comply with this
provision, Seller may engage the services of an outside contract firm to perform
sampling, testing and reporting. The cost of such outside contract firm shall be
borne by Buyer.
30. ATTORNEYS FEES: If Buyer fails to pay any amount due under this Agreement
or takes any action not requested in writing by Seller for which Buyer's
customers bring a claim or lawsuit against Seller, Buyer agrees to pay Seller's
reasonable costs and attorneys fees thereby expended in Seller's pursuit or
defense of such matters.
31. SAFETY AND HEALTH INFORMATION: Seller has furnished to Buyer information
(including Material Safety Data Sheet(s)) concerning the safety and health
aspects of products and/or containers for such products sold to Buyer hereunder,
including safety and health warnings. Buyer acknowledges receipt of such
information and agrees to communicate such warnings and information to all
persons Buyer can reasonably foresee may be exposed to or may handle such
products and/or containers, including, but not limited to, Buyer's employees,
agents, contractors and customers.
32. KEY PERSON CLAUSE: If Buyer is a corporation or a partnership, it agrees to
execute the Key Person Clause To Distributor Sales Agreement (Branded) attached
hereto and incorporated herein.
EXECUTED by Buyer and Seller on the date indicated for each signature.
Date: 12-23-0 98 Buyer: FARSTAD OIL, INC.
------------------------- ----------------------------
/s/ Debbie Christopher By:(X) /s/ D Krueger
------------------------- ----------------------------
Witness Buyer
COO
----------------------------
Office or Title
Date: 12-23-98
----------------------------
EXXON COMPANY, U.S.A. (SELLER)
a division of Exxon Corporation)
Date: 1/21/99 By: /s/ ILLEGIBLE
------------------------- ----------------------------
Area Manager
/s/ Georgia L. Lawson Date: 1/21/99
------------------------- ----------------------------
Witness
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NOTE # 284367
US SMALL BUSINESS ADMINISTRATION U.S. SMALL BUSINESS ADMINISTRATION
[Company Logo] NOTE
<Table>
<S> <C>
---------------------------- ---------------------------------------------------
SBA Loan # GP361,207-40-10Fgo
---------------------------- ---------------------------------------------------
SBA Loan Name Farstad OIL INC
---------------------------- ---------------------------------------------------
Date March 1, 2000
---------------------------- ---------------------------------------------------
Loan Amount $650,000.00
---------------------------- ---------------------------------------------------
Interest Rate 9,000%
---------------------------- ---------------------------------------------------
Borrower Farstad Oil Inc
---------------------------- ---------------------------------------------------
Operating
Company
---------------------------- ---------------------------------------------------
Lender Bremer Bank, National Association
Box 1548 Minot ND 58702
---------------------------- ---------------------------------------------------
</Table>
1. PROMISE TO PAY:
In return for the Loan, Borrower promises to pay to the order of Lender
the amount of SIX HUNDRED FIFTY THOUSAND and no/100 Dollars, interest on the
unpaid principal balance, and all other amounts required by this Note.
2. DEFINITIONS:
"Collateral" means any property taken as security for payment of this
Note or any guarantee of this Note.
"Guarantor" means each person or entity that signs a guarantee of
payment of this Note.
"Loan" means the loan evidenced by this Note.
"Loan Documents" means the documents related to this loan signed by
Borrower, any Guarantor, or anyone who pledges collateral.
"SBA" means the Small Business Administration, an Agency of the United
States of America.
SBA Form 147 (10/22/98) Previous editions obsolete Page 1/6
<Page>
3. PAYMENT TERMS:
Borrower must make all payments at the place Lender designates. The payment
terms for this Note are:
NOTE PAYABLE: FIFTEEN (15) years from the date of Note with interest at the
rate of 9.000% per annum and installments including principal and accured
interest payable MONTHLY, each in the amount of $6,596.04, commencing one
MONTH from date of Note. Each said installment shall be applied first to
interest accrued to the date of receipt of said installment, and the
balance, if any, to principal. Balance of principal and interest payable on
or before fifteen years from the date hereof.
Interest rate shall be adjusted up or down QUARTERLY, and become effective
as of the first business day of each QUARTER with adjustment period
beginning April 1, 2000, based on .250% over the minimum prime rate as
published daily in the Wall Street Journal. In no event shall the interest
rate exceed the maximum rate permitted by law. Ceiling will be NIA% and
floor will be N/A%. THE INSTALLMENTS SHALL INCREASE OR DECREASE IN
ACCORDANCE WITH INTEREST FLUCTUATION ON A QUARTERLY BASIS.
If the undersigned shall be in default in payment due on the indebtedness
herein and the Small Business Administration (SBA) purchases its guaranteed
portion of said indebtedness, the rate of interest on both the guaranteed
and unguaranteed portions herein shall become fixed at the rate in effect
as of the date of default. If the undersigned shall not be in default in
payment when SBA purchases its guaranteed portion, the rate of interest on
both the guaranteed and unguaranteed portion herein shall be fixed at the
rate in effect as of the date of purchase by SBA.
SBA Form 147 (10/22/98) Previous editions obsolete Page 2/6
<Page>
3. PAYMENT TERMS:
Borrower must make all payments at the place Lender designates. The payment
terms for this Note are:
The interest rate on this Note will fluctuate. The initial interest
rate is 9.0% per year. This initial rate is the prime rate on the date
SBA received the loan application, plus .25%.
Borrower must pay principal and interest payments of $6,596.00 every
month, beginning one month from the month this Note is dated: payments
must be made on the 1st calendar day in the months they are due.
Lender will apply each installment payment first to pay interest
accrued to the day Lender receives the payment, then to bring
principal current, then to pay any late fees, and will apply any
remaining balance to reduce principal.
Lender may adjust the interest rate for the first time no earlier than
the first calendar day of the first month after initial disbursement.
The interest rate will then be adjusted quarterly (the "change
period").
The "Prime Rate" is the prime rate in effect on the first business day
of the month in which a change occurs, as published in the Wall Street
Journal on the next business day.
The adjusted interest rate will be .25% above the Prime Rate. Lender
will adjust the interest rate on the first calendar day of each change
period. The change in interest rate is effective on that day whether
or not Lender gives Borrower notice of the change.
Lender must adjust the payment amount at least annually as needed to
amortize principal over the remaining term of the note.
If SBA purchases the guaranteed portion of the unpaid principal
balance, the interest rate becomes fixed at the rate in effect at the
time of the earliest uncured payment default if there is no uncured
payment default. the rate becomes fixed at the rate in effect at the
time of purchase.
All remaining principal and accrued interest is due and payable 15
years from date of Note.
Late Charge : If a payment on this Note is more than 10 days late,
Lender may charge Borrower a late fee of up to 5% of the unpaid
portion of the regularly scheduled payment.
SBA Form 147 (10/22/98) Previous editions obsolete Page 2/6
<Page>
4. RIGHT TO PREPAY:
Borrower may prepay this Note. Borrower may prepay 20 percent or less of
the unpaid principal balance at any time without notice. If Borrower
prepays more than 20 percent and the Loan has been sold on the secondary
market, Borrower must:
A. Give Lender written notice;
B. Pay all accrued interest; and
C. If the prepayment is received less than 21 days from the date Lender
receives the notice, pay an amount equal to 21 days' interest from the
date lender receives the notice, less any interest accrued during the
21 days and paid under subparagraph B.
If Borrower does not prepay within 60 days from the date Lender receives
the notice, Borrower must give Lender a new notice.
5. DEFAULT:
Borrower is in default under this Note if Borrower does not make a payment
when due under this Note, or if Borrower or Operating Company:
A. Fails to do anything required by this Note and other Loan Documents;
B. Defaults on any other loan with Lender;
C. Does not preserve, or account to Lender's satisfaction for, any of the
Collateral or its proceeds;
D. Does not disclose, or anyone acting on their behalf does not disclose,
any material fact to Lender or SBA;
E. Makes, or anyone acting on their behalf makes, a materially false or
misleading representation to Lender or SBA;
F. Defaults on any loan or agreement with another creditor, if Lender
believes the default may materially affect Borrower's ability to pay
this Note;
G. Fails to pay any taxes when due;
H. Becomes the subject of a proceeding under any bankruptcy or insolvency
law;
I. Has a receiver or liquidator appointed for any part of their business
or property;
J. Makes an assignment for the benefit of creditors;
K. Has any adverse change in financial condition or business operation
that Lender believes may materially affect Borrower's ability to pay
this Note;
L. Reorganizes, merges, consolidates, or otherwise changes ownership or
business structure without Lender's prior written consent; or
M. Becomes the subject of a civil or criminal action that Lender believes
may materially affect Borrower's ability to pay this Note.
6. LENDER'S RIGHTS IF THERE IS A DEFAULT:
Without notice or demand and without giving up any of its rights, Lender
may:
A. Require immediate payment of all amounts owing under this Note;
B. Collect all amounts owing from any Borrower or Guarantor;
C. File suit and obtain judgment;
D. Take possession of any Collateral; or
E. Sell, lease, or otherwise dispose of, any Collateral at public or
private sale, with or without advertisement.
SBA Form 147 (10/22/98) Previous editions obsolete Page 3/6
<Page>
7. LENDER'S GENERAL POWERS:
Without notice and without Borrower's consent, Lender may:
A. Bid on or buy the Collateral at its sale or the sale of another
lienholder, at any price it chooses;
B. Incur expenses to collect amounts due under this Note, enforce the
terms of this Note or any other Loan Document, and preserve or dispose
of the Collateral. Among other things, the expenses may include
payments for property taxes, prior liens, insurance, appraisals,
environmental remediation costs, and reasonable attorney's fees and
costs. If Lender incurs such expenses, it may demand immediate
repayment from Borrower or add the expenses to the principal balance;
C. Release anyone obligated to pay this Note;
D. Compromise, release, renew, extend or substitute any of the Collateral;
and
E. Take any action necessary to protect the Collateral or collect amounts
owing on this Note.
8. WHEN FEDERAL LAW APPLIES:
When SBA is the holder, this Note will be interpreted and enforced under
federal law, including SBA regulations. Lender or SBA may use state or
local procedures for filing papers, recording documents, giving notice,
foreclosing liens, and other purposes. By using such procedures, SBA does
not waive any federal immunity from state or local control, penalty, tax,
or liability. As to this Note, Borrower may not claim or assert against SBA
any local or state law to deny any obligation, defeat any claim of SBA,
or preempt federal law.
9. SUCCESSORS AND ASSIGNS:
Under this Note, Borrower and Operating Company include the successors of
each, and Lender includes its successors and assigns.
10. GENERAL PROVISIONS:
A. All individuals and entities signing this Note are jointly and
severally liable.
B. Borrower waives all suretyship defenses.
C. Borrower must sign all documents necessary at any time to comply with
the Loan Documents and to enable Lender to acquire, perfect, or
maintain Lender's liens on Collateral.
D. Lender may exercise any of its rights separately or together, as many
times and in any order it chooses. Lender may delay or forgo enforcing
any of its rights without giving up any of them.
E. Borrower may not use an oral statement of Lender or SBA to contradict
or alter the written terms of this Note.
F. If any part of this Note is unenforceable, all other parts remain in
effect.
G. To the extent allowed by law, Borrower waives all demands and notices
in connection with this Note, including presentment, demand, protest,
and notice of dishonor. Borrower also waives any defenses based upon
any claim that Lender did not obtain any guarantee; did not obtain,
perfect, or maintain a lien upon Collateral; impaired Collateral; or
did not obtain the fair market value of Collateral at a sale.
SBA Form 147 (10/22/98) Previous editions obsolete Page 4/6
<Page>
11. STATE-SPECIFIC PROVISIONS:
(THIS PAGE LEFT INTENTIONALLY BLANK)
SBA Form 147 (10/22/98) Previous editions obsolete Page 5/6
<Page>
12. BORROWER'S NAME(S) AND SIGNATURE(S):
By signing below, each individual or entity becomes obligated under this
Note as Borrower.
FARSTAD OIL INC
/s/ Dennis Krueger
------------------------------------
Dennis Krueger, Vice President & COO
SBA Form 147 (10/22/98) Previous editions obsolete Page 6/6
<Page>
ALLONGE FOR ATTACHMENT TO NOTE
NAME: Farstad Oil Inc
------------------------------
SBA LOAN # GP 361,207-40-10 Fgo
------------------------------
BREMER LOAN # 283467
------------------------------
The repayment provisions of that certain Promissory Note dated MARCH 1, 2000 and
drawn in the amount of SIX HUNDRED FIFTY THOUSAND DOLLARS ($650,000.00) and
payable to the order of BREMER BANK, NATIONAL ASSOCIATION and executed by DENNIS
KRUEGER, VICE PRESIDENT AND CHIEF OPERATING OFFICER on behalf of FARSTAD OIL
INC, are hereby modified as follows:
THE MONTHLY PRINCIPAL AND INTEREST PAYMENT WILL NOT AT ANY TIME EXCEED
$7,500.00. THE MAXIMUM INTEREST RATE THIS VARIABLE INTEREST RATE LOAN WILL
BEAR IS 12.75%.
All other provisions of said Note not inconsistent herewith shall continue and
remain in full force and effect.
Dated this 27TH day of MARCH 2000.
FARSTAD OIL INC
/s/ Dennis Krueger
----------------------------------
DENNIS KRUEGER, VICE PRESIDENT AND
CHIEF OPERATING OFFICER
<Page>
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
Commitment Number: 00-143
SCHEDULE A
1. Commitment Date: January 31, 2000 at 07:30 AM
2. Policy (or Policies) to be issued: Amount
(a) Owner's Policy (ALTA Own. Policy 10/17/92 )
Proposed Insured:
(b) Loan Policy (ALTA Loan Policy 10/17/92 ) $ 650,000.00
Proposed Insured:
Bremer Bank, National Association, its successors and/or assigns as
their respective interests may appear.
(c) ( )
Proposed Insured:
3. Fee Simple interest in the land described in this Commitment is owned, at
the Commitment Date, by:
FARSTAD OIL, INC.
4. The land referred to in this Commitment is described as follows:
Lot 2, Farstad Second Addition to the City of Minot,
Ward County, North Dakota
AND
Township 155 North, Range 82 West of the 5th P.M.
Section 19: Sublot B of Outlot 37 of the N1/2
Section 20: Outlot 31 of the NW1/4NW1/4
Ward County, North Dakota
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
By: /s/ Paula J. Bachmeier
-----------------------------------
PAULA J. BACHMEIER
ALTA Commitment Valid Only if Schedule B and
Schedule A (10/6/82) Cover are Attached
(00-143.PFD/00-143/3)
<Page>
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
Commitment Number: 00-143
SCHEDULE B - SECTION I
REQUIREMENTS
The following are the requirements to be complied with:
1. Documents satisfactory to us creating the interest in the land and/or the
mortgage to be insured must be signed, delivered and recorded.
2. Satisfaction or release of Mortgage as shown on Schedule B - Section II,
Item Nos. 16 and 19.
3. Satisfaction or release of Financing Statement as shown on Schedule B -
Section II, Item Nos. 17 and 18.
ALTA Commitment
Schedule B - Section I (10/6/82)
(00-143.PFD/00-143/4)
<Page>
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
Commitment Number: 00-143
SCHEDULE B - SECTION II
EXCEPTIONS
Schedule B of the policy or policies to be issued will contain exceptions to the
following matters unless the same are disposed of to the satisfaction of the
company:
1. Defects, liens, encumbrances, adverse claims or other matters, if any,
created, first appearing in the public records or attaching subsequent
to the effective date hereof but prior to the date the proposed insured
acquires for value of record the estate or interest or mortgage thereon
covered by this Commitment.
2. Rights or claims of parties in possession not shown by the public records.
3. Encroachments, overlaps, boundary line disputes, and any other matters
which would be disclosed by an accurate survey and inspection of the
premises.
4. Easements or claims of easements not shown by the public records.
5. Any lien, or right to a lien, for services, labor or material imposed by
law and not shown by the public record.
6. Taxes for the year 2000 and subsequent years. Special Assessments hereafter
levied.
NOTE: We find no uncertified special assessments now a lien on insured
premises.
7. Statutory provisions of Section Line Highway under NDCC 24-07-03.
8. Oil, gas and mineral rights held by third parties.
9. Undefined Right of Way Easement recorded August 20, 1974 in Book "212"
of Misc., page 155, executed in favor of Verendrye Electric
Cooperative, grants an easement to place, construct, operate, repair,
maintain, relocate and repair and/or underground electric transmission
or distribution line or system on or under the above described lands
and/or in, upon or under, all streets, roads or highways abutting said
lands.
10. Easement recorded June 13, 1952 in Book "61" of Misc., page 114,
executed in favor of Northern States Power Company, grants the right,
privilege and authority to construct, operate and maintain its lines
for the transmission or electric energy, including the necessary poles,
wires, guys, stubs and other fixtures over, across and upon the
N1/2NW1/4 Section 20, Township 155 North, Range 82 West of the 5th P.M.
Said easement to cover the installation of four anchors and guys 30
feet, more or less, north of the south boundary near the west
quarter-quarter line of the N1/2NW1/4 Section 20, Township 155 North,
Range 82 West of the 5th P.M.
11. Centerline Easement recorded October 26, 1962 in Book "121" of Misc., page
85, executed in favor of
ALTA Commitment
Schedule B - Section II
(10/6/82) (00-143.PFD/00-143/4)
<Page>
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
Commitment Number: 00-143
SCHEDULE B -SECTION II
EXCEPTIONS
(CONTINUED)
Northern States Power Company, grants the right, privilege and easement
to construct, operate and maintain a telephone & electric distribution
line with all towers, structures, poles, crossarms, cables, wires, guys,
supports, fixtures and devices, used or useful in the operation and
maintenance of said line through, over and across the N1/2NE1/4 Section
19, Township 155 North, Range 82 West of the 5th P.M., with exception of
West 400 feet. (SEE COPY ATTACHED)
12. Undefined Right of Way Grant recorded November 3, 1960 in Book "106" of
Misc., page 510, executed in favor of Great Northern Pipe Line Company,
grants the right to construct, maintain, inspect, operate, protect,
repair, replace, change the size of or remove a pipe line or pipe lines
and any appurtenances useful and incident to the operation and protection
thereof, for the transportation of oil, gas, petroleum or any of its
products, and any other like or unlike substance which may be moved by
and through a pipe line or pipe lines along a route to be selected by
grantee, on, over and through the N1/2NE1/4 Section 19 and S1/2SE1/4
Section 18, Township 155 North, Range 82 West of the 5th P.M.
And subsequent Deed dated January 17, 1963, recorded May 27, 1963 in
Book "125" of Misc., page 217, executed by Great Northern Pipe Line
Company, to Portal Pipe Line Company, grants all interest in the
N1/2NE1/4 Section 19 and S1/2SE1/4 Section 18, Township 155 North, Range
82 West of the 5th P.M., granted, held, occupied, owned, possessed and
acquired under and by virtue of that certain Right of Way Grant dated
August 6, 1960, recorded in Book "106" of Misc., page 510 on November 3,
1960.
13. Driving and Parking Easement recorded October 29, 1996 as Document No.
747103, executed between Farstad Oil, Inc., and Rice Lake Products,
Farstad hereby grants to Rice Lake Products, an easement for driveway
purposes and parking purposes over and across Lot 2 Farstad Second
Addition to the City of Minot, North Dakota, and shall remain in effect
as long as Rice Lake Products, inc., is leasing the property described as
Lot 1 Farstad Second Addition to the City of Minot, North Dakota.
14. Driveway and Access Easement recorded June 24, 1998 as Document No.
764281, executed by Farstad Oil, Inc., to Roland Johnson and Annabelle
Johnson, grants to the Johnson's limited access easement for driveway
purposes over and across Lot 2 Farstad Second Addition to the City of
Minot, North Dakota, and that the easement granted under and pursuant to
this agreement is personal to the Johnsons and shall no inure to their
successors or assigns without the prior written consent of Farstad.
15. Easement as reserved in Quit Claim Deed recorded October 4, 1984 as
Document No. 629540, executed by Burlington Northern Railroad Company, to
Farstad Oil, Inc. (SEE COPY ATTACHED)
And subsequent Easement as reserved in Correction Quit Claim Deed
recorded December 23, 1985 as Document No. 640990, executed by Burlington
Northern Railroad Company, formerly Burlington Northern, Inc., to Farstad
Oil, Inc. (SEE COPY ATTACHED)
16. Mortgage dated August 20, 1996, recorded August 23, 1996 as Document
No. 745033, executed by Farstad Oil, Inc., to United Community Bank of
Burlington, given to secure $500,000.00, and any other amounts payable
under the terms thereof.
And accompanying Assignment of Rents recorded as Document No. 745034.
ALTA Commitment
Schedule B - Section II
(10/6/82) (00-143.PFD/00-143/4)
<Page>
OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY
Commitment Number: 00-143
SCHEDULE B - SECTION II
EXCEPTIONS
(CONTINUED)
17. Financing Statement recorded September 26, 1994 as Document No. 726053,
executed by Farstad Oil, Inc., to Norwest Credit, Inc. (SEE COPY ATTACHED)
18. Financing Statement recorded May 24, 1995 as Document No. 730959, executed
by Rice Lake Products, Inc., to Norwest Bank North Dakota, N.A. (SEE COPY
ATTACHED)
19. Mortgage dated May 19, 1995, recorded May 31, 1995 as Document No. 731068,
executed by Farstad Oil, Inc. and Rice Lake Products Inc., to Norwest Bank
North Dakota, National Association, given to secure $200,000.00, and any
other amounts payable under the terms thereof.
20. NOTE: The Plat of Outlots 30 and 31 of the NW1/4NW1/4 Section 20, Township
155 North, Range 82 West of the 5th P.M. was not signed by Virgil L.
Farstad who owned the North 330 feet of the West 660 feet of the N1/2NW1/4
of said Section 20. Since the property he owns was included in the Plat of
Outlots 30 and 31 he should ratify the Plat of Outlots 30 and 31 of the
NWI/4NW1/4 Section 20, Township 155 North, Range 82 West of the 5th P.M.
ALTA Commitment
Schedule B - Section II
A (10/6/82) (00-143.PFD/00-143/4)
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Amy Christensen. The Merchants Centerline Easement.
National Bank, and Trust Company
of Fargo, by James E. Leahy, Dated October 3, 1962.
V. Pres. and Trust Officer, and
W.B. Pearson, Cashier, Executor Filed for record Oct. 26, 1962 at 9:15 A.M.
of the Estate of A.M. Christensen,
deceased, Recorded in Book "121" of Misc., page 85.
-to- $1.00 and other valuable consideration.
Northern States Power Company.
Grant unto said Company, its successors and assigns the right, privilege and
easement to construct, operate and maintain a telephone & electric distribution
line with all towers, structures, poles, crossarms, cables, wires, guys,
supports, fixtures and devices, used or useful in the operation and maintenance
of said line through, over and across the following described land in Ward
County, North Dakota, to-wit: N1/2NE/4 Section 19, Twp. 155, Rge. 82, with
excepting of west 400 feet.
By its acceptance of this easement second party agrees that in the event any
portion of the above described property is ever platted for industrial,
commercial or residential use, it will move any structures, poles, cross arms,
cables, wires, guys, supports, fixtures and devices then installed on said
premises to such platted streets, or alleys as may be required for the
convenience of the owner of said property, such moving to the done at the sole
expense of the Northern States Power Company, its successors and assigns,
Said distribution line shall be constructed on the following described center
line: 77 feet south of and parallel to the north property line of said N1/2NE1/4
Section 19. Twp. 155 N., Rge. 82 W.
Said distribution line and every part thereof where it crosses said land
shall, except as stated in paragraph 4 hereof, be confined to lands within 10
feet of either side of the hereinabove described center line.
Grantee shall have the additional right and privilege of placing and
maintaining guys and anchorages for said transmission line on said land at
distances greater than ten feet from said center line as follows: A guy and
anchor to be placed at right angles to above described centerline a distance of
approximately 820 feet west of east property line of said N1/2NE1/4 Section 19
and extending south from north property line of said **
The grant of easement herein contained shall include the right to enter
upon the property of Grantor described in Paragraph 1 hereof to survey,
construct, operate, control, maintain and use said distribution line and to
rebuild the same (provided no substantial alterations are made therein which
materially increase the burden of the servitude hereby imposed on the land), to
remove from the land within 10 feet either side of said center line any
structure, tree or object which in the opinion of the Grantee will interfere
with said distribution line, including the branches of trees overhanging said
zone of 10 feet either side of said center line, and the right to permit the
attachment of wires of others to the structures of said distribution line.
The Grantor reserves the right to cultivate, use and occupy said land
except that, without the prior written approval of the Grantee, he shall not
erect any structures, hay or straw stacks, or other objects, permanent or
temporary, or plant any trees, within 10 feet either side of said center line,
and the Grantor further agrees that he will not perform any act which will
interfere with or endanger said distribution line or the use thereof.
The Grantee shall pay for all damages to crops, fences, livestock, roads
and fields caused by the construction or maintenance of said distribution line.
Claims on account of such damage may be referred to Grantee's nearest office.
The grant of easement herein contained is subject to existing rights-of-way
for highways, roads, railroads, canals, laterals, ditches other electric
distribution lines and telegraph and telephone lines heretofore granted across
any part of the above described land.
**N1/2NE1/4 Section 19, a distance of approximately 115 feet.
Acknowledged Oct. 4, 1962 by Amy Christensen, a widow, before K.G. Pringle,
N.P.Ward Co., N. Dak., N. P. Seal affixed. Comm. expires May 1, 1964.
