UNITED STATES
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
Infinity Energy Resources, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
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20-3126427
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(State of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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11900 College Blvd, Suite 204, Overland Park, KS
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66210
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(Address of principal executive office)
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(Zip Code)
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Registrant’s telephone number, including area code
(913) 948-9512
Securities to be registered pursuant to Section 12(b) of the Act:
None
Title of each class
to be so registered
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Name of each exchange on which
each class is to be registered
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0001
(Title of class)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
x
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TABLE OF CONTENTS
Item 1.
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Business
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3
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Item 1A.
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Risk Factors
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11
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Item 2.
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Financial Information
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21
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Item 3.
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Properties
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25
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Item 4.
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Security Ownership of Certain Beneficial Owners and Management
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29
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Item 5.
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Directors and Executive Officers
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30
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Item 6.
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Executive Compensation
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32
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Item 7.
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Certain Relationships and Related Transactions, and Director Independence
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36
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Item 8.
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Legal Proceedings
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37
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Item 9.
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Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
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37
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Item 10.
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Recent Sales of Unregistered Securities
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38
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Item 11.
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Description of Registrant’s Securities to be Registered
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38
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Item 12.
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Indemnification of Directors and Officers
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39
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Item 13.
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Financial Statements and Supplementary Data
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40
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Item 14.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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40
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Item 15.
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Financial Statements and Exhibits
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40
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GENERAL
Infinity Energy Resources, Inc. (“Infinity” or the “Company”) was incorporated as a Colorado corporation in April 1987 and reincorporated as a Delaware corporation in September 2005. As used in this registration statement, “
Infinity,” “we,” “us”
and “
our”
refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of them as the context may require. Infinity is an independent energy company that was engaged in the acquisition, exploration and development of natural gas and oil properties in the United States through our wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”). We are pursuing an oil and gas exploration opportunity offshore of Nicaragua in the Caribbean Sea. Infinity previously operated in the Fort Worth Basin of north central Texas and Wyoming and still holds leases in those regions.
From January 1, 2002 through December 31, 2004, we produced natural gas and oil and grew our production through exploration and development drilling exclusively in the Rocky Mountain region. During this period, we completed the drilling of 36 oil and gas wells with a success rate of 75% at our two projects in the Greater Green River Basin. Exploratory wells accounted for 69%, or 25 of the total wells drilled. Beginning in 2005, our primary exploration focus shifted to the Fort Worth Basin in north central Texas. During 2005, 2006 and 2007, we completed the drilling of 29 gas wells in the Fort Worth Basin. Exploratory wells accounted for 100% of the total wells drilled.
On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”). In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (“Farmout Agreement”) for certain oil and gas leaseholds owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provided that Forest would operate and earn a 75% interest in the spacing unit for each well in a 10-well drilling program. If Forest completed the drilling program, Forest Oil would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. The drilling obligation under the Farmout Agreement was not completed and Infinity-Texas retained its interest. Infinity-Texas retained 100% of its interest in all currently completed wells and 100 acres surrounding each currently completed well however due to non production the domestic acreage may be lost. For the year end December 31, 2008 we wrote down to zero the remaining value of the Infinity-Texas and Infinity-Wyoming oil and gas assets as they were determined to be uneconomical to operate, and we are focused solely on the development of the Nicaraguan Concessions which is discussed below.
On December 15, 2006, we sold our oilfield services subsidiaries, Consolidated Oil Well Services, Inc. and CIS-Oklahoma, Inc. to Q Consolidated Oil Well Services, LLC, a Delaware limited liability company.
Our corporate office is located at 11900 College Boulevard Suite 204 Overland Park, Kansas 66210. Our telephone number is (913) 948-9512.
Nicaragua
Since 1999, we have pursued an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea. Over such time period, we have built relationships with the Instituto Nicaraguense de Energia (“INE”) and undertook the geological and geophysical research that helped us to become one of only six companies qualified to bid on offshore blocks in the first international bidding round held by INE in January 2003.
On March 5, 2009, we signed the contracts relating to our Nicaraguan concessions (the “Nicaraguan Concessions”). We are conducting an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. We are seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations or other strategic partnership. The funds raised through the subordinated note transaction described below were used to fund these expenses. Effective February 16, 2011, we entered into a Fifth Forbearance Agreement (the "Fifth Forbearance") with Amegy Bank ("Amegy") under which advances of $1,050,000 were approved. As of December 31, 2010, advances of $454,053 had been made with remaining advances of $595,947 available for 2011 under the Fifth Forbearance. No assurance can be given that these funds will be sufficient to cover the exploration cost until a partner is found.
We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore Nicaragua. We issued letters of credit totaling approximately $1.0 million for this initial work on the leases. We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study. We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.
Infinity-Texas
Infinity-Texas was engaged in the acquisition, exploration, development and production of natural gas in the Fort Worth Basin of north central Texas. This subsidiary is a Delaware corporation with its headquarters located in Overland Park, Kansas.
Infinity-Texas was formed in June 2004 to acquire, explore, develop and produce natural gas from the Barnett Shale formation and other producing formations in the Fort Worth Basin. The Barnett Shale is a marine shale formation that is natural gas bearing at depths believed to range from 1,000 to 8,500 feet and is believed to be ubiquitous across the Fort Worth Basin.
During the year ended December 31, 2008, Infinity Texas property was not cash flowing and operations were scaled back. The main salt water disposal well was struck by lightning in April, 2009 and we made the decision to cease operations under the force majeure clause of the leases. Infinity-Texas currently is not operating and it continues to seek potential buyers or operators. We entered into a contingent sales contract for the Texas based assets in 2010 for $800,000, but the vendors refused to release their liens on the wells in exchange for partial payment and the escrow funds were returned to the buyer. Currently acreage and leases may be lost due to nonproduction. For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such, were written down to zero as the Company focused solely on the development of the Nicaraguan Concessions.
Infinity-Wyoming
Infinity-Wyoming was engaged in the acquisition, exploration, development and production of natural gas, condensate and crude oil in the Rocky Mountain region in Wyoming and Colorado. This subsidiary is a Wyoming corporation. On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it
in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest. Following the sale, Infinity-Wyoming had no wells producing crude oil or natural gas and it is inactive.
Revolving Credit Facility and Fifth Forbearance Agreement
On January 10, 2007, we entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between us, Infinity-Texas and Infinity-Wyoming (each a wholly-owned subsidiary and together, the “Guarantors”) and Amegy, we could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000 (reduced to $10,500,000 effective as of August 10, 2007 and subsequently reduced to $3,806,000 effective as of March 26, 2008) and subsequently reduced to $2,900,000 on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest at a stated rate of 5.5% at December 31, 2010 and 2009. Interest payments were due on a monthly basis, and principal payments may be required to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under the Revolving Credit Facility are collateralized by substantially all of the assets of us and our subsidiaries and are guaranteed by our subsidiaries. The Revolving Credit Facility contains certain standard continuing covenants and agreements and requires us to maintain certain financial ratios and thresholds.
We previously entered into four separate forbearance agreements resulting from our breach of certain covenants in the Loan Agreement. Effective as of February 16, 2011, we entered into the Fifth Forbearance Agreement under the Loan Agreement. The Fifth Forbearance relates to the breach by us and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under the Fifth Forbearance, the borrowing base remained the same. The borrowing base shall not be subject to redetermination by Amegy during the period from January 31, 2010 to December 31, 2011 (the "Forbearance Period"). The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital. Under the Fifth Forbearance, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Loan Agreement. In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended until December 31, 2011. There can be no assurance that Amegy will extend the maturity date after December 31, 2011.
During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place. In addition, under the Fifth Forbearance Amegy agrees, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions.
Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of the Company’s President and Chief Executive Officer for up to $500,000 of the advances. At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO. As of December 31, 2010, advances of $454,053 had been made with remaining advances of $595,947 available for 2011.
In connection with the Fifth Forbearance, effective February 16, 2011, Infinity granted Amegy a common stock purchase warrant exercisable to purchase 931,561 shares of the Company common stock at a price of $5.01 per share for a ten-year period following the issuance of the warrant.
BUSINESS STRATEGY
Our principal objective is to create stockholder value through the development of our Nicaraguan Concessions. We will seek to commence the geological and geophysical exploration of the Nicaraguan Concessions while also seeking joint venture or working interest partners.
We intend to finance our business strategy through external financing, which may include debt and equity capital raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations, if any, net proceeds from the sales of assets. Essentially all of our assets serve as collateral under our Amegy credit facility, and as such, any disposition of material assets would require its approval.
EXPLORATION AND PRODUCTION
Nicaragua Oil and Natural Gas Concessions
Preliminary analyses and interpretation of available 2-D seismic data by independent consultants has revealed that the Nica-Tinkham Ridge, the single most important structure in the basin, traverses both of the blocks (Tyra and Perlas) in Infinity’s offshore concessions and controlled the deposition of Eocene and possibly younger reef systems. Such preliminary analyses have identified four prospects covering a total of over 547 square miles. The Company’s consultants, Brazilian-based Consultoria em Geologia Geofísica e Informática do Petróleo LTDA (“CGGIP”) and its senior geological consultant, Luciano Seixas Chagas, working in concert with Thompson & Knight Global Energy Services LLC, are building a credible model suggesting that the Eocene geologic zone alone has a potential that hydrocarbons could be present, based upon certain assumptions involving porosity, saturation, recovery and other parameters. This model is also subject to the complex geology of the region and the fact that the reef system has never been drilled. While 2-D seismic data is not sufficient to identify or evaluate prospects in the deeper Cretaceous zone, the Company and its consultants continue to believe that Cretaceous, as well as Eocene, hydrocarbons could be present within the Nicaraguan Concessions, although we can offer no assurances in this regard.
These estimates are based upon preliminary conclusions and are subject to further analysis, additional seismic data and interpretation, and various assumptions that cannot be confirmed or disproved until the prospects are drilled. We believe these estimate and model support our long-held belief that the Nicaraguan Concessions have the potential for multiple oil discoveries. We are seeking to partner with a larger entity that has the resources to assist in the further exploration and development of the concessions.
In April 2011 we filed with the Nicaraguan government an Environmental Impact Assessment ("EIA") covering proposed seismic activities on our Nicaraguan Concessions. The filing of the EIA will be followed by a comment period during which there will be interaction between us the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions. After the EIA has been formally approved, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area.
For the year end December 31, 2008 we wrote down to zero the remaining value of the Infinity-Texas and Infinity-Wyoming oil and gas assets as they were determined to be uneconomic, and we focused solely on the development of the Nicaraguan Concessions.
Customers and Markets
We have no production and no customers.
Competition
We compete in virtually all facets of our businesses with numerous other companies in the oil and gas industry, including many that have significantly greater financial and other resources. Such competitors will be able to pay more for desirable oil and gas leases and to evaluate, bid for, and purchase a greater number of properties than our financial or personnel resources permit.
Our business strategy includes highly competitive oil and natural gas exploration, development and production. We face intense competition from a large number of independent exploration and development companies as well as major oil and gas companies in a number of areas such as:
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Obtaining financing to pursue our Nicaraguan Concessions;
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Seeking to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties.
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Many of our competitors have financial and technological resources substantially exceeding those available to us. We cannot be sure that we will be successful in developing and operating profitable properties in the face of this competition.
Government Regulation of the Oil and Gas Industry
In April 2011 we filed with the Nicaraguan government an Environmental Impact Assessment ("EIA") covering proposed seismic activities on our Nicaraguan Concessions. The filing of the EIA will be followed by a comment period during which there will be interaction between us the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions. After the EIA has been formally approved, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area.
General
Infinity’s business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment, conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to Infinity, we cannot predict the overall effect of such laws and regulations on our future operations.
The following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.
Federal Regulation of the Sale of Oil and Gas
Various aspects of Infinity’s oil and natural gas operations are regulated by agencies of the federal government. The Federal Energy Regulatory Commission (“FERC”) regulates the transportation of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 (“NGA”) and the Natural Gas Policy Act of 1978 (“NGPA”). In the past, the federal government has regulated the prices at which oil and gas could be sold. While “first sales” by producers of natural gas and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Deregulation of wellhead sales in the natural gas industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the “Decontrol Act”). The Decontrol Act removed all NGA and NGPA price and non-price controls affecting wellhead sales of natural gas effective January 1, 1993.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B, 636-C and 636-D (“Order No. 636”), which require interstate pipelines to provide transportation services separate, or “unbundled,” from the pipelines’ sales of gas. Also, Order No. 636 requires pipelines to provide open access transportation on a nondiscriminatory basis that is equal for all natural gas shippers. Although Order No. 636 would not directly regulate Infinity’s production domestic activities if any, FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry.
Regulation of Operations
Federal oil and gas leases, which are administered by the Bureau of Land Management (“BLM”). Of Infinity-Wyoming’s Pipeline Field acreage at December 31, 2010, approximately 15,000 gross acres are leases that are administered by the BLM. The Piceance Basin Prospect and Sand Wash Prospect acreage also include acreage that is administered by the BLM. Federal leases contain relatively standard terms and require compliance with detailed BLM regulations and orders, which are subject to change. Among other restrictions, the BLM has regulations restricting the flaring or venting of natural gas, and the BLM has proposed to amend such regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization. Under certain circumstances, the BLM may require any company operations on federal leases to be suspended or terminated. Any such suspension or termination could materially and adversely affect Infinity’s financial condition, cash flows and operations if any.
The Minerals Management Service (“MMS”) administers the valuation, payment and reporting for royalties on oil and gas produced from federal leases. The BLM issued a final rule that amended its regulations governing the valuation of gas produced from federal leases. This rule primarily affects the transportation allowance used to value the federal royalty.
Exploration and production operations, if any, of Infinity-Texas and Infinity-Wyoming are subject to various types of regulation at the federal, state, and local levels. These regulations include requiring permits and drilling bonds for the drilling of wells and regulating the location of wells, the method of drilling and casing wells, and the surface use and restoration of properties upon which wells are drilled. Many states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells and the regulation of spacing, plugging and abandonment of such wells. The operation and production, if any, of Infinity-Wyoming’s properties would be subject to the rules and regulations of the Wyoming Oil and Gas Conservation Commission (WYOGCC) and the Colorado Oil and Gas Conservation Commission (COGCC). In addition a portion of the properties are on federal lands and are subject to Onshore Orders 1 and 2, The National Historic Preservation Act (NHPA), National Environmental Policy Act (NEPA) and the Endangered Species Act. The operation and production, if any, of Infinity-Texas’ properties would be subject to the rules and regulations of the Railroad Commission of Texas (RRC).
Additional proposals and proceedings that might affect the oil and gas industry are pending before Congress, the FERC, BLM, MMS, state commissions and the courts. Infinity cannot predict when or whether any such proposals and proceedings may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely. Infinity may not be in compliance with certain federal, state and local laws, rules and regulations for its domestic properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity. The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits.
Environmental and Land Use Regulation
Various federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The areas affected include:
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unit production expenses primarily related to the control and limitation of air emissions, spill prevention and the disposal of produced water;
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capital costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes;
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capital costs to construct, maintain and upgrade equipment and facilities;
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operational costs associated with ongoing compliance and monitoring activities; and
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exit costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating environmental impacts.
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The environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past, and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures in order to remain in compliance. Our business operations are not in compliance with current laws and regulations. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance, clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater than those we currently expect.
The following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting our oil and natural gas exploration, development, production and transportation operations.
Discharges to Waters.
The Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and comparable state statutes impose restrictions and controls, primarily through the issuance of permits, on the discharge of produced waters and other oil and natural gas wastes into regulated waters and wetlands. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future, including potential restrictions on the use of hydraulic fracturing. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other substances related to the oil and natural gas industry into onshore, coastal and offshore waters without a permit.
The Clean Water Act also regulates storm water discharges from industrial properties and construction activities and requires separate permits and implementation of a storm water management plan establishing best management practices, training, and periodic monitoring. Certain operations are also required to develop and implement “Spill Prevention, Control, and Countermeasure” plans or Facility Response Plans to address potential oil spills.
The Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It also imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances into regulated waters.
Oil Spill Regulations.
The Oil Pollution Act of 1990, as amended (the “OPA”), amends and augments oil spill provisions of the Clean Water Act, imposing potentially unlimited liability on responsible parties, without regard to fault, for the costs of cleanup and other damages resulting from an oil spill in U.S. waters. Responsible parties include (i) owners and operators of onshore facilities and pipelines and (ii) lessees or permit tees of offshore facilities.
Air Emissions.
Our operations are subject to local, state and federal regulations governing emissions of air pollution. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources. Air emissions from oil and natural gas operations also are regulated by oil and natural gas permitting agencies including the MMS, BLM and state agencies.
We may generate wastes, including hazardous wastes that are subject to the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain oil and natural gas exploration and production wastes currently are exempt from regulation under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA (“Hazardous Wastes”). Furthermore, it is possible that certain wastes generated by our historical oil and natural gas operations that are currently exempt from treatment as Hazardous Wastes may in the future be designated as Hazardous Wastes, and therefore be subject to more rigorous and costly operating, disposal and clean-up requirements. State and federal oil and natural gas regulations also provide guidelines for the storage and disposal of solid wastes resulting from the production of oil and natural gas, both on- and off-shore.
Superfund.
Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statutes, responsibility for the entire cost of cleanup of a contaminated site, as well as natural resource damages, can be imposed upon any current or former site owners or operators, or upon any party who discharged one or more designated substances (“Hazardous Substances”) at the site, regardless of the lawfulness of the original activities that led to the contamination. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of Hazardous Substances, in the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of Hazardous Substances. We may also be an owner or operator of facilities at which Hazardous Substances have been released by previous owners or operators. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances have been released and for natural resource damages. We have not, to our knowledge, been identified as a potentially responsible party under CERCLA, nor are we aware of any prior owners or operators of our properties that have been so identified with respect to their ownership or operation of those properties.
Abandonment and Remediation Requirements.
Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production and transportation facilities, and the environmental restoration of operations sites. The Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Texas Railroad Commission are the principal state agencies and BLM the primary federal agency responsible for regulating the drilling, operation, maintenance and abandonment of all oil and natural gas wells in the state. State and BLM regulations require operators to post performance bonds.
Potentially Material Costs Associated with Environmental Regulation of Our Oil and
Natural Gas Operations.
Significant potential costs relating to environmental and land use regulations associated with our existing properties and operations include those relating to (i) plugging and abandonment of facilities, (ii) clean-up costs and damages due to spills or other releases and (iii) civil penalties imposed for spills, releases or non-compliance with applicable laws and regulations.
Infinity-Texas and Infinity-Wyoming currently own or lease properties that are being used for the disposal of drilling and produced fluids from exploration, development and production of oil and gas. Although these subsidiaries follow operating and disposal practices that they considers appropriate under applicable laws and regulations, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by the subsidiaries or on or under other locations where such wastes were taken for disposal. Infinity could incur liability under the Comprehensive Environmental Response, Compensation and Liability Act or comparable state statutes for contamination caused by wastes it generated or for contamination existing on properties it owns or leases, even if the contamination was caused by the waste disposal practices of the prior owners or operators of the properties. In addition, it is not uncommon for landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of produced fluids or other pollutants into the environment.
Title to Properties
Currently domestic acreage and leases may be lost due to nonproduction. For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such, were written down to zero as the Company focused solely on the development of the Nicaraguan concessions.
Operating Hazards and Insurance
The oil and natural gas business involves a variety of operating risks, such as those described under “Risk Factors.” Infinity was unable to maintain insurance against potential risks and losses.
In addition, pollution and environmental risks are not insured. If a significant accident or other event occurs not covered by insurance, it could adversely affect us.
Employees
On December 31, 2010, Infinity and its subsidiaries had two employees with all salaries deferred. We also use outside contractors to perform services.
Exploration and Development
We incurred exploration expenditures on our Nicaraguan Concessions in the fiscal years ended December 31, 2010 and 2009 of $510,811 and $680,738, respectively.
We have been unable to comply with certain requirements of our Revolving Credit Facility and may not be able to repay our borrowing base deficiency under the Revolving Credit Facility or satisfy other current liabilities.
Effective as of February 16, 2011, we entered into a Fifth Forbearance under the Loan Agreement. This agreement relates to the breach by us and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this agreement, the borrowing base was not reduced from $2,900,000. The borrowing base shall not be subject to redetermination by Amegy during the Forbearance Period. The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital. Under this Agreement, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement. In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended until December 31, 2011 and there can be no assurance that Amegy will continue to extend the maturity date.
During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place. In addition, Amegy agrees, upon our request, to issue one or more letters of credit in an amount not to exceed $850,000 as security for our obligations with respect to the Nicaragua Concessions.
Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of our CEO for up to $500,000 of the advances. At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO. As of December 31, 2010 advances of $454,053 had been made under the Fifth Forbearance with remaining advances of $595,947 available for 2011.
Should the Company fail to comply with the terms of the Fifth Forbearance Agreement, Amegy would be entitled to impose a default interest rate (prime plus 6.5%) or to declare an event of default, at which point the entire unpaid principal balance of the loan, together with all accrued and unpaid interest and other amounts then owing to Amegy would become immediately due and payable. Amegy or other creditors may take action to enforce their rights with respect to outstanding obligations, and Infinity may be forced to liquidate. Because substantially all of the Company’s assets are collateral under the Revolving Credit Facility, if Amegy declares an event of default, it would be entitled to foreclose on and take possession of the Company’s assets.
These matters, as well as the other risk factors related to our liquidity and financial position raise substantial doubt as to our ability to continue as a going concern. Even after sale of our remaining assets, we will likely be left with significant continuing liquidity concerns.
We have a history of losses and are currently experiencing substantial liquidity problems.
We incurred a net loss in our fiscal years ended December 31, 2010 and 2009 of approximately $3.8 million and $6.9 million, respectively. In addition, we are currently experiencing substantial liquidity problems. Although we are currently operating under the Fifth Forbearance with Amegy, the current Forbearance Period expires on December, 31, 2011 and under the terms of the Loan Agreement, at such time we are required to repay the approximately $10.2 million borrowing base deficiency. We do not have the funds to repay such deficiency or to satisfy various other existing debts and obligations. If we cannot find a satisfactory resolution to our liquidity problems, we may be forced to cease operations and may be required to liquidate.
If we are able to address our immediate liquidity problems, our history of losses may impair our ability to obtain financing for exploration and development and other business activities on favorable terms or at all. It may also impair our ability to attract investors if we attempt to raise additional capital, to grow our business or for other business purposes, by selling additional debt or equity securities in a private or public offering. If we are unable to obtain additional financing, we may be unable to maintain and develop our properties, including our Nicaraguan Concessions.
We are continuing to negotiate with our creditors and may face additional claims in the future.
We continue to have substantial liabilities, in addition to amounts owed to Amegy, which we are currently unable to pay. We continue to negotiate with our creditors to mitigate and settle our known liabilities to them or their claims of liabilities and in some cases, to secure releases of liens which have been filed on certain of our properties. Various suits have been filed to enforce payments of liabilities and we are working to address these suits We may incur additional liabilities if our liquidity situation deteriorates further and may face additional claims from creditors seeking to protect their interests in light of our announcements regarding our financial condition and business plans. We are not able to predict our success in attempting to negotiate with these parties nor the expense related to such negotiations or in defending any litigation related to these claims. These creditors may take action to force us into bankruptcy involuntarily. In addition, if we are unable to manage our current liabilities or substantial additional claims are asserted against us, we may be forced to seek protection under the Bankruptcy Code.
If we are unable to obtain lien releases on our Texas properties, a sale may continue to be delayed and will be jeopardized.
Various liens have been filed on properties in Texas. The presence of these liens has delayed any sale of the Texas properties. We continue to work with our creditors to mitigate and settle our liabilities and obtain releases for these liens, but we are unable to predict our success in attempting to settle with these parties and obtain releases. If we are unable to have such liens released it could have a substantial adverse impact on us.
We may be unable to continue to operate due to our inability to obtain supplies and services.
We rely on a number of suppliers for day-to-day operations. We are experiencing delays in our ability to satisfy trade payables. In addition, as creditors react to news of our deteriorating financial situation, we may have further difficulties in obtaining supplies and services on a timely and cost-effective basis, and may be unable to obtain such supplies and services at all. Our inability to obtain the requisite supplies and services would have a substantial adverse impact on our ability to continue our operations and we could be forced to liquidate.
Our reduced exploration and development activities have caused us to lose certain leases and we may continue to lose substantial acreage.
We have had no exploration and development activities to conserve cash. We are not actively working on any domestic property. This has caused us to lose certain leases, and we are likely to continue to lose acreage as our liquidity concerns continue. If we are unable to resolve our liquidity issues in the near term, these losses could have a material adverse impact on our business, prospects and financial condition.
Our common stock is traded on the Pink Sheets.
Our common stock is traded on the Pink Sheets, which may negatively impact shareholder value, access to capital markets and the liquidity of our common stock.
Our Nicaraguan Concessions and planned future exploration activities are in a country with a developing economy and are subject to the risks of political and economic instability associated with such economies.
Nicaragua has from time to time experienced economic or political instability. We may be materially adversely affected by risks associated with conducting operations in countries with developing economies, including:
• political instability and violence;
• war and civil disturbance;
• acts of terrorism;
• expropriation or nationalization;
• changing fiscal regimes;
• fluctuations in currency exchange rates;
• high rates of inflation;
• underdeveloped industrial and economic infrastructure; and
• unenforceability of contractual rights.
• adherence to the Foreign Corrupt Practice Act by our contractors and/or representatives.
We cannot accurately predict the effect of these factors on our concessions. In addition, legislation in the United States regulating foreign trade, investment and taxation could have a material adverse effect on our financial condition, results of operations and cash flows.
Oil and gas prices are volatile, and declines in prices would hurt our ability to
achieve profitable operations.
The carrying value of oil and gas properties will depend heavily on prevailing market prices for oil and gas. We expect the market for oil and gas to continue to be volatile for the foreseeable future.
Various factors beyond our control affect prices of oil and gas, including:
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worldwide and domestic supplies of oil and gas;
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political instability or armed conflict in oil or gas producing regions;
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the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil prices;
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the price and level of foreign imports;
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worldwide economic conditions;
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marketability of production;
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the level of consumer demand and particularly from rapidly developing countries, such as China and India;
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the price, availability and acceptance of alternative fuels;
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the price, availability and capacity of commodity processing and gathering facilities, and pipeline transportation;
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weather conditions; and
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actions of federal, state, local and foreign authorities.
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These external factors and the volatile nature of the energy markets generally make it difficult to estimate future prices of oil and gas. Significant declines in oil and natural gas prices for an extended period may cause various negative effects on our business, including:
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further impairing our financial condition, cash flows and liquidity;
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limiting our ability to finance planned capital expenditures;
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reducing our revenue, operating income and profitability; and
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reducing the carrying value of our oil and natural gas properties;
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A charge to earnings and book value would occur if there is a further ceiling write-down of the carrying value of our oil and gas properties. Impairments can occur when oil and gas prices are depressed or unusually volatile. Once incurred, a ceiling write-down of oil and gas properties is not reversible at a later date when better industry conditions may exist. We review, on a quarterly basis, the carrying value of our oil and gas properties under the full cost accounting rules of the SEC. Under these rules, costs of proved oil and gas properties may not exceed the present value of estimated future net revenue after giving effect to cash flow from hedges but excluding the future cash out flows associated with settling asset retirement obligations, discounted at 10%, net of taxes. Application of the ceiling test generally requires pricing future revenue at the unescalated prices in effect as of the end of each fiscal quarter, after giving effect to our cash flow hedge positions, if any, and requires a write-down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time.
We recorded an aggregate ceiling write-down of the remaining value of the domestic properties at December 31, 2008. A decrease in oil or gas prices (which continue to remain volatile), an increase in production costs, a decrease in estimated gas production in future periods, or the reclassification of development costs to properties subject to depletion without an increase in associated proved reserves could result in a ceiling write-down during future periods.
Prices may be affected by regional factors.
The prices that we may receive for the natural gas production, if any, from our Wyoming and Texas properties will be determined mainly by factors affecting the regional supply of, and demand for, natural gas, which include the degree to which pipeline and processing infrastructure exists in the region. Regional differences could cause negative basis differentials, which could be significant, between the published indices generally used to establish the price that we receive for regional natural gas production and the actual price that we receive for any natural gas production.
Forward sales and hedging transactions may limit our potential gains or expose us to losses.
To manage our exposure to price risks in the marketing of our natural gas, we have in the past and may in the future enter into fixed price natural gas physical delivery contracts for a portion of our current or future production. These transactions could limit our potential gains if natural gas prices were to rise substantially over the prices established by the contracts. In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which:
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our production is less than expected;
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the counterparties to our contracts fail to perform under the contracts; or
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our production costs on the contracted production significantly increase.
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Exploration and development of our oil and gas projects will require large amounts of
capital which we may not be able to obtain.
We expect that our primary exploration and development activities in Nicaragua will take place only upon us finding a partner. If we achieve success or are otherwise able to consider future exploration and development of our properties, and especially the Nicaraguan Concessions, we would be required to obtain large amounts of additional capital, subjecting existing shareholders to potential significant dilution. The terms under which such capital may be available, if at all, may not be on acceptable terms to us. Our potential sources of financing for these activities in the longer term will be cash availability under credit facilities, if any, and future sales of equity securities or subordinated debt securities.
Future cash flows and the availability of financing are subject to a number of variables, such as:
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our success in locating and producing new reserves;
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prices of crude oil and natural gas;
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the level of production from existing wells; and
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amounts of necessary working capital and expenses.
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Issuing equity securities to satisfy our financing or refinancing requirements could cause substantial dilution to existing stockholders. Debt financing could lead to:
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all or a substantial portion of our operating cash flow, if any, being dedicated to the payment of principal and interest;
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an increase in interest expense as the amount of debt outstanding increases or as variable interest rates increase;
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increased vulnerability to competitive pressures and economic downturns; and
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restrictions on our operations that may be contained in any contract entered into with lenders.
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In order to reduce our capital needs, while continuing development of our oil and gas projects, we could enter into partnerships with another oil and gas company or companies in which we would maintain a carried or reduced working interest in the oil and gas properties. However, this would reduce our ownership and control over the projects and could significantly reduce our future revenue generated from oil and gas production.
Information concerning our reserves, future net cash flow estimates, and potential
future ceiling write-downs is uncertain.
As of December 31, 2010 and 2009, we did not have any proved reserves.
As of December 31, 2010, we had approximately $3.1 million invested in unproved oil and gas properties not subject to amortization. During 2011, a portion of the investment in unproved oil and gas properties may be reclassified to the full cost pool subject to depletion and the ceiling test, following our required periodic evaluation of the fair value of our unproved properties. The amount of any such reclassification could be significant. We could be required to write down a portion of the full cost pool of oil and gas properties subject to amortization upon reclassification of the unproved oil and gas property costs.
The oil and gas exploration business involves a high degree of business and financial
risk.
The business of exploring for and developing oil and gas properties involves a high degree of business and financial risk. Property acquisition decisions generally are based on assumptions about the quantity, quality, production costs, marketability, and sales price for the acreage or reserves being acquired. Although available geological and geophysical information can provide information about the potential of a property, it is impossible to predict accurately the ultimate production potential, if any, of a particular property or well. Any decision to acquire a property is also influenced by our subjective judgment as to whether we will be able to locate the reserves, drill and equip the wells to produce the reserves, operate the wells economically, and market the production from the wells.
If we commence operations again, they will be dependent upon the availability of certain resources, including drilling rigs, steel casing, water, chemicals, and other materials necessary to support our development plans and maintenance requirements. The lack of availability of one or more of these resources at an acceptable price could have a material adverse affect on our business.
The successful completion of an oil or gas well does not ensure a profit on investment. A variety of factors may negatively affect the commercial viability of any particular well, including:
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the absence of producible quantities of oil and gas;
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insufficient formation attributes, such as porosity, to allow production;
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water production requiring disposal; and
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improperly pressured reservoirs from which to produce the reserves.
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In addition, market-related factors may cause a well to become uneconomic or only marginally economic, such as:
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availability and cost of equipment and transportation for the production;
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demand for the oil and gas produced; and
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price for the oil and gas produced.
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Our business is subject to operating hazards that could result in substantial losses
against which we may not be insured.
The oil and natural gas business involves operating hazards, any of which could cause substantial losses, such as:
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uncontrollable flows of oil, natural gas or well fluids;
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formations with abnormal pressures;
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pipeline ruptures or spills; and
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releases of toxic gas and other environmental hazards and pollution.
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As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. Our insurance premiums can be increased or decreased based on the claims we make under insurance policies. The insurance does not cover damages from breach of contract by us or based on alleged fraud or deceptive trade practices. Whenever possible, we obtain agreements from customers that limit our liability; however, insurance and customer agreements do not provide complete protection against losses and risks and losses could occur for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. The Company no longer carries insurance on the domestic properties. The occurrence of an event that is not covered by insurance would materially harm our business, financial condition and results of operations.
In addition, we may be liable for environmental damage caused by previous owners of property we own or lease. As a result, we may face substantial potential liabilities to third parties or governmental entities that could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses. An event that is not covered by insurance, such as losses resulting from pollution and environmental risks that are not insured, would cause us to incur material losses.
Our future production is contingent on successful exploration, development and acquisitions to establish
reserves and revenue in the future.
Our future natural gas and oil production is highly dependent on our level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive. Exploration will require significant additional capital expenditures and successful drilling operations. In our current financial situation, we are unable to engage in significant exploration or development efforts or acquisitions of additional properties, and if we are unable to address our liquidity problems and make the necessary capital investment our future operations will be impaired.
Exploratory drilling is an uncertain process with many risks.
Exploratory drilling involves numerous risks, including the risk that we will not find commercially productive natural gas or oil reservoirs. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including:
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unexpected drilling conditions;
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pressure or irregularities in formations;
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equipment failures or accidents;
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adverse weather conditions;
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compliance with governmental requirements, rules and regulations; and
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shortages or delays in the availability of drilling rigs, the delivery of equipment and adequately trained personnel.
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Our future drilling activities may not be successful, and we cannot be sure of our overall drilling success rate. Unsuccessful drilling activities would result in significant expenses being incurred without any financial gain.
Our business depends on transportation facilities owned by others.
The marketability of future gas production, if any, depends in part on the availability, proximity and capacity of pipeline systems owned by third parties. Generally, we historically have delivered natural gas through gas gathering systems and gas pipelines that we do not own under interruptible or short-term transportation agreements. In the event that we are able to resume production, the transportation of our gas may be interrupted due to capacity constraints on the applicable system, or for maintenance or repair of the system. Our ability to produce and market natural gas on a commercial basis could be harmed by any significant change in the cost or availability of markets, systems or pipelines.
The oil and gas industry is heavily regulated and we must comply with complex
governmental regulations.
Federal, state and local authorities extensively regulate the oil and gas industry and the drilling and completion of oil and gas wells. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may adversely affect, among other things, the pricing and production or marketing of oil and gas. Noncompliance with statutes and regulations may lead to substantial penalties and the overall regulatory burden on the industry increases the cost of doing business and, in turn, decreases profitability. Federal, state and local authorities regulate various aspects of oil and gas drilling, service and production activities, including the drilling of wells through permit and bonding requirements, the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration.
Our operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local government authorities. It can be costly to drill, equip and operate a water disposal well. New laws or regulations, or changes to current requirements, could result in our incurring significant additional costs. We could face significant liabilities to government and third parties for discharges of oil, natural gas or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation.
Although we believe that we are in substantial compliance with all applicable laws and regulations, we cannot be certain that existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations, will not harm our business, results of operations and financial condition. Laws and regulations applicable to us include those relating to:
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drilling bonds and other financial responsibility requirements;
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emissions into the air;
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unitization and pooling of properties;
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habitat and endangered species protection, reclamation and remediation;
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the containment and disposal of hazardous substances, oil field waste and other waste materials;
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the use of underground storage tanks;
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the use of underground injection wells, which affects the disposal of water from our wells;
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the prevention of oil spills;
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the closure of production facilities;
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operational reporting; and
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Under these laws and regulations, we could be liable for:
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property and natural resource damages;
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releases or discharges of hazardous materials;
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well reclamation costs;
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oil spill clean-up costs;
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other remediation and clean-up costs;
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plugging and abandonment costs, which may be particularly high in the case of offshore facilities;
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governmental sanctions, such as fines and penalties; and
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other environmental damages.
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Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities.
Our operations and facilities are subject to numerous environmental laws, rules and regulations, including laws concerning:
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the containment and disposal of hazardous substances, oilfield waste and other waste materials;
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the use of underground storage tanks; and
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the use of underground injection wells.
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Compliance with and violations of laws protecting the environment may become more costly. Sanctions for failure to comply with these laws, rules and regulations, many of which may be applied retroactively, may include:
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administrative, civil and criminal penalties;
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revocation of permits; and
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corrective action orders.
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In the United States, environmental laws and regulations typically impose strict liability. Strict liability means that in some situations we could be exposed to liability for cleanup costs and other damages as a result of our conduct, even if such conduct was lawful at the time it occurred, or as a result of the conduct of prior operators or other third parties. Cleanup costs, natural resource damages and other damages arising as a result of environmental laws and regulations, and costs associated with changes in environmental laws and regulations, could be substantial. From time to time, claims have been made against us under environmental laws.
The oil and gas industry is highly competitive.
We operate in the highly competitive areas of oil and natural gas acquisition, exploration, development and production with many other companies. We face intense competition from a large number of independent companies as well as major oil and natural gas companies in a number of areas such as:
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acquisition of desirable producing properties or new leases for future exploration;
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marketing our oil and natural gas production;
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arranging for growth capital on attractive terms; and
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seeking to acquire or secure the equipment, service, labor, other personnel and materials necessary to explore, operate and develop those properties.
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Many of our competitors have financial and technological resources substantially exceeding those available to us. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise or financial resources available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition.
We depend on key personnel.
The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and prospects for future success. Our success depends on the continued services of our executive officers and a limited number of other senior management and technical personnel. Loss of the services of any of these people could have a material adverse effect on our operations. We do not have employment agreements with any of our executive officers. Our exploratory drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced explorers, engineers and other professionals. Competition for experienced explorers, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.
ITEM 2.
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FINANCIAL INFORMATION
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Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The following information should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this Registration Statement on Form 10. Infinity follows the full-cost method of accounting for oil and gas properties. See “Summary of Significant Accounting Policies,” included in Note 1 to the Consolidated Financial Statements.
Infinity Energy Resources, Inc. and its subsidiaries, Infinity-Texas and Infinity-Wyoming (collectively, “Infinity” or the “Company”) are engaged in the acquisition, exploration, development and production of natural gas and crude oil in the United States and the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.
On March 5, 2009 Infinity signed the contracts relating to our Nicaraguan concessions. Infinity has submitted an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. Infinity is currently seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction described below and Forbearance advances from the bank were used to fund these expenses. No assurance can be given that these funds will be sufficient to cover the exploration and development cost until a partner is found.
On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”). The transaction resulted in the sale of approximately 62% of the Company’s proved reserve quantities and 73% of the standardized measure of discounted future net cash flow at that time. In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (the “Farmout Agreement”) for certain oil and gas leases owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provides that Forest would operate and earn a 75% interest in the spacing unit for each well in a 10-well drilling program. If Forest had completed the drilling program, Forest would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. Infinity-Texas retains 100% of its interest in all previously completed wells and 100 acres surrounding each such completed well. Forest did not complete the terms of the Farmout and Acquisition Agreement and did not earn any interest in the properties.
For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were deemed to be uneconomical and the Company focused solely on the development of the Nicaraguan concessions.
We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.
Liquidity; Going Concern
The Company has had a history of losses. In addition, the Company has a significant working capital deficit and is currently experiencing substantial liquidity issues. As also discussed in Note 2 of the Financial Statements, the Company was operating under the Fourth Forbearance Agreement with Amegy Bank, N. A. (“Amegy”) under the Revolving Credit Facility.
The Company entered into the Fifth Forbearance Agreement under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during 2007, 2008, 2009 and 2010. Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Revolving Credit Facility, the revolving note and the related loan documents and to temporarily waive the covered events of default through December 31, 2011. The Company is required to repay the borrowing base deficiency by December 31, 2011 through the sale of assets, refinancing of the loan or some other means of raising capital. The Company continues to operate under the Fifth Forbearance Agreement and there can be no assurance Amegy will continue under the agreement.
The Company has classified all $10,242,956 outstanding under the Revolving Credit Facility at December 31, 2010 as current liabilities in the accompanying Consolidated Balance Sheets.
We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore Nicaragua. We issued letters of credit totaling $851,550 and entered into a subordinated loan with Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”), in an aggregate amount of $1,275,000 which was released as the Company needed funds for the initial work on the Nicaraguan Concessions. We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study. We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.
No assurance can be given that funds advanced under the Fifth Forbearance Agreement will be sufficient to cover the exploration cost until a partner is found.
Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
2011 Operational and Financial Objectives
Corporate Activities
On April 14, 2011 the Company announced that it has completed and filed with the Nicaraguan government its Environmental Impact Assessment (“EIA”) covering proposed seismic activities on its 1.4 million-acre oil and gas concessions in the Caribbean Sea offshore Nicaragua.
The filing of the EIA will be followed by a “comment period” during which there will be considerable interaction between Infinity; the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest the offshore concessions. Based on conversations with the government, the Company anticipates that this process should be completed within the next 90 days. Once the EIA has been formally approved, Infinity will be cleared to commence 2-D and 3-D seismic mapping activities in the area.
During this process, Infinity has continued its relationship with the autonomous regions. Management does not expect any major problems gaining approval of our EIA, based upon the previous approval granted Noble Energy, Inc. for its recently completed 3-D seismic mapping program on its oil and gas concessions, which are located adjacent to and east of Infinity’s concessions offshore Nicaragua.
Management has a current business plan that anticipates, subject to sufficient capital availability, Infinity will commence its seismic mapping activities during the fourth quarter of 2011 or in the first quarter of 2012. The 3-D seismic program will seek to further evaluate the structures that were previously identified with 2-D seismic in the Eocene Zone. The Company geological consultants have estimated that these Eocene structures may contain recoverable oil in place. In addition, 3-D seismic should provide our first look at the potential for oil resources in the Cretaceous Zone, which we could not evaluate using less precise 2-D seismic mapping.
We intend to finance our business strategy through external financing, which may include debt and equity capital raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations, if any, net proceeds from the sales of assets. Essentially all of our assets serve as collateral under our Amegy credit facility, and as such, any disposition of material assets would require its approval.
The Company’s ability to complete these activities is dependent on a number of factors including, but not limited to:
|
•
|
The availability of the capital resources required to fund the activity;
|
|
•
|
The availability of third party contractors for completion services; and
|
|
•
|
The approval by regulatory agencies of applications for permits to conduct exploration activities in a timely manner.
|
Results of operations for the year ended December 31, 2010 compared to the year
ended December 31, 2009
Net Loss
Infinity incurred a net loss of $3.8 million, or $0.20 per diluted share, in 2010 compared to a net loss of $7 million, or $0.38 per diluted share, in 2009. The change between periods was the result of the items discussed below.
Revenue
Revenue decreased from $.5 million in 2009 to zero in 2010 as the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were shut in and as the Company focused solely on the development of the Nicaraguan concessions. The Company continued to produce nominal gas volumes in 2009 prior to the properties being shut-in.
Production and Other Operating Expenses
Oil and gas production expenses continued to accrue due to limited production in 2009. Operating expenses were incurred in 2010 to bring the Texas wells in compliance with State requirements for a potential sell of the property. Off-Shore Finance, LLC had made available working capital of up to $300,000 in 2009 to bring the wells into compliance. A contingent sales contract for the Texas property was entered into in 2009 and 2010 but could not be closed due to trade vendors unwilling to release liens on the properties for partial settlement of payables. The Company has substantial doubts that any of the leases are still in force and discontinued efforts to sell the property.
In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from its properties in Erath County, Texas, under which it pays a gathering fee of $0.35 per Mcf gathered. The contract contains minimum delivery volume commitments through December 31, 2011 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company has accrued approximately $1,916,250 for 2010 and $929,208 for 2009 as delivery commitment shortfalls under the contract and is classified as an operating expense.
We have had no domestic exploration and development activities to conserve cash. We are not actively working on any domestic property. This has caused us to lose certain leases, and we are likely to continue to lose acreage as our liquidity concerns continue. If we are unable to resolve our liquidity issues in the near term, these losses could have a material adverse impact on our business, prospects and financial condition.
Production Taxes
Oil and gas production taxes for 2010 decreased to $6,481 from $24,151 in 2009 as a result of the decrease in revenue and production.
General and Administrative Expenses
General and administrative expenses decreased to $0.6 million for 2010, from $2.1 million in the prior year. The decrease was due the Company filing to be a non reporting Company and shutting down the Denver office at the end of 2008.
Depreciation, Depletion, Amortization and Accretion
Infinity recognized depreciation, depletion, amortization and accretion (“DD&A”) expense of approximately $95,000 during 2010, compared to DD&A expense of approximately $88,000 in the prior year. The higher DD&A expense was due higher asset retirement obligations expense.
Ceiling Write-down
For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were deemed to be uneconomical to operate and the Company focused solely on the development of the Nicaraguan concessions.
Other Income (Expense)
Other income and expense was a net expense of $.6 million in 2010 compared to a net expense of $3 million in the prior year. The change of was principally due the change in the fair value of derivative liabilities from a $1.3 million expense in 2009 to $1.3 million in income in 2010 resulting from fluctuations in the price of the Company's common stock.
Income Tax
Infinity reflected no net tax benefit or expense in 2010 and 2009. The net operating losses generated in those periods increased Infinity’s net deferred tax asset. Due to uncertainty as to the ultimate utilization of the Company’s net deferred tax asset, as of December 31, 2010 and 2009, the Company recorded a full valuation allowance for its net deferred tax asset.
This section is an explanation and detail of some of the relevant project groupings from our overall inventory of projects and prospects. Our principal focus is our Nicaraguan Concessions, which are located in the Caribbean Sea, offshore Nicaragua. Our prior year’s operations were primarily focused in the Fort Worth Basin of Texas and the Greater Green River and Sand Wash Basins in the Rocky Mountain region.
Nicaragua
Subsequent to being awarded two concessions in 2003, we negotiated a number of key terms and conditions of an exploration and production contract covering the approximate 1.4 million acre Tyra (approximately 823,000 acres in the north) and Perlas (approximately 566,000 acres in the south) concession areas offshore Nicaragua. The contract, which was finalized in May 2006, contemplates an exploration period of up to six years with four sub-phases and a production period of up to 30 additional years (with a potential five-year extension). We have completed and submitted an environmental study and to develop geological information from the reprocessing and additional evaluation of existing 2-D seismic data to be acquired over the Perlas and Tyra concession blocks. We have not commenced significant activity under the initial work plan, because we have not received the specific requirements associated with the conduct of the environmental study from the responsible governmental agency.
We expect that our exploration offshore Nicaragua will focus on Eocene and Cretaceous Carbonate reservoirs and our management and consultants believe: (i) numerous analogies can be made between the our concession block and production from fractured Cretaceous carbonates in Mexico, Venezuela and Guatemala and (ii) the presence of Cretaceous source rocks onshore Honduras and Nicaragua can be projected into the offshore Caribbean Shelf. We plan to seek offers from industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. No assurance can be given that any such transactions will be consummated or the terms of such transaction.
Fort Worth Basin
For purposes of presentation, we divide our Fort Worth Basin operations into two main property areas: Erath and Hamilton Counties, Texas and Comanche County, Texas.
Erath and Hamilton Counties, Texas
Infinity- Texas limited production in 2009 in this area, which is located in the southwest portion of the Fort Worth Basin in north central Texas. There was no production in 2010. A contingent sales contract for the Texas property was entered into in 2009 and 2010 but could not be closed due to trade vendors unwilling to release liens on the properties for partial settlement of payables. The Company has substantial doubts that any of the leases are still in force and discontinued all sales efforts.
Comanche County, Texas
Infinity-Texas produced only insignificant amounts of natural gas from the field and has not produced from this field since
2007. The Company has substantial doubts that any of the leases are still in force and has discontinued all operations.
Greater Green River Basin
For purposes of presentation, we divide our Greater Green River Basin operations into two main property areas: Pipeline Field and Labarge Field.
Pipeline Field
Infinity-Wyoming has not produced from the Pipeline Field since 2007.
Labarge Field
Infinity-Wyoming has not produced from the Labarge field since 2006.
Northwest Colorado
For purposes of presentation, we divide our northwest Colorado operations into two main property areas: Sand Wash Prospect and Piceance Basin Prospect.
Sand Wash Prospect
Infinity-Wyoming has not produced from the Sand Wash Prospect since 2007.
Piceance Basin Prospect
Infinity-Wyoming has not produced from the
Piceance Basin
Prospect since 2007.
Proved Reserves Reporting
Infinity had no proved reserves as of December 31, 2010 and 2009.
Production, Prices and Production Costs
The following table provides statistical information for the years ended December 31, 2010 and 2009:
|
|
For the
Year Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Production:
|
|
|
|
|
|
|
Natural gas (MMcf)
|
|
|
-
|
|
|
|
58.6
|
|
Crude oil (thousands of barrels)
|
|
|
-
|
|
|
|
-
|
|
Total (MMcfe)
|
|
|
-
|
|
|
|
58.6
|
|
Financial Data (thousands of dollars):
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
520.7
|
|
Production expenses
|
|
|
-
|
|
|
|
1,158.3
|
|
Production taxes
|
|
|
-
|
|
|
|
24.1
|
|
Financial Data per Unit ($ per Mcfe):
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
8.87
|
|
Production expenses
|
|
|
-
|
|
|
|
19.76
|
|
Production taxes
|
|
|
-
|
|
|
|
.41
|
|
Development, Exploration and Acquisition Capital Expenditures
The following table sets forth certain information regarding the costs incurred by Infinity in the purchase of proved and unproved properties and in development and exploration activities of Nicaragua:
|
|
2010
|
|
|
2009
|
|
Property acquisition costs
|
|
|
|
|
|
|
Proved
|
|
$
|
-
|
|
|
$
|
-
|
|
Unproved
|
|
|
510,811
|
|
|
|
680,738
|
|
Total property acquisition costs
|
|
|
510,811
|
|
|
|
680,738
|
|
Development costs
|
|
|
-
|
|
|
|
-
|
|
Exploration costs
|
|
|
-
|
|
|
|
-
|
|
Total costs
|
|
$
|
510,811
|
|
|
$
|
680,738
|
|
There were no development, exploration or acquisition costs incurred during 2010 and 2009 on the Company’s domestic properties.
Drilling Activity
The following table sets forth certain information regarding the wells completed during the years indicated. Frequently wells are spud or drilled in one period and completed in a subsequent period. In the table, “gross” refers to the total number of wells in which we have a working interest and “net” refers to gross wells multiplied by our working interest therein.
|
|
2010
|
|
|
2009
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
Exploratory Wells
|
|
|
|
|
|
|
|
|
|
|
|
|
Productive
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Nonproductive
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Development Wells
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Productive
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Nonproductive
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Acreage Data
The following table sets forth the gross and net acres of developed and undeveloped oil and gas leases held by Infinity-Texas and Infinity-Wyoming as of December 31, 2010. Developed acreage is acreage assigned to producing wells for the spacing unit of the producing formation. Domestic acreage may be lost due to nonproduction. For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero due to uneconomical operating conditions and as the Company focused solely on the development of the Nicaraguan concessions.
|
|
Developed Acreage
|
|
|
Undeveloped Acreage
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Onshore U.S.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Offshore Nicaragua
|
|
|
-
|
|
|
|
-
|
|
|
|
1,386,000
|
|
|
|
1,386,000
|
|
Total
|
|
|
-
|
|
|
|
-
|
|
|
|
1,386,000
|
|
|
|
1,386,000
|
|
Present Activities
Infinity holds a 100% interest in the Perlas Block(560,000 acres/2,268 km) and Tyra Block (826,000 acres/3,342 km) located in shallow waters offshore Nicaragua The sub-periods start on the acceptance of the Environmental Impact Study (EIS). The Company submitted the EIS to the Nicaraguan government on April 14, 2011. Management anticipates the approval process will be complete within 90 days.
Within 15 days of entering an exploration sub-period, the Company is required to provide an irrevocable guarantee (“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding exploration sub-period, as provided in the concession agreements.
Minimum Work Program - Perlas
Block Perlas – Exploration Minimum Work Commitment and Relinquishments
|
|
Exploration Period
(6 Years)
|
|
Duration
(Years)
|
|
Work Commitment
|
|
Relinquishment
|
|
Irrevocable
Guarantee
|
|
Sub-Period 1
|
|
2
|
|
-
|
Environmental Impact Study
|
|
26km
2
|
|
$
|
443,100
|
|
|
|
|
|
-
|
Acquisition & interpretation of
|
|
|
|
|
|
|
|
|
|
|
|
333km of new 2D seismic
|
|
|
|
|
|
|
|
|
|
|
-
|
Acquisition, processing & interpretation of
|
|
|
|
|
|
|
|
|
|
|
|
667km of new 2D seismic (or equivalent in 3D)
|
|
|
|
|
|
|
Sub-Period 2
|
|
1
|
|
-
|
Acquisition, processing & interpretation of
|
|
53km
2
|
|
$
|
1,356,227
|
|
Optional
|
|
|
|
|
200km
2
of 3D seismic
|
|
|
|
|
|
|
Sub-Period 3
|
|
1
|
|
-
|
Drilling of one exploration well to the
|
|
80km
2
|
|
$
|
10,220,168
|
|
Optional
|
|
|
|
|
Cretaceous or 3,500m, whichever is shallower
|
|
|
|
|
|
|
Sub-Period 4
|
|
2
|
|
-
|
Drilling of one exploration well to the
|
|
All acreage except
|
|
$
|
10,397,335
|
|
Optional
|
|
|
|
|
Cretaceous or 3,500m, whichever is shallower
|
|
areas with discoveries
|
|
|
|
|
|
|
|
|
-
|
Geochemical analysis
|
|
|
|
|
|
|
Minimum Work Program - Tyra
Block Tyra – Exploration Minimum Work Commitment and Relinquishments
|
|
Exploration Period
(6 Years)
|
|
Duration
(Years)
|
|
Work Commitment
|
|
Relinquishment
|
|
Irrevocable
Guarantee
|
|
Sub-Period 1
|
|
1.5
|
|
-
|
Environmental Impact Study
|
|
26km
2
|
|
$
|
408,450
|
|
|
|
|
|
-
|
Acquisition & interpretation of
|
|
|
|
|
|
|
|
|
|
|
|
667km of existing 2D seismic
|
|
|
|
|
|
|
|
|
|
|
-
|
Acquisition of 667km of new 2D seismic (or
|
|
|
|
|
|
|
|
|
|
|
|
equivalent in 3D)
|
|
|
|
|
|
|
Sub-Period 2
|
|
0.5
|
|
-
|
Processing & interpretation of the 667km 2D
|
|
40km
2
|
|
$
|
278,450
|
|
Optional
|
|
|
|
|
seismic (or equivalent in 3D) acquired in the
|
|
|
|
|
|
|
|
|
|
|
|
previous sub-period
|
|
|
|
|
|
|
Sub-Period 3
|
|
2
|
|
-
|
Acquisition, processing & interpretation of
|
|
160km
2
|
|
$
|
1,818,667
|
|
Optional
|
|
|
|
|
250km
2
of new 3D seismic
|
|
|
|
|
|
|
Sub-Period 4
|
|
2
|
|
-
|
Drilling of one exploration well to the
|
|
All acreage except
|
|
$
|
10,418,667
|
|
Optional
|
|
|
|
|
Cretaceous or 3,500m, whichever is shallower
|
|
areas with discoveries
|
|
|
|
|
|
|
|
|
-
|
Geochemical analysis
|
|
|
|
|
|
|
Contractual and Fiscal Terms
Training Program
|
US $50,000 per year, per block
|
Area Fee
|
Yr 1-3
|
|
$0.05/hectare
|
|
Yr 4-7
|
|
$0.10/hectare
|
|
Yr 8 fwd
|
|
$0.15/hectare
|
Royalties
|
Recovery Factor
|
|
Percentage
|
|
0 – 1.5
|
|
5%
|
|
1.5 – 3.0
|
|
10%
|
|
>3.0
|
|
15%
|
Natural Gas Royalties
|
Market value at production
|
|
5%
|
Corporate Tax
|
Rate no higher than 30%
|
Social Contribution
|
3% of the net profit (1.5% for each autonomous region)
|
Investment Protection
|
ICSID arbitration
|
|
OPIC insurance
|
Delivery Commitments
In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from the Company’s properties in Erath County, Texas, under which the Company pays a gathering fee of $0.35 per Mcf gathered. In December 2006, under provisions of the contract, the Company reduced the minimum daily delivery volumes by 50%.
The contract contains minimum delivery volume commitments through June 30, 2015 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company had accrued approximately $929,000, respectively for each year, as delivery commitment shortfalls under the contract. The Company has no current production to meet the delivery commitments for 2011 to 2015.
ITEM 4.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
The following table sets forth, as of March 31, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each person known by us to beneficially own more than five percent of such stock. We have no other class of capital stock outstanding.
Security Ownership of Certain Beneficial Owners
Name and address of beneficial owner
|
|
Amount and nature
of beneficial
ownership
|
|
|
Percent
of class
|
|
5% Stockholders (excluding executive officers and directors)
:
|
|
|
|
|
|
|
None (1)
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Based solely on a Schedule 13D, there are no 5% stockholders other than Stanton E. Ross, our Chairman, Chief Executive Officer and President.
|
The following table sets forth, as of March 31, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each director of the Company, each named officer of the Company, and all our directors and executive officers as a group. We have no other class of capital stock outstanding.
Security Ownership of Management
Name and address of beneficial owner
|
|
Amount and nature
of beneficial
ownership
|
|
|
Percent
of class
(2)
|
|
Executive Officers & Directors
:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanton E. Ross (3)
|
|
|
929,200
|
|
|
|
7.4
|
%
|
Leroy C. Richie (4)
|
|
|
320,750
|
|
|
|
2.2
|
%
|
Daniel F. Hutchins (5)
|
|
|
380,750
|
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
All officers and directors as a group (3 individuals)
|
|
|
1,630,700
|
|
|
|
12.4
|
%
|
|
(1)
|
The address of these persons is c/o 8000 West 110th Street, Suite 200, Overland Park, KS 66210.
|
|
(2)
|
The percent of Common Stock owned is calculated using the sum of (A) the number of shares of Common Stock owned and (B) the number of warrants and options of the Beneficial Owner that are exercisable within 60 days, as the numerator, and the sum of (Y) the total number of shares of Common Stock outstanding (18,668,575) and (Z) the number of warrants and options of the Beneficial Owner that are exercisable within 60 days as the denominator
|
|
(3)
|
Mr. Ross’s shares include: vested options to purchase 340,000 shares of common stock exercisable within 60 days. Mr. Ross has pledged 929,200 common shares and all of his outstanding options to purchase common stock to financial institutions and one individual as collateral for personal loans. The financial institution notified Mr. Ross that he is in default under a loan that it made to him and that it planned to sell all or part of the pledged shares to satisfy the obligation. It has sold 10,000 shares to date, which is reflected in total in the table. Mr. Ross does not agree with such action, but has not been able to, and in all likelihood, will not be able to stop such sales in the future.
|
|
(4)
|
Mr. Richie’s total shares include vested options to purchase 320,750 shares of common stock exercisable within 60 days.
|
|
(5)
|
Mr. Hutchins’ total shares include vested options to purchase 180,750 shares of common stock exercisable within 60 days.
|
ITEM 5.
|
DIRECTORS AND EXECUTIVE OFFICERS
|
The following table sets forth the names, positions and ages of our directors and executive officers. Our directors were elected by the majority written consent of our stockholders in lieu of a meeting. Our directors are typically elected at each annual meeting and serve for one year and until their successors are elected and qualify. Officers are elected by our board of directors and their terms of office are at the discretion of our board.
Name
|
|
Age
|
|
Positions and Offices Held
|
|
|
|
|
|
Stanton E. Ross
|
|
49
|
|
Chairman, President and Chief Executive Officer
|
Daniel F. Hutchins
|
|
55
|
|
Director, Chief Financial Officer, Secretary
|
Leroy C. Richie
|
|
69
|
|
Director
|
Stanton E. Ross
.
From March 1992 to June 2005, Mr. Ross was Infinity’s Chairman and President and served as an officer and director of each of its subsidiaries. He resigned all of these positions with Infinity in June 2005, except Chairman, but was reappointed as Infinity’s President in October 2006. Mr. Ross has served as Chairman, President and Chief Executive Officer of Digital Ally, Inc. (“Digital”) since September 2005. Digital is a publicly held company where common stock is traded on the Nasdaq Capital Market under the symbol DGLY. From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions and financing for corporations in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Overland Park, Kansas, where he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager. Mr. Ross devotes such time to the business of the Company as he deems necessary to discharge his fiduciary duties to it. Mr. Ross estimated that he divided his time equally between Infinity and Digital through the first quarter of 2007. Thereafter, he has devoted the majority of his time to Digital. Mr. Ross holds no public company directorships other than with Digital and Infinity currently and for the previous five years. The Company believes that Mr. Ross’ broad entrepreneurial, financial and business experience and his experience with micro-cap public companies and role as Chairman, President and CEO qualify him to serve as a director.
Daniel F. Hutchins
.
Mr. Hutchins was appointed to serve as Chief Financial Officer of Infinity effective as of August 13, 2007. Mr. Hutchins was elected as a Director of Digital in December 2007 and serves as Chairman of Digital’s Audit Committee and is its financial expert. He is also a member of Digital's Compensation and Strategic Planning Committees. Mr. Hutchins, a Certified Public Accountant, is a Principal with the accounting firm of Hutchins & Haake, LLC. He was previously a member of the Advisory Board of Digital Ally. Mr. Hutchins has served as an instructor for the Becker CPA exam with the Keller Graduate School of Management and has over 17 years of teaching experience preparing CPA candidates for the CPA exam. He has 30 years of public accounting experience, including five years with Deloitte & Touche, LLP. He has served on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas. Mr. Hutchins holds no other public company directorships currently and for the previous five years. The Company believes that Mr. Hutchins’ significant experience in finance and accounting gives him the qualifications to serve as a director.
Leroy C. Richie
. Since June 1, 1999 Mr. Richie has been a director of Infinity. Mr. Richie has been the Lead Outside Director of Digital since September 2005. He is also a member Digital’s Audit and Compensation Committees and is the Chairman of Digital’s Nominating and Governance Committee. Additionally, Mr. Richie serves as a member of the boards of directors of the following corporations and serves in the additional capacities noted: OGE Energy Corp., Chairman of the Compensation Committee and a member of the Corporate Governance Committee; RiverSource Funds, member of the board of directors of the mutual fund family managed by Ameriprise Financial, Inc., Vibration Control Technologies, LLC, Great Lakes Assemblies, LLC and Gulf Shore Assemblies, LLC. Since 2004, he has been of counsel to the Detroit law firm of Lewis & Munday, P.C. From September 2000 to November 2004, he was Chairman and Chief Executive Officer of Q Standards World Wide, Inc. From April 1999 to August 2000, he was President of Capitol Coating Technologies, Inc. Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for that company’s automotive operations from 1986 until his retirement in 1997. Before joining Chrysler, he served as director of the New York office of the Federal Trade Commission. Mr. Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship. The Company believes that Mr. Richie’s extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a director.
There is no family relationship between any of our directors, director nominees and executive officers.
ITEM 6.
|
EXECUTIVE COMPENSATION
|
The following table shows compensation paid, accrued or awarded with respect to our named executive officers during the years indicated, all compensation after 2008 is accrued but not paid:
2010 Summary Compensation Table (1)
Name and
Principal Position (2)
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($) (4)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards ($)
|
|
|
Non Equity
Incentive Plan
Compensation
ORRI (3)
|
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total ($)
|
|
Stanton Ross
|
|
2010
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
100,000
|
|
CEO
|
|
2009
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
57,085
|
|
|
$
|
286,929
|
|
|
|
|
|
|
|
|
|
|
$
|
444,014
|
|
Daniel F Hutchins
|
|
2010
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,117
|
|
|
$
|
242,117
|
|
CFO
|
|
2009
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
35,678
|
|
|
$
|
223,167
|
|
|
|
|
|
|
$
|
175,990
|
|
|
$
|
534,835
|
|
|
(1)
|
Due to the financial condition of the Company, Mr. Ross has deferred the receipt of his salary since January 2009. As of December 31, 2010, a total of $135,208 of salary has accrued. $64,792 of deferred salary was to exercise 249,200 shares at $0.26 in July 2010.
|
|
(2)
|
Mr. Hutchins began serving the Company as Vice President, Chief Financial Officer in August 2007. Mr. Hutchins is compensated $100,000 per year. Since January 2009 he has deferred his compensation, which totaled $200,000 as of December 31, 2010. His other compensation is indirect and consist of services are billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses. For the year ending 2010 the Company was billed $142,117 and for the year ended 2009 the Company was billed $175,990.
|
|
(3)
|
On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.
Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.
|
Compensation Policies and Objectives
We structure compensation for executive officers, including the named executive officers, to drive performance, to accomplish both our short-term and long-term objectives, and to enable us to attract, retain and motivate well qualified executives by offering competitive compensation and by rewarding superior performance. We also seek to link our executives’ total compensation to the interests of our shareholders. To accomplish this, our board of directors relies on the following elements of compensation, each of which is discussed in more detail below:
|
·
|
annual performance-based cash awards;
|
|
·
|
equity incentives in the form of stock and/or stock options; and
|
Our board of directors believes that our executive compensation package, consisting of these components, is comparable to the compensation provided in the market in which we compete for executive talent and is critical to accomplishing our recruitment and retention aims.
In setting the amounts of each component of an executive’s compensation and considering the overall compensation package, the Committee generally considers the following factors:
Benchmarking—
For executive officers, the board of directors considers the level of compensation paid to individuals in comparable executive positions of other oil and gas exploration and production companies of a similar size. The board of directors believes that these companies are the most appropriate for review because they are representative of the types of companies with which we compete to recruit and retain executive talent. The information reviewed by the board of directors includes data on salary, annual and long-term cash incentive bonuses and equity compensation, as well as total compensation.
Internal Equity—
The board of directors considers the salary level for each executive officer and each position in overall management in order to reflect their relative value to us.
Individual Performance—
The board of directors considers the individual responsibilities and performance of each named executive officer, which is based in part on the board of directors’ assessment of that individual’s performance as well as the evaluation of the individual by the Chief Executive Officer.
All executive officers are eligible for annual cash bonuses and equity incentive awards that reinforce the relationship between pay and performance by conditioning compensation on the achievement of the Company’s short- and long-term financial and operating goals, including operating profits, reserve finding costs, and growth in the Company’s daily oil and gas production and estimated proved, probable and possible recoverable oil and gas reserves.
Components of Executive Compensation
The following provides an analysis of each element of compensation, what each element is designed to reward and why the board of directors chose to include it as an element of our executive compensation.
Salaries
Salaries for executive officers are intended to incentivize the officers to focus on executing the Company’s day-to-day business and are reviewed annually. Changes are typically effective in April of each year and are based on the factors discussed above. Compensation arrangements with Mr. Hutchins were determined through arms-length negotiations.
Annual Bonuses
The awarding of annual bonuses to executives is at the Committee’s discretion. The objective of the annual bonus element of compensation is to align the interest of executive officers with the achievement of superior Company performance for the year and also to encourage and reward extraordinary individual performance. In light of the Company’s operating results for 2010, the Committee determined that it was appropriate to withhold annual bonuses from all executive officers for 2010.
Stock Options
Including an equity component in executive compensation closely aligns the interests of the executives and our shareholders and rewards executives consistent with shareholder gains. Stock options produce value for executives only if our stock price increases over the exercise price, which is set at the market price on the date of grant. Also, through vesting and forfeiture provisions, stock options serve to encourage executive officers to remain with the Company. Awards made other than pursuant to the annual equity grants are typically made to newly hired or recently promoted employees.
In determining the stock option grants for Messrs. Ross and Hutchins, the Committee considered the number of options previously granted that remained outstanding, the number and value of shares underlying the options being granted and the related effect on dilution. The Committee also took into account the number of shares that remained available for grant under our stock incentive plans. Awards were made to key employees, with weighted distribution toward individuals with the greatest responsibilities. Messrs. Ross and Hutchins were granted 200,000 and 175,000 options, respectively, in February 2011. Further, in April 2009 Messrs. Ross and Hutchins were granted 249,200 and 155,750 options, respectively. Information regarding all outstanding equity awards as of December 31, 2010 for the named executive officers is set forth below in the “Outstanding Equity Awards at Fiscal Year End” table.
Other Elements of Executive Compensation
We have not provided cash perquisites to our executive officers given our limited funds.
On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.
Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number of
Shares or
United of
Stock That
Have Not
Vested (#)
|
|
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ross
(1)
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
$
|
4.26
|
|
|
06/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
$
|
8.50
|
|
|
02/03/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
$
|
7.51
|
|
|
07/18/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
$
|
6.48
|
|
|
05/23/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3.97
|
|
|
10/10/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
$
|
3.06
|
|
|
05/17/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Number of
Shares or
United of
Stock That
Have Not
Vested (#)
|
|
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
|
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hutchins
(1)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
$
|
2.15
|
|
|
08/21/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,750
|
|
|
|
|
|
|
$
|
0.26
|
|
|
04/01/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In February 2011, the following options were issued at an exercise price of $5.25 and will expire on 02/09/2021: Stanton Ross 200,000 shares and Daniel Hutchins 175,000 shares.
|
The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of the Company’s directors during the fiscal years ended December 31, 2010 and 2009.
Name
|
|
Year
|
|
|
Fees
Earned or
Paid in
Cash ($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($) (1)
|
|
|
Non-Equity
Incentive Plan
Compensation
ORRI ($)(3)
|
|
|
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings ($)
|
|
|
All Other
Compensation
($) (2)
|
|
|
Total ($)
|
|
Leroy C. Richie
|
|
2010
|
|
|
$
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,000
|
|
|
|
2009
|
|
|
$
|
37,000
|
|
|
|
|
|
|
|
|
|
|
$
|
127,524
|
|
|
|
|
|
|
|
|
|
|
$
|
174,024
|
|
Robert O. Lorenz (4)
|
|
2010
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
|
2009
|
|
|
$
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,500
|
|
|
(1)
|
Mr. Richie received no cash compensation in 2010, but has accrued $111,500 for his services on the Board since January 1, 2008. In February 2011 he was granted 125,000 stock options for his service on the Board. Such options vested immediately, are exercisable at a price of $5.25 per share and will expire on February 9, 2021. In April 2009 he was granted 155,750 stock options that vested immediately and are exercisable at a price of $0.26 per share for a ten-year term.
|
|
(2)
|
Mr. Ross’ and Mr. Hutchins’ compensation and option awards are noted in the Executive Compensation table because neither of them received compensation or stock options for their services as a director.
|
|
(3)
|
On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.
Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.
|
|
(4)
|
Robert O. Lorenz resigned from his position as a member of the Company’s Board of Directors on March 16, 2009.
|
Compensation Committee Interlocks and Insider Participation
Leroy C. Richie is the sole member of the Compensation Committee in 2010. Mr. Richie is not currently and has not ever been an officer or employee of Infinity or its subsidiaries.
ITEM 7.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
The charter for the Company’s Audit Committee includes a requirement for the Audit Committee to review and approve any transaction involving the Company and a related party at least once a year or upon any significant change in the transaction or relationship. For these purposes, a “related party transaction” includes any transaction required to be disclosed pursuant to Item 404 of Regulation S-K.
On June 6, 2009 we entered into a revenue sharing agreement with Messrs. Ross, Richie and Hutchins for services provided. We assigned to them a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of our share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in them for officers and directors
On March 23, 2009, the Company entered into a Securities Purchase Agreement dated effective as of March 23, 2009, with Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”) an accredited investor, to issue a subordinated secured promissory note in the aggregate principal amount of up to $1,275,000 and a one percent (1%) revenue sharing interest with respect to the Company’s Nicaragua concessions in the Tyra and Perlas Blocks, offshore Nicaragua. The managing partner of Off-Shore Finance, LLC and Mr. Hutchins, the CFO of Infinity are business partners in the firm which the company uses for its corporate office.
Under the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Off-Shore. At any time within three (3) years from the date of the Revenue Agreement, Infinity shall have the right to redeem the RSP by paying Off-Shore an amount as follows: (i) if during the first year of the Revenue Agreement, a sum equal to three (3) times the amount of investor funding by Off-Shore Finance, LLC to Infinity as of
December 31, 2009 (the “Funding Amount”); (ii) if during the second year of the Revenue Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of the Revenue Agreement, a sum equal to ten (10) times the Funding Amount. Upon the redemption of the RSP by Infinity, the Revenue Agreement shall terminate.
The corporate office was located in Denver, Colorado until November 2008 when the Denver office was closed. The corporate office moved to the business office of the CFO of the Company. The Company currently does not have any employees and the staff of the interim CFO provides the office services. These services are billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses. For the year ending 2010 the Company was billed $142,117 and for the year ended 2009 the Company was billed $175,990. The amount due to the CFOs firm for services provided was $323,929 for December 31, 2010 and $183,850 at December 13, 2009.
Under the Fifth Forbearance Agreement, Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of the Company’s President and
Chief Executive Officer for up to $500,000 of the advances. At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO.
Our board of directors undertook its annual review of the independence of the directors and considered whether any director had a material relationship with us or our management that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, the board affirmatively determined that Leroy C. Richie is an “independent director” as such term is used under the rules and regulations of the Securities and Exchange Commission.
In February 2011, we granted options to purchase 50,000 shares of common stock to a partner of Quarles & Brady, LP, our outside legal counsel. Such options are exercisable at $5.25 per share until February 9, 2021. In June 2009 it also issued such person options to exercisable to purchase 30,000 shares of common stock at a price of $0.78 per share for a term of ten years.
ITEM 8.
|
LEGAL PROCEEDINGS
|
The Company is currently involved in the following material litigation:
Exterran Energy Solutions, L.P. f/k/a Hanover Compression Limited Partnership, filed an action in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach of contract for failure to pay amounts due.
LDH Gas Development, L.P. filed an action in the District Court of Harris County, Texas, number 201030709, on May 14, 2010 against Infinity Oil and Gas of Texas, Inc. In May 2005 LDH Gas Development, L.P. entered into a Gas Purchase Agreement with Infinity Oil and Gas of Texas, Inc. In the agreement, LDH agreed to purchase specified quantities of gas from leasehold interests held by Infinity that are located close to LDH’s Gathering System, and is claiming breach of gas purchase agreement for failure to meet minimum quantities of gas.
ITEM 9.
|
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
Principal Market and Price Range of Common Stock
Infinity’s common stock trades on the Pink Sheets under the symbol “IFNY.PK.” The following table sets forth the high and low closing bid prices for Infinity’s common stock as reported by the Pink Sheets. The closing price of the common stock on March 31, 2011 was $2.85 per share. The quotations reflect interdealer bid prices without retail markup, markdown or commission and may not represent actual transactions.
Year Ended December 31, 2010
|
|
High
|
|
|
Low
|
|
1st Quarter
|
|
$
|
2.99
|
|
|
$
|
1.85
|
|
2nd Quarter
|
|
|
2.25
|
|
|
|
1.00
|
|
3rd Quarter
|
|
|
1.63
|
|
|
|
0.70
|
|
4th Quarter
|
|
|
1.45
|
|
|
|
0.75
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
High
|
|
|
Low
|
|
1st Quarter
|
|
$
|
0.54
|
|
|
$
|
0.14
|
|
2nd Quarter
|
|
|
0.89
|
|
|
|
0.25
|
|
3rd Quarter
|
|
|
0.84
|
|
|
|
0.51
|
|
4th Quarter
|
|
|
3.30
|
|
|
|
0.50
|
|
Approximate Number of Holders of Common Stock
At December 31 2010, there were approximately 400 stockholders of record of Infinity’s $0.0001 par value common stock and an estimated 400 beneficial holders whose common stock is held in street name by brokerage houses.
Dividends
Holders of common stock are entitled to receive such dividends as may be declared by Infinity’s Board of Directors. Infinity has not declared nor paid and does not anticipate declaring or paying any dividends on its common stock in the near future. Any future determination as to the declaration and payment of dividends will be at the discretion of Infinity’s board of directors and will depend on then-existing conditions, including Infinity’s financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the board deems relevant. Pursuant to the terms of its Credit Facility, Infinity is prohibited from paying dividends.
Securities Authorized for Issuance under Equity Compensation Plans
In May 2006, the Infinity’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of the Infinity’s common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Infinity’s Board of Directors and generally expire ten years after the date of grant. Infinity also has other equity incentive plans with terms similar to the 2006 Plan. As of December 31, 2010, 148,463 shares were available for future grants under all plans.
The following table sets forth certain information regarding the stock option plans adopted by Infinity as of December 31, 2010:
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average exercise
price of outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
Equity compensation plans approved by stockholders
|
|
|
903,500
|
|
|
$
|
2.92
|
|
|
|
146,681
|
|
Equity compensation plans not approved by stockholders
|
|
|
500,000
|
|
|
|
5.25
|
|
|
|
100,000
|
|
Total
|
|
|
1,403,500
|
|
|
$
|
3.75
|
|
|
|
246,681
|
|
ITEM 10.
|
RECENT SALES OF UNREGISTERED SECURITIES
|
Infinity had no sales of unregistered securities in the past three years.
ITEM 11.
|
DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED
|
Common Stock
.
General
. Infinity is authorized to issue 75,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001.
Voting Rights
.
Holders of common stock are entitled to one vote per share on each matter to be decided by the stockholders, subject to the rights of holders of any series of preferred stock that may be outstanding from time to time. Pursuant to the Infinity’s certificate of incorporation, there are no cumulative voting rights in the election of directors. The affirmative vote of 66 2/3% of the outstanding shares of the Infinity’s common stock are required to amend the articles of the Infinity’s certificate of incorporation pertaining to directors, voting requirements, liability of officer and directors and indemnification.
Divided Rights and Limitations
.
Holders of common stock will be entitled to receive ratably any dividends or distributions that the board of directors may declare from time to time out of funds legally available for this purpose. Dividends and other distributions on common stock are also subject to the rights of holders of any series of preferred stock that may be outstanding from time to time and the Infinity’s ability to declare dividends may be limited by restrictions in the Infinity’s financing arrangements.
Liquidation Rights
.
In the event of liquidation, dissolution or winding up of the Infinity’s affairs, after payment or provision for payment of all of the debts and obligations and any preferential distribution to holders of shares of preferred stock, if any, the holders of the common stock will be entitled to share ratably in the remaining assets available for distribution.
Miscellaneous
.
All of the Infinity’s outstanding shares of common stock are validly issued, fully paid and nonassesable. The holders of common stock have no preemptive, subscription, redemption or conversion rights.
ITEM 12.
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS
|
The General Corporation Law of the State of Delaware, under which the Company is organized, permits the inclusion in the certificate of incorporation of a corporation of a provision limiting or eliminating the potential monetary liability of directors to a corporation or its stockholders by reason of their conduct as directors. The provision would not permit any limitation on, or the elimination of, liability of a director for disloyalty to his or her corporation or its stockholders, failing to act in good faith, engaging in intentional misconduct or a knowing violation of the law, obtaining an improper personal benefit or paying a dividend or approving a stock repurchase that was illegal under Delaware law. Accordingly, the provisions limiting or eliminating the potential monetary liability of directors permitted by Delaware law apply only to the “duty of care” of directors, i.e., to unintentional errors in their deliberations or judgments and not to any form of “bad faith” conduct.
The certificate of incorporation of the Company contains a provision which eliminates the personal monetary liability of directors to the extent allowed under Delaware law. Accordingly, a stockholder is able to prosecute an action against a director for monetary damages only if he or she can show a breach of the duty of loyalty, a failure to act in good faith, intentional misconduct, a knowing violation of law, an improper personal benefit or an illegal dividend or stock repurchase, as referred to in the amendment, and not “negligence” or “gross negligence” in satisfying his or her duty of care. Delaware law applies only to claims against a director arising out of his or her role as a director and not, if he or she is also an officer, his or her role as an officer or in any other capacity or to his or her responsibilities under any other law, such as the federal securities laws.
In addition, the Company’s certificate of incorporation and bylaws provide that the Company will indemnify our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise. The Company has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
ITEM 13.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements are listed in Item 15 of this Registration Statement on Form 10 and are incorporated by reference in this Item 13.
ITEM 14.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
ITEM 15.
|
FINANCIAL STATEMENTS AND EXHIBITS
|
(a) Documents filed as part of this Registration Statement on Form 10.
|
(1)
|
Our consolidated financial statements are listed on the “Index to Consolidated Financial Statements” on Page F-1 to this report.
|
|
(2)
|
Financial Statement Schedules (omitted because not applicable or not required. Information is disclosed in the notes to the financial statements).
|
|
(3)
|
The following exhibits are filed with this report on Form.
|
EXHIBITS
Exhibit
Number
|
|
Description of Exhibits
|
2.1
|
|
Agreement and Plan of Merger between Infinity Energy Resources, Inc. and Infinity, Inc.
|
3.1
|
|
Certificate of Incorporation
|
3.2
|
|
Bylaws
|
10.1
|
|
2004 Stock Option Plan
|
10.2
|
|
2005 Equity Incentive Plan
|
10.3
|
|
2006 Equity Incentive Plan
|
10.4
|
|
Form of Incentive Stock Option for 2006 Equity Incentive Plan
|
10.5
|
|
Form of Nonqualified Stock Option for 2006 Equity Incentive Plan
|
10.6
|
|
Loan Agreement between Infinity Energy Resources, Inc., and Infinity Oil and Gas of Texas, Inc. and Infinity Oil & Gas of Wyoming, Inc. and Amegy Bank N.A., dated effective as of January 9, 2007
|
10.7
|
|
Revolving Promissory Note between Infinity Energy Resources, Inc. and Amegy Bank N.A., dated January 10, 2007
|
10.8
|
|
Nicaraguan Concession - Perlas Prospect
|
10.9
|
|
Nicaraguan Concession - Tyra Prospect
|
10.10
|
|
Forbearance Agreement with Amegy Bank N.A., dated August 31, 2007
|
10.11
|
|
Second Forbearance Agreement with Amegy Bank N.A., dated March 26, 2008
|
10.12
|
|
Third Forbearance Agreement with Amegy Bank N.A., dated October 16, 2008
|
10.13
|
|
First Amendment to Revolving Promissory Note - Amegy Bank, N.A., dated October 16, 2008
|
10.14
|
|
Fourth Forbearance Agreement with Amegy Bank N.A., dated December 4, 2009
|
10.15
|
|
Fifth Forbearance Agreement with Amegy Bank N.A., dated February 16, 2011
|
10.16
|
|
Guarantee of Obligation with Amegy Bank N.A., dated February 16, 2011
|
10.17
|
|
Omnibus Amendment with Amegy Bank N.A., dated February 16, 2011
|
10.18
|
|
Third Amendment to Revolving Promissory Note with Amegy Bank N.A., dated January 31, 2010
|
10.19
|
|
Forbearance Period Advance Promissory Note with Amegy Bank N.A., dated February 16, 2011
|
10.20
|
|
Registration Rights with Amegy Bank N.A., dated February 16, 2011
|
10.21
|
|
Securities Purchase Agreement with Amegy Bank N.A., dated February 16, 2011
|
10.22
|
|
Warrant to Purchase Common Stock with Amegy Bank N.A., dated February 16, 2011
|
10.23
|
|
Subordinate Secured Promissory Note Off-Shore Finance, LLC, dated March 23, 2009
|
10.24
|
|
Securities Purchase Agreement Off-Shore Finance, LLC, dated March 23, 2009
|
10.25
|
|
Revenue Sharing Agreement with Off-Shore Finance, LLC, dated March 23, 2009
|
10.26
|
|
Revenue Sharing Agreement with Officers and Directors, dated June 6, 2009
|
10.27
|
|
Revenue Sharing Agreement with Jeff Roberts, dated September 8, 2009
|
10.28
|
|
Revenue Sharing Agreement with Thompson Knight Global Energy, dated September 8, 2009
|
21
|
|
Subsidiaries of the Registrant
|
23.1
|
|
Consent of Ehrhardt Keefe Steiner & Hottman PC
|
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, Infinity has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
|
INFINITY ENERGY RESOURCES, INC.
|
|
|
|
By: /s/ Stanton E. Ross
|
|
|
Stanton E. Ross
|
|
|
Chief Executive Officer
|
|
Dated: May 12, 2011
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated Financial Statements:
|
|
Consolidated Balance Sheets
|
F-3
|
Consolidated Statements of Operations
|
F-4
|
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
|
F-5
|
Consolidated Statements of Cash Flows
|
F-6
|
Notes to Consolidated Financial Statements
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Infinity Energy Resources, Inc. and Subsidiaries
Overland Park, Kansas
We have audited the accompanying consolidated balance sheets of Infinity Energy Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two year periods then ended. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over consolidated financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 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 Infinity Energy Resources, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
May 9, 2011
Denver, Colorado
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
52,194
|
|
Restricted cash
|
|
|
-
|
|
|
|
158,737
|
|
Accounts receivable
|
|
|
2,992
|
|
|
|
2,992
|
|
Prepaid expenses and other
|
|
|
4,333
|
|
|
|
-
|
|
Total current assets
|
|
|
7,325
|
|
|
|
213,923
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties, using full cost accounting, net of accumulated depreciation, depletion, amortization and ceiling write-down
|
|
|
|
|
|
|
|
|
Proved
|
|
|
-
|
|
|
|
-
|
|
Unproved
|
|
|
3,112,733
|
|
|
|
2,167,653
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,120,058
|
|
|
$
|
2,381,576
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Checks written in excess of cash
|
|
$
|
166,419
|
|
|
$
|
-
|
|
Current portion of debt
|
|
|
10,242,956
|
|
|
|
10,010,494
|
|
Note payable to vendor
|
|
|
278,022
|
|
|
|
278,022
|
|
Accounts payable
|
|
|
3,423,220
|
|
|
|
2,870,214
|
|
Accrued liabilities
|
|
|
4,469,338
|
|
|
|
1,994,373
|
|
Accrued interest and fees
|
|
|
5,750,103
|
|
|
|
3,867,829
|
|
Current portion of asset retirement obligations
|
|
|
432,027
|
|
|
|
432,027
|
|
Total current liabilities
|
|
|
24,762,085
|
|
|
|
19,452,959
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Asset retirement obligations, less current portion
|
|
|
746,411
|
|
|
|
650,517
|
|
Subordinated note payable to a related party, net of discount of $350,483 and $533,930 for 2010 and 2009, respectively
|
|
|
918,958
|
|
|
|
613,575
|
|
Accrued interest on subordinated note
|
|
|
155,613
|
|
|
|
79,113
|
|
Derivative liabilities
|
|
|
-
|
|
|
|
1,335,065
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
26,583,067
|
|
|
|
22,131,229
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, par value $.0001, authorized 10,000,000 shares, issued and outstanding 0 (12/31/10) and 0 (12/31/09) shares
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $.0001, authorized 75,000,000 shares, issued and outstanding 18,668,575 (12/31/10) and 18,419,375 (12/31/09) shares
|
|
|
1,866
|
|
|
|
1,841
|
|
Additional paid-in capital
|
|
|
80,107,816
|
|
|
|
80,043,049
|
|
Accumulated deficit
|
|
|
(103,572,691
|
)
|
|
|
(99,794,543
|
)
|
Total stockholders’ equity (deficit)
|
|
|
(23,463,009
|
)
|
|
|
(19,749,653
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit)
|
|
$
|
3,120,058
|
|
|
$
|
2,381,576
|
|
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
|
|
For the Years Ended
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
-
|
|
|
$
|
520,753
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Oil and gas production expenses
|
|
|
-
|
|
|
|
1,158,254
|
|
Oil and gas production taxes
|
|
|
-
|
|
|
|
24,151
|
|
Other operating expenses
|
|
|
2,453,431
|
|
|
|
929,208
|
|
General and administrative expenses
|
|
|
639,817
|
|
|
|
2,186,359
|
|
Depreciation, depletion, amortization and accretion
|
|
|
95,894
|
|
|
|
87,976
|
|
Total operating expenses
|
|
|
3,189,142
|
|
|
|
4,385,948
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,189,142
|
)
|
|
|
(3,865,195
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense, net of capitalization
|
|
|
(1,939,428
|
)
|
|
|
(1,831,108
|
)
|
Change in derivative fair value
|
|
|
1,335,065
|
|
|
|
(1,317,526
|
)
|
Other
|
|
|
15,357
|
|
|
|
52,640
|
|
Total other income (expense)
|
|
|
(589,006
|
)
|
|
|
(3,095,994
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,778,148
|
)
|
|
$
|
(6,961,189
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(.20
|
)
|
|
$
|
(.38
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic and diluted
|
|
|
18,668,575
|
|
|
|
18,419,375
|
|
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2010 and 2009
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
18,419,375
|
|
|
$
|
1,841
|
|
|
$
|
79,924,558
|
|
|
$
|
(92,833,354
|
)
|
|
$
|
(12,906,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
118,491
|
|
|
|
-
|
|
|
|
118,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,961,189
|
)
|
|
|
(6,961,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
18,419,375
|
|
|
|
1,841
|
|
|
|
80,043,049
|
|
|
|
(99,794,543
|
)
|
|
|
(19,749,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
249,200
|
|
|
|
25
|
|
|
|
64,767
|
|
|
|
-
|
|
|
|
64,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,778,148
|
)
|
|
|
(3,778,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
18,668,575
|
|
|
$
|
1,866
|
|
|
$
|
80,107,816
|
|
|
$
|
(103,572,691
|
)
|
|
$
|
(23,463,009
|
)
|
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,778,148
|
)
|
|
$
|
(6,961,189
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
95,894
|
|
|
|
87,976
|
|
Accretion of debt discount
|
|
|
183,447
|
|
|
|
103,690
|
|
Fair value of overriding royalty interests granted, net of capitalization
|
|
|
-
|
|
|
|
669,501
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
118,491
|
|
Change in fair value of derivative liability
|
|
|
(1,335,065
|
)
|
|
|
1,317,526
|
|
Write-off of insurance proceeds receivable
|
|
|
-
|
|
|
|
159,217
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in accounts receivable
|
|
|
-
|
|
|
|
162,042
|
|
(Increase) decrease in prepaid expenses and other
|
|
|
(4,333
|
)
|
|
|
7,124
|
|
Increase in accounts payable and accrued liabilities (including accrued interest)
|
|
|
4,617,267
|
|
|
|
3,671,712
|
|
Net cash used in operating activities
|
|
|
(220,938
|
)
|
|
|
(663,910
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Investment in oil and gas properties
|
|
|
(510,810
|
)
|
|
|
(680,738
|
)
|
Change in restricted cash
|
|
|
158,737
|
|
|
|
137,542
|
|
Net cash used in investing activities
|
|
|
(352,073
|
)
|
|
|
(543,196
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from debt and subordinated note payable
|
|
|
354,398
|
|
|
|
1,247,505
|
|
Increase in checks written in excess of cash
|
|
|
166,419
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
520,817
|
|
|
|
1,247,505
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(52,194
|
)
|
|
|
40,399
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
52,194
|
|
|
|
11,795
|
|
Ending
|
|
$
|
-
|
|
|
$
|
52,194
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental noncash disclosures
|
|
|
|
|
|
|
|
|
ORRI granted to subordinated note holders
|
|
$
|
-
|
|
|
$
|
637,620
|
|
Noncash capitalized overhead and interest (accrued)
|
|
|
434,270
|
|
|
|
152,952
|
|
Noncash exercise of options
|
|
|
64,792
|
|
|
|
-
|
|
Conversion of accounts payable to vendor note payable
|
|
|
-
|
|
|
|
278,022
|
|
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Note 1 — Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Nature of Operations
Infinity Energy Resources, Inc. and its subsidiaries (collectively, “Infinity” or the “Company”) are engaged in the acquisition, exploration and development of natural gas and crude oil in the United States and the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.
Basis of Presentation
The consolidated financial statements include the accounts of Infinity Energy Resources, Inc. and its wholly-owned subsidiaries, which include Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”). All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan concessions. Infinity is conducting an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. Infinity is seeking offers from other industry operators and other third parties for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction described below and Forbearance advances from Amegy Bank, N.A. (“Amegy”) were used to fund these expenses. No assurance can be given that these funds will be sufficient to cover the exploration and development cost until a partner is found.
On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”). The transaction resulted in the sale of approximately 62% of the Company’s proved reserve quantities and 73% of the standardized measure of discounted future net cash flow at that time. In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (the “Farmout Agreement”) for certain oil and gas leases owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provides that Forest would operate and earn a 75% interest in the spacing unit for each well in a 10-well drilling program. If Forest had completed the drilling program, Forest would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. Infinity-Texas retains 100% of its interest in all previously completed wells and 100 acres surrounding each such completed well. Forest did not complete the terms of the Farmout and Acquisition Agreement and did not earn any interest in the properties.
For the year end December 31, 2008 the remaining value of Infinity-Texas and Infinity-Wyoming, representing the entire US full cost pool, were written down to zero as they were deemed to be uneconomical to operate. The Company focused solely on the development of the Nicaraguan concessions.
Going Concern
As reflected in the accompanying Consolidated Statements of Operations, the Company has had a history of losses. In addition, the Company has a significant working capital deficit and is currently experiencing substantial liquidity issues. As also discussed in Note 2, the Company was operating under the Fourth Forbearance Agreement with Amegy under the Revolving Credit Facility as of December 31, 2010.
In 2011, the Company entered into the Fifth Forbearance Agreement under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during 2007, 2008, 2009 and 2010. Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Revolving Credit Facility, the revolving note and the related loan documents and to temporarily waive the covered events of default through December 31, 2011. The Company is required to repay the borrowing base deficiency by December 31, 2011 through the sale of assets, refinancing of the loan or some other means of raising capital. The Company and Amegy continue to operate under the Fifth Forbearance Agreement.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
The Company has classified all $10,242,956 outstanding under the Revolving Credit Facility at December 31, 2010 as current liabilities in the accompanying Consolidated Balance Sheets.
No assurance can be given that funds advanced under the Fifth Forbearance agreement will be sufficient to cover the exploration cost until a partner is found.
We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore Nicaragua. We issued letters of credit totaling $851,550 for this initial work on the leases. We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study. We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.
Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Management Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to the consolidated financial statements include the estimated carrying value of unproved properties, the estimated cost and timing related to asset retirement obligations, the estimated fair value of derivative liabilities, stock based awards and overriding royalty interests, and the realization of deferred tax assets.
Oil and Gas Properties
The Company follows the full cost method of accounting for exploration and development activities. Accordingly, all costs incurred in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and seismic costs) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Overhead related to exploration and development activities is also capitalized. In 2009 overhead costs of $214,000 was capitalized and $228,000 in 2010. Costs associated with production and general corporate activities are expensed in the period incurred.
Depletion of proved oil and gas properties is computed on the units-of-production method, with oil and gas being converted to a common unit of measure based on relative energy content, whereby capitalized costs, as adjusted for estimated future development costs and estimated asset retirement costs, are amortized over the total estimated proved reserve quantities. The costs of wells in progress and unevaluated properties, including directly related seismic costs and any related capitalized interest and capitalized internal costs, are not amortized. On a quarterly basis, such costs are evaluated for inclusion in the costs to be amortized resulting from the determination of proved reserves, impairments, or reductions in value. To the extent that the evaluation indicates these properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Abandonments of unproved properties are accounted for as an adjustment to capitalized costs related to proved oil and gas properties, with no losses recognized.
Proceeds from the sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Expenditures for maintenance and repairs are charged to oil and gas production expense in the period incurred.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Pursuant to full cost accounting rules, the Company must perform a “ceiling test” each quarter. The ceiling test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using prices based on the arithmetic mean of the previous 12 months’ first-of-month prices and current costs, including the effects of derivative instruments accounted for as cash flow hedges but excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, and a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. If capitalized costs exceed the ceiling, the excess must be charged to expense and may not be reversed in future periods. As of December 31, 2010 and 2009, the Company did not have any proved oil and gas properties, and all unproved property costs relate to the Company’s Nicaragua concessions.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist of the note payable to Amegy.
The Company’s only asset is the concessions in Nicaragua and the Company expects to be active in Nicaragua for the foreseeable future. The political climate in Nicaragua could become unstable and subject to radical change over a short period of time. In the event of a significant negative change in political and economic stability in the vicinity of the Company’s Nicaragua operations, the Company may be forced to abandon or suspend their efforts.
The Company’s only revenue in 2009 was from the Infinity-Texas operations which sold its gas production to one customer.
Derivative Instruments
The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 133,
Accounting for Derivative Instruments and Hedging Activities
.) ASC 815 requires the Company to record derivative instruments at their fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized in earnings. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized in earnings.
The purpose of the hedges is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. As of December 31, 2010 and 2009, the Company had no oil and natural gas derivative arrangements outstanding.
As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company, those warrants are required to be accounted for as derivatives at estimated fair value.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. When the future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded deferred tax asset. As of December 31, 2010 and December 31, 2009, the Company had recorded a full valuation allowance for its net deferred tax asset.
Comprehensive Income (Loss)
The Company has elected to report comprehensive income (loss) in the consolidated statements of stockholders’ equity. Comprehensive income (loss) is composed of net income (loss) and all changes to stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in-capital and distributions to stockholders. For the years ended December 31, 2010 and 2009, there were no differences between net loss and comprehensive loss.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand and demand deposits with financial institutions. At times, the Company maintains deposits in financial institutions in excess of federally insured limits. Management monitors the soundness of the financial institutions and believes the Company’s risk is negligible. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Restricted cash
Restricted cash at December 31, 2009 was cash held in escrow by Amegy Bank from the sale of certain Infinity-Texas assets.
Asset Retirement Obligations
The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410 (formerly SFAS No. 143,
Accounting for Asset Retirement Obligations
.) ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required to be accreted each period to present value. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties. Capitalized costs are depleted as a component of the full cost pool using the units of production method. The following table summarizes the activity for the Company’s asset retirement obligations at December 31, 2010 and 2009:
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Asset retirement obligations at beginning of period
|
|
$
|
1,082,544
|
|
|
$
|
994,568
|
|
Accretion expense
|
|
|
95,894
|
|
|
|
87,976
|
|
Liabilities incurred
|
|
|
-
|
|
|
|
-
|
|
Liabilities settled
|
|
|
-
|
|
|
|
-
|
|
Liabilities settled through sale of assets
|
|
|
-
|
|
|
|
-
|
|
Revisions of estimates
|
|
|
-
|
|
|
|
-
|
|
Asset retirement obligations at end of period
|
|
|
1,178,438
|
|
|
|
1,082,544
|
|
Less: current portion of asset retirement obligations
|
|
|
(432,027
|
)
|
|
|
(432,027
|
)
|
Asset retirement obligations, less current portion
|
|
$
|
746,411
|
|
|
$
|
650,517
|
|
Capitalized Interest and Debt Discount Amortization
The Company capitalizes interest costs and debt discount amortization to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. Such costs are capitalized only for the period that activities are in progress to bring these projects to their intended use. Interest costs and debt discount amortization capitalized for the years ended December 31, 2010 and 2009 was $206,758 and $102,952, respectively.
Intangible Assets
The Company capitalizes amortization of loan costs to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. Amortization of loan costs is capitalized only for the period that activities are in progress to bring these projects to their intended use. Total loan cost capitalized for the years ended December 31, 2010 and 2009 was $0.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Fair Value of Financial Instruments
The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities represent the estimated fair value due to the short-term nature of the accounts.
The carrying value of the Company’s debt under its Revolving Credit Facility represents its estimated fair value due to its short-term nature, its adjustable rate of interest and associated fees and expenses.
The estimated fair value of the Company’s non-current derivative liabilities, all of which relate to warrants, is estimated using various models and assumptions related to the term of the instruments, estimated volatility of the price of the Company’s common stock and interest rates, among other items (ASC 820,
Fair Value Measurements
("ASC 820") fair value hierarchy level 2). As defined in ASC 820, fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based upon observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement), pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable and are valued using models or other valuation methodologies (level 2), and the lowest priority to unobservable inputs (level 3 measurement).
Items measured at fair value on a nonrecurring basis:
Subordinated Note Payable: The initial fair value of the Company’s Subordinated Note Payable was based on a discounted cash flow model utilizing the Company’s estimate of a market rate of interest to obtain similar financing. The Company estimated the market rate of interest through a review of other companies, financial information and disclosures with similar credit risk and operations in the oil and gas industry. As the inputs that significantly impacted this valuation were unobservable, such valuation of the initial Subordinated Note Payable and related discount is classified as a Level 3 fair value measurement.
Revenue Sharing Agreements: The Company estimated the fair value of the Revenue Sharing Arrangements issued to employees, directors, contractors and Off-Shore based on i) an evaluation of the difference between the stated interest rate of the Subordinated Note Payable and the estimated market effective rate discussed above, and ii) a historical analysis of compensation issued to employees and directors. As the inputs that significantly impacted this valuation were unobservable, such valuation of the Revenue Sharing Agreements is classified as a Level 3 fair value measurement.
Net Income (Loss) Per Share
Pursuant to FASB ASC Topic 260,
Earnings Per Share
, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.
For the year ended December 31, 2010, 903,500 options and 880,000 warrants to purchase common stock were excluded from the calculation of diluted net loss per share because they were anti-dilutive. For the year ended December 31, 2009, 1,152,700 options and 5,829,726 warrants to purchase common stock were excluded from the calculation of diluted net loss per share because they were anti-dilutive.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Foreign Currency
The United States dollar is the functional currency for the Company’s operations. Although the Company’s acquisition and exploration activities have been conducted in Nicaragua, a significant portion of the payments incurred for exploration activities are denominated in United States dollars. The Company expects that a significant portion of its required and discretionary expenditures in the foreseeable future will also be denominated in United States dollars. Any foreign currency gains and losses are included in the consolidated results of operations in the period in which they occur. The Company does not have any cash accounts denominated in foreign currencies.
Recent Accounting Pronouncements
In December 2009, the Company adopted revised oil and gas reserve estimation and disclosure requirements. The primary impact of the new disclosures is to conform the definition of proved reserves with the SEC Modernization of Oil and Gas Reporting rules, which were issued by the SEC at the end of 2008. The accounting standards update revised the definition of proved oil and gas reserves to require that the average, first-day-of-the-month price during the 12-month period before the end of the year rather than the year-end price, must be used when estimating whether reserve quantities are economical to produce. This same 12-month average price is also used in calculating the aggregate amount of (and changes in) future cash inflows related to the standardized measure of discounted future net cash flows. The rules also allow for the use of reliable technology to estimate proved oil and gas reserves if those technologies have been demonstrated to result in reliable conclusions about reserve volumes. The unaudited supplemental information on oil and gas exploration and production activities for 2010 and 2009 has been presented in accordance with the new reserve estimation and disclosure rules, which may not be applied retrospectively. The adoption of the new rule did not have a significant impact on the Company as we did not have any proved reserves at December 31, 2009 and 2010. Disclosures by geographic area include the United States and Central America, which consists of our interests in Nicaragua.
Note 2 — Debt
Debt consists of the following:
|
|
As of
|
|
|
|
December 31,
2010
|
|
|
December 31,
2009
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
10,242,956
|
|
|
$
|
10,010,494
|
|
Subordinated Note Payable, net of discount
|
|
|
918,958
|
|
|
|
613,575
|
|
Less current portion
|
|
|
(10,242,956
|
)
|
|
|
(10,010,494
|
)
|
Long-term debt
|
|
$
|
918,958
|
|
|
$
|
613,575
|
|
Revolving Credit Facility
On January 10, 2007, the Company entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between Infinity, Infinity-Texas and Infinity-Wyoming (each wholly-owned subsidiaries of the Company and together, the “Guarantors”) and Amegy, Infinity could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000. Such amount was reduced to $10,500,000 effective as of August 10, 2007, and then reduced to $3,806,000 effective as of March 26, 2008 and finally reduced to $2,900,000 on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest 5.5% at December 31, 2010 and 2009. Interest payments were due on a monthly basis, and principal payments may be required to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under the Revolving Credit Facility are collateralized by substantially all of the assets of Infinity and its subsidiaries and are guaranteed by Infinity’s subsidiaries. The Revolving Credit Facility contains certain standard continuing covenants and agreements and requires the Company to maintain certain financial ratios and thresholds.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
On August 31, 2007, the Company entered into a Forbearance Agreement, effective as of August 10, 2007, under the Loan Agreement among the Company, the Guarantors, and Amegy. The Forbearance Agreement related to the breach by the Company and Guarantors of: (i) the “Interest Coverage Ratio” set forth in Section 8(a) of the Loan Agreement; (ii) the “Funded Debt to EBITDA Ratio” set forth in Section 8(d) of the Loan Agreement and (iii) the requirement to deliver certain lien releases under Section 9 of the Loan Agreement. The Company entered into the Second Forbearance Agreement, under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during certain periods of 2007. The Company entered into the Third Forbearance Agreement, effective October 16, 2008 under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during certain periods of 2008. Under this agreement, the borrowing base remained at $3,806,000, with a resulting borrowing base deficiency of $6,104,000. The borrowing base was not subject to redetermination by Amegy during the Forbearance Period. Under this agreement, Amegy agreed to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of June 1, 2008 and continuing through May 31, 2009. In connection with the Third Forbearance Agreement, the term of the Loan Agreement and related note was extended until May 31, 2009.
Effective as of December 4, 2009 the Company entered into a Fourth Forbearance Agreement under the Loan Agreement. This agreement relates to the breach by the Company and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this agreement, the borrowing base was reduced to $2,900,000 with a resulting borrowing base deficiency of $8,003,468. The borrowing base was not subject to redetermination by Amegy during the Forbearance Period (as defined below). The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital. Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of June 1, 2008 and continuing through January 31, 2010, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement. In connection with the Fourth Forbearance Agreement, the term of the Loan Agreement and related note was extended until January 31, 2010.
During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place. Certain officers of the Company were required to exercise stock options for 550,000 shares, with the $209,000 of proceeds allowed to be used by the Company for general and administrative expenses without restriction. These options were exercised on October 21, 2008. In addition, Amegy agreed, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions (as defined in Note 7).
Effective as of February 16, 2011 the Company entered into a Fifth Forbearance Agreement under the Loan Agreement. This agreement relates to the breach by the Company and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this agreement, the borrowing base was not reduced. The borrowing base shall not be subject to redetermination by Amegy during the Forbearance Period (as defined below). The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital. Under this Agreement, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of January 31, 2010 and continuing through December 31, 2011, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement. In connection with the Fifth Forbearance Agreement, the term of the Loan Agreement and related note was extended until December 31, 2011.
During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place. In addition, Amegy agrees, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions (as defined in Note 7).
Additional Forbearance period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of the Company CEO for up to $500,000 of the advances. At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO. No additional compensation was granted for the personal guarantee. As of December 31, 2010 advances of $454,053 had been made with remaining advances of $595,947 available for 2011. In 2011, Infinity granted Amegy a warrant to purchase 931,561 shares of the Company’s common stock at an exercise price of $5.01 per share during a ten-year period following the issuance of the warrant.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
The Fourth Forbearance Agreement allowed the Company to award up to an additional 4% revenue sharing agreement for services of outside consultants, officers and directors.
The Company intends to market and sell all remaining assets of Infinity-Wyoming and Infinity-Texas and to apply the net sales proceeds to payment of the revolving note.
All cash receipts of the Company are deposited in a lockbox held by Amegy as restricted cash. All cash disbursements must be approved by Amegy.
The Company also agreed to pay Amegy a monthly forbearance/waiver fee of 1.0% of the average daily outstanding principal balance of the revolving note until January 31, 2010. If any cash equity contributions to the Company are used to pay monthly interest due under the agreement, Amegy agrees to credit the Company 300% of the amount of the equity contributions.
Should the Company fail to comply with the terms of the Fifth Forbearance Agreement, Amegy would be entitled to impose a default interest rate (prime plus 6.5%) or to declare an event of default, at which point the entire unpaid principal balance of the loan, together with all accrued and unpaid interest and other amounts then owing to Amegy would become immediately due and payable. Amegy or other creditors may take action to enforce their rights with respect to outstanding obligations, and Infinity may be forced to liquidate. Because substantially all of the Company’s assets are collateral under the Revolving Credit Facility, if Amegy declares an event of default, it would be entitled to foreclose on and take possession of the Company’s assets.
Infinity has accrued interest, forbearance and additional fees due in connection with the Forbearance Agreements of $5,488,416 and $3,797,112 as of December 31, 2010 and 2009, respectively.
Subordinated Note Payable
Effective March 5, 2009, the Company entered into two contracts relating to the Company’s concessions in the Tyra and Perlas Blocks, offshore Nicaragua, (the “Concessions”) as awarded by the Republic of Nicaragua in 2003. In addition, the Company has entered into a subordinated loan with Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”), in an aggregate amount of $1,275,000 which is released as the Company needs funds for the Concessions. Amegy allowed the subordinated loans to be secured by the assets of the Company, subject to Amegy’s security interest. The note bears interest at 6% and is due March 23, 2012.
Further, Amegy allowed the Company to grant a one percent revenue sharing interest with respect to the Concessions to Off-Shore to obtain the subordinated loan.
Debt Discount
In connection with the issuance of the Subordinated Note Payable discussed above, the Company recorded a debt discount, through a reduction to unproved properties, of $637,620 which was being amortized over the maturity of the Note utilizing the effective interest method. The Company capitalizes amortization of debt discount to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. Amortization of debt discount was capitalized only for the period that activities are in progress to bring these projects to their intended use. Total debt discount amortized and included in interest expense during the years ended December 31, 2010 and 2009 was $36,678 (net of $146,758 capitalized to oil and gas properties) and $20,738 (net of $82,952 capitalized to oil and gas properties).
Notes Payable to Vendors
The Company has notes to certain vendors of $278,022 and has agreed to pay interest on certain payables aggregating $410,500 for both December 31, 2010 and 2009 bearing interest at 8% to 18%. The total amount of interest accrued relating to these vendor notes for the years ending December 31, 2010 and 2009 was $89,129 and $25,292, respectively. The notes are included in accounts payable and the interest is included in accrued interest.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Note 3 — Stock Options
Effective January 1, 2006, the Company adopted ASC 718,
Stock Compensation
(formerly SFAS No. 123(R),
Share-Based Payment)
, which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements that are not included in costs applicable to sales (“excess tax benefits”) to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted or modified subsequent to December 31, 2005, estimated in accordance with the provisions of ASC 718.
Options Under Employee Option Plans
In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of the Company’s common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company also has other equity incentive plans with terms similar to the 2006 Plan. As of December 31, 2010, 148,463 shares were available for future grants under all plans.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities used in the valuation model are based on the expected volatility that would be used by an independent market participant in the valuation of certain of the Company’s warrants. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data and have varied during the years ended December, 2010 and 2009. The actual forfeiture rate could differ from these estimates. The following table summarizes the inputs used in the calculation of fair value of options granted during the year ended December, 2009 (none in 2010):
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
Expected term (in years)
|
|
4.5 – 5.0
|
|
Expected stock price volatility
|
|
83.5 - 85.9%
|
|
Expected dividends
|
|
-
|
|
Risk-free rate
|
|
1.65 - 2.75%
|
|
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
The following table summarizes stock option activity as of and for the years ended December 31, 2010 and 2009:
|
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
Intrinsic
|
|
|
|
Number of Options
|
|
|
Price Per Share
|
|
Contractual Term
|
|
Value
|
|
Outstanding at January 1, 2009
|
|
|
870,000
|
|
|
$
|
5.29
|
|
|
|
|
|
Granted
|
|
|
622,700
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(340,000
|
)
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2009
|
|
|
1,152,700
|
|
|
$
|
2.34
|
|
6.9 years
|
|
$
|
576,350
|
|
Exercised in July 2010
|
|
|
(249,200
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2010
|
|
|
903,500
|
|
|
$
|
2.92
|
|
5.8 years
|
|
$
|
-
|
|
The weighted-average grant-date fair value of options granted during the year ended December 31, 2009 was $0.19. During the year ended December 31, 2009, the Company recognized compensation expense of $118,491 (none in 2010). The Company did not recognize a tax benefit related to the stock-based compensation recognized during the year ended December 31, 2009, as the Company has a fully reserved deferred tax asset. There was no unrecognized compensation cost as of December 31, 2010 or 2009 related to unvested stock and stock options.
In July 2010 $64,792 of stock options were exercised by the CEO in exchange for part of his unpaid accrued salary.
Note 4 — Derivative Instruments
Commodity Derivatives
As of December 31, 2010 and 2009, the Company had no oil and natural gas derivative arrangements outstanding.
Other Derivatives
As discussed below, during 2005 and 2006, the Company issued Notes and Warrants. Under the provisions of ASC 815 and ASC 815-40 the Company bifurcated the conversion option associated with the Notes and accounted for it and the Warrants as derivatives. During the years ended December 31, 2010 and 2009, the Company recognized other income (expense) of $1,335,065 and $(1,317,526), respectively, related to the change in the fair value of the Warrants.
The Company had a senior secured notes facility (the “Senior Secured Notes Facility”) with a group of lenders (collectively, the “Buyers”), under which the Company sold, and the Buyers purchased, on four separate occasions, an aggregate of $53 million principal amount of senior secured notes (the “Notes”) and five-year warrants to purchase an aggregate 5,829,726 shares of the Company’s common stock at an exercise price of $5.00 per share (the “Warrants”). The Notes were repaid in December 2006. The warrants expire as follows:
January 13, 2010
|
|
|
3,299,470
|
|
September 7, 2010
|
|
|
1,045,110
|
|
December 9, 2010
|
|
|
605,146
|
|
March 17, 2011
|
|
|
880,000
|
|
All of the above warrants expired unexercised on their respective expiration dates.
Note 5 — Supplemental Oil and Gas Information
Estimated Proved Oil and Gas Reserves (Unaudited)
As of December 31, 2010, 2009, and 2008, the Company had no proved reserves. As such, there are no estimates of proved reserves to disclose, nor standardized measure of discounted future net cash flows relating to proved reserves.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Costs Incurred in Oil and Gas Activities
Costs incurred in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Property acquisition costs
|
|
|
|
|
|
|
Proved
|
|
$
|
|
|
|
$
|
|
|
Unproved
|
|
|
510,811
|
|
|
|
680,738
|
|
Total property acquisition costs
|
|
|
510,811
|
|
|
|
680,738
|
|
Development costs
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
|
|
|
|
-
|
|
Total costs
|
|
$
|
510,811
|
|
|
$
|
680,738
|
|
Aggregate capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion, amortization and ceiling write-downs are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Proved oil and gas properties
|
|
$
|
-
|
|
|
$
|
-
|
|
Unproved oil and gas properties
|
|
|
3,112,733
|
|
|
|
2,167,653
|
|
Total
|
|
|
3,112,733
|
|
|
|
2,167,653
|
|
Less accumulated depreciation, depletion, amortization and ceiling write-downs
|
|
|
-
|
|
|
|
-
|
|
Net capitalized costs
|
|
$
|
3,112,733
|
|
|
$
|
2,167,653
|
|
Costs Not Being Amortized
Oil and gas property costs not being amortized at December 31, 2010, by year that the costs were incurred are as follows:
Year Ended December 31,
|
|
|
|
2010
|
|
$
|
945,080
|
|
2009
|
|
|
997,546
|
|
Prior
|
|
|
1,170,107
|
|
Total costs not being amortized
|
|
$
|
3,112,733
|
|
The above unevaluated costs relate to the Company’s approximate 1,400,000 acre concessions offshore Nicaragua.
The Company anticipates that these unproved costs in the table above will be reclassified to proved costs within the next five years.
In January 2008, the Company completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest. The transaction resulted in the sale of proved reserves of 1,405,209 Mcf of natural gas (all of which was proved developed) and 569,591 barrels of crude oil of the Company’s proved reserve quantities.
For the year ended December 31, 2008, the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such the reserves were written down to zero as the Company focused solely on the development of the Nicaraguan concessions.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Note 6 — Income Taxes
The provision for income taxes consists of the following:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Current income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred income tax benefit
|
|
|
(1,892
|
)
|
|
|
(2,066
|
)
|
Change in valuation allowance
|
|
|
1,892
|
|
|
|
2,066
|
|
Total income tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
The effective income tax rate varies from the statutory federal income tax rate as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income tax rate
|
|
|
4.1
|
|
|
|
2.4
|
|
Other
|
|
|
12.0
|
|
|
|
(6.7
|
)
|
Change in valuation allowance
|
|
|
(50.1
|
)
|
|
|
(29.7
|
)
|
Effective tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation allowance balances are as follows:
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Deferred tax assets
|
|
|
|
|
|
|
Accruals and other
|
|
$
|
1,075
|
|
|
$
|
959
|
|
Property and equipment
|
|
|
3,049
|
|
|
|
3,210
|
|
Alternative minimum tax credit carry-forward
|
|
|
405
|
|
|
|
405
|
|
Statutory depletion carry-forward
|
|
|
1,599
|
|
|
|
1,599
|
|
Net operating loss carry-forward
|
|
|
29,231
|
|
|
|
27,295
|
|
Gross deferred tax assets
|
|
|
35,359
|
|
|
|
33,468
|
|
Less valuation allowance
|
|
|
(35,359
|
)
|
|
|
(33,468
|
)
|
Deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
For income tax purposes, the Company has net operating loss carry-forwards of approximately $79,000,000, which expire from 2025 through 2027. The Company has provided for a full valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred tax asset.
During the years ended December 31, 2010 and 2009, the Company realized certain tax benefits related to stock option plans in the amounts of $0 and $45,000, respectively. Such benefits were recorded as a deferred tax asset as they increased the Company’s net operating losses and an increase in additional paid in capital. The recognition of the valuation allowance offset the impact of this benefit.
The Internal Revenue Code contains provisions under Section 382 which limit a company 's ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Current estimates prepared by the Company indicate that no ownership changes have occurred, and are currently not subject to an annual limitation but may be further limited by additional ownership changes which may occur in the future
As discussed in Note 1, "Summary of Significant Accounting Policies," tax positions are evaluated in a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
The Company’s federal and state income tax returns are closed for examination purposes by relevant statute for 2006 and all prior tax years.
Note 7 — Commitments and Contingencies
The Company has no insurance coverage on its U.S domestic oil and gas properties. The Company is currently not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties. The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits.
Nicaragua Concessions
The significant terms and work commitments associated with the Company’s Nicaraguan concessions are summarized below. Within 15 days of entering an exploration sub-period, the Company is required to provide an irrevocable guarantee (“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding exploration sub-period, as provided in the concession agreements.
Minimum Work Program – Perlas
Block Perlas – Exploration Minimum Work Commitment and Relinquishments
|
|
Exploration Period
|
|
Duration
|
|
|
|
|
|
Irrevocable
|
|
(6 Years)
|
|
(Years)
|
|
Work Commitment
|
|
Relinquishment
|
|
Guarantee
|
|
Sub-Period 1
|
|
2
|
|
- Environmental Impact Study
|
|
26km
2
|
|
$
|
443,100
|
|
|
|
|
|
- Acquisition & interpretation of
|
|
|
|
|
|
|
|
|
|
|
333km of new 2D seismic
|
|
|
|
|
|
|
|
|
|
|
- Acquisition, processing & interpretation of
|
|
|
|
|
|
|
|
|
|
|
667km of new 2D seismic (or equivalent in 3D)
|
|
|
|
|
|
|
Sub-Period 2
|
|
1
|
|
- Acquisition, processing & interpretation of
|
|
53km
2
|
|
$
|
1,356,227
|
|
Optional
|
|
|
|
200km
2
of 3D seismic
|
|
|
|
|
|
|
Sub-Period 3
|
|
1
|
|
- Drilling of one exploration well to the
|
|
80km
2
|
|
$
|
10,220,168
|
|
Optional
|
|
|
|
Cretaceous or 3,500m, whichever is shallower
|
|
|
|
|
|
|
Sub-Period 4
|
|
2
|
|
- Drilling of one exploration well to the
|
|
All acreage except
|
|
$
|
10,397,335
|
|
Optional
|
|
|
|
Cretaceous or 3,500m, whichever is shallower
|
|
areas with discoveries
|
|
|
|
|
|
|
|
|
- Geochemical analysis
|
|
|
|
|
|
|
Minimum Work Program - Tyra
Block Tyra – Exploration Minimum Work Commitment and Relinquishments
|
|
Exploration Period
|
|
Duration
|
|
|
|
|
|
Irrevocable
|
|
(6 Years)
|
|
(Years)
|
|
Work Commitment
|
|
Relinquishment
|
|
Guarantee
|
|
Sub-Period 1
|
|
1.5
|
|
- Environmental Impact Study
|
|
26km
2
|
|
$
|
408,450
|
|
|
|
|
|
- Acquisition & interpretation of
|
|
|
|
|
|
|
|
|
|
|
667km of existing 2D seismic
|
|
|
|
|
|
|
|
|
|
|
- Acquisition of 667km of new 2D seismic (or
|
|
|
|
|
|
|
|
|
|
|
equivalent in 3D)
|
|
|
|
|
|
|
Sub-Period 2
|
|
0.5
|
|
- Processing & interpretation of the 667km 2D
|
|
40km
2
|
|
$
|
278,450
|
|
Optional
|
|
|
|
seismic (or equivalent in 3D) acquired in the
|
|
|
|
|
|
|
|
|
|
|
previous sub-period
|
|
|
|
|
|
|
Sub-Period 3
|
|
2
|
|
- Acquisition, processing & interpretation of
|
|
160km
2
|
|
$
|
1,818,667
|
|
Optional
|
|
|
|
250km
2
of new 3D seismic
|
|
|
|
|
|
|
Sub-Period 4
|
|
2
|
|
- Drilling of one exploration well to the
|
|
All acreage except
|
|
$
|
10,418,667
|
|
Optional
|
|
|
|
Cretaceous or 3,500m, whichever is shallower
|
|
areas with discoveries
|
|
|
|
|
|
|
|
|
- Geochemical analysis
|
|
|
|
|
|
|
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Contractual and Fiscal Terms
Training Program
|
|
US $50,000 per year, per block
|
Area Fee
|
|
Yr 1-3
|
|
$0.05/hectare
|
|
|
Yr 4-7
|
|
$0.10/hectare
|
|
|
Yr 8 fwd
|
|
$0.15/hectare
|
Royalties
|
|
Recovery Factor
|
|
Percentage
|
|
|
0 – 1.5
|
|
5%
|
|
|
1.5 – 3.0
|
|
10%
|
|
|
>3.0
|
|
15%
|
Natural Gas Royalties
|
|
Market value at production
|
|
5%
|
Corporate Tax
|
|
Rate no higher than 30%
|
Social Contribution
|
|
3% of the net profit (1.5% for each autonomous region)
|
Investment Protection
|
|
ICSID arbitration
|
|
|
OPIC insurance
|
The minimum payments required under the Nicaraguan concessions for 2011 is budgeted at approximately $208,000 of which $176, 454 has been incurred and paid through the date of this report.
Delivery Commitments
In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from the Company’s properties in Erath County, Texas, under which the Company pays a gathering fee of $0.35 per Mcf gathered. The contract contains minimum delivery volume commitments through December 31, 2011 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company has accrued approximately $1,916,250 for 2010 and $929,208 for 2009 as delivery commitment shortfalls under the contract.
Infinity is not in compliance with existing federal, state and local laws, rules and regulations for its domestic properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity. For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as the Company focused solely on the development of the Nicaraguan concessions. Management believes the estimate of the Company’s asset retirement obligations consisting of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties would be sufficient to cover any noncompliance liabilities. The Company no longer carries insurance on the domestic properties.
Revenue Sharing Commitments
On March 23, 2009, the Company entered into a Securities Purchase Agreement dated effective as of March 23, 2009, with Off-Shore, an accredited investor, to issue a subordinated secured promissory note in the aggregate principal amount of up to $1,275,000 and a one percent (1%) revenue sharing interest in the Company’s Concessions in the Tyra and Perlas Blocks.
Under the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Off-Shore. At any time within three (3) years from the date of the Revenue Agreement, Infinity shall have the right to redeem the RSP by paying Off-Shore an amount as follows: (i) if during the first year of the Revenue Agreement, a sum equal to three (3) times the amount of investor funding by Off-Shore Finance, LLC to Infinity as of
December 31, 2009 (the “Funding Amount”); (ii) if during the second year of the Revenue Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of the Revenue Agreement, a sum equal to ten (10) times the Funding Amount. Upon the redemption of the RSP by Infinity, the Revenue Agreement shall terminate. As of December 31, 2010, the Company had not exercised its right to redeem.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.
Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.
On September 8, 2009 the Company entered into a Revenue Sharing Agreement with Jeff Roberts to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout . Infinity assigned to Jeff Roberts a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Jeff Roberts by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Jeff Roberts.
On September 8, 2009 the Company entered into a Revenue Sharing Agreement with Thompson Knight Global Energy Services (“Thompson Knight”) to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout. Infinity assigned to Thompson Knight a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Thompson Knight by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Thompson Knight.
The Revenue Sharing Agreement of 1% were each valued at $637,620 using the same method as the 1% RSP assigned to Off-Shore as debt discount. Of the aggregate $1,912,860 initially expensed in 2009 for the three 1% RSP’s (with an offset to unproved properties), $1,243,359 was recapitalized to unproved properties as such amounts were deemed to be representative of those amounts incurred for the acquisition and exploration of the Nicaraguan concessions.
Contingent Fees
In addition to the Revenue Sharing Agreement with Thompson Knight to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout the Company agreed to compensate Thompson Knight a success fee of 5% of the upfront cash fee paid to Infinity by a third party earning an interest in the Nicaragua asset up to $20 million and 10% of any amount exceeding the $20 million. A 2% success fee would be paid to Thompson Knight of the remaining cash investment in subsequent years. At such time the Company enters into an agreement with a partner on the Nicaragua Concession and the Company receives and collects up to $20,000,000 in upfront fees then officers Mr. Ross and Mr. Hutchins shall receive a bonus of 5% of the first $20,000,000 and 10% of any amount over $20,000,000 to be divided 50% to each officer.
INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Litigation
The Company is subject to numerous claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure to pay amounts due. The Company believes that it has made adequate provision for these claims in the accompanying balance sheets.
The Company is currently involved in the following material litigation:
(i) Exterran Energy Solutions, L.P. f/k/a Hanover Compression Limited Partnership, filed an action in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest Oil Corporation. Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach of contract for failure to pay amounts due.
(ii) LDH Gas Development, L.P. filed an action in the District Court of Harris County, Texas, number 201030709, on May 14, 2010 against Infinity Oil and Gas of Texas, Inc. In May 2005 LDH Gas Development, L.P. entered into a Gas Purchase Agreement with Infinity Oil and Gas of Texas, Inc. In the agreement, LDH agreed to purchase specified quantities of gas from leasehold interests held by Infinity that are located close to LDH’s Gathering System, and is claiming breach of gas purchase agreement for failure to meet minimum quantities of gas.
The above amounts are included in accounts payable and accrued interest as the Company does not dispute the amount payable.
Note 8 — Related Party Transactions
The corporate office was located in Denver, Colorado until November 2008 when the Denver office was closed. The corporate office moved to the business office of the interim CFO of the Company. The Company currently does not have any employees and the staff of the interim CFO provides the office services. These services are billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses. For the year ending 2010 the Company was billed $142,117 and for the year ended 2009 the Company was billed $175,990. The amount due to the CFO’s firm for services provided was $323,929 for December 31, 2010 and $183,850 at December 13, 2009.
The Company has entered into a subordinated loan with Off-Shore in the aggregate amount of $1,275,000 for funds for the Concessions. The managing partner of Off-Shore and the CFO are business partners in the firm which the Company uses for its corporate office.
The Company CEO has personally guaranteed up to $500,000 of the Forbearance advances from Amegy bank.
As of December 31, 2010 and 2009, the Company had accrued compensation to officers and directors of $508,708 and $337,500, respectively.
Note 9 — Subsequent Events
The Company entered into the Fifth Forbearance Agreement on February 16, 2011 as discussed in Note 2. 931,000 warrants at $5.01 per share were issued in connection with the agreement.
The Company has drawn an additional $478,192 since December 31, 2010 on the forbearance advance and has $117,755 available at May 10, 2011.
In February 2011, the Company issued 500,000 options to directors and management of the Company at an exercise price of $5.25 for a term of 10 years. At the same time, the Company also issued 50,000 options to a partner of their outside law firm at the same exercise price and for the same term.
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 29, 2005, to be effective September 9,2005, is entered into between Infinity, Inc., a Colorado corporation (the "Company"), and Infinity Energy Resources, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Infinity Delaware").
Recitals
WHEREAS, the board of directors of each of the Company and Infinity Delaware deems it advisable, upon the terms and subject to the conditions herein stated, that the Company be merged with and into Infinity Delaware, and that Infinity Delaware be the surviving corporation (the "Reincorporation Merger"); and
WHEREAS, the Company's shareholders have approved this Agreement;
NOW, THEREFORE, in consideration of the premises and of the agreements of the parties hereto contained herein, the parties hereto agree as follows:
ARTICLE I
THE REINCORPORATION MERGER; EFFECTIVE TIME
1.1
The Reincorporation Merger.
Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.2), the Company shall be merged with and into Infinity Delaware whereupon the separate existence of the Company shall cease. Infinity Delaware shall be the surviving corporation (sometimes hereinafter referred to as the "Surviving Corporation") in the Reincorporation Merger and shall continue to be governed by the laws of the State of Delaware. The Reincorporation Merger shall have the effects specified in the Delaware General Corporation Law, as amended (the "DGCL"), and in the Colorado Business Corporation Act, as amended (the "CBCA"), and the Surviving Corporation shall succeed, without other transfer, to all of the assets and property (whether real, personal or mixed), rights, privileges, franchises, immunities and powers of the Company, and shall assume and be subject to all of the duties, liabilities, obligations and restrictions of every kind and description of the Company, including, without limitation, the obligations under the Company's 2004 Stock Option Plan, and all outstanding indebtedness of the Company.
1.2
Effective Time.
Provided that the condition set forth in Section 5.1 has been fulfilled or waived in accordance with this Agreement and that this Agreement has not been terminated or abandoned pursuant to Section 6.1, on the date of the closing of the Reincorporation Merger, the Company and Infinity Delaware shall cause a Statement of Merger to be executed and filed with the Secretary of State of Colorado (the "Colorado Statement of Merger") and a Certificate of Merger to be executed and filed with the Secretary of State of Delaware (the "Delaware Certificate of Merger"). The Reincorporation Merger shall become effective upon the date and time specified in the Colorado Statement of Merger and the Delaware Certificate of Merger (the "Effective Time").
ARTICLE II
CHARTER AND BYLAWS OF THE SURVIVING CORPORATION
2.1
The Certificate of Incorporation.
The certificate of incorporation of lnfinity Delaware in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation, until amended in accordance with the provisions provided therein or applicable law.
2.2
The Bylaws.
The bylaws of Infinity Delaware in effect at the Effective Time shall be the bylaws of the Surviving Corporation, until amended in accordance with the provisions provided therein or applicable law.
ARTICLE III
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
3.1
Officers.
The officers of the Company at the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.
3.2
Directors.
The directors of the Company at the Effective Time shall, from and after the Effective Time, be the following: Elliot Kaplan, Robert Lorenz, Leroy Richie, Stanton Ross and James Tuell, each with terms expiring at the 2006 annual meeting of stockholders, to serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.
ARTICLE IV
EFFECT OF MERGER ON CAPITAL STOCK
4.1
Effect of Merger on Capital Stock.
At the Effective Time, as a result of the Reincorporation Merger and without any action on the part of the Company, Infinity Delaware or the shareholders of the Company:
(a) Each share of Infinity common stock issued and outstanding immediately prior to the Effective Time shall be converted (without the surrender of stock certificates or any other action) into one fully paid and non-assessable share of common stock, par value $0.0001, of Infinity Delaware ("Infinity Delaware Common Stock") and all shares of Infinity common stock shall be cancelled and retired and shall cease to exist.
(b) No shares of Infinity Preferred Stock were issued or outstanding immediately prior to the Effective Time. All shares of Infinity Preferred Stock shall be cancelled and retired and shall cease to exist.
(c) Each option, warrant, purchase right or other security of the Company issued and outstanding immediately prior to the Effective Time, if any, shall be converted into and shall be an identical security of Infinity Delaware. The same number of shares of Infinity Delaware Common Stock shall be reserved for purposes of the exercise of such options, warrants, purchase rights, units or other securities as is equal to the number of shares of Infinity common stock so reserved as of the Effective Time.
(d) Each share of Infinity Delaware Common Stock owned by the Company shall no longer be outstanding and shall be cancelled and retired and shall cease to exist.
4.2
Certificates.
At and after the Effective Time, all of the outstanding certificates which immediately prior thereto represented shares of Infinity common stock or options, warrants, purchase rights or other securities of the Company, if any, shall be deemed for all purposes to evidence ownership of and to represent the shares of the respective Infinity Delaware Common Stock, or options, warrants, purchase rights, units or other securities of Infinity Delaware, if any, as the case may be, into which the shares of Infinity common stock, or options, warrants, purchase rights or other securities of the Company represented by such certificates have been converted as herein provided and shall be so registered on the books and records of the Surviving Corporation or its transfer agent. The registered owner of any such outstanding certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting and other rights with respect to, and to receive any dividends and other distributions upon, the shares of Infinity Delaware Common Stock, or options, warrants, purchase rights or other securities of Infinity Delaware, if any, as the case may be, evidenced by such outstanding certificate, as above provided.
ARTICLE V
CONDITION
5.1
Condition to Each Party's Obligation to Effect the Reincorporation Merger.
The respective obligation of each party hereto to effect the Reincorporation Merger is subject to receipt prior to the Effective Time of the requisite approval of this Agreement and the transactions contemplated hereby by each of the holders of Infinity common stock pursuant to the CBCA and the articles of incorporation of the Company.
ARTICLE VI
TERMINATION
6.1
Termination.
This Agreement may be terminated, and the Reincorporation Merger may be abandoned, at any time prior to the Effective Time, whether before or after approval of this Agreement by the shareholders of the Company, if the board of directors of the Company determines for any reason, in its sole judgment and discretion, that the consummation of the Reincorporation Merger would be inadvisable or not in the best interests of the Company and its shareholders. In the event of the termination and abandonment of this Agreement, this Agreement shall become null and void and have no effect, without any liability on the part of either the Company or Infinity Delaware, or any of their respective shareholders, directors or officers.
ARTICLE VII
MISCELLANEOUS AND GENERAL
7.1
Modification or Amendment.
Subject to the provisions of applicable law, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement; provided, however, that an amendment made subsequent to the approval of this Agreement by the holders of Infinity common stock shall not (i) alter or change the amount or kind of shares and/or rights to be received in exchange for or on conversion of all or any of the shares or any class or series thereof of such corporation or (ii) alter or change any of the terms or conditions of this Agreement if such alteration or change would adversely affect the holders of any class or series of capital stock of any of the parties hereto.
7.2
Counterparts.
This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.
7.3
GOVERNING LAW.
THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
7.4
Entire Agreement.
This Agreement constitutes the entire agreement and supercedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof.
7.5
No Third Party Beneficiaries.
This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.
7.6
Severability.
The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is determined by any court or other authority of competent jurisdiction to be invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
7.7
Headings.
The headings therein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above.
|
INFININTY, INC.
a Colorado corporation
|
|
|
|
|
|
|
By:
|
/s/ James A. Tuell
|
|
|
|
Name: James A. Tuell
|
|
|
|
Title:
President and Chief Executive Officer
|
|
|
|
|
|
|
INFINITY ENERGY RESOURCES, INC.
a Delaware corporation
|
|
|
|
|
|
|
By:
|
/s/ James A. Tuell
|
|
|
|
Name: James A. Tuell
|
|
|
|
Title: President
|
|
|
|
|
|
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
INFINITY ENERGY RESOURCES, INC.
ARTICLE 1
NAME
The name of the corporation is Infinity Energy Resources, Inc. (the "Company").
ARTICLE 2
REGISTERED AGENT
The address of the registered office of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at that address is Corporation Trust Company.
ARTICLE 3
PURPOSE
The purpose of the Company is to engage in any lawful act or activity for which a Corporation may be organized under the General Corporation Law of Delaware, as amended (the "DGCL").
ARTICLE 4
CAPITAL STOCK
4.1
Common Stock.
(a) The total number of shares of common stock, par value $.0001 per share, that the Company is authorized to issue is 75,000,000.
(b) Each holder of common stock shall be entitled to one vote for each share of common stock held on all matters as to which holders of common stock shall be entitled to vote. Except for and subject to those preferences, rights, and privileges expressly granted to the holders of all classes of stock at the time outstanding having prior rights, and any series of preferred stock which may from time to time come into existence, and except as may be otherwise provided by the laws of the State of Delaware, the holders of common stock shall have exclusively all other rights of stockholders of the Company, including, but not limited to, (i) the right to receive dividends when, as and if declared by the Board of Directors out of assets lawfully available therefore, and (ii) in the event of any distribution of assets upon the dissolution and liquidation of the Company, the right to receive ratably and equally all of the assets of the Company remaining after the payment to the holders of preferred stock of the specific amounts, if any, which they are entitled to receive as may be provided herein or pursuant hereto.
4.2
Preferred Stock.
(a) The total number of shares of preferred stock, par value $.0001 per share, that the Company is authorized to issue is 10,000,000.
(b) The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of preferred stock in one or more series, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, subject to the limitations prescribed by law and in accordance with the provisions hereof, including but not limited to the following:
(1) The designation of the series and the number of shares to constitute the series.
(2) The dividend rate of the series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock, and whether such dividends shall be cumulative or noncumulative.
(3) Whether the shares of the series shall be subject to redemption by the corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption.
(4) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of the series.
(5) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange.
(6) The extent, if any, to which the holders of the shares of the series shall be entitled to vote with respect to the election of directors or otherwise.
(7) The restrictions, if any, on the issue or reissue of any additional preferred stock.
(8) The rights of the holders of the shares of the series upon the dissolution, liquidation, or winding up of the corporation.
ARTICLES 5
DIRECTORS
5.1
Authority, Number and Election of Directors.
The affairs of the Company shall be conducted by the Board of Directors. The number of directors of the Company shall be fixed from time to time in the manner provided in the bylaws of the Company and may be increased or decreased from time to time in the manner provided in the bylaws; provided, however, that, except as otherwise provided in this Article 5, the number of directors shall not be less than three or more than seven. Election of directors need not be by written ballot except and to the extent provided in the bylaws. The directors shall be divided into three classes designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the number of directors constituting the entire Board of Directors. The term of office of the initial Class I directors will expire in 2006, the term of office of the initial Class II directors will expire in 2007 and the term of office of the initial Class III directors will expire in 2008. Initial class assignments shall be determined by the Board of Directors. At each annual meeting of stockholders, successors to the directors whose terms expired at that annual meeting shall be elected for a three-year term. If the number of directors changes, any increase or decrease shall be apportioned among the classes such that the number of directors in each class shall remain as nearly equal as possible, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and qualified, subject, however, to such director's prior death, resignation, retirement, disqualification or removal from office.
In the event that the holders of any class or series of preferred stock shall be entitled, by a separate class vote, to elect directors as may be specified pursuant to Article 4, then the provisions of such class or series of stock with respect to their rights shall apply. The number of directors that may be elected by the holders of any such class or series of preferred stock shall be in addition to the number fixed pursuant to the preceding paragraph of this Article 5.
5.2
Removal.
Subject to any rights of the holders of any series of preferred stock, a director may be removed from office by the stockholders prior to the expiration of his or her term of office only for cause.
5.3
Quorum.
A quorum of the Board of Directors for the transaction of business shall not consist of less than a majority of the total number of directors, except as otherwise may be provided in this Certificate of Incorporation or in the bylaws with respect to filling vacancies.
5.4
Newly Created Directorships and Vacancies.
Except as otherwise fixed pursuant to the rights of the holders of any class or series of preferred stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, or by a sole remaining director, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the new directorship which was created or in which the vacancy occurred and until such director's successor shall have been elected and qualified.
ARTICLE 6
BYLAWS
Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend and rescind any or all of the bylaws of the Company.
ARTICLE 7
STOCKHOLDERS
7.1
Meetings.
Meetings of stockholders may be held within or without the State of Delaware, as determined by the Board of Directors. Each meeting of stockholders will be held on the date and at the time and place determined by the Board of Directors. Except as otherwise required by law and subject to the rights of the holders of any class or series of preferred stock, special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer, the president or any officer of the Company upon the written request of a majority of the Board of Directors, or as provided in the bylaws.
7.2
Action by Written Consent.
Action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, by written consent, only if all the stockholders entitled to vote on such action consent in writing to the action.