Acknowledged Oct. 3, 1962 by James E. Leahy and W.B. Pearson, V.Pres. and
Cashier of the within described corporation,. before Magrethe Nestegard, N.P.
Cass Co., N. Dak. N.P. Seal affixed. Comm. expires June 24, 1967.
DEVINE ABSTRACT COMPANY, INC.
BONDED ABSTRACTORS
WINDY, NORTH DAKOTA
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Burlington Northern Railroad Quit Claim Deed
Company, by H.D. Shane,
Director-Land Management & Dated March 22, 1984.
Contracts and J.T. Hanks,
Asst. Secy., (Corporate Seal)
Filed for record Oct. 4, 1984 at 3:14 P.M.
to
Farstad Oil, Inc., Recorded as Document No. 629540.
Box 1842, Minot, ND.
Accepted by Jeffrey L. $28,000.00 consideration.
Farstad, President.
Remise, release and forever quit claim without any covenants of warranty
whatsoever and without recourse to grantor, its successors and assigns, unto the
said grantee, its successors and assigns, all its right, title and interest, if
any, in and to that tract of land situated in Ward County, North Dakota,
described as follows, to-wit:
Beginning at the northwest cornet of the SW1/4NW1/4 Section 20.Twp. 155 N..
Rge. 82 W., Ward County. North Dakota; thence N 89(DEG) 55'02" E - 1319.50
feet to the northeast corner of said SW1/4NW1/4; thence S 0(DEG)04'01" W
along the east line of said SW1/4NW1/4 - 482.50 feet; thence N 84(degree)01'41"
W - 537.65 feet; thence N 72(DEG)20'00" W - 176.20 feet; thence N
17(DEG)40'00" E - 205.00 feet; thence N 72(degree)20'00" W - 331.65 feet;
thence N 0(DEG)02'00" E - 75.00 feet to the point of beginning. This
parcel contains 8.27 acres, more or less. This parcel to be known as outlet 28,
Section 2, Twp. 155 North, Rge. 82 West.
Reserving, however, unto said grantor, its successors and assigns, an
easement 10 feet in width, being 5 feet wide on each side of the existing water
line on the premises in the approximate location shown yellow on the map
attached hereto marked Exhibit "A" and by this reference made a part hereof.
Subject, however, to easement dated April 19, 1974, granted to the United
States Department of the Interior for a buried water conveyance system.
Also, subject, however, to all existing interests, including but not
limited to all reservations, rights of way and easements of record or otherwise.
Excepting and reserving, however, unto grantor, its successors and assigns,
all of the coal, oil, gas, casinghead gas and all other ores and minerals of
every kind and nature underlying the surface of the premises herein conveyed,
together with the full right, privilege and license at any and all times to
explore or drill for and to protect, conserve, mine, take, remove and market any
and all such products in any manner which will not damage structures on the
surface of the premises herein conveyed, together with the right of access at
all times to exercise said rights.
Acknowledged March 22, 1984 by H.D. Shane and J.T. Hanks, Director-Land
Management and Contracts, and Asst. Secy, of the within described corporation,
before S.F. Tusa, N.P. Ramsey Co., Minnesota. N.P. Seal affixed. Comm. expires
May 1, 1990.
Acknowledged March 2, 1984 by Jeffrey__Farstad, President of the within
described corporation, before Sandra Wald, N.P. Ward Co., N. Dak. N.P. Seal
affixed. Comm. expires April 10, 1987.
I certify that the requirement for a report or statement of full
consideration paid does not apply because this deed is for one of the
transactions exempted by subdivision i of subsection 6 of section 4 of Senate
Bill 2323 (1981); date 9/13/84; /s/ Nancy S. Miller.
J. M. DEVINE & CO., INC.
FULL SERVICES TITLE COMPANY
MINOT, NORTH DAKOTA
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[ MAP OF FACILITY ]
<Page>
Burlington Northern Railroad Correction Quit Claim Deed.
Company, formerly Burlington
Northern, Inc., by H.D. Shane,
Director-Property management Dated December, 1985.
and J.T. Hanks, Asst. Secy.,
[Corporate Seal]
Filed for record Dec. 23, 1985 at 4:14 P.M.
to
Farstad 0i1 Inc., Recorded as Document No. 640990.
Box 1842, Minot, ND,
Accepted by Jeffrey L.
Farstad, President. $28,000.00 consideration.
Remise, release and forever quit claim without any covenants of warranty
whatsoever and without recourse to grantor, its successors and assigns, unto the
said grantee, its successors and assigns, all its right, title and interest, if
any, in and to that tract of land situated in Ward County, North Dakota,
described as follows, to-wit:
Beginning at the northwest corner of the SW1/2 NW1/2 Section 20, Twp.155
N., Rge. 82 W., Ward County, North Dakota; thence N 89(DEG)55'02" E - 1319.50
feet to the northeast corner of said SW1/4NW1/4; thence S 0(DEG)04'01" W
along the east line of said SW1/4NW1/4 - 482.50 feet; thence N 84(DEG)01'41"
W - 537.65 feet; thence N 72 20'00" W - 176.20 feet; thence N 17(DEG)40'00" E
- 205.00 feet; thence N 72(DEG)20'00" W - 331.65 feet; thence N
89(DEG)58'00" W 362.55 feet to the west line of said SW1/4NW1/4; thence N
0(DEG)02'00" E - 75.00 feet to the point of beginning. This parcel contains
8.27 acres, more or less. This parcel to be known as Outlot 28, Section 2, Twp.
155 North, Rge. 82 West.
Reserving, however, unto said grantor, its successors and assigns, an
easement 10 feet in width, being 5 feet wide on each side of the existing water
line on the premises in the approximate location shown yellow on the map
attached hereto marked Exhibit "A" and by this reference, made a part hereof.
Subject, however, to easement dated April 19, 1974, granted to the United
States Department of the Interior for a buried water conveyance system.
Also, subject, however, to all existing interests, including but not
limited to all reservations, rights of way and easements of record or otherwise.
Excepting and reserving, however, unto grantor, its successors and assigns,
all of the coal, oil, gas, casinghead gas and all other ores and minerals of
every kind and nature underlying the surface of the premises herein conveyed,
together with the full right, privilege and license at any and all times to
explore or drill for and to protect, conserve, mine, take, remove and market any
and all such products in any manner which will not damage structures on the
surface of the premises herein conveyed, together with the right of access at
all times to exercise said rights.
This deed is given to correct the legal description of that certain Quit
Claim Deed dated March 22, 1984 between the parties hereto.
Acknowledged Dec. 3, 1985 by H.D. Shane and J.T. Hanks, Director-Land
Management and Contracts, and Asst. Secy. of the within described corporation,
before Madylene Andrews, N.P. Tarrant Co., Texas. N.P. Seal affixed. Comm.
expires Jan. 4, 1989.
Acknowledged Nov. 25, 1985 by Jeffrey L. Farstad, President of the within
described corporation, before Donna Fettig, N.P. Ward Co., N. Dak. N.P. Seal
affixed. Comm. expires Feb. 25, 1988.
No consideration statement shown.
No Exhibit "A" attached.
J. M. DEVINE & CO., INC.
FULL SERVICES TITLE COMPANY
MINOT, NORTH DAKOTA
<Page>
[PICTURE OF FINANCING STATEMENT]
<Page>
EXHIBIT A
ADDITIONAL SHEET TO FINANCING STATEMENT
Debtor: Farstad 0i1, Inc.
P.O. Box 1842
County Road 19 North
Minot, North Dakota
Federal Tax Identification No. 54-0325753
Secured Party: Norwest Credit, Inc.
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-2058
This Financing Statement covers the following types or items
of property:
EQUIPMENT: All equipment of Debtor, whether now owned or
hereafter acquired, including but not limited to all present
and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including
specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to
Secured Party by Debtor.
<Page>
EXHIBIT B
ADDITIONAL SHEET TO FINANCING STATEMENT
Debtor: Farstad 0i1, Inc.
P.O. Box 1842
County Road 19 North
Minot, North Dakota
Federal Tax Identification No. 54-0325753
Secured Party: Norwest Credit, Inc.
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-2058
The real estate on which the collateral is or may be
attached as a fixture is located in Ward County, North Dakota
and is legally described as follows:
PARCEL A
MAIN LOCATION - WARD COUNTY
Township 155 N., Range 82 W. Section 20:
Outlot 31 of NW1/4NW1/4.
PARCEL B
PORTAL TANKS -WARD COUNTY
Sublot -37- of N1/4, Section 19, Township 155, Range 82, described as follows:
Commencing at the north 1/4 corner of Section 19, township 155 north,
range 82 west; then S OO DEG.06'26.5 DEG.W, along the north-south 1/4
lineof said Section 19 - 75.00 feet to the south right-of-way (R/W) line
ofWard County Highway No. 12; then N89 DEG. 41'26 DEG.E, along said south
R/W line, which is parallel to the north boundary of said Section 19
-330.00 feet to the point of beginning; then N89 DEG 41 '26' E, along
said South R/W line - 0.00 feet to a portion of the boundary of outlot
-37-, a plat of which is on file at the Ward County Register of Deeds
Office, Ward County North Dakota, said portion being 400.00 feet east of
and parallel to the north-south 1/4 line of said Section 19; then SOO
DEG.06' 26.5 DEG.W, along said boundary - 470.00 feet; then S72 DEG.44'
38.9" DEG.E, along the boundary of said outlet -37- - 1050.00 Feet; then
S17 DEG.15' 21.1 DEG.W, which is at right angles to the last described
course - 151.48 feet to a point on a line which is 15.00 feet
northeasterly of, as measured radially to the center-line of Burlington
Northern Railroad Company's spur track No. 15; then along a curve
<Page>
to the left along a line which is 15.00 feet northeasterly of, as
measured radially to said railroad company's spur track No. 15 - 8.66
feet, said curve having a radius of 1365.58 feet and a chord of 8.66 feet
which bears N72 DEG.12'34.7"W; then N72DEG.23'29.3"W, along a line
which is 15.00 feet northeasterly of, as measured at right angles to,
said railroad company's spur track No. 15 - 1181.21 feet; then
N17DEG.36'30.7"E, at right angles to the last described course -
160.00 feet; then S72DEG.23'29.3"E, at right angles to the last
described course - 60.83 feet to a point on a line which is parallel to
and 330.00 feet east of, as measured at right angles to the north-south
1/4 line of said Section 19; then NOODEG.06'26.5"E, along said
parallel line - 431.67 feet to the point of beginning; said described
tract of land containing 4.80 acres, more or less.
PARCEL C
MINOT RR SPUR - WARD COUNTY
Outlot 28 of SW1/4 NW1/4, Section 20, Township 155, Range 82, described as
follows:
Beginning at the northwest corner of the SW1/4 NW1/4, Section 20,T155N,
R82W, Ward County, North Dakota; thence N89DEG.55'02"E - 1319.50 feet
to the northeast corner of said SW1/4 NW1/4; thence SODEG.04'01DEG.W
along the east line of said SW1/4 NW1/4 - 482.50 feet; thence
N84DEG.01'41"W - 537.65 feet; thence N72DEG.20'00"W - 331.65 feet;
thence N89DEG.58'00"W - 362.55 feet to the west line of said SW1/4
NW1/4; thence N0DEG.02'00"E - 75.00 feet to the point of beginning.
This parcel contains 8.27 acres, more or less.
Sublot "B" as depicted hereon is intended to become attached to adjacent
property east thereof and shall not become a discrete usable parcel in itself.
The record owner of the real estate is Farstad Oil, Inc.
[SEAL OF REGISTRAR OF DEEDS]
- 2 -
<Page>
[PICTURE OF FINANCING STATEMENT]
<Page>
[PICTURE OF SECURITY AGREEMENT]
<Page>
[PICTURE OF COMMITMENT TO INSURE]
<Page>
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AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
FARSTAD OIL, INC.
AND
NORWEST CREDTT, INC.
Dated as of December 8, 1997
[NORTH WEST LOGO]
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<Page>
TABLE OF CONTENTS
<Table>
<Caption>
<S> <C> <C>
ARTICLE I DEFINITIONS .........................................................................1
Section 1.1 DEFINITIONS .........................................................................1
Section 1.2 CROSS REFERENCES ...................................................................12
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY ............................................12
Section 2.1 EXISTING ADVANCES ..................................................................12
Section 2.2 REVOLVING ADVANCES .................................................................12
Section 2.3 EXISTING LETTERS OF CREDIT .........................................................13
Section 2.4 LETTERS OF CREDIT ..................................................................13
Section 2.5 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT; OBLIGATION OF REIMBURSEMENT ......14
Section 2.6 SPECIAL ACCOUNT ....................................................................14
Section 2.7 OBLIGATIONS ABSOLUTE ...............................................................15
Section 2.8 INTEREST; DEFAULT INTEREST; PARTICIPATIONS; USURY ..................................15
Section 2.9 FEES ...............................................................................16
Section 2.10 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND PAYABLE ....................17
Section 2.11 CAPITAL ADEQUACY; INCREASED COSTS AND REDUCED RETURN ...............................17
Section 2.12 DISCRETIONARY NATURE OF THIS FACILITY; TERMINATION BY THE LENDER; AUTOMATIC
RENEWAL ..........................................................................................19
Section 2.13 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITY BY THE BORROWER ...........19
Section 2.14 TERMINATION PREPAYMENT FEES; WAIVER OF TERMINATION FEES ............................19
Section 2.15 MANDATORY PREPAYMENT ...............................................................20
Section 2.16 PAYMENT ............................................................................20
Section 2.17 PAYMENT ON NON-BANKING DAYS ........................................................20
Section 2.18 USE OF PROCEEDS ....................................................................21
Section 2.19 LIABILITY RECORDS ..................................................................21
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF ...............................................21
Section 3.1 GRANT OF SECURITY INTEREST .........................................................21
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS .................................21
Section 3.3 ASSIGNMENT OF INSURANCE ............................................................21
Section 3.4 OCCUPANCY ..........................................................................22
Section 3.5 LICENSE ............................................................................22
Section 3.6 FINANCING STATEMENT ................................................................22
Section 3.7 SETOFF .............................................................................23
<Page>
ARTICLE IV CONDITIONS OF WILLINGNESS TO CONSIDER LENDING ......................................23
Section 4.1 CONDITIONS PRECEDENT TO LENDER'S WILLINGNESS TO CONSIDER MAKING THE INITIAL
REVOLVING ADVANCE AND THE INITIAL LETTER OF CREDIT..................................23
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT .........................26
ARTICLE V REPRESENTATIONS AND WARRANTIES .....................................................26
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER ...................................................26
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR AGREEMENTS ....................27
Section 5.3 LEGAL AGREEMENTS ...................................................................27
Section 5.4 SUBSIDIARIES .......................................................................28
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE .............................................28
Section 5.6 LITIGATION .........................................................................28
Section 5.7 REGULATION U .......................................................................28
Section 5.8 TAXES ..............................................................................28
Section 5.9 TITLES AND LIENS ...................................................................28
Section 5.10 PLANS ..............................................................................29
Section 5.11 DEFAULT ............................................................................29
Section 5.12 ENVIRONMENTAL MATTERS ..............................................................29
Section 5.13 SUBMISSIONS TO LENDER ..............................................................30
Section 5.14 FINANCING STATEMENTS ...............................................................30
Section 5.15 RIGHTS TO PAYMENT ..................................................................31
Section 5.16 FINANCIAL SOLVENCY .................................................................31
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS ...................................................32
Section 6.1 REPORTING REQUIREMENTS .............................................................32
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION ......................................35
Section 6.3 LIEN WAIVERS .......................................................................35
Section 6.4 ACCOUNT VERIFICATION ...............................................................35
Section 6.5 COMPLIANCE WITH LAWS ...............................................................35
Section 6.6 PAYMENT OF TAXES AND OTHER CLAIMS ..................................................36
Section 6.7 MAINTENANCE OF PROPERTIES ..........................................................36
Section 6.8 INSURANCE ..........................................................................36
Section 6.9 PRESERVATION OF EXISTENCE ..........................................................37
Section 6.10 DELIVERY OF INSTRUMENTS, ETC .......................................................37
Section 6.11 COLLATERAL ACCOUNT .................................................................37
Section 6.12 LOCKBOX ............................................................................37
Section 6.13 PERFORMANCE BY THE LENDER ..........................................................38
Section 6.14 MINIMUM NET ........................................................................39
Section 6.15 MAXIMUM DEBT TO BOOK NET WORTH RATIO ...............................................39
Table of Contents -ii-
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ARTICLE VII NEGATIVE COVENANTS .................................................................39
Section 7.1 LIENS ..............................................................................39
Section 7.2 INDEBTEDNESS .......................................................................40
Section 7.3 GUARANTIES .........................................................................40
Section 7.4 INVESTMENTS AND SUBSIDIARIES .......................................................40
Section 7.5 DIVIDENDS ..........................................................................41
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS .......................................41
Section 7.8 SALE AND LEASEBACK .................................................................42
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS .................................................42
Section 7.10 CAPITAL EXPENDITURES ...............................................................42
Section 7.11 ACCOUNTING .........................................................................42
Section 7.12 DISCOUNTS, ETC .....................................................................42
Section 7.13 DEFINED BENEFIT PENSION PLANS ......................................................42
Section 7.14 OTHER DEFAULTS .....................................................................42
Section 7.15 PLACE OF BUSINESS; NAME ............................................................42
Section 7.16 ORGANIZATIONAL DOCUMENTS ...........................................................42
Section 7.17 SALARIES ...........................................................................43
Section 7.18 CHANGE IN OWNERSHIP ................................................................43
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES. ............................................43
Section 8.1 EVENTS OF DEFAULT ..................................................................43
Section 8.2 RIGHTS AND REMEDIES ................................................................45
Section 8.3 CERTAIN NOTICES ....................................................................46
ARTICLE IX MISCELLANEOUS ......................................................................47
Section 9.1 RESTATEMENT OF OLD CREDIT DOCUMENTS ................................................47
Section 9.2 RELEASE ............................................................................47
Section 9.3 NO WAIVER; CUMULATIVE REMEDIES .....................................................47
Section 9.4 AMENDMENTS, ETC ....................................................................47
Section 9.5 ADDRESSES FOR NOTICES, ETC .........................................................47
Section 9.6 FURTHER DOCUMENTS ..................................................................48
Section 9.7 COLLATERAL .........................................................................48
Section 9.8 COSTS AND EXPENSES .................................................................49
Section 9.9 INDEMNITY ..........................................................................49
Section 9.10 PARTICIPANTS .......................................................................50
Section 9.11 EXECUTION IN COUNTERPARTS ..........................................................50
Section 9.12 BINDING EFFECT; ASSIGNMENT; COMPETE AGREEMENT; EXCHANGING INFORMATION ..............50
Section 9.13 SEVERABILITY OF PROVISIONS .........................................................50
Section 9.14 HEADINGS ...........................................................................51
Section 9.15 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL ...........................51
Section 9.16 NOT REPRESENTED BY COUNSEL .........................................................51
Table of Contents -iii-
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Section 9.17 AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT .................................51
</TABLE>
Table of Contents -iv-
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AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
Dated as of December 8, 1997
FARSTAD OIL, INC., a North Dakota corporation (the "Borrower") , and
NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article,and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Accounts Receivable Turnover" means the product of:
(a) the quotient of (i) the sum of the Accounts balance as of
each month-end during a rolling three-month period, divided
by (ii) sales for such three month period, times
(b) 30 days.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Energy, Fabrication FGO, SPF
Superpumper and any other Person controlled by, controlling or under common
control with the Borrower or any of the Guarantors, including (without
limitation) any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
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"Agreement" means this Amended and Restated Credit and Security
Agreement, as amended, supplemented or restated, from time to time.
"Availability" means the difference of (i) the Borrowing Base and (ii)
the sum of (A) the outstanding principal balance of the Revolving Note and (B)
the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or other day
on which banks are generally not open for business in Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from time to
time by Norwest Bank Minnesota, National Association as its "base rate" or, if
such bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time and subject to change from time to
time in the Lender's sole discretion, the lesser of:
(a) the Maximum Line; or
(b) the Borrowing Power.
"Borrowing Power" means at any time and subject to change from time to
time in the Lender's sole discretion, the sum of:
(a) the Ordinary Borrowing Power, plus
(b) the Overadvance Component.
"Capital Expenditures" for a period means any expenditure of money for
the purchase or construction of assets, or for improvements or additions
thereto, which are capitalized on the Borrower's balance sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in
any Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading
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and other documents of title now or hereafter covering such goods; and (vi) all
sums on deposit in the Special Account.
"Collateral Account" has the meaning given in Section 6.11.
"Consolidated Net Income" means, on a consolidated basis, the monthly
after-tax net income from continuing operations of the Borrower and its
Subsidiaries as determined in accordance with GAAP.
"Credit Facility" means the discretionary credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or liability
which in accordance with GAAP would be included in determining total liabilities
as shown on the liabilities side of a balance sheet of that Person as at the
date as of which Debt is to be determined. For purposes of determining a
Person's aggregate Debt at any time, "Debt" shall also include the aggregate
payments required to be made by such Person at any time under any lease that is
considered a capitalized lease under GAAP.
"Debt to Book Net Worth Ratio" as of a given date means the ratio of
the Borrower's Debt to the Borrower's Book Net Worth.
"Default" means an event that, with giving of notice or passage of
time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day
of any month during which a Default or Event of Default has occurred and ending
on the date the Lender notifies the Borrower in writing that such Default or
Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%) over the
Floating Rate, which rate shall change when and as the Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 60 days or more after the
invoice date or that portion of such dated Account which is unpaid or
more after the stated due date or 150 days past invoice date;
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(ii) That portion of Superpumper Accounts unpaid 15 days or more
after the invoice date;
(iii) That portion of Accounts owed by Superpumper exceeding the
Superpumper Cap; and
(iv) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(v) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(vi) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for
which the Borrower has provided evidence satisfactory to the Lender
that (A) the Lender has a first priority perfected security interest
and (B) such Accounts may be enforced by the Lender directly against
such unit of government under all applicable laws);
(vii) Accounts owed by an account debtor located outside the
United States or Canada which are not (A) backed by a bank letter of
credit naming the Lender as beneficiary or assigned to the Lender, in
the Lender's possession and acceptable to the Lender in all respects,
in its sole discretion, (B) covered by a foreign receivables insurance
policy acceptable to the Lender in its sole discretion;
(viii) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(ix) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower, except for Superpumper Accounts;
(x) Accounts not subject to a duly perfected security interest
in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
(xi) That portion of Accounts that has been restructured,
extended, amended or modified;
(xii) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xiii) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii),
(iv)or (xi) above;
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(xiv) Accounts arising out of the sale of Inventory acquired from
Interest Owners for which a Lien Waiver has not been obtained;
(xv) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the
lower of cost or market value as determined in accordance with GAAP;
provided, however, that the following shall not in any event be deemed
Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse, job
site or other premises not approved by the Lender in writing; located
outside of the states, or localities, as applicable, in which the
Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other document of
title; on consignment from or to any Person or subject to any
bailment;
(ii) Supplies, packaging, maintenance parts or sample Inventory;
(iii) Work-in-process Inventory;
( iv) Inventory that is damaged, obsolete, slow moving or not
currently saleable in the normal course of the Borrower's operations;
(v) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof,
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such
Inventory;]
(viii) Inventory that is subject to a security interest in favor
of any Person other than the Lender, including but not limited to
shipments from Interest Owners for which the Borrower has not received
a Lien Waiver certifying that the total purchase price for such
shipment has been received;
(ix) Inventory stored in salt domes; and
(x) Inventory otherwise deemed ineligible by the Lender in its
sole discretion.
"Eligible Unbilled Accounts" means all Eligible Accounts for which the
Borrower has not yet delivered an invoice to the customer, excluding,
however, that portion of Eligible Accounts unbilled more than three (3)
days after delivery to the customer.
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"Energy" means Farstad Energy Services, LLC, a North Dakota limited
liability company.
"Energy Security Agreement" means the Security Agreement of even date
herewith, executed by Energy and delivered to the Lender.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Existing Revolving Advances" has the meaning specified in Section
2.1.
"Fabrication" means Fabrication Services Ltd. Liability Co.,a Colorado
limited liability company.
"FGO" means Farstad Gas & Oil, LLC, a North Dakota limited liability
company.
"FGO Security Agreement" means the Security Agreement of even date
herewith, executed by FGO and delivered to the Lender.
"FGO Pledge" means the Collateral Pledge Agreement of even date
herewith, executed by FGO and delivered to the Lender.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus two and one-half of one percent (2 1/2%), which annual rate shall change
when and as the Base Rate changes; PROVIDED, HOWEVER that such `Floating Rate'
shall mean a rate equal to the Base Rate plus one percent (1%), effective as of
the date either of the following conditions is met, if the Borrower is able to,
prior to February 15, 1998, satisfy either of the following conditions: (i)
obtain subordinated debt in the amount of at least $1,500,000, or (ii) collect
in full on the debt owed to it by Dacotah Marketing Research LLC.
"Funding Date" has the meaning given in Section 2.2.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described
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in Section 5.5, except for any change in accounting practices to the extent
that, due to a promulgation of the Financial Accounting Standards Board
changing or implementing any new accounting standard, the Borrower either (i)
is required to implement such change, or (ii) for future periods will be
required to and for the current period may in accordance with generally
accepted accounting principles implement such change, for its financial
statements to be in conformity with generally accepted accounting principles
(any such change is herein referred to as a "Required GAAP Change"), provided
that (1) the Borrower shall fully disclose in such financial statements any
such Required GAAP Change and the effects of the Required GAAP Change on the
Borrower's income, retained earnings or other accounts, as applicable, and (2)
the Borrower's financial covenants set forth in Sections 6.14, 6.15, and 7.10
shall be adjusted as necessary to reflect the effects of such Required GAAP
Change.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantors" means the Individual Guarantor and the Organizational
Guarantors.
"Hazardous Substance" has the meaning given in Section 5.12.
"Individual Guarantor" means Jeffrey L. Farstad.
"Interest Owner" means the Persons identified from time to time in
writing from the Borrower to the Lender as interest owners in oil and gas sold
to the Borrower as first purchaser within the meaning of Texas Uniform
Commercial Code Section. 9.319 and the Oil and Gas Products Lien Act of New
Mexico, NMSA Sections. 48-9-1 ET SEA.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether consisting
of whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service contracts or
for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
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"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means (a) with respect to New Letters of Credit, an
application and agreement for letters of credit in a form acceptable to the
Issuer and the Lender; (b) with respect to Prior Letters of Credit, the existing
application and agreement for each Prior Letter of Credit.
"Letter of Credit" has the meaning specified in Section 2.4.
"Lien Waiver" has the meaning given in Section 6.3.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in Section 6.12.
"Maturity Date" has the meaning given in Section 2.12.
"Maximum Line" means $12,000,000.
"Net Income" means, on an unconsolidated basis, the Borrower's monthly
after-tax net income from continuing operations as determined in accordance with
GAAP.
"Norwest ND" means Norwest Bank North Dakota, National Association.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or obligation
now exists or is hereafter created or incurred, whether it arises in a
transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, the Obligation of Reimbursement and all
indebtedness of the Borrower arising under this Agreement, the Note, any L/C
Application completed by the Borrower, or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into.
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"Obligation of Reimbursement" has the meaning given in Section 2.5(a).
"Old Credit Documents" means that certain Credit and Security
Agreement dated as of September 14, 1994, as amended by a First Amendment to
Credit and Security Agreement dated as of September 26, 1994, a Second Amendment
to Credit and Security Agreement dated as of March 28, 1995, a Third Amendment
to Credit and Security Agreement dated as of June 1, 1995, a Fourth Amendment to
Credit and Security Agreement dated as of July 24, 1996, a Fifth Amendment to
Credit and Security Agreement dated as of November 25, 1996, and a Sixth
Amendment to Credit and Security Agreement dated as of March 31, 1997.
"Old Revolving Note" means the Borrower's revolving promissory note
dated as of July 24, 1996, payable to the order of the Lender in the original
principal amount of $12,000,000.
"Ordinary Borrowing Power" means at any time and subject to change
from time to time in the Lender's sole discretion, the sum of:
(a) 85% of Eligible Accounts, plus
(b) the lesser of (i) 65% of Eligible Inventory or (ii) $3,000,000,
plus
(c) the lessor of (i) 70% of Eligible Unbilled Accounts or (ii)
$2,000,000.
"Organizational Guarantors" means Fabrication FGO, Energy, Superpumper
and SPF.
"Original Maturity Date" means December 15, 2000.
"Overadvance Amount" has the meaning as given in Section 2.8(b).
"Overadvance Component" means an amount equal to the difference
between the Maximum Line and the Ordinary Borrowing Power.
"Overadvance Floating Rate" means an annual rate equal to the sum of
the Floating Rate plus eleven percent (11%) which rate shall change when and as
the Floating Rate changes."
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the premises
legally described in Exhibit C attached hereto.
"Prior Letters of Credit" means the letters of credit issued prior to
the date of the Credit Agreement by Norwest ND for the account of the Borrower,
in favor of various parties, identified more specifically on Exhibit D attached
hereto.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.2.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A hereto
and any note or notes issued in substitution therefor, as the same may hereafter
be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Pledge Agreement, the
FGO Security Agreement, the FGO Pledge, the Energy Security Agreement, the
Guaranties of each of the Guarantors and any other document delivered to the
Lender from time to time to secure the Obligations, as the same may hereafter be
amended, supplemented or restated from time to time.
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"Security Interest" has the meaning given in Section 3.1.
"Special Account" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with Letters
of Credit, as contemplated by Section 2.6.
"SPF" means SPF Energy, Inc., a North Dakota corporation, the Parent
of the Borrower.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Superpumper" means Superpumper, Inc., a North Dakota corporation.
"Superpumper Cap" means $1,000,000; provided, however, that such
amount shall decrease by $100,000 beginning on the six month anniversary of the
date hereof and continuing on each sixth month anniversary thereafter, until
such amount equals $500,000; FURTHER; PROVIDED, that the Lender may, in its sole
discretion, increase or decrease such "Supcrpumper Cap".
"Tax Expense" as of any date means state and federal income taxes
recorded by the Borrower for the year-to-date period ending on such date.
"Tax Reserve" means a reserve established for any tax liability
arising in connection with the acquisition or sale of petroleum products, amount
of which shall be determined at the discretion of the Lender, based on
historical and expected liability.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations .
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.15 as the state whose laws shall govern
this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
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Section 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE 11
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 EXISTING ADVANCES. The Lender has made various advances to
the Borrower (the "Existing Revolving Advances") as evidenced by the Old Credit
Documents. As of December 4, 1997, the outstanding principal balance of the
Existing Revolving Advances was $6,639,064.86. Upon execution and delivery of
this Agreement, the Existing Revolving Advances shall be deemed to be Revolving
Advances made pursuant to Section 2.2 and repayable in accordance with the
Revolving Note. To the extent the Revolving Note evidences the Existing
Revolving Advances, the Revolving Note shall be issued in substitution for and
replacement of but not in payment of the Old Credit Documents.
Section 2.2 REVOLVING ADVANCES. The Lender may, in its sole
discretion, make advances to the Borrower from time to time from the date all of
the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to
the Termination Date, on the terms and subject to the conditions herein set
forth (the "Revolving Advances"). The Lender shall not consider any request for
a Revolving Advance if, after giving effect to such requested Revolving Advance,
the sum of the outstanding and unpaid Revolving Advances under this Section 2.2
or otherwise would exceed the Borrowing Base less the L/C Amount. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral as provided in Article III. Within
the limits set forth in this Section 2.2, the Borrower may request Revolving
Advances, prepay pursuant to Section 2.13 and request additional Revolving
Advances. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.2:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Minneapolis time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person whom the
Lender reasonably believes to be an officer of the Borrower or such a
designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with Norwest ND
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unless the Lender and the Borrower shall agree in writing to another manner
of disbursement. Upon the Lender's request, the Borrower shall promptly
confirm each telephonic request for an Advance by executing and delivering
an appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to
do so. Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.
Section 2.3 EXISTING LETTERS OF CREDIT. The Lender has caused the
Issuer to issue six (6) letters of credit which are presently outstanding (the
"Prior Letters of Credit"). The Borrower's obligations with respect to the Prior
Letters of Credit are evidenced by the Old Credit Documents. As of December 4,
1997, the aggregate amount available to be drawn under the Prior Letters of
Credit was $1,615,000. Upon execution and delivery of this Agreement, the Prior
Letters of Credit shall be deemed to be Letters of Credit issued pursuant to
Section 2.4.
Section 2.4 LETTERS OF CREDIT.
(a) The Lender has agreed to indemnify Norwest ND for any and all
charges assessed or losses incurred on any of the Prior Letters of Credit.
(b) The Lender may, in its sole discretion, cause an Issuer to issue,
from the Funding Date to the Termination Date, one or more irrevocable
standby or documentary letters of credit (each, a "New Letter of Credit",
and together with the Prior Letters of Credit, the "Letters of Credit")
for the Borrower's account. The Lender shall have no obligation to cause an
Issuer to issue any New Letter of Credit if the face amount of the New
Letter of Credit to be issued, would exceed the lesser of.
(i) $2,500,000 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (i) all outstanding
and unpaid Revolving Advances and (ii) the L/C Amount.
Each New Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into by the Borrower and the Lender for the benefit
of the Issuer, completed in a manner satisfactory to the Lender and the
Issuer. The terms and conditions set forth in each such L/C Application
shall supplement the terms and conditions hereof, but if the terms of any
such L/C Application and the terms of this Agreement are inconsistent, the
terms hereof shall control.
(c) No New Letter of Credit shall be issued with an expiry date later
than the Termination Date in effect as of the date of issuance.
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(d) Any request to cause an Issuer to issue a New Letter of Credit
under this Section 2.4 shall be deemed to be a representation by the
Borrower that the conditions set forth in Section 4.2 have been satisfied
as of the date of the request.
Section 2.5 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT:
OBLIGATION OF REIMBURSEMENT. The Borrower acknowledges that the Lender, as
co-applicant on the New Letters of Credit or as indemnitor on the Prior Letters
of Credit, will be liable to the Issuer for reimbursement of any and all draws
under Letters of Credit and for all other amounts required to be paid under the
applicable L/C Application. Accordingly, the Borrower agrees to pay to the
Lender any and all amounts required to be paid under the applicable L/C
Application, when and as required to be paid thereby, and the amounts designated
below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a draft is
honored under any Letter of Credit a sum equal to all amounts drawn under
such Letter of Credit plus any and all reasonable charges and expenses that
the Issuer or the Lender may pay or incur relative to such draw and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower's obligation to pay all such
amounts is herein referred to as the "Obligation of Reimbursement").
(b) If a draft is submitted under a Letter of Credit when the Borrower
is unable, because a Default Period then exists or for any other reason, to
obtain a Revolving Advance to pay the Obligation of Reimbursement, the
Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date of the draft until payment in full at the
Default Rate. Notwithstanding the Borrower's inability to obtain a
Revolving Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to
discharge the Obligation of Reimbursement and all accrued but unpaid
interest thereon.
(c) The Borrower's obligation to pay any Revolving Advance made under
this Section 2.5, shall be evidenced by Revolving Note and shall bear
interest as provided in Section 2.8.
Section 2.6 SPECIAL ACCOUNT. If the Credit Facility is terminated for
any reason whatsoever while any Letter of Credit is outstanding, the Borrower
shall thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. Amounts on
deposit in the Special Account may be applied by the Lender at any time or from
time to time
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to the Obligations in the Lender's sole discretion, and shall not be subject to
withdrawal by the Borrower so long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to
the Borrower at such time as the Lender is required to release its security
interest in the Special Account under applicable law.
Section 2.7 OBLIGATIONS ABSOLUTE. The Borrower's obligations arising
under Section 2.5 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.5, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or
any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure from all or
any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), or other person or
entity, whether in connection with this Agreement, the transactions
contemplated herein or in the Related Documents or any unrelated
transactions;
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under any
Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
Section 2.8 INTEREST; DEFAULT INTEREST; PARTICIPATIONS; USURY.
Interest accruing on the Note shall be due and payable in arrears on the first
day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.8(c) and 2.8(e),
the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.
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(b) OVERADVANCE INTEREST RATE. Except as set forth in Sections 2.8(c)
and 2.8(e), the outstanding principal balance of the Revolving Note that
exceeds the Ordinary Borrowing Power (such amount shall hereinafter be
called the "Overadvance Amount") shall bear interest at the Overadvance
Floating Rate. Such Overadvance Floating Rate shall be applied to any such
Overadvance Amounts effective as of December 1, 1997.
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under Section
2.8(a), along with all other fees, charges and other amounts due under this
Agreement, regardless if such Person elects to accept interest with respect
to its participation at a lower rate than the Floating Rate, or otherwise
elects to accept less than its prorata share of such fees, charges and
other amounts due under this Agreement.
(e) USURY. In any event no rate change stall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Section 2.9 FEES.
(a) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a fee
with respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of one and one-half percent (1.5%) of the
aggregate amount that may then be drawn on all issued and outstanding
Letters of Credit assuming compliance with all conditions for drawing
thereunder (the "Aggregate Face Amount"), from and including the date of
issuance of such Letter of Credit until such date as such Letter of Credit
shall terminate by its terms or be returned to the Lender, due and payable
monthly in arrears on the first day of each month and on the Termination
Date; PROVIDED, HOWEVER that during Default Periods, in the Lender's sole
discretion and without waiving any of its other rights and remedies, such
fee shall increase to three and one-half of one percent (3.5%) of the
Aggregate Face Amount. The foregoing fee shall be in addition to any and
all fees, commissions and charges of any issuer of a Letter of Credit with
respect to or in connection with such Letter of Credit.
(b) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees to pay
the Lender, on written demand, the administrative fees charged by the
Issuer in connection
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with the honoring of drafts under any Letter of Credit, amendments thereto,
transfers thereof and all other activity with respect to the Letters of
Credit at the then-current rates published by the Issuer for such services
rendered on behalf of customers of the Issuer generally.
(c) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rates established from time to time by the Lender as its audit fees
(which fees are currently $62.50 per hour per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
(d) OVERADVANCE FEES. Effective December 1, 1997, the Borrower hereby
agrees to pay the Lender a fee, due and payable on the first day of each
month, in the amount of $1,000 per day for each day that the Overadvance
Amount exceeds $1,500,000. Beginning February 15, 1998, such fee shall be
charged on Overadvance Amounts that exceed $750,000.
(e) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable fee of $32,500, due and payable on January
15, 1998.
(f) REBATE OF PREVIOUS FEES. The Lender hereby agrees, upon execution
of this Agreement, to rebate to the Borrower, $110,887.97 of previously
collected fees. Such rebate shall be made by reducing the accrued interest
due to the Lender on the first day of the month following execution of this
Agreement. However, if the Borrower fails to, by February 15, 1998, (A)
obtain subordinated debt of at least $1,500,000, or (B) collect in full on
the debt owed to it by Dacotah Marketing Research LLC, then $78,387.97 of
the rebated fees shall be returned to the Lender. Such return of fees shall
be made to the Lender on June 30, 1998; PROVIDED, HOWEVER that such return
of fees by the Borrower to the Lender shall not be required if during the
period from February 1, 1998, to June 30, 1998, the Overadvance Amount was
at all times equal to zero.
Section 2.10 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND
PAYABLE. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date or
earlier prepayment in full.
Section 2.11 CAPITAL ADEQUACY: INCREASED COSTS AND REDUCED RETURN. If
any Related Lender determines at any time that its Return has been reduced as a
result of any Rule Change, such Related Lender may require the Borrower to pay
it the amount necessary to
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restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.11:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "L/C Rule" means any law, rule, regulation, guideline, directive,
requirement or request regarding letters of credit, or the interpretation
or administration thereof by any governmental or regulatory authority,
central bank or comparable agency, whether or not having the force of law,
that applies to any Related Lender. Such rules include rules imposing
taxes, duties or other similar charges, or mandating reserves, special
deposits or similar requirements against assets of, deposits with or for
the account of, or credit extended by any Related Lender, on letters of
credit.
(c) "Related Lender" includes (but is not limited to) the Lender, the
Issuer, any parent corporation of the Lender or the Issuer and any assignee
of any interest of the Lender hereunder and any participant in the loans
made hereunder,
(d) "Return", for any period, means the return as determined by a
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules and L/C Rules then in effect, costs
of issuing or maintaining any Letter of Credit and amounts received or
receivable under this Agreement or the Notes with respect to any Advance or
Letter of Credit. Return may be calculated for each calendar quarter and
for the shorter period between the end of a calendar quarter and the date
of termination in whole of this Agreement.
(e) "Rule Change" means any change in any Capital Adequacy Rule or L/C
Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
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The Lender will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle the Lender to
compensation pursuant to this Section 2.11. Certificates of any Related Lender
sent to the Borrower from time to time claiming compensation under this Section
2.11, stating the reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the Related Lender
hereunder to restore its Return shall be conclusive absent manifest error. In
determining such amounts, the Related Lender may use any reasonable averaging
and attribution methods.
Section 2.12 DISCRETIONARY NATURE OF THIS FACILITY; TERMINATION BY THE
LENDER; AUTOMATIC RENEWAL. This Agreement contains the terms and conditions upon
which the Lender presently expects to make Advances to and to cause the Issuer
to issue Letters of Credit for the account of the Borrower. Each Advance by the
Lender to the Borrower and each Letter of Credit issued for the Borrower's
account shall be in the Lender's sole discretion, and the Lender need not show
that an adverse change has occurred in the Borrower's condition, financial or
otherwise, or that any of the conditions of Article IV have not been met, in
order to refuse to make any requested Advance, cause the Issuer to issue any
Letter of Credit or to demand payment of the Obligations. The Lender may at any
time terminate the Credit Facility whereupon the Lender shall no longer consider
requests for Advances under this Agreement. Unless terminated by the Lender at
any time or by the Borrower pursuant to Section 2.13, the Credit Facility shall
remain in effect until the Original Maturity Date and, thereafter, shall
automatically renew for successive one year periods (the Original Maturity Date
and each anniversary date thereof which is at the end of any year for which the
Credit Facility has been automatically renewed, is herein referred to as a
"Maturity Date").
Section 2.13 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITY
BY THE BORROWER. Except as otherwise provided herein, the Borrower may prepay
the Revolving Advances in whole at any time or from time to time in part. The
Borrower may terminate the Credit Facility at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender the
prepayment or reduction fees in accordance with Section 2.14. If the Borrower
terminates the revolving Credit Facility, all Obligations shall be immediately
due and payable. Upon termination of the Credit Facility and payment and
performance of all Obligations, the Lender shall release or terminate the
Security Interest and the Security Documents to which the Borrower is entitled
by law.
Section 2.14 TERMINATION PREPAYMENT FEES; WAIVER OF TERMINATION FEES.
(a) TERMINATION FEES. If the Credit Facility is terminated for any
reason as of a date other than the Maturity Date the Borrower shall pay the
Lender a fee in an amount equal to one percent (1%) of the Maximum Line.
If the Credit Facility is terminated for any reason prior to December 15,
1998, the Borrower shall pay an additional fee in the amount of $78,387.97.
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(b) WAIVER OF TERMINATION FEES. The Borrower will not be required to
pay the line reduction or termination fees otherwise due under this Section
2.14 if:
(i) such reduction or termination is made because of refinancing
by the Lender or an affiliate of the Lender; or
(ii) such reduction or termination is made because of increased
cash flow from continuing operations; or
(iii) on or after December 15, 1999, the Borrower's operations
have expanded so that an increase in the Maximum Line is required to
provide adequate working capital, the Borrower has requested an
appropriate increase in the Maximum Line and the Lender has refused to
grant the Borrower's request, no Default Period exists at the time of
such request or when the Credit Facility is terminated and all
Obligations are paid and the Ordinary Borrowing Power would support
the increase in the Maximum Line at the advance rates in effect on the
Funding Date.
Section 2.15 MANDATORY PREPAYMENT. Without notice or demand, if the
sum of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.15 or
under Section 2.13 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.16 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations upon receipt
by the Lender. The Lender may hold all payments not constituting immediately
available funds for three (3) days before applying them to the Obligations.
Notwithstanding anything in Section 2.2, the Borrower hereby authorizes the
Lender, in its discretion at any time or from time to time without the
Borrower's request and even if the conditions set forth in Section 4.2 would not
be satisfied, to make a Revolving Advance in an amount equal to the portion of
the Obligations from time to time due and payable.
Section 2.17 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
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Section 2.18 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances, and each Letter of Credit, if any, for ordinary working capital
purposes.
Section 2.19 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. In
addition to the Lender's rights under Section 6.11, with respect to any and all
rights to payment constituting Collateral, the Lender may at any time (whether
or not a Default Period then exists) notify any account debtor or other person
obligated to pay the amount due that such right to payment has been assigned or
transferred to the Lender for security and shall be paid directly to the Lender.
The Borrower will join in giving such notice if the Lender so requests. At any
time after the Borrower or the Lender gives such notice to an account debtor or
other obligor, the Lender may, but need not, in the Lender's name or in the
Borrower's name, (a) demand, sue for, collect or receive any money or property
at any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor; and (b) as
the Borrower's agent and attorney-in-fact, notify the United States Postal
Service to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to,
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any and all policies of insurance now or at any time hereafter covering the
Collateral or any evidence thereof or any business records or valuable papers
pertaining thereto, and the Borrower hereby directs the issuer of any such
policy to pay all such monies directly to the Lender. At any time, whether or
not a Default Period then exists, the Lender may (but need not), in the Lender's
name or in the Borrower's name, execute and deliver proof of claim, receive all
such monies, endorse checks and other instruments representing payment of such
monies, and adjust, litigate, compromise or release any claim against the issuer
of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations,
and (ii) final sale or disposition of all goods constituting Collateral and
delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to .pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5 LICENSE. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to
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perfect the security interests granted hereby. For this purpose, the following
information is set forth:
Name and address of Debtor:
Farstad Oil, Inc.
P.O. Box 1842
County Road 19 North
Minot, North Dakota 58702
Federal Tax Identification No. 45-0325753
Name and address of Secured Party:
Norwest Credit, Inc.
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Federal Tax Identification No. 41-1712687
Section 3.7 SETOFF. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF WILLINGNESS TO CONSIDER LENDING
Section 4.1 CONDITIONS PRECEDENT TO LENDER'S WILLINGNESS TO CONSIDER
MAKING THE INITIAL REVOLVING ADVANCE AND THE INITIAL LETTER OF CREDIT. The
Lender's willingness to consider making the initial Revolving Advance or to
cause to be issued the initial Letter of Credit hereunder shall be subject to
the condition precedent that the Lender shall have received all of the
following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
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(c) True and correct copies of all of the license and any sublicense
agreements pursuant to which the Borrower has the authority to sell
brand-name Inventory and License Agreements substantially in the form of
Exhibit __ hereto, executed by each licensor and sublicensor which is a
party to such license or sublicense agreements.
(d) A true and correct copy of any and all leases pursuant to which
the Borrower is leasing the Premises, together with a landlord's disclaimer
and consent with respect to each such lease.
(e) A true and correct copy of any and all mortgages pursuant to which
the Borrower has mortgaged the Premises, together with a mortgagee's
disclaimer and consent with respect to each such mortgage.
(f) A certificate of the Borrower's secretary or assistant secretary
certifying as to (i) the resolutions of the Borrower's directors and if
required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's articles of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents
authorized to execute and deliver the Loan Documents and other instruments,
agreements and certificates, including Advance requests, on the Borrower's
behalf
(g) A current certificate issued by the Secretary of State of North
Dakota, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of North Dakota.
(h) Evidence that the Borrower is duly licensed or qualified to
transact business in North Dakota, Minnesota, Iowa, South Dakota, Nebraska,
Montana, Wyoming, Idaho, Colorado, Texas, New Mexico, Indiana, and all
other jurisdictions where the character of the property owned or leased or
the nature of the business transacted by it makes such licensing or
qualification necessary.
(i) A certificate of an officer of the Borrower confirming, in his
personal capacity, the representations and warranties set forth in Article
V.
(j) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(k) A separate guaranty, properly executed by each Guarantor, pursuant
to which each Guarantor unconditionally guarantees the full and prompt
payment of all Obligations to the extent of each such guaranty.
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(l) A certificate of the secretary or assistant secretary of FGO
certifying as to (i) the resolutions of the directors and, if required,
shareholders, of that company authorizing the execution, delivery and
performance of the guaranty, the security agreement and the collateral
pledge agreement executed and delivered to the Lender by it; (ii) the
company's articles of incorporation and bylaws; and (iii) the signatures of
the officer or agents authorized to execute and deliver such guaranty on
behalf of such company.
(m) The FGO Security Agreement, duly executed by FGO.
(n) The FGO Pledge, duly executed by FGO, together with the original
certificates evidencing the stock covered thereby, blank assignments of
that stock duly executed by such person, and, where applicable, the
original option agreements giving any Person a right to purchase common
stock of the Borrower.
(o) A certificate of the secretary or assistant secretary of Energy
certifying as to (i) the resolutions of the directors and, if required,
shareholders, of that company authorizing the execution, delivery and
performance of the guaranty and the security agreement executed and
delivered to the Lender by it; (ii) the company's articles of incorporation
and bylaws; and (iii) the signatures of the officer or agents authorized to
execute and deliver such guaranty on behalf of such company.
(p) Current searches of appropriate filing offices showing that (i) no
state or federal tax or judgment liens have been filed and remain in effect
against Energy, (ii) no financing statements have been filed and remain in
effect against such company except financing statements acceptable to the
Lender in its sole discretion, and (iii) the Lender has duly filed all
financing statements necessary to perfect its security interests in the
property of such company, to the extent such security interests are capable
of being perfected by filing.
(q) The Energy Security Agreement, duly executed by Energy.
(r) A certificate of the secretary or assistant secretary of
Superpumper, Inc. certifying as to (i) the resolutions of the directors
and, if required, shareholders, of that company authorizing the execution,
delivery and performance of the guaranty executed and delivered to the
Lender by it; (ii) the company's articles of incorporation and bylaws; and
(iii) the signatures of the officer or agents authorized to execute and
deliver such guaranty on behalf of such company.
(s) A certificate of the secretary or assistant secretary of SPF
Energy, Inc. certifying as to (i) the resolutions of the directors and, if
required, shareholders, of that company authorizing the execution, delivery
and performance of the guaranty executed and delivered to the Lender by it;
(ii) the company's articles of incorporation and
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bylaws; and (iii) the signatures of the officer or agents authorized to
execute and deliver such guaranty on behalf of such company.
(t) Current searches of appropriate filing offices showing that (i) no
state or federal tax or judgment liens have been filed and remain in effect
against SPF Energy, Inc., (ii) no financing statements have been filed and
remain in effect against such company except financing statements
acceptable to the Lender in its sole discretion, and (iii) the Lender has
duly filed all financing statements necessary to perfect its security
interests in the property of such company, to the extent such security
interests are capable of being perfected by filing.