ARTICLES 8
VOTING REQUIREMENT
Notwithstanding any other provisions of this Certificate of Incorporation or of the bylaws of the Company (and notwithstanding the fact that a lesser percentage may be otherwise specified by law, this Certificate of Incorporation or the bylaws), the affirmative vote of the holders of not less than sixty six and two-thirds percent (66-2/3%) of the outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors (considered for this purpose as one class), shall be required to amend or repeal or adopt any provisions inconsistent with Articles 5,8,9 or 10 of this Certificate of Incorporation.
ARTICLE 9
LIABILITY OF OFFICERS AND DIRECTORS
9.1
General.
A director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as currently in effect or as the same may hereafter be amended.
9.2
Amendment.
No amendment, modification or repeal of this Article 9 shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal.
ARTICLE 10
INDEMNIFICATION
10.1
General.
The Company shall indemnify to the fullest extent permitted by and in the manner permissible under the DGCL, as amended from time to time (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), any person made, or threatened to be made, a party to any threatened, pending or completed action, suit, or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person (a) is or was a director or officer of the Company or any predecessor of the Company or (b) is or was a director or officer of the Company or any predecessor of the Company and served any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company; provided, however, that except as provided in Section 10.4, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors.
10.2
Advancement of Expenses.
The right to indemnification conferred in this Article 10 shall be a contract right and shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Company within twenty days after the receipt by the Company of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article 10 or otherwise.
10.3
Procedure for Indemnification.
To obtain indemnification under this Article 10, a claimant shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 10.3, a determination, if required by applicable law, with respect to the claimant's entitlement thereto shall be made as follows: (a) if requested by the claimant or if there are no Disinterested Directors (as hereinafter defined), by Independent Counsel (as hereinafter defined), or (b) by a majority vote of the Disinterested Directors, even though less than a quorum, or by a majority vote of a committee of Disinterested Directors designated by a majority vote of Disinterested Directors, even though less than a quorum. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.
10.4
Certain Remedies.
If a claim under Section 10.1 is not paid in full by the Company within thirty days after a written claim pursuant to Section 10.3 has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the Company) that the claimant has not met the standard of conduct which makes it permissible under the DGCL for the Company to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, Independent Counselor stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including its Board of Directors, Independent Counselor stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
10.5
Binding Effect.
If a determination shall have been made pursuant to Section 10.3 that the claimant is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to Section 10.4.
10.6
Validity of this Article.
The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 10.4 that the procedures and presumptions of this Article 10 are not valid, binding and enforceable and shall stipulate in such proceeding that the Company is bound by all the provisions of this Article 10.
10.7
No exclusivity.
etc. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 10 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise. No repeal or modification of this Article 10 shall in any way diminish or adversely affect the rights of any present or former director, officer, employee or agent of the Company or any predecessor thereof hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.
10.8
Insurance.
The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL.
10.9
Indemnification of Other Persons.
The Company may grant rights to indemnification, and rights to be paid by the Company the expenses incurred in defending any proceeding in advance of its final disposition, to any present or former employee or agent of the Company or any predecessor of the Company to the fullest extent of the provisions of this Article 10 with respect to the indemnification and advancement of expenses of directors and officers of the Company.
10.10
Severability.
If any provision or provisions of this Article 10 shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article 10 (including, without limitation, each portion of any paragraph of this Article 10 containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Article 10 (including, without limitation, each such portion of any paragraph of this Article 10 containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
10.11
Certain Definitions.
For purposes of this Article 10:
(a) "Disinterested Director" means a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.
(b) "Independent Counsel" means a law firm, a member of a law firm, or an independent practitioner that is experienced in matters of corporation law and shall include any such person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or the claimant in an action to determine the claimant's rights under this Article 10. Independent Counsel shall be selected by the Board of Directors.
ARTICLE 11
INITIAL DIRECTORS
11.1
Incorporator.
The name and mailing address of the incorporator is Katelin R. Oakley, Esq., c/o Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500, Denver, Colorado 80202. Immediately upon filing of this certificate, the powers of the incorporator shall cease.
11.2
Initial Director.
The names and mailing addresses of the initial directors are Stanton E. Ross, c/o Infinity, Inc., 1401 W. Main Street, Suite C, Chanute, Kansas 66720, James A. Tuell and James A. Dean, each c/o Infinity Oil & Gas of Wyoming, Inc., 950 Seventeenth Street, Suite 800, Denver, Colorado 80202.
IN WITNESS WHEREOF, I, the undersigned, being the incorporator hereinbefore named, do hereby further certify that the facts hereinabove stated are truly set forth and, accordingly, I have hereunto set my hand this 26th
day of April, 2005.
Katelin R. Oakley Incorporator
Exhibit 3.2
BYLAWS
OF
INFINITY ENERGY RESOURCES, INC.
Adopted April 29, 2005
ARTICLE 1
OFFICES
The registered office of Infinity Energy Resources, Inc. (the "
Company
") in the State of Delaware will be as provided for in the Certificate of Incorporation of the Company (the "
Certificate of Incorporation
"). The Company will have offices at such other places as the Board of Directors may from time to time determine.
ARTICLE 2
STOCKHOLDERS
2.1
Annual Meetings.
The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting will be held on the date and at the time fixed, from time to time, by resolution of the Board of Directors.
2.2
Special Meetings.
Except as otherwise required by law, special meetings of stockholders may be called by those persons specified in the Certificate of Incorporation and shall be called by the Secretary of the Company upon the written request of stockholders owning of record 25% or more of the capital stock of the Company entitled to vote generally in the election of directors. Any such written request shall set forth the purpose of the proposed meeting and shall include all relevant information contemplated by Section 2.5. Business transacted at any special meeting of stockholders shall be limited to those matters properly set forth in the written request and as to which all information required pursuant to Section 2.5 has been timely provided.
2.3
Notice of Meeting.
Written notice stating the place, date and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, will be given not less than ten nor more than sixty days before the date of the meeting, except as otherwise required by law or the Certificate of Incorporation, either personally or by mail, prepaid telegram, telex, facsimile transmission, cablegram or overnight courier, to each stockholder of record entitled to vote at such meeting. If mailed, such notice will be deemed to be given when deposited in the United States mail, postage prepaid, addressed to the stockholder at the stockholder's address as it appears on the stock records of the Company.
2.4
Waiver.
Attendance of a stockholder of the Company, either in person or by proxy, at any meeting, whether annual or special, will constitute a waiver of notice of such meeting, except where a stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice of any such meeting signed by a stockholder or stockholders entitled to such notice, whether before, at or after the time for notice or the time of the meeting, will be equivalent to notice. Neither the business to be transacted at, nor the purposes of, any meeting need be specified in any written waiver of notice.
2.5
Notice of Business to be Transacted at Meetings of Stockholders.
No business may be transacted at any meeting of stockholders, including the nomination or election of persons to the Board of Directors, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof) with respect to an annual meeting or a special meeting called by any of the persons specified in Section 7.1 of the Certificate of Incorporation, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the meeting by any stockholder of the Corporation (1) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.5 and on the record date for the determination of stockholders entitled to vote at such meeting and (2) who complies with the notice procedures set forth in this Section 2.5. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
(a) To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety days nor more than one hundred twenty days prior to the date of the meeting; provided, however, that (1) in the event that public disclosure of the date of the meeting is first made less than one hundred days prior to the date of the meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such public disclosure of the date of the meeting was made and (2) the foregoing notwithstanding, with respect to a special meeting called at the written request of stockholders pursuant to Section 2.2, any notice submitted by a stockholder making the request must be provided simultaneously with such request.
(b) To be in proper written form, a stockholder's notice to the Secretary regarding any business other than nominations of persons for election to the Board of Directors must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring such business before the meeting.
(c) To be in proper written form, a stockholder's notice to the Secretary regarding nominations of persons for election to the Board of Directors must set forth (a) as to each proposed nominee, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the nominee and (iv) any other information relating to the nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
(d) No business shall be conducted at any meeting of stockholders, and no person nominated by a stockholder shall be eligible for election as a director, unless proper notice was given with respect to the proposed action in compliance with the procedures set forth in this Section 2.5. Determinations of the chairman of the meeting as to whether those procedures were complied with in a particular case shall be final and binding.
2.6
Quorum.
Except as otherwise required by law, the Certificate of Incorporation or these bylaws, the holders of not less than a majority of the shares entitled to vote at any meeting of the stockholders, present in person or by proxy, will constitute a quorum, and the act of the majority of such quorum will be deemed the act of the stockholders, except with respect to the election of directors. If a quorum is not present at any meeting, the chairman of the meeting may adjourn the meeting from time to time, without notice if the time and place are announced at the meeting, until a quorum will be present. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting.
2.7
Procedure.
The order of business and all other matters of procedure at every meeting of the stockholders may be determined by the chairman of the meeting. The chairman of any meeting of the stockholders shall be the chairman of the Board of Directors or, in his or her absence, the most senior officer of the Company present at the meeting.
ARTICLE 3
DIRECTORS
3.1
Number.
Subject to the provisions of the Certificate of Incorporation, the number of directors will be fixed from time to time exclusively by resolutions adopted by the Board of Directors.
3.2
Regular Meetings.
The Board of Directors shall meet immediately after, and at the same place as, the annual meeting of the stockholders, provided a quorum is present, and no notice of such meeting will be necessary in order to legally constitute the meeting. Regular meetings of the Board of Directors will be held at such times and places as the Board of Directors may from time to time determine.
3.3
Special Meetings.
Special meetings of the Board of Directors may be called at any time, at any place and for any purpose by the chairman of the board, the chief executive officer, or by a majority of the Board of Directors.
3.4
Notice of Meetings.
Notice of regular meetings of the Board of Directors need not be given. Notice of every special meeting of the Board of Directors will be given to each director at his usual place of business or at such other address as will have been furnished by him for such purpose. Such notice will be properly and timely given if it is (a) deposited in the United States mail not later than the third calendar day preceding the date of the meeting or (b) personally delivered, telegraphed, sent by facsimile transmission or communicated by telephone at least twenty-four hours before the time of the meeting. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting.
3.5
Waiver.
Attendance of a director at a meeting of the Board of Directors will constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice signed by a director or directors entitled to such notice, whether before, at, or after the time for notice or the time of the meeting, will be equivalent to the giving of such notice.
3.6
Quorum.
Except as may be otherwise provided by law, the Certificate of Incorporation or these bylaws, the presence of a majority of the directors then in office will be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at a meeting at which a quorum is present will be deemed the act of the Board of Directors. Less than a quorum may adjourn any meeting of the Board of Directors from time to time without notice.
3.7
Participation in Meetings by Telephone.
Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation will constitute presence in person at such meeting.
3.8
Action Without a Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. Any such consent may be in counterparts and will be effective on the date of the last signature thereon unless otherwise provided therein.
ARTICLE 4
COMMITTEES
4.1
Designation of Committees.
The Board of Directors may establish committees for the performance of delegated or designated functions to the extent permitted by law, each committee to consist of one or more directors of the Company. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member.
4.2
Committee Powers and Authority.
Except to the extent otherwise required by law, the Board of Directors may provide, by resolution or by amendment to these bylaws, that a committee may exercise all the power and authority of the Board of Directors in the management of the business and affairs of the Company.
ARTICLES 5
OFFICERS
5.1
Number.
The officers of the Company will be appointed or elected by the Board of Directors. The officers will be a chief executive officer, a president, such number, if any, of executive vice presidents as the Board of Directors may from time to time determine, such number, if any, of vice presidents as the Board of Directors may from time to time determine, a secretary, such number, if any, of assistant secretaries as the Board of Directors may from time to time determine, and a treasurer. Any person may hold two or more offices at the same time.
5.2
Additional Officers.
The Board of Directors may appoint such other officers as it may deem appropriate.
5.3
Term of Office; Resignation.
All officers, agents and employees of the Company will hold their respective offices or positions at the pleasure of the Board of Directors and may be removed at any time by the Board of Directors with or without cause. Any officer may resign at any time by giving written notice of his resignation to the chief executive officer, the president, or to the secretary, and acceptance of such resignation will not be necessary to make it effective unless the notice so provides. Any vacancy occurring in any office will be filled by the Board of Directors.
5.4
Duties.
The officers of the Company will perform the duties and exercise the powers as may be assigned to them from time to time by the Board of Directors or the president and chief executive officer.
ARTICLE 6
CAPITAL STOCK
6.1
Certificates.
The Board of Directors may authorize the issuance of stock in certificated or uncertificated form. Each stockholder of the Company, upon written request, will be entitled to a certificate or certificates signed by or in the name of the Company by (a) the chief executive officer or the president and (b) the secretary or an assistant secretary, certifying the number of shares of stock of the Company owned by such stockholder. Any or all the signatures on the certificate may be a facsimile.
6.2
Registered Stockholders.
The Company will be entitled to treat the holder ofrecord of any share or shares of stock of the Company as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has actual or other notice thereof, except as provided by law.
6.3
Cancellation of Certificates.
All certificates surrendered to the Company will be canceled and, except in the case of lost, stolen or destroyed certificates, no new certificates will be issued until the former certificate or certificates for the same number of shares of the same class of stock have been surrendered and canceled.
6.4
Lost. Stolen, or Destroyed Certificates.
The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Company alleged to have been lost, stolen, or destroyed upon the making of an affidavit of that fact in a form acceptable to the Board of Directors by the person claiming the certificate or certificates to be lost, stolen or destroyed. In its discretion, and as a condition precedent to the issuance of any such new certificate or certificates, the Board of Directors may require that the owner of such lost, stolen or destroyed certificate or certificates, or such person's legal representative, give the Company and its transfer agent or agents, registrar or registrars a bond in such form and amount as the Board of Directors may direct as indemnity against any claim that may be made against the Company and its transfer agent or agents, registrar or registrars on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate.
ARTICLE 7
FISCAL YEAR
7.1
Fiscal Year.
The fiscal year for the Company will end on the 31st of December of each year.
ARTICLE 8
AMENDMENTS
8.1
Amendments.
Subject to the provisions of the Certificate of Incorporation, these bylaws may be altered, amended, or repealed at any annual meeting of the stockholders or at any special meeting of the stockholders duly called for that purpose by a majority vote of the shares represented and entitled to vote at such meeting. Subject to the laws of the State of Delaware, the Certificate of lncorporation and these bylaws, the Board of Directors may amend these bylaws or enact such other bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Company.
INFINITY, INC.
2004 STOCK OPTION PLAN
410,000 SHARES
This Stock Option Plan was adopted this 16th day of April 2004, by Infinity, Inc., a Colorado corporation, upon the following terms and conditions:
1. Definitions. Except as otherwise expressly provided in this Plan, the following capitalized terms shall have the respective meanings hereafter ascribed to them:
(a) “Board” shall mean the Board of Directors of the Corporation;
(b) “Code” shall mean the Internal Revenue Code of 1986, as amended;
(c) “Consultant” shall mean a person who provides services to the Corporation as an independent contractor;
(d) “Corporation” means Infinity, Inc. and each and all of any present and future subsidiaries;
(e) “Date of Grant” shall mean, for each participant in the Plan, the date on which the Board approves the specific grant of stock options to that participant;
(f) “Employee” shall be an employee of the Corporation or any subsidiary of the Corporation;
(g) “Grantee” shall mean the recipient of an Incentive Stock Option or a Non-statutory Option under the Plan;
(h) “Incentive Stock Option” shall refer to a stock option which qualifies under Section 422 of the Code.
(i) “Non-statutory Option” shall mean an option which is not an Incentive Stock Option.
(j) “Shares” shall mean the Corporation’s common stock, $.0001 par value;
(k) “Shareholders” shall mean owners of record of any Shares.
2. Purpose. The purpose of this Stock Option Plan (the “Plan”) is two-fold. First, the Plan will further the interests of the Corporation and its shareholders by providing incentives in the form of stock options to employees who contribute materially to the success and profitability of the Corporation. Such stock options will be granted to recognize and reward outstanding individual performances and contributions and will give selected employees an interest in the Corporation parallel to that of the shareholders, thus enhancing their proprietary interest in the Corporation’s continued success and progress. This program also will enable the Corporation to attract and retain experienced employees. Second, the Plan will provide the Corporation flexibility and the means to reward directors and consultants who render valuable contributions to the Corporation.
3. Administration. This Plan will be administered by the Board. The Board has the exclusive power to select the participants in this Plan, fix the awards to each participant, and make all other determinations necessary or advisable under the Plan, to determine whether the performance of an eligible employee warrants an award under this Plan, and to determine the amount and duration of the award. The Board has full and exclusive power to construe and interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to take all actions necessary or advisable for this plan’s administration. The Board shall have full power and authority to determine, and at the time such option is granted shall clearly set forth, whether the option shall be an Incentive Stock Option or a Non-statutory Option. Any such determination made by the Board will be final and binding on all persons. A member of the Board will not be liable for performing any act or making any determination required by or pursuant to the Plan, if such act or determination is made in good faith. The Board has the authority to set up a committee of directors to administer the Plan and to delegate whichever of the above powers it determines.
4. Participants. Any employee, officer, director or consultant that the Board, in its sole discretion, designates is eligible to participate in this Plan. However, only employees of the Corporation shall be eligible to receive grants of Incentive Stock Options. The Board’s designation of a person as a participant in any year does not require the Board to designate that person to receive an award under this Plan in any other year or, if so designated, to receive the same award as any other participant in any year. The Board may consider such factors as it deems pertinent in selecting participants and in determining the amount of their respective awards, including, but without being limited to: (a) the financial condition of the Corporation; (b) expected profits for the current or future years; (c) the contributions of a prospective participant to the profitability and success of the Corporation; and (d) the adequacy of the prospective participant’s other compensation. The Board, in its discretion, may grant benefits to a participant under this Plan, even though stock, stock options, stock appreciation rights or other benefits previously were granted to him under this or another plan of the Corporation, whether or not the previously granted benefits have been exercised, but the participant may hold such options only on the terms and subject to the restrictions hereafter set forth. Subject to the foregoing limitation, a person who has participated in another benefit plan of the Corporation may also participate in this Plan.
5. Kinds of Benefits. Awards under this Plan, if any, will be granted in options to acquire Shares as described below.
6. Options; Expiration; Limitations. Any Incentive Stock Option granted under this Plan shall automatically expire ten years after the Date of Grant or at such earlier time as may be described in Article 9 or directed by the Board in the grant of the option. Notwithstanding the preceding sentence, no Incentive Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation shall, in any event, be exercisable after the expiration of five years from the Date of Grant. For the purpose of determining under any provision of this Plan whether a shareholder owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation, such Shareholder shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants, and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries.
Upon the exercise of an option, the Corporation shall deliver to the participant certificates representing authorized but unissued Shares. The cumulative total number of shares which may be subject to options issued and outstanding pursuant to this Plan is limited to 410,000 shares. This amount automatically will be adjusted in accordance with Article 21 of this Plan. If an option is terminated, in whole or in part, for any reason other than its exercise, the Board may reallocate the shares subject to that option (or to the part thereof so terminated) to one or more other options to be granted under this Plan.
7. Option Exercise Price. Each option shall state the option price, which shall be not less than 100% of the fair market value of the Shares on the Date of Grant or the par value thereof whichever is greater. Notwithstanding the preceding sentence, in the case of a grant of an Incentive Stock Option to an employee who, as of the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation or its Parent or Subsidiaries, the option price shall not be less than 110% of the fair market value of the Shares on the Date of Grant or the par value thereof, whichever is greater.
During such time as the Shares are not traded in any securities market, the fair market value per share shall be determined by a good faith effort of the Board, using its best efforts and judgment. During such time as the Shares are traded in a securities market but not listed upon an established stock exchange, the fair market value per share shall be the highest closing bid price in the securities market in which it is traded on the Date of Grant, as reported by the National Association of Securities Dealers, Inc. If the Shares are listed upon an established stock exchange or exchanges such fair market value shall be deemed to be the highest closing price on such stock exchange or exchanges on the Date of Grant, or if no sale of any Shares shall have been made on any stock exchange on that day, on the next preceding day on which there was such a sale. Subject to the foregoing, the Board shall have full authority and discretion in fixing the option price and shall be fully protected in doing so.
8. Maximum Option Exercise. The aggregate fair market value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time by a grantee during any calendar year (under all such plans of the Corporation and its parent or subsidiary, if any) shall not exceed $100,000. For purposes of this Article 8, the value of stock acquired through the exercise of Non-statutory Options shall not be included in the computation of the aggregate fair market value.
9. Exercise of Options.
(a) No stock option granted under this Plan may be exercised before the Grantee’s completion of such period of services as may be specified by the Board on the Date of Grant. Furthermore, the timing of the exercise of any option granted under this Plan may be subject to a vesting schedule based upon years of service or an expiration schedule as may be specified by the Board on the Date of Grant. Thereafter, or if no such period is specified subject to the provisions of subsections (c), (d), (e), (f) and (g) of this Article 9, the Grantee may exercise the option in full or in part at any time until expiration of the option.
A Grantee cannot exercise an Incentive Stock Option granted under this Plan unless, at the time of exercise, he has been continuously employed by the Corporation since the date the option was granted. The Board may decide in each case to what extent bona fide leaves of absence for illness, temporary disability, government or military service, or other reasons will not be deemed to interrupt continuous employment.
(b) Unless an Option specifically provides to the contrary, all options granted under this Plan shall immediately become exercisable in full in the event of the consummation of any of the following transactions:
(i) A merger or acquisition in which the Corporation is not the surviving entity;
(ii) The sale, transfer or other disposition of all or substantially all of the assets of the Corporation; or
(iii) Any merger in which the Corporation is the surviving entity but in which fifty percent (50%) or more of the Corporation’s outstanding voting stock is issued to holders different from those who held the stock immediately prior to such merger.
(c) Except as provided in subsections (d), (e) and (f) of this Article 9, a Grantee cannot exercise an Incentive Stock Option after he ceases to be an employee of the Corporation, unless the Board, in its sole discretion, grants the recipient an extension of time to exercise the Incentive Stock Option after cessation of employment. The extension of time of exercise that may be granted by the Board under this subsection (c) shall not exceed three months after the date on which the Grantee ceases to be an employee and in no case shall extend beyond the stated expiration date of the option.
(d) If the employment of a Grantee is terminated by the Corporation for a cause as defined in subsection (i) of this Article 9, all rights to any stock option granted under this Plan shall terminate, including but not limited to the ability to exercise such stock options.
(e) If a Grantee ceases to be an employee as a result of retirement, he may exercise the Incentive Stock Option within three months after the date on which he ceases to be an employee (but no later than the stated expiration date of the option) to the extent that the Incentive Stock Option was exercisable when he ceased to be an employee. An employee shall be regarded as retired if he terminates employment after his sixty-fifth birthday.
(f) If a Grantee ceases to be an employee because of disability (within the meaning of Section 105(d) (4) of the Code), or if a Grantee dies, and if at the time of the Grantee’s disability or death he was entitled to exercise an Incentive Stock Option granted under this Plan, the Incentive Stock Option can be exercised within 12 months after his death or termination of employment on account of disability (but no later than the stated expiration date of the option), by the Grantee in the case of disability or, in case of death, by his personal representative, estate or the person who acquired by gift, bequest or inheritance his right to exercise the Incentive Stock Option. Such options can be exercised only as to the number of shares for which they could have been exercised at the time the Grantee died or became disabled.
(g) With respect to Non-statutory Options granted to Board members, the Board may provide on the Date of the Grant that such options will expire a specified number of days after such Board member ceases to be a member of the Board. In the absence of any such provision, the option will expire on the stated expiration date of the option.
(h) Any stock option granted under the Plan will terminate, as a whole or in part, to the extent that, in accordance with this Article 9, it no longer can be exercised.
(i) For purposes of this Article 9, “cause” shall mean the following:
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(1)
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Fraud or criminal misconduct;
|
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(3)
|
Willful or continuing disregard for the safety or soundness of the Corporation;
|
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(4)
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Willful or continuing violation of the published rules of the Corporation.
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10. Exercise of Options.
10.1 Notice. Options may be exercised only by delivery to the Corporation of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Board (which need not be the same for each Grantee), stating the number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding Grantee’s investment intent and access to information, if any, as may be required by the Corporation to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased.
10.2 Payment. Payment for the shares may be made in cash (by check) or, where approved by the Board in its sole discretion and where permitted by law: (a) by cancellation of indebtedness of the Corporation to the Grantee; (b) by surrender of shares of common stock of the Corporation having a Fair Market Value equal to the applicable exercise price of the Option that have been owned by Grantee for more than six months (and which have been paid for within the meaning of the Securities and Exchange Commission (“SEC”) Rule 144 and, if such shares were purchased from the Corporation by use of a promissory note, such note has been fully paid with respect to such shares), or were obtained by Grantee in the open public market; (c) by waiver of compensation due or accrued to Grantee for services rendered; (d) provided that a public market for the Corporation’s stock exists, through a “same day sale” commitment from Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby Grantee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Corporation;
(e)
provided that a public market for the Corporation’s stock exists, through a “margin” commitment from Grantee and an NASD Dealer whereby Grantee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Corporation; or (f) by any combination of the foregoing.
11. Taxes; Compliance with Law; Approval of Regulatory Bodies. The Corporation, if necessary or desirable, may payor withhold the amount of any tax attributable to any amount payable or shares deliverable under this Plan and the Corporation may defer making payment on delivery until it is indemnified to its satisfaction for that tax. Stock options are exercisable, and shares can be delivered under this Plan, only in compliance with all applicable federal and sate laws and regulations, including, without limitation, state and federal securities laws, and the rules of all stock exchanges on which the Corporation’s shares are listed at any time. Any certificate issued pursuant to options granted under this Plan shall bear such legends and statements as the Board deems advisable to assure compliance with federal and state laws and regulations. No option may be exercised, and shares may not be issued under this Plan, until the Corporation has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Board deems advisable.
Specifically, in the event that the Corporation deems it necessary or desirable to file a registration statement with the Securities and Exchange Commission or any State Securities Commission, no option granted under the Plan may be exercised, and shares may not be issued, until the Corporation has obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate acquiring by bequest or inheritance the right to exercise such option, the Board may require reasonable evidence as to the ownership of the option and may require such consents and releases of taxing authorities as the Board deems advisable.
12. Assignability. Each option granted under this Plan is not transferable other than by will or the laws of descent and distribution. Each option is exercisable during the life of the Grantee only by him.
13. Tenure. A participant’s right, if any, to continue to serve the Corporation as an officer, employee or otherwise, will not be enlarged or otherwise affected by his designation as a participant under this Plan, and such designation will not in any way restrict the right of the Corporation to terminate at any time the employment or affiliation of any participant for cause or otherwise.
14. Amendment and Termination of Plan. The Board may alter, amend or terminate this Plan from time to time without approval of the shareholders. However, without the approval of the shareholders, no amendment will be effective that:
(a) materially increases the benefits accruing to participants under the Plan;
(b) increases the cumulative number of shares that may be delivered upon the exercise of options granted under the Plan or the aggregate fair market value of options which a participant may exercise in any calendar year;
(c) materially modifies the eligibility requirements for participation in the Plan; or
(d) amends the requirements of paragraphs (a)-(c) of this Article
Any amendment, whether with or without the approval of shareholders, that alters the terms or provisions of an option granted before the amendment will be effective only with the consent of the participant to whom the option was granted or the holder currently entitled to exercise it, except for adjustments expressly authorized by this Plan.
15. Expenses of Plan. The expenses of the Plan will be borne by the Corporation.
16. Duration of Plan. Options may only be granted under this Plan during the ten years immediately following the earlier of the adoption of the Plan or its approval by the Shareholders. Options granted during that ten year period will remain valid thereafter in accordance with their terms and the provisions of this Plan.
17. Other Provisions. The option agreements authorized under the Plan shall contain such other provisions including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable. Any such option agreements, which are intended to be “Incentive Stock Options” shall contain such limitations and restrictions upon the exercise of the option as shall be necessary in order that such option will be an “Incentive Stock Option” as defined in Section 422 of the Code.
18. Indemnification of the Board. In addition to such other rights of indemnification as they may have as directors, the members of the Board shall be indemnified by the Corporation against the reasonable expenses, including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director is liable for negligence or misconduct in the performance of his duties.
19. Application of Funds. The proceeds received by the Corporation from the sale of stock pursuant to options granted under this Plan will be used for general corporate purposes.
20. No Obligation to Exercise Option. The granting of an option shall impose no obligation upon the Grantee to exercise such option.
21. Adjustment Upon Change of Shares. If a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, stock dividend, rights offering, or other event affecting shares of the Corporation occurs, then the number and class of shares to which options are authorized to be granted under this Plan, the number and class of shares then subject to options previously granted under this Plan, and the price per share payable upon exercise of each option outstanding under this Plan shall be equitably adjusted by the Board to reflect such changes.
22. Number and Gender. Unless otherwise clearly indicated in this Plan, words in the singular or plural shall include the plural and singular, respectively, where they would so apply, and words in the masculine or neuter gender shall include the feminine, masculine or neuter gender where applicable.
23. Applicable Law. The validity, interpretation and enforcement of this Plan are governed in all respects by the laws of Colorado.
24. Effective Date of Plan. This Plan shall not take effect until adopted by the Board. This Plan shall terminate if it is not approved by the shareholders of the capital stock of the Corporation, which approval must occur within the period beginning twelve months before and ending twelve months after the Plan is adopted by the Board.
Exhibit 10.2
INFINITY, INC.
2005 EQUITY INCENTIVE PLAN
475,000 SHARES
This Equity Incentive Plan was adopted this 17th day of April 2005, by Infinity, Inc., a Colorado corporation, upon the following terms and conditions:
1.
Definitions
. Except as otherwise expressly provided in this Plan, the following capitalized terms shall have the respective meanings hereafter ascribed to them:
(a) “
Board
” shall mean the Board of Directors of the Company;
(b) “
Code
” shall mean the Internal Revenue Code of 1986, as amended;
(c) “
Consultant
” shall mean a person who provides services to the Company as an independent contractor;
(d) “
Company
” means Infinity, Inc. and each and all of any present and future subsidiaries;
(e) “
Date of Grant
” shall mean, for each participant in the Plan, the date on which the Board approves the specific grant to that participant under the plan;
(f) “
Employee
” shall be an employee of the Company or any subsidiary of the Company;
(g) “
Grantee
” shall mean the recipient of an Incentive Stock Option, a Non-statutory Option or a Restricted Share Award under the Plan;
(h) “
Incentive Stock Option
” shall refer to a stock option which qualifies under Section 422 of the Code;
(i) “
Non-statutory Option
” shall mean an option which is not an Incentive Stock Option;
(j) “
Restricted Share Award
” shall mean a right any right to acquire restricted shares under the Plan;
(k) “
Shares
” shall mean the Company’s common stock, $.0001 par value;
(l) “
Shareholders
” shall mean owners of record of any Shares.
2.
Purpose
. The purpose of this Equity Incentive Plan (the “Plan”) is two-fold. First, the Plan will further the interests of the Company and its shareholders by providing incentives in the form of stock options or restricted shares (each a “Share Award”) to employees who contribute materially to the success and profitability of the Company. Share Awards will be granted to recognize and reward outstanding individual performances and contributions and will give selected employees an interest in the Company parallel to that of the shareholders, thus enhancing their proprietary interest in the Company’s continued success and progress. This program also will enable the Company to attract and retain experienced employees. Second, the Plan will provide the Company flexibility and the means to reward directors and consultants who render valuable contributions to the Company.
3.
Administration
. This Plan will be administered by the Board. The Board has the exclusive power to select the participants in this Plan, fix the awards to each participant, and make all other determinations necessary or advisable under the Plan, to determine whether the performance of an eligible employee warrants an award under this Plan, and to determine the amount and duration of the award. The Board has full and exclusive power to construe and interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to take all actions necessary or advisable for this Plan’s administration. The Board shall have full power and authority to determine, and at the time such option is granted shall clearly set forth, whether the option shall be an Incentive Stock Option or a Non-statutory Option. Any such determination made by the Board will be final and binding on all persons. A member of the Board will not be liable for performing any act or making any determination required by or pursuant to the Plan, if such act or determination is made in good faith. The Board has the authority to set up a committee of directors to administer the Plan and to delegate whichever of the above powers it determines.
4.
Participants
. Any employee, officer, director or consultant that the Board, in its sole discretion, designates is eligible to participate in this Plan. However, only employees of the Company shall be eligible to receive grants of Incentive Stock Options. The Board’s designation of a person as a participant in any year does not require the Board to designate that person to receive an award under this Plan in any other year or, if so designated, to receive the same award as any other participant in any year. The Board may consider such factors as it deems pertinent in selecting participants and in determining the amount of their respective awards, including, but without being limited to: (a) the financial condition of the Company; expected profits for the current or future years; (c) the contributions of a prospective participant to the profitability and success of the Company; and (d) the adequacy of the prospective participant’s other compensation. The Board, in its discretion, may grant benefits to a participant under this Plan, even though stock, stock options, stock appreciation rights or other benefits previously were granted to him under this or another plan of the Company, whether or not the previously granted benefits have been exercised, but the participant may hold such options only on the terms and subject to the restrictions hereafter set forth. Subject to the foregoing limitation, a person who has participated in another benefit plan of the Company may also participate in this Plan.
5.
Option Awards
. Awards of options to acquire Shares under this Plan, if any, will be granted described below.
(a)
Limitations.
Upon the exercise of an option, the Company shall deliver to the participant certificates representing authorized but unissued Shares. The cumulative total number of shares which may be subject to options issued and outstanding pursuant to this Plan is limited to
475,000
shares. This amount will be automatically adjusted in accordance with Section 17 of this Plan. If an option is terminated, in whole or in part, for any reason other than its exercise, the Board may reallocate the shares subject to that option (or to the part thereof so terminated) to one or more other options to be granted under this Plan.
(b)
Expiration.
Any Incentive Stock Option granted under this Plan shall automatically expire ten years after the Date of Grant or at such earlier time as may be described in Section 6 or directed by the Board in the grant of the option. Notwithstanding the preceding sentence, no Incentive Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company shall, in any event, be exercisable after the expiration office years from the Date of Grant. For the purpose of determining under any provision of this Plan whether a shareholder owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company, such shareholder shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants, and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries.
(c)
Option Exercise Price.
Each option shall state the option price, which shall be not less than 100% of the fair market value of the Shares on the Date of Grant or the par value thereof whichever is greater. Notwithstanding the preceding sentence, in the case of a grant of an Incentive Stock Option to an employee who, as of the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its Parent or Subsidiaries, the option price shall not be less than 110% of the fair market value of the Shares on the Date of Grant or the par value thereof, whichever is greater. During such time as the Shares are not traded in any securities market, the fair market value per share shall be determined by a good faith effort of the Board, using its best efforts and judgment. During such time as the Shares are traded in a securities market but not listed upon an established stock exchange, the fair market value per share shall be the highest closing bid price in the securities market in which it is traded on the Date of Grant, as reported by the National Association of Securities Dealers, Inc. If the Shares are listed upon an established stock exchange or exchanges such fair market value shall be deemed to be the highest closing price on such stock exchange or exchanges on the Date of Grant, or if no sale of any Shares shall have been made on any stock exchange on that day, on the next preceding day on which there was such a sale. Subject to the foregoing, the Board shall have full authority and discretion in fixing the option price and shall be fully protected in doing so.
(d)
Maximum Option Exercise.
The aggregate fair market value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time by a grantee during any calendar year (under all such plans of the Company and its parent or subsidiary, if any) shall not exceed $100,000. For purposes of this Section 5, the value of stock acquired through the exercise of Non-statutory Options shall not be included in the computation of the aggregate fair market value.
6.
Exercise of Options
.
(a) No stock option granted under this Plan may be exercised before the Grantee’s completion of such period of services as may be specified by the Board on the Date of Grant. Furthermore, the timing of the exercise of any option granted under this Plan may be subject to a vesting schedule based upon years of service or an expiration schedule as may be specified by the Board on the Date of Grant. Thereafter, or if no such period is specified subject to the provisions of subsections (c), (d), (e), (t) and (g) of this Section 6, the Grantee may exercise the option in full or in part at any time until expiration of the option.
A Grantee cannot exercise an Incentive Stock Option granted under this Plan unless, at the time of exercise, he has been continuously employed by the Company since the date the option was granted. The Board may decide in each case to what extent bona fide leaves of absence for illness, temporary disability, government or military service, or other reasons will not be deemed to interrupt continuous employment.
(b) Unless an Option specifically provides to the contrary, all options granted under this Plan shall immediately become exercisable in full in the event of the consummation of any of the following transactions:
(i) A merger or acquisition in which the Company is not the surviving entity;
(ii) The sale, transfer or other disposition of all or substantially all of the assets of the Company; or
(iii) Any merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is issued to holders different from those who held the stock immediately prior to such merger.
(c) Except as provided in subsections (d), (e) and (t) of this Section 6, a Grantee cannot exercise an Incentive Stock Option after he ceases to be an employee of the Company, unless the Board, in its sole discretion, grants the recipient an extension of time to exercise the Incentive Stock Option after cessation of employment. The extension of time of exercise that may be granted by the Board under this subsection (c) shall not exceed three months after the date on which the Grantee ceases to be an employee and in no case shall extend beyond the stated expiration date of the option.
(d) If the employment of a Grantee is terminated by the Company for a cause as defined in subsection (i) of this Section 6, all rights to any stock option granted under this Plan shall terminate, including but not limited to the ability to exercise such stock options.
(e) If a Grantee ceases to be an employee as a result of retirement, he may exercise the Incentive Stock Option within three months after the date on which he ceases to be an employee (but no later than the stated expiration date of the option) to the extent that the Incentive Stock Option was exercisable when he ceased to be an employee. An employee shall be regarded as retired if he terminates employment after his sixty-fifth birthday.
(f) If a Grantee ceases to be an employee because of disability (within the meaning of Section l05(d)(4) of the Code), or if a Grantee dies, and if at the time of the Grantee’s disability or death he was entitled to exercise an Incentive Stock Option granted under this Plan, the Incentive Stock Option can be exercised within 12 months after his death or termination of employment on account of disability (but no later than the stated expiration date of the option), by the Grantee in the case of disability or, in case of death, by his personal representative, estate or the person who acquired by gift, bequest or inheritance his right to exercise the Incentive Stock Option. Such options can be exercised only as to the number of shares for which they could have been exercised at the time the Grantee died or became disabled.
(g) With respect to Non-statutory Options granted to Board members, the Board may provide on the Date of the Grant that such options will expire a specified number of days after such Board member ceases to be a member of the Board. In the absence of any such provision, the option will expire on the stated expiration date of the option.
(h) Any stock option granted under the Plan will terminate, as a whole or in part, to the extent that, in accordance with this Section 6, it no longer can be exercised.
(i) For purposes of this Section 6, “cause” shall mean the following:
(i) Fraud or criminal misconduct;
(ii) Gross negligence;
(iii) Willful or continuing disregard for the safety or soundness of the Company;
(iv) Willful or continuing violation of the published rules of the Company.
(j)
Notice.
Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Board (which need not be the same for each Grantee), stating the number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding Grantee’s investment intent and access to information, if any, as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased.
(k)
Payment.
Payment for the shares may be made in cash (by check) or, where approved by the Board in its sole discretion and where permitted by law: (a) by cancellation of indebtedness of the Company to the Grantee; (b) by surrender of shares of common stock of the Company having a Fair Market Value equal to the applicable exercise price of the Option that have been owned by Grantee for more than six months (and which have been paid for within the meaning of the Securities and Exchange Commission (“SEC”) Rule 144 and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares), or were obtained by Grantee in the open public market; (c) by waiver of compensation due or accrued to Grantee for services rendered; provided that a public market for the Company’s stock exists, through a “same day sale” commitment from Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby Grantee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; (e) provided that a public market for the Company’s stock exists, through a “margin” commitment from Grantee and an NASD Dealer whereby Grantee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; or (f) by any combination of the foregoing.
(l)
Taxes; Compliance with Law; Approval o/Regulatory Bodies.
The Company, if necessary or desirable, may pay or withhold the amount of any tax attributable to any amount payable or shares deliverable under this Plan and the Company may defer making payment on delivery until it is indemnified to its satisfaction for that tax. Stock options are exercisable, and shares can be delivered under this Plan, only in compliance with all applicable federal and sate laws and regulations, including, without limitation, state and federal securities laws, and the rules of all stock exchanges on which the Company’s shares are listed at any time. Any certificate issued pursuant to options granted under this Plan shall bear such legends and statements as the Board deems advisable to assure compliance with federal and state laws and regulations. No option may be exercised, and shares may not be issued under this Plan, until the Company has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Board deems advisable.
Specifically, in the event that the Company deems it necessary or desirable to file a registration statement with the
Securities and Exchange Commission or any State Securities Commission, no option granted under the Plan may be exercised, and shares may not be issued, until the Company has obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate acquiring by bequest or inheritance the right to exercise such option, the Board may require reasonable evidence as to the ownership of the option and may require such consents and releases of taxing authorities as the Board deems advisable.
7.
Restricted Share Awards
. Each restricted share award agreement shall be in such form and shall contain such restrictions, terms and conditions, if any, as the Board shall deem appropriate and shall be subject to the terms and conditions of this Plan. The terms and conditions of restricted share award agreements may change from time to time, and the terms and conditions of separate restricted share award agreements need not be identical, but each restricted share award agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(a)
Consideration.
A restricted share award may be awarded in consideration for past services actually rendered, or for future services to be rendered, to the Company or an affiliate of the Company for its benefit.
(b)
Vesting.
Common Stock awarded under the restricted share award agreement may (A) be subject to a vesting schedule to be determined by the Board, or (B) be fully vested at the time of grant.
(c)
Termination of Grantee’s Service.
Unless otherwise provided in the restricted share award agreement, in the event a Grantee’s service terminates prior to a vesting date set forth in the restricted share award agreement, any unvested restricted share award shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company, and neither the Grantee nor his or her heirs, executors, administrators or successors shall have any right or interest in the restricted share award. Notwithstanding the foregoing, unless otherwise provided in the restricted share award agreement, in the event a Grantee’s service terminates as a result of (A) being terminated by the Company for reasons other than for cause, (B) death, (C) Disability, (D) Retirement, or (E) a Change of Control (subject to the provisions of Section 11(c) hereof), then any unvested restricted share award shall vest immediately upon such date.
(d)
Transferability.
Rights to acquire Common Stock under the restricted share award agreement shall be transferable by the Grantee only upon such terms and conditions as are set forth in the restricted share award agreement, as the Board shall determine in its discretion, so long as Ordinary Shares awarded under the restricted share award agreement remain subject to the terms of the restricted share award agreement.
8.
Assignability
. No Share Award granted under this Plan is transferable other than by will or the laws of descent and distribution. Each Share Award is exercisable during the life of the Grantee only by him.
9.
Tenure
. A participant’s right, if any, to continue to serve the Company as an officer, employee or otherwise, will not be enlarged or otherwise affected by his designation as a participant under this Plan, and such designation will not in any way restrict the right of the Company to terminate at any time the employment or affiliation of any participant for cause or otherwise.
10.
Amendment and Termination of Plan
. The Board may alter, amend or terminate this Plan from time to time without approval of the shareholders. However, without the approval of the shareholders, no amendment will be effective that:
(a) materially increases the benefits accruing to participants under the Plan;
(b) increases the cumulative number of shares that may be delivered upon the exercise of options granted under the Plan or the aggregate fair market value of options which a participant may exercise in any calendar year;
(c) materially modifies the eligibility requirements for participation in the Plan; or
(d) amends the requirements of paragraphs (a)-(c) of this Section 10.
Any amendment, whether with or without the approval of shareholders, that alters the terms or provisions of an option granted before the amendment will be effective only with the consent of the participant to whom the option was granted or the holder currently entitled to exercise it, except for adjustments expressly authorized by this Plan.
11.
Expenses of Plan
. The expenses of the Plan will be borne by the Company.
12.
Duration of Plan
. Share Awards may only be granted under this Plan during the ten years immediately following the earlier of the adoption of the Plan or its approval by the Shareholders. Share Awards granted during that ten year period will remain valid thereafter in accordance with their terms and the provisions of this Plan.
13.
Other Provisions
. The award agreements authorized under the Plan shall contain such other provisions including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable. Any such option agreements, which are intended to be “Incentive Stock Options” shall contain such limitations and restrictions upon the exercise of the option as shall be necessary in order that such option will be an “Incentive Stock Option” as defined in Section 422 of the Code.
14.
Indemnification of the Board
. In addition to such other rights of indemnification as they may have as directors, the members of the Board shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director is liable for negligence or misconduct in the performance of his duties.
15.
Application of Funds
. The proceeds received by the Company from the sale of stock pursuant to options granted under this Plan will be used for general corporate purposes.
16.
No Obligation to Exercise Option
. The granting of an option shall impose no obligation upon the Grantee to exercise such option.
17.
Adjustment Upon Change of Shares
. If a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, stock dividend, rights offering, or other event affecting shares of the Company occurs, then the number and class of shares to which options are authorized to be granted under this Plan, the number and class of shares then subject to options previously granted under this Plan, and the price per share payable upon exercise of each option outstanding under this Plan shall be equitably adjusted by the Board to reflect such changes.
18.
Number and Gender
. Unless otherwise clearly indicated in this Plan, words in the singular or plural shall include the plural and singular, respectively, where they would so apply, and words in the masculine or neuter gender shall include the feminine, masculine or neuter gender where applicable.
19.
Applicable Law
. The validity, interpretation and enforcement of this Plan are governed in all respects by the laws of Colorado.
20.
Effective Date of Plan
. This Plan shall not take effect until adopted by the Board. This Plan shall terminate if it is not approved by the shareholders of the capital stock of the Company, which approval must occur within the period beginning twelve months before and ending twelve months after the Plan is adopted by the Board.
Exhibit 10.3
INFINITY ENERGY RESOURCES, INC.
2006 EQUITY INCENTIVE PLAN
470,000 SHARES
This Equity Incentive Plan was adopted this 1st day of March 2006, by Infinity Energy Resources, Inc., a Colorado corporation, upon the following terms and conditions:
1.
Definitions.
Except as otherwise expressly provided in this Plan, the following capitalized terms shall have the respective meanings hereafter ascribed to them:
(a) "
Board
" shall mean the Board of Directors of the Company;
(b) "
Code
" shall mean the Internal Revenue Code of 1986, as amended;
(c) "
Consultant
" shall mean a person who provides services to the Company as an independent contractor;
(d) "
Company
" means Infinity Energy Resources, Inc. and each and all of any present and future subsidiaries;
(e) "
Date of Grant
" shall mean, for each participant in the Plan, the date on which the Board approves the specific grant to that participant under the plan;
(t) "
Employee
" shall be an employee of the Company or any subsidiary of the Company;
(g) "
Grantee
" shall mean the recipient of an Incentive Stock Option, a Non-statutory Option or a Restricted Share Award under the Plan;
(h) "
Incentive Stock Option
" shall refer to a stock option which qualifies under Section 422 of the Code;
(i) "
Non-statutory Option
" shall mean an option which is not an Incentive Stock Option;
G) "
Shares
" shall mean the Company's common stock, $.0001 par value;
(k) "
Shareholders
" shall mean owners of record of any Shares.
2.
Purpose.
The purpose of this Equity Incentive Plan (the "Plan") is two-fold. First, the Plan will further the interests of the Company and its shareholders by providing incentives in the form of stock options or restricted shares (each a "Share Award") to employees who contribute materially to the success and profitability of the Company. Share Awards will be granted to recognize and reward outstanding individual performances and contributions and will give selected employees an interest in the Company parallel to that of the shareholders, thus enhancing their proprietary interest in the Company's continued success and progress. This program also will enable the Company to attract and retain experienced employees. Second, the Plan will provide the Company flexibility and the means to reward directors and consultants who render valuable contributions to the Company.
3.
Administration.
This Plan will be administered by the Board. The Board has the exclusive power to select the participants in this Plan, fix the awards to each participant, and make all other determinations necessary or advisable under the Plan, to determine whether the performance of an eligible employee warrants an award under this Plan, and to determine the amount and duration of the award. The Board has full and exclusive power to construe and interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to take all actions necessary or advisable for this Plan's administration. The Board shall have full power and authority to determine, and at the time such option is granted shall clearly set forth, whether the option shall be an Incentive Stock Option or a Non-statutory Option. Any such determination made by the Board will be final and binding on all persons. A member of the Board will not be liable for performing any act or making any determination required by or pursuant to the Plan, if such act or determination is made in good faith. The Board has the authority to set up a committee of directors to administer the Plan and to delegate whichever of the above powers it determines.
4.
Participants.
Any employee, officer, director or consultant that the Board, in its sole discretion, designates is eligible to participate in this Plan. However, only employees of the Company shall be eligible to receive grants of Incentive Stock Options. The Board's designation of a person as a participant in any year does not require the Board to designate that person to receive an award under this Plan in any other year or, if so designated, to receive the same award as any other participant in any year. The Board may consider such factors as it deems pertinent in selecting participants and in determining the amount of their respective awards, including, but without being limited to: (a) the financial condition of the Company; (b) expected profits for the current or future years; (c) the contributions of a prospective participant to the profitability and success of the Company; and (d) the adequacy of the prospective participant's other compensation. The Board, in its discretion, may grant benefits to a participant under this Plan, even though stock, stock options, stock appreciation rights or other benefits previously were granted to him under this or another plan of the Company, whether or not the previously granted benefits have been exercised, but the participant may hold such options only on the terms and subject to the restrictions hereafter set forth. Subject to the foregoing limitation, a person who has participated in another benefit plan of the Company may also participate in this Plan.
5.
Option Awards.
Awards of options to acquire Shares under this Plan, if any, will be granted as described below.
(a)
Limitations.
Upon the exercise of an option, the Company shall deliver to the participant certificates representing authorized but unissued Shares. The cumulative total number of shares which may be subject to options issued and outstanding pursuant to this Plan is limited to 470,000 shares. This amount will be automatically adjusted in accordance with Section 17 of this Plan. If an option is terminated, in whole or in part, for any reason other than its exercise, the Board may reallocate the shares subject to that option (or to the part thereof so terminated) to one or more other options to be granted under this Plan.
(b)
Expiration.
Any Incentive Stock Option granted under this Plan shall automatically expire ten years after the Date of Grant or at such earlier time as may be described in Section 6 or directed by the Board in the grant of the option. Notwithstanding the preceding sentence, no Incentive Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company shall, in any event, be exercisable after the expiration of five years from the Date of Grant. For the purpose of determining under any provision of this Plan whether a shareholder owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company, such shareholder shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants, and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries.
(c)
Option Exercise Price.
Each option shall state the option price, which shall be not less than 100% of the fair market value of the Shares on the Date of Grant or the par value thereof whichever is greater. Notwithstanding the preceding sentence, in the case of a grant of an Incentive Stock Option to an employee who, as of the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or subsidiaries, the option price shall not be less than 110% of the fair market value of the Shares on the Date of Grant or the par value thereof, whichever is greater.
During such time as the Shares are not traded in any securities market, the fair market value per share shall be determined by a good faith effort of the Board, using its best efforts and judgment. During such time as the Shares are traded in a securities market but not listed upon an established stock exchange, the fair market value per share shall be the highest closing bid price in the securities market in which it is traded on the Date of Grant, as reported by the National Association of Securities Dealers, Inc. If the Shares are listed upon an established stock exchange or exchanges such fair market value shall be deemed Table of Contents
to be the highest closing price on such stock exchange or exchanges on the Date of Grant, or if no sale of any Shares shall have been made on any stock exchange on that day, on the next preceding day on which there was such a sale. Subject to the foregoing, the Board shall have full authority and discretion in fixing the option price and shall be fully protected in doing so.
(d)
Maximum Option Exercise.
The aggregate fair market value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time by a grantee during any calendar year (under all such plans of the Company and its parent or subsidiary, if any) shall not exceed $100,000. For purposes of this Section 5, the value of stock acquired through the exercise of Non-statutory Options shall not be included in the computation of the aggregate fair market value.
6.
Exercise of Options.
(a) No stock option granted under this Plan may be exercised before the Grantee's completion of such period of services as may be specified by the Board on the Date of Grant. Furthermore, the timing of the exercise of any option granted under this Plan may be subject to a vesting schedule based upon years of service or an expiration schedule as may be specified by the Board on the Date of Grant. Thereafter, or if no such period is specified subject to the provisions of subsections ( c), (d), (e), (f) and (g) of this Section 6, the Grantee may exercise the option in full or in part at any time until expiration of the option.
A Grantee cannot exercise an Incentive Stock Option granted under this Plan unless, at the time of exercise, he has been continuously employed by the Company since the date the option was granted. The Board may decide in each case to what extent bona fide leaves of absence for illness, temporary disability, government or military service, or other reasons will not be deemed to interrupt continuous employment.
(b) Unless an Option specifically provides to the contrary, all options granted under this Plan shall immediately become exercisable in full in the event of the consummation of any of the following transactions (individually, a "Change of Control"):
(i) A merger or acquisition in which the Company is not the surviving entity;
(ii) The sale, transfer or other disposition of all or substantially all of the assets of the Company; or
(iii) Any merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock is issued to holders different from those who held the stock immediately prior to such merger.
(c) Except as provided in subsections (d), (e) and (f) of this Section 6, a Grantee cannot exercise an Incentive Stock Option after he ceases to be an employee of the Company, unless the Board, in its sole discretion, grants the recipient an extension of time to exercise the Incentive Stock Option after cessation of employment. The extension of time of exercise that may be granted by the Board under this subsection (c) shall not exceed three months after the date on which the Grantee ceases to be an employee and in no case shall extend beyond the stated expiration date of the option.
(d) If the employment of a Grantee is terminated by the Company for cause as defined in subsection (i) of this Section 6, all rights to any stock option granted under this Plan shall terminate, including but not limited to the ability to exercise such stock options.
(e) If a Grantee ceases to be an employee as a result of retirement, he may exercise the Incentive Stock Option within three months after the date on which he ceases to be an employee (but no later than the stated expiration date of the option) to the extent that the Incentive Stock Option was exercisable when he ceased to be an employee. An employee shall be regarded as retired if he terminates employment after his sixty-fifth birthday.
(f) If a Grantee ceases to be an employee because of disability (within the meaning of Section 105(d)(4) of the Code), or if a Grantee dies, and if at the time of the Grantee's disability or death he was entitled to exercise an Incentive Stock Option granted under this Plan, the Incentive Stock Option can be exercised within 12 months after his death or termination of employment on account of disability (but no later than the stated expiration date of the option), by the Grantee in the case of disability or, in case of death, by his personal representative, estate or the person who acquired by gift, bequest or inheritance his right to exercise the Incentive Stock Option. Such options can be exercised only as to the number of shares for which they could have been exercised at the time the Grantee died or became disabled.
(g) With respect to Non-statutory Options granted to Board members, the Board may provide on the Date of the Grant that such options will expire a specified number of days after such Board member ceases to be a member of the Board. In the absence of any such provision, the option will expire on the stated expiration date of the option.
(h) Any stock option granted under the Plan will terminate, as a whole or in part, to the extent that, in accordance with this Section 6, it no longer can be exercised.
(i) For purposes of this Section 6, "cause" shall mean the following:
(1) Fraud or criminal misconduct;
(2) Gross negligence;
(3) Willful or continuing disregard for the safety or soundness of the Company;
(4) Willful or continuing violation of the published rules of the Company.
(j)
Notice.
Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Board (which need not be the same for each Grantee), stating the number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding Grantee's investment intent and access to information, if any, as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased.
(k)
Payment.
Payment for the shares may be made in cash (by check) or, where approved by the Board in its sole discretion and where permitted by law: (a) by cancellation of indebtedness of the Company to the Grantee; (b) by surrender of shares of common stock of the Company having a Fair Market Value equal to the applicable exercise price of the Option that have been owned by Grantee for more than six months (and which have been paid for within the meaning of the Securities and Exchange Commission ("SEC") Rule 144 and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares), or were obtained by Grantee in the open public market; (c) by waiver of compensation due or accrued to Grantee for services rendered; (d) provided that a public market for the Company's stock exists, through a "same day sale" commitment from Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Grantee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; (e) provided that a public market for the Company's stock exists, through a "margin" commitment from Grantee and an NASD Dealer whereby Grantee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; or (f) by any combination of the foregoing.
(l)
Taxes; Compliance with Law; Approval of Regulatory Bodies.
The Company, if necessary or desirable, may payor withhold the amount of any tax attributable to any amount payable or shares deliverable under this Plan and the Company may defer making payment on delivery until it is indemnified to its satisfaction for that tax. Stock options are exercisable, and shares can be delivered under this Plan, only in compliance with all applicable federal and state laws and regulations, including, without limitation, state and federal securities laws, and the rules of all stock exchanges on which the Company's shares are listed at any time. Any certificate issued pursuant to options granted under this Plan shall bear such legends and statements as the Board deems advisable to assure compliance with federal and state laws and regulations. No Option may be exercised, and shares may not ne issued under this Plan, until the Company has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Board deems advisable.
Specifically, in the event that the Company deems it necessary or desirable to file a registration statement with the Securities and Exchange Commission or any State Securities Commission, no option granted under the Plan may be exercised, and shares may not be issued, until the Company has obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate acquiring by bequest or inheritance the right to exercise such option, the Board may require reasonable evidence as to the ownership of the option and may require such consents and releases of taxing authorities as the Board deems advisable.
7.
Restricted Share Awards.
Each restricted share award agreement shall be in such form and shall contain such restrictions, terms and conditions, if any, as the Board shall deem appropriate and shall be subject to the terms and conditions of this Plan. The terms and conditions of restricted share award agreements may change from time to time, and the terms and conditions of separate restricted share award agreements need not be identical, but each restricted share award agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(a)
Consideration.
A restricted share award may be awarded in consideration for past services actually rendered, or for future services to be rendered, to the Company or an affiliate of the Company for its benefit.
(b)
Vesting.
Common Stock awarded under the restricted share award agreement may (A) be subject to a vesting schedule to be determined by the Board, or (B) be fully vested at the time of grant.
(c)
Termination of Grantee's Service.
Unless otherwise provided in the restricted share award agreement, in the event a Grantee's service terminates prior to a vesting date set forth in the restricted share award agreement, any unvested restricted share award shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company, and neither the Grantee nor his or her heirs, executors, administrators or successors shall have any right or interest in the restricted share award. Notwithstanding the foregoing, unless otherwise provided in the restricted share award agreement, in the event a Grantee's service terminates as a result of (A) being terminated by the Company for reasons other than for cause, (B) death, (C) disability, (D) retirement, or (E) a Change of Control, then any unvested restricted share award shall vest immediately upon such date.
(d)
Transferability.
Rights to acquire Common Stock under the restricted share award agreement shall be transferable by the Grantee only upon such terms and conditions as are set forth in the restricted share award agreement, as the Board shall determine in its discretion, so long as Shares awarded under the restricted share award agreement remain subject to the terms of the restricted share award agreement.
8.
Assignability.
No Share Award granted under this Plan is transferable other than by will or the laws of descent and distribution. Each Share Award is exercisable during the life of the Grantee only by him.
9.
Tenure.
A participant's right, if any, to continue to serve the Company as an officer, employee or otherwise, will not be enlarged or otherwise affected by his designation as a participant under this Plan, and such designation will not in any way restrict the right of the Company to terminate at any time the employment or affiliation of any participant for cause or otherwise.
10.
Amendment and Termination of Plan.
The Board may alter, amend or terminate this Plan from time to time without approval of the shareholders. However, without the approval of the shareholders, no amendment will be effective that:
(a) materially increases the benefits accruing to participants under the Plan;
(b) increases the cumulative number of shares that may be delivered upon the exercise of options granted under the Plan or the aggregate fair market value of options which a participant may exercise in any calendar year;
(c) materially modifies the eligibility requirements for participation in the Plan; or
(d) amends the requirements of paragraphs (a)-(c) of this Section 10.
Any amendment, whether with or without the approval of shareholders, that alters the terms or provisions of an option granted before the amendment will be effective only with the consent of the participant to whom the option was granted or the holder currently entitled to exercise it, except for adjustments expressly authorized by this Plan.
11.
Expenses of Plan.
The expenses of the Plan will be borne by the Company.
12.
Duration of Plan.
Share Awards may only be granted under this Plan during the ten years immediately following the earlier of the adoption of the Plan or its approval by the Shareholders. Share Awards granted during that ten year period will remain valid thereafter in accordance with their terms and the provisions of this Plan.
13.
Other Provisions.
The award agreements authorized under the Plan shall contain such other provisions including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable. Any such option agreements, which are intended to be "Incentive Stock Options" shall contain such limitations and restrictions upon the exercise of the option as shall be necessary in order that such option will be an "Incentive Stock Option" as defined in Section 422 of the Code.
14.
Indemnification of the Board.
In addition to such other rights of indemnification as they may have as directors, the members of the Board shall be indemnified by the Company against the reasonable expenses, including attorneys' fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director is liable for negligence or misconduct in the performance of his duties.
15.
Application of Funds.
The proceeds received by the Company from the sale of stock pursuant to options granted under this Plan will be used for general corporate purposes.
16.
No Obligation to Exercise Option.
The granting of an option shall impose no obligation upon the Grantee to exercise such option.
17.
Adjustment Upon Change of Shares.
If a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, stock dividend, rights offering, or other event affecting shares of the Company occurs, then the number and class of shares to which options are authorized to be granted under this Plan, the number and class of shares then subject to options previously granted under this Plan, and the price per share payable upon exercise of each option outstanding under this Plan shall be equitably adjusted by the Board to reflect such changes.
18.
Number and Gender.
Unless otherwise clearly indicated in this Plan, words in the singular or plural shall include the plural and singular, respectively, where they would so apply, and words in the masculine or neuter gender shall include the feminine, masculine or neuter gender where applicable.
19.
Applicable Law.
The validity, interpretation and enforcement of this Plan are governed in all respects by the laws of Colorado.
20.
Effective Date of Plan.
This Plan shall not take effect until adopted by the Board. This Plan shall terminate if it is not approved by the shareholders of the capital stock of the Company, which approval must occur within the period beginning twelve months before and ending twelve months after the Plan is adopted by the Board.
Exhibit 10.4
INFINITY ENERGY RESOURCES, INC.
2006 EQUITY INCENTIVE PLAN
FORM OF INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the “Agreement”), made as of the ____ day of _____________, 200__, and between Infinity Energy Resources, Inc., a corporation duly formed and existing under the laws of Delaware (the “Company”), and _________________________ (the “Participant”).
WHEREAS
, the Company desires to encourage and enable the Participant to acquire a proprietary interest in the Company through the ownership of the Company’s common stock, par value US$0.0001 per share (the “Common Stock”) pursuant to the terms and conditions of the 2006 Equity Incentive Plan (the “Plan”) and this Agreement. Such ownership will provide the Participant with a more direct stake in the future of the Company and encourage the Participant to remain with the Company and/or its Affiliates, as applicable.
NOW, THEREFORE
, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows:
1.
DEFINITIONS
.
For purposes of this Agreement, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Plan.
2.
GRANT OF OPTION
. The Company hereby grants to the Participant an Incentive Stock Option (the “Option”) to purchase _Shares at the exercise price (the “Exercise Price”) of $ per share, subject to the terms and conditions of this Agreement and the Plan.
3.
OPTION TERM
. The Option granted hereby shall expire on ____, 201__ (the “Expiration Date”), unless sooner terminated or modified under the provisions of this Agreement or the Plan. Except as otherwise set forth herein, the Option may not be exercised after the Expiration Date.
4.
WHEN VESTED AND EXERCISABLE
. The Option shall vest and be exercisable by the Participant on the one year anniversary of the grant date, ___, 200__.
5.
EMPLOYMENT TERMINATION: DEATH; DISABILITY; RETIREMENT; CAUSE
.
(a) If the services of the Participant are terminated for any reason other than death, disability, retirement, Change in Control, or cause (in each case as defined below), the portion of this Option to purchase Common Stock that is not vested on the date of such termination of service shall terminate and be forfeited on such date of termination; however, the vested portion of this Option shall be exercisable by the Participant at any time on or prior to the earlier of (i) the Expiration Date or (ii) the three month anniversary of the date of such termination of service. Any portion of this Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
(b) In the event of the death or disability (as defined in Section 6(f) of the Plan) of the Participant, the unvested portion of this Option shall immediately terminate and be forfeited, and the vested portion of the Option on such date shall be exercisable at any time on or prior to the 12 month anniversary of such date by the beneficiary designated by the Participant for such purpose (the “Designated Beneficiary”) or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the Participant, by the Participant’s personal representatives, heirs or legatees. Any portion of the Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
(c) In the event of the retirement of the Participant pursuant to Section 6( e) of the Plan, this Option shall be exercisable by such Participant at any time on or prior to the earlier of (i) the stated expiration date of the Option, or (ii) the three month anniversary of the date of such retirement.
(d) In the event the service of the Participant is terminated for cause as defined in Section 6(i) of the Plan, this Option (including any vested portion) shall be forfeited as of the date of termination.
6.
CHANGE IN CONTROL
. In the event of a Change in Control, the Company shall give the Participant notice thereof and this Option, whether or not currently vested and exercisable, shall become immediately vested and exercisable immediately prior to the effective date of the Change in Control, and the Board shall have the power and discretion to provide alternatives regarding the terms and conditions for the exercise of, or modification of, this Option in accordance with the Plan.
“Change in Control” as used in this Agreement shall mean the first to occur of the following events specified in (i), (ii), (iii), (iv), (v) or (vi) (but no event other than the specified events): (i) any person becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities (other than (x) the Company, (y) any subsidiary of the Company, (z) one or more employee benefit plans maintained by the Company), or (xx) any noteholders or warrantholders under the Securities Purchase Agreement dated as of January 13,2005 among Infinity, Inc., the predecessor of the Company, and HFTP Investment L.L.C., AG Domestic Convertibles, L.P. and AG Offshore Convertibles Ltd., as further amended, supplemented and modified (the “Promethean Purchase Agreement”»; (ii) any noteholders or warrantholders under the Promethean Purchase Agreement, whether individually or as a group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) become the owner, directly or indirectly, of outstanding voting securities (including voting securities acquired on conversion of notes or exercise of warrants) of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities; (iii) three or more Directors of the Company, whose election or nomination for election is not approved by a majority of the applicable Incumbent Board, are elected within any single twelve month period to serve on the Board; (iv) members of the applicable Incumbent Board cease to constitute a majority of the Board; (v) the consummation of a merger or consolidation of the Company with or into any other corporation or entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization own less than 50% of the outstanding voting securities of the surviving entity (or its parent) following the consolidation, merger or reorganization or (vi) the consummation of a sale, lease or other disposition of all or substantially all of the assets of the Company. For purposes of this Section, the terms “person” and “beneficial owner” shall have the meanings set forth in Rule 13d-3 of the Exchange Act and in the regulations promulgated thereunder. For purposes of this paragraph, “Incumbent Board” shall mean (i) members of the Board of Directors of the Company as of the date hereof, to the extent that they continue to serve as members of the Board, and (ii) any individual who becomes a member of the Board after the date hereof, if such individual’s election or nomination for election as a Director was approved by a vote of at least seventy-five percent (75%) of the then applicable Incumbent Board.
7.
INCENTIVE STOCK OPTION TAX MATTERS
.
(a) This Option is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. The Board may take all appropriate action to achieve this result. The Exercise Price has been determined to be equal to or greater than the fair market value per Share at the time of grant.
(b) To the extent the aggregate fair market value (determined at the time of grant in accordance with Section 5(c) of the Plan) of the Common Stock with respect to which the Option plus all other incentive stock options Participant holds that are exercisable for the first time by Participant during any calendar year exceeds one hundred thousand dollars ($100,000), Participant’s option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Non-Statutory Options.
8.
NON-ASSIGNABILITY
. The Option granted hereby and any right arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except by will or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein or in the Plan shall be null and void and without effect. An Option may be exercised solely by the Participant during his or her lifetime, or following his or her death pursuant to Section 5(b) hereof.
9.
MODE OF EXERCISE
.
The Option may be exercised in whole or in part. Common Stock purchased upon the exercise of the Option shall be paid for in full at the time of such purchase. Such payment shall be made in cash or by wire transfer in immediately available funds in either event denominated in U.S. dollars. Upon receipt of notice of exercise and payment in accordance with procedures to be established by the Board, the Company or its agent shall deliver to the person exercising the Option (or his or her designee) a certificate for such Common Stock.
10.
RECAPITALIZATION
.
The number of shares of Common Stock covered by this Option and the exercise price shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock as set forth in the Plan; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Board may also make any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. Notwithstanding any other provision of the Plan or this Agreement, the Board may cause the Option granted hereunder to be canceled in consideration of a cash payment or alternative stock award made to the holder of such canceled Option equal in value to the fair market value of such canceled Option.
11.
PLAN CONTROLLING
.
This Agreement is intended to conform in all respects with the requirements of the Plan. Inconsistencies between the requirements of this Agreement and the Plan shall be resolved according to the terms of the Plan. The Participant acknowledges receipt of a copy of the Plan.
12.
RIGHTS PRIOR TO EXERCISE OF OPTION
.
The Participant shall not have any rights as a stockholder with respect to any Common Stock subject to the Option prior to the date on which he is recorded as the holder of such Common Stock on the records of the Company.
13.
WITHHOLDING TAXES
.
The Company shall have the right to require Participants or their beneficiaries or legal representatives to remit to the Company an amount sufficient to satisfy any United States federal, state and local withholding tax requirements, including upon the grant, vesting or exercise of this Option. Whenever payments under the Plan or this Agreement are to be made to any Participant in cash, such payments shall be net of any amounts sufficient to satisfy all applicable taxes, including without limitation, all applicable United States federal, state and local withholding tax requirements to be withheld or submitted by the Company concerning such payments. The Board may, in its sole discretion, permit a Participant to satisfy his or her tax withholding obligation either by (i) surrendering Common Stock owned by the Participant or (ii) having the Company withhold from Common Stock otherwise deliverable to the Participant. Common Stock surrendered or withheld shall be valued at its Fair Market Value as of the date on which income is required to be recognized for income tax purposes.
14.
NO LIABILITY OF BOARD COMMITTEE MEMBERS
.
No member of the Board or any Committee or their designees shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Board or a Committee nor for any mistake of judgment made in good faith.
15.
GOVERNING LAW
.
This Agreement and all rights arising hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the Delaware.
NEITHER THE PLAN NOR THIS AGREEMENT SHALL BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR ANY AFFILIATE THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY OR ANY AFFILIATE THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT’S EMPLOYMENT OR SERVICE AT ANY TIME WITH OR WITHOUT CAUSE.
* * * * *
Executed as of the day and year first above written.
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INFINITY ENERGY RESOURCES, INC.
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By:
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Name:
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Title:
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PARTICIPANT
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By:
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Name:
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Exhibit 10.5
INFINITY ENERGY RESOURCES, INC.
2006 EQUITY INCENTIVE PLAN
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (the “Agreement”), made as of the ___day of ______________,200__, by and between Infinity Energy Resources, Inc., a corporation duly formed and existing under the laws of Delaware (the “Company”), and ___________________ (the “Participant”).
WHEREAS
, the Company desires to encourage and enable the Participant to acquire a proprietary interest in the Company through the ownership of the Company’s common stock, par value US$0.0001 per share (the “Common Stock”) pursuant to the terms and conditions of the 2006 Equity Incentive Plan (the “Plan”) and this Agreement. Such ownership will provide the Participant with a more direct stake in the future of the Company and encourage the Participant to remain with the Company and/or its Affiliates, as applicable.
NOW, THEREFORE
, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows:
1.
DEFINITIONS
. For purposes of this Agreement, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Plan.
2.
GRANT OF OPTION
. The Company hereby grants to the Participant a Nonqualified Stock Option (the “Option”) to purchase __ Shares at the exercise price (the “Exercise Price”) of $ per share, subject to the terms and conditions of this Agreement and the Plan.
3.
OPTION TERM
. The Option granted hereby shall expire on ___, 201_(the “Expiration Date”), unless sooner terminated or modified under the provisions of this Agreement or the Plan. Except as otherwise set forth herein, the Option may not be exercised after the Expiration Date.
4.
VESTING
. The Option shall vest as follows:
No. of Options
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Vesting Date
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100%
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On the one year anniversary of the grant date
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5.
EMPLOYMENT TERMINATION: DEATH; DISABILITY; RETIREMENT; CAUSE
.
(a) If the services of the Participant are terminated for any reason other than death, disability, retirement, Change in Control, or cause (in each case as defined below), the portion of this Option to purchase Common Stock that is not vested on the date of such termination of service shall terminate and be forfeited on such date of termination; however, the vested portion of this Option shall be exercisable by the Participant at any time on or prior to the earlier of (i) the Expiration Date or (ii) the three month anniversary of the date of such termination of service. Any portion of this Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
(b) In the event of the death or disability (as defined in Section 6(f) of the Plan) of the Participant, the unvested portion of this Option shall immediately terminate and be forfeited, and the vested portion of the Option on such date shall be exercisable at any time on or prior to the 12 month anniversary of such date by the beneficiary designated by the Participant for such purpose (the “Designated Beneficiary”) or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the Participant, by the Participant’s personal representatives, heirs or legatees. Any portion of the Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
(c) In the event of the retirement of the Participant pursuant to Section 6(e) of the Plan, this Option shall be exercisable by such Participant at any time on or prior to the earlier of (i) the stated expiration date of the Option, or (ii) the three month anniversary of the date of such retirement.
(d) In the event the service of the Participant is terminated for cause as defined in Section 6(i) of the Plan, this Option (including any vested portion) shall be forfeited as of the date of termination.
6.
CHANGE IN CONTROL
. In the event of a Change in Control, the Company shall give the Participant notice thereof and this Option, whether or not currently vested and exercisable, shall become immediately vested and exercisable immediately prior to the effective date of the Change in Control, and the Board shall have the power and discretion to provide alternatives regarding the terms and conditions for the exercise of, or modification of, this Option in accordance with the Plan.
“Change in Control” as used in this Agreement shall mean the first to occur of the following events specified in (i), (ii), (iii), (iv), (v) or (vi) (but no event other than the specified events): (i) any person becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities (other than (x) the Company, (y) any subsidiary of the Company, (z) one or more employee benefit plans maintained by the Company), or (xx) any noteholders or warrantholders under the Securities Purchase Agreement dated as of January 13, 2005 among Infinity, Inc., the predecessor of the Company, and HFTP Investment L.L.C., AG Domestic Convertibles, L.P. and AG Offshore Convertibles Ltd., as further amended, supplemented and modified (the “Promethean Purchase Agreement”)); (ii) any noteholders or warrantholders under the Promethean Purchase Agreement, whether individually or as a group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) become the owner, directly or indirectly, of outstanding voting securities (including voting securities acquired on conversion of notes or exercise of warrants) of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities; (iii) three or more Directors of the Company, whose election or nomination for election is not approved by a majority of the applicable Incumbent Board, are elected within any single twelve month period to serve on the Board; (iv) members of the applicable Incumbent Board cease to constitute a majority of the Board; (v) the consummation of a merger or consolidation of the Company with or into any other corporation or entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization own less than 50% of the outstanding voting securities of the surviving entity (or its parent) following the consolidation, merger or reorganization or (vi) the consummation of a sale, lease or other disposition of all or substantially all of the assets of the Company. For purposes of this Section, the terms “person” and “beneficial owner” shall have the meanings set forth in Rule 13d-3 of the Exchange Act and in the regulations promulgated thereunder. For purposes of this paragraph, “Incumbent Board” shall mean (i) members of the Board of Directors of the Company as of the date hereof, to the extent that they continue to serve as members of the Board, and (ii) any individual who becomes a member of the Board after the date hereof, if such individual’s election or nomination for election as a Director was approved by a vote of at least seventy-five percent (75%) of the then applicable Incumbent Board.
7.
NON-ASSIGNABILITY
. The Option granted hereby and any right arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except by will or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein or in the Plan shall be null and void and without effect. An Option may be exercised solely by the Participant during his or her lifetime, or following his or her death pursuant to Section 5(b) hereof.
8.
MODE OF EXERCISE
. The Option may be exercised in whole or in part. Common Stock purchased upon the exercise of the Option shall be paid for in full at the time of such purchase. Such payment shall be made in cash or by wire transfer in immediately available funds in either event denominated in U.S. dollars. Upon receipt of notice of exercise and payment in accordance with procedures to be established by the Board, the Company or its agent shall deliver to the person exercising the Option (or his or her designee) a certificate for such Common Stock.
9.
RECAPITALIZATION
. The number of shares of Common Stock covered by this Option and the exercise price shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock as set forth in the Plan; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Board may also make any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. Notwithstanding any other provision of the Plan or this Agreement, the Board may cause the Option granted hereunder to be canceled in consideration of a cash payment or alternative stock award made to the holder of such canceled Option equal in value to the fair market value of such canceled Option.
10.
PLAN CONTROLLING
. This Agreement is intended to conform in all respects with the requirements of the Plan. Inconsistencies between the requirements of this Agreement and the Plan shall be resolved according to the terms of the Plan. The Participant acknowledges receipt of a copy of the Plan.
11.
RIGHTS PRIOR TO EXERCISE OF OPTION
. The Participant shall not have any rights as a stockholder with respect to any Common Stock subject to the Option prior to the date on which he is recorded as the holder of such Common Stock on the records of the Company.
12.
WITHHOLDING TAXES
. The Company shall have the right to require Participants or their beneficiaries or legal representatives to remit to the Company an amount sufficient to satisfy any United States federal, state and local withholding tax requirements, including upon the grant, vesting or exercise of this Option. Whenever payments under the Plan or this Agreement are to be made to any Participant in cash, such payments shall be net of any amounts sufficient to satisfy all applicable taxes, including without limitation, all applicable United States federal, state and local withholding tax requirements to be withheld or submitted by the Company concerning such payments. The Board may, in its sole discretion, permit a Participant to satisfy his or her tax withholding obligation either by (i) surrendering Common Stock owned by the Participant or (ii) having the Company withhold from Common Stock otherwise deliverable to the Participant. Common Stock surrendered or withheld shall be valued at its Fair Market Value as of the date on which income is required to be recognized for income tax purposes.
13.
NO LIABILITY OF BOARD COMMITTEE MEMBERS
. No member of the Board or any Committee or their designees shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Board or a Committee nor for any mistake of judgment made in good faith.
14.
GOVERNING LAW
.
This Agreement and all rights arising hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the Delaware.
NEITHER THE PLAN NOR THIS AGREEMENT SHALL BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR ANY AFFILIATE THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY OR ANY AFFILIATE THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT’S EMPLOYMENT OR SERVICE AT ANY TIME WITH OR WITHOUT CAUSE.
* * * * *
Executed as of the day and year first above written.
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INFINITY ENERGY RESOURCES, INC.
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By:
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Name:
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EXHIBIT 10.6
AMEGY BANK N.A.
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
January 9, 2007
INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
Re: Loan Agreement
Ladies and Gentlemen:
This letter sets forth the Loan Agreement (this “
Loan Agreement
”) among INFINITY ENERGY RESOURCES, INC. (“
Borrower
”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “
Guarantors
”); and AMEGY BANK N.A. (“
Lender
”), with respect to loans from Lender to Borrower and obligations of Borrower and Guarantors to Lender.
1.
Loan
. (a) Subject to the terms and conditions set forth in this Loan Agreement and the other agreements, instruments, and documents executed and delivered in connection herewith (collectively the “
Loan Documents
”), Lender agrees to make a revolving loan in the maximum amount of $50,000,000.00 to Borrower (the “
Revolving Loan
”) on the terms set forth in the Revolving Promissory Note attached as
Exhibit A
(the “
Revolving Note
”), for the purposes set forth below. Subject to the terms and conditions hereof, Borrower may borrow, repay, and reborrow on a revolving basis from time to time during the period commencing on the date hereof and continuing through 11:00 a.m. (Dallas, Texas time) on January 9, 2009 (the “
Termination Date
”), such amounts as Borrower may request under the Revolving Loan; provided, however, the total principal amount outstanding at any time shall not exceed the lesser of (i) the aggregate sums permitted under the Borrowing Base (as defined below), which is initially set at $27,000,000.00, or (ii) $50,000,000.00. All sums advanced under the Revolving Loan, together with all accrued but unpaid interest thereon, shall be due and payable in full on the Termination Date. Borrower has the right to request a one year extension of the Termination Date in connection with the October 1 Borrowing Base redetermination each year. Any extension is subject to appropriate credit approval of Lender and may be subject to additional conditions. Lender has not yet committed to any extension of the Termination Date.
(b) The unpaid principal balance of the Revolving Note shall bear interest from the date advanced until paid or until default or maturity at the rates per annum elected by Borrower from the following options under the terms of the Revolving Note: (i) the sum of the Stated Rate
plus
the Applicable Margin, or (ii) the sum of the LIBOR Rate
plus
the LIBOR Spread; provided that in no event shall such rate exceed the Maximum Rate (as defined below). The Applicable Margin and the LIBOR Spread will vary based on the Borrowing Base Utilization (as defined below) as in effect from time to time, with each change in the applicable rate resulting from a change in the Borrowing Base Utilization to take effect on the day such change in the Borrowing Base Utilization occurs. “
Borrowing Base Utilization
” is defined as an amount expressed as a percentage, equal to the quotient of (i) the sum of (A) the aggregate principal amount of the Revolving Loan outstanding, plus (B) the aggregate undrawn amount of all outstanding Letters of Credit (as defined below), divided by (ii) the Borrowing Base. Based on the Borrowing Base Utilization, the Applicable Margin and the LIBOR Spread will vary as set forth below:
Borrowing Base Utilization
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Applicable Margin
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LIBOR Spread
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Greater than or equal to 85%
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0.50
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%
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3.25
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%
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Less than 85%, but greater than or equal to 66%
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0.25
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%
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3.00
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%
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Less than 66%, but greater than or equal to 33%
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0.00
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%
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2.75
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%
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Less than 33%
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0.00
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%
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2.50
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%
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The “
Stated Rate
” shall be equal to the greater of (i) the interest rate publicly announced by Lender from time to time as its general reference rate of interest, which prime rate shall change upon any change in such announced or published general reference interest rate and which prime rate may not be the lowest interest rate charged by the Lender, or (ii) the sum of the rate of interest, then most recently published in the Money Rates section of
The Wall Street Journal
as the “federal funds” rate for reserves traded among commercial banks for overnight use, plus one-half of one percent (0.5 %); and the “
LIBOR Rate
” means the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the average of the offered quotations appearing at Page or Ticker US0001M, US0002M, US0003M, or US0006M, as the case may be for the applicable Interest Period (as defined in the Revolving Note) in
Bloomberg Financial Markets Commodities News
as published by BLOOMBERG L.P. (or such other similar news reporting service as Lender may subscribe to at the time such LIBOR Rate is determined), at which deposits in U.S. dollars are offered by the major London clearing banks in the London interbank offered market for a period of time equal or comparable to one, two, three, or six months and in an amount equal to or comparable to the principal amount of the LIBOR Balance (as determined in the Revolving Note) to which such interest period relates.
(c) Advances on the Revolving Loan may be used only for the following purposes: (i) for the Closing Date Advances (as defined below), (ii) for the Approved Plan of Development (as defined below), (iii) the issuance of Letters of Credit (as defined below), (iv) auction letters and letters of guarantee; and (v) for other business purposes approved by Lender in advance. On or after the date of the closing of this Loan Agreement, Borrower may request advances on the Revolving Loan for the following purposes only (the “
Closing Date Advances
”):
(i) Borrower may advance up to $8,000,000.00 for the purpose of paying Borrower’s and Guarantors’ past-due accounts payable (the “
Accounts Payable
”);
(ii) Borrower may advance on the Revolving Loan to pay closing costs, expenses, and fees incurred in connection with this Loan Agreement; and
(iii) Borrower may advance up to $500,000.00 for working capital.
(d) Except for the Closing Date Advances, all subsequent advances on the Revolving Loan shall be used only to fund the budgeted capital expenditures under the Approved Plan of Development. As used in this Loan Agreement, “
Approved Plan of Development
” means the written and scheduled plan of development approved by Lender, with respect to budgeted capital expenditures and expected schedule for Guarantors’ development activities with respect to those proved oil and gas properties and undeveloped oil and gas properties in Comanche and Erath Counties, Texas, Routt County, Colorado, and Sweetwater County, Wyoming (the “
Project Areas
”). The initial Approved Plan of Development approved by Lender is attached as
Schedule l(d)
to this Loan Agreement. The Approved Plan of Development may not be materially modified without Lender’s prior written consent. If Borrower wishes to so modify the Approved Plan of Development, Borrower shall provide an amended Plan of Development for Lender’s approval at least ten (10) days before it is proposed to be effective; and Lender must respond to such request for written consent within such ten-day period. Borrower and Guarantors shall use all “Free Operating Cash Flow” (as defined below) for the purpose of funding the capital expenditures under the Approved Plan of Development.
(e) At the request of Borrower, Lender may from time to time issue one or more letters of credit for the account of Borrower, Guarantors, or any affiliates (the “
Letters of Credit
”). Borrower’s availability on the Revolving Loan will be reduced by the aggregate undrawn amount of all unexpired Letters of Credit. Any fundings under any Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents (as defined below). At no time may the aggregate undrawn amount of all outstanding Letters of Credit exceed twenty percent (20%) of the Borrowing Base. All Letters of Credit shall be for a term of up to one year (or longer if necessary for regulatory requirements) but shall expire not later than five days prior to the Termination Date, unless adequately secured by cash collateral held by Lender. Borrower will sign and deliver Lender’s customary forms for the issuance of Letters of Credit. Borrower agrees to pay to Lender a Letter of Credit Fee equal to the Letter of Credit Fee Rate per annum set forth below, calculated on the aggregated stated amount of each Letter of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days). The Letter of Credit Fee Rate will vary as set forth below based on the Borrowing Base Utilization:
Borrowing Base Utilization
|
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Letter of Credit Fee Rate
|
|
Greater than or equal to 85%
|
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3.25
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%
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Less than 85%, but greater than or equal to 66%
|
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3.00
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%
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Less than 66%, but greater than or equal to 33%
|
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2.75
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%
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Less than 33%
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2.50
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%
|
Any renewal or extension of a Letter of Credit will be treated as a new issuance for the purpose of the Letter of Credit Fee. These Letter of Credit Fees are payable quarterly in arrears within fifteen (15) days of the end of each calendar quarter.
(f) At the request of Borrower and in the sole discretion of Lender, Lender may from time to time issue one or more auction letters or letters of guarantee in connection with auctions or other purchases of oil and gas properties by Borrower. Each auction letter and letter of guarantee will have an expiration date not longer than five (5) days from the date of the letter. Notwithstanding any provision to the contrary, Borrower’s availability on the Revolving Loan will be reduced by the aggregate maximum amount stated in all unexpired auction letters and letters of guarantee until Lender is satisfied that (i) Borrower was unsuccessful in the auction or purchase, or (ii) Borrower consummates the purchase of the oil and gas properties. Any fundings pursuant to an auction letter or letter of guarantee will be treated as an advance on the Revolving Loan and will be secured by the Security Documents.
(g) Borrower agrees to pay to Lender the following fees that are non-refundable and earned by Lender upon execution of this Loan Agreement unless otherwise stated:
(i) Upon execution of the term sheet, Borrower previously paid Lender a Due Diligence Fee in the amount of $50,000.00.
(ii) Upon execution of this Loan Agreement, Borrower agrees to pay Lender an Arrangement Fee in the amount of $270,000.00; provided, however, that the Due Diligence Fee shall be credited to this Arrangement Fee at closing.
(iii) Borrower agrees to pay to Lender a Non-Use Fee equal to the applicable Non-Use Fee Rate set forth below per annum (computed on the basis of actual days elapsed and as if each calendar year consisted of 360 days), payable quarterly in arrears, multiplied by an amount determined daily equal to the difference between the Borrowing Base and the sum of (i) the aggregate outstanding principal balance of the Revolving Loan at such time, plus (ii) the aggregate undrawn amount on all outstanding Letters of Credit. The Non-Use Fee Rate will vary as set forth below based on the Borrowing Base Utilization:
Borrowing Base Utilization
|
|
Non-Use Fee Rate
|
|
Greater than or equal to 85%
|
|
|
0.750
|
%
|
Less than 85%, but greater than or equal to 66%
|
|
|
0.625
|
%
|
Less than 66%, but greater than or equal to 33%
|
|
|
0.500
|
%
|
Less than 33%
|
|
|
0.375
|
%
|
This Non-Use Fee is payable quarterly within fifteen (15) days of the end of each calendar quarter.
(h) The Revolving Loan, all other loans now or hereafter made by Lender to Borrower, and any renewals or extensions of or substitutions for those loans, will be referred to collectively as the “
Loans
.” The Revolving Note, all other promissory notes now or hereafter payable by Borrower to Lender, and any renewals or extensions of or substitutions for those notes, will be referred to collectively as the “
Notes
.”
2.
Collateral
. (a) Payment of the Notes and the Hedge Liabilities (as defined below) will be secured by the first liens and first security interests, subject to Permitted Encumbrances (as defined below) created or described in the following (collectively the “
Security Documents
”): (i) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil and Gas of Texas, Inc., in favor of Lender, and covering oil and gas properties located in Erath and Comanche Counties, Texas; (ii) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil & Gas of Wyoming, Inc. in favor of Lender, and covering oil and gas properties located in Routt County, Colorado; (iii) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil & Gas of Wyoming, Inc. in favor of Lender, and covering oil and gas properties located in Sweetwater County, Wyoming; and (iv) any other security documents now or hereafter executed in connection with the Loans. The three deeds of trust described above shall collectively be referred to as the “
Deeds of Trust
”; and all oil and gas properties now or hereafter mortgaged to Lender by Borrower or Guarantors, including the oil and gas properties covered by the Deeds of Trust, will be referred to as the “
Properties
.” If requested by Lender, Borrower and Guarantors will execute in favor of Lender mortgages, deeds of trust, security agreements, or amendments, in Proper Form (as defined below), mortgaging any additional oil and gas properties and all additional interests in the Properties acquired by Borrower or Guarantors so that Lender will continuously maintain under mortgage not less than ninety percent (90%) of the aggregate present value (as calculated by Lender in its sole discretion in accordance with the methods set forth below for the Borrowing Base) assigned to Borrower’s and Guarantors’ oil and gas properties based upon Lender’s in-house evaluation.
(b) Payment of the Notes and the Hedge Liabilities will also be guaranteed by each of the Guarantors pursuant to Commercial Guaranties in Proper Form (collectively the “
Guaranties
”).
(c) In connection with the Deeds of Trust and at such time as Lender requires Borrower to mortgage additional oil and gas properties, Borrower and Guarantors shall, upon request of Lender, deliver to Lender title opinions and/or other title information acceptable to Lender covering at least eighty-one percent (81%) of the present value (as determined by Lender in the manner set forth for Borrowing Base determinations below) of the Properties and the oil and gas properties which are to become Properties, along with such other information regarding title as Lender shall reasonably request, all in Proper Form and from attorneys or landmen acceptable to Lender. Lender reserves the right to immediately exclude any oil and gas property from the Borrowing Base if Lender learns of any material title issue with respect to the oil and gas property or if Lender’s review of Borrower’s and Guarantors’ title to the oil and gas property indicates that Borrower’s title is unacceptable to Lender, in its sole discretion.
(d) During the continuance of an Event of Default (as defined below), Lender reserves the right to require Borrower and Guarantors to set up a lockbox account to be managed by Lender for the purpose of collection of production proceeds attributable to Borrower’s and Guarantors’ interest in the Properties. Borrower and Guarantors agree that upon Lender’s election to require the lockbox after an Event of Default, Lender will receive the proceeds of oil and gas produced from or attributable to Borrower’s and Guarantors’ interest in the Properties for application as set forth in Section 3.2 of the Deed of Trust; and Borrower and Guarantors hereby direct all production purchasers or operators distributing proceeds to pay Borrower’s and Guarantors’ distributions attributable to Borrower’s and Guarantors’ interest in .the Properties directly to Lender, if Lender so elects. All production proceeds attributable to the Properties received in the lockbox account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ interest in the Properties shall be released immediately to Borrower upon Borrower’s request. All production proceeds attributable to Borrower’s and Guarantors’ interest in the Properties received in the lockbox account by Lender in excess of the current scheduled monthly payment and any other fees or expenses owed to Lender will be transferred to Borrower at the end of each month for its use consistent with the provisions of this Loan Agreement, so long as there is no existing Event of Default. If the production proceeds attributable to Borrower’s and Guarantors’ interest in the Properties received by Lender during any month are not sufficient to make the scheduled monthly payment, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall. Contemporaneously with the execution of this Loan Agreement, Guarantors will sign and deliver to Lender letters in lieu of transfer orders to all purchasers of production directing those parties to pay all proceeds attributable to Guarantors’ interest in the Properties to the lockbox account, and these letters, signed in blank, will be held by Lender until such time as Lender elects to require the lockbox after an Event of Default.
(e) Unless a security interest would be prohibited by law or would render a nontaxable account taxable, Borrower and Guarantors grant to Lender a contractual possessory security interest in, and hereby assigns, pledges, and transfers to Lender all of Borrower’s and Guarantors’ rights in any deposits or accounts now or hereafter maintained with Lender (whether checking, savings, or any other account), excluding, however, accounts maintained by Borrower and Guarantors at Lender for the purpose of revenue distribution to third parties entitled to those revenues, including payroll accounts and any other accounts held by Borrower or Guarantors for the benefit of a third party. While an Event of Default is outstanding, Borrower and Guarantors authorize Lender, to the extent permitted by applicable law, to charge or setoff any sums owing on the Loans or the Hedge Liabilities against any and all such deposits and accounts; and Lender shall be entitled to exercise the rights of offset and banker’s lien against all such accounts and other property or assets of Borrower and Guarantors with or in the possession of Lender to the extent of the full amount of the Loans and the Hedge Liabilities.
3.
Borrowing Base
. (a) On or about April 1 and October 1 of each year, commencing April 1, 2007, Lender may determine or redetermine, in its sole discretion, a Borrowing Base. In addition, Lender may require an unscheduled redetermination once during each six month period, and Borrower shall have the right to request an unscheduled redetermination of the Borrowing Base by Lender once per six-month period between scheduled redeterminations, and Lender shall conduct such redetermination using the methods described in this section. The term “
Borrowing Base
” refers to the designated loan value (as calculated by Lender in its sole discretion) assigned to the discounted present value of future net income accruing to Borrower’s and Guarantors’ oil and gas properties (and related gathering systems and processing and plant operations) based upon Lender’s in-house evaluation. Lender’s determination of the Borrowing Base will use such methodology, assumptions, and discount rates customarily used by Lender with respect to credits of a similar size and nature in assigning collateral value to oil and gas properties and will be based upon such other credit factors or financial information available to Lender at the time of each determination, including, without limitation, current market conditions and Borrower’s and Guarantors’ assets, liabilities, cash flow, liquidity, business, properties, prospects, management, and ownership. Borrower and Guarantors acknowledge that increases in the Borrowing Base are subject to appropriate credit approval by Lender.
(b) The outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all Letters of Credit, may not exceed the Borrowing Base at any time, subject to the payout provisions below in the event of a Borrowing Base decrease. A decrease in the Borrowing Base will result in an immediate decrease in Lender’s commitment under the Revolving Loan. If the redetermined Borrowing Base is less than the sum of the outstanding principal then owing on the Revolving Note, plus the aggregate undrawn amount of all Letters of Credit, Lender will notify Borrower of the amount of the Borrowing Base and the amount of the deficiency. Within thirty (30) days after notice is sent by Lender, Borrower shall remedy the deficiency by either: (i) making a lump sum payment on the Revolving Note to reduce the principal outstanding plus Letters of Credit to an amount equal to or less than the new Borrowing Base; (ii) committing to make six equal monthly installment payments to reduce the principal plus Letters of Credit to an amount equal to or less than the new Borrowing Base; or (iii) mortgaging additional collateral, which must be acceptable to Lender as to type, value, and title.
(c) At the time of any redetermination, Lender reserves the right to establish an equal Monthly Commitment Reduction (“
MCR
”) amount by which the Borrowing Base shall be automatically reduced effective as of the fifth (5
th
) day of each successive calendar month until the next Borrowing Base redetermination. Lender’s determination of the MCR will use such methodology, assumptions, and discount rates customarily used by Lender with respect to credits of a similar size and nature in determining commitment reductions and will be based upon such other credit factors or financial information available to Lender at the time of each determination, including, without limitation, the economic half-life of the Properties, and Borrower’s and Guarantors’ assets, liabilities, cash flow, liquidity, business, properties, prospects, management, and ownership. The MCR will initially be set at zero dollars ($0). If the outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of Credit, shall exceed the Borrowing Base solely because of an MCR reduction, Borrower shall within ten (10) days of such event make a single lump sum payment in an amount not to exceed the MCR to reduce the sum of the outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of Credit, to an amount below the Borrowing Base. If the outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of Credit, shall exceed the Borrowing Base because of a Borrowing Base redetermination (or a Borrowing Base redetermination combined with a required MCR), Borrower shall have the right to cure set forth in subsection (b) above; provided, however, that if the MCR was applicable before the Borrowing Base redetermination, then the MCR amount will be due in a lump sum within ten (10) days of notice from Lender and Lender may continue the MCR at the same amount or change the MCR effective on the redetermination date.
(d) If Borrower or Guarantors sell, transfer, or otherwise dispose of any oil and gas properties included in the Borrowing Base that have an aggregate sales price in excess of five percent (5%) of the most recent Borrowing Base in any fiscal year, Lender reserves the right to redetermine the Borrowing Base in accordance with this Section 3, which redetermination will be in addition to any special redeterminations permitted to Lender under subsection (a) above. Any Borrowing Base deficiency resulting from the sale of any oil and gas properties shall be immediately reduced by a single lump sum payment in an amount not to exceed the net proceeds from the sale of the oil and gas properties, and any remaining deficiency after the Borrowing Base redetermination shall be cured by Borrower pursuant to subsection (b) above.
4.
Hedges and Swaps
. (a)
Definitions.
As used in this Loan Agreement and the Loan Documents, the following terms have the meanings assigned below:
(i) “
ISDA Agreement
” means any International Swaps and Derivatives Association, Inc. master agreement or any similar agreement (with all related schedules, annexes, exhibits, amendments, and confirmations), now existing or hereafter entered into by Borrower or Guarantors, as amended, modified, replaced, consolidated, extended, renewed, or supplemented from time to time.
(ii) “
Hedge Transaction
” means all Transactions (as defined in the ISDA Agreement) and any other derivative transaction, including, without limitation, any commodity swap (including price protection for future production of oil, gas, or other hydrocarbons or mineral or mining interests and rights therein), commodity option, interest rate swap (including rate hedge products), basis or currency or cross-currency rate swap, forward rate, cap, call, floor, put, collar, future rate, forward agreement, spot contract, or other credit, price, foreign exchange, rate, equity, equity index option, bond option, interest rate option, rate protection agreement, currency option, or other option, or commodities derivative, exchange, risk management, or protection agreement, or commodity, securities, index, market, or price-linked transaction or agreement, or any option with respect to any such transaction or similar transaction or combination of any of the foregoing, now existing or hereafter entered into by Borrower, Guarantors, or any of them, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices, indexes, or other financial measures and whether such transactions or combinations thereof are governed by or subject to any ISDA Agreement or other similar agreement or arrangement, including all obligations and liabilities thereunder, and including all renewals, extensions, amendments, and other modifications or substitutions.
(iii) “
Hedge Liabilities
” means any and all liabilities and obligations of every nature and howsoever created, direct, indirect, absolute, contingent, or otherwise, whether now existing or hereafter arising, created, or accrued, of Borrower, Guarantors, or any of them, from time to time owed or owing to Lender or Hedge Provider in connection with any ISDA Agreement and each Transaction (as defined in the ISDA Agreement) and each Confirmation (as defined in the ISDA Agreement) or any Hedge Transaction, including, but not limited to, obligations and liabilities arising in connection with or as a result of early or premature termination, cancellation, rescission, buy back, reversal, or assignment or other transfer of a Hedge Transaction, and including any obligations or liabilities under any Letters of Credit issued in connection with Hedge Transactions to which another entity is a counter-party, whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such obligor, would have accrued on such obligation, whether or not a claim is allowed for such interest in the related bankruptcy proceedings), reimbursement obligations, fees, expenses, indemnification, or otherwise.
(iv) “
Hedge Provider
” means any affiliate of Lender or any other party now or hereafter contracting with Lender with respect to Hedge Transactions for Borrower.
(b)
ISDA Agreement.
Borrower, Guarantors, and Lender or Hedge Provider may enter into an ISDA Agreement, governing certain Hedge Transactions available to Borrower or Guarantors from Lender or Hedge Provider. Borrower and Guarantors may enter into Transactions (as defined in the ISDA Agreement) subject to the provisions of Confirmations (as defined in the ISDA Agreement). Upon payment in full of the Notes and termination of any obligation of Lender to make further advances on the Revolving Loan, and upon either termination of all Hedge Transactions with Lender or Hedge Provider or Borrower and Guarantors providing appropriate support and security for then-outstanding Hedge Liabilities on terms satisfactory to Lender in its sole discretion, including substitution on the outstanding Hedge Transactions on terms acceptable to Lender of a counterparty meeting the requirements of Section 4(e)(iv) below and that is otherwise acceptable to Lender (such liabilities to thereafter be deemed “
Supported Hedge Liabilities
”), this Loan Agreement may be terminated and the Security Documents released.
(c)
Security.
Borrower and Guarantors agree that the Security Documents shall secure payment of all Hedge Liabilities. Borrower, Guarantors, and Lender hereby agree that the Loans and the Hedge Liabilities shall rank
pari passu
and shall collectively be secured by the Security Documents on a pro rata basis. Lender shall hold the Properties and all related collateral under the Security Documents, along with all payments and proceeds arising therefrom, for the benefit of Lender, as security for the payment of all Loans and as security for all Hedge Liabilities on a ratable basis. The benefit of the Security Documents and of the provisions of this Loan Agreement relating to the collateral shall also extend to and be available to Lender and Hedge Provider to the extent either is a counter-party to any Hedge Transactions on a pro rata basis with respect to any obligations, liabilities, or indebtedness of Borrower or Guarantors.
(d)
Termination.
If and to the extent any Hedge Transaction is used in calculation of the Borrowing Base, such Hedge Transaction cannot be cancelled, liquidated, or “unwound” without the prior written consent of Lender.
(e)
Hedging Limitations.
Borrower and Guarantors shall not enter into any Hedge Transaction related to crude oil, natural gas, or other commodities, except hedging required by Lender and except for Hedge Transactions which meet the following requirements:
(i) Hedge Transactions resulting in a cap on the price to be received by Borrower and Guarantors, involving in the aggregate at any time not more than eighty percent (80%) of Guarantors’ anticipated production from their proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties); provided, however, that (1) Hedge Transactions relating to oil volumes from the Wolf Mountain 15-2-7-87 well in Routt County, Colorado, shall be limited to not more than forty percent (40%) of Guarantors’ anticipated production from that well until such time as the well constitutes twenty percent (20%) or less of the total present value of Guarantors’ proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties), and (2) there shall be no limitation on the volume of Hedge Transactions resulting only in a floor price per barrel or mcf; and
(ii) Hedge Transactions that would not result in a fixed price per barrel or mcf lower than the base case price used by Lender in the most-recent engineering evaluation of Guarantors’ oil and gas properties, adjusted for variances between the hedging price and Guarantors’ actual product price as determined by Lender, in each case as disclosed by Lender to Borrower, or otherwise at hedging prices acceptable to Lender as disclosed to Borrower; and
(iii) Hedge Transactions that are each for a period not to exceed forty-eight (48) months; and
(iv) To the extent that Lender requires Hedge Transactions in connection with a Borrowing Base, Hedge Transactions where, in each case, the underlying contracts are with Lender or Hedge Provider, as counterparty, with a counter-party (or the parent entity thereof) who at the time the contract is made has long-term obligations rated BBB or better by Standard & Poor’s Ratings Group or Baa or better by Moody’s Investors Services, Inc., or with a counter-party that is otherwise approved by Lender in writing; and
(v) Hedge Transactions that are not effective at concurrent or overlapping periods of time on the same volumes of production on both a physical and financial basis, unless the combined volumes are in compliance with the volume limitations set forth above.
Borrower may enter into swaps, collars, floors, caps, options, corridors, or other contracts, as such terms are commonly known within the capital markets, which are intended to reduce or eliminate the risk of fluctuation in interest rates for the purpose and effect of fixing and capping interest rates on a principal amount of indebtedness of Borrower;
provided
that (A) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness of Borrower to be hedged by such contract and the interest rate exposure would not cause the notional amount of all such Hedge Transactions then in effect for the purpose of hedging interest rate exposure to exceed one hundred percent (100%) of the total consolidated indebtedness of Borrower projected to be outstanding for any period covered by such Hedge Transaction, and (B) Borrower shall not establish or maintain any margin accounts with respect to such contracts.
(f)
Required Hedges.
On or before three (3) business days after the date of this Loan Agreement, Guarantors will enter into Hedge Transactions covering crude oil and natural gas meeting the following requirements: (i) Hedge Transactions resulting in at least seventy percent (70%) of Guarantors’ anticipated production from their proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties) in the aggregate; (ii) Hedge Transactions for a period of not less than forty-eight (48) months; (iii) Hedge Transactions resulting in a fixed price or floor price per barrel or mcf equal to the prevailing NYMEX swap price or, if approved by Lender, a regional basis swap price, or otherwise at hedging prices acceptable to Lender; and (iv) Hedge Transactions that are assignable to Lender as additional security for the Loans.
(g)
Speculation.
Borrower and Guarantors shall not invest for speculative purposes in any Hedge Transactions or in any other options, futures, or derivatives.
(h)
Additional Collateral.
If a Hedge Transaction is entered into with an outside counter-party, Borrower and Guarantors shall, if requested by Lender, collaterally assign and pledge in favor of Lender a first-priority continuing security interest in the applicable trading account and the hedging contract as additional security for the Loans. In connection therewith, Borrower and Guarantors shall execute and deliver to Lender such security agreements, control agreements, and financing statements as deemed appropriate by Lender to create and perfect the continuing security interest therein.
5.
Conditions Precedent
. (a) The obligation of Lender to make the initial advance on the Revolving Loan is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
(i) Lender’s receipt and satisfactory review by Lender of the September 30, 2006 financial statements of Borrower and Guarantors, on a consolidated and consolidating (except for the cash flow statement) basis, including a balance sheet, a statement of operations, and a cash flow statement, prepared in conformity with generally accepted accounting principles in effect on the date such statement was prepared, consistently applied (“
GAAP
”).
(ii) Lender’s receipt and satisfactory review by Lender of the Approved Plan of Development.
(iii) Lender’s receipt and satisfactory review of evidence from Borrower that the aggregate Accounts Payable that are more than thirty (30) days outstanding are less than or equal to $8,000,000.00.
(iv) Borrower and Guarantors shall have performed and be in compliance in all material respects, with all covenants and agreements required by this Loan Agreement or the other Loan Documents to be performed prior to closing, and all representations and warranties contained in this Loan Agreement or the other Loan Documents must be true in all material respects.
(v) the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
(1) this Loan Agreement;
(2) the Revolving Note;
(3) the Deeds of Trust;
(4) the Guaranties;
(5) Borrowing Resolution;
(6) Guarantor Resolutions; and
(7) Letters in Lieu.
(vi) satisfactory evidence that Lender holds perfected liens and security interests in all collateral for the Loans, subject to no other liens or security interests except Permitted Encumbrances. “
Permitted Encumbrances
” shall mean the following (i) those liens and security interests existing and disclosed to Lender in
Schedule 5(a)(6)
attached, (ii) liens for taxes not delinquent or being contested in good faith, (iii) mechanic’s and materialman’s liens with respect to obligations not overdue or being contested in good faith, (iv) liens resulting from deposits to secure the payments of workers’ compensation or social security, (v) purchase money security interests or construction liens and that are in an aggregate amount not to exceed $500,000.00, (vi) capital leases entered into in the ordinary course of business, and (vii) liens that arise in the ordinary course of business under or in connection with operating agreements, oil and gas leases, farm-out agreements, contracts for the sale, transportation, or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, marketing agreements, processing agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring, and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith.
(vii) receipt and satisfactory review by Lender of Reserve Reports for the Borrowing Base properties.
(viii) except as disclosed in
Schedule 5(a)(8)
attached, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or condition (financial or otherwise) of Borrower or Guarantors, from that reflected in Borrower’s financial statements for the quarter ended September 30, 2006, or in the SEC Reports. “
SEC Reports
” means those filing made by the Borrower with the Securities and Exchange Commission including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.
(ix) except as disclosed in
Schedule 5(a)(9)
attached, there being no order or injunction or other pending or threatened litigation which would reasonably be expected to materially adversely affect the ability of Borrower or Guarantors to perform under the Loan Documents.
(x) Lender shall have completed and approved a review of title to, and the status of the environmental condition of, Borrower’s and Guarantors’ oil and gas properties, including the Borrowing Base properties, and the results of such review shall be acceptable to Lender in its sole discretion.
(xi) Lender’s receipt and review, with results satisfactory to Lender and its counsel, of information regarding litigation, tax, accounting, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership, and contingent liabilities of Borrower, Guarantors, and any subsidiaries.
(xii) Lender’s receipt of satisfactory evidence that Borrower and Guarantors have no outstanding indebtedness required by GAAP to be disclosed in their financial statements for the quarter ended September 30, 2006, which has not been so disclosed, and all outstanding obligations and liabilities incurred since September 30, 2006 have been incurred in the ordinary course of business.
(xiii) Lender’s receipt and review, with results satisfactory to Lender and its counsel, of a schedule showing information regarding any existing litigation affecting Borrower or the Properties.
(xiv) Lender’s receipt of releases of the mortgages and UCC
financing statements in connection with Borrower’s Senior Secured Notes Facility. “
Senior Secured Notes Facility
” means certain senior secured notes and warrants to purchase shares of Borrower’s common stock pursuant to that certain Securities Purchase Agreement, dated as of January 13, 2005, by and among the Borrower and HFTP Investment, L.L.C., AG Domestic Convertibles, L.P., and AG Offshore Convertibles, Ltd., as amended, restated, supplemented or otherwise modified and in effect as of the date of this Loan Agreement.
(xv) Borrower’s establishment of an operating account with Lender for advances on the Revolving Loan.
(xvi) Borrower shall deliver legal opinions in Proper Form, from Borrower’s and Guarantors’ counsel, regarding Borrower’s and Guarantors’ authority, the enforceability of the Loan Documents, and other matters reasonably required by Lender.
(b) Lender will not be obligated to make the Loans or any subsequent advance on the Loans, if, prior to the time that a loan or advance is made, (i) there has been any material adverse change in Borrower’s or any Guarantors’ financial condition since the most-recent financial statements furnished to Lender, (ii) any representation or warranty made by Borrower or Guarantors in this Loan Agreement or the other Loan Documents is untrue or incorrect in any material respect as of the date of the advance or loan, (iii) Lender has not received all Loan Documents appropriately executed by Borrower, Guarantors, and all other proper parties, (iv) Lender has requested that Borrower or Guarantors execute additional loan or security documents and those documents have not yet been properly executed, delivered, and recorded, (v) Borrower is not in compliance with the Borrowing Base and all reporting requirements, or (vi) an Event of Default (as defined below) has occurred and is continuing.
6.
Representations and Warranties
. Each of Borrower and Guarantors hereby represent and warrant to Lender as follows:
(a) The execution, delivery, and performance of this Loan Agreement, the Notes, the Security Documents, and all of the other Loan Documents by Borrower and by Guarantors, to the extent they are party thereto, have been duly authorized by their respective boards of directors, and this Loan Agreement, the Notes, the Security Documents, and all of the other Loan Documents constitute legal, valid, and binding obligations of Borrower and Guarantors, to the extent they are party thereto, enforceable in accordance with their respective terms;
(b) The execution, delivery, and performance of this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents, and the consummation of the transaction contemplated, do not require the consent, approval, or authorization of any third party and do not and will not conflict with, result in a violation of, or constitute a default under (i) any provision of Borrower’s or Guarantors’ respective articles of incorporation or bylaws, or (ii) any other agreement or instrument binding upon Borrower or any Guarantors, or (iii) any law, governmental regulation, court decree, or order applicable to Borrower or any Guarantors, except with respect to (ii) and (iii) for matters that would not reasonably be expected to have a material adverse effect on Borrower, any Guarantors, or the Properties;
(c) Each financial statement of Borrower and Guarantors, now or hereafter supplied to Lender, was (or will be) prepared in accordance with GAAP, and discloses and fairly presents (or will disclose and fairly present) in all material respects Borrower’s and Guarantors’ financial condition, on a consolidated and consolidating (except for cash flow statements) basis, as of the date of each such statement, and except as disclosed in the SEC Reports, there has been (or will have been) no material adverse change in such financial condition subsequent to the date of the most recent financial statement supplied to Lender;
(d) Except as disclosed in
Schedule 5(a)(9)
attached, there are no actions, suits, or proceedings pending or, to Borrower’s or Guarantors’ knowledge, threatened against or affecting Borrower, any Guarantors, or the Properties, before any court or governmental department, commission, or board, which would reasonably be expected to have a material adverse effect on the Properties or the operations or financial condition of Borrower or any Guarantors;
(e) Borrower and Guarantors have filed all material federal, state, and local tax reports and returns required by any law or regulation to be filed and have either duly paid all taxes, duties, and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and !he assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected, except as disclosed in
Schedule 6(e)
attached;
(f) Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“
ERISA
”); Borrower has not violated any provision of any “defined benefit plan” (as defined in ERISA) maintained or contributed to by Borrower (each a “
Plan
”); no “Reportable Event” as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower, unless the reporting requirements have been waived by the Pension Benefit Guaranty Corporation; and Borrower has met its minimum funding requirements under ERISA with respect to each Plan;
(g) Borrower and Guarantors have provided to Lender copies of all material agreements affecting Borrower’s and Guarantors’ oil and gas properties or their operations, including all gas balancing agreements and advance payment contracts;
(h) Borrower certifies that
Schedule 6(h)
sets forth a true and correct organizational chart showing all subsidiaries or other entities owned by Borrower and the ownership in each; and
(i)
Schedule 6(i)
sets forth, as of the date of this Loan Agreement, a true and complete list of all existing ISDA Agreements and Hedge Transactions of Borrower and Guarantors, the material terms thereof (including the type, term, effective date, termination date, and notional volumes and prices), the net mark-to-market value thereof as reflected in the most-recent SEC Reports, all credit support agreements relating thereto (including any margin required or supplied), and the counter-party to each such Hedge Transactions.
7.
Covenants
. Until the Loans and the Hedge Liabilities and all other obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents are fully paid and satisfied (except for unasserted indemnification obligations thereunder and except for Hedge Liabilities that are Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing:
(a) (i) Except as contemplated in subclause (vi) below, maintain their existence in good standing in their respective states of incorporation, maintain their authority to do business in all states in which any is required to qualify, except where such failure to qualify would not reasonably be expected to have a material adverse effect on Borrower or any Guarantors, and maintain full legal capacity to perform all their respective obligations under this Loan Agreement and the Loan Documents, to continue to operate their business as presently conducted, () not permit any changes in Borrower’s directors that alter a majority of the current directors, () except as contemplated in subclause (vi) below, not permit their dissolution, liquidation, or other termination of existence or forfeiture of right to do business, () not form any subsidiary without notifying Lender in writing at least thirty (30) days in advance, () not permit a merger or consolidation (unless Borrower or Guarantor, as the case may be, is the surviving entity), and () not acquire all or substantially all of the assets of any other entity without first notifying Lender in writing at least thirty (30) days in advance.
(b) Manage the Properties in an orderly and efficient manner consistent with good business practices, and perform and comply in all material respects with all statutes, rules, regulations, and ordinances imposed by any governmental unit upon the Properties or Borrower, Guarantors, and their operations including, without limitation, compliance with all applicable laws relating to the environment.
(c) Maintain insurance as customary in the industry or as reasonably required by Lender, including but not limited to, casualty, comprehensive property damage, and commercial general liability, and other insurance, including worker’s compensation (if necessary to comply with law), naming Lender as an additional insured or a loss payee, and containing provisions prohibiting their cancellation without prior written notice to Lender, and provide Lender with evidence of the continual coverage of those policies prior to the lapse of any policy.
(d) Not sell, assign, transfer, or otherwise dispose of all or any interest in the Properties or any other collateral, except for (i) the sale of hydrocarbons in the ordinary course of business, (ii) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, and (iii) the sale of oil and gas properties having an aggregate sales price not in excess of five percent (5%) of the then-applicable Borrowing Base per fiscal year, without the prior written consent of Lender, provided that Lender shall not unreasonably withhold its consent for any sale, farmout, farmin, or other disposition of any oil and gas properties or any interest therein, so long as: (x) the net sales proceeds received by Borrower are equal to or greater than the Borrowing Base value attributable to the sold properties according to the most-recent Borrowing Base review by Lender; (y) any resulting Borrowing Base deficiency after exclusion of the sale properties from the Borrowing Base is immediately eliminated by a single lump sum payment; and (z) there is no existing Event of Default.
(e) Promptly inform Lender of (i) any and all material adverse changes in Borrower’s or any Guarantors’ financial condition, (ii) all litigation and claims which could reasonably be expected to materially and adversely affect the financial condition of Borrower, any Guarantor, or the Properties, (iii) all actual or contingent material liabilities of Borrower or any Guarantors, (iv) any change in name, identity, or structure of Borrower or any Guarantors, and (v) any uninsured or partially insured loss reasonably estimated in excess of $500,000.00 of any collateral through fire, theft, liability, or property damage.
(f) Maintain full and accurate books and records and a standard system of accounting in accordance with GAAP, and permit Lender to examine, audit, and make and take away copies or reproductions of Borrower’ s and Guarantors’ books and records, reasonably required by Lender, at all reasonable times; and permit such persons as Lender may designate at reasonable times to visit and inspect the Properties and examine all records with respect to the Properties, and pay for the reasonable cost of such inspections required by Lender.
(g) Pay and discharge when due all indebtedness and obligations, including without limitation, all assessments, taxes, governmental charges, levies, and liens, of every kind and nature, imposed upon Borrower, Guarantors, or the Properties, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a material lien or charge upon the Properties, income, or profits, and pay all trade payables and other current liabilities incurred in the ordinary course of business within ninety (90) days of their due date; provided, however, Borrower and Guarantors will not be required to pay and discharge any such assessment, tax, charge, levy, lien, or claim so long as (i) the legality of the same shall be contested in good faith by appropriate judicial, administrative, or other legal proceedings, and (ii) Borrower or Guarantors have established adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
(h) Not directly or indirectly create, incur, assume, or permit to exist any indebtedness (including guaranties), secured or unsecured, absolute or contingent, except for (i) the indebtedness to Lender, (ii) any trade payables, taxes, and liabilities incurred in the ordinary course of business, (iii) any indebtedness already incurred and disclosed in Borrower’s financial statements for the quarter ended September 30, 2006, (iv) Borrower’s obligations with respect to the potential payment of a purchase price adjustment and its indemnification obligations under the Purchase Agreement dated December 1, 2006 between Borrower and Consolidated Oil Well Services, LLC, (v) obligations under capital leases, transportation deficiencies, or gas imbalances,(vi) indebtedness of up to $500,000.00 for the financing of insurance premiums, (vii) intercompany indebtedness among the Borrower and Guarantors, (viii) the obligations related to Borrower’s Nicaraguan concessions disclosed in
Schedule 7(h)
attached, (ix) obligations related to Hedge Transactions permitted by this Loan Agreement, and (x) additional indebtedness not to exceed $500,000.00 in the aggregate.
(i) Not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Properties (or any interest in the Properties), any oil and gas properties included in the calculation of the Borrowing Base, or any of Borrower’s or Guarantors’ property or assets, except (i) those in favor of Lender, and (ii) Permitted Encumbrances.
(j) Except for transactions among Borrower and Guarantors, not make any loans, advances, dividends, or other distributions, other than in the ordinary course of business, to any party, including without limitation, shareholders, officers, directors, partners, joint venturers, members, managers, relatives, and affiliates, or any profit sharing or retirement plan.
(k) Not purchase, acquire, redeem, or retire any stock or other ownership interest in Borrower; and not permit any transaction or contract with any affiliates or related parties, except in the ordinary course of business and except at arms length and on market terms.
(l) Promptly open and maintain at least three depository accounts with Lender, and discuss with Lender moving their primary depository accounts and principal banking relationship to Lender.
(m) Timely develop the proved oil and gas properties and undeveloped oil and gas properties in the Project Areas in accordance with the Approved Plan of Development and make capital expenditures on such oil and gas properties in accordance with the Approved Plan of Development. Except to the extent of delays beyond the reasonable control of Borrower, such as acts of god, governmental inaction, restraint, or delay, unavailability of equipment, inability to obtain permits or other regulatory approvals, and the unavailability of rigs, for which Borrower provides evidence of such delays to Lender, Borrower and Guarantors shall diligently proceed to drill and complete each producing and injection well under the Approved Plan of Development and use reasonable diligence to connect each gas well to gathering systems and pipelines to permit the sale and marketing of natural gas in the ordinary course of business.
(n) Meet with the Lender from time to time as reasonably requested by Lender to review all operational activities of Borrower and Guarantors with respect to the Properties, the Approved Plan of Development, the Project Areas, and all financial reports. Each review shall be in scope reasonably satisfactory to Lender, but will include at a minimum, an update by Borrower on the development activities made pursuant to the Approved Plan of Development, any requests by Borrower that changes be made to the Approved Plan of Development, any cost or expense overruns or savings, any mechanical problems incurred, and any differences in reserves or production estimates.
(o) Indemnify Lender against all losses, liabilities, withholding and other taxes, claims, damages, or expenses (other than income taxes) relating to the Loans, the Loan Documents, or Borrower’s use of the Loan proceeds, including but not limited to reasonable attorneys and other professional fees and settlement costs, but excluding, however, those caused solely by or resulting solely from any gross negligence or willful misconduct by Lender; and this indemnity shall survive the termination of this Loan Agreement.
(p) Comply in all material respects with all applicable provisions of ERISA, except as set forth in
Schedule 7(p)
attached, not violate in any material respect any provision of any Plan, meet their minimum funding requirements under ERISA with respect to each Plan, and notify Lender in writing of the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan.
(q) If Borrower acquires any wholly-owned subsidiary or owns any issued and outstanding capital stock or partnership interests of any companies or partnerships, Borrower shall sign and deliver to Lender within fifteen (15) days after such acquisition a pledge agreement in Proper Form, creating a first-priority security interest covering the issued and outstanding capital stock or partnership interests of all existing and hereafter acquired companies, subsidiaries, or partnerships of Borrower, and Borrower shall cause each wholly-owned subsidiary to sign and deliver to Lender within fifteen (15) days after such acquisition a guaranty in substantially the same form as signed by Guarantors in connection with this Loan Agreement, guaranteeing payment of the Loans.
(r) Execute and deliver, or cause to be executed and delivered, any and all other agreements, instruments, or documents which Lender may reasonably request in order to give effect to the transactions contemplated under this Loan Agreement and the Loan Documents, and to grant, perfect, and maintain liens and security interests on or in the Properties and related collateral, and promptly upon Lender’s request cure any defects in the execution and delivery of any Loan Documents.
8.
Financial Covenants
. Until the Loans and the Hedge Liabilities and all other obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents are fully paid and satisfied (other than unasserted indemnification obligations thereunder and except for Hedge Liabilities that are Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing, maintain the following financial covenants to be calculated on a consolidated basis commencing with the fiscal quarter ending March 31, 2007:
(a) Maintain at the end of each fiscal quarter an Interest Coverage Ratio greater than or equal to 3.0 to 1.0. “
Interest Coverage Ratio
” is defined as the ratio of (i) the sum of Borrower’s and Guarantors’ most recent quarter’s net income,
plus
interest expense for the same period, plus income taxes for the same period, plus depreciation, depletion, amortization, and other non-cash charges for the same period,
divided
by (ii) interest expense for the same period.
(b) Maintain at the end of each fiscal quarter a Current Ratio greater than or equal to 1.0 to 1.0. “
Current Ratio
” is defined as the ratio of (i) Borrower’s and Guarantors’ current assets,
plus
availability on the Revolving Loan,
divided
by (ii) current liabilities (excluding current maturities of long-term debt); provided, however, that the marked to market values for hedging positions in accordance with FASB 133 shall be excluded from this calculation until such time as the gains or losses from the hedges are actually realized and the hedges expire.
(c) Maintain at the end of each fiscal quarter a Debt Service Coverage Ratio greater than or equal to 1.25 to 1.0. “
Debt Service Coverage Ratio
” is defined as the ratio of (i) the sum of Borrower’s and Guarantors’ most recent quarter’s net income,
plus
depletion, depreciation, amortization, and other non-cash charges for the same period,
plus
income taxes for the same period,
minus
gains from the sale of assets (or
plus
losses from the sale of assets),
divided
by (ii) the sum of the current maturities of long term debt (excluding the Revolving Loan) for the same period, plus the monthly commitment reductions for the same period as required by Lender.
(d) Maintain at the end of each fiscal quarter a Funded Debt to EBITDA Ratio less than or equal to (i) 4.25 to 1.0 for the fiscal quarter ending March 31, 2007, (ii) 4.0 to 1.0 for the fiscal quarter ending June 30, 2007, and (iii) 3.5 to 1.0 for each fiscal quarter thereafter. “
Funded Debt to EBITDA Ratio
” is defined as the ratio of (i) the total amount outstanding on the Loans,
divided by
(ii) the sum of Borrower’s and Guarantors’ most recent quarter’s net income annualized,
plus
income taxes for the same period annualized,
plus
interest expense on the Loans for the same period annualized,
plus
depletion, depreciation, and amortization for the same period annualized,
plus
other non-cash charges for the same period annualized,
minus
gains from the sale of assets (or
plus
losses from the sale of assets) for the same period annualized; provided, however, that EBITDA from acquisitions may only be included in this covenant after Lender has reviewed and approved proforma financial statements demonstrating the effect of the acquisition.
(e) Maintain at the end of each fiscal quarter a Collateral Coverage Ratio greater than or equal to 1.33 to 1.0. “
Collateral Coverage Ratio
” is defined as the ratio of (i) the aggregate present value of Guarantors’ proved developed producing oil and gas properties (as determined by Lender assuming NYMEX prices minus the differentials),
divided by
(ii) the total amount outstanding on the Loans.
(f) Not permit quarterly general and administrative expenses on a consolidated basis to exceed $700,000.00 (excluding non-cash items) per fiscal quarter during 2007.
(g) Shall use all “
Free Operating Cash Flow
” to the extent thereof, for the purpose of funding the capital expenditures under the Approved Plan of Development. “
Free Operating Cash Flow
” is defined as net cash flow from operating activities,
minus
payments for general and administrative expenditures permitted under the Loan Agreement,
minus
interest expense, fees, expenses, and principal, if any, paid during such period in respect of Revolving Loan, and
minus
the Permitted Nicaraguan Contributions (as defined below), if any.
(h) Shall not use any Free Operating Cash Flow or other cash, or make any loans, advances, capital contributions, or other distributions, for or with respect to Borrower’s Nicaraguan concessions; provided, however, that (1) this provision shall not limit or prevent draws under two letters of credit dated May 19, 2006, in the amounts of $408,450.00 and $443,100.00, respectively, issued by Cornerstone Bank, in favor of Direccion General de Hidrocarburos, Insituto Nicaraguense de Energia, for the account of Borrower, and (2) so long as there is no existing Event of Default or Borrowing Base deficiency, Borrower may use Free Operating Cash Flow or other cash, or make loans, advances, capital contributions, or other distributions, for or with respect to Borrower’s Nicaraguan concessions, in an aggregate amount not to exceed $200,000.00 per fiscal year (collectively the “
Permitted Nicaraguan Contributions
”). Borrower shall notify Lender in writing when Permitted Nicaraguan Contributions are made, including the source for those contributions.
Unless otherwise specified, all accounting and financial terms and covenants set forth above are to be determined according to GAAP, consistently applied.
9.
Reporting Requirements
. Until the Loans and the Hedge Liabilities and all other obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents are fully paid and satisfied (other than unasserted indemnification obligations thereunder or with respect to the Hedge Liabilities, all such outstanding Hedge Liabilities are Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing, furnish to Lender:
(a) As soon as available, and in any event within one hundred twenty (120) days of the end of each fiscal year, audited annual financial statements for Borrower and Guarantors on a consolidated basis, consisting of at least a balance sheet, an income statement or statement of operations, a cash flow statement, and a statement of changes in owners’ equity, along with an auditor’s opinion from EKS&H or another independent certified public accountant acceptable to Lender and certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to his knowledge, (ii) as fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal year and the results of their operations for the year, and (iii) as having been prepared in accordance with GAAP; and unaudited annual financial statements for Borrower and Guarantors on a consolidating basis, consisting of at least a balance sheet, an income statement or statement of operations, and a statement of changes in owners’ equity, certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to his knowledge, (ii) as fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal year and the results of their operations for the year, and (iii) as having been prepared in accordance with GAAP;
(b) As soon as available, and in any event within sixty (60) days of the end of each fiscal quarter, quarterly financial statements for Borrower and Guarantors on a consolidated and consolidating (except for the cash flow statement) basis, consisting of at least a balance sheet, an income statement or statement of operations, a cash flow statement, and a statement of changes in owners’ equity, for the quarter and for the period from the beginning of the fiscal year to the close of the quarter, certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to his knowledge,
(ii) as fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal quarter and the results of their operations for the quarter, and (iii) as having been prepared in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes;
(c) With the quarterly and annual financial statements required above, a quarterly compliance certificate in the form of
Exhibit B
attached, signed by an authorized officer of Borrower and certifying compliance with the financial covenants and other matters in this Loan Agreement;
(d) On or before March 1 of each year, a report dated as of January 1, prepared by an independent petroleum engineer or engineering firm or other designee acceptable to Lender, and on or before August 15 of each year, a report dated as of July 1, prepared by or on behalf of Borrower, both reports to be prepared on a consistent basis in accordance with the customary standards and procedures of the petroleum industry, estimating the quantity of oil, gas, and associated hydrocarbons recoverable from the Properties and all of Borrower’s and Guarantors’ oil and gas properties, and the projected income and expense attributable to the Properties and all of Borrower’s and Guarantors’ oil and gas properties, including, without limitation, a description of reserves, net revenue interests and working interests attributable to the reserves, rates of production, gross revenues, operating expenses, ad valorem taxes, capital expenditures necessary to cause the Properties and all of Borrower’s and Guarantors’ oil and gas properties to achieve the rate of production set forth in the report, net revenues and present value of future net revenues attributable to the reserves and production therefrom, a statement of the assumptions upon which the determinations were made and any other matters related to the operations of the Properties and all of Borrower’s and Guarantors’ oil and gas properties and the estimated income therefrom;
(e) Within fifteen (15) days of Lender’s request, copies of Borrower’s federal, state, and local income tax filings or returns, with all schedules, attachments, forms, and exhibits;
(f) As soon as available, and in any event within thirty (30) days after the end of each calendar quarter, a hedging report setting forth as of the last business day of such prior fiscal quarter end, a summary of Borrower’s and Guarantors’ existing hedging positions under all Hedge Transactions (including forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas, and other commodities), including the type, term, effective date, termination date, and notional volumes and prices for such volumes, the hedged prices, interest rates, or exchange rates, as applicable, and any new credit support agreements relating thereto not previously disclosed to Lender;
(g) Within five (5) days of Lender’s request, Borrower shall provide to Lender full and complete copies of all agreements, documents, and instruments evidencing all existing Hedge Transactions and such other information regarding Hedge Transactions as Lender may reasonably request;
(h) Within sixty (60) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, the lease operating expenses, intangible drilling costs, and capital expenditures, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
(i) As soon as available, and in any event within thirty (30) days after the end of each calendar quarter, a gas balancing report, in Proper Form and duly certified by an authorized representative of Borrower as being true and correct in all material aspects to his or her knowledge;
(j) At any time upon request by Lender, a list showing the name and address of each purchaser of oil, gas, and associated hydrocarbons produced from or attributable to the Properties;
(k) Within thirty (30) days of the date of this Loan Agreement, evidence of the payment in full of the Accounts Payable, including lien releases to the extent necessary.
(l) If requested by Lender, Borrower shall provide evidence that the budgeted capital expenditures for oil and gas properties have been completed as scheduled in accordance with the Approved Plan of Development, along with the associated paid vendor invoices.
(m) If requested by Lender, Borrower shall provide evidence that it reasonably expects to have the funds available to fund the budgeted capital expenditures under the Approved Plan of Development.
(n) Within five (5) days after Borrower learns of any such occurrence, a written report of any pending or threatened litigation which would reasonably be expected to have a material adverse effect upon Borrower, Guarantors, the Properties, or Borrower’s or any Guarantors’ financial condition or which asserts damages or claims in an amount in excess of $100,000;
(o) Within five (5) days after Borrower learns of any default under one or more Hedge Transactions that results in an obligation of Borrower or any Guarantors to make one or more material payments, written notice of the default and copies of all documentation relating to the default;
(p) As soon as possible and in any event within five (5) days after the occurrence of any Event of Default, or any event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, the written statement of the President or the Chief Financial Officer of Borrower setting forth the details of such Event of Default and the action which Borrower proposes to take with respect thereto; and
(q) Such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
10.
Events of Default
. (a) The occurrence at any time of any of the following events or the existence of any of the following conditions, and the expiration of any notice, cure, or grace period provided in Section 10(b) below, shall be called an “
Event of Default
”:
(i) Failure to make punctual payment when due of any sums owing on any of the Notes or any of the other secured indebtedness (as described in the Deeds of Trust) or any other amounts owed by Borrower to Lender; or
(ii) Failure of any of the Obligated Parties (as defined below) to perform in any material respect any of the obligations, covenants, or agreements, contained in this Loan Agreement or any of the other Loan Documents; or any representation or warranty made by Borrower or Guarantors proves to have been false, misleading, or erroneous when made in any material respect; or
(iii) A material default by Borrower or Guarantors under any ISDA Agreement or with respect to any Hedge Liabilities; or non-payment when due or the material breach by Borrower or Guarantors or any Obligated Parties of any term, provision, or condition contained in any Hedge Transaction or any confirmation or other transaction consummated thereunder, whether or not Lender is a party thereto; or
(iv) If Borrower or any Guarantor causes production payments for oil and gas produced from or attributable to Borrower’s oil and gas properties to be directed to any party other than the lockbox maintained by Lender following the establishment of the lockbox under Section 2(d) of this Loan Agreement; or
(v) A failure by Borrower to resolve a Borrowing Base deficiency in accordance with Section 3(b) of this Loan Agreement; or
(vi) Levy, execution, attachment, sequestration, or other writ against any material portion of the real or personal property representing the security for the Loans; or
(vii) Any “Event of Default” under the Notes or any of the other Loan Documents, the Events of Default defined in the Notes and Loan Documents being cumulative to those contained in this Loan Agreement; or
(viii) Except as expressly permitted by this Loan Agreement, the transfer, whether voluntarily or by operation of law, of all or any portion of the Properties without obtaining Lender’s consent; or
(ix) The failure of any of the Obligated Parties to pay any money judgment in excess of $500,000.00, against that party before the expiration of thirty (30) days after the judgment becomes final, unless such judgment has been stayed, or the failure of any of the Obligated Parties to obtain dismissal within ninety (90) days of any involuntary proceeding filed against that party under any Debtor Relief Laws (as defined below); or
(x) Borrower’s liquidation, termination of existence, merger or consolidation with another (unless Borrower is the surviving entity), forfeiture of right to do business, except where such forfeiture would not reasonably be expected to have a material adverse effect on Borrower or any Guarantors, or appointment of a trustee or receiver for any substantial part of its property or the filing of an action seeking to appoint a trustee or receiver for same; or
(xi) A filing by any of the Obligated Parties of a voluntary petition in bankruptcy, or taking advantage of any Debtor Relief Laws; or an answer admitting the material allegations of a petition filed against any of the Obligated Parties, under any Debtor Relief Laws; or an admission by any of the Obligated Parties in writing of an inability to pay its or their debts as they become due; or the calling of any meeting of creditors of any of the Obligated Parties for the purpose of considering an arrangement or composition; or
(xii) Any of the Obligated Parties revokes or disputes the validity of or liability under any of the Loan Documents, including any guaranty or security document.
(b) The term “
Obligated Parties
” means Borrower, Guarantors, any other party liable, in whole or in part, for the payment of any of the Notes, whether as maker, endorser, guarantor, surety, or otherwise, and any party executing any deed of trust, mortgage, security agreement, pledge agreement, assignment, or other contract of any kind executed as security in connection with or pertaining to the Notes or the Loans. The term “
Debtor Relief Laws
” means any applicable liquidation, conservatorship, receivership, bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar laws affecting the rights or remedies of creditors generally, as in effect from time to time.
11.
Remedies
. (a) Upon the occurrence and during the continuance of anyone or more of the foregoing Events of Default, the entire unpaid principal balances of the Notes, together with all accrued but unpaid interest thereon, and all other indebtedness then owing by Borrower to Lender, shall, at the option of Lender, upon written notice to Borrower, become immediately due and payable without further presentation, demand for payment, notice of intent to accelerate, notice of acceleration or dishonor, protest or notice of protest of any kind, all of which are expressly waived by Borrower. Any and all rights and remedies of Lender pursuant to this Loan Agreement or any of the other Loan Documents may be exercised by Lender, at its option, upon the occurrence and during the continuance of an Event of Default. All remedies of Lender may be exercised singularly, concurrently, or consecutively, without waiver or election.
(b) Upon any event described in Subsection 10 (a)(l) above regarding payment of sums owing to Lender, Lender shall provide Borrower with an invoice for the payment due and Borrower shall have five (5) days grace after the due date in order to cure the default prior to acceleration of the Notes and exercise of any remedies. Upon any other event described in Subsection 10 (a) above, Lender shall provide Borrower with written notice of the default and Borrower shall have twenty (20) days after notice in order to cure the default prior to acceleration of the Notes and exercise of any remedies; except Borrower shall have no cure period for any voluntary filing by Borrower under any Debtor Relief Laws, for any voluntary transfer of any portion of the Properties, without obtaining Lender’s partial release, for any liquidation or termination of existence of Borrower, or for any Event of Default that is not capable of cure during that period, and provided that Lender is not obligated to provide written notice of any default which Borrower reports to Lender, but Borrower shall have the benefit of any applicable grace or cure period required herein.
(c) All rights of Lender under the terms of this Loan Agreement shall be cumulative of, and in addition to, the rights of Lender under any and all other agreements between Borrower and Lender (including, but not limited to, the other Loan Documents), and not in substitution or diminution of any rights now or hereafter held by Lender under the terms of any other agreement.
12.
Waiver and Amendment
. Neither the failure nor any delay on the part of Lender to exercise any right, power, or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. No waiver of any provision in this Loan Agreement or in any of the other Loan Documents and no departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Lender, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing. No modification or amendment to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced.
13.
Savings Clause
. Regardless of any provision contained in this Loan Agreement, the Notes, or any of the Loan Documents, it is the express intent of the parties that at no time shall Borrower or any of the Obligated Parties pay interest in excess of the Maximum Rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on any of the Notes, any amount in excess of the Maximum Rate (or any other interest amount which might in any way be deemed usurious). In the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balances of the Notes, and, if the principal balances of the Notes are paid in full, any remaining excess shall forthwith be paid to Borrower.
In determining whether the interest paid or payable exceeds the Maximum Rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law: (i) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest; (ii) exclude voluntary prepayments and the effect thereof; and (iii) amortize, pro rate, or spread the total amount of interest throughout the entire contemplated term of the Notes so that the interest rate is uniform throughout the term. The term “
Maximum Rate
” means the maximum interest rate which may be lawfully charged under applicable law.
14.
Notices
. Any notice or other communications provided for in this Loan Agreement shall be in writing and shall be given to the party at the address shown below:
Lender:
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AMEGY BANK N.A.
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Attention: Tim E. Merrell, Senior Vice President
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1807 Ross Avenue, Suite 400
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Dallas, Texas 75201
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Fax Number (214) 754-9687
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With a copy to counsel for Lender:
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Paul D. Bradford
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HARRIS, FINLEY & BOGLE, P.C.
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777 Main Street, Suite 3600
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Fort Worth, Texas 76102-5341
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Fax Number (817) 332-6121
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Borrower and Guarantors:
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INFINITY ENERGY RESOURCES, INC.
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INFINITY OIL AND GAS OF TEXAS, INC.
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INFINITY OIL & GAS OF WYOMING, INC.
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Attention: James A. Tuell, President
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633 Seventeenth Street, Suite 1800
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Denver, Colorado 80202
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Fax Number (720) 932-5409
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With a copy to counsel for
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Borrower and Guarantors:
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Deborah L. Friedman
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DAVIS GRAHAM & STUBBS LLP
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1550 Seventeenth Street, Suite 500
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Denver, Colorado 80202
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Fax Number (303) 893-1379
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Any such notice or other communication shall be deemed to have been given on the day it is personally delivered or, if mailed, on the third day after it is deposited in an official receptacle for the United States mail, or, if faxed, on the date it is received by the party. Any party may change its address for the purposes of this Loan Agreement by giving notice of such change in accordance with this paragraph.