(u) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit under Section 2.9 and expenses incurred
by the Lender through such date and required to be paid by the Borrower
under Section 9.8, including all legal expenses incurred through the date
of this Agreement.
(v) Such other documents as the Lender in its sole discretion may
require.
(w) The Borrower shall assign, in a form acceptable to the Lender in
its sole discretion, the note issued to the Borrower by Dacotah Marketing
Research LLC to the Lender.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT. The Lender will not consider any request for an Advance or to issue any
Letter of Credit unless on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of Letter of
Credit as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance or the issuance of such Letter of Credit, as the case may be, which
constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. The
Borrower is a
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corporation, duly organized, validly existing and in good standing under the
laws of the State of North Dakota and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. No dissolution or termination of the Borrower has
occurred, and no notice of dissolution or articles of termination have been
filed with respect to the Borrower. The Borrower has all requisite power and
authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto. The Borrower's chief
executive office and principal place of business is located at the address set
forth in Schedule 5.1 hereto, and all of the Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set forth
in Schedule 5.1 hereto. The Borrower's tax identification number is correctly
set forth in Section 3.6 hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's shareholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation and bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 LEGAL AGREEMENTS.
(a) The Old Credit Documents constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their respective terms. The Borrower has no claim, defense or offset
to enforcement of the Old Credit Documents.
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(b) This Agreement constitutes and, upon due execution by the
Borrower, the other Loan Documents will constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4 hereto,
the Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 1996 and its unaudited financial statements for
the fiscal year-to-date period ended September 30, 1997, and those statements
fairly present the Borrower's financial condition on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the Borrower's business, properties or condition (financial or
otherwise).
Section 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 TAXES. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9 TITLES AND LIENS. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and
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all proceeds thereof, free and clear of all mortgages, security interests, liens
and encumbrances, except for Permitted Liens. No financing statement naming the
Borrower as debtor is on file in any office except to perfect only Permitted
Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances, other than Inventory, in such
form or quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under any
Environmental Law.
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(c) To the Borrower's best knowledge, no Hazardous Substances have
ever been stored, buried, spilled, leaked, discharged, emitted or released
in, on or under the Premises in such away as to create any such liability.
(d) To the Borrower's best knowledge, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any liability under any
Environmental Law.
(e) There are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law
or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending.
(f) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect. No permit required under any Environmental
Law is scheduled to expire within 12 months and there is no threat that any
such permit will be withdrawn, terminated, limited or materially changed.
(g) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(h) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's businesses.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in
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all Collateral and all other collateral described in the Security Documents
which is capable of being perfected by filing financing statements. None of
the Collateral or other collateral covered by the Security Documents is or
will become a fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 FINANCIAL SOLVENCY. Both before and after giving effect
to the transactions contemplated in the Loan Documents, none of the Borrower or
its Affiliates:
(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to engage in
a business or a transaction for which any remaining assets of the Borrower
or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to, nor believes that it will, incur
debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy or for
an arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of
any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
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ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower and all Guarantors, the Borrower's
and each of the Guarantors' audited financial statements with the
unqualified opinion of independent certified public accountants selected by
the Borrower and acceptable to the Lender, which annual financial
statements shall include the Borrower's and each of the Guarantors' balance
sheets as at the end of such fiscal year and the related statements of the
Borrower's and each of the Guarantors' income, retained earnings and cash
flows for the fiscal year then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with (i)
copies of all management letters prepared by such accountants, (ii) a
report signed by such accountants stating that in making the investigations
necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the computations as
to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 6.14, 6.15 and 7.10; and (iii) a certificate of the
Borrower's chief financial officer stating that such financial statements
have been prepared in accordance with GAAP, fairly represent the Borrower's
financial position and the results of its operations, and whether or not
such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 30 days after the end
of each month, an unaudited/internal balance sheet and statements of income
and retained earnings of the Borrower, Energy, Fabrication, SPF, FGO and
Superpumper as at the end of and for such month and for the year to date
period then ended, prepared, if the Lender so requests, on a consolidating
and consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP, subject
to year-end audit adjustments; and accompanied by a certificate of the
Borrower's
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Chief financial officer, substantially in the form of Exhibit B hereto
stating (i) that such financial statements have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly represent the
Borrower's financial position and the results of its operations, (ii)
whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if
so, stating in reasonable detail the facts with respect thereto, and (iii)
all relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the requirements
set forth in sections 6.14, 6.15 and 7.10;
(c) within 25 days after the end of each month or more frequently if
the Lender so requires, agings of the Borrower's accounts receivable and
its accounts payable, an inventory certification report, and a calculation
of the Borrower's Accounts, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time period;
(d) within 3 days after the end of each Business Day, daily assignment
and collection reports for each Business Day;
(e) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each month
of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer
as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(f) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or
which seek a monetary recovery against the Borrower in excess of $50,000;
(g) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by
a responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such breach, default or event;
(h) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as
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to such Reportable Event and the action which the Borrower proposes to
take with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect to
any Plan under section 412(m) of the internal Revenue Code of 1986, as
amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the borrower proposes
to take with respect thereto, together with a copy of any notice of such
failure required to be provided to the Pension Benefit Guaranty
Corporation;
(j) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding $25,000; (ii) credit memos
exceeding $25,000; (iii) any goods returned to or recovered by the
borrower, exceeding $25,000; and (iv) any change in the persons
constituting the Borrower's offcers and directors;
(k) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such
other collateral or the prospect of payment thereof;
(1) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent
to its stockholders;
(m) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(n) as soon as possible, and in any event by not later than April 30th
of each year, copies of the tax returns and all schedules thereto and an
updated personal financial statement of each owner of the Borrower and of
each Guarantor;
(o) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(p) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
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Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 LIEN WAIVERS. Whenever the Borrower purchases Collateral
in the form of oil or gas production from any Interest Owner, the Borrower will
obtain two duplicate original executed lien waivers, substantially in the form
of Exhibit E-I or Exhibit E-2, as appropriate, (a "Lien Waiver") from such
Interest Owner dated as of the date such oil or gas production is shipped to the
Borrower. Within five (5) Business Days of each such shipment, the Borrower will
deliver an original executed Lien Waiver to the Lender.
Section 6.4 ACCOUNT VERIFICATION. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.5 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law.
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Section 6.6 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.7 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair
and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided,
however, that nothing in this Section 6.7 shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct
of the Borrower's business and not disadvantageous in any material respect
to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or
any interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens
and encumbrances except Permitted Liens.
Section 6.8 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
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Section 6.9 PRESERVATION OF EXISTENCE. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.10 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.11 COLLATERAL ACCOUNT.
(a) The Lender may establish a collateral account (the "Collateral
Account") for the deposit of payments on Receivables.
(b) If the Collateral Account is so established, the Borrower shall
promptly deposit all payments on Receivables received by it into the
Collateral Account. Until so deposited or paid to the Lender, the Borrower
shall hold all payments on Receivables in trust for and as the property of
the Lender and shall not commingle such payments with any of its other
funds or property.
(c) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(d) All deposits in the Collateral Account shall constitute proceeds
ofCollateral and shall not constitute payment of the Obligations. The
Lender from time to time at its discretion may, after allowing two (2)
Banking Days, apply deposited funds in the Collateral Account to the
payment of the Obligations, in any order or manner of application
satisfactory to the Lender, by transferring such funds to the Lender's
general account.
(e) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.12 LOCKBOX. Upon the Lender's request, the Borrower will
irrevocably direct all present and future Account debtors and other Persons
obligated to make payments on Receivables to make such payments directly to a
special lockbox (the "Lockbox") to be under the Lender's control.
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(a) After such request, all of the Borrower's invoices, account
statements and other written or oral communications directing, instructing,
demanding or requesting payment of any Receivable or any other amount
constituting Collateral shall conspicuously direct that all payments be
made to the Lockbox and shall include the Lockbox address. All payments
received in the Lockbox shall be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account or, at the
Lender's option, to deliver to the Lender all collections on Receivables
and all other proceeds of Collateral, which the Borrower may receive
directly notwithstanding its direction to Account debtors and other
obligors to make payments to the Lockbox, immediately upon receipt thereof,
in the form received, except for the Borrower's endorsement when deemed
necessary. Until delivered to the Lender or deposited in the Collateral
Account, the Borrower shall hold all proceeds or collections of Collateral
in trust for and as the property of the Lender and shall not commingle them
with any other funds or property of the Borrower. All such collections
shall constitute proceeds of Collateral and shall not constitute payment of
any Obligation.
Section 6.13 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.6, 6.8, 6.1 1 and 6.12
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other
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agreements and writings required to be obtained, executed, delivered or
endorsed by the Borrower under this Section 6.13.
Section 6.14 MINIMUM NET INCOME. The Borrower will maintain, on a
rolling six month basis, its Net Income, determined as at the end of each month,
at an amount not less than $200,000. Beginning April 30, 1998, and continuing
thereafter, the Borrower will also maintain, on a rolling six month basis, its
Consolidated Net Income, determined as at the end of each month, at an amount
not less than $200,000.
Section 6.15 MAXIMUM DEBT TO BOOK NET WORTH RATIO. The Borrower will
maintain, during each period described below, the ratio of its Debt to its Book
Net Worth, on a consolidated basis, determined as at the end of each fiscal
quarter, at not more than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
MAXIMUM DEBT TO
---------------
PERIOD PERIOD BOOK NET WORTH RATIO
------ ---------------------------
<S> <C>
1997 8.50 to 1.00
1998 8.00 to 1.00
1999 7.50 to 1.00
2000 7.00 to 1.00
</TABLE>
Section 6.16 MAXIMUM ACCOUNTS RECEIVABLE TURNOVER. The Borrower will
maintain its Accounts Receivable Turnover, on an unconsolidated basis,
determined as at the end of each month, at not more than 25 days.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; EXCLUDING, HOWEVER from the operation of the foregoing,
the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
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(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or
fair market value thereof and so long as no Default Period is then in
existence and none would exist immediately after such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
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(i) investments in direct obligations of the United States
of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the
United States of America having a maturity of one year or less,
commercial paper issued by U.S. corporations rated "A-1" or "A-2" by
Standard & Poors Corporation or "P-I" or "P-2" by Moody's Investors
Service or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal
Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are fully insured by
the Federal Deposit Insurance Corporation);
(ii) investments in or loans to Subsidiaries or Affiliates
not exceeding at any time a combined total of $2,250,000, on a
consolidated and an unconsolidated basis, throughout the term of
this facility;
(iii) loans to Jeffrey L. Farstad not exceeding at any time
$375,000 throughout the term of this facility; and
(iv) travel advances or loans to the Borrower's officers
and employees not exceeding at any one time an aggregate of
$160,000.
(b) The borrower will not create or permit to exist any subsidiary,
other than the subsidiaries in existence on the date hereof and listed in
schedule 5.4.
Section 7.5 DIVIDENDS. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower)
on any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distributions in respect thereof, either directly or indirectly; PROVIDED,
HOWEVER that the Borrower may declare and pay dividends on its preferred
stock in the amount of $75,000, in any fiscal year, and that such
declaration or payment would not cause a Default or Event of Default.
Section 7.6 SALE OR TRANSFER OF ASSETS: SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 CONSOLIDATION AND MERGER: ASSET ACQUISITIONS. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
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Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur Capital Expenditures of more than $400,000 in the aggregate
during any fiscal year.
Section 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS ETC. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 OTHER DEFAULTS. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS: S CORPORATION STATUS. The
Borrower will not amend its articles of incorporation and bylaws. The Borrower
will not become an S
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Corporation within the meaning of the Internal Revenue Code of 1986, as
amended, or, if the Borrower already is such an S Corporation, it shall not
change or rescind its status as an S Corporation.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of Jeffrey L. Farstad or any member of his family, by more
than 10% in any one year, either individually or for all such persons in the
aggregate, or pay any such increase from any source other than profits earned in
the year of payment.
Section 7.18 CHANGE IN OWNERSHIP. The Borrower will not issue or sell
any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the Borrower
will not permit or suffer to occur the sale, transfer, assignment, pledge or
other disposition of any or all of the issued and outstanding shares of stock of
the Borrower.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. Notwithstanding that the Lender may
demand immediate payment of the Obligations at any time, whether or not a
Default Period then exists, and without waiving or limiting in any respect the
Lender's right to so demand payment of the Obligations at any time, this
Agreement sets forth a non-exclusive list of certain critical events after the
occurrence of which the Lender expects that it would demand immediate payment of
the Obligations and exercise its remedies. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations on demand or on any
portion of the Obligations that otherwise becomes due and payable;
(b) Failure to pay when due any amount specified in Section 2.5
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.6
or;
(c) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
(d) Default in the performance, or breach, of any covenant or agreement
of the Borrower contained in this Agreement;
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(e) The Borrower or any Guarantor shall be or become insolvent, or
admit to writing its or his inability to pay its or his debts as they
mature, or make an assignment for the benefit of creditors; or the Borrower
or any Guarantor shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or him or for all or any
substantial part of its or his property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower or such Guarantor, as the case may be; or the Borrower or any
Guarantor shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding
relating to it or him under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower or any such Guarantor; or any judgment, writ, warrant
of attachment or execution or similar process shall be issued or levied
against a substantial part of the property of the Borrower or any
Guarantor;
(f) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or
such Guarantor as debtor;
(g) Any representation or warranty made by the Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by
the Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any such guaranty shall prove to have been incorrect in any
material respect when deemed to be effective;
(h) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of $50,000 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period of
30 consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(j) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been
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given to the Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to administer any
Plan; or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or the Borrower shall have filed for a distress termination of any
Plan under Title IV of ERISA; or the Borrower shall have failed to make any
quarterly contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in the future,
result in the imposition of a lien on the Borrower's assets in favor of the
Plan;
(k) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note;
(1) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued;
(n) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or fail to perform
any such Guarantor's obligations under such Guarantor's guaranty in favor
of the Lender, any individual Guarantor shall die or any other Guarantor
shall cease to exist;
(p) Any event or circumstance with respect to the Borrower shall occur
such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse
change in the business or financial condition of the Borrower shall occur;
or
(q) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 RIGHTS AND REMEDIES. As provided in Section 2.12, the
Lender may, at any time, refuse to make any requested Advance, demand payment of
the Advances or
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terminate the Credit Facility, whether or not a Default Period then exists. In
addition, during any Default Period, the Lender may exercise any or all of the
following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which the Borrower hereby
expressly waives;
(b) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(c) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately available
funds for deposit in the Special Account pursuant to Section 2.15 an amount
equal to the aggregate maximum amount available to be drawn under all
Letters of Credit then outstanding, assuming compliance with all conditions
for drawing thereunder;
(d) the Lender may exercise and enforce any and all rights and remedies
available upon default to a secured party under the UCC, including, without
limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and, in connection therewith, the Borrower will
on demand assemble the Collateral and make it available to the Lender at a
place to be designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (e) or (f) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.5) at least ten calendar days before
the date of intended disposition or other action.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 RESTATEMENT OF OLD CREDIT DOCUMENTS. This Agreement is
executed for the purpose of amending and restating the Old Credit Documents.
Section 9.2 RELEASE. The Borrower, and each Guarantor by signing the
Acknowledgment and Agreement of Guarantors set forth below, each hereby
absolutely and unconditionally releases and forever discharges the Lender, the
Participants and any and all parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, agents and
employees of any of the foregoing, from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law or equity or
upon contract or tort or under any state or federal law or otherwise, which the
Borrower or such Guarantor has had, now has or has made claim to have against
any such person for or by reason of any act, omission, matter, cause or thing
whatsoever arising from the beginning of time to and including the date of this
Agreement, whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
Section 9.3 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.4 AMENDMENTS, ETC. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.5 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
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If to the Borrower:
Farstad Oil, Inc,
P.O. Box 1842
County Road 19 North
Minot, North Dakota 58702
Telecopier: (701) 852-5228
Attention: Jeffrey L. Farstad
If to the Lender:
Norwest Credit, Inc.
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Telecopier: 612/341-2472
Attention: Daniel A. Schmid
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given
on (a) the date received if personally delivered, (b) when deposited in the
mail if delivered by mail, (c) the date sent if sent by overnight courier, or
(d) the date of transmission if delivered by telecopy, except that notices or
requests to the Lender pursuant to any of the provisions of Article II shall
not be effective until received by the Lender.
Section 9.6 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion)
Section 9.7 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the
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selection of the bailee or other third person, and the Lender need not otherwise
preserve, protect, insure or care for any Collateral. The Lender shall not be
obligated to preserve any rights the Borrower may have against prior parties, to
realize on the Collateral at all or in any particular manner or order or to
apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.8 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, any Letters of Credit, and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including without
limitation all such costs, expenses and fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.9 INDEMNITY. In addition to the payment of expenses pursuant
to Section 9.8, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities:
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or
the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.12 proves to be incorrect in any
respect or as a result of any violation of the covenant
contained in Section 6.5(b); and
(iii) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel)
in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan
Documents or the use or intended use of the proceeds of the
Advances.
If any investigative, judicial or administrative proceeding arising from any
of the foregoing is brought against any Indemnitee, upon such Indemnitee's
request, the Borrower, or counsel
49
<Page>
designated by the Borrower and satisfactory to the Indemnitee, will resist and
defend such action, suit or proceeding to the extent and in the manner directed
by the Indemnitee, at the Borrower's sole costs and expense. Each Indemnitee
will use its best efforts to cooperate in the defense of any such action, suit
or proceeding. If the foregoing undertaking to indemnify, defend and hold
harmless may be held to be unenforceable because it violates any law or public
policy, the Borrower shall nevertheless make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower's obligation under this Section
9.9 shall survive the termination of this Agreement and the discharge of the
Borrower's other obligations hereunder.
Section 9.10 PARTICIPANTS. The Lender and its participants, if any,
are not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers. specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.11 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed) to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.12 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
Section 9.13 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
50
<Page>
Section 9.14 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.15 GOVERNING LAW: JURISDICTION, VENUE: WAIVER OF JURY TRIAL.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. The
parties hereto hereby (i) consent to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in any
such forum is not convenient, (iii) agree that any litigation initiated by the
Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of Minnesota, Fourth
Division; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
Section 9.16 NOT REPRESENTED BY COUNSEL. The Borrower has elected not
to retain legal counsel in connection with the negotiation, preparation,
execution and delivery of the Loan Documents. The Borrower acknowledges that it
is familiar with instruments such as the loan Documents, has read the Loan
Documents and understands and agrees with their terms and is capable of
protecting its interest without the advice of counsel. The Borrower and further
acknowledges that it has not relied upon the Lender or the Lender's counsel in
understanding, negotiating, executing or delivering any of the loan Documents.
Section 9.17 AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT. This
Agreement amends, restates and supersedes in its entirety that certain Credit
and Security Agreement dated as of September 14, 1994, as amended from time to
time. All other Loan Documents remain in full force and effect
[SIGNATURE PAGE FOLLOWS]
51
<Page>
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
NORWEST CREDIT, INC. FARSTAD OIL, INC.
By /s/ Daniel A. Schmid By /s/ Jeffrey L. Farstad
-------------------- ----------------------
Daniel A. Schmid Jeffrey L. Farstad
Its Vice President Its President
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT]
<Page>
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS
The undersigned, each a guarantor of the indebtedness of Farstad Oil,
Inc. (the "Borrower") to Norwest Credit, Inc. (the "Lender") pursuant to a
separate Guaranty (each, a "Guaranty"), hereby (i) acknowledges receipt of the
foregoing Amended and Restated Credit and Security Agreement; (ii) consents to
the terms (including without limitation the release set forth in Section 9.2 of
the Amended and Restated Credit and Security Agreement) and execution thereof,
(iii) reaffirms his or its obligations to the Lender pursuant to the terms of
his or its Guaranty; and (iv) acknowledges that the Lender may amend, restate,
extend, renew or otherwise modify the Amended and Restated Credit and Security
Agreement and any indebtedness or agreement of the Borrower, or enter into any
agreement or extend additional or other credit accommodations, without notifying
or obtaining the consent of the undersigned and without impairing the liability
of the undersigned under his or its Guaranty for all of the Borrower's present
and future indebtedness to the Lender.
FARSTAD GAS & OIL, LLC
/s/ Jeffrey L. Farstad By /s/ Jeffrey L. Farstad
------------------------ --------------------------
Jeffrey L. Farstad Jeffrey L. Farstad
Its President
SUPERPUMPER, INC. FARSTAD ENERGY SERVICES, LLC
By /s/ Jeffrey L. Farstad By /s/ Jeffrey L. Farstad
---------------------- --------------------------
Jeffrey L. Farstad Jeffrey L. Farstad
Its President Its President
SPF ENERGY, INC. FABRICATION SERVICES LTD.
LIABILITY CO.
By /s/ Jeffrey L. Farstad By /s/ Jeffrey L. Farstad
------------------------ --------------------------
Jeffrey L. Farstad Jeffrey L. Farstad
Its President Its President
<Page>
Exhibit B Compliance Certificate
Exhibit C Premises
Exhibit D Prior Letters of Credit
Exhibit E Forms of Lien Waivers
--------------------
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and Locations
of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<Page>
Exhibit A to Amended and Restated Credit
and Security Agreement
REVOLVING NOTE
$12,000,000 Minneapolis, Minnesota
December 8, 1997
For value received, the undersigned, FARSTAD OIL, INC., a North Dakota
corporation (the "Borrower"), hereby promises to pay ON DEMAND, and if demand is
not sooner made, then as provided in the Credit Agreement (defined below), to
the order of NORWEST CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Minneapolis, Minnesota, or at any other place designated at
any time by the holder hereof, in lawful money of the United States of America
and in immediately available funds, the principal sum of Twelve Million Dollars
($12,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit Agreement
(defined below) together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Credit and Security
Agreement of even date herewith (as the same may hereafter be amended,
supplemented or restated from time to time, the "Credit Agreement") by and
between the Lender and the Borrower. The principal hereof and interest accruing
thereon shall be due and payable as provided in the Credit Agreement. This Note
may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things,. for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. To the extent this Note
evidences the Borrower's Obligation to pay Existing Revolving Advances, this
Note is issued in substitution for and replacement of but not in payment of the
Borrower's promissory note dated as of July 24, 1996, payable to the order of
the Lender in the original principal amount of $12,000,000. This Note is
secured, among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or more
other security agreements, mortgages, deeds of trust, assignments or other
instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
<Page>
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
FARSTAD OIL, INC.
By
-----------------------------
Jeffrey L. Farstad
Its President
<Page>
Exhibit B to Amended and Restated Credit
and Security Agreement
COMPLIANCE CERTIFICATE
TO: Daniel A. Schmid
Norwest Credit, Inc.
DATE: __________________, 199___
Subject: Farstad Oil, Inc.
Financial Statements
In accordance with our Amended and Restated Credit and
Security Agreement dated as-of December 8, 1997 (the "Credit Agreement"),
attached are the financial statements of Farstad Oil, Inc. (the "Borrower") as
of and for__________, 19____ (the "Reporting Date") and the year-to-date period
then ended (the "Current Financials"). All terms used in this certificate have
the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition and the results of its operations as of the
date thereof.
EVENTS OF DEFAULT. (Check one):
/ / The undersigned does not have knowledge of the
occurrence of a Default or Event of Default under the
Credit Agreement.
/ / The undersigned has knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement and
attached hereto is a statement of the facts with respect
to thereto.
I hereby certify to the Lender as follows:
/ / The Reporting Date does not mark the end of one of the
Borrower's fiscal quarters, hence l am completing only
paragraph __ below.
/ / The Reporting Date marks the end of one of the
Borrower's fiscal quarters, hence I am completing all
paragraphs below except paragraph___.
/ / The Reporting Date marks the end of the Borrower's
fiscal year, hence I am completing all paragraphs below.
FINANCIAL COVENANTS. I further hereby certify as follows:
<Page>
1. MINIMUM NET INCOME. Pursuant to Section 6.14 of the Credit
Agreement, as of the Reporting Date, the Borrower's Net Income and
its Consolidated Net Income, was $_________and $ ________,
respectively, which / / satisfies / / does not satisfy the
requirement that such amounts each be not less than $200,000 on the
Reporting Date.
2. MAXIMUM DEBT TO BOOK NET WORTH RATIO. Pursuant to Section
6.15 of the Credit Agreement, as of the Reporting Date, the ratio of
the Borrower's Debt to its Book Net Worth was _____ to 1.00 which /
/ satisfies / / does not satisfy the requirement that such ratio be
no more than ____to 1.00 on the Reporting Date[ as set forth in
table below:
<Table>
<Caption>
------------------------------------------------------------------------
PERIOD MAXIMUM DEBT TO
BOOK NET WORTH RATIO
-------- ----------------------------------
------------------------------------------------------------------------
<S> <C>
1997 8.50 to 1.00
------------------------------------------------------------------------
1998 8.00 to 1.00
------------------------------------------------------------------------
1999 7.50 to 1.00
------------------------------------------------------------------------
2000 7.00 to 1.00
------------------------------------------------------------------------
</Table>
3. MAXIMUM ACCOUNTS RECEIVABLE TURNOVER. Pursuant to Section
6.16 of the Credit Agreement, as of the Reporting Date, the
Borrower's Accounts Receivable Turnover was _____days which / /
satisfies / / does not satisfy the requirement that such amount be
no more than 25 days on the Reporting Date.