15.
Miscellaneous
. (a) This Loan Agreement shall be binding upon and inure to the benefit of Lender, Borrower, and Guarantors, and their respective heirs, personal representatives, successors, and assigns; provided, however, that Borrower and Guarantors may not, without the prior written consent of Lender, assign any rights, powers, duties, or obligations under this Loan Agreement or any of the other Loan Documents.
(b) THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LA WS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS. BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE GUARANTIES, OR THE PROPERTIES SHALL BE IN COURT IN DALLAS COUNTY, TEXAS.
(c) If any provision of this Loan Agreement or any other Loan Documents is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Loan Agreement or any of the other Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance.
(d) All covenants, agreements, undertakings, representations, and warranties made in this Loan Agreement and the other Loan Documents shall survive any closing hereunder.
(e) All documents delivered by Borrower or Guarantors to Lender must be in Proper Form. The term “
Proper Form
” means in form, substance, and detail satisfactory to Lender in its sole discretion.
(f) Without limiting the effect of any provision of any Loan Document which provides for the payment of expenses and attorneys fees upon the occurrence of certain events, Borrower shall pay all costs and expenses (including, without limitation, the reasonable attorneys fees of Lender’s legal counsel) in connection with (i) the preparation of this Loan Agreement and the other Loan Documents, and any and all extensions, renewals, amendments, supplements, extensions, or modifications thereof, (ii) any action reasonably required in the course of administration of the Loans, (iii) resolution of any disputes with Borrower or Guarantors related to the Loans or this Loan Agreement, and (iv) any action in the enforcement of Lender’s rights upon the occurrence of an Event of Default.
(g) If there is a conflict between the terms of this Loan Agreement and the terms of any of the other Loan Documents, the terms of this Loan Agreement will control.
(h) Lender shall have the right, with the consent of Borrower (unless an Event of Default has occurred and is continuing, in which case no consent is needed), which will not be unreasonably withheld, (i) to assign the Loans or commitment and be released from liability thereunder, and (ii) to transfer or sell participations in the Loans or commitment with the transferability of voting rights limited to principal, rate, fees, and term.
(i) This Loan Agreement may be separately executed in any number of counterparts, each of which will be an original, but all of which, taken together, shall be deemed to constitute one agreement, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower. At Lender’s option, this Loan Agreement and the Loan Documents may also be executed by Lender, Borrower, and Guarantors in remote locations with signature pages faxed to Lender and Borrower. Lender, Borrower, and Guarantors agree that the faxed signatures are binding upon the parties thereto, and the parties further agree to promptly deliver the original signatures for this Loan Agreement and all Loan Documents by overnight mail or expedited delivery. It will be an Event of Default if they fail to promptly deliver all required original signatures.
16.
Notice of Final Agreement
. (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Loan Agreement and the Loan Documents (collectively the “
Written Loan Agreement
”).
(b) It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents. Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
(c) THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
If the foregoing correctly sets forth our agreement, please so acknowledge by signing and returning the additional copy of this Loan Agreement enclosed to me.
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Yours very truly,
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AMEGY BANK N.A.
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By:
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/s/ Tim E. Merrell
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Tim E. Merrell,
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Senior Vice President
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Accepted and agreed to this 9
th
day of January, 2007:
BORROWER:
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INFINITY ENERGY RESOURCES, INC.
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By:
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/s
James A. Tuell
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James A. Tuell, President
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GUARANTORS:
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INFINITY OIL AND GAS OF TEXAS, INC.
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By:
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/s/
James A. Tuell
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James A. Tuell, President
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INFINITY OIL & GAS OF WYOMING, INC.
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By:
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/s/
James A. Tuell
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James A. Tuell, President
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Exhibits and Schedules
Exhibit A -Revolving Note
Exhibit B -Compliance Certificate
Schedule 1 (d) -Approved Plan of Development
Schedule 5(a)(6) -Liens and security interests
Schedule 5(a)(8) -Material adverse change
Schedule 5(a)(9) -Order, injunction, or other pending or threatened actions, suits, or proceedings
Schedule 6( e) -Additional taxes
Schedule 6(h) -Organizational Chart
Schedule 6(i) -Hedge Transactions
Schedule 7(h) -Obligations on Nicaraguan concessions
Schedule 7(P) -ERISA issues
Exhibit 10.7
REVOLVING PROMISSORY NOTE
$50,000,000.00
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Dallas, Texas
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January 9, 2007
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1. Promise to Pay. For value received, on or before January 9, 2009 (“
Maturity Date
”), INFINITY ENERGY RESOURCES, INC. (“
Borrower
”), a Delaware corporation, promises to pay to the order of AMEGY BANK, N.A. (“
Lender
”), at its offices in Dallas County, Texas, at 1807 Ross Avenue, Suite 400, Dallas, Dallas County, Texas 75201, the principal amount of Fifty Million Dollars ($50,000,000.00) (“
Total Principal Amount
”), or such amount less than the Total Principal Amount which has been advanced to Borrower and remains unpaid under this Revolving Promissory Note (“
Note
”), together with interest on the portion of the Total Principal Amount advanced to Borrower from the date advanced until paid at the rates per annum provided below.
2. Definitions. For purposes of this Note, unless the context otherwise requires, certain terms used herein shall be defined as follows:
“
Adjusted LIBOR Rate
” means with respect to each Interest Period, a rate per annum equal to the sum of (i) the LIBOR Spread, plus (ii) the LIBOR Rate with respect to such Interest Period. Each determination by Lender of the Adjusted LIBOR Rate shall, in the absence of manifest error, be conclusive and binding.
“
Adjusted Stated Rate
” means a rate per annum equal to the sum of (i) the Stated Rate,
plus
(ii) the Applicable Margin. Each determination by Lender of the Adjusted Stated Rate shall, in the absence of manifest error, be conclusive and binding.
“
Applicable Margin
” means the “Applicable Margin” as defined in the Loan Agreement; and the Applicable Margin will vary as set forth in the Loan Agreement, based on the Borrowing Base Utilization (as defined in the Loan Agreement) as in effect from time to time, with each change in the applicable percentage resulting from a change in the Borrowing Base Utilization to take effect on the day such change in the Borrowing Base Utilization occurs.
“
Business Day
” means any day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed.
“
Consequential Loss
” means, with respect to Borrower’s payment of all or any portion of the then-outstanding principal amount of any LIBOR Balance on a day other than the last day of the Interest Period related thereto, any loss, cost, or expense incurred by Lender in redepositing such principal amount, including the sum of (i) the interest which, but for such payment, Lender would have earned in respect of such principal amount so paid, for the remainder of the Interest Period applicable to such sum, reduced, if Lender is able to redeposit such principal amount so paid for the balance of such Interest Period, by the interest earned by Lender as a result of so redepositing such principal amount
plus
(ii) any expense or penalty incurred by Lender on redepositing such principal amount, but excluding taxes on the income of Lender imposed by any governmental authority.
“
Contract Rate
” means the Adjusted LIBOR Rate or the Adjusted Stated Rate, as in effect from time to time under this Note.
“
Dollars
” means lawful currency of the United States of America.
“
Excess Interest Amount
” means, on any date, the amount by which (i) the amount of all interest which would have accrued prior to such date on the principal of this Note, had the applicable Contract Rate at all times been in effect without limitation by the Maximum Rate, exceeds (ii) the aggregate amount of interest accrued on this Note on or prior to such date as limited by the Maximum Rate.
“
Interest Notice
” means the notice given by Borrower to Lender of an Interest Option selected hereunder. Each Interest Notice given by Borrower under this Note shall be irrevocable and must be given not later than 11 :00 a.m. (Dallas, Texas time) on a day which is not less than the number of Business Days or LIBOR Business Days required below for an Interest Option.
“
Interest Option
” means Borrower’s option to select an Adjusted LIBOR Rate or the Adjusted Stated Rate, as described more fully below.
“
Interest Payment Date
” means the first day of each month hereafter for interest on the Stated Rate Balance, the last day of the applicable Interest Period for interest on the LIBOR Balance, and the Maturity Date.
“
Interest Period
” means, with respect to any LIBOR Balance, a period commencing: (i) on any date which, pursuant to an Interest Notice, the principal amount of such LIBOR Balance begins to accrue interest at the Adjusted LIBOR Rate, or the Business Day following the last day of the immediately preceding Interest Period in the case of a rollover to a successive Interest Period, and ending one, two, three, or six months thereafter as Borrower shall elect in accordance with the provisions hereof; provided that: (A) any Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the succeeding LIBOR Business Day and (B) any Interest Period which would otherwise end after the Maturity Date shall end on the Maturity Date.
“
LIBOR Balance
” means the principal balance of this Note, which, pursuant to an Interest Notice, bears interest at an Adjusted LIBOR Rate.
“
LIBOR Business Day
” means a day on which dealings in Dollars are carried out in the London interbank offered rate market.
“
LIBOR Rate
” means the rate of interest per annum (rounded upwards, if necessary, to the nearest 1116 of 1%) equal to the average of the offered quotations appearing at Page or Ticker US0001M, US0002M, US0003M, or US0006M, as the case may be for applicable Interest Period in
Bloomberg Financial Markets Commodities News
as published by BLOOMBERG L.P. (or such other similar news reporting service as Lender may subscribe to at the time such LIBOR Rate is determined), at which deposits in U.S. dollars are offered by the major London clearing banks in the London interbank offered market for a period of time equal or comparable to one, two, three, or six months and in an amount equal to or comparable to the principal amount of the LIBOR Balance to which such interest period relates. The LIBOR Rate for the Interest Period to which it relates shall be determined as of 11:00 a.m. (London, England time) two (2) LIBOR Business Days prior to the first day of such Interest Period.
“
LIBOR Spread
” means the “LIBOR Spread” as defined in the Loan Agreement; and the LIBOR Spread will vary as set forth in the Loan Agreement, based on the Borrowing Base Utilization (as deemed in the Loan Agreement) as in effect from time to time, with each change in the applicable percentage resulting from a change in the Borrowing Base Utilization to take effect on the day such change in the Borrowing Base Utilization occurs.
“
Loan Agreement
” means the Loan Agreement of even date, by and among Borrower, Lender, and others, as amended.
“
Maximum Rate
” means at the particular time in question the maximum rate of interest which, under applicable law, may then be charged on this Note. If the maximum rate of interest changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as the case may be, without notice to Borrower from time to time as of the effective date of each change in the maximum rate. If applicable law ceases to provide for a maximum rate of interest, the Maximum Rate shall be equal to eighteen percent (18%) per annum.
“
Stated Rate
” means the greater of(i) the interest rate publicly announced by Lender from time to time as its general reference rate of interest, which prime rate shall change upon any change in such announced or published general reference interest rate and which prime rate may not be the lowest interest rate charged by the Lender, or (ii) the sum of the rate of interest, then most recently published by
The Wall Street Journal
as the “federal funds” rate for reserves traded among commercial banks for overnight use, plus one half of one percent (0.5%).
“
Stated Rate Balance
” means the principal balance of this Note bearing interest at a rate based upon the Adjusted Stated Rate.
3. Payments of Interest and Principal. The principal of and ail accrued but unpaid interest on this Note shall be due and payable as follows:
(a) accrued, unpaid interest on this Note shall be due and payable on each Interest Payment Date, commencing on the first (lst) day of February, 2007, and continuing until the Maturity Date;
(b) the principal of this Note shall be due and payable as required by the Loan Agreement to meet any Borrowing Base deficiency or Monthly Commitment Reductions (if and when required by Lender under the Loan Agreement); and
(c) the outstanding principal balance of this Note, together with all accrued but unpaid interest, shall be due and payable on the Maturity Date.
4. Revolving Credit. Under the Loan Agreement, Borrower may request advances and make payments hereunder from time to time, provided that it is understood and agreed that the aggregate principal amount outstanding from time to time hereunder shall not at any time exceed the Total Principal Amount or the Borrowing Base (as deemed in the Loan Agreement), subject to the right to cure Borrowing Base deficiencies in the Loan Agreement. In addition, Lender may set a monthly commitment reduction pursuant to the Loan Agreement, and thereafter the Borrowing Base and Lender’s commitment under this Note will decline monthly and the amount outstanding under this Note may not exceed this declining Borrowing Base as and to the extent provided in the Loan Agreement. The unpaid balance of this Note shall increase and decrease with each new advance or payment hereunder, as the case may be. This Note shall not be deemed terminated or canceled prior to the Maturity Date, although the entire principal balance hereof may from time to time be paid in full. Borrower may borrow, repay and reborrow hereunder. Unless otherwise agreed to in writing or otherwise required by applicable law, payments will be applied first to unpaid accrued interest, then to principal, and any remaining amount to any unpaid collection costs, delinquency charges, and other charges; provided, however, while an Event of Default (as deemed below) is outstanding, Lender reserves the right to apply payments among principal, interest, delinquency charges, collection costs, and other charges, in such order and manner as the holder of this Note may from time to time determine in its sole discretion. All payments and prepayments of principal of or interest on this Note shall be made in Dollars in immediately available funds, at the address of Lender indicated above, or such other place as the holder of this Note shall designate in writing to Borrower. If any payment of principal of or interest on this Note shall become due on a day which is not a Business Day or LIBOR Business Day, as applicable, such payment shall be made on the next succeeding Business Day or LIBOR Business Day, as applicable, and any such extension of time shall be included in computing interest in connection with such payment. The books and records of Lender shall be
prima facie
evidence of all outstanding principal of and accrued and unpaid interest on this Note.
5. Accrual of Interest. The unpaid principal of the Stated Rate Balance shall bear interest at a rate per annum which shall from day to day be equal to the lesser of (i) the Adjusted Stated Rate, or (ii) the Maximum Rate. The unpaid principal of each LIBOR Balance shall bear interest at a rate per annum which shall be equal to the lesser of (i) the Adjusted LIBOR Rate for the Interest Period in effect with respect to such LIBOR Balance, or (ii) the Maximum Rate. Each change in the Adjusted Stated Rate shall become effective without prior notice to Borrower automatically as of the opening of business on the date of such change in the Adjusted Stated Rate. Interest on this Note shall be calculated on the basis of the actual days elapsed, but computed as if each year consisted of 360 days.
6. Interest Options. Subject to the provisions hereof, Borrower shall have the option (the “
Interest Option
”) of having the unpaid principal balance of this Note bear interest at the Adjusted LIBOR Rate or the Adjusted Stated Rate; provided, however, that only four (4) Interest Period options shall be in effect at anyone time during the term hereof and the selection of the Adjusted LIBOR Rate for a particular Interest Period shall be for no less than $1,000,000.00 of unpaid principal and in even multiples of $100,000.00 in principal. The Interest Option shall be exercised in the manner provided below:
(a)
Advances.
Each advance on the Note will initially be funded as a Stated Rate Balance and will accrue interest from the date advanced at the Adjusted Stated Rate.
(b)
Conversion From Adjusted Stated Rate.
During any period in which the principal hereof bears interest at the Adjusted Stated Rate, Borrower shall have the right, on any LIBOR Business Day (the “
Conversion Date
”), to convert all or part of the principal balance owed on the Note from the Stated Rate Balance to a LIBOR Balance by giving Lender an Interest Notice of such selection at least two (2) LIBOR Business Days prior to the Conversion Date.
(c)
At Expiration o/Interest Periods.
At least two (2) LIBOR Business Days prior to the termination of each Interest Period, Lender shall receive from Borrower an Interest Notice indicating the Interest Option to be applicable to the corresponding LIBOR Balance upon the expiration of such Interest Period. If the required Interest Notice shall not have been timely received by Lender, Borrower shall be deemed to have selected the Adjusted Stated Rate to be applicable to the corresponding LIBOR Balance upon the expiration of the Interest Period and to have given Lender notice of such selection.
7. Interest Recapture. If on each Interest Payment Date or any other date on which interest payments are required hereunder, Lender does not receive interest on this Note computed at the Adjusted Stated Rate or Adjusted LIBOR Rate because such Contract Rate exceeds or has exceeded the Maximum Rate, then Borrower shall, upon the written demand of Lender, pay to Lender in addition to the interest otherwise required to be paid hereunder, on each Interest Payment Date thereafter, the Excess Interest Amount (calculated as of such later Interest Payment Date); provided that in no event shall Borrower be required to pay, for any Interest Period, interest at a rate exceeding the Maximum Rate effective during such period.
8. Interest on Past Due Amounts and Default Interest. To the extent any interest is not paid on or before the date it becomes due and payable, Lender may, at its option, add such accrued but unpaid interest to the principal of this Note. Notwithstanding anything herein to the contrary, (i) while any Event of Default (as defined below) is outstanding, (ii) upon acceleration of the maturity hereof following an uncured Event of Default, or (iii) at the Maturity Date, all principal of this Note shall, at the option of Lender, bear interest until paid at the lesser of (i) the sum of the Stated Rate plus six percent (6.0%) per annum, or (ii) the Maximum Rate.
9. Loan Agreement/Security. This Note is subject to the terms and provisions of the Loan Agreement. In the event of any conflict or inconsistency between this Note and the Loan Agreement, the Loan Agreement shall govern. This Note is secured by all liens and security interests described in the Loan Agreement. This Note, the Loan Agreement, and all other documents evidencing, securing, governing, guaranteeing, or pertaining to this Note are hereinafter collectively referred to as the “
Loan Documents
.” The holder of this Note is entitled to the benefits and security provided in the Loan Documents.
10. Prepayments; Consequential Loss. Borrower may from time to time prepay all or any portion of the principal of this Note without premium or penalty, except as set forth herein. Any prepayment made hereunder shall be made together with all interest accrued but unpaid on this Note through the date of such prepayment. If Borrower makes any prepayment of principal with respect to any LIBOR Balance on any day prior to the last day of the Interest Period applicable to such LIBOR Balance, Borrower shall reimburse the Lender on demand the Consequential Loss incurred by Lender as a result of the timing of such payment. A certificate of Lender setting forth the basis for the determination of a Consequential Loss shall be delivered to Borrower and shall, in the absence of manifest error, be prima facie evidence as to such determination and amount.
11. Special Provisions for
LIBOR
Pricing. Borrower agrees to the following special provisions regarding LIBOR pricing:
(a) If Lender determines that, by reason of circumstances affecting the London interbank offered rate market generally, deposits in Dollars (in the applicable amounts) are not being offered to United States financial institutions in the London interbank offered rate market for the applicable Interest Period, or that the rate at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to Lender of making or maintaining a LIBOR Balance for the applicable Interest Period, Lender shall forthwith give written notice to Borrower, and thereafter until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, (i) the right of Borrower to select the Adjusted LIBOR Rate as an Interest Option under this Note shall be suspended, and (ii) Borrower shall be deemed to have converted each LIBOR Balance to a Stated Rate Balance under this Note in accordance with the provisions hereof on the last day of the then-current Interest Period applicable to such LIBOR Balance.
(b) If the adoption of any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or agency charged with the interpretation or administration thereof, or compliance by Lender with any request or directive (whether or not having the force of law) of any such authority, central bank, or agency shall make it unlawful or impossible for Lender to make or maintain a LIBOR Balance, Lender shall so notify Borrower. Upon receipt of such written notice, Borrower shall be deemed to have converted any LIBOR Balance to a Stated Rate Balance under this Note, on either (i) the last day of the then-current Interest Period applicable to such LIBOR Balance if Lender may lawfully continue to maintain and fund such LIBOR Balance to such day, or (ii) immediately if Lender may not lawfully continue to maintain such LIBOR Balance to such day.
(c) If any governmental authority, central bank, or other comparable authority, shall at any time after the date of this Note impose, modify, or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender, or shall impose on Lender (or its LIBOR lending office) or the London interbank offered rate market any other condition affecting its LIBOR Balance, this Note, or its obligation to make LIBOR advances; and the result of any of the foregoing is to increase the cost to Lender of making or maintaining its LIBOR Balance, or to reduce the amount of any sum received or receivable by Lender under this Note by an amount reasonably deemed by Lender to be material; then, within five (5) days after demand by Lender, Borrower shall pay to Lender, such additional amount or amounts as will compensate Lender for such increased cost or reduction. Lender will promptly notify Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Lender to compensation pursuant to this Subsection. A certificate of Lender claiming compensation under this Subsection and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. If Lender demands compensation under this Subsection, then Borrower may at any time, upon at least five (5) Business Days prior notice to Lender, either (i) repay in full the then outstanding LIBOR Balance, together with accrued interest thereon to the date of prepayment, or (ii) convert such LIBOR Balance to Stated Rate Balance in accordance with the provisions of this Note; provided, however, that Borrower shall be liable for any Consequential Loss arising pursuant to such actions.
(d) If (i) the obligation of Lender to permit LIBOR Balance has been suspended pursuant to subsections (a) or (b) above or (ii) Lender has demanded compensation under subsection (c) above, then, unless and until Lender notifies Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply, all advances on this Note which would otherwise be made by Lender as LIBOR Balance shall be made instead as Stated Rate Balance.
12. Business Loan. Borrower represents to and covenants with Lender that: (1) all loans evidenced by this Note are and shall be “business loans” as that term is used in the Depository Institutions Deregulation and Monetary Control Act of 1980, as amended; and (2) the loans are for business, commercial, investment, or other similar purposes and not for personal, family, household, or agricultural use, as those terms are used in the Texas Finance Code.
13. Event of Default. Borrower agrees that upon the occurrence of anyone or more of the following events of default and the expiration of any notice, grace, or cure period provided for in the Loan Agreement (“
Event of Default
”):
(a) failure of Borrower to pay any installment of principal of or interest on this Note or on any other indebtedness of Borrower to Lender when due; or
(b) the occurrence of any Event of Default specified in the Loan Agreement;
the holder of this Note may, at its option, without further notice or demand, except such notice as is required by the Loan Agreement, (i) declare the outstanding principal balance of and accrued but unpaid interest on this Note at once due and payable, without presentment, demand for payment, notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of protest of any kind, all of which are expressly waived by Borrower (ii) refuse to advance any additional amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue any and all other rights, remedies, and recourses available to the holder hereof, including but not limited to any such rights, remedies, or recourses under the Loan Documents, at law or in equity, or (v) pursue any combination of the foregoing.
14. No Waiver by Lender. The failure to exercise the option to accelerate the maturity of this Note or any other right, remedy, or recourse available to the holder hereof upon the occurrence of an Event of Default hereunder shall not constitute a waiver of the right of the holder of this Note to exercise the same at that time or at any subsequent time with respect to such Event of Default or any other Event of Default while such Event of Default is outstanding. The rights, remedies, and recourses of the holder hereof, as provided in this Note and in any other Loan Documents, shall be cumulative and concurrent and may be pursued separately, successively, or together as often as occasion therefor shall arise, at the sole discretion of the holder hereof. The acceptance by the holder hereof of any payment under this Note which is less than the payment in full of all amounts due and payable at the time of such payment shall not (i) constitute a waiver of or impair, reduce, release, or extinguish any right, remedy, or recourse of the holder hereof, or nullify any prior exercise of any such right, remedy, or recourse, or (ii) impair, reduce, release, or extinguish the obligations of any party liable under any of the Loan Documents as originally provided herein or therein.
15. Usury Savings Clause. This Note and all other Loan Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable usury laws. If any provision hereof or of any other Loan Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the application of such provision to any other person or circumstance nor the remainder of the instrument in which such provision is contained shall be affected thereby, and all provisions shall be enforced to the greatest extent permitted by law. It is expressly stipulated and agreed to be the intent of the holder hereof to at all times comply with the usury and other applicable laws now or hereafter governing the interest payable on the indebtedness evidenced by this Note. If the applicable law is ever revised, repealed, or judicially interpreted so as to render usurious any amount called for under this Note or under any other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the indebtedness evidenced by this Note, or if Lender’s exercise of the option to accelerate the maturity of this Note or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by law, then it is the express intent of Borrower and Lender that all excess amounts theretofore collected by Lender be credited on the principal balance of this Note (or, if this Note and all other indebtedness arising under or pursuant to the other Loan Documents have been paid in full, refunded to Borrower), and the provisions of this Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then-applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid, or agreed to be paid, by Borrower for the use, forbearance, detention, taking, charging, receiving, or reserving of the indebtedness of Borrower to Lender under this Note or arising under or pursuant to the other Loan Documents shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling from time to time in effect and applicable to such indebtedness for so long as such indebtedness is outstanding. To the extent federal law permits Lender to contract for, charge, or receive a greater amount of interest, Lender will rely on federal law instead of Texas Finance Code, for the purpose of determining the Maximum Rate. Additionally, to the maximum extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, implement any other method of computing the Maximum Rate under the Texas Finance Code, or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect. Notwithstanding anything to the contrary contained herein or in any other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.
16. Applicability of Laws. In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to this Note, the “weekly ceiling” specified in Chapter 303 is the applicable ceiling; provided that, if any applicable law permits greater interest, the law permitting the greatest interest shall apply.
17. Attorneys Fees. If this Note is placed in the hands of an attorney for collection, or is collected in whole or in part by suit or through bankruptcy, or other legal proceedings of any kind, Borrower agrees to pay, in addition to all other sums payable hereunder, all costs and expenses of collection, including but not limited to reasonable attorneys fees.
18. Borrower’s Waiver. Except as expressly provided herein, Borrower and any and all endorsers and guarantors of this Note severally waive presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration and dishonor, diligence in enforcement and indulgences of every kind and without further notice hereby agree to renewals, extensions, exchanges or releases of collateral, taking of additional collateral, indulgences, or partial payments, either before or after maturity.
19. Applicable Law. EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNITED STATES MAY APPLY, THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THIS INSTRUMENT IS MADE AND IS PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS, AND IN THE EVENT OF A DISPUTE INVOLVING THIS NOTE OR ANY OTHER INSTRUMENT EXECUTED IN CONNECTION HEREWITH, BORROWER IRREVOCABLY AGREES THAT VENUE FOR SUCH DISPUTES SHALL BE IN ANY COURT OF COMPETENT JURISDICTION IN DALLAS COUNTY, TEXAS.
20. Captions. Captions used herein are for convenience only and should not be used in interpreting this Note.
21.
Final Agreement.
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed and delivered to Lender in Dallas, Texas, on the date stated above.
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BORROWER:
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INFINITY ENERGY RESOURCES, Inc.
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By:
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/s/
James A. Tuell
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James A. Tuell, President
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This note was prepared by:
HARRIS, FINLEY & BOGLE, P.C.
777 Main Street, Suite 3600
Fort Worth, Texas 76102
(817) 870-8700
Exhibit 10.8
REPUBLIC OF NICARAGUA
CENTRAL AMERICA
STATE NOTARY PUBLIC
AUTHENTICATED COPY
VALE TRES CORDOBAS
Seal:
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Republic of Nicaragua
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Central America
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SERIES “M”
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No. 1766001
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PUBLIC DEED NUMBER SEVENTY ONE (No.71).- CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS FOR THE “PERLAS” PROSPECT. In the city of Managua, at three o’clock in the afternoon of March five of the year two thousand nine.- Before me, GEOVANNY FRANCISCO SALINAS BRENES, Attorney and Notary Public for the Republic of Nicaragua, domiciled and residing in this city of Managua, duly authorized by the Supreme Court to act as the Eleventh Notary Public for the State during the five year period ending August one of the year two thousand nine, pursuant to the Minutes of Certificate of Office number one hundred fourteen dash two thousand eight (114-2008) beginning at eight hours of the morning of the first day of November of the year two thousand eight, in accordance with the Book of Agreements number seventy six seventy six of the year two thousand eight, page seventy six of the Book of Contracts of the year two thousand eight and the Certification of the Book of Records of Ownership Number seventy Six (76), dated eight o’clock and fifteen minutes of the morning of the first day of November of the year two thousand eight, page number seventy six, of the Book of Records of Ownership, filed with the Attorney General’s Executive Office for the Republic, appear: A) Dr. JOAQUIN HERNAN ESTRADA SANTAMARIA, of age, married, attorney and Notary Public, at this domicile, bearer of the citizenship identification number zero, eight, one, dash, two, one, one, zero, five, seven, dash, zero, zero, zero, nine U (081-211057-0009U), and B) Mr. STANTON EDWARD ROSS, of age, married, businessman, domiciled in Chanute, State of Kansas, in transit through this city, passport number three zero eight two one zero four six nine (308210469) of the United Status of America, issued on April 6, 2006 (04/06/2006) and expiration date of April 5, 2016 (04/05/2016), and C) also appearing Mr. Roberto Octavio Argüello Villavicencio, of age, single, Attorney, domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) who has ample knowledge of the English and Spanish languages and who will act as the interpreter for the transaction, as designated by Mr. Stanton Edward Ross, who does not have knowledge of the Spanish language, all in accordance with Law number one hundred thirty nine (139), the Law that gives greater responsibility to the office of the Notary Public. At the end of this public instrument, Mr. Roberto Octavio Argüello Villavicencio will sign this instrument along with the appearing parties, and the undersigned Notary. I hereby swear to know the appearing parties and that, in my opinion, they have the necessary legal civil capacity to bind and contract and especially to sign this public instrument as follows. A) Doctor JOAQUIN HERNAN ESTRADA SANTAMARIA, on behalf of the State and Government of the Republic of Nicaragua, as the Attorney General for the Republic of Nicaragua in accordance with article two, item two, articles eleven and twelve of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number two hundred forty four (244) of December twenty four of the year two thousand one and article five (5) of Decree thirty three dash two thousand four (33-2004), Reforms and Additions to Decree number twenty four dash two thousand two (24-2002), Regulation of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number eighty nine (89) of May seven of the year two thousand four. He accepts his nomination and takes office as follows: One (1) The Certification that integrates and literally says “CERTIFICATION Paul Herbert Oquist Kelley, National Policies Council Coordinator, hereby certifies the Presidential Agreement No. 12-2007 and Act No. 1 that literally reads as follows: “PRESIDENTIAL AGREEMENT No. 12-2007. The President of the Republic of Nicaragua, in accordance with the powers granted unto him through the Political Constitution, AGREES to Article 1. To nominate the following citizen, Doctor Joaquin Hernán Estrada Santamaria, as the Attorney General for the Republic (referenced herein); Article 2. The following citizens are nominated as Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entities: (referenced herein). Article 3. This agreement will be in effect as of this date. Be it published in La Gaceta, the Official Daily Newspaper. In Managua, the Presidential House, on January ten of the year two thousand seven. Daniel Ortega Saavedra, President of the Republic of Nicaragua. ACT No. 1, in the city of Managua, at Plaza de los No Alineados Omar Torrijos Herrera, at six o’clock in the evening of January ten of the year two thousand seven. I, Daniel Ortega Saavedra, President of the Republic of Nicaragua, in order for the following individuals, Members of the Cabinet and Directors of Autonomous Entities to take the office for which they were nominated by Presidential Agreements No. 11-2007, 12-2007, 13-2007, 14-2007, 15-2007 and 16-2007, as follows: Dr. Joaquin Hernán Estrada Santamaria is nominated as the Attorney General for the Republic (referenced herein). The following citizens are nominated Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entities (referenced herein). To this end, I proceeded with the Oath of Office under the Law as follows: “Do you solemnly promise, before God, the Country, our national heroes and your honor, to faithfully comply with the duties of the position conferred unto you?” to which he replied: “Yes, I promise” and I concluded by saying: “If you so do, the country will reward you; otherwise, you will be held responsible”. This concluded the act and the nominated party was in charge of his position. The certification of this act will serve as sufficient document of qualification for all legal purposes. This document was fully read, agreed to, approved, ratified and signed. Daniel Ortega Saavedra, President of the Republic of Nicaragua, Joaquin Hernán Estrada Santamaria (referenced herein)”. This agrees with the originals, against which it was duly verified. At the request of the interested party, I hereby prepare this Certification, in the City of Managua, Presidential House, on January sixteen of the year two thousand seven. (signature) Paul Herbert Oquist Kelley, National Policies Council Coordinator. Seal of the National Policies Council Coordinator.” It is in accordance with the original against which it was compared. And 2 Presidential Agreement Number four hundred sixty seven dash two thousand eight (467-2008) published in La Gaceta, Official Newspaper number two hundred fifteen 9215) of November eleven (11) of the year two thousand eight (2008) which is integrated and literally reads as follows: PRESIDENTIAL AGREEMENT No. 467-2008. The President of the Republic, CONSIDERING that the Political Constitution of the Republic of Nicaragua in article 102 institutes that the natural resources are a national asset and that preservation of the environment and the conservation, development and exploitation of same revert to the State who has the option to sign contracts for the exploration of such resources whenever such are of national interest. II. That in accordance with the Political Constitution of the Republic of Nicaragua, article 181, second paragraph, which establishes that the concessions and exploration contracts of natural resources must have the approval of the Autonomous Regional Council. III That the attributions established in Law No. 286, the Special Law of Exploration and Exploitation of Hydrocarbons published in La Gaceta, Official Daily Newspaper Number 109 of June 12, 1998, and Decree No. 43-98, Regulation to the Special Law of Exploration and Exploitation of Hydrocarbons, published in La Gaceta, Official Daily Newspaper No. 117 of June 24, 1998, of the Instituto Nicaragüense de Energia (INE) have been transferred to the Ministry of Energy and Mines (MEM), an entity created by Law No. 612, the Law of Reform and Addition to Law No. 290, the Law of Organization, Competence and Procedures of the Executive Power, published in La Gaceta, Official Daily Newspaper No. 20 of January 29, 2007. IV That in accordance with Resolution No. 08-2003 of April 11, 2003, published in La Gaceta, Official Daily Newspaper Number 100 of May 30, 2003, the INE’s Administrative Council granted Infinity, INC., which changed its legal name to INFINITY ENERGY RESOURCE, INC., the concession area denominated “Perlas Prospect”, Offshore the Caribbean. V That the Presidential Agreement 185-2006 published in La Gaceta, Official Daily Newspaper No. 93 of May 15, 2006, authorized the signature of the petroleum concession contract for the area identified as the Perlas Prospect between the Republic of Nicaragua and the Petroleum Company INFINITY ENERGY RESOURCES, INC,INFINITY ENERGY RESOURCES INC. VI That citizens of the Autonomous Regions of the Atlantic of the Republic of Nicaragua submitted aan appeal (Recurso de Amparo) against signature of the Contracts for the Exploration and Exploitation of Hydrocarbons between them and the Concession Contract granted to the petroleum company INFINITY ENERGY RESOURCES, INC and whereby the Supreme Court of the Republic of Nicaragua through Sentence No. 92 of May 2, 2007, declared that the Appeal (Recurso de Amparo) to have grounds since the Concession Contracts were signed without approval of the North Atlantic Autonomous Region and the South Atlantic Autonomous Region Councils. VII That the award of the “Perlas Prospect” concession area to INFINITY ENERGY RESOURCES, INC is legal since once the concession is approved by the North Atlantic Autonomous Region and South Atlantic Autonomous Region Councils the corresponding Contract must be subscribed. VIII That the North Atlantic Autonomous Regional Council in a meeting on August 13, 2008, and the South Atlantic Autonomous Regional Council in a meeting on July 4 and 5, 2008, approved the Concession Contract for the Exploration and Exploitation of Hydrocarbons in the Perlas Prospect granted on behalf of INFINITY ENERGY RESOURCES, INC. IX That the Ministry of Energy and Mines (MEM) submitted to the President of the Republic the Minutes of the Concession Contract for Petroleum Exploration and Exploitation to be signed with INFINITY ENERGY RESOURCES, INC. in accordance with article 24 of Law No. 286, the Law for Exploration and Exploitation of Hydrocarbons, in accordance with the laws in effect. By the powers vested by the Political Constitution, it is hereby AGREED Article 1. Having fulfilled the requirements established in the Political Constitution of the Republic of Nicaragua and pertaining laws, the Attorney General of the Republic, on behalf and in representation of the State for the Republic of Nicaragua, is empowered to proceed with the subscription of the Concession Contract for Petroleum Exploration and Exploitation with the petroleum company INFINITY ENERGY RESOURCES, INC. under the terms negotiated by the Ministry of Energy and Mines and with the approval of the North Atlantic Autonomous Region Council in a meeting held on August 13, 2008, and the South Atlantic Autonomous Region Council, in a meeting held on July 4 and 5 , 2008. The area to be granted, identified as the Perlas Prospect, will proceed in accordance with Resolution No. 08-2003 of April 11, 2003, published in la Gaceta, Official Daily Newspaper Number 100, of May 30, 2003, Article 2. The Attorney General for the Republic must have the respective justifying and required documents to fulfill the provision in the previous article of this Agreement. Article 3. The Certification of this Agreement and the taking of office by the Attorney General for the Republic are sufficient documents to accredit his representation. Article 4. This Agreement goes into effect as of this date. Be it published in La Gaceta, Official Daily Newspaper. In the city of Managua, Government House, on October thirty one of the year two thousand eight. Daniel Ortega Saavedra, president of the republic of Nicaragua. Paul Oquist Kelly, National Policies Private Secretary. B) Mr. STANTON EDWARD ROSS, acting in the name and representation of the business company denominated INFINITY ENERGY RESOURCES INC., an American company constituted in accordance with the laws of the State of Delaware, United States of America, accredits his representation through the following documents: I – Deed Number thirteen of April ten of the year two thousand six, which integrates and literally says: PUBLIC DEED NUMBER THIRTEEN (13) TRANSLATION OF THE DOCUMENT. In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six. Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for Nicaragua, with domicile and residence in the city of Managua and duly authorized to act before the Supreme Court during the five year period that expires on June eight of the year eight, appear Angélica Arguello Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, Letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the last appearing party, acting as interpreter. I swear to personally know the appearing parties and that, in my judgment, have the legal civil capacity necessary to bind and to contract and especially to execute this instrument, whereby the appearing parties express themselves in their own name and representation. FIRST: The first appearing party is in possession of the ARTICLES OF INCORPORATION AND BY- LAWS OF INFINITY RESOURCES, INC. and such articles and by-laws are in the English language, two of the authenticated copies are in English, and we hereby request a notarial translation of the document and its originals through an interpreter in order for this document to be valid in the Republic of Nicaragua. In accordance with Law number one hundred thirty, the Law which gives more power to the office of Notary Public and article one thousand one hundred thirty two of the Code of Civil Procedure, the undersigned Notary proceeds with the translation of the documents that are in English through an interpreter. To this end, based on the mentioned law, the undersigned Notary, with more than ten years of service with the Supreme Court, hereby nominates and designates as interpreter the appearing party Roberto Arguello Villavicencio, who has vast knowledge of both the Spanish and English languages, to verify the translation from English into Spanish of said documents. SECOND: TRANSLATION: having understood it, he accepts the nomination, being warned of the penalties for false testimony, promising to tell the truth, and states that: to the best of his knowledge and understanding, the Minutes in English read as follows in Spanish: ONE) State of Delaware, Secretary of the State, Corporations Division. Delivered at 04:43 PM 04/29/2005 PRESENTED AT 04:27 PM 04/29/2005 SRV 050348989 – 3944450 file. ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC. ARTICLE 1 – NAME: The name of the company is Infinity Energy Resource, Inc. (“Company”). ARTICLE 2 – REGISTERED AGENT. The domicile of the head offices of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent at such domicile is Corporation Trust Company. – ARTICLE 3 – PURPOSE The purpose of the Corporation is to participate in any legal act for which a corporation can be created in accordance with the General Law of Corporations in Delaware and its amendments (“DGCL”) – ARTICLE 4 – CAPITAL STOCK 4.1
Ordinary Shares
(a) The total number or ordinary shares of $0.00001 nominal value per share that the Company is authorized to issue is: 75,000,000. (b) Each bearer of ordinary shares will have the right to one vote for each share it owns with respect to all matters for which the bearers of ordinary shares have the right to vote. Except for and subject to the preferences, rights and privileges expressly granted to the bearers of all types of shares that are currently in circulation and that prior rights, and all series of preferential shares that can be in effect in the future, except as otherwise stipulated by the laws of the State of Delaware, the bearers of ordinary shares will have all other rights of the Company’s shareholders, including, but not limited to (i) the right to receive dividends whenever so declared by the Board of Directors with respect to the assets legally available for such; and (ii) in case of any distribution of assets due to dissolution and liquidation of the Company, the right to receive in proportionally and equitably all the assets of the Company remaining after payment of the specific amounts to preferred stockholders, if any, who have the right to receive them as stipulated in this instrument or in accordance with this instrument. 4.2
Preferred Stock
. (a) The total number of preferred shares in the nominal value of $0.0001 per share that the Company is authorized to issue is of 10,000,000 (b) The Board of Directors is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special, participating, optional or other rights and requirements, limitations or restrictions of same that are indicated and expressed in the resolution or resolutions established by their issuance as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions established in this instrument, including, but not limited to, the following: (1) The designation of the series and number of shares that will integrate the series. (2) The rate of dividends of the series, the conditions and dates in which such dividends will be payable, the relation that such dividends will have with the dividends payable in any other class of classes of shares and if such dividends will or will not be cumulative. (3) If the shares of the series will be subject to ransom on the part of the company, and, if so, the terms, prices and other clauses and conditions of such ransom. (4) The clauses and the amount of any amortization fund estimated for the purchase or ransom of shares of the series. (5) If the shares of the series will be convertible into or interchangeable with shares of any other class or classes or of all other series of any class or classes of shares of the company and if the conversion or exchange, terms, prices, rates, modifications and other clauses and conditions of such conversion or exchange are available. (6) The measure in which the holders of shares of the series will or will not have the right to vote with respect to the election of directors. (7) The restrictions, if any, with respect to the issuance or reimbursement of any preferred share. (8) The rights of bearers of the shares of the series in case of liquidation or dissolution of the company. ARTICLE 5 – DIRECTORS: .5.1
Powers: Number and Election of Directors.
The operations of the Company will be performed by the Board. The number of directors of the Company must be periodically established in accordance with the By-laws of the company and may be increased or reduced from time to time in accordance with the By-Laws, so long as the number of directors is no less than three nor greater than seven, except as otherwise provided in this Article 5. The election of the directors does not necessarily have to be by the written vote except and in accordance with what is established in the By-Laws. The directors will be divided into three classes, designated as Class I, Class II and Class III. Each class will consist, as much as possible, of one third of the total number of directors forming the Board. The term of the initial Class I Directors will end in the year 2006; the term of the initial Class II Directors will end in the year 2007 and the term of the initial Class III directors will end in the year 2008. The functions of the initial class will be determined by the Board of Directors. In each ordinary shareholders’ meetings the successors of directors whose term has ended on such ordinary meeting and the term of the successors will be of three years. If the number of directors changes, every increase or reduction will be distributed among the classes so that the number of directors in each class remains as uniform as possible, but under no circumstance will a reduction in the number of directors reduce the term of a director occupying its position. Each director will exercise his/her functions until the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified; however, this will be subject to death, resignation, retirement, incapacity or dismissal of such director from his/her position. In case any of the bearers of any class or series of preferred shares has the right, through a separate class vote, to elect directors, as specified in Article 4, then the provisions of such class or series of shares will apply with respect to its rights. The number of directors that the bearers of any of those classes or series of preferred shares can elect will be in addition to the fixed number set forth in the preceding paragraph of Article 5. 5.2
Dismissal.
Subject any right of the bearers of all series of preferred shares, a director may only be dismissed from his/her position prior to the expiration of his/her term by just cause. 5.3
Quorum.
The quorum of the Board for business transaction will consist of no less than a majority of the total number of directors, except as otherwise provided in these Articles of Incorporation or in the By-Laws with respect to the filling of vacancies. 5.4
Directors positions and recent vacancies
. Except as otherwise established with respect to the rights of bearers of any class or series of preferred shares to elect directors under specific circumstances, the positions of directors recently created that result from an increase in the number of directors and the vacancies in the Board resulting from death, resignation, incapacity, dismissal or any other cause, must be filled only with the affirmative vote of the majority of the remaining directors exercising their function or of a single remaining director, although it may represent less than a quorum of the Board. Every director elected in accordance with the previous sentence will exercise his/her functions for the remaining period of time until the expiration of the term of the new director’s position created or the one created from the vacancy and until the successor of such director has been elected and qualified. ARTICLE 6 BY-LAWS – Except as otherwise provided in these Articles of Incorporation, including but not limited to the powers granted by the By-Laws, the Board is expressly empowered to adopt, revoke, alter, amend and rescind any or all the by-laws of the Company. ARTICLE 7 SHAREHOLDERS – 7.1 –
Meetings
– The shareholders meetings may take place in or outside the State of Delaware, as established by the Board. Each shareholders meeting will take place on the date, time and place established by the Board. Except as otherwise established by law and subject to the rights of the bearers of any class or series of preferred shares, the shareholders extraordinary meetings may only be convoked by the Chairman of the Board, the executive director, the president or any employee of the Company through prior written request from the majority of the Board or as established in the By-Laws. 7.2
Action by written consent
. An action that is required or allowed to be taken in any ordinary or extraordinary shareholders meeting that can be taken without a meeting through written consent, only if all the shareholders with the right to vote in such action consent, in writing, to such action. ARTICLE 8 – VOTING REQUIREMENTS – Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Company (and in spite of the fact that it can be specified otherwise a lower percentage by law, these Articles of Incorporation or the By-Laws) the affirmative vote of the bearers of at least sixty six and two thirds percent (66-2/3%) of the shares of capital stock of the Company in circulation with the right to generally vote in the election of directors (considered for this purpose as a class) will be required if it is necessary to amend, revoke or adopt any provision contrary to Articles 5, 8, 9 or 10 of these Articles of Incorporation. ARTICLE 9 – RESPONSIBILITIES OF EMPLOYEES AND DIRECTORS 9.1
General –
A director of a Company will not be responsible before the Company or its shareholders for monetary damages caused by non-compliance with a fiduciary obligation as director, except in the case where such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect then or in accordance with its future amendments. 9.2
Amendment
. No amendment, modification or revocation of this Article 9 will harm all of the rights or protection of a director at the time of such amendment, modification or revocation. ARTICLE 10. INDEMNIFICATION. 10.1
General.
The Company will indemnify, to the limit allowed and in the form admissible by the DGCL and its future amendments (however, if there are any amendments, they will only be accepted if they allow the Company to grant rights of indemnification that are more ample than those granted by such law to the Company prior to such amendments) any individual who is a part, or subject to being a part of any legal action, complaint, judgment, or imminent, pending or complete process whether penal, civil, administrative or investigative, due to the fact that such individual (a) is or has been a director or employee of the Company or a predecessor to the Company or (b) is or has been a director of employee of the Company or any predecessor of the Company and has worked for any other company, general partnership, joint venture, trust, benefit plan for employees or another business as director, employee, partner, trustee, employee or agent at the request of the Company or a predecessor of the Company under the condition that , except as indicated in Section 10.4, the Company will indemnify any individual who seeks indemnification associated with a legal process (or part of the same) initiated by same individual, only if such process (or part of same) has been authorized by the Board. 10.2
Expense advances
. The right to indemnification granted in this Article 10 will be a contractual right and will include the right to receive payment from the Company for the expenses incurred with any legal process prior to the final judgment Such advances will be paid by the Company within twenty days from the receipt of a report or reports from the claimant requesting such timely advance or advances, subject to the condition that if the DGCL so requirements, payment of such expenses incurred by a director or employee in their capacity as director or employee (and not in another capacity such person provides or has provided during his/her term as director or employee, including, but not limited to, services with respect to a benefits plan for employees) prior to the final judgment of a legal process, be made only through previous presentation to the Company of a commitment from such director or employee or in the name of such director or employee to reimburse all the amounts delivered to them as advance if it is determined in a higher court that such director or employee does not have the right to be indemnified in accordance with this Article 10 or another. 10.3
Procedure to obtain indemnification
. In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the Company a request, in writing, that must include all the documentation and information available and necessary to determine if the claimant has such right, and up to what point, to receive indemnification. Upon presentation by the claimant of the written request for indemnification in accordance with the first sentence of this Section 10.3, a decision with respect to the right of the claimant to receive such indemnification, in accordance with the applicable law, will be made as follows: (a) if it is requested by the claimant or if the are no disinterested Directors (such as defined below) or (b) by a majority vote of the disinterested Directors, although a quorum is not reached. If it is determined that the claimant has the right to receive indemnification, payment will be made within 10 days following such determination. 10.4
Appeals.
If the Company does not pay the total amount of a claim under Section 10.1 within thirty days following receipt of the written claim by the Company in accordance with Section 10.3, the claimant may, at any time thereafter, initiate an action against the Company to collect the unpaid amount of the claim and, in case of total or partial success, the claimant will have the right to also collect for costs incurred to present such claim. It will be a defense with respect to such action (distinct from an action submitted for compliance with a claim for expenses incurred in defense of such procedure prior to is final disposition, where the required procedure, if the case, has been offered to the Company) that the claimant has not fulfilled with the Code of Conduct, which makes possible, according to the DGCL, for the Company to indemnify the claimant for the amount demanded, but the Company will have the obligation to provide such defense. If the Company (including its Board, the independent legal counsel or the shareholders) does not reach an agreement prior to the beginning of the action that the indemnification of the claimant is appropriate under the circumstances due to the fact that he or she has complied with the applicable Code of Conduct established by the DGCL , as the effective determination on the part of the Company (including its Board, the independent legal counsel or the shareholders) that the claimant has not complied with such applicable Code of Conduct, may not be considered as a defense of the action nor will they create an assumption that the claimant has not complied with the applicable Code of Conduct. 10.5
Obligatory Effect
. A determination must be made, in accordance with Section 10.3, that the claimant has the right to receive indemnification, whereby the Company will be obligated through such determination for all legal procedures initiated in accordance with Section 10.4.1.06
Validity of this Article
. The Company may not allege, in any legal procedure initiated in accordance with Section 10.4 that the procedures and presumptions of this Article 10 are not valid, obligatory and apply, and must stipulate in such procedure that the Company commits to comply with all the clauses of this Article 10. 10.07
Non Exclusivity, etc
. The right to indemnification and payment of the expenses incurred to defend a process prior to its final disposition granted in this Article 10 will not be exclusive of any other right that every individual may have, or to acquire, in accordance with any decree, clause of constitutive certificate, by-laws, agreement, vote of disinterested shareholders or directors, or otherwise. Non revocation or modification of this Article 10 may lessen, under any circumstance, or affect in an adverse manner the rights of any director, employee, or current or previous employee or agent of this Company or any predecessor of the same, with respect to any event or problem that arises prior to such amendment or modification. 10.08.
Insurance
. The Company may maintain an insure, at its expense, to protect itself and any director, employee or agent of the Company or corporation, partnership, joint-venture, trust or another company against all cost, debt or loss, whether the Company has the capacity to indemnify such individual or not against such cost, debt or loss in accordance with the DGCL. 10.09
Indemnification of other individuals
. The Company may grant the right to an indemnification and to receive payment by the Company for expenses incurred in defending any process prior to its final disposition, to any current or former employee or agent of the Company or to any predecessor of the Company, in full compliance with the clauses of this Article 10 with respect to the indemnification and advance of expenses incurred by the directors and employees of the Company. 10.10
Divisibility.
If any clause or clauses of this Article 10 is or are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, without limitation, each part or each paragraph of this Article 10 that does not contain such clause deemed to be invalid, illegal or not applicable that is not considered in itself invalid, illegal or inapplicable) will not be affected in any way or canceled for such reason and (b) as much as possible, the clauses of this Article 10 (including, but not limited to, each part of each paragraph of this Article 10 that contains such clause deemed to be invalid, illegal or not applicable) will be interpreted in such manner as to make effective the intention manifested by the clause deemed to be invalid, illegal or not applicable. BYLAWS OF INFINITY ENERGY RESOURCES, INC. Adopted on April 29, 2005. ARTICLE 1 OFFICES - The head offices of Infinity energy resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”). The Company will have offices located in any place that the Board so timely agrees. ARTICLE 2 SHAREHOLDERS – 2.1
Ordinary meetings
. The ordinary meeting of shareholders to elect its directors and to discuss all other business deemed adequate prior to the meeting will be held on the date and hour established by resolution of the Board. 2.02
Extraordinary meetings
. Except as otherwise provided by law, the extraordinary meetings of the shareholders will be convoked by those individuals specified in the Articles of Incorporation and must be convoked by the Secretary of the Company in accordance with written request by the shareholders who have registered 25% or more of the capital stock of the Company with the right to general vote in the election of directors. Such written request will indicate the purpose of the proposed meeting and will include all the relevant information set forth in Section 2.5. The topic to be discussed in all extraordinary meeting of the shareholders will be limited to those duly established in the written request and for which all necessary information has been provided in a timely fashion in accordance with Section 2.5. 2.03
Notice of Meeting
. Written notice of the meeting will be delivered no less than ten days and no more than sixteen days prior to the date of the meeting, indicating the place, date and time of such meeting and, in case of an extraordinary meeting, the purpose for which the meeting is convoked; except as otherwise provided in the Articles of Incorporation. Delivery can be made personally, through the postal service, prepaid telegram, telex, facsimile transmission, cablegram or messenger to each shareholder subscribed in the registry as authorized to vote in such meeting. If such notice is sent by mail, it will be deemed as received whenever it is deposited in the postal service of the United States, prepaid postage, addressed to the shareholder and sent to his/her address, as it appears in the shareholders registry of the Company. 2.04
Waiver
. The presence of a shareholder of the Company, whether in person or through proxy in a meeting, whether ordinary or extraordinary, will constitute the waiver of the right of notice to such meeting except when a shareholder is present in the meeting for the express purpose of objecting, at the beginning of such meeting, the discussion of any topic due to the fact the meeting has not been convoked in a legitimate manner. A written waiver to the right to receive notice of such meeting, signed by the shareholder or shareholders authorized to such notice prior, during of after the time of notice or the hour of the meeting, will be equivalent to a notice. It will not be necessary to specify the matter to be discussed nor the purpose of the entire meeting in the written waiver to the right to receive notice. 2.5
Notice of the matter to be discussed in the shareholders meeting
. No matter can be discussed in any shareholders meeting, including the nomination or election of individuals to the Board, other than (a) those specified in the meeting notice (or any attachment to it) granted by or subject to the direction of the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or an extraordinary meeting convoked by any of the individuals specified in Section 7.1 of the Articles of Incorporation, (b) duly presented at the meeting by or according to the direction of the Board (or any committee duly authorized by the board) or (c) duly presented at the meeting by any shareholder of the Company (1) that is a shareholder subscribed in the registry on the date on which notice was given as specified in Section 2.5 and on the date of registration to determine the shareholders authorized to vote in such meeting and (2) that it complies with the procedures for notice established in this Section 2.5. Besides all other applicable requirement for the matter to be duly presented at the meeting by a shareholder, the shareholder must have given written notice of the matter in due time and format to the Secretary of the Company. (a) In order for the shareholder’s notice reaches the Secretary in a timely manner, it must be delivered or sent by mail to be received at the main office of the Company no less than ninety days and no more than one hundred twenty days of the date of the meeting; however, (1) in case the public disclosure of the date of the meeting takes place less than one hundred twenty days prior to the meeting, in order for the shareholder’s notice to be timely it cannot be received after the closing of the tenth business day following the day on which the public disclosure of the date of the meeting has taken place and (2) notwithstanding the preceding item, with respect to an extraordinary meeting convoked through written notice from the shareholders, in accordance with section 2.2, every notice submitted by a shareholder making the request must be delivered simultaneously with such request. (b) In order for the shareholder’s notice to reach the Secretary in a timely manner with respect to any subject other than the nomination of individuals for election of the Board, must make reference to each of the topics such shareholder proposes to discuss at the ordinary meeting and must include (i) a brief description of the matter to be discussed; (ii) the name and address of subscription of the shareholder; (iii) the class or series and number of shares of capital stock of the Company owned by the shareholder, registered or usufruct; (iv) a description of all arrangements or agreements between such shareholder and any other individual or individuals (including their names) with respect to the proposal of such matters and (v) a statement that such shareholder intends to appear in person or through proxy in the meeting to submit such matter at the meeting. (c) In order for the shareholder’s notice associated wit h the naming of individuals for the Board reaches the secretary in an appropriate manner, it must establish (a) with respect to each of the proposed candidates, (i) the name, age, business and residential address of the candidate, (ii) main job or position of the candidate, (iii) the class or series and number of shares of the capital stock of the Company owned by the candidate, whether registered or usufruct and (iv) any other information associated with the candidate that could be required for information in a statement of representation or other presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the 1934 Securities Exchange Act and its modifications (the “Securities Exchange Act”) and the provisions and regulations established below; and (b) with respect to the shareholder that delivers the notice, (i) the name and address of subscription; (ii) the lass or series and number of shares of the capital stock of the Company owned by said shareholder, whether registered or usufruct; (iii) a description of all arrangements or agreement between such shareholder and each of the proposed candidates and any other individual or individuals (including their names) in accordance to which the nomination(s) will take place; (iv) a statement that such shareholder has the intention of appearing in person or through proxy in the meeting to nominate the individuals mentioned in such notice and (v) all other information related to such shareholder that need to be disclosed in a statement of representation or other necessary presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the Securities exchange Act and the provisions or regulations promulgated by virtue of the same. Such notice must be accompanied of a written consent from each candidate proposed to be nominated and to provide services as director in case he/she is elected. (d) In the shareholders meet, no matter can be discussed and the individuals nominated by a shareholder cannot be elected as director unless notice has been given with respect to the proposed action in accordance with the procedures established in this Section 2.5. The determinations of the president of the meeting as to whether such procedures were fulfilled or not, in a particular case, will be binding and definitive. 2.06
Quorum
. Except as otherwise provided by law, in the Articles of Incorporation of these By-laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meeting who are present in person or through proxy, will constitute a quorum and whatever the majority of such quorum decides will be deemed as the decision of the shareholders except with respect to the election of directors. If a quorum is not present in the meeting, the president of the meeting will suspend the meeting without prior notice if the time and place are announced in the meeting until such time a quorum is present. In the suspended meeting in which a quorum is present, any matter can be discussed that was discussed in the original meeting. In case the suspension lasts for more than thirty days or if soon after it is suspended a new date is entered for the suspended meeting, notice of suspension of the meeting will be delivered to each registered shareholder with the right to vote in a meeting. 2.07 Procedure. The order of the day and all other topics in each shareholders meeting will be determined by the president of the meeting. The president of every shareholders meeting will be the president of the Board or, in his/her absence, the member present in the meeting the most seniority in the Company. ARTICLE 3 – DIRECTORS - 3.01
Number
. Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and timely through resolution adopted by the Board. 3.2
Ordinary Meetings
. The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of such meeting in order to legitimately constitute it. The ordinary meetings of the Board will be held at the places and times timely determined by the Board. 3.3.
Extraordinary Meetings
. The extraordinary meetings of the Board may be convoked at any time and place and for any reason by the president of the board, by the general director or by the majority members of the Board. 3.4
Notice of Meetings
. It is not necessary to give notice for the ordinary meetings of the Board. Notice will be sent with respect to each extraordinary meeting of the Board to each director, at their usual place of work or to the address provided by the members for such purpose. Such notice will be deemed sent in the time and form established whenever it (a) is placed in the postal service of the United states no more than three calendar days prior to the date of the meeting or (b) is delivered in person, by telegram, through facsimile or communicated by telephone, at least twenty four hours prior to the time set for the meeting. It is not necessary for such notice to include a statement of the matter to be discussed nor the purpose of the same. 3.5
Waiver
. The presence of the director in a Board meeting will constitute a waiver to the right of notice of such meeting, except when the director participates in a meeting for the express purpose of objecting, at the beginning of same, to the discussion of any topic due to the fact the meeting has not been formally called or convened. A written waiver to the right to receive notice signed by the authorized director or directors to such notice, whether before, during or after the time of notice or the time of the meeting will be equivalent to a notice. 3.06
Quorum
. Except as otherwise provided by law, the Articles of Incorporation or these By-laws, it will be necessary to have the presence of the majority of the directors in service at that time and this will be sufficient to constitute a quorum to discuss the matters of every board meeting, and the decision made by the majority of the directors present in the meeting in which a quorum is present will be deemed as made by the Board. In case a quorum is not reached, the Board meeting will be timely suspended without notice. 3.07
Telephone participation in the meetings
. The members of the Board or any Board committee may participate in a Board meeting or committee meeting through a telephone or similar communication equipment conference call through which all individuals participating in the meeting can hear each other and each participation will constitute the presence of the individual in the meeting. 3.08
Decisions without a meeting
Except as otherwise established in the Articles of Incorporation or these By-laws, all decisions that can be made or are allowed to be made can so be made in any meeting of the Board or any of its committees without a meeting in case all members of the Board or its committees sign a written consent, as the case may be, and such written consent is filed with the minutes of procedures of the board or committee. Any consent may be equivalent to and will be valid on the date of the last signature entered on the same unless otherwise established. ARTICLE 4 COMMITTEES – 4.01
Designation of committees
. The Board will establish committees to perform the delegated or designated duties as much as permitted by law. Each committee will consist of one or more directors of the Company. In the absence or disqualification of a member of a committee, he/she or the members present in all meetings and disqualified to vote, whether or not such members constitute a quorum, may designated, in unanimous form, another member of the Director to act in the meeting in the place of such absent or disqualified member. 4.02
Authority and powers of the committee.
Except as otherwise provided by law, the board may establish, through resolution or amendment to these by-laws, that a committee may exercise all the powers and authority of the Board in handling the business and matters of the Company. ARTICLE 5 – EMPLOYEES – 5.0
Number.
The employees of the Company will be designated or elected by the Board. The employees will include a general director, a president, if applicable, the number of vice-presidents the Board determines, a secretary, if applicable, the number of secretary assistants as determined by the Board and a treasurer. Any individual can have two or more positions at the same time. 5.02
Additional Employees
. The Board may nominate any other employee it deems appropriate. 5.03
Duration of the positions. Resignation
. All employees, agents and employees of the Company will maintain their respective positions or functions according to the will of the Board and may be removed from their positions at any time that board deems appropriate, with or without cause. Every employee may resign at any time by submitting written notice of such resignation to the general director, the president or the secretary and it is not necessary for such resignation to be accepted in order for it to be effective unless the notice does not establish so. Any vacancy to a position will be covered by the Board. Functions. The employees of the Company will perform the duties and exercise the powers conferred unto them as assigned by the Board or the president and general director. ARTICLE 6 - CAPITAL STOCK – 6.01
Certificates
. The Board will authorize the issuance of certified or uncertified capital. Each shareholder of the Company, through written request, will have the right to one or more certificates signed by or in the name of the Company (a) by the general director or president and (b) the secretary or the secretary’s assistant, certifying the number of shares of capital of the Company owned by said shareholder. Any or all the signatures of the certificate may be sent facsimile. 6.02
Registered shareholders
- The Company will have the right to treat the holder of any registered share or shares of capital of the Company as the holder in fact of such share or shares and, consequently, it will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any other individual, whether there is real notice of it or not, except as otherwise provided by law. 6.03
Cancellation of certificates
. All certificates delivered to the Company will be canceled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until the previous one(s) with the same number of shares of the same class of capital have been delivered and cancelled. 6.04.
Lost or destroyed certificates
. The Board may establish that new certificates be issued instead of any certificate or certificates issued until then by the Company that have been declared lost, stolen or destroyed, by preparing a sworn statement of such fact in an acceptable manner to the Board by the person claiming the certificate or certificates have been lost or stolen or destroyed. At its own discretion and as prior condition for the issuance of any new certificate or certificates, the Board may require that the owner of thee lost, stolen or destroyed certificate(s), or the legal representative of such individual, provide the Company and its transfer or registered agent(s) a title in such manner and amount as specified by the Board as indemnification for any claim that might arise against the Company and its transfer or registered agent(s) due to the loss, theft or destruction of any certificate or the issuance of a new certificate. ARTICLE 7 – FISCAL PERIOD – 7.1 The Company’s fiscal period will end on December 31 of each year. ARTICLE 8 – AMENMENT - The expert continues to talk and says that the authentication from the state of Colorado in English says the following in Spanish: TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO, SS. I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereby certify that DIANNE HAWK-BROWN, whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of such acknowledgment, a NOTARY PUBLIC duly commissioned, sworn and authorized by the laws of the State of Colorado. And I now further certify that the signature and official seal attached of the NOTARY PUBLIC mentioned above, to the best of my knowledge, is genuine. The signature of the notary was compared to the signature on file at my office. In witness whereof I affix the great seal of the State of Colorado, in the city of Denver, on the 8th day of the month of March, A.D. 2006 (f) Ginette Dennos. Secretary of State. Following is a certification of the Secretary of INFINITY ENERGY RESOURCES, INC., which reads as follows in Spanish: THREE) CERTIFICATE FROM THE SECRETARY OF INFINITY ENERGY RESOURCES, INC. I, Timothy A. Ficker, duly elected, qualified and acting in the quality of Secretary in accordance with the By-Laws of Infinity energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Company’s Articles of Incorporation and the By-Laws and said Articles of Incorporation and By-Laws have not been modified, changed or revoked. In my presence, I sign, as Secretary of Infinity energy resources, Inc., on the 6th day of the month of March, 2006. (F) Timothy A. Ficker. Secretary of Infinity energy Resources, Inc. Before me, on the 6th day of March, 2006, appears Timothy A. Ficker, in the quality of Secretary of Infinity Energy Resources, Inc. who signed the certificate and witnesses my signature and seal of office. (F) Legible. Notary Public in and for the State of Colorado. My commission expires: eleven/zero, five/zero, seven (11/05/07) Seal. For greater integrity of the document, the Consulate General of the Republic of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua authenticate the document which is in Spanish and says the following: FOUR) The Consulate General of the Republic of Nicaragua in Houston, hereby CERTIFIES the preceding signature that says: GINETTE DENNIS, is authentic and corresponds to that of the name: Ginnette Dennis. Position: Secretary of the State of Colorado. Date: March 28, 2006. “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT. “Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua, which says the following: FIVE) Ministry of Foreign Affairs of Nicaragua, Consular Division. Managua, Nicaragua. The undersigned, General Consular Director hereby “certifies” that the preceding signature that says: MARIAMERCEDESBECK is authentic and is verified against that used on this date (ba). MARIA MERCEDES BECK, CONSUL FOR THE REPUBLIC OF NICARAGUA IN HOUSTON, TEXAS, UNITED STATES OF NORTH AMERICA. The Institution and the Employee (a) do not assume responsibility with respect to the content of the document. Managua, Wednesday, April 05, 2006, 11;15:45 a.m. (F) Legible. Lic. Maria Josefina Rojas Romero. Director of consular Services. Seal: Ministry of Foreign relations, Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this document, the general clauses that ensure its validity, the special clauses it contains and those that address waivers and implicit and explicit stipulations. This Deed was read by me, Notary Public, to the appearing parties, who agree, approve, ratify and sign it along with me, who swears to all. (F) Angelica Arguello D. (f) Roberto Octavio Arguello V. (f) Boanerge Ojeada B. - THE FRONT PAGE NUMBER FORTY SEVEN IS PASSED ON TO PAGE FIFTY SEVEN OF MY PROTOCOL BOOK NUMBER THIRTEEN OF THE CURRENT YEAR, AT THE REQUEST OF MIS ANGELICA ARGUELLO DAMHA, THE FIRST AUTHENTICATED COPY OF SEVEN PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA, AT THREE THIRTY IN THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX” Signature and Notary seal of BOANERGE ANTONIO QUEDA BACA, II. WITNESS PUBLIC DEED NUMBER TWO HUNDRED THIRTY SIX (236). TRANSLATION OF THE DOCUMENT. In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of December ten of the year two thousand eight, before me, WILLIAM MIGUEL ESPINOZA NARVAEZ, attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in this city, duly authorized to act before the Supreme Court during the five year period that expires on September nineteen two thousand nine, appear Mr. Favio Josué Batres Pérez, of age, single, attorney, with domicile and residence in this city of Managua, identified through identification card number zero zero one dash one six zero six eight zero dash zero three L (001-160680-0073L) and Ms. Ana Cecilia Chamorro Callejas, of age, single, student, with domicile and residence in this city of Managua, identified through identification card number eight eight eight dash one three zero one eight six dash zero zero zero one M (888-130186-001M). I swear to personally know the appearing parties and that in my judgment they have the necessary legal civil capacity to bind and to contract, and especially to execute this instrument, in their own name and representation. The first appearing party, Favio Josué Batres Pérez speaks and says:
FIRST:
that he is in possession of a Certificate issued by the Secretary of the Board of Directors of Infinity Energy Resources, Inc, an American company constituted in accordance with the laws of the state of Delaware of the United States of America, which contains, as an Annex, a Resolution of the Board of Directors associated with the negotiation and execution of some Nicaraguan Concession Agreements, as well as a Special power of Attorney on behalf of Mr. Roberto Arguello and Mr. Stanton Ross. Such Certificate, as well as the Notarial Certificate and two authentic copies of the same are in English; therefore, through this Instrument it is requested that a Notarial translation be provided of the documents that are in English into Spanish through an interpreter, so that such Certificate and its annexes, that is, the Resolution of the Board of Directors and the Special Power of Attorney already mention may be valid in the republic of Nicaragua. In accordance with article five of law number one hundred thirty nine, “LAW THAT GIVES GREATER POWER TO THE INSTITUTION OF NOTARY PUBLIC” and article one thousand one hundred thirty two of the Code of Civil Procedure of the Republic of Nicaragua, the undersigned notary proceeds with the mentioned translation through an interpreter. To this end, based on the mentioned law, the undersigned notary, with more than ten years in office as described in the previous instrument and each one having acknowledged that he executed the same by the authority conferred unto him, hereby signs and places his official seal on it. Signature (illegible). My commission expires on August twenty nine of the year two thousand nine. (seal) CHRISTA R. MORROW, Notary Public in and for the State of Kansas. My commission expires on August twenty nine of the year two thousand nine. (iii) Certificate from the Secretary of State of the State of Kansas: “STATE OF KANSAS. Office of the Secretary of State. Ron Thornburgh (seal: Great Seal of the State of Kansas, January twenty nine 1861. To all who see this document, Greetings: I, Ron Thornburgh, Secretary of State for the State of Kansas, hereby certify that the files in my office show that on August twenty nine of the year two thousand five CHRISTA R. MORROW was a Notary Public in and for the State of Kansas, with her commission expiring on August 29, 2009 and that, as Notary Public, all the official acts are fully valid. I further certify that said Notary Public is authorized by the laws of the State of Kansas to give oaths, acknowledgments and perform any other official duty. In witness whereof, I hereby sign and authorize my seal of office to be affixed hereto. In the city of Topeka, on November twelve of the year two thousand eight. (Seal: SECRETARY OF STATE FOR THE STATE OF KANSAS). Signature (illegible). RON THORNBURGH, Secretary of State.” (iv) Certificate from the Office of the Governor of the State of Kansas: STATE OF KANSAS (seal) Office of the Governor. I, KATHLEEN SEBELIUS, Governor of the State of Kansas, hereby certify that RON THORNBURGH is the Secretary of State for the State of Kansas, duly elected and qualified; that the signature on the certificate is his authentic signature and that said certificate and witness are in agreement and official. IN WITHNESS WHEREOF, I have subscribed my name and authorized that the Great Seal of the State be affixed: on November twelve of the year two thousand eight (signature: illegible) Governor (v) Annex A Resolution of the Board of Directors: “ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC. On November six, 2008, in accordance with Section one hundred forty one of the General Law of Companies of Delaware and its amendments, the undersigned, all members of the Board of Directors (“Board) of Infinity Energy Resources, Inc., a Delaware company, sign this instrument to show their consent to execute the actions described in this document and the adoption of the following preambles and resolutions without holding a meeting:
Negotiation and Execution of the Nicaraguan Concession Contracts
Considering that the Concession Contracts (as defined below) have been approved by the North Atlantic Autonomous Region and the South Atlantic Region; Considering that the Board of Directors of the Company has determined that it feasible and in the best interest of the Company to delegate the authority to Messrs Ross and Arguello Villavicencio to approve, negotiate and execute the Concession Contracts as deemed convenient; THEREFORE, it is resolved that Stanton Edward Ross, of age, married, businessman, domiciled in Chanute, Kansas, identified through the United States Passport number Z eight four, one, one, five, two, four (Z8411524) as President of the Board of Directors and Executive Officer of the Company, be and hereby is authorized to approve the form, terms and provisions, and negotiate and subscribe the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY for (i) the area of Perlas, granted to the company in accordance with Resolution thirty nine dash zero two dash two thousand six (39-02-2006) (the “Perlas Contract”) and (ii) the area of Tyra, granted to the Company in accordance with Resolution thirty eight dash zero two two thousand six (38-02-2006) (the “Tyra contract”) together with the Perlas Contract, the “Concession Contracts”); both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (INE) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and any other act nece4ssary to carry out the negotiation and subscription of the Concession Contract; Furthermore, it is RESOLVED that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively, Roberto Octavio Arguello Villavicencio, of age, single, attorney, identified through the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero B (001-070878-0060B) domiciled in this city of Managua, Republic of Nicaragua, is hereby authorized to (a) approve the form, terms and provision, and to negotiate and subscribe the Concession Contracts on behalf of the Company and (b) to execute any other act that is necessary to carry out the negotiation and execution of the mentioned Concession Contracts. IT IS FURTHER RESOLVED, that a Special Power-of-Attorney is granted on behalf of Messrs. Ross and Arguello Villavicencio in the form of
Annex A – General Authorization
. RESOLVE that any and all acts of the officers previously performed or decided with respect to the preceding resolutions are hereby adopted, ratified and affirmed as acts authorized and approved by the Company, and FINALLY: RESOLVE that the officers and directors are and each one hereby is authorized and guided by and on behalf of the Company to execute all documents and carry out all actions they deem necessary, appropriate or recommended to perform the objectives of each of the preceding resolutions. The actions taken by this agreement will have the same strength and effect as if they had been taken by the undersigned in a Board of Directors meeting, duly called and constituted in accordance with the By-laws and the Articles of Association of the Company. This agreement can be executed in duplicate copies through signature by facsimile and a signature through facsimile will be deemed an original signature. IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6) 2008. (F) illegible: Stanton E. Ross (F ) illegible: Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Agreement as of November six (6) 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie. (F) illegible; Robert O. Lorenz.
Annex A – SPECIAL POWER.
Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts), both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (INE) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion. The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present, hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein. This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact. IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November _____, 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.” (vi)
Annex B. – SPECIAL POWER
. Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts”), both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (INE) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion. The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present, hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein. This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact. IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6), 2008. (F) Stanton E. Ross (F) Illigible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF the undersigned executed this Unanimous Consent as of November six (6), 2008. Stanton E. Ross, Daniel F. Hutchins. (F) Illegible. Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF the undersigned have executed this Unanimous Consent as of November six (6), 2008. Stanton E. Ross. Daniel F. Hutchins. Leroy C. Richie (F) Illegible. Robert O. Lorenz.” The interpreter declares that the preceding translations are correct and true and that he has translated them to the best of his knowledge and understanding.
THIRD:
INSERTIONS: The appearing party, Favio Josué Batres Pérez declares that the Certificate issued by the Secretary of the Company: ENERGY RESOURCES, INC., SECRETARY”S CERTIFICATE. Reference is hereby made to certain resolutions (the “Resolutions”) of the Board of Directors of Infinity Energy resources, Inc., a Delaware corporation (the “Company”). Capitalized terms used and not deemed herein shall have the meanings ascribed to them in the Resolutions. The undersigned hereby certifies that he is the Secretary of the Company and that, as such, he is authorized to execute this Certificate on behalf of the Company and further certifies that the date hereof: 1. Attached hereto as
Exhibit
A is a true, correct and complete copy of the power of attorney executed by the Board of Directors of the Company on November 6, 2008, granting certain powers to Messrs. Ross and Arguello Villavicencio in connection with the negotiation and execution of the Nicaraguan concession contracts. Such power of attorney has not been amended, modified or rescinded, and are in full force and effect in the form adopted {Signature Page Follows].- IN WITNESS WHEREOF, I have signed this certificate as of the 6th day of November 2008 (F) Illegible. Name: Daniel F. Hutchins Title Secretary. I, Stanton E. Ross, Chief Executive Officer of the Company, do hereby certify that Daniel F. Hutchins is on the date hereof the duly elected or appointed, qualified and Secretary of the Company and that the signature set forth above is the genuine signature of such officer. (F) Illegible. Name: Stanton E. Ross. Title: Chief Executive Officer” (ii) Annex A. Resolution of the Board of Directors. EXHIBIT A. ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC. November 6, 2008. In accordance with Section 141 of the Delaware General Corporation law, as amended, the undersigned, being all of the numbers of the Board of Directors (the “Board”) of Infinity Energy Resources, Inc., a Delaware corporation (the “Company”) hereby execute this instrument to evidence their consent to the taking of the actions set forth herein, and the adoption of the following preambles and resolutions without the holding of a meeting.
Negotiation and Execution of the Nicaraguan Concession Contracts.
WHEREAS the Concession Contracts (as defined below) have been approved by the Autonomous region of the Northern Atlantic and the Autonomous region of the Southern Atlantic; and WHEREAS the Board of Directors of the Company has determined that it is advisable and in the best interests of the Company to delegate the authority to Messrs. Ross and Arguello Villavicencio to approve. Negotiate and execute the Concession Contracts as they deem advisable. NOW THEREFORE, BE IT RESOLVED that Stanton Edward Ross, of legal age and a married businessman from Chanute, Kansas, with a United States passport (number Z8411524), in his role as Chairman Board of Directors and Chief Executive Officer of the Company be, and hereby is, authorized to (a) approve the form, terms and provisions, and negotiate and execute the Pertroleum Concession Contract between the State of Nicaragua and Infinity Energy resources, Inc. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company, according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”) both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts; FURTHER RESOLVED, that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively Roberto Octavio Arguello Villavicencio, of legal age, single and licensed attorney, identification No. 001-070878-0060B, domiciled in the city of Managua, Republic of Nicaragua, shall be authorized to: (a) approve the form, terms and provisions, and negotiate and execute, on behalf of the Company Concession Contracts; and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts. FURTHER RESOLVED that a Special Power of Attorney be issued to Mr. Ross and Mr. Arguello Villavicencio in the from attached as Exhibit A – General Authorization RESOLVED that any and all acts of the officers and directors heretofore done, made or taken in connection with any foregoing resolution be, and they hereby are, adopted, ratified and affirmed as the authorized and approved acts of the Company, and finally FURTHER RESOLVED that the officers and directors are, and each of them hereby is, authorized and directed for and on behalf of the Company, to execute all documents and take such further actions as they deem necessary, appropriate or advisable to effect the
purposes of each of the foregoing resolutions. The actions taken by this consent shall have the same force and effect as if taken by the undersigned at a regular meeting of the Board of Directors of the Company, duly called and constituted pursuant to the Bylaws of the Company and the Act. This consent may be executed in counterparts by facsimile signature and a facsimile signature will constitute an original signature. [Signature page follows]. IN WITNESS WHEREOF, the und4ersigned have executed this Unanimous Consent as of this 6th day of November 2008 (F) Illegible. Stanton E. Ross (F) Illegible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Consent as of this 6th day of November 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie. (F) Illegible. Robert O. Lorenz.
Exhibit
A POWER OF ATTORNEY. Know all by these presents, that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to (1) approve the form, terms and provisions, and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”), both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (2) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact may be of benefit to, in the best interest of, or legally required by the undersigned, it being understood that documents executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact’s discretion. The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever requisite necessary or proper to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute of substitutes shall lawfully do or cause to be done by virtue of this power-of-attorney and the rights and powers herein granted. This Power-of-Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this ___ day of November, 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz”. (iii) Annex B – Special Power – « EXHIBIT B POWER OF ATTORNEY – Know all by these presents that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to: (1) approve the form, terms and provisions , and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract” together with the Perlas Contract, the “Concession Contracts), both resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”), and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and 92) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact ay be benefit to, in the best interest of, or legally required by the undersigned, it being understood that the documents executed by the attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve at such attorney-in-fact’s discretion. The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever, requisite, necessary, or proper to be done in the exercise of any of the rights and powers herein granted as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted. This power of Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. (F) Illegible. Stanton E. Ross (F) Illegible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. Stanton E. Ross, Daniel F. Hutchins, (F) Illegible. Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie. (F) Illegible. Robert O. Lorenz.” (iv) Notary Certification. “STATE OF KANSAS)) ss COUNTY OF Johnson) On November 6, 2008, before me, Christa Morrow, a Notary Public in and for the State of Kansas, personally appeared before me Mr. DANIEL F. HUTCHINS, Secretary of Infinity Energy Resources, Inc. a Delaware corporation, and Mr. STANTON E. ROSS, Chief Executive Officer of Infinity Energy Resources, Inc., a Delaware corporation, each personally known to me to be the person whose name is affixed to the foregoing instrument, with each having acknowledged that he executed the same in his authorized capacity. WITNESS my hand and official seal. Signature. Christa R. Morrow. My commission expires 8/29/09. SEAL CHRISTA R. MORROW. Notary Public – State of Kansas. Appt. Expires 8/29/09”. (v) Certification from the Office of the Secretary of State of Kansas: “STATE OF KANSAS – Office of Secretary of State RON THORNBURGH To all to whom these presents shall come, Greetings: I, RON THORNBURGH, Secretary of State of the State of Kansas, do hereby certify the records of my office show that on the 29th day of August, 2005, CHRISTA R. MORROW was appointed a Notary Public in the State of Kansas, with an expiration date of August 29, 2009, and that as such Notary Public all official acts are entitled to full faith and credit. I further certify that said Notary Public is empowered by the laws of the state of Kansas to administer oaths, take acknowledgments and perform other official duties. IN TESTIMONY WHEREOF: I hereto set my hand and cause to be affixed my official seal. Done at the City of Topeka, this 12th day of November, 2008, (F) Illegible. RON THORNBURGH, SECRETARY OF STATE.” (vi) Certification from the Office of the Governor of the State of Kansas: “State of Kansas. Office of the Governor. I, KATHLEEN SEBELIUS, Governor of the State of Kansas, do hereby certify that RON THORNBURGH is the duly elected and qualified Secretary of State of Kansas; that the signature attached to the certificate within is his genuine; and that said certificate and attestation are in due form and by proper officer. IN TESTIMONY WHEEOF, I have hereunto subscribed my name and caused to be affixed the Great Seal of the state of Kansas this 12th day of November, 2007. (F) Kathleen Sebelius, Governor.” (vii) Authentication from the Consulate General of Nicaragua in Washington D.C.: “Consulate General of Nicaragua 1627 New Hampshire Ave., NW Washington, D.C. 20009, No. 2546-2008 The Consulate General of the Republic of Nicaragua, in this City of Washington, District of Columbia, United States of America, hereby certifies that the signature of Ron Thornburg, Secretary of State of the State of Kansas, United States of America, which appears in this document, is authentic. Issued in the City of Washington, D.C. on November 17 of the year 2008. (F) Alcides Montiel. Alcides Montiel, Advising Minister with Consular functions. THE CONSULATE GENERAL OF NICARAGUA DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE AUTHENTICATED DOCUMENT.” (viii) Authentication by the Ministry of Foreign Affairs of Nicaragua “No. 2008082758. Ministry of Foreign Affairs, Consulate General. Managua, Nicaragua. The undersigned, Martha de los Angeles Rodriguez Duarte, Director of Consular Services, hereby “Certifies” that the preceding signatures that says ALCIDES MONTIEL “Is authentic and matches” the one used on the date (ba), ALCIDES MONTIEL, ADVISING MINISTER WITH CONSULAR FUNCTIONS IN WASHINGTON D.C. – UNITED STATES. The Institution and Employee (a) do not assume responsibility with respect to the content of the document. Managua, Thursday, November 20, 2008, 02:49 p.m. (F) Illegible Martha de los Angeles Rodriguez Duarte. Consular Services Director (Seal).” So expressed those present as instructed by me, the Notary, concerning the matter, value and legality of this act, of the general clauses that ensure its validity, specific ones contained therein and those involving waivers and implicit and explicit provisions. This deed, having been read by me in full to those present, was found to be in agreement, and they approve, ratify and sign it along with me, who swears to all associated with it. (f) Favio Batres (f) Illegible. Drawn before me on the back of the page number four seven one, and the back of page number four seven seven (477) in my Protocol number fifteen of the current year and book, this first witness on behalf of FAVIO JOSÉ BATRES PEREZ, in his own name and representation, in seven (seven) pages that I sign, initial and seal in the city of Managua, at eight hours and thirty minutes of the morning of December ten of the year two thousand eight. Signature and Seal of the Notary WILLIAM MIGUEL ESPINOZA NARVAEZ – III. – “PUBLIC DEED NUMBER TWENTY FIVE (25) OPENING OF BRANCH - In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of April twenty four of the year two thousand six, before me, ANA TERESA RIZO BRISEÑO, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, Republic, duly authorized to act before the Supreme Court during the five year period ending September first of the year two thousand seven, appears before me Miss ANGÉLICA ARGUELLO DAMHA, of age, single, attorney, domiciled in Managua, republic of Nicaragua, identified through identification card number zero, zero, one, dash, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (-001-270381-0053N). I swear to personally know that appearing party and that she has, in my judgment, the legal capacity necessary to bind and contract, especially to sign this instrument whereby she acts in the name and representation of INFINITY ENERGY RESOURCES INC., a company organized and existing in accordance with the laws of the state of Delaware of the United states of America. Miss Arguello demonstrates her representation through witness of public deed number thirty two 932), translation of the minutes of the Board of Directors meeting, which is literally transcribed later. The appearing party, in the capacity described above, speaks and says: (FIRST): That for the purpose of establishing and requesting the Public Registration of Real Estate and Commercial Property from the Department of Managua for a branch of INFINITY ENERGY RESOURCES INC., Miss Arguello has the duly legalized documents issued by the Consulate of the Republic of Nicaragua in the city of Houston, State of Texas, United States of America and before the Ministry of Foreign Affairs in Nicaragua, which were duly translated into Spanish and read as follows: A) PUBLIC WITNESS NUMBER THIRTY TWO (32) TRANSLATION OF THE BOARD OF DIRECTORS MEETING OF INFINITY ENERGY RESOURCES, INC. which expressly authorizes the opening of the branch through a telephone conference call on March seventeen of the year two thousand six at twelve o’clock and thirty minutes, Rocky Mountain time, which deed includes and literally reads as follows: WITNESS – PUBLIC DEED NUMBER THIRTY TWO (32) PROTOCOL NUMBER THIRTEEN (13) TRANSLATION OF DOCUMENT- In the city of Managua, Republic of Nicaragua, at two thirty in the afternoon of April ten of the year two thousand six. Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, duly authorized to act before the Supreme Court during the five year period that expires on the day of the year two thousand eight, appear Angélica Arguello Damha, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (001-270391-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the latter acting in the quality of interpreter. I swear to personally know the appearing parties who, in my judgment, have the civil legal capacity necessary to bind and contract and in particular to execute this instrument; the appearing parties express themselves in their own name and representation. FIRST: the first appearing party has the MINUTES OF THE BOARD OF DIRECTORS MEETING of INFINITY ENERGY RESOURCES INC. and that the minutes is in English and two of its originals are in English, the reason why it is hereby it is hereby requested that a notary translation be provided through an interpreter of said minutes and authenticated copies in order for this document to be valid in the Republic of Nicaragua. In accordance with Law number one hundred thirty, the Law that gives greater power to the Institution of Notary, and article one thousand one hundred thirty two of the Code of Civil Procedure, the undersigned Notary proceeds with the translation of the portions of the document that are in English through an interpreter. To this end, based on the mentioned law, the undersigned Notary, with more than ten years with the Supreme Court, hereby nominates and designates Roberto Arguello Villaviciencio as interpreter to verify the translation from English into Spanish as requested to him, who possesses ample knowledge of both the English and Spanish languages. SECOND TRANSLATION. Having understood it, he accepts the nomination, being warned of the penalties of false testimony, promising to speak the truth, and hereby declares: that to the best of his knowledge and understanding, the minutes in English say the following in Spanish: ONE) “INFINITY ENERGY RESOURCES, INC. MINUTES OF THE BOARD MEETING OF MARCH 17, 2006. A special meeting of the Board of Directors (“Board”) of Infinity Energy resources Inc., a company constituted in the State of Delaware (the “Company”) was held through a conference call on March 17, 2006, which began as 12:30 hours, Rocky Mountain Time (MST). The following directors participated in said meeting: Stanton E. Ross, Elliot Kaplan, Leroy Richie and James Tuell. The following also participated in part of all of the meeting: Timothy Ficker, Vice President, Chief Financial Officer and Secretary, Deborah Friedman, from the Law Firm of Davis Graham & Stubbs LLP, Counsel for the Firm, and Andrew Melsheimer, of Thompson & Knight LLP, Counsel for the Firm with respect to the Nicaragua Project. At the request of Mr. Ross, Mr. Tuell acted as Chairman of the meeting; Mr. Tuell confirmed the presence of a quorum and started the meeting. Following Mr. Tuell, Mrs. Freidman acted as Secretary of the Meeting.
Nicaragua
Mr. Ross made reference to the information provided in the Board Meeting held on March 1 with respect to the recent progress made in obtaining the concessions in Nicaragua and described the request for formal approval by the Board in said meeting to authorize the Execution of the documents related to the Concession contracts, the establishment of a Company Branch and offices in Nicaragua and to grant limited and general powers to the Company’s local Counsel in Nicaragua. Mrs. Friedman described the powers proposed and the possibility of limitations with respect to certain powers. The Board discussed in detail certain limitations of the powers to be granted through a General Power-of-Attorney, including the express limitation of powers relative to the sale, transfer or taxation of the Concession contracts. Mr. Melsheimer participated in the meeting and described the requirements of the General Corporate laws of Nicaragua with respect to the establishment of a Company branch and the Hydrocarbons Law, which usually require the designation of a legal representative domiciled in Nicaragua with power to bind the Company. Mr. Melsheimer described his discussions with legal counsel concerning possible limitations of powers granted in the general and limited powers. The Board continued discussing about the limitation of powers granted to the Nicaraguan legal counsel according to the general and limited powers and posed questions and received answers from Mr. Melsheimer concerning same. After said discussion and the motion made and seconded, the board unanimously adopted the following resolutions: RESOLVES that Stanton Edwards Ross, of age, marries, businessman in Chanute, State of Kansas, United States of America passport number Z8411524, as chairman of the Board of Directors of the Company, is hereby authorized to negotiate and sign (a) Negotiate and sign the PETROLEUM CONCESSION CONTRACTBETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES INC. for (i) the Area of Perlas, awarded to the company pursuant to Resolution 39-02-2006 and (ii) the Area of Tyra, awarded to the company pursuant to Resolution 38-02-2006,; both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM); (b) to grant, on behalf of the company, a limited power (special power of Representation) in accordance with ANNEX A of this Act, Mr. Roberto Octavio Villavicencio, of age, single, attorney and identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua and (c) to perform any other act necessary to negotiate and execute the above mentioned contracts; and RESULVE that (i) the Company, through a branch (“Branch”) established for this purpose, is hereby authorized to operate and carry out any and all businesses in the Republic of Nicaragua that constitute the purpose of the Company as defined in the Articles of Incorporation of the Company and its amendments; and FURTHER RESOLVE that (i) the Company hereby allocates the amount of one hundred seventy five thousand córdobas (C$175,000.00) as the initial capital of the Branch; (ii) the Branch office will be located in the city of Managua, Nicaragua, and (iii) the opening of additional offices in other cities in the entire territory of the Republic of Nicaragua is hereby authorized; and FURTHER RESOLVE that Ms. Angélica Arguello Damha, of age, single, attorney, identification card No. 001-270381-0053N, domiciled in the City of Managua, Republic of Nicaragua, is hereby authorized to (i) perform any and all act necessary and to sign all documents necessary to establish the Branch of the Company and to incorporate the Branch in the republic of Nicaragua; (ii) to appear before a Notary Public in Nicaragua to request registration of the documents necessary to legalize the establishment of the Branch; however, Ms. Arguello Damha may not act on behalf of the Company or the Branch to grant any power or to make any decision that is not duly authorized by the Board of the Company in this instrument; FURTHER RESOLVE that this minutes of the meeting of the Board of the Company will be sufficient in order for Ms. Arguello to prove her authority to establish the Branch of the Company; FURTHER RESOLVE that once the Branch is registered in the Public Trade Registry of Managua, Nicaragua, Angélica Arguello Damha, of age, single, attorney, identification No. 001-270381-0053N, domiciled in the city of Managua, Republic of Nicaragua, is hereby authorized to appear before a Nicaraguan Notary Public to grant, on behalf of the Branch, a General Power, in accordance with the annex to this minutes, Annex B, to Mr. Roberto Octavio Arguello Villavicencio, of age, single, attorney, identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua, granting the attorney-in-fact authority to represent the Branch in all of its activities carried ou in Niaragua, to sell, mortgage, or otherwise transfer or encumber all types of the Branch assets in Nicaragua and to legally manage, sign all types of contracts and perform all other legal activities that the Branch performs in Nicaragua, except: (i) the activities that, pursuant to the law, must be personally performed by the owners of the Company; (ii) the activities for which the law expressly requires special powers granted by the Company; (iii) activities that involve a sum greater than ten thousand seven hundred córdobas (C$10,700.00) which must be expressly approved by the Board of the Company; (iv) the power to sell, mortgage or otherwise transfer or encumber the Petroleum Concession Contract for the Area of Perlas (pursuant to Resolution 39-02-2006) and the Concession Contract for the Area of Tyra (pursuant to resolution 38-02-2006) and (v) the power to delegate to any other person any of the powers granted to him in accordance with these general powers; and FURTHER RESOLVE that no power associated with the business of the Company in Nicaragua that is not expressly authorized in these resolutions may be granted by or in the name of the Company without the express approval of the Board.
Adjournment.
Without further business to be discussed before the Board, the meeting was adjourned at approximately 13:25 hours. Submitted. (F) Illegible. Deborah Friedman. Meeting Secretary.”
ANNEX A. SPECIAL POWER OF REPRESENTATION.
The undersigned, as President of the Board of Directors of Infinity Energy Resources, Inc. (“the Company”), a company organized and existing in accordance with the laws of Delaware and domiciled in Denver, Colorado, with sufficient power granted herein, hereby grants a SPECIAL POWER OF REPRESENTATION to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua, identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) with power to represent the Company before the Instituto Nicaraguense de Energia (MEM), Ministerio del Ambiente y los Recursos Naturales (MARENA) and any other administrative and/or government institution of the republic of Nicaragua in all transactions carried out by the company with such institutions with respect to the Company’s operation associated with the exploration and exploitation of hydrocarbons project in the republic of Nicaragua and in particular with respect to administrative matters with MEM and the acquiring of an environmental permit from MARENA or any other necessary transaction with MEM or MARENA. This SPECIAL POWER of Representation does not grant power or authority to negotiate terms or to sell, rescind, change, transfer, mortgage, loan, deliver as collateral or charge, dispose of or encumber in any way the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. with respect to the area of Perlas in accordance with resolution 39-02-2006 issued by MEM or the Contra Petrolera between the state of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company. This Special Power of representation does not grant the power or the authority to delegate powers herein granted to another person or to grant powers of any kind to third parties in the name of the Company, which is expressly reserved to the Board of Directors of the Company. Given and signed in Chanute, Kansas on ____ of March of two thousand six. Stanton E. Ross, Chairman of the Board of Directors of Infinity Energy Resources, Inc. Before me, on this ___ day of March of 2006, appeared Stanton E. Ross, known to me to be the President of Infinity Energy Resources Inc., who signed, before me, the preceding certificate and I hereby certify and give under my hand and seal of office. Notary Public, in and for the State of Kansas. My Commission Expires ____ ANNEX B DEED NUMBER _____() POWER G In the city of ____, at ____ of the ___ of ___ of the year two thousand six, before me, Attorney and Notary Public Republic of Nicaragua, with domicile and residence in this city and duly authorized to act before the Supreme Court during ____ appears Mr. ____, of age _____ (general provisions). I swear to personally know the appearing party and that in my judgment he has the legal capacity necessary to bind, and contract and especially with respect to what is granted herein, who acts in the name and representation of INFINITY ENERGY RESOURCES, INC., NICARAGUA BRANCH, recorded in the Minutes of the Board of Directors Meeting of “INFINITY ENERGY RESOURCES INC.” held in the city of ____ at ____ of ____ of the year two thousand six (2006), duly authenticated by the Ministry of Foreign Relations. I swear to have seen the documents mentioned above that empower the appearing party for execution of this document. Mr. _____ appears and says:
SOLE PARAGRAPH:
That through this public instrument, ample and sufficient GENERAL POWERS are granted to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua and identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) to represent the branch of INFINITY ENERGY RESOURCES, INC. opened in the Republic of Nicaragua, with respect to said branch’s matters and business to be carried out exclusively in the Republic of Nicaragua, for which the attorney-in-fact will intervene through the power granted unto him through this instrument to sell, mortgage and otherwise transfer and encumber all types of assets; to legally manage, sign all types of contracts and carry out all other legal activities the grantor could himself perform, except those that according to the law must be carried out by the owner in person and those activities for which the law expressly requires very special powers, limited to the sum of seven thousand córdobas (C$17,000), requiring prior approval from the Board of Directors. This General Power does not grant the authority to negotiate terms or to rescind, sell, change, transmit, mortgage, loan, delivery as guarantee, or burden, transfer or encumber the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by the MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company. This General Power of Representation does not grant the authority to delegate the powers granted herein to another individual nor to grant any type of powers to a third party on behalf of the Company, which is expressly reserved to the Board of Directors of the Company. So expressed the appearing party as instructed by me, the Notary Public, with respect to the object, value and legal criteria of this act, the general clauses that ensure its validity, the special clauses herein and those concerning waivers and implicit and explicit stipulations, as well as its registration with the competent Public Registry. This deed was fully read by me, Notary Public, in to the appearing party, found to be in agreement, the appearing party approves, ratifies and signs it with me, Notary Public, who swears to all contained herein. The expert continues to speak and expresses that the authentication from the State of Colorado which is in English saws the following in Spanish: DOS) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO SS. I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereinafter certify that DIANNE HAWK-BROWN, whose name is subscribed in the certificate that proves acknowledgment of the attached instrument and that a duly commissioned, sworn and authorized Notary Public by the laws of the State of Colorado was present at that time. And I hereby certify that the signature and official seal of the above mentioned Notary Public, to the best of my knowledge, is genuine. The signature of the notary was compared to the signature on file in my office. In witness whereof, I hereinafter affix the great seal of the State of Colorado, in the city of Denver, on the 22nd day of the month of March A.D. 2006 (f) Ginette Dennos, Secretary of State. The authentication in Spanish reads as follows: THREE) subject to those preferences, rights and privileges expressly granted to the holders of all types of shares that are in circulation at the moment with previous rights and all series of preferred shares that may be in effect in the future, except as otherwise stipulated by the State of Delaware, the holders of ordinary shares will have exclusively all other rights of the Company’s shareholders, including .but not limited to the right to dividends whenever declared by the Board with respect to the legally available assets and (ii) in case of distribution of assets due to dissolution or liquidation of the Company, the right to receive all of the Company’s assets in a proportionate and equitable manner upon payment of the specific amounts to the holders of preferred shares, if applicable, that have the right to such or is so stipulated herein or is in accordance with this instrument. 4.2
Preferred Shares
(a) The total number of preferred shares of $0.,0001 nominal value per share that the Company is authorized to issue is 10,000,000 (b) The Board is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special rights that are relative, participating, optional or others and requirements, limitations or restrictions to same that indicate or express, in the resolution or resolutions that determine the issuance of such shares as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions set forth in this instrument, including but not limited to the following: (1) the designation of the series and number of shares that make up the series; (2) the rate of dividends of the series, the conditions and dates on which such dividends are due, the relation such dividends will have with respect to the payable dividends in any other class or classes of shares and if such dividends will be cumulative or not; (3) if the shares in the series will be subject to repurchase by the company and, if so, the period, prices and other clauses and conditions of such repurchase; (4) the clauses and the amount of any amortization fund for the purchase r repurchase of the shares of the series; (5) if the shares of the series will be converted to or exchanged for shares of another class or classes or another series of any class or classes of shares of the company and, in case of conversion or exchange, the periods, prices, rates, modifications and other clauses and conditions of said conversion or exchange; (6) as the holders of shares of the series will or will not have the right to vote in the election for directors; (7) the restrictions, if applicable, with respect to the issuance or reissuance of any preferred share; (8) the rights of the holders of the shares of the series in case of liquidation or dissolution of the company. ARTICLE 5 – DIRECTORS. 5.1 Duties, Number and Election of Directors. The operations of the Company will be carried out by the Board. The number of directors of the Company must be established periodically as indicated in the by-laws and may be increased or decreased periodically as stipulated in the by-laws, under the condition that the number of directors is not less than three or more than seven, unless otherwise provided in this Article. 5. the election of the
directors does not necessarily have to be by written vote except as provided in the by-laws. The directors will be
divided into three classes designated as Class I, Class II and Class III. Each class will consist, as much as possible, of a third of the total
number of directors that constitute the Board. The term of the directors for the initial Class I will end in
2006, the terms of the directors for the initial Class II will end in 2007, and the terms of the directors for the initial Class III will end in 2008. The functions of the initial class will be determined by the Board. In each ordinary shareholders meeting, the successors of the directors whose term will end on such ordinary meeting will be elected and the successors’ term will run for three years. If the number of directors changes, any increase or decrease will be distributed among the classes so that the number of directors in each class remains as homogenous as possible, but under no circumstance will a decrease in the number of directors reduce the term of a director in the current term. Each director will exercise his/her functions up to the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified, subject however, to death, resignation, retirement, incapacity or destitution of such director from his position. In the event the holders of any class or series of preferred shares have the right, through a separate class vote, to elect directors, in accordance with Article 4, then the provisions of such class or series of shares will apply with respect to his/her rights. The number of directors that the holders of any of such classes or series of preferred shares can elect will be in addition to the number established in the preceding paragraph. Articl4. 5.2
Removal from office
. Subject to all rights of holders of all series of preferred shares, a director may be removed from office by the shareholders prior to the expiration of his/her term for just cause only. 5.3
Quorum.
.The Quorum for the Board for a business transaction will be of no less than a majority with respect to the total number of directors except as otherwise provided in this instrument or the by-laws with respect to the filling of vacancies. 5.4
Directors positions and recent vacancies.
Except as otherwise provided in accordance with the rights of the holders of any class or series of preferred shares to elect directors under specific circumstances, the position of director recently created that result in an increase in the number of directors an those resulting from death, resignation, incapacity, removal or any other reason, must be filled only with the affirmative vote by the majority of the directors remaining in office or by a single remaining director, although representing less than a quorum for the Board. Every director elected in accordance with the preceding sentence will exercise his/her functions for the remaining period until the expiration of the term of the new director position created or that of the vacant office and until the successor of such director has been elected and qualified. ARTICLE 6 - BY-LAWS. Except as otherwise provided herein, but not limited to the powers granted by the by-laws, the Board is expressly authorized to adopt, revoke, alter, amend and rescind any or all of the Company’s by-laws. ARTICLE 7 – STATE OF COLORADO, CITY AND COUNTY OF DENVER. The previous minutes of the board of Infinity Energy Resources Inc. of March 17, 2006 was acknowledged before me on _____ 22, of James A. Tuell. For the purpose of greater integrity of the document, following is the authentication from the Consulate General of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua, in the ___ language. FOUR) The Consulate General of the republic of Nicaragua in Houston, hereby CERTIFIES that the preceding signature that says: GINETTE DENNIS is AUTHENTIC and corresponds to the name Ginnette Dennis, Position: Secretary of State for Colorado. Date: March 28, 2006. “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.” (F) Illegible. Seal. “Authentication from the Ministry of Foreign Affairs of Nicaragua inserted for greater integrity of the document, which says: FIVE) “Ministry of Foreign Relations. Consular Office in Managua, Nicaragua. The undersigned, Consular Director General, hereby “Certifies” that the preceding signature that says MARIA MERCEDES BECK is “authentic and corresponds” to the one this date used by Maria Mercedes Beck, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America. The employee (a) does not assume responsibility with respect to the content of the document. Managua, Wednesday, April 05, 2006, 11:16:27 a.m. (F) Illegible. Lic. Maria Josefina Rojas Romero., Consular Services Director. Seal from the Ministry of Foreign Affairs. Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this deed, of the general clauses that ensure its validity, the special ones they contain and those that involve waivers and implicit and explicit stipulations. This deed was read in full by me, Notary Public, to the appearing parties and having been found in agreement, they approve, ratify and sign it with me, who swears to all (F) Angélica Arguello D. (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B – PRESENTED TO ME THE FRONT OF THE PAGE NUMBER FORTY SEVEN, THE FRONT OF PAGE NUMBER FIFTY OF MY PROTOCOL NUMBER THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELICA ARGUELLO DAMHA, THE BOOK OF FIRST WITNESS IN FOUR PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT TWO O’CLOCK AND THIRTY MINUTES OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX- Boanerges Ojeda B., Notary Public (S) – BOANAERGE ANTONIO OJEDA BACA, Attorney and Notary Public B) WITNESS OF PUBLIC DEED NUMBER THIRTY THREE (33) TRANSLATION OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES INC., which integrates and literally says: WITNESS OF DEED NUMBER THIRTY THREE (33) PROTOCOL NUMBER THIRTEEN TRANSLATION OF DOCUMENT. In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six. Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua,
duly authorized to act before the Supreme Court
during the five year period that expires on June eight of the year two thousand eight, appear Angelica Arguello
Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, zero, five, three, letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight dash zero, zero, six, zero, letter B” (001-0708787-0060B)
the latter acting as Interpreter. I swear to personally know the appearing parties and that in my judgment they have the legal civil capacity necessary to bind and to contract, and particularly to execute this instrument; the appearing parties express themselves in their own name and representation. FIRST: The first appearing party has in her possession the ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES, INC. and that the articles and by-laws are in the English language and two of their authenticated copies are in English; therefore, it is hereby requested a notarized translation of the documents and authenticated copies be provided through an interpreter so that this instrument is valid in the republic of Nicaragua. In accordance with Law number one hundred thirty, the Law that gives greater responsibility to the office of notary Public, and article one thousand thirty two of the Code of Civil Procedure, the undersigned Notary Public proceeds with the translation of the portions of the document that are in English, through an interpreter. To this end, based on the mentioned law, the undersigned Notary Public, with more than ten years of association with the Supreme Court, hereby nominates and designates as interpreter, to verify the translation from English into Spanish, to the appearing party, Roberto Arguello Villavicencio, who has vast knowledge of English and Spanish. SECOND: TRANSLATION. Having understood it, he accepts the nomination made and was warned of the penalties for false testimony, thereby promising to tell the truth, and says that: To his knowledge, the document in English says the following in Spanish: ONE ) State of Delaware, Secretary of State, Companies Division. Delivered at 04:43 pm on 04/29/2005 SRV 0503-48989-34944450 File: ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC. ARTICLE 1. LEGAL NAME. The legal name of the company is Infinity Energy Resources, Inc. (“Company”). ARTICLE 2. REGISTRATION. The domicile of the head offices of the Company in the State of Delaware is the Trust Center Corporation, 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent
at said domicile is Corporation Trust Company. ARTICLE 3. PURPOSE. The purpose of the Company is to participate in any legal activity for which it can organize a company in accordance with the Delaware General Law of Corporations and its amendments (“GDCL”). ARTICLE 4 – REGISTERED CAPITAL 4.1
ORDINARY SHARES
(a) The total number of ordinary shares of $0.0001 nominal value per share that the Company is authorized to issue is: 75,000,000 (b) Each holder of ordinary shares will have the right to one vote per each of these shares owned for all holders of ordinary shares have the right to vote. Except for and SHAREHOLDERS. 7.1 Meeting. The shareholders meetings in or outside the State of Delaware, as determined by the shareholders meeting will take place at the date, time and place, the Board. Except as otherwise required by law and subject to the rights of the holders of any class or preferred shares, the extraordinary shareholders meetings can only be called by the president, executive director, the president or any employee of the Company through prior request submitted in writing by a majority of the Board or in accordance with the by-laws. 7.2
Action through written consent
. Action that is required or can be taken in any ordinary or extraordinary shareholders meeting that can only be taken without a meeting, in writing. ARTICLE 8 VOTING REQUIREMENTS Notwithstanding any other provision in these Articles of Incorporation or the by-laws (of the Company (and in spite of the fact that a lower percentage can be specified otherwise by law, by these Articles of Incorporation or the by-laws) the affirmative vote of the shareholders will be required at least sixty six days and two-thirds percent (66-2/3%) of the shares in circulation of the Company with the right to vote, usually in the election of directors (considered for this purpose as a class), if necessary to amend, revoke or adopt any provision contrary to Articles 5,8,9,10 of these Articles of Incorporation. ARTICLE 9 OBLIGATIONS OF EMPLOYEES AND DIRECTORS 9.1
General.
A director of the Company will not be responsible before the Company or its shareholders for monetary damages caused by a breach of fiduciary obligat8ion as director, except in case such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect or in accordance with its future amendments. 9.2
Amendment.
No amendment, modification or revocation of this Article 9 can impair any right or protection of a director in office at the time of such amendments, modification or revocation. ARTICLE 10 INDEMNIFICATION 10.1 – General . The Company will indemnify up to the limit allowed and in accordance with the DGCL and its future amendments (however, in case of amendments, they will only be accepted if they allow the Company to provide indemnification rights that are more ample than the law allows prior to such amendments) to any person who is a party to, or subject to being a party to any legal action, complaint, judgment or imminent process, pending or completed, whether criminal, civil, administrative or under investigation, due to the fact that such person (a) is or has been a director ro employee of the Company or any predecessor or the Company, and has worked for any other company, union, joint company, trust, benefit plan for employees or other position, such as director, employee, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company, subject to the condition that, except as indicated in Section 10.4, the Company will indemnify any person that seeks indemnification associated with a legal process (or part thereof) initiated by said person, only if said process (or part thereof) was authorized by the Board. 10.2
Expense Advance
– The right of indemnification as granted in this Article 10 will be a contractual right and will include the right to receive payment by the Company for expenses incurred with any legal process prior to the final judgment. Such advances will be paid by the Company within twenty day from the date of receipt of a report or reports from the claimant requesting such advance or advances on a timely basis, under the condition that if DGCL so requires, payment of said expenses incurred by such director or employee in his/her capacity as director or employee (and not in another capacity provided or that has been provided by such person during his/her term as director or employee, including but not limited to, services to benefit the employee) prior to the final judgment of a legal process be carried out only through previous presentation before the Company of a commitment by such director or employee or on behalf of the same to reimburse all amounts paid to same as an advance if it is determined that said director or employee does not have the right to be indemnified in accordance with this Article 10 or another. 10.03
Procedure to obtain indemnification.
In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the company a request in writing including all documentation and information available and necessary to determine if the claimant has the right, and up to what point, to receive indemnification. Based on the claimant’s written request for indemnification, in accordance with the first sentence in this section 10.3, a decision with respect to the claimant’s right to receive such indemnification, if required by the applicable law, will be taken as follows: (a) if requested by the claimant or if there are no uninterested Directors (as defined below) or (b) if it is requested by a majority vote of the uninterested Directors, although a quorum is not reached, or by a majority vote of a uninterested Directors committee designated by a majority vote of uninterested Directors, although a quorum is not reached. If it is determined that the claimant has the right to receive indemnification, payment will be made within ten days following such determination. 10.04
Appeals
. If the Company does not pay the full amount of a claim under section 10.1 within thirty days from the date the written claim as established in Section 10.3 is received by the Company, the Claimant may, at any time thereafter, file a claim against eh Company to collect the amount of the claim unpaid; if successful, as a whole or in part, the claimant will have the right to also charge for expenses incurred when submitting such claim. It will be a defense to such action (distinct from an action submitted to require a claim to be fulfilled with respect to expenses incurred in defense of such procedure prior to its final disposition whereby the procedure required, if applicable, will have been offered to the Company) that the claimant has not complied with the code of conduct, which make possible, according to the DGCL, for the Company to indemnify the claimant for the amount claimed,; however, the obligation to provide such defense will rest on the Company (including the Board, the independent legal counsel or the shareholders), has not made a determination prior to the beginning of the action where the indemnification of the claimant is valid under the circumstances due to the fact that the claimant has met the applicable code of conduct, may not be considered as a defense to the action and will not create an assumption that the claimant has not complied with the applicable code of conduct. 10.5
Obligatory Effect
. If it was necessary to determine that the claimant has the right to an indemnification, in accordance with section 10.3, the Company will be bound by such determination throughout the legal process initiated in accordance with Section 10.41.06
Validity of this article
. The Company will not any legal procedure initiated in accordance with Section 10.4 than the procedures and provisions of this Article 10 are not valid, obligatory and applicable, and must stipulate in said procedure that the Company commits to comply with all clauses of this Article 10. 10.07
No Exclusivity, etc.
The right to indemnification and payment of expenses incurred with the defense of a procedure prior to its final judgment granted through this Article 10 will not be exclusive of all other right that any person can have or acquire in accordance with any decree, clause of constitutive certificate, by-laws, agreement, shareholders or non interested directors vote or any other form. No revocation or modification of the Article 10 will decrease in any way or affect in an adverse manner the rights of any director, employee, agent, present or past of this Company or of any predecessor of the same with respect to any event or problem arising prior to said amendment or modification. 10.08
Insurance.
The Company can maintain an insurance on its own to protect itself and any director, employee or agent of the Company, partnership, joint venture, trust or another company, against all cost, debt or loss, whether the Company has the capacity to indemnify such person or not against such cost, debt or loss in accordance with the DGCL. 10.09
Indemnification of other persons.
The Company may grant the right of indemnification and to receive payment from the Company to any of its employees or agents, current or past, for expenses incurred with respect to any procedure prior to the final judgment, in accordance with the clauses of this Article 10 addressing indemnification and estimate of expenses incurred by the directors and employees of the Company. 10.10
Divisibility.
If any clause or clauses of this Article 10 are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, but not limited to, each part of every paragraph of this Article 10 that contains such clause deemed invalid, illegal or not applicable) will be interpreted in such manner as to give effect to the intent manifested by the clause deemed invalid, illegal or not applicable. BY-LAWS OF INFINITY ENERGY RESOURCES, INC. Adopted on April 29, 2006. ARTICLE 01. Office. The head office of Infinity Energy Resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”). The Company will have offices in every place the Board so decides. ARTICLE 2 SHAREHOLDERS – 2.1
Ordinary Meetings
. The shareholders ordinary meetings for the election of directors and to address any other business that is deemed appropriate prior to the meeting will be carried out on the date and time set by resolution of the Board. 2.02
Extraordinary Meetings
. Except as otherwise established, the shareholders extraordinary meetings will be convoked by the individuals indicated in the Articles of Incorporation and must be called by the Secretary of the Company at the written request of the shareholders that have 25% or more of the capital stock of the Company with the right to vote with respect to the directors. Such written request will establish the purpose of the proposed meeting and will include all relevant information contemplated in Section 2.5. The topics discussed in every shareholders extraordinary meeting will be limited to those duly included in the written request and about which all necessary information has been timely provided in accordance with Section
2.5, 2.03 Notice of
Meeting. Written notice will be given no less than ten days and no more than sixteen days prior to the date of the meeting showing the place, date and time of the meeting, and in case of an extraordinary meeting, include the purpose for which such meeting was called, except as otherwise provided by law or the Articles of Incorporation. Such notice will be delivered in person or by postal service, prepaid telegram, telex, facsimile transmission, cablegram or express courier to each registered shareholder authorized to vote in such meeting. If such notice is sent by mail, it will be deemed received when deposited in the United States mail, prepaid, addressed to the shareholder and sent to his/her address as shown in the Company’s shareholders registry. 2.04 Waiver. The presence of a Company’s shareholder, whether in person or through proxy, in any meeting, whether ordinary or extraordinary, will constitute a waiver to the right of notice and such meeting, except when a shareholder is present at the meeting for the express purpose of objecting, at the beginning of such meeting, the addressing of every topic due to the fact the meeting was not properly called. A written waiver to the right of receiving notice of such meeting, signed by the shareholder or shareholders authorized to received such notice before, during or after the time of the notice of said meeting, signed by the shareholder or shareholders authorized to receive such notice before, during or after the time of the notice or time of the meeting, will be equivalent to notice. It will not be necessary to specify the matter to be discussed nor the purpose of every meeting in the written waiver to the right of receiving notice. 2.5
Notice of the topic to be discussed in the shareholders meeting.
No topic will be discussed in any shareholders meeting, including the designation or election of individuals for the Board other than those specified in the meeting notice (or any attachment to same) granted by the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or extraordinary meeting called by any of the individuals listed in Section 7.1 of the Articles of Incorporation; (b) duly presented before the meeting by or according to the direction of the Board, duly authorized by it); or (c) duly presented before the meeting by any of the Company’s shareholders (1) that is a registered shareholder on the date in which the notice mentioned in Section 2l5 was given and on the date of registration for determination by the shareholders authorized to vote in said meeting and (2) that complies with the notice procedures established in this Section 2.5. Besides all other applicable requirement in order for the topic to be duly presented at the meeting by a shareholder, the shareholder must have submitted written notice concerning such topic in a timely manner and proper format to the Secretary of the Company (a) so that the shareholder’s notice be timely delivered or sent by mail and is received at the Company’s main office no less than ninety days and no more than one hundred twenty days prior to the date of the meeting; nevertheless (1) in case of public disclosure of the date of the meeting started in less than one hundred twenty days with respect to the date of the meeting, in order for the shareholder’s notice to be timely, it cannot be received after the closing of the tenth business day following the date on which the public disclosure of the meeting date has been made and (3) notwithstanding the preceding, with respect to an extraordinary meeting called through written request by the shareholders in accordance with Section 2.2, all notices submitted by a shareholder with a request must be delivered simultaneously with such request (b) in order for the shareholder’s notice to reach the Secretary in a timely manner with respect to any matter other than the nomination of individuals for election of the Board, must make reference to each of the topics said shareholder proposes to discuss before the ordinary meeting and must establish (i) a brief description of the matter to be discussed during the ordinary meeting and the reasons for which such topic should be discussed; (ii) the name and registered address of said shareholder; (iii) the class or series and number of shares in the Company owned by such shareholder, whether as usufruct or registered; (iv) a description of all understandings and agreements between said shareholder and any other person or persons (including their names) with respect to the proposal of such topics and (v) a statement that such shareholder intends to be show up in person or through proxy in a meeting to present such topic before the meeting. (c) in order for the shareholder’s notice related to the nomination of individuals for the board reach the Secretary in a timely manner, it must establish (a) with respect to each of the proposed candidates (i) name, age, business and residence address; (iii) the class or series and number of shares in the Company owned by the candidate, whether as usufruct or registered and (iv) any other information related to the candidate that could be required to be disclosed in a statement of representation with respect to the requests for representation for election of board members in accordance with Section 14 of the Securities Exchange Act of 1934 and its modifications (“Securities Exchange Act”) and the provisions and regulations established below and (b) with respect to the shareholder delivering the notice, (i) the name and address of registration, (ii) the class or series and the number of shares of the Company owned by the shareholder, whether as usufruct or registered; (iii) a description of all understandings or agreements between said shareholder and each of the proposed candidates and of any other person or persons (including their names) in accordance with the nominations , (iv) a statement that said shareholder has the intent of appearing in person or through a proxy at the meeting to nominate the individuals mentioned in the notice and (v) any other information related to said shareholder that needs to be disclosed in a statement of representation or other necessary presentations with respect to the requests of representation for the election of board members in accordance with Section 14 of the Securities Exchange Act with the provisions or norms promulgated by virtue of the same. Such notice must be accompanied by a written consent from each candidate proposed to be nominated as such and to provide services as a director in case said individual is elected. (d) in the shareholders meeting there can be no discussion of any topic and the individuals nominated by a shareholder may not be elected as director unless notice has been given with respect to the action proposed in accordance with the procedures set forth in this Section 2.5. The decisions of the president concerning those procedures will either be complied with or not and, in a particular case, it will be definitive and binding. 2.06
Quorum
. Except as otherwise provided by law or in the Articles of Incorporation or the By-Laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meetings, whether appearing in person or through proxy, will constitute a quorum and whatever the majority of said quorum decides will be deemed as a decision by the shareholders, except in the case of the election of directors. If a quorum is not present at the meeting, the president of the meeting will suspend the meeting without prior notice if the time and the place are announced in the meeting, until such time a quorum is present. In the suspended meeting, where a quorum is present, any topic may be discussed that could have been discussed in the original meeting. In case the suspension lasts more than thirty days or right after it is suspended a new date is established for the suspended meeting, notice of suspension will be given to each shareholder registered with the right to vote in a meeting. 2.07
Procedure
. The items in the agenda of the day and all other topics to be discussed in each shareholders meeting will be determined by the president of the meeting. The president of every shareholders meeting will be the President of the Board or, in his/her absence, it will be the one present at the meeting with the most seniority with the Company. ARTICLE 3 DIRECTORS. 3.01
Number
Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and in a timely manner based on a resolution adopted by the Board. 3.2.
Ordinary Meetings.
The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of said meeting to legitimately hold it. The ordinary meetings of the Board will be carried out at the places and times as determined by the Board. 3.3 –
Extraordinary Meetings.
The extraordinary meetings of the Board can be called at any time or place and for any reason by the president of the board, the general director or the majority members of the Board. 3.04
Notice of meetings.
It is not necessary to give notice of ordinary meetings of the Board. Notice will be given with regard to each extraordinary meeting of the Board to each director, at their habitual work address or to an address such Director provides for such purpose. Such notice will be deemed as timely given when such notice is (a) placed in the mail of the United States no later than three calendar days prior to the date of the meeting or (b) personally delivered by telegram, facsimile or telephone communication at least twenty four hours prior to the time set for the meeting. It is not necessary for such notice to include either a statement of the subject to be discussed or the purpose of same. 3.5
Waiver
The presence of the director in a Board meeting will constitute a waiver to the right of notice to said meeting, except when the director participates in a meeting with the for the express purpose of objecting, at the beginning of the meeting, to the discussion of any topic due to the fact the meeting was not formally convoked or called. A waiver in writing to the right to receive notice, signed by the authorized director or directors to said notice, whether before, during or after the time of notice or the time of the meeting will be the equivalent of a notice. 3.06
Quorum.
Except as otherwise provided by law, the Articles of Incorporation or the By-Laws, it will be necessary to have a majority of directors present at this time and this will be sufficient to constitute a quorum to discuss the topics in any Board meeting, and the decision reached by the majority of the directors present in the meeting in which there is a quorum will be deemed as presented by the Board. In case it does not arrive, the Board meeting will be timely suspended without prior notice. 3.07
Telephone participation in the meetings.
The Board members or members of any Board committee may participate in a Board meeting or committee meeting through a conference call or similar communication equipment through which all individuals participating in the meeting can mutually hear each other and said participation will constitute a personal presence in such meeting. 3.8
Decisions without a meeting.
Except as otherwise provided by the Articles of Incorporation or the By-laws, any necessary action can be taken in case all of the Board members or members of the Board committee sign an agreement, in writing, and such consent in writing, is filed with the minutes of the Board or committee procedure. Any consent may be equivalent and will be in effect on the date of the last signature on it, unless otherwise established. ARTICLE 4 COMMISSIONS – 4.01
Designation of committees.
The Board will establish committees for the performance of delegated or designated functions as allowed by law; each committee will be composed of one or more directors of the Company. In the absence or disqualification of a member of a committee, he/she or the members present at all meetings who are not disqualified to vote, whether such members constitute a quorum or not, may unanimously designate another member of the Board to represent said absent or disqualified member at the meeting. 4.02
Authority and powers of the committee
. Except as otherwise provided by law, the Board d may. Establish, through resolution or amendment to these By-Laws, that a committee may exercise all powers and authority of the Board in managing the business and matters of the Company. ARTICLE 5 – OFFICERS. 5.01 – Number – The officers of the Company will be designated or elected by the Board. The officers will consist of a general director, a president, if applicable, the number of executive vice-presidents that the Board so determines, a secretary, if applicable, the number of assistant secretaries that the Board so determines, and a treasurer. Any individual may hold two or more positions at the same time. 5.02
Additional Officers.
The Board may nominate any other officer as it deems appropriate. 5.03
Term of office
. Waiver. All officers, agents and employees of the Company will maintain their respective positions as desired by the Board and may be removed from their positions at any time the Board deems appropriate, with or without cause. Any officer may resign at any time by giving notice in writing to the general direct, president or secretary, in order for it to be effective, and acceptance of such resignation is not necessary for it to be effective unless the notice so establishes.. Any vacancy of a position will be covered by the Board.
Functions:
The officers of the Company will carry out the functions and will exercise the powers as delegated by the Board or the president and the director general. ARTICLE 6 – CAPITAL STOCK – 6.01 Certificates – The Board will authorize the issuance of certified or not certified capital. Each shareholder, through written request, will have the right to one or more certificates signed by or in the name of the Company by the (a) director general or the president and (b) the secretary or the assistant secretary certifying the number of capital shares of the Company owned by said shareholder. Any or all the signatures in the certificate can be by facsimile. 6.02 –
Registered
Shareholders. The Company will have the right to treat the holder of the registry of any share or shares of the Company as the holder in fact of such share or shares and, as a result, such holder will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any person, whether such holder has or not notice of same, unless otherwise established. 6.003
Cancelation of the
certificates. All certificates delivered to the Company will be cancelled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until they, or previous ones (for the same number of shares of the same class of capital), have been delivered and canceled. 6.04
Stolen or destroyed certificates.
The Board may establish that new certificates be issued in place of any certificate or certificates issued to date by the Company that have been declared to be lost, stolen or destroyed, by preparing a sworn statement to do in an acceptable manner to the Board or the person who claims the certificate or certificates have been lost, stolen or destroyed. The Board, at its discretion and as prior condition for the issuance of any new certificate or certificates, may require that the owner of the lost, stolen or destroyed certificate or certificates, or their legal representative, provide the Company or its agent or agents in charge of transfers, registration or registrations a title in such manner and amount as specified by the Board, as indemnification for all claims that may arise against the Company and its transfer or registration agent or agents with respect to the loss, theft or destruction of any certificate or the issuance of a new one.
ARTICLE 7
FISCAL YEAR Fiscal Year.
The Company’s fiscal year
will end on December 31 of each year.
ARTICLE 8 – AMENDMENT.
The expert continues to speak and says that the authentication from the State of Colorado that is in English reads as follows in Spanish:
TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO. SS. I, GINETTE DENNIS,
Secretary of State for the State of Colorado, hereby certify that
HAWK-BROWNS
, whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of taking such acknowledgment a
NOTARY PUBLIC
duly commissioned, sworn and authorized by the laws of the State of Colorado. And I hereby certify that the signature and affixed official seal of said NOTARY PUBLIC, to the best of knowledge is genuine. The signature of the notary has been compared with the signature on file at my office. In witness whereof, I hereby affix the great seal of the state of Colorado, in the city of Denver, on march 8, A.D. 2006 (f) Ginette Dennos. Secretary of State. Following is the certification of the Secretary of INFINITY ENERGY RESOURCES, INC., which reads as follows in Spanish:
THREE)
CERTIFICATE OF THE SECRETARY OF INFINITY ENERGY RESOURCES, INC. I, Timothy A. Ficker, duly elected, qualified and acting as Secretary in accordance with the By-laws of Infinity Energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Articles of Incorporation and the By-Laws of the Company, which are attached to this certificate, are true and correct copies of the original Articles of Incorporation and By-laws of the Company and said Articles of Incorporation and By-Laws have not been modified, reformed or revoked. In my presence I sign it as Secretary of Infinity Energy Resources, Inc. on March 6, 2006 (F) Timothy A. Ficker. Secretary of Infinity Energy Resources, Inc. Before me on March 6, 2006 appears Timothy A. Ficker, as Secretary of Infinity Energy Resources, Inc. who, before me, signed the certificate and, to certify it, in witness whereof, I set my signature (f) illegible, Notary Public in and for the State of Colorado. My commission expires eleven/zero, five/zero, seven (11/05/07). Seal. For greater effect of the document, below is the authentication from the Consulate General of the republic of Nicaragua in Houston and the Ministry of Foreign Affairs in Nicaragua , which is in Spanish and reads as follows:
FOUR)
The General of the Republic of Nicaragua in Houston CERTIFIES that the preceding signature says: GINETTE DENNIS is authentic and corresponds to that of the name: Ginnette Dennis. Position: Secretary General of Colorado. Date: March 28, 2006. “
THIS CONSULATE DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.”
Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua which reads as follows:
FIVE)
“Ministry of Foreign Affairs, Consular Department, Managua, Nicaragua. The undersigned, Consular General Director “Certifies” that the preceding signature and says MARIA MERCEDES BECK is authentic and corresponds” to the on used on this date by MAARIA MERCEDES BECK, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America. The Institution and the employee (a) do not assume responsibility with respect to the content of the document. Managua, Wednesday, April 5, 2006, 11.15.45 a.m. (F) Illegible. Lic. Maria Josefina Rojas Romero. Director of Consular Services. Stamp. Ministry of Foreign Relations. Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal matter of this document, the general clauses that ensure its validity, the special clauses it contains and those that involve waivers and implicit and explicit stipulations. This deed was read by me, Notary Public, in full, to the appearing parties, who found it to be in agreement. They approve, ratify and sign, together with me (F) Angelica Arguello D (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B. FROM PAGE NUMBER FIFTY TO THE FRONT OF PAGE NUMBER FIFTY SEVEN IN MY PROTOCOL THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELEICA ARGUELLO DAMHA, FIRST BOOK WITH SEVEN USEFUL PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT THREE THIRTY OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX. (F) Boanerge Ojeda B, Notary Public (S) BOARNERGE ANTONIO OJEDA BACA, Attorney and Notary Public. I swear to have seen the documents listed above which grant sufficient power to the appearing party. (SECOND) REQUEST FOR REGISTRATION OF BRANCH: The appearing party, acting in its capacity as described above says that it is requesting the registration of said branch to perform its activities and therefore wishes to begin its operations as of the registration date in the Public Registry of Companies for the purpose of completing the transactions for acquiring its legal entity in accordance with the Code of Commerce in effect and therefore kindly requests to the Public Registry Clerk to register such branch in the Public Registry writing at the foot of the testimony in the deed the corresponding reason for its registration. The appearing party also declares that the copies of the original documents in English of the opening minutes of the branch and the articles of incorporation of Infinity Energy Resources Inc. will also be attached to this document. So expressed the appearing party, well instructed by me, Notary Public, with respect to the object, value and legal content of this document and the general clauses that ensure its validity, the special clauses that contain and those that involve waivers and implicit and explicit stipulations, as well as the need to register this deed in the corresponding registry. This deed was read in its entirety by me , Notary Public, in .the presence of the appearing party, and found to be in order; it was approved, ratified and signed with me, Notary Public, who swears to all of its contents. (F) Angelica Arguello D. (F) Ana Teresa Rizo B, Notary Pubic. Before me, entered in the front of page number forty six and the front of page number fifty six in my Protocol Number Ten of this year, at the request of Angelica Arguello D, in the name and representation of INFINITY ENERGY RESOURCES INC., which book contains eleven (11) useful pages of law, that I sign, seal and initial in the city of Managua, at ten o’clock and two minutes of the morning of April twenty five of the year two thousand six, registered under number twenty one thousand seven hundred twenty one dash b two (21,721-B2), page five hundred fifty one and five hundred seventy (551-570) volume seven hundred eight five dash B two (785-B2), Second Book of Companies, under number fifty seven thousand two hundred sixteen dash A (57,216-A), pages two hundred eighty and two hundred eighty one (280 and 281) of volume one hundred fifty nine dash A 9159-A) of the Book of Individuals, both part of the Public Trade Registry of the Managua department. The undersigned, Notary Public, records and swears that the documents listed grant sufficient powers to the appearing parties to execute this document. Both appearing parties together state that once the requirement established in article twenty six (26) of law two hundred eighty six (286) “Special Law of Exploration and Exploitation of Hydrocarbons and article fifty seven (57) of its Regulation is fulfilled, and the Ministry of Energy and Mines has the Public Deed Number Four of Several Guarantee in its possession, authorized in the city of Managua at five o’clock in the afternoon of January twenty two of the year two thousand nine at the Notary Public Office of Ramón Alberto Castro Romero, which has the required guarantee in accordance with the provisions mentioned above, proceed to sign a
CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS, “PERLAS” PROSPECT
, which will be governed by the following Clauses:
CLAUSE ONE (1) BACKGROUND AND OBJECT:
One (1) BACKGROUND
: Through Resolution number zero, eight, dash, two thousand three (No. 08-2003) issued by the Administrative Council of the Instituto Nicaraguense de Energia, which establishes the order for Negotiation of Concession Agreements and the Granting of Areas for the Exploration and Exploitation of Hydrocarbons, the Area of the “Perlas” Prospect was awarded to the company INFINITY, INC. as a result of the first international bid round. Such company changed its legal name in the state of Delaware, United States of America, to the new legal name of INFINITY ENERGY RESOURCES, INC., having submitted to the Instituto Nicaraguense de Energia the respective documentation in accordance with the legal procedures. Therefore, within the text of this Contract, INFINITY ENERGY RESOURCES, INC. is acknowledged as the Contractor.
Two (2) OBJECT
: The object of this Contract is to establish the rights and obligations of the parties with respect to the Petroleum Concession for the Exploration and Exploitation of Hydrocarbons located in the Caribbean Region Offshore Nicaragua, granted by the Republic of Nicaragua to INFINITY ENERGY RESOURCES, INC.
CLAUSE TWO (2): DEFINITIONS
.
The following words and terms used in this Contract, unless otherwise expressly specified in the Contract, shall have the following respective meanings.
1 (ONE): "Calendar Year"
means a period of twelve (12) consecutive months, beginning on the first day of January and ending on the following thirty first (31) day of December.
2 (TWO): "Contractual Year"
means a period of twelve (12) consecutive months within the terms of the Contract, beginning on the Effective Date or on any anniversary date.
3 (THREE): "Contract Area"
means the specific area in which the Contractor has a concession to perform exploration and/or exploitation activities of the hydrocarbons resources located in such area.
4 (FOUR): “Exploration Area”
means the portion of the Contract Area that consists of rectangular blocks oriented from North to South, East to West, designated for the study of the Minimum Exploration Program.
5 (FIVE): “Exploitation Area"
means the portion of the Contract Area designated in the approved Development Plan that covers a Commercial Discovery and a reasonable security boundary.
6 (SIX): "Barrel"
means a barrel consisting of 158.9074 liters (42 United States gallons) in liquid measure, corrected to a temperature of 15.56 degrees centigrade under one atmosphere of pressure (14.7 pounds per square inch).
7 (SEVEN): “C.I.F” (Cost, Insurance, Freight):
means the sum of the cost of the product, insurance plus freight. Term used in international commerce.
8 (EIGHT): "Affiliated Company" or "Affiliate"
means a company or organization : in which an entity comprising the Contractor owns directly or indirectly share capital that confers unto it a majority of votes at the stockholders' meeting of such company; which is the owner, directly or indirectly, of share capital that confers unto it a majority of votes at the stockholders' meeting of a company or entity comprising the Contractor; which is the owner, directly or indirectly of share capital that confers unto it a majority of votes at the stockholders' meeting of such company and a majority of votes at the stockholders' meeting of an entity comprising the Contractor, and are owned directly or indirectly by the same company.
9 (NINE): “Contractor”
means any natural or legal person, national or foreign, that has entered into a contractual relationship with the State to perform exploration and exploitation activities of Hydrocarbons in Nicaragua. In this Contract, it means Infinity Energy Resources, Inc. or its successors.
10 (TEN): "Contract"
means this Exploration and Exploitation contract and its annexes, executed by the State’s representative and the Contractor, pursuant to the Law and its Regulation and covers the Contract Area.
11 (ELEVEN): "Commercial Discovery"
means a discovery of Hydrocarbons in the Contract Area that the Contractor considers being commercially exploitable and commits to develop and produce it under the terms of the Contract.
12 (TWELVE): "Development" or "Development Operations" of the "Development Work"
means all the work performed under a Development and Production Program submitted by the Contractor and approved by the MEM, which must include, but not be limited to the following: all the operations and activities under the Contract with respect to the drilling of development wells, production wells, maintenance wells, plugging, completing and equipping of such wells, together with the design, construction and installation of such equipment, pipes or lines, installations, production units and all other systems relating to such wells as may be necessary; pursuant to the international petroleum industry practices and regulations in effect.; all operations and activities relative to the servicing and maintenance of pipelines, lines, installations, production units and all activities associated with the production and management of the wells.
13 (THIRTEEN): “State"
means the State of the Republic of Nicaragua.
14 (FOURTEEN): "Appraisal"
means work conducted for the purpose of evaluating the commercial potential of a geological structure or prospect in which Hydrocarbons have been discovered.
15 (FIFTEEN): “"Exploration" or "Exploration Operations"
means the activities that shall include, but will not be limited to geological, geo-chemical, geophysical, seismic and other surveys; any interpretation of data relating thereto as may be contained in the Minimum Exploration Program (PME); as well as drilling to obtain core samples, and stratigraphic tests, Wildcat wells for the discovery of Hydrocarbons, Appraisal wells and other related operations.
16 (SIXTEEN): "Effective Date"
means the date of signature of this Contract by both parties
17. (SEVENTEEN): “F.O.B.” (Free on Board):
Value of the merchandise placed in the means of transportation at the Shipping Port. Term used in international commerce.
18 (EIGHTEEN): “Natural Gas”:
is the mixture of Hydrocarbons in gaseous state.
19 (NINETEEN): “Associated Natural Gas”:
means all gaseous Hydrocarbons produced in association with crude oil and separated therefrom.
20 (TWENTY). “Non-Associated Natural Gas”:
means all gaseous Hydrocarbons produced from gas wells, including wet gas, dry gas and residual gas remaining after the extraction of Liquid Hydrocarbons from the wet gas.
21 (TWENTY ONE): “Hydrocarbons”:
is the organic chemical compound of carbon (C) and hydrogen (H), whatever their physical state, be it oil, gas, condensate, as well as associated or derivative substances.
22 (TWENTY TWO): “Liquid Hydrocarbons”
: means any Hydrocarbon produced from the Contract Area which remains in a liquid state under atmospheric pressure and temperature conditions.
23 (TWENTY THREE):
.
“Law”:
” is the Special Law for Exploration and Exploitation of Hydrocarbons, Law No. 286, published in the Official Gazette No. 109 on June 12, 1998.
24 (TWENTY FOUR): “MARENA
”: means the Ministerio del Ambiente y Recursos Naturales of the Republic of Nicaragua (The Environmental and Natural Resources Ministry) or any entity that may succeed it.
25 (TWENTY FIVE): MEM: “Ministry
”, means the Ministry of Energy and Mines of the Republic of Nicaragua.
26 (TWENTY SIX):“Month” or “Calendar Month”:
means a Calendar Month.
27(TWENTY SEVEN): “MHCP”:
means the Ministerio de Hacienda y Credito Público of the Republic of Nicaragua (The Treasury Department of the Republic of Nicaragua).
28 (TWENTY EIGHT): “Petroleum Operations”:
means operations and activities carried out by the Contractor by virtue of the rights granted to the Contractor under this Contract.
29 (TWENTY NINE):“Parties”:
in this Contract are the State and the Contractor.
30 (THIRTY): “Wildcat Well”:
means any well drilled with the objective of finding Hydrocarbons in a structure or geologic trap in which Hydrocarbons in quantities having commercial potential have not been previously encountered.
31 (THIRTY ONE): “Development and Production Program”:
means the work program during the first five years for the development and operation of the field, which must specify the location of the transportation and storage facilities to the Fiscalization Point agreed upon, as well as other transportation and storage facilities to the point or points of internal or external commercialization.
32 (THIRTY TWO): “Minimum Exploration Program”: (MEP
) is the work program provided for in Clause 6.1 that is divided into sub phases under which the Contractor has committed itself to carry out exploration activities in the Contract Area.
33 (THIRTY THREE): “Work Program”:
means the program that specifies the Petroleum Operations to be conducted within a designated area and time schedule for accomplishing such operations.
34 (THIRTY FOUR): “Fiscalization Point”:
means the location or locations approved as part of the Development and Production Plan where Hydrocarbons are metered for fiscal purposes, which in no event shall be beyond the point of export or point of first sale of such Hydrocarbons in Nicaragua, pursuant to the Law.
35 (THIRTY FIVE). “Prospect”:
is a hydrocarbon trap delimited by a rock.
36 (THRITY SIX): “Regulation”
: means the Regulation to the Special Law for Exploration and Exploitation of Hydrocarbons, Decree No. 43-98 (forty three dash ninety eight), published in the Official Gazette No. 117 on June 24, 1998.
37 (THIRTY SEVEN): “Subcontractor
”: is a specialized entity contracted by the Contractor to carry out a specific exploration or exploitation job under the supervision and for the account of the Contractor.
38 (THIRTY EIGHT):“Quarter” or “Calendar Quarter”:
means a period of three (3) consecutive months beginning on the first day of January, April, July, or October.