4. CAPITAL EXPENDITURES. Pursuant to Section 7.10 of the
Credit Agreement, for the year-to-date period ending on the
Reporting Date, the Borrower has expended or contracted to expend
during the fiscal year ended______,199_____, for Capital
Expenditures, $_______________ in the aggregate and at most
$___________in any one transaction, which / / satisfies / / does not
satisfy the requirement that such expenditures not exceed $400,000
in the aggregate during such year.
5. SALARIES. As of the Reporting Date, the Borrower / / is / /
is not in compliance with Section 7.17 of the Credit Agreement
concerning salaries.
<Page>
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
FARSTAD OIL, INC.
By
----------------------------------
Its Chief Financial Officer
<Page>
EMPLOYMENT AGREEMENT
This Agreement is made this 1st day of July, 1996, among JEFF FARSTAD,
FARSTAD OIL, INC., SUPERPUMPER,INC.,and SPF, INC., hereinafter referred to as
Farstad, Farstad Oil, Superpumper, and SPF, respectively. Farstad Oil,
Superpumper, and SPF are herein sometimes referred to collectively as Employers.
RECITALS
SPF has recently acquired all of the outstanding shares of Farstad Oil
common stock and a substantial majority of Superpumper common stock in an
exchange of Farstad Oil and Superpumper shares for SPF shares. Before SPF
acquired a majority of capital stock in Farstad Oil, Farstad was a principal
executive employee of Farstad Oil. The parties desire his continued employment,
including provisions for his employment in the management of Superpumper.
AGREEMENT
EMPLOYMENT AGREEMENT
1. EMPLOYMENT. Employers hereby employ Farstad and he accepts such
employment upon the terms and conditions 1`I herein set forth.
2. TERM. The term of employment shall begin on the date set forth above and
shall continue until terminated a herein provided.
3. DUTIES. Farstad is employed to actively participate in the management of
the Farstad Oil and Superpumper business operations. He will devote his full
time and best efforts to the performance of duties as assigned by the respective
boards of directors of Farstad Oil, Superpumper, and SPF.
4. COMPENSATION. For all services rendered by Farstad under this Agreement,
he shall be paid as follows:
A. BASIC COMPENSATION. Farstad shall be paid as basic compensation the sum
of $275,000.00 per year, payable in monthly installments.
B. ANNUAL INCREASE. Farstad's basic compensation shall be increased each
year during the term of this contract, by an amount equal to 5% of the
preceding year's basic compensation.
1
<Page>
EXAMPLE
1997 compensation will be $288,750.
(1.05 x $275,000 19-q compensation)
1998 compensation will be $303,188.
(1.05 x $288,750 1997 compensation)
1999 compensation will be $318,347.
(1.05 x $288,750 1998 compensation)
C. ADDITIONAL COMPENSATION. Compensation in addition to basic
compensation and annual increases may be paid in such amounts and at such times
as the respective boards of directors of Farstad Oil, Superpumper, or SPF may
from time to time determine, provided: Farstad may be paid compensation
exceeding basic compensation and annual increases under paragraphs 4A and 4B
with respect to any fiscal year only if the year's consolidated income of the
Employers exceeds 20% of equity (determined in accordance 10 with generally
accepted accounting principles) and after accounting for any additional
compensation as an expense for the year.
EXAMPLE:
In 2002, the consolidated equity of Employers is I $7.5 million.
Accordingly, additional compensation may be paid to Farstad only if 14
consolidated income of Employers exceeds $1.5 million (before any
additional compensation). If consolidated income for the year were
$1.6 million, Employers may determine additional compensation to be
paid to Farstad, but the sum of additional compensation and direct
overhead such as employment taxes may not exceed $100,000 ($1.6
million income before additional bonus, less $1.5 million minimum
income as 20% return on equity).
D. FRINGE BENEFITS. Farstad shall participate in any "fringe
benefits," including but not limited to retirement plans, health insurance
plans, sick leave or vacation leave, as may from time to time be adopted by
Employers.
E. LOAN GUARANTEES. The parties acknowledge Farstad's position as
majority shareholder in SPF may cause certain of 23 Employers' creditors to
request him to personally guarantee Employers' financial obligations. The
parties acknowledge that any guarantees are valuable to the corporation, and may
be compensated as determined by the board of directors. The parties acknowledge
that any compensation paid to Farstad for personal guarantees is not
compensation for personal services under this employment agreement.
2
<Page>
5. WORKING FACILITIES. Employers will furnish Farstad with an office,
equipment, technical and secretarial assistance, and other facilities and
services suitable to his position and adequate for the performance of his
duties.Employers shall provide Farstad with a company car of similar quality and
upon the same terms and conditions as those prevailing during 1995.
6. EMPLOYEE EXPENSES. Employers shall reimburse Farstad for travel and
other expenses reasonably and necessarily.incurred in the performance of his
duties pursuant to this Agreement.
7. ADMINISTRATION. Employers will arrange for one of them to serve as
common paymaster to provide funds and administration of Farstad's compensation
and benefits, and to allocate his compensation, benefits, and other expenses to
among Employers in the discretion of their respective boards of directors.
8. TERMINATION. Employers shall not terminate Farstad's employment
except for serious misconduct or failure of performance of duties.
All rights and obligations under this Agreement will terminate without
notice on December 31, 2005.
Dated this 25th day of June, 1996.
/s/ Jeff Farstad
---------------------------
Jeff Farstad
FARSTAD OIL, INC.
By /s/ Jeff Farstad
---------------------------
Jeff Farstad
Its President
SUPERPUMPER, INC.
By /s/ Paulette Havnvik
---------------------------
Paulette Havnvik
Its President
SPF, INC.
By /s/ Jeff Farstad
---------------------------
Jeff Farstad
Its President
3
<Page>
EMPLOYMENT, NONDISCLOSURE, AND NONCOMPETITION AGREEMENT
This Agreement is entered into on this 21st day of June, 1996, by and
between Superpumper, Inc. a corporation duly organized and existing under the
laws of State of North Dakota, with the place of business at 3520 North
Broadway, Minot, North Dakota 58701, hereinafter referred to as (Employer), and
Terry A. Domres of 2400 11th Avenue North West, Minot, North Dakota 58701,
hereinafter referred to as (Employee). In consideration of the mutual promises
and agreements set forth in this document, Employer and Employee agree as
follows:
1. CONDITION PRECEDENT. The obligations of all parties to this Agreement is
contingent upon the requirement that the contemplated merger between
Superpumper, Inc. and Farstad Oil, Inc. has been approved pursuant to the merger
plan between Superpumper, Inc. and Farstad Oil, Inc. by July 1, 1996. In the
event said merger between Superpumper, Inc. and Farstad Oil, Inc. has not been
completed by July 1, 1996, Domres and the shareholders of Domres may postpone
the effective date of this transaction until such time as the merger between
Superpumper, Inc. and Farstad Oil, Inc. has been approved.
2. EMPLOYMENT.
A. Employer hereby employs, engages, and hires employee as a manager
for Employer's cash wash, convenience store and gas station operations, and
Employee hereby accepts and agrees to such hiring, engagement, and employment,
subject to the general supervision and pursuant to the orders, advice, and
direction of Employer.
B. Employee shall perform such other duties as are customarily
performed by one holding such position in the same, or similar businesses or
enterprises as that engaged in by Employer, and shall also additionally render
such other and unrelated services and duties as may be assigned to him from time
to time by Employer, provided such additional duties correspond with Employee's
previous experience, skill level and work experience.
3. BEST EFFORTS OF EMPLOYEE. Employee agrees that he will at all times
faithfully, industriously, and to the best of his ability, experience, talent,
perform all the duties that may be required of and from him pursuant to the
express and explicit terms of this Agreement, and all direction from Employer to
the reasonable satisfaction of Employer. Such duties shall be rendered at the
corporate headquarters of Employer in the City of Minot and at all other places
as Employer has an interest, current business operation, or possible future
business operation.
1
<Page>
4. TERM OF EMPLOYMENT. The term of this Agreement shall be for a period of
five (5) years, commencing July 1, 1996, and terminating June 30, 2001, subject
however, to the prior termination as provided in this Agreement. At the
expiration date of June 30, 2001, this Agreement shall terminate and Employee
shall be consider an Employee at will, subject only to the non-disclosure and
noncompete portions of this document which shall remain in full force and
effect.
5. COMPENSATION OF EMPLOYEE.
A. BASE PAY. Employer shall pay Employee, and Employee shall accept from
Employer, base compensation in the gross amount of $100,000 per year, before
withholding for taxes, FICA and any other applicable payroll deductions. Salary
shall be payable twice a month.
B. BONUS PAY. Employer shall pay Employee quarterly bonuses of at least
$10,625.00 due on January 31, April 30, July 31 and October 31st. Furthermore,
employer may make additional bonus payments based on a percentage of gross
volume for any detail shop, car wash, or quick lubes developed subsequent to the
closing date as well as the Toad's Ride-N-Shine property.
C. FRINGE BENEFITS. In addition his salary, the Employee shall be
eligible to receive fringe benefits as they are made available to Employees of
Employer from time to time in the exclusive discretion of Employer's board of
directors. Employee shall be entitled to fringe benefits on the same terms and
conditions as all other employees of similar stature.
D. VACATION, SICK LEAVE AND OTHER HOLIDAYS. Employee shall receive
vacation, sick leave and other time off in the same manner as other employees
occupying a similar position. In the event Employee takes additional vacation or
sick leave, due to illness or disability, the compensation and fringe benefits
due Employee shall be reduced accordingly.
E. REIMBURSEMENT FOR EXPENSES. Employee shall be reimbursed for
authorized traveling and other out-of-pocket business expenses, provided they
have been reasonably incurred in the performance of Employee's duties for
Employer. Reasonable expenses shall include appropriate communication devices
used for business purposes. Employee shall, within seven calendar days of any
claimed reimbursable expense, submit to Employer an itemized account detailing
the expenses and accompanied by receipts. Employer reserves the right to reject
reimbursement of expense submissions not in compliance with Employer policy or
which are not in compliance with Internal Revenue Service statutes, rules,
regulations or other
2
<Page>
controlling or interpretive authority concerning deductible business expenses.
F. COMPANY VEHICLE. Employer will furnish Employee with an automobile
suitable for the performance of Employee duties. In connection with the
automobile, Employer shall furnish insurance and routine maintenance. Employer
shall provide gasoline only to the extent necessary for Employee's business use.
All traffic violations shall be paid for by the Employee. The automobile will be
replaced at the discretion of Employer with the Employee agreeing to maintain
the automobile in first class condition at all times. This paragraph shall be
effective only during those periods in which employee maintains a valid North
Dakota drivers license.
6. HOURS DEVOTED TO BUSINESS. Employee is expected to work a regular
work week of 40 hours. However, Employee is also expected to work any additional
hours as are necessary to satisfactorily perform his assigned duties.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION DURING EMPLOYMENT PERIOD AND
AFTER TERMINATION. Employee agrees that for and during the entire term of the
Employment Agreement, any information, data, figures, sales figures,
projections, estimates, customer lists, tax records, personnel history,
accounting procedures, promotion, and the like shall be consider and kept as the
private and privileged records of Employer and will not be divulged to any
person, firm, corporation, or other entity except on the direct authorization of
the President of Employer. Further, upon termination of this Agreement for any
cause, Employee agrees that he will continue to treat as private and privileged
any information, data, figures, projections, estimates, customer lists, tax
records, personnel history, accounting procedures, and the like and will not
release any such information to any person, firm, corporation, or other entity,
either by statement, deposition, or as a witness, except upon direct written
authority of the President of the Employer, and Employer shall be entitled to an
injunction by any competent court to enjoin and restrain the unauthorized
disclosure of such information in addition to any other remedy available at law
or equity.
3
<Page>
8. COVENANT NOT TO COMPETE. Employee agrees that during the term of his
employment with Employer, Employee shall not directly or indirectly engage in
the business of a car wash or any business competitive with the Employer
provided that if this agreement is terminated prior to the five year period the
covenant not to compete shall be for a period of two years after such
termination of Employment. Directly or indirectly engaging in the business of a
car wash or in any competitive business shall include, but not be limited to,
engaging in business as owner, partner, or agent, or as employee of any person,
firm, corporation, or other entity engaged in such business, or being interested
directly or indirectly in any such business conducted by any person, firm,
corporation, or other entity. This Noncompetition Agreement shall be applicable
within Ward County. In the event that a court of competent jurisdiction
determines that the provision of this Noncompetition Agreement are unreasonable,
said court may limit such provision to the extent it deems reasonable, without
declaring the provision invalid in its entirety. The previous sentence shall not
be construed as an admission by the Employer, but is only included to provide
the Employer with the maximum possible protection consistent with the right of
the Employee to earn a living subsequent to the termination of his employment.
It is acknowledged by Domres that the annual salary, bonus and SPF's acceptance
of the share exchange plan is sufficient consideration for the covenant not to
compete.
9. COMPLETE AGREEMENT. This document contains the Complete Agreement
concerning the employment arrangement between the parties and shall, as of the
effective date hereof, supersede all other Agreements between the parties
pertaining to employment.
10. GOVERNING IAW. This Agreement shall be governed according to the laws of
the State of North Dakota.
11. SUCCESSORS. This Agreement is personal to the Employee and Employee may
not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder to any other person. This Agreement may be
assigned by the Employer upon receipt of the written consent of Employee,
provided Employee shall not unreasonably withhold consent.
12. PARAGRAPH HEADINGS. The titles to the paragraph of this Agreement are
solely for the convenience of the parties and shall not be used to explain,
modify, simplify, or aid in the interpretation of the provisions of this
Agreement.
4
<Page>
Dated this 21 day of June, 1996.
/s/ Terry A. Domres
----------------------------------
Terry A. Domres
SPF ENERGY, INC.
By /s/ Jeffrey Farstad
----------------------------------
Jeffrey Farstad
ITS: Chief Executive Officer
5
<Page>
AMENDMENT TO EMPLOYMENT NONDISCLOSURE,
AND NONCOMPETITION AGREEMENT
This Agreement is entered into on this 30th day of January, 2001, by and
between Superpumper, Inc. a North Dakota corporation, hereinafter referred to as
"Employer," and Terry A. Domres, hereinafter referred to as "Employee."
WHEREAS, on June 21, 1996, the parties entered into an Employment,
Nondisclosure, and Noncompetition Agreement (Employment Agreement), and
WHEREAS, the parties are desirous of amending said Employment Agreement.
NOW THEREFORE, the parties hereby agree as follows:
A. The parties agree that paragraph 5 (F.) of the Employment Agreement
shall be stricken and replaced with the following:
5. COMPANY VEHICLE. Employer will furnish
Employee with the Ford pickup truck presently operated by
Employee until the termination of the Agreement. In
connection with the automobile Employer shall furnish
insurance and routine maintenance. Furthermore, Employer
shall allow Employee to continue with the lease of the
vehicle at the conclusion of this Agreement should
Employee elect to do so and Employee shall also be allowed
to exercise any option to purchase the vehicle at the
conclusion of the lease. Employee shall provide all
gasoline for the vehicle and routine oil changes. Employee
shall be permitted to wash the company vehicle and one
other vehicle on an as needed basis at any of the car
washes operated by Employer without charge. All traffic
violations shall be paid for by the Employee. Employee
agrees to maintain the automobile in first class condition
at all times. This paragraph shall be effective only
during those periods in which employee maintains a valid
North Dakota drivers license.
B. The parties agree that paragraphs 2, 3 and 6 of the Employment
Agreement shall be deleted in their entirety.
C. This Amendment to the Employment Agreement shall not effect any of the
other provisions of the Employment Agreement or any Agreement executed
in
<Page>
conjunction with the transfer of shares of Domres CarWash, Inc. and
the Domres CarWash business also known as Toad's Ride-n-Shine to
affiliates of the Employer.
Dated this 30th day of Jan, 2001.
SUPERPUMPER, INC.
By: /s/ [ILLEGIBLE]
-------------------------------
Its: CEO/President
-------------------------------
/s/ Terry A. Domres
------------------------------------
Terry A. Domres, Individually
CONSENT OF THE GUARANTOR
The undersigned as Guarantors of the Agreements executed in conjunction
with transaction resulting in the employment of Employee hereby consent to this
change and amendment of the Employment, Nondisclosure, and Noncompetition
Agreement.
Dated this 30th day of Jan, 2001.
/s/ Jeffrey L. Farstad
------------------------------------
Jeffrey L. Farstad, Individually
<Page>
FARSTAD OIL, INC.
By: /s/ [ILLEGIBLE]
-------------------------------
Its: CEO/President
-------------------------------
SPF ENERGY, INC.
By: /s/ [ILLEGIBLE]
-------------------------------
Its: CEO/President
-------------------------------
<Page>
NONCOMPETITION AND NONDISCLOSURE AGREEMENT
This Agreement, by and between SPF ENERGY, INC., hereinafter referred to as
Buyer, and CYNTHIA L. DOMRES, a shareholder of DOMRES CARWASH, INC., hereinafter
referred to as the Shareholder, have entered into this Agreement on this 21st
day of June, 1996.
Pursuant to the Asset Purchase Agreement executed by the parties, Buyer and
Shareholder hereby agree as follows:
1. Shareholder shall not directly or indirectly engage in, and shall have
no interest in any business, firm, person, partnership or corporation, whether
as an employee, officer, director, agent, security holder, creditor, consultant
or otherwise, that engages in any activity that is the same as or similar to, or
competitive with, any car wash activity engaged in by SPF ENERGY, INC. or any of
its subsidiaries in Ward County for a period of five (5) years immediately
following the execution of this document.
2. Shareholder shall not divulge, communicate, use to the detriment of
Buyer, or for the benefit of any other business, firm, person, partnership or
corporation, or otherwise use, any financial information, billing information,
customer information, data or trade secrets, including customer lists or other
technical data, or other business information belonging to Domres CarWash, Inc.
Shareholder acknowledges that any such information or data Shareholder may have
acquired was received in confidence and as a fiduciary of selling corporation.
3. In consideration for Shareholder's agreement to the terms of this
limited Noncompetition and Nondisclosure Agreement, Buyer agrees to complete the
Plan and Agreement of Reorganization and Exchange, in exchange for Shareholder
signing this Noncompetition and Nondisclosure Agreement.
4. Shareholder specifically agrees and acknowledges that the completion
of the stock exchange by Buyer is a reasonable and satisfactory consideration in
exchange for her limited agreement as described in paragraphs 1 and 2 above.
1
<Page>
5. The parties acknowledge that Buyer will suffer irreparable harm if the
Shareholder breaches this Noncompetition Agreement. Accordingly, Buyer shall be
entitled, in addition to any other right and remedy it may have, to add more
equity to an injunction, without the posting of a bond or other security,
enjoining or restraining the Shareholder from any violation of this
Noncompetition Agreement, and the Shareholder hereby consents to Buyer's right
to the issuance of such injunction. In any proceeding by Buyer to enforce any
provision of this Noncompetition Agreement, Buyer shall, in addition to any
injunctive relief to which it may be entitled, be awarded damages to be
determined by a court of competent jurisdiction, and all court costs,
disbursements and attorneys' fees incurred by Buyer in enforcement of this
action. In the event the Shareholder violates the terms of this Noncompetition
Agreement, the period of the restrictive covenant shall be extended for an
additional one (1) year from and after the latter of:
A. The date on which Shareholder ceases any violation; or
B. The date on which a court issues an order or judgment forcing the
terms of the covenant.
6. In the event that a court of competent jurisdiction determines that any
provision of this Noncompetition Agreement is unreasonable or void as contrary
to law, it may limit such provision to the extent it deems reasonable, without
declaring the provision invalid in its entirety.
7. This Agreement shall be governed according to the laws of the State of
North Dakota.
8. This Agreement is personal to the Shareholder, and Shareholder may
not assign it to any other person. This Agreement may be assigned by Buyer.
BUYER: SHAREHOLDER:
SPF ENERGY, INC.
/s/ Jeffrey Farstad /s/ Cynthia L. Domres
----------------------------- -----------------------------------
BY: Jeffrey Farstad Cynthia L. Domres
ITS: Chief Executive Officer
2
<Page>
STOCK REDEMPTION AGREEMENT - TERRY A. DOMRES
This Agreement is made this 21st day of June, 1996, by and between Terry A.
Domres, hereinafter referred to as Domres and SPF Energy, Inc. hereinafter
referred to as SPF. In consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. CONDITION PRECEDENT. The obligations of all parties to this Agreement is
contingent upon the requirement that the contemplated merger between
Superpumper, Inc. and Farstad Oil, Inc. has been approved pursuant to the merger
plan between Superpumper, Inc. and Farstad Oil, Inc. by July 1, 1996. In the
event said merger between Superpumper, Inc. and Farstad Oil, Inc. has not been
completed by July 1, 1996, Domres and the shareholders of Domres may postpone
the effective date of this Agreement until such time as the merger between
Superpumper, Inc. and Farstad Oil, Inc. has been approved or may terminate this
agreement if the merger is not completed within 30 days of the proposed closing
date:
2. OPTION TO PURCHASE. SPF shall redeem only the Common Stock of SPF
Energy, Inc. acquired by Terry A. Domres in exchange for his shares of Domres
Car Wash, Inc., hereinafter referred to as the Shares. The purchase shall be
pursuant to the terms and conditions contained in this document. Any redemption
shall be at the option of Terry A. Domres, provided that if exercised by Terry
Domres, the redemption is a binding obligation upon SPF. This redemption
agreement shall apply only to the actual shares received by Terry A. Domres in
exchange for his stock in Domres Car Wash, Inc. and shall not apply to any other
shares of SPF he may own or acquire. In the event Domres disposes of the Shares
in any other manner, then this option shall apply only to those shares still
held by Domres.
3. MANNER OF REDEMPTION. Commencing on July 1, 1998, the former
shareholders of Domres Car Wash, Inc., may sell to SPF a percentage of the SPF
Energy, Inc. Common Stock received in exchange for Domres Car Wash, Inc. Common
Stock and SPF shall buy the percentage tendered as allowed by this Agreement.
4. REDEMPTION PERCENTAGE. The former shareholders of Domres Car Wash, Inc.
may sell the number of SPF Energy, Inc. Common Stock they received pursuant to
the Plan and Agreement of Reorganization and Exchange signed, July 1, 1996 as
specified:
<Table>
<Caption>
EFFECTIVE DATE ALLOWED PERCENTAGE
-------------- ------------------
<S> <C>
7/1/98 5%
7/1/99 7%
7/1/2000 10%
7/1/of all subsequent years 10%
</Table>
1
<Page>
In the event the shareholders of Domres Car Wash, Inc. do not exercise the
option in any given year, the share option shall be cumulative for any
subsequent year, provided the percentage redeemed in any 12 month period shall
not exceed 20 percent.
5. PROCEDURE FOR SALE. Domres shall give notice to SPF at any time 60 days
after the effective date of his intention to exercise his option to sell the
allowed percentage of shares. Upon receipt of written notice of exercise of the
option, payment shall be made by SPF within 30 days after delivery to SPF of the
certificates representing the shares to be redeemed.
6. MANNER OF PAYMENT. The price at which SPF Energy, Inc. shall repurchase
the shares shall be equal to 92% of the asked price as of the date notice is
given by Domres. In no event shall the price paid by SPF to Domres be less than
$6.00 per share for Common Stock.
7. TERMINATION OF THE REPURCHASE AGREEMENT. This Repurchase Agreement shall
terminate upon the listing of SPF Energy, Inc. Common Stock on a national over
the counter market or any national exchange. There is no guarantee that any
minimum number of the shares will be purchased pursuant to this Agreement in the
event Domres does not exercise his option to sell and the Company is listed on
an exchange.
8. ASSIGNMENTS. This Agreement is personal to Terry A. Domres. This
Agreement shall not be assigned to any other individual except upon the written
consent of the other party. Such consent shall not be unreasonably withheld.
9. GUARANTEE. Superpumper, Inc., Farstad Oil, Inc. and Jeffrey L. Farstad
individually (hereinafter referred to as guarantor) hereby guarantee the
repurchase of shares pursuant to this agreement. In the event SPF fails to
redeem the required number of shares, the above named individuals shall fulfill
the purchase requirements on the same terms and conditions.
Guarantor acknowledges that the terms and conditions of their agreement may be
waived or amended without notice or guarantor's consent.
Guarantor waives notice of acceptance of this guaranty and waives diligence on
the part of Domres in collection of the indebtedness. Domres shall have the
privilege of granting such renewals and extensions as Domres may deem proper.
Guarantor further expressly waives notice of nonpayment, protest, and notice of
protest with respect to the indebtedness covered by this guaranty.
2
<Page>
/s/ Terry A. Domres
--------------------------------------
BY: Terry A. Domres, individually
SPF ENERGY, INC.
/s/ Jeffrey L. Farstad
--------------------------------------
BY: Jeffrey L. Farstad
ITS: Chief Executive Officer
SUPERPUMPER, INC.
/s/ Vern Lysford
--------------------------------------
BY: Vern Lysford
ITS: Chief Financial Officer
FARSTAD OIL, INC.
/s/ Jeffrey L. Farstad
--------------------------------------
BY: Jeffrey L. Farstad
ITS: President
/s/ Jeffrey L. Farstad
--------------------------------------
BY: Jeffrey L. Farstad, individually
3
<Page>
STOCK REPURCHASE AGREEMENT - TERRY A. DOMRES
The undersigned agree as follows:
1. SPF ENERGY, INC, shall redeem 36,833 shares received by Terry A.
Domres as part of the Merger Plan.
2. The price per share shall be $8.50 payable within 30 days of
receiving notice from Terry A. Domres of his decision to sell.
3. This agreement shall be effective commencing on July 1, 2001 and two
years thereafter terminating on July 1, 2003, provided the quarterly
employment bonuses of $10,625.00 required by the employment agreement
dated June 21, 1996 have terminated.
4. This agreement may be assigned by Terry A. Domres to any immediate
family member.
5. This agreement shall be guaranteed in a manner identical to the
Stock Redemption Agreement dated June 21, 1996.
/s/ Terry A. Domres
--------------------------------------
BY: Terry A. Domres, individually
SPF ENERGY, INC.
/s/ Jeffrey L. Farstad
--------------------------------------
BY: Jeffrey L. Farstad
ITS: Chief Executive Officer
SUPERPUMPER, INC.
/s/ Vern Lysford
--------------------------------------
BY: Vern Lysford
ITS: Chief Financial Officer
FARSTAD OIL, INC.
/s/ Jeffrey L. Farstad
--------------------------------------
BY: Jeffrey L. Farstad
ITS: President
/s/ Jeffrey L. Farstad
--------------------------------------
BY: Jeffrey L. Farstad, individually
<Page>
STOCK REDEMPTION AGREEMENT - CYNTHIA L. DOMRES
This Agreement is made this 21st day of June, 1996, by and between Cynthia
L. Domres, hereinafter referred to as Domres and SPF Energy, Inc. hereinafter
referred to as SPF. In consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. CONDITION PRECEDENT. The obligations of all parties to this Agreement is
contingent upon the requirement that the contemplated merger between
Superpumper, Inc. and Farstad Oil, Inc. has been approved pursuant to the merger
plan between Superpumper, Inc. and Farstad Oil, Inc. by July 1, 1996. In the
event said merger between Superpumper, Inc. and Farstad Oil, Inc. has not been
completed by July 1, 1996, Domres and the shareholders of Domres may postpone
the effective date of this Agreement until such time as the merger between
Superpumper, Inc. and Farstad Oil, Inc. has been approved or may terminate this
agreement if the merger is not completed within 30 days of the proposed closing
date:
2. OPTION TO PURCHASE. SPF shall redeem only the Common Stock of SPF
Energy, Inc. acquired by Cynthia L. Domres in exchange for her shares of Domres
Car Wash, Inc., hereinafter referred to as the Shares. The purchase shall be
pursuant to the terms and conditions contained in this document. Any redemption
shall be at the option of Cynthia L. Domres, provided that if exercised by
Cynthia L. Domres, the redemption is a binding obligation upon SPF. This
redemption agreement shall apply only to the actual shares received by Cynthia
L. Domres in exchange for her stock in Domres Car Wash, Inc. and shall not apply
to any other shares of SPF she may own or acquire. In the event Domres disposes
of the Shares in any other manner, then this option shall apply only to those
shares still held by Domres.
3. MANNER OF REDEMPTION. Commencing on July 1, 1998, the former
shareholders of Domres Car Wash, Inc., may sell to SPF a percentage of the SPF
Energy, Inc. Common Stock received in exchange for Domres Car Wash, Inc. Common
Stock and SPF shall buy the percentage tendered as allowed by this Agreement.
4. REDEMPTION PERCENTAGE. The former shareholders of Domres Car Wash, Inc.
may sell the number of SPF Energy, Inc. Common Stock they received pursuant to
the Plan and Agreement of Reorganization and Exchange signed July 1, 1996 as
specified:
<Table>
<Caption>
EFFECTIVE DATE ALLOWED PERCENTAGE
-------------- ------------------
<S> <C>
7/1/98 5%
7/1/99 7%
7/1/2000 10%
7/1/of all subsequent years 10%
</Table>
1
<Page>
In the event the shareholders of Domres Car Wash, Inc. do not exercise the
option in any given year, the share option shall be cumulative for any
subsequent year, provided the percentage redeemed in any 12 month period shall
not exceed 20 percent.
5. PROCEDURE FOR SALE. Domres shall give notice to SPF at any time 60 days
after the effective date of her intention to exercise her option to sell the
allowed percentage of shares. Upon receipt of written notice of exercise of the
option, payment shall be made by SPF within 30 days after delivery to SPF of the
certificates representing the shares to be redeemed.
6. MANNER OF PAYMENT. The price at which SPF Energy, Inc. shall repurchase
the shares shall be equal to 92% of the asked price as of the date notice is
given by Domres. In no event shall the price paid by SPF to Domres be less than
$6.00 per share for Common Stock.
7. TERMINATION OF THE REPURCHASE AGREEMENT. This Repurchase Agreement shall
terminate upon the listing of SPF Energy, Inc. Common Stock on a national over
the counter market or any national exchange. There is no guarantee that any
minimum number of the shares will be purchased pursuant to this Agreement in the
event Domres does not exercise her option to sell and the Company is listed on
an exchange.
8. ASSIGNMENTS. This Agreement is personal to Cynthia L. Domres. This
Agreement shall not be assigned to any other individual except upon the written
consent of the other party provided it may be assigned to immediate family
members. Such consent shall not be unreasonably withheld.
9. GUARANTEE. Superpumper, Inc., Farstad Oil, Inc. and Jeffrey L. Farstad
individually (hereinafter referred to as guarantor) hereby guarantee the
repurchase of shares pursuant to this agreement. In the event SPF fails to
redeem the required number of shares, the above named individuals shall fulfill
the purchase requirements on the same terms and conditions.
Guarantor acknowledges that the terms and conditions of their agreement may be
waived or amended without notice or guarantor's consent.
Guarantor waives notice of acceptance of this guaranty and waives diligence on
the part of Domres in collection of the indebtedness. Domres shall have the
privilege of granting such renewals and extensions as Domres may deem proper.
Guarantor further expressly waives notice of nonpayment, protest, and notice of
protest with respect to the indebtedness covered by this guaranty.
2
<Page>
/s/ Cynthia L. Domres
---------------------------------------------
BY: Cynthia L. Domres, individually
SPF ENERGY, INC.
/s/ Jeffrey L. Farstad
---------------------------------------------
BY: Jeffrey L. Farstad
ITS: Chief Executive Officer
SUPERPUMPER, INC.
/s/ Vern Lysford
---------------------------------------------
BY: Vern Lysford
ITS: Chief Financial Officer
FARSTAD OIL, INC.
/s/ Jeffrey L. Farstad
---------------------------------------------
BY: Jeffrey L. Farstad
ITS: President
/s/ Jeffrey L. Farstad
---------------------------------------------
BY: Jeffrey L. Farstad, individually
3
<Page>
STOCK REPURCHASE AGREEMENT - CYNTHIA L. DOMRES
The undersigned agree as follows:
1. SPF ENERGY, INC. shall redeem 34,000 shares received by Cynthia L.
Domres as part of the Merger Plan.
2. The price per share shall be $8.50 payable within 30 days of receiving
notice from Cynthia L. Domres of his decision to sell.
3. This agreement shall be effective commencing on July 1, 2001 and two
years thereafter terminating on July 1, 2003, provided the quarterly
employment bonuses of $10,625.00 required by the employment agreement
dated June 21, 1996 have terminated.
4. This agreement may be assigned by Cynthia L. Domres to any immediate
family member.
5. This agreement shall be guaranteed in a manner identical to the Stock
Redemption Agreement dated June 21, 1996.
/s/ Cynthia L. Domres
---------------------------------------------
BY: Cynthia L. Domres, individually
SPF ENERGY, INC.
/s/ Jeffrey L. Farstad
---------------------------------------------
BY: Jeffrey L. Farstad
ITS: Chief Executive Officer
SUPERPUMPER, INC.
/s/ Vern Lysford
---------------------------------------------
BY: Vern Lysford
ITS: Chief Financial Officer
FARSTAD OIL, INC.
/s/ Jeffrey L. Farstad
---------------------------------------------
BY: Jeffrey L. Farstad
ITS: President
/s/ Jeffrey L. Farstad
---------------------------------------------
BY: Jeffrey L. Farstad, individually
<Page>
SHAREHOLDERS' STOCK REDEMPTION AND OPTION AGREEMENT
This Agreement is made as of the 25th day of June, 1996, among
JEFF FARSTAD, PAULETTE HAVNVIK, and the JOHN HAVNVIK TRUST u/a February
7, 1995, hereinafter collectively referred to as Shareholders and individually
referred as Farstad, Havnvik and Trust, respectively, and SPF ENERGY, INC.,
a North Dakota corporation, hereinafter referred to as SPF.
RECITALS
1. SPF has recently acquired from Farstad all of his shares in
Farstad Oil, Inc., and from Havnvik and from Trust all of their shares in
Superpumper, Inc., in exchange for shares in SPF. After the acquisition,
Shareholders are principal holders of stock in SPF, each owning the following
number of shares:
<Table>
<S> <C>
Farstad 2,332,500 shares
Havnvik 677,327.3 shares
Trust 253,413.9 shares
</Table>
2. In January of 1995, Superpumper, Inc. granted to the Trust the
option to sell Superpumper, Inc. common stock to Superpumper, Inc. at the rate
of $150,000.00 for 10 years after John Havnvik's death, or a total of
$1,500,000.00.
After John Havnvik's death in 1995, the Trust exercised its 1995 option
to sell 32,608.7 shares of Superpumper stock for $150,000.00. In 1996, the Trust
exercised its 1996 option and the Trust and Superpumper agreed to accelerated
exercise of the 1997, 1998 and 1999 options, resulting in a 1996 total
redemption of 130,434.8 shares for $600,000.
The parties intend that the Trust's remaining option to sell
Superpumper, Inc. common stock attaches to the Trust's 253,413.9 SPF shares
received in exchange for Superpumper, Inc. common stock, for the remaining 5
years, 2000 through 2004, and desire to make arrangements for exercise of the
remaining option.
3. The Shareholders and SPF have certain mutual interests concerning
SPF. Those interests include control upon the number and identity of
Shareholders in SPF and providing a market for shares of stock in SPF.
1
<Page>
AGREEMENT
REDEMPTION OF TRUST'S SHARES
1. SPF assumes rights and obligations with respect to its stock held
by the Trust in lieu of Superpumper, Inc. common stock formerly held by the
Trust, under the January 1995 agreement described in Recital paragraph 2. SPF
hereby agrees to redeem and the Trust agrees to sell to SPF $750,000 of SPF
shares issued in exchange for Superpumper common stock, in a series of 5 annual
transactions, 32,608.7 shares each transaction @ $4.60, or a total of $150,000
per year in January of each year 2000 through 2004, provided that Superpumper
shall have the option to call for any one or more of the future transactions to
be executed at any earlier date.
As each separate redemption transaction is scheduled for a future date,
no transaction bears interest before its scheduled date. In a case where SPF
calls for a transaction to be executed at an early date, the amount of the
transaction shall not be discounted.
Redemptions scheduled for 2000 through 2004 are not accelerated by the
early execution of redemptions scheduled for 1997, 1998, and 1999.
As a consequence of the redemption of 163,043.5 of the Trust's SPF
shares (5 annual transactions @ 32,608.7), the Trust's remaining shares subject
to other terms of this Agreement is 90,370.4 shares.
TRANSFER RESTRICTION AND OPTION
2. RESTRICTION ON STOCK. Havnvik shall not encumber or dispose, by
sale, gift, or otherwise, of shares of stock in SPF which she now owns or may
hereafter acquire, except as provided in this Agreement. In the case of her
death, her estate, heirs or legatees, as the case may be, shall hold such stock
subject to the obligations under this Agreement to sell such stock in certain
circumstances.
The Trust shall not encumber or dispose, by sale, gift, or otherwise,
of shares of stock in SPF which it now owns or may hereafter acquire, except as
provided in this Agreement.
The Trust may transfer all or part of its stock in SPF by a
distribution to a beneficiary permitted by the trust agreement, provided any
such transferee shall hold such stock subject to the obligations under this
Agreement to sell such stock in certain circumstances.
2
<Page>
3. FIRST REFUSAL OPTION. In the event, and in each event, that
Havnvik or the trust should desire to sell any of her or its stock in SPF, and
should receive from a prospective purchaser a bona fide offer to purchase which
is acceptable to her or it, Havnvik or Trust shall first offer to sell such
stock to Farstad and to SPF. The offer shall be made by giving Farstad and SPF
written notice of the Shareholder's desire to sell his stock, the receipt of an
acceptable offer, the identity of the prospective purchaser, and the terms of
the offer, including the number of shares offered to be purchased and the price
and payment terms.
a. FIRST OPTION TO FARSTAD. Farstad shall have a first option to
purchase the stock at the price and upon the terms offered by the prospective
purchaser. The option may be exercised by notice within thirty (30) days of
receipt of the offer.
b. SECOND OPTION TO SPF. If the offer is not accepted by Farstad
within the thirty (30) days first option period, SPF shall have a separate
second option to redeem the stock at the price per share and upon the terms
offered by the prospective purchaser. The option may be exercised by notice
within thirty (30) days after expiration of Farstad's first option.
c. RIGHTS WHEN OPTION NOT EXERCISED. If Farstad fails to purchase or
SPF fails to redeem all such stock within the first and second option periods,
the Shareholder may sell his stock to the prospective purchaser in strict
conformity with the terms of the original offer.
If, by reason of Farstad's or SPF's forbearance to exercise a right to
purchase or redeem, a Shareholder becomes entitled to sell to a prospective
purchaser upon terms offered, but, for any reason, the sale to such prospective
purchaser shall not be consummated on the terms offered, then Farstad and SPF
shall have new rights to purchase or redeem in the event the Shareholder
receives another acceptable offer from any prospective purchaser.
If, by reason of Farstad's or SPF's forbearance to exercise a right to
purchase or redeem, a Shareholder becomes entitled to sell to a prospective
purchaser upon terms offered and the sale shall be consummated, then Farstad and
SPF shall have new rights to purchase or redeem in the event the Shareholder
receives another acceptable offer from any prospective purchaser to purchase any
of the Shareholder's remaining shares.
3
<Page>
GENERAL PROVISIONS
4. NOTICES. Notices, offers, and acceptances required or permitted
to be given under this Agreement shall be in writing and shall be given by
ordinary or certified mail. Such notices will be deemed to have been given when
received by the persons to whom they are directed. If circumstances require a
Shareholder to offer to sell his stock and he fails for any reason to make such
offer in writing, Farstad or SPF may notify such Shareholder that an offer is
required under this Agreement and that the offer is accepted or rejected, which
acceptance or rejection shall be deemed timely, the Shareholder having failed to
make a written offer to commence the running of any option period.
5. PERFORMANCE. Execution and delivery of appropriate documents to
evidence a Shareholder's sale of his stock shall be accomplished as speedily as
practicable.
6. AUTHORIZATION. SPF is authorized to enter into this Agreement by
action of its directors. Action by the respective trustees is authorized by
applicable provisions of North Dakota Century Code, Section 30.1-18-15.
7. ENDORSEMENT. Certificates of stock in SPF owned by the
Shareholders shall be endorsed as follows:
"Sale or transfer of the shares of stock represented by this
certificate is subject to terms of an Agreement among the Corporation
and certain Shareholders. A copy of the Agreement is on file in the
office of the Secretary of the Corporation."
8. AGREEMENT BINDING. This Agreement shall be binding upon SPF and
the Shareholders, their heirs, legal representatives, successors and assigns.
This Agreement may be altered, amended, or terminated only by a writing signed
by SPF and all the Shareholders, except that it shall terminate on the
occurrence of any of the following events: bankruptcy, receivership, or
dissolution of SPF.
4
<Page>
9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
altogether shall constitute one and the same instrument, even though separate
counterparts may be signed by fewer than all the parties or their respective
agents.
IN WITNESS WHEREOF, the parties have executed this Agreement.
SHAREHOLDERS: SPF, INC.
/s/ Jeff Farstad By /s/ Jeff Farstad
--------------------------------------- --------------------------------
Jeff Farstad Jeff Farstad
Its President
/s/ Paulette Havnvik And
--------------------------------------- By /s/ Vern Lysford
Paulette Havnvik --------------------------------
Vern Lysford
JOHN HAVNVIK TRUST Its Secretary
By /s/
------------------------------------
First Western Bank,
Co-Trustee, by /s/
---------------------
Its VP and Trust Manager
By /s/ Paulette Havnvik
------------------------------------
Paulette Havnvik,
Co-Trustee
By /s/ Kari Havnvik Warberg
------------------------------------
Kari Havnvik Warberg,
Co - Trustee
5
<Page>
EMPLOYMENT AND STOCK OPTION AGREEMENT
This Agreement is made this 1st day of July, 1996, among PAULETTE
HAVNVIK, SUPERPUMPER, INC., and SPF ENERGY, INC., hereinafter referred to as
Havnvik, Superpumper, and SPF respectively. Superpumper and SPF are herein
sometimes referred to collectively as Employers.
RECITALS
1. SPF has recently acquired a substantial majority of the
outstanding shares of Superpumper common stock in an exchange of Superpumper
shares for SPF shares. Before SPF acquired a majority of capital stock in
Superpumper, Havnvik was a principal executive employee of Superpumper. The
parties desire her continued employment, including provisions for her employment
responsibilities to be reduced.
2. Havnvik is a beneficiary of a deferred compensation agreement
among her, John Havnvik (her deceased husband and a former principal executive
employee of Superpumper), and Superpumper. The parties desire to arrange for her
continued receipt of the deferred compensation.
AGREEMENT
EMPLOYMENT AGREEMENT
1. EMPLOYMENT. Employers hereby employ Havnvik and she accepts such
employment upon the terms and conditions herein set forth.
2. TERM. The term of employment shall begin on the date set forth
above and shall continue until terminated as herein provided.
3. DUTIES. Havnvik is employed to actively participate in the
management of the Superpumper business operations. She will devote her full-time
and best efforts to the performance of executive and management duties as
assigned by the respective boards of directors of Superpumper and SPF, subject
to reduction to part-time service as herein provided.
Without limiting the scope of her executive and management duties, the
parties particularly intend that Havnvik shall participate in decisions
regarding the establishment of new Superpumper business locations or changes in
the status of any existing location, including
1
<Page>
whether any particular location shall be "branded" or affiliated with any major
national brand of automotive fuel. During the two-year period commencing on the
date set forth above, no location which is now unbranded shall be branded
without Havnvik's consent.
4. COMPENSATION. For all services rendered by Havnvik under this
Agreement, she shall be paid as follows:
A. BASIC COMPENSATION. Havnvik shall be paid as basic compensation
at the annual rate of $125,000 for full time employment, payable in monthly
installments. In the case of reduction to part-time service, her basic annual
salary shall be proportionally reduced.
B. ANNUAL INCREASE. Havnvik's basic compensation shall be increased
each year during the term of this contract, by an amount equal to 5% of the
preceding year's basic compensation. In the case of reduction of her hours of
service, her annual increase shall be proportionally reduced.
EXAMPLE:
--------
1997 compensation will be $131,250.
(1.05 x $125,000 1996 compensation)
1998 compensation will be $137,813.
(1.05 x $131,250 1997 compensation)
1999 compensation will be $144,703.
(1.05 x $137,813 1998 compensation)
C. ADDITIONAL COMPENSATION. Compensation in addition to basic
compensation and annual increases may be paid in such amounts and at such times
as the respective boards of directors of Superpumper or SPF may from time to
time determine. In the case of a payment of additional compensation to SPF's
other principal officer, Jeff Farstad, exceeding his basic compensation for any
year, Havnvik shall be paid additional compensation proportionate to her basic
compensation for the year as compared to Farstad's basic compensation for the
year.
D. FRINGE BENEFITS. Havnvik shall participate in any "fringe
benefits," including but not limited to retirement plans, health insurance
plans, sick leave or vacation leave, as may from time to time be adopted by
either Superpumper or SPF.
5. WORKING FACILITIES. Superpumper will furnish Havnvik with an
office, equipment, technical and secretarial assistance, and other facilities
and services suitable to her position and adequate for the performance of her
duties. Superpumper shall provide Havnvik with a company car of
2
<Page>
similar quality and upon the same terms and conditions as those prevailing
during 1995.
6. EMPLOYEE EXPENSES. Superpumper shall reimburse Havnvik for travel
and other expenses reasonably and necessarily incurred in the performance of
her duties pursuant to this Agreement.
7. ADMINISTRATION. Superpumper and SPF will arrange for one of them
to serve as common paymaster to provide funds and administration of Havnvik's
compensation and benefits, and to allocate her compensation, benefits, and other
expenses between Superpumper and SPF in the discretion of their respective
boards of directors.
8. MODIFICATION OR TERMINATION. Employers shall not terminate
Havnvik's employment except for serious misconduct or failure of performance of
duties.
Havnvik shall not terminate her employment or reduce her annual hours
of service before January, 1998, except as reasonably required by personal
health or hardship.
After December 31, 1997, Havnvik shall be privileged to terminate her
employment or to reduce her full-time service to part-time service, with
discretion to manage her work schedule.
EXAMPLES:
---------
Beginning in January, 1999, Havnvik decides upon a life of
semi-retirement, including 2 months free of work and 10 months of
reduced work at 100 hours per month. Thus, her work schedule is reduced
from the full time norm of 2,000 hours to 1,000 annual hours of
service. Consequently, her 1999 compensation, $144,703 (See example
under paragraph 4B above), is reduced by one-half, to $72,352 for
half-time hours of service.
In the case of her reduction of hours of service while continuing as an
employee, Havnvik shall be privileged to participate in Superpumper's retirement
or health insurance plans, in accordance with applicable law, plan
specifications, and insurance policies.
In the case of her resignation from employment, Havnvik shall be
retained as a consultant to SPF for a term ending on the earlier of December 31,
2005, or the fifth anniversary of her resignation, at the annual compensation of
$50,000. She shall be privileged to participate in Superpumper's retirement or
health insurance plans, in accordance with applicable law, plan specifications,
and
3
<Page>
insurance policies. In any event, she shall be privileged to remain in SPF's
health insurance group until she qualifies for "Medicare" insurance.
All rights and obligations under this Agreement, will terminate without
notice on December 31, 2005, provided Havnvik's privilege to remain in SPF's
health insurance group shall not expire until she is qualified by age for
Medicare insurance.
9. DEFERRED COMPENSATION. The deferred compensation arrangement
referred to in the recitals entitles Havnvik to receive from Superpumper sixty
(60) monthly payments of $4,167.00 beginning in March 1995 through February
2000. Havnvik will continue receipt of the remaining monthly installments of
deferred compensation after the effective date of this contract, even though she
will concurrently receive compensation for current services.
Deferred compensation rights are personal to Havnvik, as provided in
the original January 1995 agreement. Deferred compensation rights will lapse on
her death, with the intended consequence that neither her personal
representative nor any heir or legatee will be entitled to receive deferred
compensation under this agreement or the original January 1995 deferred
compensation agreement.
OPTIONS TO SELL STOCK
10. OPTIONS TO SELL SPF SHARES. Havnvik shall have options to sell to
SPF up to 10,870 shares during 1996, 9,780 shares during 1997, and 67,732.7
shares per year during and after 1998, at a price determined as herein provided.
The 1996 option price shall be $5.52 per share. The 1997 and later
years' option price shall be the greater of $4.60 per share or 92% of the
price of SPF shares in its most recent public offering, or if no offering has
been made within two (2) years the option price shall be the greater of $4.60
per share or 2.5 times the book value of SPF shares (determined in accordance
with generally accepted accounting principles) as of the most recent
fiscal/calendar year.
The 1996 option shall be exercisable by written notice delivered to
SPF during July, 1996. 1997 and following years' options shall be exercisable by
written notice delivered to SPF during January of each calendar year, beginning
in 1997. Havnvik shall deliver stock certificates or other appropriate documents
with any notice of exercise of her option to sell shares. SPF shall pay the
price for shares sold in a series of equal monthly installments during
4
<Page>
the calendar year, without interest. If any annual option is not exercised, it
will not lapse and may be exercised in a later year, provided that the number of
shares SPF shall be required to redeem in any year shall not exceed 67,732.7.
Options to sell under this paragraph 10 are personal to Havnvik while
she is living. The options may not be assigned in connection with assignment of
any of her shares in SPF.
In the case of Havnvik's death before January 1, 2011, her personal
representative or any heir or legatee who receives her shares will be privileged
to sell any of her shares to SPF on the same terms as would Havnvik if she were
then living, provided that the number of shares SPF shall be required to redeem
in any year shall not exceed 67,732.7, and provided that SPF shall not be
required to redeem any shares in any year after 2011.
In the case of Havnvik's death on or after January 1, 2011, her options
will lapse on her death, with the intended consequence that neither her personal
representative nor any heir or legatee who receives her shares will be
privileged to sell any of her shares to SPF.
Dated this 25th day of June, 1996.
/s/ Paulette Havnvik
------------------------------------
Paulette Havnvik
SUPERPUMPER, INC.
By /s/ Paulette Havnvik
------------------------------------
Paulette Havnvik
Its President
SPF, INC.
By /s/ Jeff Farstad
------------------------------------
Jeff Farstad
Its President
5
<Page>
AMENDMENT TO SHAREHOLDERS' STOCK
REDEMPTION AND OPTION AGREEMENT
THIS AGREEMENT is entered into between JEFF FARSTAD, PAULETTE ANDREWS
(f/k/a Paulette Havnvik), and the JOHN HAVNVIK TRUST U/A dated February 7, 1995,
hereinafter collectively referred to as "Shareholders" and individually referred
to as "Farstad," "Andrews," and the "Trust," respectively, and SPF ENERGY, INC.,
a North Dakota corporation, hereinafter referred to as "SPF." This agreement
shall hereinafter be referred to as the "Amendment."