CLAUSE THREE (3): GRANT OF RIGHTS
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ONE (1). Subject to the provisions of this Contract and by virtue of the same, the Contractor is hereby granted the exclusive rights, during the term of this Contract, to explore and exploit Hydrocarbons in the Contract Area, as well as the non-exclusive right to construct and operate such facilities and infrastructure within or outside of the Contract Area up to the Fiscalization Point, as may be required in relation to the exploration and exploitation operations. Subject to making the payments to the State as set forth herein, the Contractor shall be entitled to receive, upon extraction, the Hydrocarbons that are produced within the Contract Area. However, this Contract does not grant the Contractor ownership of the Hydrocarbons in situ or any preferential rights to the surface or subsurface of the Contract Area.
TWO (2). The Contractor, by virtue of this Contract, has the right to transport, store and commercialize, on its own behalf, any Hydrocarbons that such Contractor produces within the Contract Area and does not consume in the Petroleum Operations. Such right refers to the activities engaged by the Contractor in Nicaragua between the Fiscalization Point and the point of export or point of first sale in Nicaragua of such Hydrocarbons. Activities in Nicaragua beyond such point of export or point of first sale are outside of the scope of this Contract and are governed by Law No. 277, Supply of Hydrocarbons, of February 6, 1998.
THREE (3). For the operations authorized under this Contract, the Contractor shall have the right to the following: 3.1 Free access to and from the Contract Area and to and from facilities and infrastructure within or outside of the Contract Area and to the use, without restriction, of the area required by the Contractor pursuant to Clause 27, of this Contract, and, 3.2 To use the following for its operations as authorized under this Contract: sand, alluvial material, select banks of materials and water belonging to the public domain by prior arrangement with the competent authorities and based on payment of the prevailing charges for such resources.
FOUR (4). The Contractor may not begin any Exploration operation in situ until it has complied with the requirement of preparing the Environmental Impact Study (EIA) in accordance with the Terms of Reference prepared by MARENA in coordination with the MEM and the Interdisciplinary and Inter-institutional Committee, as established by Decree seventy six dash two thousand six (No. 76-2006) published in La Gaceta number two hundred forty eight (248) , item b) of article fifty one (51) of Law Number two hundred eighty six (286), and has not submitted the Environmental Management Program. The Contractor must request the Environmental Form from MARENA which, within forty-five (45) days from the date or receipt of such request, will provide the Contractor with the Terms of Reference, pursuant to Article 51 of Law number two hundred eighty six (286) and Decree seventy six dash two thousand six (76-2006).. The Exploration Period and the first phase set forth in Clause 6.1 of this Contract will begin once the Contractor receives such Environmental Permit from MARENA. Once the Environmental Impact Assessment (“EIA”) has been submitted by Contractor, the Exploration Period contained in Clause 6.1 will be suspended until such time MARENA issues the Environmental Permit. The Contractor must obtain the Environmental Permit from MARENA prior to the commencement of on-site operations, pursuant to Article 51 (Fifty One) of the Law, the environmental regulations and the national and international technical and environmental norms.. In the event that MARENA does not issue the Environmental Permit within one hundred twenty (120) business days, to a maximum of two hundred forty (240) business days as of the date the Contractor submits its EIA pursuant to the Terms of Reference prepared by MARENA, the Contractor shall have an additional right to invoke Force Majeure at the end of the aforementioned period.
CLAUSE FOUR (4): RISK
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ONE (1). The Contractor assumes all risks, costs and responsibilities for the activities object of this Contract, as well as for obtaining the Environmental Permit required to carry out Petroleum Operations, and agrees to provide the capital, machinery, equipment, materials, personnel and technology necessary to comply with all of its obligations hereunder.
TWO (2). The State does not assume, under any circumstance, any risk or responsibility for the investments, nor for the exploration and exploitation operations to be performed, nor for any damages that may result from same, even when the act or deed may result from an action on the part of the Contractor that has been approved by MEM. Three (3) If there is no Commercial Discovery in the Contract Area or if production from the Contract Area is insufficient to cover the Contractor's cost of the Petroleum Operations, the Contractor shall bear and be solely responsible for such losses.
CLAUSE FIVE (5): CONTRACT AREA
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The Area awarded to INFINITY is defined as the “PERLAS PROSPECT” OFFSHORE CARIBBEAN, pursuant to Resolution No. zero, eight, dash, two thousand three (08-2003) published in La Gaceta Number one hundred (100) of May thirty (30) two thousand three (2003). The Are granted in this contract is in accordance with the laws in effect for the purpose of complying with article thirty three (33) of Law No. four four five (445) “Law of Community Property of the Indigenous People and Ethnic Communities of the Autonomous Regions of the Atlantic Coast of Nicaragua and the Rivers Bocay, Coco, Indio and Maiz., published in La Gaceta No. sixteen (16) of January twenty three (23) of two thousand three (2003) as follows: One (1). The Contract Area of the “Perlas Prospect” Offshore Caribbean, as of the Effective Date of this Contract, comprises an area of two hundred twenty six thousand seven hundred seventy four Hectares (226,774 Ha) equivalent to two thousand, two hundred sixty eight two square kilometers (2,268 km2) rectangular in shape, divided into blocks adjacent to each other, in accordance with the coordinates described in number three of this clause, located in the Nicaragua Offshore Caribbean Region, in the area denominated as “PERLAS PROSPECT”. Two (2). Except for the rights expressly set forth in the Contract, no right is granted to the Contractor with respect to the surface area, sea-bed, sub-soil or to any natural or aquatic resources. Three (3). The Concession Contract Area includes the following blocks with their respective identification within the Area Opening Map: AH-01: AH-02, AH-03, AH-04, AH-07, AH-08, AH-09, AH-14, AH-15, AH-21 and AH 27, corresponding to eleven (11) blocks defined by the following coordinates: Vertex 1: Latitude North 13° 00´ 00”, Longitude West 82° 54´ 00”, Vertex 2: 13° 00´ 00”, Longitude West 82° 20´ 00”, Vertex 3: Latitude North 13° 00´ 00”, Longitude West 82° 20´ 00”, Vertex 4: Latitude North 12° 50´ 00”, Longitude West 82° 30´ 00”; Vertex 5: Latitude North 12° 10´ 00”, Longitude West 82° 30´ 00”, Vertex 6: Latitude North 12° 10´ 00”, Longitude West 82° 32´ 00”, Vertex 7: Latitude North 12° 26´00”, Longitude West 82° 32´00”; Vertex 8: Latitude North 12° 26´00”, Longitude West 82° 34´00”, Vertex Nine: Latitude North 12° 30’ 00”, Longitude West 82° 34´00”; Vertex Ten: Latitude North 12° 30’ 00”, Longitude West 82° 36´00”; Vertex Eleven: Latitude North: 12° 34’ 00”, Longitude West 82° 36´00”; Vertex Twelve: Latitude North 12° 34’ 00”, Longitude West 82° 38´00”; Vertex Thirteen: Latitude North 12° 36’ 00”, Longitude West 82° 38´00”; Vertex Fourteen: Latitude North 12° 36’ 00”, Longitude West 82° 40´00”; Vertex Fifteen: Latitude North 12° 38’ 00”, Longitude West 82° 40´00”; Vertex Sixteen: Latitude North 12° 36’ 00”, Longitude West 82° 44´00”; Vertex Seventeen: Latitude North 12° 36’ 00”, Longitude West 82° 44´00”; Vertex Eighteen: Latitude North 12° 40’ 00”, Longitude West 82° 46´00”; Vertex Nineteen: Latitude North 12° 42’ 00”, Longitude West 82° 46´00”; Vertex Twenty: Latitude North 12° 42’ 00”, Longitude West 82° 52´00”; Vertex Twenty-One: Latitude North 12° 54’ 00”, Longitude West 82° 54´00”; Vertex Twenty-Two: Latitude North 12° 54’ 00”, Longitude West 82° 52´00”; Vertex One: Latitude North 13° 00’ 00”, Longitude West 82° 54´00”.
CLAUSE SIX (6) – CONTRACTUAL TERMS
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ONE (1) The exploration period shall be for six (6) Contractual Years (“Exploration Period”) as of the Effective Date, divided as follows: 1.1) A first sub-period of two (2) Contractual Years, divided into a one (1) year environment phase and a one (1) year operational phase. 1.2) A second optional sub-period of one (1) Contractual Year. 1.3) A third optional sub-period of one (1) Contractual Year. 1.4) A fourth optional sub-period of two (2) Contractual Years. The Contractor's right to enter the next sub-period is subject to the fulfillment of its obligations for the preceding sub-period.
TWO (2). The Contractor shall notify MEM of its decision to enter the next sub-period at least ninety (90) days prior to the expiration of the previous sub-period. Such notice shall be accompanied by the guarantee required by Clause 9 of this Contract covering the Minimum Exploration Program corresponding to such sub-period. If the Contractor decides not to enter the next sub-period, the Contract shall terminate at the end of the then current sub-period.
THREE (3). At the Contractor’s written request submitted to the MEM within a period of no more than thirty (30) days prior to the expiration of the Exploration Period set forth in number 1 of this Clause, the MEM may grant an extension of up to one (1) Contractual Year to the Exploration Period in order to enable the Contractor to complete (1) the drilling of a Wildcat Well in progress or (2) an appraisal program under the terms set forth in Clause 12, number 2, of this Contract, or any other study the Contractor may have requested. In any case, the decision of the MEM granting the requested extension must be pursuant to the provisions set forth in Articles 97 and 99 of Regulation.
FOUR (4). In the event of a Commercial Discovery, the term of the Exploitation Contract shall be of thirty (30) years from the Effective Date, plus the period relative to the Natural Gas Exploitation Area for any market development phase utilized in accordance with Clause 14, number 2 of this Contract associated with such Exploitation Area.
FIVE (5). If the commercial production of an Exploitation Area would be possible beyond the applicable term specified in the preceding Clause, the Contractor may request, through notice submitted to the MEM at least one year prior to the end of such term, to extend the duration of the Contract with respect to such Exploitation Area for up to an additional period of five (5) years under the terms and conditions mutually agreed between the MEM and the Contractor. Such terms and conditions must be established between the date of notice given by the Contractor and the effective date of such extension.
CLAUSE SEVEN (7): RELINQUISHMENT OF AREAS
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ONE (1). The Contractor must relinquish part of the Contract Area at the end of each sub-period of exploration as follows: For the First Sub-Period, at least 1.16% (one point sixteen percent) of the Contract Area, equivalent to two lots of 2 minutes x 2 minutes each, corresponding to an area measuring 2,666 (two thousand six hundred sixty six) hectares. For the Second Sub-Period, at least 2.33% (two point thirty three percent) of the Contract Area, equivalent to four lots of 2 minutes x 2 minutes each, corresponding to an area measuring 5,332 (five thousand three hundred thirty three) hectares. For the Third Sub-Period, at least 3.49% (three point forty nine percent) of the Contract Area, equivalent to six lots measuring 2 minutes x 2 minutes each, corresponding to an area measuring 7,998 (seven thousand nine hundred ninety eight) hectares.
TWO (2). At the end of the last sub-period, the Contractor shall relinquish all portions of the Contract Area, except (i) Exploitation Areas and (ii) Natural Gas discovery Area retained for a market development phase pursuant to Clause 14, number 1, of this Contract.
THREE (3) The Contract Area shall be reduced to the commercial fields under production and development, plus a surrounding area for technical security for each field that shall not exceed five (5) kilometers.
FOUR (4). The Contractor must relinquish the lots that have been the object of extension of the Exploration Period as set forth in Clause 6.3 of this Contract, at the end of the extension of the Exploration Period, except for the lots described in number 2 of this Clause.
FIVE (5). Unless the Contract is terminated early, the Contractor shall inform the MEM of the number of lots that will be relinquished not more than thirty (30) days prior to the deadline for the relinquishment set forth in this Clause, under number 1, items 1.1),1.2), 1.3) and number 2.
SIX (6). The lots designated for relinquishment pursuant to number 4 of this Clause shall consist, as much as possible, of groups comprising an area of sufficient size and shape to enable Petroleum Operations to be conducted by third parties. Within a group, the lots must be contiguous and joined by at least two sides. No group shall be less than twenty (20%) percent of the total area being relinquished at such time.
SEVEN (7). At the request of the Ministry of Energy and Mines, the Contractor shall waive its rights to conduct Petroleum Operations in the lots corresponding to an Exploitation Area where, for reasons other than force majeure or scheduled maintenance, as approved in the Contractor’s Work Program, production of such Exploitation Area has ceased for more than one hundred eighty (180) consecutive days for oil and three hundred sixty five (365) days for gas.
EIGHT (8). No relinquishment shall relieve the Contractor of accumulated or unfulfilled obligations under the Contract.
NINE (9). Prior to the surrender or relinquishment of any area, the Contractor shall perform all necessary clean-up activities to reasonably restore such area as much as possible to its condition on the Effective Date, including the removal of the facilities that were built and used for the Contractor’s Petroleum Operations and its equipment, following the instructions provided by the Ministry of Energy and Mines, and shall take all other action necessary to prevent hazards to human life, property and the environment. Upon the Ministry of Energy and Mine’s acceptance of such relinquishment, the MEM will issue the respective final discharge to the Contractor.
CLAUSE EIGHT (8): OBLIGATIONS DERIVING FROM THE MINIMUM EXPLORATION PROGRAM
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ONE (1). The Contractor shall commence the Minimum Exploration Program (PME) activities, attached hereto as an “Annex”, which is an integral part of this Contract and is within this same clause, within ninety (90) days after receiving the Environmental Permit issued by MARENA. Such Exploration Operations shall be diligently carried out for the duration of the Exploration Period.
TWO (2). During the first sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
THREE (3). .During the second sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
FOUR (4). During the third sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
FIVE (5). During the fourth sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
SIX (6). For purposes of compliance with the PME under numbers 2 through 4 of this Clause, the following is taken under consideration: 6.1 The obligations related to the second, third and fourth sub-period of the PME will accrue only if the Contractor opts to enter the following sub-period and continues to hold areas of exploration operations in the Contract Area. 6.2 Each Wildcat well shall be drilled to a minimum depth of at least three thousand five hundred (3,500) meters or a depth that intercepts the Cretaceous era, whichever is less. 6.3 Additional seismic surveys and Wildcat wells beyond the minimum required for any sub-period of the PME that could be carried out to satisfy the respective seismic survey and drilling obligations of a subsequent sub-period of the PME. 6.4 The prevailing PME obligation is the performance of the specified work with the estimated cost being used solely for establishing the guarantees of performance and the applicable non-performance penalties. Below is the transcription of the annex relative to the Minimum Exploratory Program for the Area of Perlas, which says: “PME Annex of the Perlas Area – INFINITY RESOURCES INC. (INFINITY ENERGY RESOURCES INC.). The duration of the first sub-period is of two (2) years which will be divided in two phases: First Phase: The Contractor must prepare the Environmental Impact Study (EIA). Second Phase: a) Purchase, evaluation and interpretation of three hundred thirty three kilometers (333 km) of new 2 D seismic or the option to perform this seismic survey in 3D; and b) Acquisition of six hundred sixty seven kilometers of 2D seismic or the option to perform this seismic survey in 3D. During the second sub-period of the Exploration Period, which is of one (1) year, the Contractor must carry out the processing and interpretation of two hundred kilometers (200 km) of new 2D seismic or the option to perform this seismic survey in 3D. During the third sub-period, which is of one (1) year, the Contractor must drill one (1) wildcat with sufficient depth to drill the Cretaceous era or three thousand five hundred meters (3.500m), whichever is the lesser of the two. During the fourth sub-period, which is of two (2) years, the Contractor must perform the following: a) The drilling of one (1) Wildcat with sufficient depth to drill the Cretaceous Era or three thousand five hundred meters (3.500 m) whichever is the lesser of the two (2); and b) A geochemical analysis of the petroleum.“
CLAUSE NINE (9): GUARANTEES
. ONE (1). Within fifteen (15) days following the Effective Date of the Contract and submittal of each of the notices mentioned in CLAUSE 6, number 2, of this Contract to enter the following Exploration sub-period, the Contractor shall provide an irrevocable guarantee in favor of the Ministry of Energy and Mines, which must be irrevocable, payable in Nicaragua at the request of the Ministry of Energy and Mines, issued by a guarantor financially acceptable to the Ministry of Energy and Mines, for an amount equal to the estimated cost, specified in number 2 of this Clause, to carry out the Minimum Exploration Work for such sub-period, with an accumulated credit carried forward pursuant to Clause 8, sub-Clause 6.3, for the excess work performed in the preceding sub-period. Such guarantee shall be in the form and fund acceptable to the Ministry of Energy and Mines and may not be the object of compensation with any other obligation.
TWO (2). The respective amounts of such guarantees will be: For the first sub-period of the Exploration Period, four hundred forty three thousand one hundred United States Dollars (US$443,100.00). For the second sub-period of the Exploration Period, one million thee hundred fifty six thousand two hundred twenty seven United States Dollars (US$1,356,227.00). For the third sub-period of the Exploration Period, ten million two hundred twenty thousand one hundred sixty eight (US10,220,168.00). For the fourth sub-period of the Exploration Period, ten million three hundred ninety seven thousand three hundred thirty five United States Dollars (US$10,397,335.00).
THREE (3). These guarantees will be granted within the first fifteen (15) days as of the Effective Date of the Contract for the first sub-period and for the following sub-periods within the first fifteen (15) days of the date of request for continuation.
FOUR (4). The relevant guarantee shall be reduced in accordance with the procedures established in Article 59 of the Regulation to the Law.
FIVE (5). If, at the end of any sub-period of the Exploration Period, or upon termination of the Contract, the Contractor has failed to perform all or any part of the accrued Minimum Exploration Program, the Contractor or its guarantor shall, upon request from the MEM immediately pay the entire amount of such outstanding work to be performed under the PME, except where the MEM and the Contractor agree that such pending obligations can be transferred to other Contract Areas.
SIX (6).Upon signature or subscription of the Contract, the Contractor will provide the MEM with a guarantee document issued by the parent company of each company comprising the Contractor, whereby the parent company will provide technical and financial resources that the subsidiary may require to meet the Contractor’s obligations in a timely manner under the Contract, including liability for any damages or losses that the operations herein may cause to the State, third parties or the environment pursuant to Article 26 of the Law.
CLAUSE TEN (10): CONTRACTOR’S OBLIGATIONS
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ONE (1).The Contractor shall maintain throughout the term of this Contract a legal representative domiciled in Nicaragua, who shall have full authority to represent the Contractor with respect to legal matters related to the Contract and to receive notices addressed to the Contractor.
TWO (2). Within ninety (90) days following the Effective Date, the Contractor shall establish an office in Managua.
THREE (3). The Contractor shall conduct all operations hereunder in a diligent and professional manner, in accordance with applicable law, and the provisions set forth in this Contract, and the International Petroleum Industry practices and regulations in effect and the environmental standards applicable under similar circumstances. The Contractor shall ensure that all materials, equipment, technologies and facilities used for the operations described below comply with generally accepted engineering and environmental standards in the international Petroleum industry, and are kept in good working order. The Contractor shall carry out its operations in a manner that will maximize the optimum economic recovery in the Contract Area.
FOUR (4). The Contractor shall provide the MEM with regular and complete information concerning all operations under this Contract, including the schedule for execution of specific work.
FIVE (5). The Contractor shall prepare and maintain in Nicaragua accurate and current records of its operations under the Contract throughout the term of the Contract.
SIX (6). The Contractor shall keep the MEM continuously informed regarding all operations under this Contract and shall deliver to the MEM, without cost, in the form and frequency prescribed by the MEM, all materials, samples, studies, information, documents and data, unprocessed, processed, and interpreted that is obtained by the Contractor, including pertinent financial information. Furthermore, the Contractor must inform the MEM of the results of other activities from the exploration and development activities of the hydrocarbon resources investigated. The delivery requirement is extended to all information, data and work product of whatever nature for which the cost is entered by the Contractor as Petroleum Operation cost. The Contractor shall keep all technical-economic data related to its activities hereunder at the office in Managua.
SEVEN (7). The Contractor shall enable authorized representatives of the State to inspect any part of its operations and all facilities, installations, offices, records, books, or data related to operations under this Contract. The authorized State representatives will bear any costs related to all such inspections.
EIGHT (8). The Contractor shall provide facilities to a reasonable number of authorized personnel and representatives of the MEM or other Government agencies, to perform their duties and obligations associated with this Contract, including, in the case of field operations, transportation, lodging, food and other provisions similar to those provided by the Contractor to its own personnel.
NINE (9). The Contractor shall bear responsibility, in accordance with the applicable law, for any loss or damage to third parties caused by its employees or sub-contractors or their employees related with the activities under this Contract, for wrongful or negligent acts contrary to the Law, or omissions, and will indemnify the proper party against any third-party’s claim.
TEN (10). The Contractor expressly waives diplomatic claims and submits to the jurisdiction of Nicaraguan courts. Without prejudice to the foregoing, the State and the Contractor hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID in accordance with Clause Thirty One (31) of this Contract.
ELEVEN (11). In performing their activities, the Contractor and Subcontractor must comply with the national and international environmental protection laws and the technical security norms, and apply the international recommended practice for each case. Such activities shall be performed in a manner compatible with the protection of human life, property, conservation of Hydrocarbons, and other resources, avoiding as much as possible damage to the infrastructure, historical sites and ecosystems of the country, whether land or marine.
TWELVE (12). Prior to the beginning of the PME, the Contractor must submit to the MARENA the Environmental Impact Study (EIA), based on the Terms of Reference (ToR) as defined by MARENA and the MEM. In addition, the Contractor must submit the Environmental Protection Plans and Contingency Plans that must be updated at least once a year and/or whenever the MEM so requests. Through these Plans, the Contractor must: 12.1. ensure the security areas around all machinery and equipment; 12.2. provide secure storage areas for all explosives, detonators, and similar dangerous materials used in operations under this Contract; 12.3. prevent pollution or damage to any water and other Natural Resources;12.4. contain any blowout, fire or other emergency situation that would result in loss of reserves or damage to the reservoir; 12.5. prevent unintentional entrance of fluids into hydrocarbon bearing formations and the production of Hydrocarbons from reservoirs at higher rates than those consistent with the international petroleum industry practices and regulations in effect; 12.6. take all reasonable precautions to prevent the pollution of or damage to the environment, including the undertaking of remedial measures within a reasonable period of time to repair or offset damage to the environment in cases where any work or installations erected by the Contractor or any operations conducted by or on behalf of the Contractor endanger third party property or cause pollution or harm to the wildlife or the environment, including where pollution occurs rapidly, in order to treat or disperse it in an environmentally acceptable manner; 12.7.report to the MEM and other entities, pursuant to the laws in effect, if any worker is injured while performing duties associated with the operations under this Contract; 12.8. have an adequate supply of first-aid medicines and equipment in each area and maintain a healthy environment for the workers; 12.9.provide safety and fire-fighting equipment in each work area; and 12.10 prepare and submit to MEM for approval prior to commencing any drilling activities, an oil spill and fire contingency plan, which plan shall be implemented in the event of such a catastrophe.
THIRTEEN (13). In case of an accident or emergency involving damage to persons or property, the Contractor must immediately inform the MEM of such event and take reasonable steps, including temporary suspension of the operations, to protect the safety of individuals and property.
FOURTEEN (14). A Regulation and Monitoring Committee will be formed, consisting of employees of MEM, MARENA and other State institutions associated with these activities, two qualified members of each Regional Council of the Caribbean Coast and two of the Contractor’s employees. The Committee shall meet at least twice (2) a year unless otherwise agreed by the parties. The meetings will take place in the city of Managua or in the field where the Contractor’s exploration and exploitation activities are performed. It is understood that the meetings to be held in the city of Managua may be open, that is, other MEM and MARENA members may be invited to participate in such meetings, whenever such nominated parties are directly involved in the exploration and exploitation activities in the Contract Area. With respect to the meetings to be held in the field, it is hereby understood that the number of MEM and MARENA participants is to be agreed between the MEM and the Contractor for budget and safety reasons; the criteria for participation in such meetings will be based on the activities carried out in the field. Each party shall bear its own costs of the representatives attending the meetings.
FIFTEEN (15). The MEM will have the opportunity to attend, as an observer, without the right to speak or vote, the Contractor’s annual shareholders meetings where investment and important decisions will be made regarding the Minimum Exploration Program (PME) and the project of the Contractor in Nicaragua. The MEM commits to keep the information gathered at the meetings confidential and will assume all costs incurred to attend such meetings.
SIXTEEN (16). The Contractor will submit to the MEM, on a yearly basis, a proposal for qualification and training of the MEM personnel in relation to the PME and the contract in general, for which a minimum annual budget of US$50,000 (fifty thousand United States Dollars) will be submitted by the Contractor. Qualification and training may include the purchase of books, software, hardware and any other supplement item needed. The types of qualification and training for the MEM personnel will be on site whenever referring to seismic operations and wildcat drilling. Furthermore, within the annual budget, the Contractor will offer at least two (2) annual seminars in Managua in connection with the PME and will also offer, on a yearly basis, participation in international seminars and conferences emphasizing the exploration and production of Hydrocarbons. In addition, the MEM may include topics of qualification and training of its interest, which must correspond to the budget in this clause and be mutually agreed upon with the Contractor.
CLAUSE ELEVEN (11) ASSISTANCE BY THE MINISTRY OF ENERGY AND MINES
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ONE (1). To enable the Contractor to fulfill the Contract in an expeditious and efficient manner, the MEM shall assist the Contractor, whenever specifically requested by the latter, in the following matters:1.1 obtaining the right to use the land as may be required for the operations under the Contract;1.2 obtaining licenses or permits for transportation and communication facilities;1.3 complying with customs formalities and regulations, and import/export control;1.4 obtaining entry and exit visas for the Contractor’s and Sub-Contractor’s foreign personnel that will come to Nicaragua to perform the Contract, including family members.
TWO (2). All reasonable expenses incurred associated with the assistance provided by MEM in accordance with this Clause, shall be reimbursed by the Contractor within thirty (30) days after receipt of the corresponding invoice.
CLAUSE TWELVE (12): DISCOVERY AND COMMERCIALIZATION
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ONE (1). If Hydrocarbons are encountered in a Wildcat well, the Contractor shall immediately notify the MEM of such discovery and within thirty (30) days thereafter; the Contractor shall also provide the MEM all available information regarding the discovery, including a preliminary classification of the discovery as (1) Liquid Hydrocarbons or (2) Natural Gas.
TWO (2). The Contractor shall notify the MEM in writing within one hundred eighty (180) days if the discovery of Liquid Hydrocarbons has commercial potential, based on the Appraisal Program described in this Clause, which will be deemed approved if no objections are submitted in writing by the MEM within thirty (30) days following receipt of such notice. The Appraisal Program shall: specify the appraisal work in a reasonably detailed form, including seismic, drilling of wells, production tests, and studies to be carried out and the time frame within which the Contractor shall commence and complete the program; and identify the lots to be appraised ("Appraisal Area") which shall not exceed the lots encompassing the geological structure or prospect plus a buffer area not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
THREE (3). If the Contractor notifies that a discovery of Natural Gas has commercial potential, the Contractor shall, within ninety (90) days after the notice, present to MEM a plan for assessing the discovery in sufficient detail for approval, to be able to seek a market for the Natural Gas ("Assessment Plan"). The Contractor must notify the MEM in writing within one hundred and eighty (180) days if the discovery of Natural Gas has commercial potential, based on the Assessment Plan. The Assessment Plan shall be deemed approved if no written objections are raised by MEM within thirty (30) days after receipt thereof. As soon as the Contractor develops a market for such Natural Gas, but in any event pursuant to the terms of the Contract, including any market development phase, under Clause 14, number 2 of this Contract, the Contractor shall conduct an Appraisal Program as set forth in number 1 of this Clause.
FOUR (4). If the Contractor notifies MEM, pursuant to number 1 of this Clause, of a discovery that the Contractor deems to have no commercial potential or if the Contractor fails to present an Evaluation Program, pursuant to number 2 of this Clause, or an Assessment Plan, pursuant to number 3 of this Clause, the Contractor, upon MEM’s request, must surrender at any moment the area that contains at least the blocks encompassing the geological structure or prospect where the discovery was made.
FIVE (5). The Contractor shall carry out the approved Appraisal Program within the timeframe specified therein. Within one hundred eighty (180) days after completion of such Appraisal Program, the Contractor shall submit to MEM a comprehensive appraisal report concerning the Appraisal Program. Such appraisal report shall include, but will not be limited to the following information: geological conditions, such a structural configuration; physical properties and extent of reservoir rocks; pressure, volume and temperature analysis of the reservoir fluids; fluid characteristics, including the gravity of the Liquid Hydrocarbons, sulfur percentage, sediment and water percentage, and product yield pattern; Natural Gas composition; results of production tests; production forecasts (per well and per field); and estimates of recoverable reserves.
SIX (6). With the submission of the appraisal report, the Contractor shall submit a written declaration to the MEM indicating one of the following: that it has determined that the discovery is a Commercial Discovery; or that it has determined that the discovery is not a Commercial Discovery, in which case the Contractor must relinquish the respective Appraisal Area immediately; or that it has determined that the discovery is a significant discovery which may become a Commercial Discovery subject to the outcome of future work that the Contractor commits to carry out under a future Exploration or Appraisal Program in specific areas within or outside the Appraisal Area.
SEVEN (7). In the event the Contractor makes a declaration pursuant to number 6.3 of this Clause, the Contractor shall be entitled to retain an Appraisal Area subject to its completion within the Exploration Period of future work committed pursuant to the provision set forth in number 6.3, at which time the Contractor shall notify the MEM about its decision with respect to the discovery, as to whether or not it is a Commercial Discovery, and the provisions set forth in number 6.1 or 6.2 of this Clause will apply accordingly.
EIGHT (8). If the Contractor declares, pursuant to number 6.1 of this Clause, that a discovery is a Commercial Discovery, the Contractor shall submit, together with the appraisal report (1) a Development Plan proposal including all installations and facilities for the operations under this Contract, (2) a proposal of designation of the lots that comprise the Exploitation Area, and (3) a comprehensive environmental impact study including the Development proposal and any facilities or infrastructure inside or outside of the Contractual Area and up to and beyond the Fiscalization Point. All three items shall be subject to MEM’s approval which will not be unreasonably withheld, and shall be deemed approved if the MEM does not submit any objections to it, in writing, within sixty (60) days from its receipt. In the event the MEM and the Contractor are unable to reach an agreement concerning the objections raised or changes proposed by the MEM within ninety (90) days following the date of notice to the MEM expressing such objections or proposed changes, the Contractor shall have the right to request that the matter in dispute be resolved through experts, in which case the decision of the expert, regardless of the case, will involve both the MEM and the Contractor. Following the approval of the documents submitted by the Contractor in accordance with items (1), (2) and (3) mentioned above, the Contractor will proceed, promptly and diligently, in accordance with the good international petroleum industry practices, to develop the discovery, installing all the infrastructure described in the Development Program in order to start up the commercial production and produce the discovery in such manner as to reach the maximum economic recovery of the reserves.
NINE (9). The Contractor's proposed Development Plan under the preceding item will detail the Contractor’s proposals for the development and operation of the Exploitation Area, shall include all the information required under Article 111 of the Regulation and will specify the Fiscalization Point it proposes. Furthermore, it shall identify any facility and infrastructure required outside the Contract Area, specifying those that are located before the Fiscalization Point and those that fall within the category authorized by Clause 3 number 2 of this Contract. The Development Plan will detail the parameters of production, number and distance between the wells; the facilities and infrastructure (including the proposed locations) to be installed for production; storage, transportation and loading of Hydrocarbons and a time estimate to conclude each phase of the Development Program, a production forecast and an estimate of ongoing capital and operating expenses involved to achieve the production forecast, as well as any other factor that might affect the economic or technical feasibility of the proposed development, and any such other particulars as the MEM may request.
CLAUSE THIRTEEN (13): EXPLOITATION WORK PROGRAMS
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ONE (1). Commencing with the Calendar Year in which the first Development Plan for the Contract Area is approved, the Contractor shall prepare and submit to the MEM for approval, in such format as the MEM may require, an Exploitation Work Program specifying by Calendar Quarter all aspects of the proposed operations to be carried out in relation to each Exploitation Area and related facilities and infrastructure up to the Fiscalization Point, the estimated cost thereof, the duration and location of each operation, and, where applicable, the estimated monthly rate of production for each field. Each such proposed Work Program shall also include a forecast of yearly Development and Production activities and costs resulting from the four (4) Calendar Years or the corresponding period up to the end of the term of the Contract, whichever is shorter.
TWO (2). The first such Exploitation Work Program, covering the balance of the Calendar Year, in which the Development Plan is approved, shall be submitted within thirty (30) days following the date of approval of such Development Plan. Thereafter, the Contractor shall submit its proposed annual Exploitation Work Program at least ninety (90) days before the beginning of the relevant Calendar Year.
THREE (3). The Contractor’s Exploitation Work Program proposed and submitted to the MEM shall be deemed approved if the MEM does not raise any objections thereto following the sixty (60) days from the date of receipt.
FOUR (4). If MEM objects to any part of the Contractor's proposal, the MEM shall notify the Contractor within the sixty (60) day period specified in the preceding item number. The notice from the MEM shall specify the suggested modifications. If the Contractor deems that any revision required by the MEM renders the Exploitation Work Program unacceptable to the Contractor, the Contractor shall notify and substantiate to MEM, within ten (10) days after receipt of such notice, the reasons for its decision. Following receipt of the justification from the Contractor, the Parties shall meet for the purpose of resolving any differences. If they are unable to reach a resolution to such differences by the beginning of the Calendar Year in which the Exploitation Work Program is to begin, the Contractor shall incorporate the modifications required by the MEM in the proposed Exploitation Work Program pursuant to Clause 13, number 2, of this Contract, to the extent such changes do not increase or reduce the budget proposed by the Contractor by more than ten (10) per cent and do not substantially alter the general objectives of the Work Program as submitted by the Contractor. With regard to the levels of production, MEM may require the Contractor to modify the proposed rate of production for any Exploitation Area in which more than fifty per cent (50%) of the production on an energy equivalent basis is Liquid Hydrocarbons for any of the following reasons: 4.1 to optimize overall recovery of Hydrocarbons, 4.2 to minimize waste of Natural Gas, 4.3 for safety reasons, and 4.4 for operational reasons.
FIVE (5). The Contractor shall deliver to MEM within ten (10) days following each Calendar Quarter a status report concerning the progress of the operations carried out and the costs incurred under the approved Exploitation Work Program during such Calendar Quarter. The status report shall forecast any significant changes to such Exploitation Work Program that Contractor anticipates may be necessary during the balance of the Calendar Year. The report corresponding to the last Quarter of each Calendar Year shall also include a summary of the operations and costs incurred during such Year.
CLAUSE FOURTEEN (14) NATURAL GAS
ONE (1). Upon completion of an Assessment Program agreed with MEM under Clause 12, number 3 of this Contract, the Contractor shall notify the MEM whether or not it wishes to retain the Natural Gas discovery for a market development phase. If the Contractor requests a market development phase for such discovery, the Contractor shall notify the MEM within the following thirty (30) days, of the selection of the lots within the Contract Area that will be subject to such phase. The selected area shall not exceed the lots encompassing the geological structure or prospect where the discovery was made, as well as the lots containing a reasonable margin not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
TWO (2). The duration of such market development phase shall not exceed ten (10) years from the date of the Contractor's notice mentioned in the preceding sub-clause, whereby the Contractor decides to enter into the market development phase. The market development phase shall end upon the occurrence of the first of the following events: 2.1 the date on which the Contractor declares the Natural Gas discovery to be a Commercial Discovery, 2.2 the date on which the Contractor voluntarily abandons the market development area or 2.3 the end of the market development phase.
THREE (3). The Contractor shall lose all its rights over a Natural Gas discovery if it does not declare such discovery as being a Commercial Discovery at the end of the market development phase or if it relinquishes the lots corresponding to the market development areas or terminates the Contract early.
FOUR (4). For availing itself of such market development phase, the Contractor shall pay the MEM at the end of each Calendar Year of the market development phase an annual tenancy fee of one hundred thousand (US$100,000.00) United States dollars, which will be reduced by duly verified amounts that the Contractor has expended during such year under specific programs approved by the MEM on activities or projects directly attributable to the market development area. Expenditures for the following types of activities will be eligible as credits against the tenancy fee: 4.1 future geochemical, geophysical or geological surveys in the market development area; 4.2 the drilling and testing of any additional wells in the market development area; 4.3 consulting, feasibility and marketing studies; and 4.4 other market development activities approved by the MEM. Excess amounts expended in a particular year with respect to the tenancy fee, may be entered as a credit against the next year's tenancy fee.
FIVE (5). The tenancy fee shall be applied pro rata on a daily basis in the event the Contractor relinquishes the market development area or declares the Natural Gas discovery to be a Commercial Discovery prior to such year, payable within thirty (30) days following such relinquishment or declaration of Commercial Discovery, as the case may be.
SIX (6). Together with the notice requesting to enter into the market development phase, the Contractor shall provide the MEM the results of the Assessment Program carried out pursuant to Clause 12, number 3 of this Contract including the estimated recoverable reserves, projected delivery rate and pressure, quality specifications and any other relevant technical and economic factors.
SEVEN (7). All the available Natural Gas existing in such market development area, shall be considered from the beginning as freely available by the Contractor to any market or markets, including exportation, as arranged by the Contractor, in a gaseous or transformed phase, or a combination of such phases.
EIGHT (8). The Contractor shall notify the MEM concerning the sales contract or contracts for Natural Gas, as well as any exportation arrangements. In such notice, the Contractor must demonstrate that the price of Natural Gas at the Fiscalization Point is representative of the fair market price, having taken into consideration a fair market price for transporting the Natural Gas from the Fiscalization Point to the consumer and, whenever applicable, for liquefaction and re-gasification costs.
NINE (9). The Contractor shall give priority to the Petroleum Operations of Associated Natural Gas, including reinjection for maintaining pressure and recycling operations in order to obtain maximum economic recovery of Liquid Hydrocarbons.
TEN (10). The MEM may, at any time, call upon the Contractor to deliver to it or to any MEM designated third party at the proper delivery point, without compensation, any quantity of Associated Natural Gas not being required for the Contractor's Petroleum Operations or committed for sale, in the event the MEM requires the associated natural gas, the MEM will take such associated natural gas in a manner as agreed between the parties, to be used for public interest, whenever such delivery does not negatively interfere with the Contractor's Petroleum Operations or add to the cost of Contractor’s Petroleum Operations. In such case, the MEM shall provide and maintain, for its own account, any facility beyond the delivery point required in connection with the gathering, compression, transport, or utilization of such Associated Natural Gas.
ELEVEN (11). Under no circumstance may the Contractor release Natural Gas into the atmosphere.
TWELVE (12). Whenever the Contractor does not require the Natural Gas for the Petroleum Operations, cannot sell it or the MEM does not elect to take it pursuant to number 10, of this Clause, the Contractor shall endeavor to reinject the gas into a suitable stratum or, as a second option, store it underground in accordance with the international petroleum industry practices and regulations in effect. The Contractor shall seek to obtain prior approval from the MEM and MARENA to flare any Natural Gas that cannot be reinjected due to specific reservoir considerations or for other reasons, including economic reasons, acceptable to the international Petroleum industry and in line with good oil field practices. Before flaring the gas, the Contractor shall take reasonable measures to ensure the extraction of natural gasoline and other liquids contained in the Associated Natural Gas if the Contractor deems that such extraction is economically justifiable. Notwithstanding anything in this Clause to the contrary, the Associated Natural Gas may be flared at any time if necessary in order to run well and/or production tests and on an emergency.
CLAUSE FIFTEEN (15): FINANCES AND AUDITING
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ONE (1). Notwithstanding the books required by the Commercial Code of Nicaragua, the Contractor shall maintain in Nicaragua, in accordance with the generally accepted accounting practices used in the international petroleum industry, accounting books and such other books and records as may be necessary to show the work performed under the Contract, as well as the costs incurred, and the quantity and value of all Hydrocarbons inspected at the Fiscalization Point.
TWO (2). The Contractor shall prepare, for each Calendar Year, separate balance sheets and profit and loss statements reflecting its operations under the Contract 1) up to the Fiscalization Point and 2) beyond the Fiscalization Point. The accounting procedures, rules and practices applied for determining revenue and expenses shall be consistent with sound and usual international petroleum industry practices. Each such balance sheet and profit and loss statement shall be certified by an independent firm of certified public accountants of international standing acceptable to MEM and the MHCP. Such balance sheet and loss and profit statements must be submitted, along with the auditor's report, to MEM and the MHCP within ninety (90) days after the end of the Calendar Year to which it belongs.
THREE (3). The MEM has the right to inspect and audit the Contractor's books, accounts and records relating to the operations under this Contract for the purpose of verifying the Contractor's compliance with the terms and conditions herein. Such books, accounts and records shall also be available at any reasonable time for inspection and audit by duly authorized representatives of the MEM and the MHCP, including independent auditors that may be employed by them, for fiscal audits. The MEM and the MHCP may conduct their audits within two (2) years after the end of each Calendar Year. Any exception by MEM or the MHCP must be communicated to the Contractor within the earlier of 1) twelve (12) months after the commencement of the specific authorized audit or 2) two (2) years after the end of the Calendar Year under audit, provided, however, that if information is required under the Clause number below, the period for filing exceptions shall commence upon receipt by the Government authority that requested the audit of such requested information from the parent company's independent auditors.
FOUR (4). The MEM and the MHCP may require the Contractor to engage Contractor’s parent company’s auditors to examine at Contractor’s cost and in accordance with generally accepted auditing standards, the books and records of Contractor’s Affiliate to verify the accuracy and compliance with the terms of the Contract insofar as a charge from the Contractor’s Affiliate (or of any entity comprising the Contractor) is included directly or through the Contractor as a) a Petroleum Operations cost or b) a part of a tariff for infrastructure beyond the Fiscalization Point. The request from the Governmental authority shall specify in writing the item or items for which it requires verification from such independent audit. A copy of the independent auditor’s findings shall be delivered to the Government authority that requested such verification within thirty (30) days after the completion of such audit.
FIVE (5). The Contractor's books for its operations under this Contract shall be kept on the accrual basis in United States dollars. Accounts reflecting operations up to the Fiscalization Point shall be set apart from those reflecting operations beyond the Fiscalization Point. Such accounting books shall be in the Spanish and English languages and shall comply with internationally accepted accounting principles consistent with modern petroleum industry practices and procedures and the provisions set forth in the Contract. All U.S. dollar income shall be entered in the amount received and all U.S. dollar expenditures shall be charged in the amount expended. Income received or expenditures made in foreign exchange other than U.S. dollars shall be entered or charged at the applicable rate of exchange for U.S. dollars pursuant to the rate of exchange posted by the Central Bank of Nicaragua on the last business day of the week in which such income is received or expenditure made. All expenditures in local currency shall be converted to U.S. dollars at the documented cost of the national currency purchased by the Contractor with foreign currency. All income in local currency and costs paid with such national currency shall be converted to U.S. dollars at the rate of exchange for commercial transactions quoted by the Central Bank of Nicaragua in effect on the business day when the national currency was received by the Contractor.
SIX (6). The Parties agree to use the depreciation method pursuant to the principles established in Law 453 (four hundred fifty three), the Law of Fiscal Equity and its modifications and Decree No. 46-2003 (Forty Six dash Two Thousand Three), Regulation of the Fiscal Equity Law, that are hereby incorporated to this Contract.
SEVEN (7). The Contractor will be subject to payment of Income Tax at the rate of 30%, applicable to the net income originating from its exploitation activities. This rate is the maximum rate and shall apply throughout the term of this Contract, pursuant to Clause 64 of the Law and the principles prescribed by Law No. 453 (four hundred fifty three), the Law of Fiscal Equity, that are incorporated to the Contract through this provision.
CLAUSE SIXTEEN (16): PRODUCTION, MEASUREMENTS AND RIGHTS OF EXPORT
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ONE (1). The Contractor shall have the right to use, free of charge, the Hydrocarbons produced within the Contract Area to the extent reasonably required for the Petroleum Operations pursuant to this Contract. The Contractor must purchase, at market value, the Hydrocarbons from the Contract Area it uses for its operations beyond the Fiscalization Point.
TWO (2). All the Liquid Hydrocarbons and/or Natural Gas produced and reserved from the Contract Area and not used in the Petroleum Operations shall be measured at the applicable Fiscalization Point(s) approved in the Development Plan. Such measurements and measuring devices shall comply with Chapter XII of the Regulation and the international petroleum industry practices and regulations in effect. Production tests or experiments shall also belong to the Contractor and no royalty shall be paid for such production. The market value of such production tests or experiments at the point of production shall be entered as income to the Contractor. Even though the Contractor is authorized to receive all the Hydrocarbons produced within the Contract Area, for purposes of any calculations hereunder involving volumes of production, the volume measured at the Fiscalization Point shall govern.
THREE (3). Subject only to Clause 14, number 7, and Clause 17 of this Contract, the Contractor may freely export any Hydrocarbons that it produces within the Contract Area and that it does not use in the Petroleum Operations.
CLAUSE SEVENTEEN (17): SUPPLY TO THE INTERNAL MARKET
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ONE (1). Whenever so requested by the MEM, the Contractor shall supply Liquid Hydrocarbons from the Contract Area to meet the internal market requirements of Nicaragua.
TWO (2). Such request from the MEM shall be in writing and shall be given no less than sixty (60) days before commencement of deliveries by Contractor. The request shall indicate the volume of the Contractor's Liquid Hydrocarbons required, based on estimates and forecasts, and the duration of the desired supply.
THREE (3). The maximum volume that the MEM may require the Contractor to supply, pursuant to this Clause, shall be determined by multiplying the total estimated volume of Liquid Hydrocarbons needed to meet the internal market demand during the first corresponding Calendar Quarter by a fraction which numerator will be the Contractor’s Liquid Hydrocarbons inspected and estimated within the Contract Area for such Calendar Quarter and which denominator will be the total estimated Liquid Hydrocarbons to which the MEM is entitled and all the products in Nicaragua for such period.
FOUR (4). Delivery of the Liquid Hydrocarbons supplied shall be at the Fiscalization Point or another Point agreed between the Contractor and the MEM. The Liquid Hydrocarbons supplied may be refined in Nicaragua.
FIVE (5). The price to be paid to the Contractor for such Liquid Hydrocarbons shall be the export market value at the Fiscalization Point determined in accordance with Clause 18 of this Contract, satisfactorily adjusted to reflect the cost of transport if the agreed delivery point is not the Fiscalization Point.
SIX (6). Payment for the Liquid Hydrocarbons supplied shall be in U.S. dollars to a bank account outside Nicaragua, as specified by the Contractor.
SEVEN (7). The MEM and the Contractor may enter into a Liquid Hydrocarbons sales contract covering the duration of the desired purchases. The MEM may assign its rights as purchaser to one or more local or regional refineries subject to the assignee's providing the Contractor, at the time of each delivery, with an irrevocable letter of credit acceptable to the Contractor covering the corresponding purchase. The Contractor has the right to cease deliveries under any sales contract if it does not receive timely payment for each delivery.
CLAUSE EIGHTEEN (18) VALUATION
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ONE (1). The value of Liquid Hydrocarbons within the Contract Area shall be the competitive international market value of such Liquid Hydrocarbons at the Fiscalization Point.
TWO (2). The competitive international market value of the Liquid Hydrocarbons, other than natural gasoline, shall be the price in United States dollars at which an independent third party buyer would be prepared to buy such Liquid Hydrocarbons at a particular time at the Fiscalization Point, on independent basis, taking into account the quality, volume, cost of transportation, payment terms, and any other relevant condition, including the then prevailing world market conditions.
THREE (3). Whenever different grades of Liquid Hydrocarbons are produced within the Contract Area, the value shall be determined and applied for each grade of Liquid Hydrocarbons. However, in the event that different grades of Liquid Hydrocarbons are blended together for sale, the value of such blend shall be determined by the grade that determines the applicable price in the international market.
FOUR (4). The value of Liquid Hydrocarbons, other than natural gasoline, shall be determined in United States dollars per barrel for each Calendar Month as follows: 4.1 The Contractor shall present to the MEM its proposal as to the value of the particular Liquid Hydrocarbons for the preceding Month, within the first ten (10) business days of the current month during which the Liquid Hydrocarbons, other than natural gasoline, will be produced and measured from the Contract Area, such proposal shall be accompanied by information supporting the Contractor's proposal, including evidence of independent current prices, F.O.B. sales prices to third parties effected by the Contractor for Liquid Hydrocarbons within the Contract Area during such Calendar Month, as well as F.O.B. prices published from Liquid Hydrocarbons exportation prices comparable and applicable to that same period. Such value shall be netback price from the point of export or the first sale in Nicaragua to the Fiscalization Point applying the tariffs for transportation and storage beyond the Fiscalization Point approved by the MEM in accordance with the Law governing the supply of Hydrocarbons. 4.2 If the MEM accepts the value proposed by the Contractor set forth in the preceding clause number, or does not make any objections in writing within ten (10) business days after receipt of same, the value proposed by the Contractor shall be deemed the value for the Calendar Month for which the price is being determined. 4.3 If the MEM objects, in writing, to the Contractor's proposal within the prescribed period, the MEM shall include, together with such notice, a counter-proposal for the value, as well as information supporting the counter-proposal. 4.4 If the Contractor accepts the MEM's proposal or does not object to it in writing within ten (10) business days after receipt of same, the MEM's counter-proposal shall be the value for the Calendar Month for which the price is being determined. 4.5 If the Contractor objects in writing to the MEM's proposal within the prescribed period, the MEM and the Contractor’s authorized representatives shall meet within forty eight (48) hours after MEM's receipt of the Contractor's notice of objection in an endeavor to establish, through negotiation, the price to be used as the value for the Calendar Month for which the determination is being made. 4.6 If within fifteen (15) days after receipt of the Contractor's objection notice under item 4.5 of this Clause, a value has not been agreed upon through negotiation, such value shall be determined in accordance with number 5 of this Clause.
FIVE (5). The following procedure shall apply for determining the value of Liquid Hydrocarbons, other than natural gasoline, whenever the procedure under number 4 of this Clause does not result in timely agreement: 5.1 The value shall be determined on the basis of three internationally traded crude oil prices. The crude oils that qualify for inclusion in the price basket shall be those for which the market value or F.O.B. price is published in the Platt’s Oilgram. The price of crude oils will be from three different regions of the world, which physiochemical properties must be similar to those found in the Caribbean Margin. 5.2 The crude oils to be included in the price basket shall be proposed by the Contractor as part of the Development Plan under Clause 12, number 8 of this Contract for approval by the MEM. 5.3 In the event that one or more of the crude oils agreed upon do not meet the requirements of number 5.1 of this Clause, a replacement crude oil shall be determined by agreement between the MEM and the Contractor. 5.4 For each of the reference crude oils included in the price basket agreed upon, the equivalent C.I.F. value in Houston, Texas, U.S.A., shall be determined as follows: 5.4.1 the arithmetic average of the daily export price for the Calendar Month under consideration, plus the competitive and independent transportation costs from the point of export of the reference crude oils to Houston, Texas, U.S.A. 5.4.2 the quality differential between the reference crude oil and the Liquid Hydrocarbons for which the value is being determined. 5.5 The quality differential shall be based on the yields under normal distillation and the market prices in the Gulf Coast of the United States published in the Platt's Oilgram for the products obtained. 5.6 The arithmetic average of the three equivalent values shall be determined pursuant to number 5.4 of this Clause and the transport costs of the Liquid Hydrocarbons being valued from the relevant Fiscalization Point in Nicaragua to Houston, Texas U.S.A. shall be deducted from the results obtained in order to reach the value.
SIX (6). The value of natural gasoline at the Fiscalization Point shall be the average for the Calendar Month for which the calculation is being made of the daily average of the high and low prices as published in the Platt's Oilgram Price Service for motor gasoline which physiochemical properties are similar to those found in the Caribbean Margin.
SEVEN (7). The value of the Natural Gas shall be the weighted average sales price at the Fiscalization Point for deliveries of Natural Gas during the Calendar Month.
CLAUSE NINETEEN (19): ROYALTIES
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ONE (1). The Contractor shall pay to MEM a royalty, in cash, based on the Production from the Contract Area measured at the Fiscalization Point during each Calendar Month. The royalty will be calculated separately for Liquid Hydrocarbons and for Natural Gas in accordance with Articles 54 and 57 of the Law, which are incorporated herein by this reference, and the norms issued by the Board of Directors of the MEM.
TWO (2). The rate of the royalty for Liquid Hydrocarbons will be determined at the end of each Calendar Month on the basis of the "R" factor established in Article 58 of the Law. The rates of the royalty on Liquid Hydrocarbons are as follows: Value of "R" Factor of zero (0) to less than 1.5 (one point five), a Royalty Percentage of 5.0% (five percent); Value of “R” Factor of 1.5 (one point five) to less than 3 (three), a Royalty Percentage of 10% (ten percent); Value of “R” Factor greater than 3.0 (three), Royalty Percentage of 15.0% (fifteen percent).
THREE (3). The royalty rate for Natural gas is of 5% (five percent) of the value of the production measured at the Fiscalization Point.
FOUR (4). For calculating the amount of royalty to be paid, the Hydrocarbons shall be valued at the market value determined in accordance with Clause 18 of this Contract.
FIVE (5). With respect to its exploration and exploitation activities, the Contractor is subject to the special regime established by Article 58 of the Law, which provisions are incorporated herein through this reference and is exempt from payment of any other fiscal or municipal tax by virtue of the provision set forth in Article 62 of the Law.
SIX (6). The Contractor’s activities other than the Exploration and Exploitation of Hydrocarbons are subject to the general fiscal regime in effect in Nicaragua.
CLAUSE TWENTY (20): CONTRIBUTIONS
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ONE (1). For the purpose of supporting and fulfilling its social function in the Autonomous Regions in connection with the social, economic and infrastructure development, environmental preservation, health, education and services, the Contractor will contribute and/or donate, on a yearly basis, a total of three percent (3.0%) of its net utilities obtained as a result of the exploitation of Hydrocarbons based on its operations as established in the Concession Contract (hereinafter such contribution or donation will be called “Community Development Fund” or simply “FDC”) to the Atlantic North Autonomous Regions (RAAN) and the South Atlantic Autonomous Region (RAAS). The FDC shared between the corresponding Regions will be of one point five percent (1.5%) to each Region. The FDC will be deposited in the accounts indicated by the North Atlantic Regional Council and the South Atlantic Regional Council. Therefore, the Contractor will calculate the FDC based on each fiscal/accounting year, in accordance with the principles established by Law number four hundred fifty three (No.453), the law of Fiscal Equity, which is hereby incorporated to this Contract.
CLAUSE TWENTY ONE (21) PAYMENTS
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ONE (1) The Contractor .to the MEM at the beginning of each contractual year, a nonrefundable area fee based on the number of hectares (ha) comprising the Contract Area. The rate per hectare for the area of Perlas is as follows: from 1 to 3 years: US$0.05 (zero point zero five cents of United States Dollar) per hectare; from 4 to 7 years:US$0.10 (zero point ten cents of United States Dollar) per hectare; from 8 years on:US$0.15 (zero point fifteen cents of United States Dollar) per hectare. Those rates per area will be readjusted annually on the date immediately preceding the anniversary payment date on the basis of the average variation in the "Consumer Price Index" as published by the U.S. Department of Commerce during the preceding twelve (12) month period. This fee shall be used by the MEM to help defray its general administrative costs of the activities described in this Contract, but not in lieu of amounts payable by Contractor under Clause 11, to cover the costs of assistance provided by the MEM.
TWO (2). All payments which the Contract obligates the Contractor to make to the State, even when the amount is expressed in U.S. dollars, shall be made in national currency. The conversion to national currency shall be at the rate of exchange posted by the Central Bank in effect for commercial transactions on the date of fulfillment of the obligation.
THREE (3). Notwithstanding the applicable exchange regulations to the contrary, the Contractor is guaranteed, through the terms of this Contract, the financial rights granted by Article 63 of the Law, which are incorporated to this Contract through this reference.
FOUR (4). For the purpose of filing and calculating the Income Tax, the applicable revenue and expenses as shown in U.S. dollars shall be converted into the national currency at the rate of exchange posted by the Central Bank of Nicaragua at the opening of business on the date of compliance with the obligation. Payments of estimated tax shall be entered according to its cost in U.S. dollars corresponding to the national currency cost incurred, calculated in accordance with Clause 15, number 5 of this Contract and then reconverted to the national currency at the time of filing of the income tax.
CLAUSE TWENTY-TWO (22): MATERIALS AND EQUIPMENT
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ONE (1). The Contractor shall provide all materials, equipment, machinery, tools, spare parts and any other similar materials required for the operations under this Contract.
TWO (2). Such Materials shall be provided by the Contractor in accordance with its Work Program set forth in Clause 13 of this Contract.
THREE (3). The Contractor shall give preference, although not obligated to do so, to locally available materials when such are comparable to and compete with imported materials in quality and availability and the price of which does not exceed the C.I.F. price (including import duties where applicable) of the imported materials placed in Nicaragua.
FOUR (4). Subject to the preceding number, the Contractor shall have the right to import any materials required for its activities under this Contract. With regard to the temporary importation and the exemption from import duty during the Exploration Period and the first four (4) years after declaration of Commercial Discovery, the provisions of Articles 60 and 61 of the Law shall govern, and by this reference are incorporated as part of this Contract..
CLAUSE TWENTY-THREE (23): OWNERSHIP OF ASSETS
ONE (1). The Contractor owns the assets provided by it under the terms of this Contract. Subject to the provision under the clause number below, ownership of any such asset, whether fixed or moveable, whether within or outside of the Contract Area, used in connection with the rights granted to the Contractor under this Contract, including pipelines and storage facilities, shall become the property of the State, free of any charge or encumbrance, at the end of the term of the Contract, except where the State notifies the Contractor that it will not accept the transfer of property of a particular asset. Where the State elects not to accept ownership of an asset, the Contractor shall carry out the approved clean-up program under Clause 34 of this Contract with respect to such assets and the area where they are located and shall be free to dispose of such asset in accordance with the applicable laws.
TWO (2). Where the installations serve more than one Contract Area assigned to the Contractor, the Contractor may continue to use such facilities for the other Contract Areas until the end of the term of other Contracts. In this case, the State, through the MEM, and the Contractor shall enter into an operating agreement that will govern the actual use, operation and maintenance of such facilities.
THREE (3). The provisions of number 1 under this Clause shall not apply to materials or other property that are rented or leased to the Contractor or which belong to the Contractor’s employees, provided that the ownership of any such materials by other than the Contractor, is clearly documented with the State at the time of entry into Nicaragua or its local acquisition.
CLAUSE TWENTY-FOUR (24): SUBCONTRACTORS, PERSONNEL AND TRAINING
. ONE (1). The Contractor has the right to use qualified Sub-Contractors to provide specialized equipment or services.
TWO (2). The Contractor shall offer similar opportunities to the national companies that compete with foreign entities with respect to the provision of any service or equipment required with respect to its operations. The Contractor shall give preference to Nicaraguan professionals and Sub-Contractors that are competitive with foreign bidders in skills, experience, availability and price.
THREE (3) The Contractor shall provide the MEM all necessary information covering each Sub-Contractor including, at the request of the MEM, an executed legalized copy of any contract or change thereto.
FOUR (4). The Contractor and its Sub-Contractors shall give priority of employment to local personnel in order to satisfy the staffing requirements to the extent that nationals of Nicaragua fulfill the qualification, experience and availability requirements.
FIVE (5). The Contractor and its Sub-Contractors may employ foreign nationals, 5.1 to the extent that qualified nationals cannot be found to fill the positions required, 5.2 to fill a reasonable number of technical or managerial positions, and 5.3 to provide short-term expertise.
SIX (6) The Contractor shall undertake the development and training of its national personnel (including training for the specific purposes, such as taking over positions held by expatriate personnel) for all positions including administrative, technical and executive management positions. The Contractor shall prepare and submit its annual development and training programs to the MEM for approval, subject to Article 70 of the Regulation.
SEVEN (7). In accordance with Article 28 of the Law, the Contractor guarantees payment of taxes, fines and other tributes for the services provided by its Sub-Contractors under their respective sub-contract, as well as payment of the salaries and social benefits for its sub-contractors’ local personnel. Likewise, and in accordance with Article 68 of the Regulation, the Contractor assumes joint liability with its Sub-Contractors to guarantee payment of any legally binding obligation contracted by the Sub-contractor on behalf of any individual resident in Nicaragua for goods or services provided to the Sub-contractor associated with the Contractor’s activities.
CLAUSE TWENTY-FIVE (25): UNITIZATION
.
ONE (1). If a Hydrocarbons discovery in the Contract Area extends beyond the boundaries of the Contract Area, MEM may require, in accordance with Article 47 of the Law, that the Development of the discovery and the Production of Hydrocarbons therefrom be carried out in collaboration with the entity or entities that have the right to conduct Petroleum Operations in the area into which the discovery extends.
TWO (2). In such case, the procedures and terms established in Articles 126 through 131 of the Regulation shall apply.
THREE (3). In case the Hydrocarbons deposit extends beyond the national boundaries, the unitization agreement shall be negotiated between the affected governments. The Contractor shall provide technical assistance to the Government of the State in the negotiation of such agreement.
CLAUSE TWENTY-SIX (26): CONFIDENTIALITY
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ONE (1). All technical data and any other information related to operations under this Contract shall be maintained by the contracting parties as strictly confidential and shall not be disclosed by either party without the prior written consent of the other party for a period of two (2) years after receipt of the written consent by either of the Parties, except to the extent required to comply with a decision of a competent court, pursuant to Article 32 of the Law or as required to comply with any law, regulation or procedure from the Arbitration Court, governmental investigation, or the Stock Exchange.
TWO (2). Either Party may disclose any information to its employees, Affiliates, consultants, buyers, potential investors, bank institutions, insurance companies, and sub-contractors to the extent required for the efficient conduct of its activities, provided it obtains from such individuals or entities, prior to disclosure, a written confidentiality undertaking approved by both Parties.
THREE (3). For the purpose of obtaining bids on open areas, the MEM may, after the two (2) year period from the date of receipt of the information from the Contractor has elapsed, disclose the information associated with the areas relinquished by the Contractor within the Contract Area.
FOUR (4). After the two (2) year period from the date of the receipt of the information from the Contractor, MEM shall be entitled, in the national interest, to prepare or cause to prepare by third parties and publish reports or studies of a general or regional nature using information derived from any reports or data related to the Contract Area. Geo-scientific reports can be prepared for publication upon previous written consent by the Contractor
CLAUSE TWENTY-SEVEN (27): PIPELINES AND STORAGE
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ONE (1). The Contractor has the right to construct and operate within and outside of the Contract Area such pipelines and other facilities as required to transport and store the Hydrocarbons produced from the Contract Area up to the point of export or point of first sale in Nicaragua, subject to compliance with the technical, safety and environmental regulations.
TWO (2). All the infrastructure shall be included in the Development Plan set forth in Clause 12, number 8 of this Contract.
THREE (3). In accordance with Article 68 of the Law, the Contractor is obligated to transport, store and ship Hydrocarbons owned by third parties, including the State, whenever and to the extent that its installations have available capacity and the Hydrocarbons are compatible with the normal operations. Likewise, the Contractor shall have access on non-discriminatory terms to third parties transportation and storage facilities with available capacity. This Clause number specifically excludes gathering lines or other installations belonging to the Contractor or third parties that are used for its own exploitation and are located before the applicable Point or Points of Fiscalization under the respective owner’s exploration and exploitation contract. The tariff for use of such installations shall be calculated and approved by the MEM as the Regulatory Authority in accordance with Article 163 of the Regulation and supplement regulations that may be issued by MEM from time to time.
CLAUSE TWENTY-EIGHT (28): INSURANCE
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ONE (1). The Contractor shall provide all the insurance required by the applicable law and such other insurance as the Contractor deems justified.
TWO (2). Except for insurance policies issued by the Overseas Private Investment Corporation (“OPIC”), all such insurance policies shall contain and express a waiver of subrogation against the State and any of its agencies.
THREE (3). The Contractor shall provide copies of all insurance policies to the MEM.
CLAUSE TWENTY NINE (29): ASSIGNMENT
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ONE (1). Subject to the prior written approval from the MEM, which shall not be unreasonably withheld, Contractor may assign all or an indivisible percentage interest in its rights and obligations under this Contract. For consideration to be given to any such request: 1.1 all accrued obligations of the assignor deriving from the Contract must have been duly fulfilled as of the date such request is made, or assignor and assignee must jointly and severally guarantee fulfillment of any unfulfilled accrued obligations by the assignor; 1.2 the proposed assignee or assignees must be qualified in accordance with the Regulation to be a Contractor and must have satisfied the requirements of the Law in regard to constitution and naming of a legal representative; 1.3 the instruments of assignment shall be submitted to MEM for their review and approval and shall include provisions stating precisely that the assignee is bound by all covenants contained in the Contract; and 1.4 Where the assignment will result in the Contractor being comprised of more than one entity, the designation of the entity that will act as operator shall be stipulated, along with a copy of the joint operating agreement among such entities comprising the Contractor.
TWO (2). Any assignment made pursuant to the provisions of this Clause shall be free of any transfer or related taxes, stamp duty charges or other charges. 3. No assignment shall in any way release the assignor from its obligations undertaken under the Contract except to the extent that such obligations are in fact performed by the assignee.
CLAUSE THIRTY
(30): MISCELLANEOUS
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ONE (1). The validity, interpretation and application of this Contract shall be governed by the laws of the Republic of Nicaragua.
TWO (2). This Contract may only be amended by mutual written agreement of the Parties.
THREE (3). The Spanish text of this Contract is the only official text and shall govern for all purposes.
FOUR (4). In accordance with Article 64 of the Law, the State guarantees to the Contractor throughout the term of this Contract, the stability of the tax regime and the royalties set forth in Articles 58 to 62 of the Law and the exchange regime set forth in Article 63 of the Law in effect on the Effective Date of this Contract. No changes to those regimes will be adversely applied to the Contractor with respect to its Exploration and Exploitation activities under this Contract.
FIVE (5). The Contractor will be treated, for all legal purposes, as a private law entity and therefore expressly renounces the right to invoke diplomatic intervention in any matter related to this Contract.
SIX (6). In accordance with Article 4 of the Law, the exploration and exploitation activities under this Contract have been declared to be of national interest and public utility. In the event the Contractor would be required to use property owned by third parties, the MEM shall assist the Contractor pursuant to the laws in effect governing the declaration of public utility and rights of way.
CLAUSE THIRTY ONE (31): SETTLEMENT OF DISPUTES
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ONE (1). The Parties shall endeavor to settle amicably through consultation any dispute related to or arising out of the performance or interpretation of any Clause of this Contract.
TWO (2). If any dispute has not been settled within thirty (30) days after the dispute arises, either Party may, through notice given to the other Party, propose that the dispute be referred to a sole expert or to arbitration for resolution in accordance with the provisions of this Clause. The waiting period will not apply in the cases set forth in Clause 12, number 8 or Clause 33, number 3 of this Contract.
THREE (3). Following the notice given pursuant to the preceding Clause number, the Parties agree to refer the dispute for determination by a sole expert to be appointed by agreement between the Parties.
FOUR (4). If the Parties fail to refer such dispute to a sole expert under number 3 of this Clause within thirty (30) days of the notice given, as set forth in number 2 of this Clause, the parties hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID.
FIVE (5). For arbitration purposes, the Parties agree to apply the rules of arbitration of the ICSID as follows: 5.1 The arbitration shall be heard and determined by three (3) arbitrators. Each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration. The Party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within fifteen (15) days following the appointment of both Party-appointed arbitrators. If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal and/or one Party refuses to appoint its Party-appointed arbitrator within said fifteen (15) day period, the appointing authority for the implementation of such procedure shall be the ICSID, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be final, binding and made by majority vote. 5.2 Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings: ONE (1) The arbitration proceedings shall be held in Mexico City, Mexico; TWO (2) The official language will be Spanish with translation to the English language during the arbitration proceedings. The arbitrators shall be fluent in the both the Spanish and English languages. All of the materials used at the hearings, the complaint or defense documents, the arbitral award and the reasons supporting it will be in Spanish with translation to the English language; THREE (3) The arbitrators shall be and remain at all times wholly independent and impartial; FOUR (4) The arbitration proceedings shall be conducted under the Arbitration Rules of the ICSID, as amended from time to time; FIVE (5) Any procedural issues not determined under the arbitral rules shall be determined by the arbitration act and any other applicable laws of the site of the arbitration, other than those laws that would refer the matter to another jurisdiction; SIX (6) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; SEVEN (7) The decision of the majority of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or offset; and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law be charged against the Party resisting such enforcement; EIGHT (8) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full; NINE (9) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be; TEN (10) The arbitration shall proceed in the absence of a Party who, after due notice, fails to answer or appear. An award shall not be made solely on the default of a Party, but the arbitrators shall require the Party who is present to submit such evidence as the arbitrators may determine is reasonably required to make an award; and ELEVEN (11) If an arbitrator should die, withdraw or otherwise become incapable of serving, or refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator. SIX (6). The parties agree that this Contract is an investment agreement between the State and the Contractor and that the activities associated with this Contract are commercial in nature. The Parties agree that they do not have the right, and through this Contract, expressly and irrevocably renounce whatever right to assert as a defense any immunity from jurisdiction they may have or immunity from execution of a judgment, award, or seizure of property, from execution of any award or judgment, or any attachment of assets in order to seize assets prior to judgment or issuance of an award, with respect to activities or any legal action or procedure arising out of or related to this Contract.
CLAUSE THIRTY-TWO (32): FORCE MAJEURE
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ONE (1). Neither Party shall be considered in default of the performance of any of its obligations under this Contract if the failure to perform or the delay in performing such obligations results from events occurring under the following circumstances: 1.1 the performance of any obligation hereunder is prevented, hindered or delayed because of any event or combination of events including, but not limited to earthquake, war, fire, flood or other natural disaster beyond the reasonable control of such Party; 1.2 any event or combination of events that is the direct cause for preventing, hindering or delaying any of the Parties from performing its obligations under this Contract; 1.3 whenever any such event or combination of events has occurred, such Party shall take all necessary actions to overcome any cause that prevents, hinders or delays performance of its obligations, as well as to minimize its consequences and, insofar as is practicable, to continue to perform its obligations hereunder and 1.4 The provision set forth in Clause 3, number 4 of this Contract associated with the issuance of the Environmental Permit by MARENA. 2. Notice of any force majeure event and their conclusion shall be immediately given to the other Party by the Party invoking force majeure. 3. If the operations under this Contract are partially or entirely suspended as a result of a force majeure event, the period for carrying out the suspended operations shall be extended by a period equivalent to the suspension.