RECITALS
A. On or about the 25" day of June, 1996, Farstad, Andrews, the
Trust, and SPF executed a "Shareholders' Stock Redemption and Option Agreement"
(hereinafter, the "1996 Agreement").
B. Among other things, Section 1 of the 1996 Agreement provided that
SPF would redeem, and the Trust would sell, a certain number of SPF shares at
specific times and at a specific price:
<Table>
<S> <C> <C>
January 2000 32,608.7 shares @ $4.60/share --------- $150,000
January 2001 32,608.7 shares @ $4.60/share --------- $150,000
January 2002 32,608.7 shares @ $4.60/share --------- $150,000
January 2003 32,608.7 shares @ $4.60/share --------- $150,000
January 2004 32,608.7 shares @ $4.60/share --------- $150,000
--------------- --------
163,043.5 shares $750,000
</Table>
C. Farstad, Andrews, the Trust and SPF have now agreed to amend the
1996 Agreement in certain respects.
AGREEMENT
IN CONSIDERATION of the mutual covenants contained in this agreement,
the parties agree as follows:
1. SPF shall redeem, and the Trust shall sell, 10,872 shares of SPF stock
in each of the years 2000, 2001, 2002, 2003, and 2004. Said redemptions
shall be made in accordance with the schedule attached to this
Amendment as Exhibit A, which schedule includes the payment of interest
by SPF to the Trust, and which schedule
Page 1 of 3
<Page>
is hereby incorporated into this Amendment by reference. As shown on
Exhibit A, a final redemption will take place on or before January 3,
2005, at which time SPF shall redeem, and the Trust shall sell,
108,683.5 shares of SPF stock for a final cash payment of $499,944.00.
2. Following the redemptions called for by the 1996 Agreement, as amended
by this Amendment, the Trust or its assigns shall still own 90,370.4
shares of SPF stock.
3. SPF shall have the right and option to call for any one or more of the
transactions referenced in Section 1 of this Amendment to be executed
at any earlier date.
4. The Trust hereby warrants that it has not encumbered or transferred any
of its stock in SPF, except as provided in the 1996 Agreement,
including without limitation the distribution of any or all of its SPF
stock to a beneficiary permitted by the trust agreement governing the
Trust.
5. SPF is authorized to enter into this Amendment by action of its
directors. Action by the co-trustees of the Trust is authorized by
applicable provisions of N.D.C.C. Section 30.1-18-15.
6. The parties further acknowledge that this Amendment only affects the
respective rights and obligations of the Trust and SPF under the 1996
Agreement. The parties acknowledge that Andrews and Farstad are signing
this Amendment in their individual capacities only because Andrews and
Farstad were individual signatories to the 1996 Agreement.
7. This Amendment shall be binding upon SPF and the Shareholders, their
heirs, legal representatives, successors and assigns.
8. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument, even though separate
counterparts may be signed by fewer than all the parties or their
respective agents.
9. All provisions of the 1996 Agreement are hereby incorporated into this
agreement and are hereby modified or supplemented to conform with this
agreement, but in all other respects are to be and shall continue in
full force and effect.
Page 2 of 3
<Page>
IN WITNESS WHEREOF, the parties to this agreement set their signature
on the dates indicated below.
SHAREHOLDERS: SPF ENERGY, INC.
/s/ Jeff Farstad Dated 10-6-00 By /s/ Jeff Farstad
--------------------------- ------- ----------------------
Jeff Farstad Jeff Farstad
Its President
/s/ Paulette Andrews Dated 10-18-00 And
--------------------------- --------
Paulette Andrews, By /s/ Dennis Krueger
f/k/a Paulette Havnvik ---------------------
Dennis Krueger
Its Vice President
JOHN HAVNVIK TRUST
Dated 10-6-00
By /s/ First Western Bank Dated 9-8-00
-------------------------- ------
First Western Bank,
Co-Trustee, by Chris Lamoureux,
Its VP and Trust Manager
By /s/ Paulette Andrew Dated 10-18-00
-------------------------- --------
Paulette Andrews,
f/k/a Paulette Havnvik,
Co-Trustee
By /s/ Kari Havnvik Warberg Dated 9/27/00
-------------------------- -------
Kari Havnvik Warberg,
Co-Trustee
By /s/ Kari Havnvik Warberg Dated 9/27/00
-------------------------- -------
Kari Havnvik Warberg
Trust Beneficiary
By /s/ Kim L. Kvernum Dated Sept 21, 2000
-------------------------- -------------
Kim L. Kvernum
Trust Beneficiary
Page 3 of 3
<Page>
EXHIBIT A
SPF ENERGY, INC.
JOHN HAVNVIK TRUST STOCK REDEMPTION COMMITMENT
AMORTIZATION SCHEDULE
<Table>
<Caption>
PRINCIPAL PRINCIPAL CALCULATED
# OF SHARES DOLLARS PAYMENTS PRINCIPAL INTEREST BALANCE DAYS
<S> <C> <C> <C> <C> <C> <C> <C>
1/31/2000 - 12,500.00 - - - 12,500.00 -
2/29/2000 - 12,500.00 - - - 25,000.00 -
3/31/2000 - 12,500.00 - - - 37,500.00 -
4/30/2000 - 12,500.00 - - - 50,000.00 -
5/31/2000 4,530.00 12,500.00 21,670.88 20,838.00 832.88 41,662.00 152.00
6/30/2000 906.00 12,500.00 4,304.57 4,167.60 136.97 49,994.40 30.00
7/31/2000 906.00 12,500.00 4,337.44 4,167.60 169.84 58,326.80 31.00
8/31/2000 906.00 12,500.00 4,365.75 4,167.60 198.15 66,659.20 31.00
9/30/2000 906.00 12,500.00 4,386.75 4,167.60 219.15 74,991.60 30.00
10/31/2000 906.00 12,500.00 4,422.37 4,167.60 254.77 83,324.00 31.00
11/30/2000 906.00 12,500.00 4,441.54 4,167.60 273.94 91,656.40 30.00
12/31/2000 906.00 12,500.00 4,478.98 4,167.60 311.38 99,988.80 31.00
-------------------------------------------------------------------------
10,872.00 150,000.00 52,408.29 50,011.20 2,397.09
1/31/2001 906.00 12,500.00 4,507.29 4,167.60 339.69 108,321.20 31.00
2/28/2001 906.00 12,500.00 4,499.98 4,167.60 332.38 116,653.60 28.00
3/31/2001 906.00 12,500.00 4,563.90 4,167.60 396.30 124,986.00 31.00
4/30/2001 906.00 12,500.00 4,578.51 4,167.60 410.91 133,318.40 30.00
5/31/2001 906.00 12,500.00 4,620.62 4,167.60 452.92 141,650.80 31.00
6/30/2001 906.00 12,500.00 4,633.30 4,167.60 465.70 149,983.20 30.00
7/31/2001 906.00 12,500.00 4,677.13 4,167.60 509.53 158,315.60 31.00
8/31/2001 906.00 12,500.00 4,705.44 4,167.60 537.84 166,648.00 31.00
9/30/2001 906.00 12,500.00 4,715.48 4,167.60 547.88 174,980.40 30.00
10/31/2001 906.00 12,500.00 4,762.05 4,167.60 594.45 183,312.80 31.00
11/30/2001 906.00 12,500.00 4,770.27 4,167.60 602.67 191,645.20 30.00
12/31/2001 906.00 12,500.00 4,818.67 4,167.60 651.07 199,977.60 31.00
-------------------------------------------------------------------------
10,872.00 150,000.00 55,852.55 50,011.20 5,841.35
1/31/2002 906.00 12,500.00 4,846.98 4,167.60 679.39 208,310.00 31.00
2/28/2002 906.00 12,500.00 4,806.80 4,167.60 639.20 216,642.40 28.00
3/31/2002 906.00 12,500.00 4,903.59 4,167.60 735.99 224,974.80 31.00
4/30/2002 906.00 12,500.00 4,907.24 4,167.60 739.64 233,307.20 30.00
5/31/2002 906.00 12,500.00 4,960.21 4,167.60 792.61 241,639.60 31.00
6/30/2002 906.00 12,500.00 4,962.03 4,167.60 794.43 249,972.00 30.00
7/31/2002 906.00 12,500.00 5,016.82 4,167.60 849.22 258,304.40 31.00
8/31/2002 906.00 12,500.00 5,045.13 4,167.60 877.53 266,636.80 31.00
9/30/2002 906.00 12,500.00 5,044.21 4,167.60 876.61 274,969.20 30.00
10/31/2002 906.00 12,500.00 5,101.74 4,167.60 934.14 283,301.60 31.00
11/30/2002 906.00 12,500.00 5,099.00 4,167.60 931.40 291,634.00 30.00
12/31/2002 906.00 12,500.00 5,158.36 4,167.60 990.76 299,966.40 31.00
-------------------------------------------------------------------------
10,872.00 150,000.00 59,852.11 50,011.20 9,840.91
1/31/2003 906.00 12,500.00 5,186.66 4,167.60 1,019.06 308,298.80 31.00
2/28/2003 906.00 12,500.00 5,113.61 4,167.60 946.01 316,631.20 28.00
3/31/2003 906.00 12,500.00 5,243.28 4,167.60 1,075.68 324,963.60 31.00
4/30/2003 906.00 12,500.00 5,235.97 4,167.60 1,068.37 333,296.00 30.00
5/31/2003 906.00 12,500.00 5,299.89 4,167.60 1,132.29 341,628.40 31.00
6/30/2003 906.00 12,500.00 5,290.76 4,167.60 1,123.16 349,960.80 30.00
7/31/2003 906.00 12,500.00 5,356.51 4,167.60 1,188.91 358,293.20 31.00
8/31/2003 906.00 12,500.00 5,384.82 4,167.60 1,217.22 366,625.60 31.00
</Table>
<Page>
<Table>
<Caption>
PRINCIPAL PRINCIPAL CALCULATED
# OF SHARES DOLLARS PAYMENTS PRINCIPAL INTEREST BALANCE DAYS
<S> <C> <C> <C> <C> <C> <C> <C>
9/30/2003 906.00 12,500.00 5,372.94 4,167.60 1,205.34 374,958.00 30.00
10/31/2003 906.00 12,500.00 5,441.43 4,167.60 1,273.83 383,294.40 31.00
11/30/2003 906.00 12,500.00 5,427.73 4,167.60 1,260.13 391.622.80 30.00
12/31/2003 906.00 12,500.00 5,498.04 4,167.60 1,330.44 399,955.20 31.00
-------------------------------------------------------------------------
10,872.00 150,000.00 63,851.66 50,011.20 13,840.46
1/31/2004 906.00 12,500.00 5,526.35 4,167.60 1,358.75 408,287.60 31.00
2/29/2004 906.00 12,500.00 5,465.17 4,167.60 1,297.57 416,620.00 29.00
3/31/2004 906.00 12,500.00 5,582.97 4,167.60 1,415.37 424,952.40 31.00
4/30/2004 906.00 12,500.00 5,564.70 4,167.60 1,397.10 433,284.80 30.00
5/31/2004 906.00 12,500.00 5,639.58 4,167.60 1,471.98 441,617.20 31.00
6/30/2004 906.00 12,500.00 5,619.49 4,167.60 1,451.89 449,949.60 30.00
7/31/2004 906.00 12,500.00 5,696.20 4,167.60 1,528.60 458,282.00 31.00
8/31/2004 906.00 12,500.00 5,724.50 4,167.60 1,556.90 466,614.40 31.00
9/30/2004 906.00 12,500.00 5,701.67 4,167.60 1,534.07 474,946.80 30.00
10/31/2004 906.00 12,500.00 5,781.12 4,167.60 1,613.52 483,279.20 31.00
11/30/2004 906.00 12,500.00 5,756.46 4,167.60 1,588.86 491.611.60 30.00
12/31/2004 906.00 12,500.00 5,837.73 4,167.60 1,670.13 499,944.00 31.00
-------------------------------------------------------------------------
10,872.00 150,000.00 67,895.95 50,011.20 17,884.75
1/3/2005 1,08,683.50 499,944.00 499,944.00
</Table>
<Page>
SETTLEMENT AGREEMENT
THIS AGREEMENT, made and entered into on the dates written below, by
and between Paulette Andrews, of the post office address of 1085 Saddle Lake
Court, Roswell, Georgia 30076-4201 ["Andrews"], Superpumper, Inc., a North
Dakota corporation whose principal place of business is located at P.O. Box
1847, Minot, North Dakota 58702-1847 ["Superpumper"] and SPF Energy, Inc., a
North Dakota corporation whose principal place of business is located at P. O.
Box 1847, Minot, North Dakota 58702-1847 ["SPF"].
WHEREAS, Superpumper and a corporate entity identified as Farstad Oil,
Inc. ["Farstad"] entered into and executed a Plan and Agreement of
Reorganization and Exchange intending to constitute a "B" reorganization under
the provisions of Section 386 of the Internal Revenue Code of 1986, in May of
1986; and
WHEREAS, Farstad and Superpumper as a part of the corporate
reorganization, caused the organization of SPF to act as a holding company; and
WHEREAS, pursuant to the Plan and Agreement, SPF acquired One Hundred
Percent (100%) of the outstanding shares owned by Andrews in Superpumper, and at
the time of the reorganization and exchange Andrews owned 677,327.3 shares of
common stock in Superpumper; and
WHEREAS, following the completion of the corporate reorganization
transaction contemplated by the Plan and Agreement of Reorganization and
Exchange, Andrews was the sole owner of 677,327.3 shares of common stock in SPF;
and
1
<Page>
WHEREAS, SPF continues to act in the capacity of a holding company
owning the shares formerly owned by Andrews in Superpumper, together with owning
the shares of the corporate entity identified as Farstad Oil, Inc.; and
WHEREAS, Superpumper and SPF made, executed and entered into an
Employment and Stock Option Agreement on or about July 1, 1996, with Andrews
providing for the employment of Andrews, and further granting Andrews an option
to sell shares of SPF common stock to SPF on an annual basis commencing in
calendar year 1996 as more fully specified within the Employment and Stock
Option Agreement; and
WHEREAS, Andrews has exercised her options to sell shares of SPF common
stock to SPF for the calendar years of 1996, 1997, 1998, 1999 and 2000; and
WHEREAS, SPF has tendered full payment to Andrews for the shares of SPF
stock which were subject to Andrews' options to sell as exercised in calendar
years 1996 and 1997; and
WHEREAS, SPF is in default of its obligations required to be performed
by it under the terms and conditions of the Employment and Stock Option
Agreement as a result of SPF's failure to tender payments to Andrews for
27,732.7 shares of SPF common stock for calendar year 1998, and 67,732.7 shares
of SPF common stock for calendar year 1999; and
WHEREAS, SPF has not, as of the date of this Settlement Agreement,
tendered any payment to Andrews for the 67,732.7 shares of SPF common stock
which were elected to be sold by Andrews for calendar year 2000; and
WHEREAS, Andrews has performed all of the conditions which were
required to be performed by her under the terms and conditions of the annual
options to sell as contained
2
<Page>
within the Employment and Stock Option Agreement for calendar years 1998,1999,
and 2000, and SPF has breached the Employment and Stock Option Agreement by
failing, refusing and neglecting to pay for, purchase and acquire the shares of
SPF common stock from Andrews subject to the 1998 and 1999 calendar year options
to sell exercised in accordance with the terms and conditions of the Employment
and Stock Option Agreement; and
WHEREAS, a dispute exists between Andrews, Superpumper and SPF
concerning the per share price required to be paid to Andrews for the SPF shares
of common stock upon exercise of the options to sell, with Andrews claiming that
the purchase price for all shares of SPF common stock should be established in
the minimum amount of $5.52 per share, or 92% of the price of SPF shares in
SPF's most recent public offering, or in the absence of a public offering within
two (2) years, the greater of $5.52 per share or 2.5 times the book value of SPF
shares; and SPF claiming that the per share price required to be paid to Andrews
should have been the greater of the minimum price of $4.60 per share, or 92% of
the SPF shares in SPF's most recent public offering, or in the absence of a
public offering within two (2) years, the greater of $4.60 per share or 2.5
times the book value of SPF shares; and
WHEREAS, the indebtedness which is due and owing by SPF to Andrews for
the purchase of the SPF shares of common stock for calendar years 1998 and 1999,
using the per share price in the amount of $4.60 amounts to a total obligation
of $418,900.84 as of January 31, 2000; and
WHEREAS, by reason of the defaults of SPF, Andrews commenced litigation
in the action entitled PAULETTE ANDREWS VS. SPF ENERGY, INC., ET AL, Ward County
District Court
3
<Page>
Civil No. 51-99-C-01196, which action is currently pending and in which a Motion
for Summary Judgment is currently pending for consideration as filed by and on
behalf of Andrews; and
WHEREAS, all parties to this Settlement Agreement are desirous of
effecting a compromise and settlement concerning the terms and conditions of the
indebtedness which currently exists between the parties relating to Andrews'
exercised options to sell SPF shares of common stock for calendar years for 1998
and 1999, and the parties have therefore agreed to be bound by the terms and
conditions of this Settlement Agreement, and the terms and conditions of this
Settlement Agreement are as set forth herein:
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom, and for good and valuable consideration, both the adequacy and
sufficiency of which is herein expressly acknowledged, it is agreed and
understood by and between Andrews, SPF and Superpumper as follows:
1. PURPOSE: This Settlement Agreement is made and entered into by
and between the parties hereto in order to establish the rights and obligations
of the parties concerning and relating to Andrews' options to sell shares of SPF
common stock for the calendar years 1998 and 1999, and for the obligation of SPF
to tender payment of the full amount of the indebtedness which is due and
payable to Andrews as a result of the exercise of such annual options to sell,
and for the further purpose of settling and compromising the dispute existing
between Andrews, SPF and Superpumper as it relates to the per share price set
forth within the Employment and Stock Option Agreement.
4
<Page>
2. PAYMENT OF OBLIGATION: SPF, Superpumper and Andrews herein
expressly agree and acknowledge that effective as of February 1, 2000, interest
has accrued at the rate of Six Percent (6%) on the delinquent payment amounts
which were required to have been paid by SPF to Andrews for calendar years 1998
and 1999, and such interest amounts to Twenty-one Thousand Six Hundred Sixty
Dollars and Fifty-two Cents ($21,660.52) as of January 31, 2000, resulting in a
total indebtedness as of January 31, 2000, to Andrews in the amount of Four
Hundred Forty Thousand Five Hundred Sixty-one Dollars and Thirty-six Cents
($440,561.36), and SPF herein agrees that the total indebtedness shall be paid
to Andrews as follows:
a. On or before February 1, 2000, notwithstanding a later date
of execution of this Agreement, an interest only payment
shall be made in cash to Andrews in the amount of Twenty-one
Thousand Six Hundred Sixty Dollars and Fifty-two Cents
($21,660.52). Andrews acknowledges receipt of the interest
only payment.
b. The unpaid balance of the indebtedness as of February 1,
2000, in the amount of Four Hundred Eighteen Thousand Nine
Hundred Dollars and Eighty-four Cents ($418,900.84) shall be
payable in nine (9) equal monthly principal and interest
installments to Andrews in the amount of Eighteen Thousand
Dollars ($18,000) each, commencing on March 1, 2000, with a
payment of a like amount on the 1(st) day of each successive
month until December 1, 2000, at which time a final
installment payment of Nineteen Thousand One Hundred
Eighty-one Dollars and Thirty-eight Cents ($19,181.38) shall
be due and payable. In addition to the regular monthly
installments of principal and interest as required by this
subparagraph, SPF shall tender payment in cash to Andrews in
the amount of Two Hundred Fifty Thousand Dollars ($250,000),
as a special principal payment on or before August 1, 2000.
In the event the special principal payment is tendered
before August 1, 2000, the parties agree to cooperate in
adjusting the amortization schedule and payment requirements
detailed on Exhibit "A" attached hereto with the
understanding that the monthly payment amounts shall not be
reduced below $18,000 per month until full payment is
tendered.
5
<Page>
c. SPF acknowledges and agrees that the entire indebtedness due
and owing to Andrews shall be paid in full, inclusive of
interest accrued on the outstanding unpaid balance on or
before December 1, 2000. The repayment obligation of SPF on
the unpaid balance shall accrue interest at the rate of Six
Percent (6%) per annum. SPF and Andrews agree that the
unpaid balance of the indebtedness due to Andrews shall be
paid in accordance with the terms of the amortization
schedule which is attached hereto and made a part hereof as
Exhibit "A." In the event of a default of the payment
obligations of SPF and entry of a monetary judgment being
entered in favor of Andrews, the interest rate shall be
increased to the statutory rate of Twelve Percent (12%) per
annum on the unpaid balance.
3. PERSONAL GUARANTY OF JEFF FARSTAD: Prior to or at the time of
executing this Settlement Agreement, SPF shall be required to deliver to Andrews
a Guaranty of Payment executed by Jeff Farstad in his individual capacity,
providing for the unconditional and absolute continuing guarantee of payment for
the Two Hundred Fifty Thousand Dollar ($250,000) obligation of SPF to be paid to
Andrews on or before August 1, 2000. Attached to and made a part of this
Settlement Agreement as Exhibit "B" is a copy of the Guaranty of Payment which
is approved by all parties as to format and content.
4. STIPULATION FOR DISMISSAL OF PENDING LITIGATION: SPF,
Superpumper and Andrews, by and through their authorized attorneys, will enter
into and execute a Stipulation for Dismissal Without Prejudice of the action
entitled PAULETTE ANDREWS VS. SPF ENERGY, INC., ET AL, Ward County District
Court Civil No. 51-99-C-01196. A copy of the Stipulation for Dismissal Without
Prejudice is attached hereto and made a part hereof as Exhibit "C," and approved
as to format and content by all parties.
5. COMMENCEMENT OF CIVIL ACTION BY ANDREWS: Simultaneously with the
execution of this Settlement Agreement, Andrews shall commence a new civil
action against SPF and Superpumper by and through the issuance of the Summons
and
6
<Page>
Complaint, copies of which are attached hereto and made a part hereof as
Exhibits "D" and "E" relating to and concerning the defaults by SPF under the
payment obligations due to Andrews for payment of the purchase of outstanding
shares of SPF common stock. SPF and Superpumper will by and through their
authorized representatives admit service of the Summons and Complaint effective
as of the date of execution of this Settlement Agreement.
6. STIPULATION FOR JUDGMENT: At the time of executing this
Settlement Agreement, Andrews, Superpumper and SPF shall sign and execute a
Stipulation for Entry of Judgment in the new civil action to be commenced by
Andrews, together with a Stipulation for Withholding Filing of an Execution on
the stipulated Judgment. The parties hereto expressly acknowledge that the
Stipulation for Entry of Judgment and the Stipulation for Withholding Filing of
an Execution on Judgment are attached hereto and made a part hereof as Exhibits
"F" and "G," and the parties approve the terms and conditions set forth within
each separate exhibit. SPF and Superpumper specifically acknowledge their review
and approval of all documents which are attached hereto and made a part hereof
as exhibits.
7. STIPULATION FOR JUDGMENT AND OTHER COVENANTS: In exchange for the
consideration of Andrews granting the extended time period for SPF to submit
full and final payment of the indebtedness due and owing to Andrews for the
purchase of the 95,465.4 SPF shares for calendar years 1998 and 1999, and in
consideration of Andrews not filing the Stipulation for Entry of Judgment in the
civil action, and to grant Andrews more adequate security in the event of a
default under the terms of this Settlement Agreement in regard to the payment of
the full balance of the indebtedness due and owing from SPF
7
<Page>
to Andrews on or before December 1, 2000, as provided for herein, SPF and
Superpumper jointly and severally knowingly, willingly and voluntarily
acknowledge that Andrews has commenced the civil action against SPF and
Superpumper predicated upon the defaults of SPF and Superpumper in tendering
payments to Andrews, and Andrews is entitled to a judgment in accordance with
the terms and conditions of the Stipulation for Entry of Judgment to be executed
by the parties as attached hereto. In the event SPF and Superpumper tender full
payment of the indebtedness owing to Andrews at the times and in the amounts as
provided for in this Agreement, Andrews agrees and covenants that the new civil
action shall be dismissed with prejudice as to the options exercised in 1998 and
1999 and/or appropriate satisfactions shall be executed by Andrews and delivered
to SPF and Superpumper, and that the separate Stipulation for Entry of Judgment
shall be null and void, and of no further force and effect. In the event SPF and
Superpumper should fail to tender full payment of the indebtedness due to
Andrews as required by this Settlement Agreement, the District Court for North
Dakota for Ward County, North Dakota, shall be entitled to enter judgment in
favor Andrews pursuant to the provisions of the separate Stipulation for Entry
of Judgment in the new civil action to be commenced simultaneously with the
execution of this Settlement Agreement upon verification to the District Court
by Andrews in the form of an Affidavit that payment of the full indebtedness
referred to above has not been paid by SPF and/or Superpumper to Andrews when
due.
8. EVENTS OF DEFAULT: The occurrence of any of the following shall
constitute an Event of Default under the terms and conditions of this Settlement
Agreement:
a. Failure of SPF and/or Superpumper to make payments of the
full amount of the indebtedness due and owing to Andrews as
provided
8
<Page>
for under the terms and conditions of this Settlement
Agreement on or before December 1, 2000.
b. Failure of SPF and/or Superpumper to comply with any term or
condition of this Settlement Agreement, or any other
agreement which executed pursuant to the terms and
conditions of the Settlement Agreement.
c. If a receiver or other party takes charge or possession of
SPF or Superpumper's property.
d. If SPF and/or Superpumper, or either one of them, file for
protection under any provision of the United States
Bankruptcy Code, wherein the treatment afforded to Andrews
is not in compliance with the terms and provisions of this
Settlement Agreement or any instrument executed in
accordance herewith.
e. If SPF and/or Superpumper have made false representations in
any respect to Andrews relating to and concerning their
current financial condition.
9. ANDREWS' REMEDIES UPON AN EVENT OF DEFAULT: Upon the occurrence
of an Event of Default as more specifically described above, Andrews may, in her
sole discretion and her option:
a. Immediately proceed with the civil collection action and
obtain entry of judgment in accordance with the Stipulation
for Entry of Judgment executed simultaneously herewith by
filing the Stipulation for Entry of Judgment with the
District Court for Ward County, North Dakota and obtaining
the entry of monetary judgment as provided for therein. The
amounts due under the original terms and conditions of the
Stipulation for Entry of Judgment shall include principal,
interest at the rate agreed to by SPF and Superpumper as
provided for in this Settlement Agreement, together with any
and all costs or advances which Andrews is entitled to
reimbursement under the laws of the State of North Dakota.
The parties hereto agree that the indebtedness established
under the terms and conditions of this Settlement Agreement
shall be reduced by any and all payments which are actually
made by SPF and/or Superpumper to Andrews during the time
period provided for under this Settlement Agreement to
tender full payment to Andrews.
9
<Page>
b. Exercise any and all other remedies which may be available
to her under this Settlement Agreement, under the terms of
the original agreements entered into by and between Andrews
and SPF and Superpumper, or Andrews may seek relief under
any and all remedies which may be available to her under any
applicable law. It is expressly understood and agreed by the
parties hereto that if the occurrence of an Event of
Default, Andrews shall be immediately entitled to pursue any
relief she may deem necessary, and all parties expressly
agree that the terms and conditions of the original
documents executed by and between Andrews, SPF and
Superpumper, all stipulations attached to this Agreement as
exhibits F and G, inclusive, shall remain in full force and
effect pending the time period provided for herein to SPF
and Superpumper to tender full payment to Andrews. SPF and
Superpumper agree that any payment made by both or either of
them under the terms and conditions of this Agreement, and
the acceptance of any such payments by Andrews shall not in
any way affect the right of Andrews to proceed with any
collection action upon the occurrence of an Event of
Default, and the acceptance of payments by Andrews shall not
constitute a waiver by Andrews of any default of SPF and/or
Superpumper under the terms and conditions of the original
documents executed between the parties, or under the terms
and conditions of this Settlement Agreement or any document
attached hereto.
Andrews may pursue any and all remedies available to her in
any order she may desire.
10. WAIVER AND RELEASE OF DEFENSES BY SPF AND SUPERPUMUER:
a. SPF and Superpumper, jointly and severally, for their
respective corporate entities, their shareholders, officers,
directors, successors and assigns acknowledge that the
corporate entities have no defenses, claims, set-offs,
counterclaims, causes of action or offsets against Andrews
with regard to their obligation to purchase on annual basis
shares of SPF common stock in the event Andrews exercises
her annual options to sell such shares of stock in
accordance with the terms and conditions of the Employment
and Stock Option Agreement dated June 25, 1996.
b. For good and valuable consideration, both the sufficiency
and adequacy of which are herein expressly acknowledged as
received, SPF and Superpumper herein expressly release and
forever discharge Andrews, together with her insurers,
representatives, heirs, legal representatives, successors in
interest and assigns of and from any and all past, present,
or future defenses, affirmative defenses,
10
<Page>
counterclaims, causes of action, set-offs, and demands which
SPF and Superpumper have, jointly or severally, or claim to
have, for or in any way or manner growing out of the
obligations of Superpumper and SPF to tender payment to
Andrews for SPF shares of common stock which are the subject
of the annual options held by Andrews to sell SPF shares of
common stock in accordance with the terms and conditions of
an Employment and Stock Option Agreement June 25, 1996. The
release and waiver by SPF and Superpumper as provided for
herein include, without limitation, any and all known or
unknown claims, counterclaims, set-offs, demands or defenses
for damages, costs, expenses, and all economic and
noneconomic loss. The release by Andrews provided for herein
by Superpumper and SPF shall be a full and binding contract
and constitutes a complete release and waiver upon execution
of this Settlement Agreement. SPF and Superpumper further
state and agree that they each separately and independently
waive all rights under the provisions of NDCC Section
9-13-02, which section reads as follows:
EXTENSION TO KNOWN CLAIMS. - A general release does not
extend to claims which the creditor does not know or suspect
to exist in his favor at the time of executing the release,
which if known by him, must have materially affected his
settlement with the debtor.
11. ACKNOWLEDGMENT OF ANDREWS' EXERCISE OF 2000 CALENDAR YEAR OPTION:
SPF and Superpumper herein expressly acknowledge that Andrews has submitted
written notice to the offices of Superpumper and SPF exercising her option for
the sale of 67,732.7 shares of SPF common stock for calendar year 2000. This
Settlement Agreement is not intended to address or resolve the payment
obligations of SPF and/or Superpumper in relationship to such share purchase.
Andrews reserves all rights to enforce her right to be paid in full for the
exercise of the option to sell the subject shares of SPF common stock for
calendar year 2000 and all future years.
12. WAIVER OF ANDREWS AS TO PRICE OF SPF COMMON STOCK: The
undersigned parties expressly agree and acknowledge that Andrews has asserted
that any and all shares which are subject to her annual options to sell SPF
shares of stock should be
11
<Page>
completed at the price of $5.52 per share or, if greater, 92% of the price of
SPF shares in SPF's most recent public offering, or if no public offering has
been made within two (2) years of the exercise of an option, the option price
shall be the greater of $5.52 per share or 2.5 times the book value of SPF
shares (determined in accordance with generally accepted accounting principles)
as of the most recent fiscal/calendar year. Andrews herein agrees, acknowledges
and consents that the terms and conditions of the Employment and Stock Option
Agreement for purposes of this Settlement Agreement shall be set at the per
share price in an amount which is greater of the formula provided, with the
understanding that the minimum per share price shall be established in the
amount $4.60 per share, as opposed to the $5.52 per share as claimed by Andrews.
If all payment obligations of SPF and Superpumper are tendered in the amounts
and at the times required by this Settlement Agreement, Andrews agrees and
acknowledges that for all future years the per share price for SPF shares of
common stock shall be determined under the formula in the Employment and Stock
Option Agreement dated June 25, 1996, with the minimum price established in the
amount of $4.60 per share.
13. BINDING EFFECT ON SUBSIDIARIES: SPF and Superpumper intend that
this release and waiver applies to all subsidiary companies of SPF and
Superpumper and their respective predecessors, successors and assigns, and all
of its past, present and future officers, directors, shareholders, agents and
employees. SPF and Superpumper herein expressly agree that the waiver and
release of all claims, counterclaims, defenses and affirmative defenses which
are or could be available to SPF and/or Superpumper has been made following good
faith negotiations with Andrews, and SPF and Superpumper acknowledge that they
have no defenses, affirmative defenses, counterclaims, off-sets,
12
<Page>
aims or other rights whether at law or in equity against the claims of Andrews
which can be invoked on an annual basis for the exercise of her annual options
to sell future shares of SPF common stock in accordance with the terms and
conditions of the Employment and Stock Option Agreement dated June 25, 1996.
14. PROFESSIONAL ADVICE: SPF and Superpumper separately and
independently agree and acknowledge that they have consulted with and have
reviewed the terms of this release with their respective attorneys and accept
the terms and conditions of this release and waiver, and the undersigned parties
do accept the consideration received by them pursuant to and under the terms and
conditions of this Settlement Agreement as a full, complete, final and binding
compromise of all claims, counterclaims, defenses, affirmative defenses,
set-offs and other matters involving or relating to the right of Andrews to
exercise her options to sell SPF shares of common stock on an annual basis in
accordance with the terms and conditions of the Employment and Stock Option
Agreement dated June 25, 1996.
15. CONSTRUCTION OF DOCUMENT: The waiver and release as set forth
within this Settlement Agreement was originally drafted by counsel for Andrews
and has been presented to the attorneys for SPF and Superpumper for review and
approval. The parties hereto expressly warrant, represent and acknowledge and
agree, that counsel for both parties have had input into the drafting of this
Settlement Agreement, and all exhibits attached hereto, and agree that the terms
and conditions hereof and in the attached documents are mutually agreeable.
Furthermore, SPF and Superpumper hereby release and discharge Andrews from and
all claims, rights, damages, costs, defenses, or expenses of any nature
whatsoever that may hereafter accrue to or be acquired by Superpumper
13
<Page>
and/or SPF by reason of the legal or income tax consequences of the waiver and
release provided for herein.
16. VOLUNTARY AND KNOWING EXECUTION: SPF and Superpumper have
executed this Settlement Agreement, specifically including the waiver and
release provided for herein on their own free volition and the undersigned
parties were not subject to any undue influence or coercion from any person or
party at the time this document was executed. SPF and Superpumper agree and
represent that no promises or statements have been relied upon by them except to
the extent set forth within this Settlement Agreement and the documents attached
hereto.
17. AUTHORIZATION: SPF and Superpumper jointly and severally
represent and warrant that the individuals signing and executing this Settlement
Agreement have the sole right and exclusive authority to sign this Settlement
Agreement, and such individuals have full authority to enter into this
Settlement Agreement and no further action, board resolutions, or other
authorizations or shareholder authorizations or resolutions are necessary in
order for this Settlement Agreement to be fully enforceable and binding upon SPF
and Superpumper.
18. AMENDMENT/BINDING EFFECT: This Settlement Agreement shall be
binding upon the parties hereto, their respective subsidiaries, executors,
personal representatives, employees, officers, agents, heirs, successors and
assigns. This Settlement Agreement may not be amended, modified, waived or
changed, except by a writing signed by all parties hereto.
19. APPLICABLE LAW AND SAVINGS CLAUSE: This Agreement shall be
construed under and enforced in accordance with the laws of the State of North
Dakota. If any part
14
<Page>
or portion of this Settlement Agreement is found to be invalid, all remaining
terms and provisions shall remain binding and enforceable upon the respective
parties hereto, unless to do so would destroy an essential part of this
Settlement Agreement.
20. INTEGRATION CLAUSE: This Settlement Agreement, together with all
agreements incorporated herein, shall constitute the entire agreement between
the parties hereto. It is the intention of the parties that the Employment and
Stock Option Agreement dated June 25, 1996, shall remain in full force and
effect, except to the extent modified by this Settlement Agreement. All terms
and conditions of the Employment and Stock Option Agreement are incorporated
herein by reference. The parties agree that any subsequent agreement must be in
writing and signed by all parties in order to be enforceable. The terms and
conditions of the Employment and Stock Option Agreement shall remain in full
force and effect.
21. TIME OF ESSENCE: The parties hereto agree that time is of the
essence of each and every provision of this Settlement Agreement.
22. READING OF AGREEMENT: In entering into this Settlement Agreement
all parties agree that they have completely read all terms of this Settlement
Agreement, and the terms are fully understood and voluntarily accepted, and that
both parties have had the full benefit of representation by counsel of their
choice.
23. FUTURE COOPERATION: All parties agree to fully cooperate, to
execute any and all supplementary documents or agreements and to take any and
all necessary or additional actions that may be required or appropriate to give
full force and effect of the terms and intent of this Settlement Agreement.
15
<Page>
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year set forth below.
DATE: 3/10/00 /s/ Paulette Andrews
------- ----------------------------
Paulette Andrews
DATE: 2/29/00 SPF ENERGY, INC.:
-------
BY: /s/ D. L. Krueger
----------------------------
Its: COO
----------------------
DATE: 2/29/00 SUPERPUMPER, INC.:
-------
BY: /s/ [ILLEGIBLE]
---------------------------
Its: COO
---------------------
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
------
On this 10 day of March, 2000, before me personally appeared Paulette
Andrews, the person that is described in and that executed the within and
foregoing instrument and acknowledged to me that she executed the same.
/s/ Ellen Anastasio
[SEAL OF NOTARY PUBLIC] ---------------------------
, Notary Public
-------
Fulton County, Georgia
My Commission Expires: 2-4-2002
--------
16
<Page>
STATE OF NORTH DAKOTA )
) ss.
COUNTY OF WARD )
----
On this 29th day of Feb, 2000, before me personally appeared
D. L. Krueger, known to me to be the COO of SPF Energy, Inc. the corporation
which is described in and who executed the within instrument and acknowledged to
me that such corporation executed the same.
/s/ Donna Fettig
---------------------------
, Notary Public
----------
Ward County, North Dakota
----
My Commission Expires:
--------
[SEAL OF NOTARY PUBLIC]
STATE OF NORTH DAKOTA )
) ss.
COUNTY OF WARD )
----
On this 29th day of Feb, 2000, before me personally appeared
Terry A. Domes, known to me to be the COO of Superpumper, Inc. the corporation
which is described in and who executed the within instrument and acknowledged to
me that such corporation executed the same.
/s/ Donna Fettig
---------------------------
, Notary Public
---------
County, North Dakota
----
My Commission Expires:
--------
[SEAL OF NOTARY PUBLIC]
17
<Page>
INTERIM SHARE REPURCHASE AGREEMENT
THIS AGREEMENT, made and entered into on the dates written below, but
effective as of January 1, 2001, by and between PAULETTE ANDREWS, of the post
office address of 1085 Saddle Lake Court, Roswell, Georgia 30076-4201
("Andrews"), and SPF ENERGY, INC., a North Dakota corporation whose principal
place of business is located at P.O. Box 1847, Minot, North Dakota 58702-1847
("SPF").
WHEREAS, Superpumper, Inc. ("Superpumper") and Farstad Oil, Inc.
("Farstad") entered into and executed a Plan and Agreement OF Reorganization and
Exchange ("Plan and Agreement") in May of 1996; and
WHEREAS, Farstad and Superpumper as a part of the corporate
reorganization, caused the organization of SPF to act as a holding company; and
WHEREAS, pursuant to the Plan and Agreement, SPF acquired One Hundred
Percent (100%) of the outstanding shares owned by Andrews in Superpumper, and
at the time of the reorganization and exchange Andrews owned 677,327.3 shares of
common stock in Superpumper; and
WHEREAS, following the completion of the corporate reorganization
transaction contemplated by the Plan and Agreement of Reorganization and
Exchange, Andrews was the sole owner of 677,327.3 shares of common stock in SPF;
and
WHEREAS, SPF continues to act in the capacity of a holding company
owning the shares formerly owned by Andrews in Superpumper, together with owning
the shares of Farstad; and
WHEREAS, Superpumper and SPF made, executed and entered into an
Employment and Stock Option Agreement on or about July 1, 1996, with Andrews
providing for the employment of Andrews, and further granting Andrews an option
to sell shares of SPF common stock to SPF on an annual basis commencing in
calendar year 1996 as more fully specified within the Employment and Stock
Option Agreement; and
WHEREAS, Andrews previously exercised her options to sell shares of SPF
common stock to SPF for the calendar years of 1996, 1997, 1998, 1999 and 2000;
and
WHEREAS, pursuant to a Settlement Agreement executed by SPF and
Superpumper on February 29, 2000, and by Andrews on March 10, 2000, SPF
1
<Page>
has tendered full payment to Andrews for the shares of SPF stock which were
subject to Andrews' options to sell as exercised for calendar years 1996,
1997,1998, and 1999; and
WHEREAS, as reflected on Exhibit "A," which exhibit is attached and
hereby incorporated by reference, and as of December 1, 2000,Andrews owns
521,211.8 shares of SPF stock; and
WHEREAS, SPF has not, as of the date of this Agreement, tendered any
payment to Andrews for the 67,732.7 shares of SPF common stock which were
elected to be sold by Andrews to SPF for calendar year 2000; and
WHEREAS, Andrews has performed all of the conditions which were
required to be performed by her under the terms and conditions of the annual
options to sell as contained within the Employment and Stock Option Agreement
for calendar year 2000; and
WHEREAS, the indebtedness which is due and owing by SPF to Andrews for
the purchase of the SPF shares of common stock for calendar year 2000, using the
per share price of $4.60, amounts to a total obligation owed by SPF to Andrews
of $311,570.42; and
WHEREAS, all parties to this Agreement are desirous of effecting an
interim agreement concerning the terms and conditions of the indebtedness which
currently exists between the parties relating to Andrews' exercised options to
sell SPF shares of common stock for calendar year 2000, and the parties have
therefore agreed to be bound by the terms and conditions of this Agreement, and
the terms and conditions of this Agreement are as set forth herein;
NOW, THEREFORE, in consideration of the mutual benefits to be derived
herefrom, and for good and valuable consideration, both the adequacy and
sufficiency of which is herein expressly acknowledged, it is agreed and
understood by and between Andrews and SPF as follows:
1. PURPOSE. This Agreement is made and entered into by and between
the parties hereto in order to temporarily establish the rights and obligations
of the parties concerning and relating to Andrews' options to sell shares of SPF
common stock for the calendar year 2000.
2. PAYMENT OF OBLIGATION. SPF and Andrews herein expressly agree
that, commencing on january 1, 2001, interest will begin to accrue at the rate
of Six Percent (6%) on the payment amounts which are required to be paid by SPF
to Andrews for her exercised option for calendar year 2000. SPF herein agrees
2
<Page>
that its indebtedness for Andrews's calendar year 2000 option shall be partially
paid to Andrews as follows:
a. Commencing on January 1, 2001, and continuing on the first day of
each month thereafter through the resulting payment due on June
1, 2001, SPF shall tender a monthly payment to Andrews in an
amount of not less than $18,000. Said payments shall first be
applied to accrued interest, if any, with the remainder of each
payment applied to the then existing principal balance, in
accordance with the amortization schedule attached as Exhibit
"B," which exhibit is hereby incorporated by reference.
b. On or before June 1, 2001, the parties shall negotiate and enter
into a permanent agreement for the payment of all accrued
interest, and the then remaining principal balance. The parties
shall use their best good faith efforts to finalize said
permanent agreement by March 31, 2001, if possible.
3. ACKNOWLEDGMENT OF ANDREWS' EXERCISE OF 2001 CALENDAR YEAR OPTION.
SPF herein expressly acknowledges that Andrews has submitted written notice to
the offices of SPF exercising her option for the sale of 67,732.7 shares of SPF
common stock for calendar year 2001. Andrews reserves all rights to enforce her
right to be paid in full for the exercise of the option to sell the subject
shares of spf common stock for calendar year 2001 and all future years.
4. AUTHORIZATION. SPF represents and warrants that the individual
signing and executing this Agreement has the right and authority to sign this
Agreement, and such individual has the full authority to enter into this
Agreement and no further action, board resolutions, or other authorizations or
shareholder authorizations or resolutions are necessary in order for this
Agreement to be fully enforceable and binding upon SPF.
5. AMENDMENT/BINDING EFFECT. This Agreement shall be binding upon
the parties hereto, their respective subsidiaries, executors, personal
representatives, employees, officers, agents, heirs, successors and assigns.
This Agreement may not be amended, modified, waived or changed, except by a
writing signed by all parties hereto.
6. APPLICABLE LAW AND SAVINGS CLAUSE. This Agreement shall be
construed under and enforced in accordance with the laws of the State of North
Dakota. If any part or portion of this Agreement is found to be invalid, all
remaining terms and provisions shall remain binding and enforceable upon the
3
<Page>
respective parties hereto, unless to do so would destroy an essential part of
this Agreement.
7. INTEGRATION CLAUSE. This Agreement, together with all agreements
incorporated herein, shall constitute the entire agreement between the parties
hereto. It is the intention of the parties that the Employment and Stock Option
Agreement dated June 25, 1996 shall remain in full force and effect, except to
the extent modified by this Agreement and by the Settlement Agreement executed
by the parties in February/March 2000. All terms and conditions of the
Employment and Stock Option Agreement are incorporated herein by reference. The
parties agree that any subsequent agreement must be in writing and signed by all
parties in order to enforceable.
8. TIME OF ESSENCE. The parties hereto agree that time is of the
essence of each and every provision of this Agreement.
9. READING OF AGREEMENT. In entering into this Agreement all parties
agree that they have completely read all terms of this Agreement, and the terms
are fully understood and voluntarily accepted, and that both parties have had
the full benefit of representation by counsel of their choice.
10. FUTURE COOPERATION. All parties to fully cooperate, to execute
any and all supplementary documents or agreements and to take any and all
necessary or additional actions that may be required or appropriate to give full
force and effect of the terms and intent of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year set forth below.
DATE: 2/13/01 /s/ Paulette Andrews
------- -----------------------
Paulette Andrews
STATE OF GEORGIA )
) ss.
COUNTY OF FULTON )
On this 13 day of February, 2001, before me personally appeared,
PAULETTE ANDREWS, the person that is described in and that executed the within
and foregoing instrument and acknowledged to me that she executed the same.
/s/ [ILLEGIBLE]
-----------------------
, Notary Public
For the State of Georgia
My commission expires:
Notary Public, Cobb County, GA
My Commission Expires
December 26, 2004
4
<Page>
DATE : 3/9/01 SPF ENERGY, INC.:
By: /s/ Bruce Hest
--------------------
Bruce Hest
Its: Secretary/Treasurer
STATE OF NORTH DAKOTA )
) ss.
COUNTY OF WARD )
On this 9th day of March, 2001, before me personally appeared BRUCE
HEST, known to me to be the Secretary/Treasurer of SPF ENERGY, INC., the
corporation which is described in and who executed the within instrument and
acknowledged to me that such corporation executed the same.
/s/ Danny J. Armstrong
------------------------
, Notary Public
For the State of North Dakota
My commission expires: 3/19/2002
5
<Page>
EXHIBIT "A"
SPF Energy, Inc.
Paulette (Hanvik) Andrews
Schedule of Stock Redemption
<Table>
<Caption>
Share
Redemption Balance
------------ -----------
<S> <C> <C>
7/1/1996 677,327.3
11/15/1996 (10,870.5) 666,456.8
11/18/1997 (9,780.0) 656,676.8
5/8/1998 (10,000.0) 646,676.8
7/6/1998 (5,000.0) 641,676.8
8/5/1998 (5,000.0) 636,676.8
9/14/1998 (5,000.0) 631.676.8
10/1/1998 (5,000.0) 626,676.8
11/2/1998 (5,000.0) 621,676.6
12/15/1998 (5.000.0) 616,676.8
10/19/1999 (1,100.0) 615,576.8
11/1/1999 (1,100.0) 614,476.8
12/1/1999 (1,100.0) 613,376.8
1/1/2000 (1,100.0) 612,276.8
3/1/2000 (3,458.0) 608,818.8
4/1/2000 (3,475 0) 605,343.8
5/1/2000 (3,492.0) 601,851.8
6/1/2000 (3,510.0) 598,341.8
7/1/2000 (3,527.0) 594,814.8
8/1/2000 (3,545.0) 591,269.8
8/1/2000 (54,348.0) 536,921.8
9/1/2000 (3,834.0) 533,087.8
10/1/2000 (3,854.0) 529,233.8
11/1/2000 (3,873.0) 525,360.8
12/1/2000 (4,149.0) 521,211.8
</Table>
<Page>
EXHIBIT "B"
AMORTIZATION SCHEDULE
<Table>
<Caption>
--------------------------------------------------------------------------------
Date Payment Interest Principal Balance
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01-01-2001 $ 311,570.42
--------------------------------------------------------------------------------
1 01-01-2001 $ 18,000.00 $ 0.00 $ 18,000.00 293,570.42
--------------------------------------------------------------------------------
2 02-01-2001 18,000.00 1,467.85 16,532.15 277,038.27
--------------------------------------------------------------------------------
3 03-01-2001 18,000.00 1,385.19 16,614.81 260,423.46
--------------------------------------------------------------------------------
4 04-01-2001 18,000.00 1,302.12 16,697.88 234,725.58
--------------------------------------------------------------------------------
5 05-01-2001 18,000.00 1,218.63 16,781.37 226,944.21
--------------------------------------------------------------------------------
6 06-01-2001 18,000.00 1,134.72 16,865.28 210,078.93
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total $ 108,000.00 $ 6,508.51 $ 101,491.49
--------------------------------------------------------------------------------
</Table>
<Page>
EXHIBIT 21
SUBSIDIARIES
<Table>
<Caption>
NAME STATE OF FORMATION OTHER NAMES
---- ------------------ -----------
<S> <C> <C> <C>
1. Superpumper, Inc. North Dakota Superpumper, SPF Stores
2. Farstad Oil, Inc. North Dakota None
3. Fabrication Services, LLC North Dakota Inactive
4. Farstad Gas & Oil, LLC North Dakota Inactive
5. Farstad Energy Services, LLC North Dakota Inactive
</Table>
-25-
<Page>
EXHIBIT 23
September 6, 2001
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC 20549
RE: FORM 10 REGISTRATION STATEMENT
SPF ENERGY, INC.
TO WHOM IT MAY CONCERN:
We hereby consent to the incorporation directly or by reference in the
Registration Statement of SPF Energy, Inc. on Form 10, of the consolidated
financial statements and supplemental information of SPF Energy, Inc. as of
December 31, 2000 as well as our Independent Auditor's Report dated February 16,
2001.
We also acknowledge that we are aware that said Form 10 Filing includes the
unaudited consolidated financial report of SPF Energy, Inc. for the six-month
period ended June 30, 2001.
/s/ Brady, Martz & Associates, P.C.
BRADY, MARTZ & ASSOCIATES, P.C.
Minot, North Dakota
-26-