CLAUSE THIRTY-THREE (33): NOTICES
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ONE (1). Any notice and other communications required or given under this Contract shall be deemed given when delivered in writing either by hand or fax transmission, appropriately addressed as follows: To The Ministry of Energy and Mines, to the attention of: Ing. Emilio Rappaccioli Baltodano R. Via fax: 505 + 2224629 (FIVE ZERO FIVE + TWO TWO TWO FOUR SIX TWO NINE); Correo Postal 159 (ONE FIVE NINE); Email at
emilio.rappaccioli@mem.gob.ni
; Physical Address: Hospital Bautista una (1) cuadra al oeste y una (1) cuadra al norte, Managua.Telephone: (505.228.1278). To the CONTRACTOR: Infinity Energy Resources, Inc, to the attention of: Mr. Stanton E. Ross, at 11900 (one one nine zero zero) College Boulevard, Suite two hundred four (204), Overland Park, Kansas, six, six, two, one, zero (66210), USA; By fax to one, nine, one, three, three, three, eight dash four, four, five eight (1 (913) 338-4458), Attention: Infinity Energy Resources, Inc. 2. Either Party may change its address or addresses or representatives for the purpose of receiving notices by giving at least ten (10) days prior written notice of the change to the other Party.
CLAUSE THIRTY-FOUR (34): TERMINATION
.
ONE (1). This Contract will terminate by its own terms in the cases specified in Article 70 of the Law, which by reference is incorporated herein.
TWO (2). The Contractor shall have the right to terminate this Contract by electing to relinquish the entire Contract Area pursuant to number 2 of Clause 7 of this Contract.
THREE (3). If either Party to the Contract commits a material breach of Contract not covered by Article 70 of The Law, the other Party shall have the right to terminate the Contract using the following procedure: 3.1 The Party claiming the right to terminate shall give notice to the other Party specifying the particular material breach and requiring the other Party, within ninety (90) days of such notice, to remedy the same or make reasonable compensation to the complaining Party, as the case may be; 3.2 If the Party receiving the notice fails to comply with said notice, the complaining Party may, after the expiration of the ninety (90) days notice, terminate this Contract immediately provided; however, that in the event the breach has been referred to arbitration or to an expert, pursuant to Clause 31 of this Contract, Miscellaneous Provisions, the complaining Party may not exercise its right of termination until such time the result of the determination by an arbiter or expert is made known; whenever the Party that elects to refer the dispute to the determination of an arbiter or expert is willing to continue its claim diligently under such procedures.
FOUR (4). Notwithstanding termination of the Contract and without prejudice to number 6 of Clause 7 of this Contract, the Contractor remains responsible for the clean-up of the Contract Area pursuant to Clauses 7 number 7 and 35 of this Contract.
FIVE (5). In the event the Environmental Permit required for the exploration phase is not issued by MARENA at the end of one (1) year as of the Effective Date or if the permit is issued within such period but contains conditions that restrict the Contractor's access to or the right to conduct Petroleum Operations in more than twenty percent (20%) of the Contract Area, or if as a direct result of such conditions the cost of the Minimum Exploration Program is increased for the first sub-period by more than fifty percent (50%) of the estimated investment, pursuant to Clause 8, number 2, of this Contract, the Contractor within thirty (30) days after the expiration of one (1) year or the date of issuance of the conditional permit by MARENA, whatever the situation may be, may elect to terminate the Contract by giving notice to MEM without further responsibility or obligation, unless the Environmental Permit problems are resolved to the satisfaction of the Contractor within thirty (30) days from the date of the notice given of its intention to terminate the Contract. If the Contract is terminated pursuant to this Clause, the MEM shall release the guarantees provided by the Contractor and its parent company pursuant to Clause 9 of this Contract. The area rental paid under Clause 21, number 1 of this Contract shall not be reimbursed and the Contractor shall have no claim against MEM or the State for costs it incurred in relation to this Contract.
CLAUSE THIRTY-FIVE (35): CLEAN-UP AND ABANDONMENT
.
ONE (1). Within sixty (60) days after the expiration of the term of the Contract or the relinquishment of all or a part of the Contract Area, the Contractor shall propose and carry out to the satisfaction of the MEM and the MARENA an abandonment program mutually agreed with the MEM, for all of the Contractor’s facilities that MEM does not elect to receive in accordance with Clause 22, number 1 of this Contract. With respect to the area and/or facilities being relinquished, such abandonment program shall comply with the internationally accepted standards at the time of the relinquishment.
TWO (2). No later than three (3) years before the earlier of (a) the scheduled expiry of the term of the Contract or (b) Contractor's early termination of production from an Exploitation Area or termination of an infrastructure operation included in the approved Development Plan, the Contractor shall submit a proposed abandonment program covering all such facilities for MEM’s approval.
THREE (3). The MEM shall make a decision, within ninety (90) days, concerning the proposal submitted by the Contractor pursuant to the preceding sub-clause and may approve or modify or impose conditions. Prior to modifying or imposing conditions to the proposal, the MEM shall notify the Contractor concerning the modifications or conditions proposed and shall give the Contractor the opportunity to submit written statements within the following sixty (60) days concerning the proposed modifications. After reviewing such statements, the MEM shall issue its final decision with respect to the Contractor’s proposal.
FOUR (4). In the event the Contractor does not present a timely proposal to the MEM under sub-clause 2 of this Clause, the MEM, after giving thirty (30) day notice to the Contractor requesting it to do so, may prepare an abandonment program for such facilities if the Contractor does not present a proposal by the end of the thirty (30) day period, and whenever the MEM has prepared such program, it shall have the same effect as if it had been submitted by the Contractor and approved by the MEM.
FIVE (5). The approved budget for carrying out the approved abandonment program shall be consolidated with the Contractor’s payment into an account that generates interest with a depositary approved by the MEM, per unit of production calculated by dividing the approved abandonment budget by the estimated units of production to be produced and reserved by the Contractor between the date of the MEM’s approval and the anticipated date of abandonment. Such cost shall be considered for purposes of calculation of the Contractor’s income tax as an operating cost incurred at the time of payment of the accounts. If the Contractor carries out the abandonment program, any portion of the account, including accrued interest not required for the abandonment program, shall belong to the Contractor, but will be deemed taxable income in the year received. If the amount deposited (including accrued interest) is insufficient to complete the abandonment program, the Contractor shall pay all additional costs required to complete the abandonment program. With respect to the facilities transferred to the MEM pursuant to Clause 22, number 1, of this Contract, the portion of the account corresponding to the clean-up of such facilities shall be transferred to the Ministry of Energy and Mines, who shall assume all responsibility for the facility and its abandonment and shall hold the Contractor harmless against any liability with respect to the accumulation after the date of such transfer to the Ministry of Energy and Mines. The parties appearing before me, Notary Public, so expressed with respect to the object, value and legal effect of this instrument, the object and significance of the special clauses contained herein and the general clauses that ensure its validity. The undersigned Notary Public states to have seen the documents inserted and associated with this deed. This deed was read by me, Notary Public, in its entirety, before the appearing parties, who fully agree with, approve and ratify it in all and each of its parts, without any changes made, and sign it together with me, Notary Public. I swear to all listed (f) Legible; (f) legible; Dr. Joaquin Hernán Estrada Santamaría (f) Illegible: Stanton Edward Ross. (f) Illegible: Roberto Octavio Arguello Villavicencil. (f) Illegible: Geovanny Francisco Salinas Brenes , State Notary Public.
BEFORE ME: the front of page number two hundred thirteen to the back of page number two hundred sixty four of protocol number Two of the 11
th
Notary Office of the State during the current year and at the request of the Attorney General for the Republic, Doctor Joaquin Hernán Estrada Santamaría, I hereby release this first authenticated copy in fifty three pages that I sign, seal and initial in the city of Managua at eleven o’clock in the morning of March twenty four of the year two thousand nine.
(Signature and Seal for the Attorney General’s office of the Republic)
Republic of Nicaragua
Central America
GEOVANNY FRANCISCO SALINAS BRENES
ELEVENTH NOTARY PUBLIC FOR THE STATE
Exhibit 10.9
REPUBLIC OF NICARAGUA
CENTRAL AMERICA
STATE NOTARY PUBLIC
AUTHENTICATED COPY
VALE TRES CORDOBAS
Seal:
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Republic of Nicaragua
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Central America
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SERIES “M”
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No. 1766054
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PUBLIC DEED NUMBER SEVENTY TWO (No.72) - CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS FOR THE “TYRA” PROSPECT. In the city of Managua, at three o’clock and thirty minutes in the afternoon of March five of the year two thousand nine.- Before me, GEOVANNY FRANCISCO SALINAS BRENES, Attorney and Notary Public for the Republic of Nicaragua, domiciled and residing in this city of Managua, duly authorized by the Supreme Court to act as the Eleventh Notary Public for the State during the five year period ending August one of the year two thousand nine, pursuant to the Minutes of Certificate of Office number one hundred fourteen dash two thousand eight (114-2008) beginning at eight hours of the morning of the first day of November of the year two thousand eight, in accordance with the Book of Agreements number seventy six of the year two thousand eight, page seventy six of the Minutes of Certificate of Office of the year two thousand eight and the Certification of the Book of Records of Ownership Number seventy Six (76), dated eight o’clock and fifteen minutes of the morning of the first day of November of the year two thousand eight, page number seventy six, of the Book of Records of Ownership, filed with the Attorney General’s Executive Office for the Republic, appear: A) Dr. JOAQUIN HERNAN ESTRADA SANTAMARIA, of age, married, attorney and Notary Public, at this domicile, bearer of the citizenship identification number zero, eight, one, dash, two, one, one, zero, five, seven, dash, zero, zero, zero, nine U (081-211057-0009U), and B) Mr. STANTON EDWARD ROSS, of age, married, businessman, domiciled in Chanute, State of Kansas, in transit through this city, passport number three zero eight two one zero four six nine (308210469) of the United Status of America, issued on April 6, 2006 (04/06/2006) and expiration date of April 5, 2016 (04/05/2016), and C) also appearing Mr. Roberto Octavio Argüello Villavicencio, of age, single, Attorney, domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) who has ample knowledge of the English and Spanish languages and who will act as the interpreter for the transaction, as designated by Mr. Stanton Edward Ross, who does not have knowledge of the Spanish language, all in accordance with Law number one hundred thirty nine (139), the Law that gives greater responsibility to the office of the Notary Public. At the end of this public instrument, Mr. Roberto Octavio Argüello Villavicencio will sign this instrument along with the appearing parties, and the undersigned Notary. I hereby swear to know the appearing parties and that, in my opinion, they have the necessary legal civil capacity to bind and contract and especially to sign this public instrument as follows. A) Doctor JOAQUIN HERNAN ESTRADA SANTAMARIA, on behalf of the State and Government of the Republic of Nicaragua, as the Attorney General for the Republic of Nicaragua in accordance with article two, item two, articles eleven and twelve of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number two hundred forty four (244) of December twenty four of the year two thousand one and article five (5) of Decree thirty three dash two thousand four (33-2004), Reforms and Additions to Decree number twenty four dash two thousand two (24-2002), Regulation of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number eighty nine (89) of May seven of the year two thousand four. He accepts his nomination and takes office as follows: One (1) The Certification that integrates and literally says “CERTIFICATION Paul Herbert Oquist Kelley, National Policies Council Coordinator, hereby certifies the Presidential Agreement No. 12-2007 and Act No. 1 that literally reads as follows: “PRESIDENTIAL AGREEMENT No. 12-2007. The President of the Republic of Nicaragua, the President of the Republic of Nicaragua, in accordance with the powers granted unto him through the Political Constitution, AGREES to Article 1. To nominate the following citizen, Doctor Joaquin Hernán Estrada Santamaria, as the Attorney General for the Republic (referenced herein); Article 2. The following citizens are nominated as Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entities: (referenced herein). Article 3. This agreement will be in effect as of this date. Be it published in La Gaceta, the Official Daily Newspaper. In Managua, the Presidential House, on January ten of the year two thousand seven. Daniel Ortega Saavedra, President of the Republic of Nicaragua. ACT No. 1, in the city of Managua, at Plaza de los No Alineados Omar Torrijos Herrera, at six o’clock in the evening of January ten of the year two thousand seven. I, Daniel Ortega Saavedra, President of the Republic of Nicaragua, in order for the following individuals, Members of the Cabinet and Directors of Autonomous Entities to take the office for which they were nominated by Presidential Agreements No. 11-2007, 12-2007, 13-2007, 14-2007, 15-2007 and 16-2007, as follows: Dr. Joaquin Hernán Estrada Santamaria is nominated as the Attorney General for the Republic (referenced herein). The following citizens are nominated Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entitities (referenced herein). To this end, I proceeded with the Oath of Office under the Law as follows: “Do you solemnly promise, before God, the Country, our national heroes and your honor, to faithfully comply with the duties of the position conferred unto you?” to which he replied: “Yes, I promise” and I concluded by saying: “If you so do, the country will reward you; otherwise, you will be held responsible”. This concluded the act and the nominated party was in charge of his position. The certification of this act will serve as sufficient document of qualification for all legal purposes. This document was fully read, agreed to, approved, ratified and signed. Daniel Ortega Saavedra, President of the Republic of Nicaragua, Joaquin Hernán Estrada Santamaria (referenced herein)”. This agrees with the originals, against which it was duly verified. At the request of the interested party, I hereby prepare this Certification, in the City of Managua, Presidential House, on January sixteen of the year two thousand seven. (signature) Paul Herbert Oquist Kelley, National Policies Council Coordinator. Seal of the National Policies Council Coordinator.” It is in accordance with the original against which it was compared. And 2 Presidential Agreement Number four hundred sixty seven dash two thousand eight (467-2008) published in La Gaceta, Official Newspaper number two hundred fifteen 9215) of November eleven (11) of the year two thousand eight (2008) which is integrated and literally reads as follows: PRESIDENTIAL AGREEMENT No. 467-2008. The President of the Republic, CONSIDERING that the Political Constitution of the Republic of Nicaragua in article 102 institutes that the natural resources are a national asset and that preservation of the environment and the conservation, development and exploitation of same revert to the State who has the option to sign contracts for the exploration of such resources whenever such are of national interest. II. That in accordance with the Political Constitution of the Republic of Nicaragua, article 181, second paragraph, which establishes that the concessions and exploration contracts of natural resources must have the approval of the Autonomous Regional Council. III That the attributions established in Law No. 286, the Special Law of Exploration and Exploitation of Hydrocarbons published in La Gaceta, Official Daily Newspaper Number 109 of June 12, 1998, and Decree No. 43-98, Regulation to the Special Law of Exploration and Exploitation of Hydrocarbons, published in La Gaceta, Official Daily Newspaper No. 117 of June 24, 1998, of the Instituto Nicaragüense de Energia (INE) have been transferred to the Ministry of Energy and Mines (MEM), an entity created by Law No. 612, the Law of Reform and Addition to Law No. 90, the Law of Organization, Competence and Procedures of the Executive Power, published in La Gaceta, Official Daily Newspaper No. 20 of January 29, 2007. IV That in accordance with Resolution No. 08-2003 of April 11, 2003, published in La Gaceta, Official Daily Newspaper Numer 100 of May 30, 2003, the MEM’s Administrative Council granted Infinity, INC., which changed its legal name to INFINITY ENERGY RESOURCE, INC., the concession area denominated “Tyra Prospect”, Offshore the Caribbean. V That the Presidential Agreement 185-2006 published in La Gaceta, Official Daily Newspaper No. 93 of May 15, 2006, authorized the signature of the petroleum concession contract for the area identified as the Tyra Prospect between the Republic of Nicaragua and the Petroleum Company INFINITY ENERGY RESOURCES, INC, INFINITY ENERGY RESOURCES INC. VI That citizens of the Autonomous Regions of the Atlantic of the Republic of Nicaragua submitted aan appeal (Recurso de Amparo) against signature of the Contracts for the Exploration and Exploitation of Hydrocarbons between them and the Concession Contract granted to the petroleum company INFINITY ENERGY RESOURCES, INC and whereby the Supreme Court of the Republic of Nicaragua through Sentence No. 92 of May 2, 2007, declared that the Appeal (Recurso de Amparo) to have grounds since the Concession Contracts were signed without approval of the North Atlantic Autonomous Region and the South Atlantic Autonomous Region Councils. VII That the award of the “Tyra Prospect” concession area to INFINITY ENERGY RESOURCES, INC is legal since once the concession is approved by the North Atlantic Autonomous Region and South Atlantic Autonomous Region Councils the corresponding Contract must be subscribed. VIII That the North Atlantic Autonomous Regional Council in a meeting on August 13, 2008, and the South Atlantic Autonomous Regional Council in a meeting on July 4 and 5, 2008, approved the Concession Contract for the Exploration and Exploitation of Hydrocarbons in the Tyra Prospect granted on behalf of INFINITY ENERGY RESOURCES, INC. IX That the Ministry of Energy and Mines (MEM) submitted to the President of the Republic the Minutes of the Concession Contract for Petroleum Exploration and Exploitation to be signed with INFINITY ENERGY RESOURCES, INC. in accordance with article 24 of Law No. 286, the Law for Exploration and Exploitation of Hydrocarbons, in accordance with the laws in effect. By the powers vested by the Political Constitution, it is hereby AGREED Article 1. Having fulfilled the requirements established in the Political Constitution of the Republic of Nicaragua and pertaining laws, the Attorney General of the Republic, on behalf and in representation of the State for the Republic of Nicaragua, is empowered to proceed with the subscription of the Concession Contract for Petroleum Exploration and Exploitation with the petroleum company INFINITY ENERGY RESOURCES, INC. under the terms negotiated by the Ministry of Energy and Mines and with the approval of the North Atlantic Autonomous Region Council in a meeting held on August 13, 2008, and the South Atlantic Autonomous Region Council, in a meeting held on July 4 and 5 , 2008. The area to be granted, identified as the Tyra Prospect, will proceed in accordance with Resolution No. 08-2003 of April 11, 2003, published in la Gaceta, Official Daily Newspaper Number 100, of May 30, 2003, Article 2. The Attorney General for the Republic must have the respective justifying and required documents to fulfill the provision in the previous article of this Agreement. Article 3. The Certification of this Agreement and the taking of office by the Attorney General for the Republic are sufficient documents to accredit his representation. Article 4. This Agreement goes into effect as of this date. Be it published in La Gaceta, Official Daily Newspaper. In the city of Managua, Government House, on October thirty one of the year two thousand eight. Daniel Ortega Saavedra, president of the republic of Nicaragua. Paul Oquist Kelly, National Policies Private Secretary. B) Mr. STANTON EDWARD ROSS, acting in the name and representation of the business company denominated INFINITY ENERGY RESOURCES INC., an American company constituted in accordance with the laws of the State of Delaware, United States of America, accredits his representation through the following documents: I – Deed Number thirteen of April ten of the year two thousand six, which integrates and literally says: PUBLIC DEED NUMBER THIRTEEN (13) TRANSLATION OF THE DOCUMENT. In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six. Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for Nicaragua, with domicile and residence in the city of Managua and duly authorized to act before the Supreme Court during the five year period that expires on June eight of the year eight, appear Angélica Arguello Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, Letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the last appearing party, acting as interpreter. I swear to personally know the appearing parties and that, in my judgment, have the legal civil capacity necessary to bind and to contract and especially to execute this instrument, whereby the appearing parties express themselves in their own name and representation. FIRST: The first appearing party is in possession of the ARTICLES OF INCORPORATION AND BY- LAWS OF INFINITY RESOURCES, INC. and such articles and by-laws are in the English language, two of the authenticated copies are in English, and we hereby request a notarial translation of the document and its originals through an interpreter in order for this document to be valid in the Republic of Nicaragua. In accordance with Law number one hundred thirty, the Law which gives more power to the office of Notary Public and article one thousand one hundred thirty two of the Code of cil Procedure, the undersigned Notary proceeds with the translation of the documents that are in English through an interpreter. To this end, based on the mentioned law, the undersigned Notary, with more than ten years of service with the Supreme Court, hereby nominates and designates as interpreter the appearing party Roberto Arguello Villavicencio, who has vast knowledge of both the Spanish and English languages, to verify the translation from English into Spanish of said documents. SECOND: TRANSLATION: having understood it, he accepts the nomination, being warned of the penalties for false testimony, promising to tell the truth, and states that: to the best of his knowledge and understanding, the Minutes in English read as follows in Spanish: ONE) State of Delaware, Secretary of the State, Corporations Division. Delivered at 04:43 PM 04/29/2005 PRESENTED AT 04:27 PM 04/29/2005 SRV 050348989 – 3944450 file. ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC. ARTICLE 1 – NAME: The name of the company is Infinity Energy Resource, Inc. (“Company”). ARTICLE 2 – REGISTERED AGENT. The domicile of the head offices of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent at such domicile is Corporation Trust Company. – ARTICLE 3 – PURPOSE The purpose of the Corporation is to participate in any legal act for which a corporation can be created in accordance with the General Law of Corporations in Delaware and its amendments (“DGCL”) – ARTICLE 4 – CAPITAL STOCK 4.1
Ordinary Shares
(a) The total number or ordinary shares of $0.00001 nominal value per share that the Company is authorized to issue is: 75,000,000. (b) Each bearer of ordinary shares will have the right to one vote for each share it owns with respect to all matters for which the bearers of ordinary shares have the right to vote. Except for and subject to the preferences, rights and privileges expressly granted to the bearers of all types of shares that are currently in circulation and that prior rights, and all series of preferential shares that can be in effect in the future, except as otherwise stipulated by the laws of the State of Delaware, the bearers of ordinary shares will have all other rights of the Company’s shareholders, including, but not limited to (i) the right to receive dividends whenever so declared by the Board of Directors with respect to the assets legally available for such; and (ii) in case of any distribution of assets due to dissolution and liquidation of the Company, the right to receive in proportionally and equitably all the assets of the Company remaining after payment of the specific amounts to preferred stockholders, if any, who have the right to receive them as stipulated in this instrument or in accordance with this instrument. 4.2
Preferred Stock
. (a) The total number of preferred shares in the nominal value of $0.0001 per share that the Company is authorized to issue is of 10,000,000 (b) The Board of Directors is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special, participating, optional or other rights and requirements, limitations or restrictions of same that are indicated and expressed in the resolution or resolutions established by their issuance as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions established in this instrument, including, but not limited to, the following: (1) The designation of the series and number of shares that will integrate the series. (2) The rate of dividends of the series, the conditions and dates in which such dividends will be payable, the relation that such dividends will have with the dividends payable in any other class of classes of shares and if such dividends will or will not be cumulative. (3) If the shares of the series will be subject to ransom on the part of the company, and, if so, the terms, prices and other clauses and conditions of such ransom. (4) The clauses and the amount of any amortization fund estimated for the purchase or ransom of shares of the series. (5) If the shares of the series will be convertible into or interchangeable with shares of any other class or classes or of all other series of any class or classes of shares of the company and if the conversion or exchange, terms, prices, rates, modifications and other clauses and conditions of such conversion or exchange are available. (6) The measure in which the holders of shares of the series will or will not have the right to vote with respect to the election of directors. (7) The restrictions, if any, with respect to the issuance or reimbursement of any preferred share. (8) The rights of bearers of the shares of the series in case of liquidation or dissolution of the company. ARTICLE 5 – DIRECTORS: .5.1
Powers: Number and Election of Directors.
The operations of the Company will be performed by the Board. The number of directors of the Company must be periodically established in accordance with the By-laws of the company and may be increased or reduced from time to time in accordance with the By-Laws, so long as the number of directors is no less than three nor greater than seven, except as otherwise provided in this Article 5. The election of the directors does not necessarily have to be by the written vote except and in accordance with what is established in the By-Laws. The directors will be divided into three classes, designated as Class I, Class II and Class III. Each class will consist, as much as possible, of one third of the total number of directors forming the Board. The term of the initial Class I Directors will end in the year 2006; the term of the initial Class II Directors will end in the year 2007 and the term of the initial Class III directors will end in the year 2008. The functions of the initial class will be determined by the Board of Directors. In each ordinary shareholders’ meetings the successors of directors whose term has ended on such ordinary meeting and the term of the successors will be of three years. If the number of directors changes, every increase or reduction will be distributed among the classes so that the number of directors in each class remains as uniform as possible, but under no circumstance will a reduction in the number of directors reduce the term of a director occupying its position. Each director will exercise his/her functions until the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified; however, this will be subject to death, resignation, retirement, incapacity or dismissal of such director from his/her position. In case any of the bearers of any class or series of preferred shares has the right, through a separate class vote, to elect directors, as specified in Article 4, then the provisions of such class or series of shares will apply with respect to its rights. The number of directors that the bearers of any of those classes or series of preferred shares can elect will be in addition to the fixed number set forth in the preceding paragraph of Article 5. 5.2
Dismissal.
Subject any right of the bearers of all series of preferred shares, a director may only be dismissed from his/her position prior to the expiration of his/her term by just cause. 5.3
Quorum.
The quorum of the Board for business transaction will consist of no less than a majority of the total number of directors, except as otherwise provided in these Articles of Incorporation or in the By-Laws with respect to the filling of vacancies. 5.4
Directors positions and recent vacancies
. Except as otherwise established with respect to the rights of bearers of any class or series of preferred shares to elect directors under specific circumstances, the positions of directors recently created that result from an increase in the number of directors and the vacancies in the Board resulting from death, resignation, incapacity, dismissal or any other cause, must be filled only with the affirmative vote of the majority of the remaining directors exercising their function or of a single remaining director, although it may represent less than a quorum of the Board. Every director elected in accordance with the previous sentence will exercise his/her functions for the remaining period of time until the expiration of the term of the new director’s position created or the one created from the vacancy and until the successor of such director has been elected and qualified. ARTICLE 6 BY-LAWS – Except as otherwise provided in these Articles of Incorporation, including but not limited to the powers granted by the By-Laws, the Board is expressly empowered to adopt, revoke, alter, amend and rescind any or all the by-laws of the Company. ARTICLE 7 SHAREHOLDERS – 7.1 –
Meetings
– The shareholders meetings may take place in or outside the State of Delaware, as established by the Board. Each shareholders meeting will take place on the date, time and place established by the Board. Except as otherwise established by law and subject to the rights of the bearers of any class or series of preferred shares, the shareholders extraordinary meetings may only be convoked by the Chairman of the Board, the executive director, the president or any employee of the Company through prior written request from the majority of the Board or as established in the By-Laws. 7.2
Action by written consent
. An action that is required or allowed to be taken in any ordinary or extraordinary shareholders meeting that can be taken without a meeting through written consent, only if all the shareholders with the right to vote in such action consent, in writing, to such action. ARTICLE 8 – VOTING REQUIREMENTS – Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Company (and in spite of the fact that it can be specified otherwise a lower percentage by law, these Articles of Incorporation or the By-Laws) the affirmative vote of the bearers of at least sixty six and two thirds percent (66-2/3%) of the shares of capital stock of the Company in circulation with the right to generally vote in the election of directors (considered for this purpose as a class) will be required if it is necessary to amend, revoke or adopt any provision contrary to Articles 5, 8, 9 or 10 of these Articles of Incorporation. ARTICLE 9 – RESPONSIBILITIES OF EMPLOYEES AND DIRECTORS 9.1
General –
A director of a Company will not be responsible before the Company or its shareholders for monetary damages caused by non-compliance with a fiduciary obligation as director, except in the case where such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect then or in accordance with its future amendments. 9.2
Amendment
. No amendment, modification or revocation of this Article 9 will harm all of the rights or protection of a director at the time of such amendment, modification or revocation. ARTICLE 10. INDEMNIFICATION. 10.1
General.
The Company will indemnify, to the limit allowed and in the form admissible by the DGCL and its future amendments (however, if there are any amendments, they will only be accepted if they allow the Company to grant rights of indemnification that are more ample than those granted by such law to the Company prior to such amendments) any individual who is a part, or subject to being a part of any legal action, complaint, judgment, or imminent, pending or complete process whether penal, civil, administrative or investigative, due to the fact that such individual (a) is or has been a director or employee of the Company or a predecessor to the Company or (b) is or has been a director of employee of the Company or any predecessor of the Company and has worked for any other company, general partnership, joint venture, trust, benefit plan for employees or another business as director, employee, partner, trustee, employee or agent at the request of the Company or a predecessor of the Company under the condition that , except as indicated in Section 10.4, the Company will indemnify any individual who seeks indemnification associated with a legal process (or part of the same) initiated by same individual, only if such process (or part of same) has been authorized by the Board. 10.2
Expense advances
. The right to indemnification granted in this Article 10 will be a contractual right and will include the right to receive payment from the Company for the expenses incurred with any legal process prior to the final judgment Such advances will be paid by the Company within twenty days from the receipt of a report or reports from the claimant requesting such timely advance or advances, subject to the condition that if the DGCL so requirements, payment of such expenses incurred by a director or employee in their capacity as director or employee (and not in another capacity such person provides or has provided during his/her term as director or employee, including, but not limited to, services with respect to a benefits plan for employees) prior to the final judgment of a legal process, be made only through previous presentation to the Company of a commitment from such director or employee or in the name of such director or employee to reimburse all the amounts delivered to them as advance if it is determined in a higher court that such director or employee does not have the right to be indemnified in accordance with this Article 10 or another. 10.3
Procedure to obtain indemnification
. In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the Company a request, in writing, that must include all the documentation and information available and necessary to determine if the claimant has such right, and up to what point, to receive indemnification. Upon presentation by the claimant of the written request for indemnification in accordance with the first sentence of this Section 10.3, a decision with respect to the right of the claimant to receive such indemnification, in accordance with the applicable law, will be made as follows: (a) if it is requested by the claimant or if the are no disinterested Directors (such as defined below) or (b) by a majority vote of the disinterested Directors, although a quorum is not reached. If it is determined that the claimant has the right to receive indemnification, payment will be made within 10 days following such determination. 10.4
Appeals.
If the Company does not pay the total amount of a claim under Section 10.1 within thirty days following receipt of the written claim by the Company in accordance with Section 10.3, the claimant may, at any time thereafter, initiate an action against the Company to collect the unpaid amount of the claim and, in case of total or partial success, the claimant will have the right to also collect for costs incurred to present such claim. It will be a defense with respect to such action (distinct from an action submitted for compliance with a claim for expenses incurred in defense of such procedure prior to is final disposition, where the required procedure, if the case, has been offered to the Company) that the claimant has not fulfilled with the Code of Conduct, which makes possible, according to the DGCL, for the Company to indemnify the claimant for the amount demanded, but the Company will have the obligation to provide such defense. If the Company (including its Board, the independent legal counsel or the shareholders) does not reach an agreement prior to the beginning of the action that the indemnification of the claimant is appropriate under the circumstances due to the fact that he or she has complied with the applicable Code of Conduct established by the DGCL , as the effective determination on the part of the Company (including its Board, the independent legal counsel or the shareholders) that the claimant has not complied with such applicable Code of Conduct, may not be considered as a defense of the action nor will they create an assumption that the claimant has not complied with the applicable Code of Conduct. 10.5
Obligatory Effect
. A determination must be made, in accordance with Section 10.3, that the claimant has the right to receive indemnification, whereby the Company will be obligated through such determination for all legal procedures initiated in accordance with Section 10.4.1.06
Validity of this Article
. The Company may not allege, in any legal procedure initiated in accordance with Section 10.4 that the procedures and presumptions of this Article 10 are not valid, obligatory and apply, and must stipulate in such procedure that the Company commits to comply with all the clauses of this Article 10. 10.07
Non Exclusivity, etc
. The right to indemnification and payment of the expenses incurred to defend a process prior to its final disposition granted in this Article 10 will not be exclusive of any other right that every individual may have, or to acquire, in accordance with any decree, clause of constitutive certificate, by-laws, agreement, vote of disinterested shareholders or directors, or otherwise. Non revocation or modification of this Article 10 may lessen, under any circumstance, or affect in an adverse manner the rights of any director, employee, or current or previous employee or agent of this Company or any predecessor of the same, with respect to any event or problem that arises prior to such amendment or modification. 10.08.
Insurance
. The Company may maintain an insure, at its expense, to protect itself and any director, employee or agent of the Company or corporation, partnership, joint-venture, trust or another company against all cost, debt or loss, whether the Company has the capacity to indemnify such individual or not against such cost, debt or loss in accordance with the DGCL. 10.09
Indemnification of other individuals
. The Company may grant the right to an indemnification and to receive payment by the Company for expenses incurred in defending any process prior to its final disposition, to any current or former employee or agent of the Company or to any predecessor of the Company, in full compliance with the clauses of this Article 10 with respect to the indemnification and advance of expenses incurred by the directors and employees of the Company. 10.10
Divisibility.
If any clause or clauses of this Article 10 is or are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, without limitation, each part or each paragraph of this Article 10 that does not contain such clause deemed to be invalid, illegal or not applicable that is not considered in itself invalid, illegal or inapplicable) will not be affected in any way or canceled for such reason and (b) as much as possible, the clauses of this Article 10 (including, but not limited to, each part of each paragraph of this Article 10 that contains such clause deemed to be invalid, illegal or not applicable) will be interpreted in such manner as to make effective the intention manifested by the clause deemed to be invalid, illegal or not applicable. BYLAWS OF INFINITY ENERGY RESOURCES, INC. Adopted on April 29, 2005. ARTICLE 1 OFFICES - The head offices of Infinity energy resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”). The Company will have offices located in any place that the Board so timely agrees. ARTICLE 2 SHAREHOLDERS – 2.1
Ordinary meetings
. The ordinary meeting of shareholders to elect its directors and to discuss all other business deemed adequate prior to the meeting will be held on the date and hour established by resolution of the Board. 2.02
Extraordinary meetings
. Except as otherwise provided by law, the extraordinary meetings of the shareholders will be convoked by those individuals specified in the Articles of Incorporation and must be convoked by the Secretary of the Company in accordance with written request by the shareholders who have registered 25% or more of the capital stock of the Company with the right to general vote in the election of directors. Such written request will indicate the purpose of the proposed meeting and will include all the relevant information set forth in Section 2.5. The topic to be discussed in all extraordinary meeting of the shareholders will be limited to those duly established in the written request and for which all necessary information has been provided in a timely fashion in accordance with Section 2.5. 2.03
Notice of Meeting
. Written notice of the meeting will be delivered no less than ten days and no more than sixteen days prior to the date of the meeting, indicating the place, date and time of such meeting and, in case of an extraordinary meeting, the purpose for which the meeting is convoked; except as otherwise provided in the Articles of Incorporation. Delivery can be made personally, through the postal service, prepaid telegram, telex, facsimile transmission, cablegram or messenger to each shareholder subscribed in the registry as authorized to vote in such meeting. If such notice is sent by mail, it will be deemed as received whenever it is deposited in the postal service of the United States, prepaid postage, addressed to the shareholder and sent to his/her address, as it appears in the shareholders registry of the Company. 2.04
Waiver
. The presence of a shareholder of the Company, whether in person or through proxy in a meeting, whether ordinary or extraordinary, will constitute the waiver of the right of notice to such meeting except when a shareholder is present in the meeting for the express purpose of objecting, at the beginning of such meeting, the discussion of any topic due to the fact the meeting has not been convoked in a legitimate manner. A written waiver to the right to receive notice of such meeting, signed by the shareholder or shareholders authorized to such notice prior, during of after the time of notice or the hour of the meeting, will be equivalent to a notice. It will not be necessary to specify the matter to be discussed nor the purpose of the entire meeting in the written waiver to the right to receive notice. 2.5
Notice of the matter to be discussed in the shareholders meeting
. No matter can be discussed in any shareholders meeting, including the nomination or election of individuals to the Board, other than (a) those specified in the meeting notice (or any attachment to it) granted by or subject to the direction of the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or an extraordinary meeting convoked by any of the individuals specified in Section 7.1 of the Articles of Incorporation, (b) duly presented at the meeting by or according to the direction of the Board (or any committee duly authorized by the board) or (c) duly presented at the meeting by any shareholder of the Company (1) that is a shareholder subscribed in the registry on the date on which notice was given as specified in Section 2.5 and on the date of registration to determine the shareholders authorized to vote in such meeting and (2) that it complies with the procedures for notice established in this Section 2.5. Besides all other applicable requirement for the matter to be duly presented at the meeting by a shareholder, the shareholder must have given written notice of the matter in due time and format to the Secretary of the Company. (a) In order for the shareholder’s notice reaches the Secretary in a timely manner, it must be delivered or sent by mail to be received at the main office of the Company no less than ninety days and no more than one hundred twenty days of the date of the meeting; however, (1) in case the public disclosure of the date of the meeting takes place less than one hundred twenty days prior to the meeting, in order for the shareholder’s notice to be timely it cannot be received after the closing of the tenth business day following the day on which the public disclosure of the date of the meeting has taken place and (2) notwithstanding the preceding item, with respect to an extraordinary meeting convoked through written notice from the shareholders, in accordance with section 2.2, every notice submitted by a shareholder making the request must be delivered simultaneously with such request. (b) In order for the shareholder’s notice to reach the Secretary in a timely manner with respect to any subject other than the nomination of individuals for election of the Board, must make reference to each of the topics such shareholder proposes to discuss at the ordinary meeting and must include (i) a brief description of the matter to be discussed; (ii) the name and address of subscription of the shareholder; (iii) the class or series and number of shares of capital stock of the Company owned by the shareholder, registered or usufruct; (iv) a description of all arrangements or agreements between such shareholder and any other individual or individuals (including their names) with respect to the proposal of such matters and (v) a statement that such shareholder intends to appear in person or through proxy in the meeting to submit such matter at the meeting. (c) In order for the shareholder’s notice associated wit h the naming of individuals for the Board reaches the secretary in an appropriate manner, it must establish (a) with respect to each of the proposed candidates, (i) the name, age, business and residential address of the candidate, (ii) main job or position of the candidate, (iii) the class or series and number of shares of the capital stock of the Company owned by the candidate, whether registered or usufruct and (iv) any other information associated with the candidate that could be required for information in a statement of representation or other presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the 1934 Securities Exchange Act and its modifications (the “Securities Exchange Act”) and the provisions and regulations established below; and (b) with respect to the shareholder that delivers the notice, (i) the name and address of subscription; (ii) the lass or series and number of shares of the capital stock of the Company owned by said shareholder, whether registered or usufruct; (iii) a description of all arrangements or agreement between such shareholder and each of the proposed candidates and any other individual or individuals (including their names) in accordance to which the nomination(s) will take place; (iv) a statement that such shareholder has the intention of appearing in person or through proxy in the meeting to nominate the individuals mentioned in such notice and (v) all other information related to such shareholder that need to be disclosed in a statement of representation or other necessary presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the Securities exchange Act and the provisions or regulations promulgated by virtue of the same. Such notice must be accompanied of a written consent from each candidate proposed to be nominated and to provide services as director in case he/she is elected. (d) In the shareholders meet, no matter can be discussed and the individuals nominated by a shareholder cannot be elected as director unless notice has been given with respect to the proposed action in accordance with the procedures established in this Section 2.5. The determinations of the president of the meeting as to whether such procedures were fulfilled or not, in a particular case, will be binding and definitive. 2.06
Quorum
. Except as otherwise provided by law, in the Articles of Incorporation of these By-laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meeting who are present in person or through proxy, will constitute a quorum and whatever the majority of such quorum decides will be deemed as the decision of the shareholders except with respect to the election of directors. If a quorum is not present in the meeting, the president of the meeting will suspend the meeting without prior notice if the time and place are announced in the meeting until such time a quorum is present. In the suspended meeting in which a quorum is present, any matter can be discussed that was discussed in the original meeting. In case the suspension lasts for more than thirty days or if soon after it is suspended a new date is entered for the suspended meeting, notice of suspension of the meeting will be delivered to each registered shareholder with the right to vote in a meeting. 2.07 Procedure. The order of the day and all other topics in each shareholders meeting will be determined by the president of the meeting. The president of every shareholders meeting will be the president of the Board or, in his/her absence, the member present in the meeting the most seniority in the Company. ARTICLE 3 – DIRECTORS - 3.01
Number
. Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and timely through resolution adopted by the Board. 3.2
Ordinary Meetings
. The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of such meeting in order to legitimately constitute it. The ordinary meetings of the Board will be held at the places and times timely determined by the Board. 3.3.
Extraordinary Meetings
. The extraordinary meetings of the Board may be convoked at any time and place and for any reason by the president of the board, by the general director or by the majority members of the Board. 3.4
Notice of Meetings
. It is not necessary to give notice for the ordinary meetings of the Board. Notice will be sent with respect to each extraordinary meeting of the Board to each director, at their usual place of work or to the address provided by the members for such purpose. Such notice will be deemed sent in the time and form established whenever it (a) is placed in the postal service of the United states no more than three calendar days prior to the date of the meeting or (b) is delivered in person, by telegram, through facsimile or communicated by telephone, at least twenty four hours prior to the time set for the meeting. It is not necessary for such notice to include a statement of the matter to be discussed nor the purpose of the same. 3.5
Waiver
. The presence of the director in a Board meeting will constitute a waiver to the right of notice of such meeting, except when the director participates in a meeting for the express purpose of objecting, at the beginning of same, to the discussion of any topic due to the fact the meeting has not been formally called or convened. A written waiver to the right to receive notice signed by the authorized director or directors to such notice, whether before, during or after the time of notice or the time of the meeting will be equivalent to a notice. 3.06
Quorum
. Except as otherwise provided by law, the Articles of Incorporation or these By-laws, it will be necessary to have the presence of the majority of the directors in service at that time and this will be sufficient to constitute a quorum to discuss the matters of every board meeting, and the decision made by the majority of the directors present in the meeting in which a quorum is present will be deemed as made by the Board. In case a quorum is not reached, the Board meeting will be timely suspended without notice. 3.07
Telephone participation in the meetings
. The members of the Board or any Board committee may participate in a Board meeting or committee meeting through a telephone or similar communication equipment conference call through which all individuals participating in the meeting can hear each other and each participation will constitute the presence of the individual in the meeting. 3.08
Decisions without a meeting
Except as otherwise established in the Articles of Incorporation or these By-laws, all decisions that can be made or are allowed to be made can so be made in any meeting of the Board or any of its committees without a meeting in case all members of the Board or its committees sign a written consent, as the case may be, and such written consent is filed with the minutes of procedures of the board or committee. Any consent may be equivalent to and will be valid on the date of the last signature entered on the same unless otherwise established. ARTICLE 4 COMMITTEES – 4.01
Designation of committees
. The Board will establish committees to perform the delegated or designated duties as much as permitted by law. Each committee will consist of one or more directors of the Company. In the absence or disqualification of a member of a committee, he/she or the members present in all meetings and disqualified to vote, whether or not such members constitute a quorum, may designated, in unanimous form, another member of the Director to act in the meeting in the place of such absent or disqualified member. 4.02
Authority and powers of the committee.
Except as otherwise provided by law, the board may establish, through resolution or amendment to these by-laws, that a committee may exercise all the powers and authority of the Board in handling the business and matters of the Company. ARTICLE 5 – EMPLOYEES – 5.0
Number.
The employees of the Company will be designated or elected by the Board. The employees will include a general director, a president, if applicable, the number of vice-presidents the Board determines, a secretary, if applicable, the number of secretary assistants as determined by the Board and a treasurer. Any individual can have two or more positions at the same time. 5.02
Additional Employees
. The Board may nominate any other employee it deems appropriate. 5.03
Duration of the positions. Resignation
. All employees, agents and employees of the Company will maintain their respective positions or functions according to the will of the Board and may be removed from their positions at any time that board deems appropriate, with or without cause. Every employee may resign at any time by submitting written notice of such resignation to the general director, the president or the secretary and it is not necessary for such resignation to be accepted in order for it to be effective unless the notice does not establish so. Any vacancy to a position will be covered by the Board. Functions. The employees of the Company will perform the duties and exercise the powers conferred unto them as assigned by the Board or the president and general director. ARTICLE 6 - CAPITAL STOCK – 6.01
Certificates
. The Board will authorize the issuance of certified or uncertified capital. Each shareholder of the Company, through written request, will have the right to one or more certificates signed by or in the name of the Company (a) by the general director or president and (b) the secretary or the secretary’s assistant, certifying the number of shares of capital of the Company owned by said shareholder. Any or all the signatures of the certificate may be sent facsimile. 6.02
Registered shareholders
- The Company will have the right to treat the holder of any registered share or shares of capital of the Company as the holder in fact of such share or shares and, consequently, it will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any other individual, whether there is real notice of it or not, except as otherwise provided by law. 6.03
Cancellation of certificates
. All certificates delivered to the Company will be canceled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until the previous one(s) with the same number of shares of the same class of capital have been delivered and cancelled. 6.04.
Lost or destroyed certificates
. The Board may establish that new certificates be issued instead of any certificate or certificates issued until then by the Company that have been declared lost, stolen or destroyed, by preparing a sworn statement of such fact in an acceptable manner to the Board by the person claiming the certificate or certificates have been lost or stolen or destroyed. At its own discretion and as prior condition for the issuance of any new certificate or certificates, the Board may require that the owner of thee lost, stolen or destroyed certificate(s), or the legal representative of such individual, provide the Company and its transfer or registered agent(s) a title in such manner and amount as specified by the Board as indemnification for any claim that might arise against the Company and its transfer or registered agent(s) due to the loss, theft or destruction of any certificate or the issuance of a new certificate. ARTICLE 7 – FISCAL PERIOD – 7.1 The Company’s fiscal period will end on December 31 of each year. ARTICLE 8 – AMENMENT - The expert continues to talk and says that the authentication from the state of Colorado in English says the following in Spanish: TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO, SS. I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereby certify that DIANNE HAWK-BROWN, whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of such acknowledgment, a NOTARY PUBLIC duly commissioned, sworn and authorized by the laws of the State of Colorado. And I now further certify that the signature and official seal attached of the NOTARY PUBLIC mentioned above, to the best of my knowledge, is genuine. The signature of the notary was compared to the signature on file at my office. In witness whereof I affix the great seal of the State of Colorado, in the city of Denver, on the 8th day of the month of March, A.D. 2006 (f) Ginette Dennos. Secretary of State. Following is a certification of the Secretary of INFINITY ENERGY RESOURCES, INC., which reads as follows in Spanish: THREE) CERTIFICATE FROM THE SECRETARY OF INFINITY ENERGY RESOURCES, INC. I, Timothy A. Ficker, duly elected, qualified and acting in the quality of Secretary in accordance with the By-Laws of Infinity energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Company’s Articles of Incorporation and the By-Laws and said Articles of Incorporation and By-Laws have not been modified, changed or revoked. In my presence, I sign, as Secretary of Infinity energy resources, Inc., on the 6th day of the month of March, 2006. (F) Timothy A. Ficker. Secretary of Infinity energy Resources, Inc. Before me, on the 6th day of March, 2006, appears Timothy A. Ficker, in the quality of Secretary of Infinity Energy Resources, Inc. who signed the certificate and witnesses my signature and seal of office. (F) Legible. Notary Public in and for the State of Colorado. My commission expires: eleven/zero, five/zero, seven (11/05/07) Seal. For greater integrity of the document, the Consulate General of the Republic of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua authenticate the document which is in Spanish and says the following: FOUR) The Consulate General of the Republic of Nicaragua in Houston, hereby CERTIFIES the preceding signature that says: GINETTE DENNIS, is authentic and corresponds to that of the name: Ginnette Dennis. Position: Secretary of the State of Colorado. Date: March 28, 2006. “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT. “Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua, which says the following: FIVE) Ministry of Foreign Affairs of Nicaragua, Consular Division. Managua, Nicaragua. The undersigned, General Consular Director hereby “certifies” that the preceding signature that says: MARIAMERCEDESBECK is authentic and is verified against that used on this date (ba). MARIA MERCEDES BECK, CONSUL FOR THE REPUBLIC OF NICARAGUA IN HOUSTON, TEXAS, UNITED STATES OF NORTH AMERICA. The Institution and the Employee (a) do not assume responsibility with respect to the content of the document. Managua, Wednesday, April 05, 2006, 11;15:45 a.m. (F) Legible. Lic. Maria Josefina Rojas Romero. Director of consular Services. Seal: Ministry of Foreign relations, Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this document, the general clauses that ensure its validity, the special clauses it contains and those that address waivers and implicit and explicit stipulations. This Deed was read by me, Notary Public, to the appearing parties, who agree, approve, ratify and sign it along with me, who swears to all. (F) Angelica Arguello D. (f) Roberto Octavio Arguello V. (f) Boanerge Ojeada B. - THE FRONT PAGE NUMBER FORTY SEVEN IS PASSED ON TO PAGE FIFTY SEVEN OF MY PROTOCOL BOOK NUMBER THIRTEEN OF THE CURRENT YEAR, AT THE REQUEST OF MIS ANGELICA ARGUELLO DAMHA, THE FIRST AUTHENTICATED COPY OF SEVEN PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA, AT THREE THIRTY IN THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX” Signature and Notary seal of BOANERGE ANTONIO QUEDA BACA, II. WITNESS PUBLIC DEED NUMBER TWO HUNDRED THIRTY SIX (236). TRANSLATION OF THE DOCUMENT. In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of December ten of the year two thousand eight, before me, WILLIAM MIGUEL ESPINOZA NARVAEZ, attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in this city, duly authorized to act before the Supreme Court during the five year period that expires on September nineteen two thousand nine, appear Mr. Favio Josué Batres Pérez, of age, single, attorney, with domicile and residence in this city of Managua, identified through identification card number zero zero one dash one six zero six eight zero dash zero three L (001-160680-0073L) and Ms. Ana Cecilia Chamorro Callejas, of age, single, student, with domicile and residence in this city of Managua, identified through identification card number eight eight eight dash one three zero one eight six dash zero zero zero one M (888-130186-001M). I swear to personally know the appearing parties and that in my judgment they have the necessary legal civil capacity to bind and to contract, and especially to execute this instrument, in their own name and representation. The first appearing party, Favio Josué Batres Pérez speaks and says:
FIRST:
that he is in possession of a Certificate issued by the Secretary of the Board of Directors of Infinity Energy Resources, Inc, an American company constituted in accordance with the laws of the state of Delaware of the United States of America, which contains, as an Annex, a Resolution of the Board of Directors associated with the negotiation and execution of some Nicaraguan Concession Agreements, as well as a Special power of Attorney on behalf of Mr. Roberto Arguello and Mr. Stanton Ross. Such Certificate, as well as the Notarial Certificate and two authentic copies of the same are in English; therefore, through this Instrument it is requested that a Notarial translation be provided of the documents that are in English into Spanish through an interpreter, so that such Certificate and its annexes, that is, the Resolution of the Board of Directors and the Special Power of Attorney already mention may be valid in the republic of Nicaragua. In accordance with article five of law number one hundred thirty nine, “LAW THAT GIVES GREATER POWER TO THE INSTITUTION OF NOTARY PUBLIC” and article one thousand one hundred thirty two of the Code of Civil Procedure of the Republic of Nicaragua, the undersigned notary proceeds with the mentioned translation through an interpreter. To this end, based on the mentioned law, the undersigned notary, with more than ten years in office as described in the previous instrument and each one having acknowledged that he executed the same by the authority conferred unto him, hereby signs and places his official seal on it. Signature (illegible). My commission expires on August twenty nine of the year two thousand nine. (seal) CHRISTA R. MORROW, Notary Public in and for the State of Kansas. My commission expires on August twenty nine of the year two thousand nine. (iii) Certificate from the Secretary of State of the State of Kansas: “STATE OF KANSAS. Office of the Secretary of State. Ron Thornburgh (seal: Great Seal of the State of Kansas, January twenty nine 1861. To all who see this document, Greetings: I, Ron Thornburgh, Secretary of State for the State of Kansas, hereby certify that the files in my office show that on August twenty nine of the year two thousand five CHRISTA R. MORROW was a Notary Public in and for the State of Kansas, with her commission expiring on August 29, 2009 and that, as Notary Public, all the official acts are fully valid. I further certify that said Notary Public is authorized by the laws of the State of Kansas to give oaths, acknowledgments and perform any other official duty. In witness whereof, I hereby sign and authorize my seal of office to be affixed hereto. In the city of Topeka, on November twelve of the year two thousand eight. (Seal: SECRETARY OF STATE FOR THE STATE OF KANSAS). Signature (illegible). RON THORNBURGH, Secretary of State.” (iv) Certificate from the Office of the Governor of the State of Kansas: STATE OF KANSAS (seal) Office of the Governor. I, KATHLEEN SEBELIUS, Governor of the State of Kansas, hereby certify that RON THORNBURGH is the Secretary of State for the State of Kansas, duly elected and qualified; that the signature on the certificate is his authentic signature and that said certificate and witness are in agreement and official. IN WITHNESS WHEREOF, I have subscribed my name and authorized that the Great Seal of the State be affixed: on November twelve of the year two thousand eight (signature: illegible) Governor (v) Annex A Resolution of the Board of Directors: “ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC. On November six, 2008, in accordance with Section one hundred forty one of the General Law of Companies of Delaware and its amendments, the undersigned, all members of the Board of Directors (“Board) of Infinity Energy Resources, Inc., a Delaware company, sign this instrument to show their consent to execute the actions described in this document and the adoption of the following preambles and resolutions without holding a meeting:
Negotiation and Execution of the Nicaraguan Concession Contracts
Considering that the Concession Contracts (as defined below) have been approved by the North Atlantic Autonomous Region and the South Atlantic Region; Considering that the Board of Directors of the Company has determined that it feasible and in the best interest of the Company to delegate the authority to Messrs Ross and Arguello Villavicencio to approve, negotiate and execute the Concession Contracts as deemed convenient; THEREFORE, it is resolved that Stanton Edward Ross, of age, married, businessman, domiciled in Chanute, Kansas, identified through the United States Passport number Z eight four, one, one, five, two, four (Z8411524) as President of the Board of Directors and Executive Officer of the Company, be and hereby is authorized to approve the form, terms and provisions, and negotiate and subscribe the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY for (i) the area of Perlas, granted to the company in accordance with Resolution thirty nine dash zero two dash two thousand six (39-02-2006) (the “Perlas Contract”) and (ii) the area of Tyra, granted to the Company in accordance with Resolution thirty eight dash zero two two thousand six (38-02-2006) (the “Tyra contract”) together with the Perlas Contract, the “Concession Contracts”); both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and any other act nece4ssary to carry out the negotiation and subscription of the Concession Contract; Furthermore, it is RESOLVED that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively, Roberto Octavio Arguello Villavicencio, of age, single, attorney, identified through the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero B (001-070878-0060B) domiciled in this city of Managua, Republic of Nicaragua, is hereby authorized to (a) approve the form, terms and provision, and to negotiate and subscribe the Concession Contracts on behalf of the Company and (b) to execute any other act that is necessary to carry out the negotiation and execution of the mentioned Concession Contracts. IT IS FURTHER RESOLVED, that a Special Power-of-Attorney is granted on behalf of Messrs. Ross and Arguello Villavicencio in the form of
Annex A – General Authorization
. RESOLVE that any and all acts of the officers previously performed or decided with respect to the preceding resolutions are hereby adopted, ratified and affirmed as acts authorized and approved by the Company, and FINALLY: RESOLVE that the officers and directors are and each one hereby is authorized and guided by and on behalf of the Company to execute all documents and carry out all actions they deem necessary, appropriate or recommended to perform the objectives of each of the preceding resolutions. The actions taken by this agreement will have the same strength and effect as if they had been taken by the undersigned in a Board of Directors meeting, duly called and constituted in accordance with the By-laws and the Articles of Association of the Company. This agreement can be executed in duplicate copies through signature by facsimile and a signature through facsimile will be deemed an original signature. IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6) 2008. (F) illegible: Stanton E. Ross (F ) illegible: Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Agreement as of November six (6) 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie. (F) illegible; Robert O. Lorenz.
Annex A – SPECIAL POWER.
Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts), both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion. The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present, hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein. This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact. IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November _____, 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.” (vi)
Annex B. – SPECIAL POWER
. Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts”), both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion. The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present, hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein. This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact. IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6), 2008. (F) Stanton E. Ross (F) Illigible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF the undersigned executed this Unanimous Consent as of November six (6), 2008. Stanton E. Ross, Daniel F. Hutchins. (F) Illegible. Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF the undersigned have executed this Unanimous Consent as of November six (6), 2008. Stanton E. Ross. Daniel F. Hutchins. Leroy C. Richie (F) Illegible. Robert O. Lorenz.” The interpreter declares that the preceding translations are correct and true and that he has translated them to the best of his knowledge and understanding.
THIRD:
INSERTIONS: The appearing party, Favio Josué Batres Pérez declares that the Certificate issued by the Secretary of the Company: ENERGY RESOURCES, INC., SECRETARY”S CERTIFICATE. Reference is hereby made to certain resolutions (the “Resolutions”) of the Board of Directors of Infinity Energy resources, Inc., a Delaware corporation (the “Company”). Capitalized terms used and not deemed herein shall have the meanings ascribed to them in the Resolutions. The undersigned hereby certifies that he is the Secretary of the Company and that, as such, he is authorized to execute this Certificate on behalf of the Company and further certifies that the date hereof: 1. Attached hereto as
Exhibit
A is a true, correct and complete copy of the power of attorney executed by the Board of Directors of the Company on November 6, 2008, granting certain powers to Messrs. Ross and Arguello Villavicencio in connection with the negotiation and execution of the Nicaraguan concession contracts. Such power of attorney has not been amended, modified or rescinded, and are in full force and effect in the form adopted {Signature Page Follows].- IN WITNESS WHEREOF, I have signed this certificate as of the 6th day of November 2008 (F) Illegible. Name: Daniel F. Hutchins Title Secretary. I, Stanton E. Ross, Chief Executive Officer of the Company, do hereby certify that Daniel F. Hutchins is on the date hereof the duly elected or appointed, qualified and Secretary of the Company and that the signature set forth above is the genuine signature of such officer. (F) Illegible. Name: Stanton E. Ross. Title: Chief Executive Officer” (ii) Annex A. Resolution of the Board of Directors. EXHIBIT A. ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC. November 6, 2008. In accordance with Section 141 of the Delaware General Corporation law, as amended, the undersigned, being all of the numbers of the Board of Directors (the “Board”) of Infinity Energy Resources, Inc., a Delaware corporation (the “Company”) hereby execute this instrument to evidence their consent to the taking of the actions set forth herein, and the adoption of the following preambles and resolutions without the holding of a meeting.
Negotiation and Execution of the Nicaraguan Concession Contracts.
WHEREAS the Concession Contracts (as defined below) have been approved by the Autonomous region of the Northern Atlantic and the Autonomous region of the Southern Atlantic; and WHEREAS the Board of Directors of the Company has determined that it is advisable and in the best interests of the Company to delegate the authority to Messrs. Ross and Arguello Villavicencio to approve. Negotiate and execute the Concession Contracts as they deem advisable. NOW THEREFORE, BE IT RESOLVED that Stanton Edward Ross, of legal age and a married businessman from Chanute, Kansas, with a United States passport (number Z8411524), in his role as Chairman Board of Directors and Chief Executive Officer of the Company be, and hereby is, authorized to (a) approve the form, terms and provisions, and negotiate and execute the Pertroleum Concession Contract between the State of Nicaragua and Infinity Energy resources, Inc. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company, according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”) both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts; FURTHER RESOLVED, that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively Roberto Octavio Arguello Villavicencio, of legal age, single and licensed attorney, identification No. 001-070878-0060B, domiciled in the city of Managua, Republic of Nicaragua, shall be authorized to: (a) approve the form, terms and provisions, and negotiate and execute, on behalf of the Company Concession Contracts; and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts. FURTHER RESOLVED that a Special Power of Attorney be issued to Mr. Ross and Mr. Arguello Villavicencio in the from attached as Exhibit A – General Authorization RESOLVED that any and all acts of the officers and directors heretofore done, made or taken in connection with any foregoing resolution be, and they hereby are, adopted, ratified and affirmed as the authorized and approved acts of the Company, and finally FURTHER RESOLVED that the officers and directors are, and each of them hereby is, authorized and directed for and on behalf of the Company, to execute all documents and take such further actions as they deem necessary, appropriate or advisable to effect the
purposes of each of the foregoing resolutions. The actions taken by this consent shall have the same force and effect as if taken by the undersigned at a regular meeting of the Board of Directors of the Company, duly called and constituted pursuant to the Bylaws of the Company and the Act. This consent may be executed in counterparts by facsimile signature and a facsimile signature will constitute an original signature. [Signature page follows]. IN WITNESS WHEREOF, the und4ersigned have executed this Unanimous Consent as of this 6th day of November 2008 (F) Illegible. Stanton E. Ross (F) Illegible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Consent as of this 6th day of November 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie. (F) Illegible. Robert O. Lorenz.
Exhibit
A POWER OF ATTORNEY. Know all by these presents, that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to (1) approve the form, terms and provisions, and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”), both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (2) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact may be of benefit to, in the best interest of, or legally required by the undersigned, it being understood that documents executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact’s discretion. The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever requisite necessary or proper to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute of substitutes shall lawfully do or cause to be done by virtue of this power-of-attorney and the rights and powers herein granted. This Power-of-Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this ___ day of November, 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz”. (iii) Annex B – Special Power – « EXHIBIT B POWER OF ATTORNEY – Know all by these presents that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to: (1) approve the form, terms and provisions , and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract” together with the Perlas Contract, the “Concession Contracts), both resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”), and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and 92) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact ay be benefit to, in the best interest of, or legally required by the undersigned, it being understood that the documents executed by the attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve at such attorney-in-fact’s discretion. The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever, requisite, necessary, or proper to be done in the exercise of any of the rights and powers herein granted as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted. This power of Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. (F) Illegible. Stanton E. Ross (F) Illegible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. Stanton E. Ross, Daniel F. Hutchins, (F) Illegible. Leroy C. Richie, Robert O. Lorenz. IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie. (F) Illegible. Robert O. Lorenz.” (iv) Notary Certification. “STATE OF KANSAS)) ss COUNTY OF Johnson) On November 6, 2008, before me, Christa Morrow, a Notary Public in and for the State of Kansas, personally appeared before me Mr. DANIEL F. HUTCHINS, Secretary of Infinity Energy Resources, Inc. a Delaware corporation, and Mr. STANTON E. ROSS, Chief Executive Officer of Infinity Energy Resources, Inc., a Delaware corporation, each personally known to me to be the person whose name is affixed to the foregoing instrument, with each having acknowledged that he executed the same in his authorized capacity. WITNESS my hand and official seal. Signature. Christa R. Morrow. My commission expires 8/29/09. SEAL CHRISTA R. MORROW. Notary Public – State of Kansas. Appt. Expires 8/29/09”. (v) Certification from the Office of the Secretary of State of Kansas: “STATE OF KANSAS – Office of Secretary of State RON THORNBURGH To all to whom these presents shall come, Greetings: I, RON THORNBURGH, Secretary of State of the State of Kansas, do hereby certify the records of my office show that on the 29th day of August, 2005, CHRISTA R. MORROW was appointed a Notary Public in the State of Kansas, with an expiration date of August 29, 2009, and that as such Notary Public all official acts are entitled to full faith and credit. I further certify that said Notary Public is empowered by the laws of the state of Kansas to administer oaths, take acknowledgments and perform other official duties. IN TESTIMONY WHEREOF: I hereto set my hand and cause to be affixed my official seal. Done at the City of Topeka, this 12th day of November, 2008, (F) Illegible. RON THORNBURGH, SECRETARY OF STATE.” (vi) Certification from the Office of the Governor of the State of Kansas: “State of Kansas. Office of the Governor. I, KATHLEEN SEBELIUS, Governor of the State of Kansas, do hereby certify that RON THORNBURGH is the duly elected and qualified Secretary of State of Kansas; that the signature attached to the certificate within is his genuine; and that said certificate and attestation are in due form and by proper officer. IN TESTIMONY WHEEOF, I have hereunto subscribed my name and caused to be affixed the Great Seal of the state of Kansas this 12th day of November, 2007. (F) Kathleen Sebelius, Governor.” (vii) Authentication from the Consulate General of Nicaragua in Washington D.C.: “Consulate General of Nicaragua 1627 New Hampshire Ave., NW Washington, D.C. 20009, No. 2546-2008 The Consulate General of the Republic of Nicaragua, in this City of Washington, District of Columbia, United States of America, hereby certifies that the signature of Ron Thornburg, Secretary of State of the State of Kansas, United States of America, which appears in this document, is authentic. Issued in the City of Washington, D.C. on November 17 of the year 2008. (F) Alcides Montiel. Alcides Montiel, Advising Minister with Consular functions. THE CONSULATE GENERAL OF NICARAGUA DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE AUTHENTICATED DOCUMENT.” (viii) Authentication by the Ministry of Foreign Affairs of Nicaragua “No. 2008082758. Ministry of Foreign Affairs, Consulate General. Managua, Nicaragua. The undersigned, Martha de los Angeles Rodriguez Duarte, Director of Consular Services, hereby “Certifies” that the preceding signatures that says ALCIDES MONTIEL “Is authentic and matches” the one used on the date (ba), ALCIDES MONTIEL, ADVISING MINISTER WITH CONSULAR FUNCTIONS IN WASHINGTON D.C. – UNITED STATES. The Institution and Employee (a) do not assume responsibility with respect to the content of the document. Managua, Thursday, November 20, 2008, 02:49 p.m. (F) Illegible Martha de los Angeles Rodriguez Duarte. Consular Services Director (Seal).” So expressed those present as instructed by me, the Notary, concerning the matter, value and legality of this act, of the general clauses that ensure its validity, specific ones contained therein and those involving waivers and implicit and explicit provisions. This deed, having been read by me in full to those present, was found to be in agreement, and they approve, ratify and sign it along with me, who swears to all associated with it. (f) Favio Batres (f) Illegible. Drawn before me on the back of the page number four seven one, and the back of page number four seven seven (477) in my Protocol number fifteen of the current year and book, this first witness on behalf of FAVIO JOSÉ BATRES PEREZ, in his own name and representation, in seven (seven) pages that I sign, initial and seal in the city of Managua, at eight hours and thirty minutes of the morning of December ten of the year two thousand eight. Signature and Seal of the Notary WILLIAM MIGUEL ESPINOZA NARVAEZ – III. – “PUBLIC DEED NUMBER TWENTY FIVE (25) OPENING OF BRANCH - In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of April twenty four of the year two thousand six, before me, ANA TERESA RIZO BRISEÑO, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, Republic, duly authorized to act before the Supreme Court during the five year period ending September first of the year two thousand seven, appears before me Miss ANGÉLICA ARGUELLO DAMHA, of age, single, attorney, domiciled in Managua, republic of Nicaragua, identified through identification card number zero, zero, one, dash, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (-001-270381-0053N). I swear to personally know that appearing party and that she has, in my judgment, the legal capacity necessary to bind and contract, especially to sign this instrument whereby she acts in the name and representation of INFINITY ENERGY RESOURCES INC., a company organized and existing in accordance with the laws of the state of Delaware of the United states of America. Miss Arguello demonstrates her representation through witness of public deed number thirty two 932), translation of the minutes of the Board of Directors meeting, which is literally transcribed later. The appearing party, in the capacity described above, speaks and says: (FIRST): That for the purpose of establishing and requesting the Public Registration of Real Estate and Commercial Property from the Department of Managua for a branch of INFINITY ENERGY RESOURCES INC., Miss Arguello has the duly legalized documents issued by the Consulate of the Republic of Nicaragua in the city of Houston, State of Texas, United States of America and before the Ministry of Foreign Affairs in Nicaragua, which were duly translated into Spanish and read as follows: A) PUBLIC WITNESS NUMBER THIRTY TWO (32) TRANSLATION OF THE BOARD OF DIRECTORS MEETING OF INFINITY ENERGY RESOURCES, INC. which expressly authorizes the opening of the branch through a telephone conference call on March seventeen of the year two thousand six at twelve o’clock and thirty minutes, Rocky Mountain time, which deed includes and literally reads as follows: WITNESS – PUBLIC DEED NUMBER THIRTY TWO (32) PROTOCOL NUMBER THIRTEEN (13) TRANSLATION OF DOCUMENT- In the city of Managua, Republic of Nicaragua, at two thirty in the afternoon of April ten of the year two thousand six. Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, duly authorized to act before the Supreme Court during the five year period that expires on the day of the year two thousand eight, appear Angélica Arguello Damha, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (001-270391-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the latter acting in the quality of interpreter. I swear to personally know the appearing parties who, in my judgment, have the civil legal capacity necessary to bind and contract and in particular to execute this instrument; the appearing parties express themselves in their own name and representation. FIRST: the first appearing party has the MINUTES OF THE BOARD OF DIRECTORS MEETING of INFINITY ENERGY RESOURCES INC. and that the minutes is in English and two of its originals are in English, the reason why it is hereby it is hereby requested that a notary translation be provided through an interpreter of said minutes and authenticated copies in order for this document to be valid in the Republic of Nicaragua. In accordance with Law number one hundred thirty, the Law that gives greater power to the Institution of Notary, and article one thousand one hundred thirty two of the Code of Civil Procedure, the undersigned Notary proceeds with the translation of the portions of the document that are in English through an interpreter. To this end, based on the mentioned law, the undersigned Notary, with more than ten years with the Supreme Court, hereby nominates and designates Roberto Arguello Villaviciencio as interpreter to verify the translation from English into Spanish as requested to him, who possesses ample knowledge of both the English and Spanish languages. SECOND TRANSLATION. Having understood it, he accepts the nomination, being warned of the penalties of false testimony, promising to speak the truth, and hereby declares: that to the best of his knowledge and understanding, the minutes in English say the following in Spanish: ONE) “INFINITY ENERGY RESOURCES, INC. MINUTES OF THE BOARD MEETING OF MARCH 17, 2006. A special meeting of the Board of Directors (“Board”) of Infinity Energy resources Inc., a company constituted in the State of Delaware (the “Company”) was held through a conference call on March 17, 2006, which began as 12:30 hours, Rocky Mountain Time (MST). The following directors participated in said meeting: Stanton E. Ross, Elliot Kaplan, Leroy Richie and James Tuell. The following also participated in part of all of the meeting: Timothy Ficker, Vice President, Chief Financial Officer and Secretary, Deborah Friedman, from the Law Firm of Davis Graham & Stubbs LLP, Counsel for the Firm, and Andrew Melsheimer, of Thompson & Knight LLP, Counsel for the Firm with respect to the Nicaragua Project. At the request of Mr. Ross, Mr. Tuell acted as Chairman of the meeting; Mr. Tuell confirmed the presence of a quorum and started the meeting. Following Mr. Tuell, Mrs. Freidman acted as Secretary of the Meeting.
Nicaragua
Mr. Ross made reference to the information provided in the Board Meeting held on March 1 with respect to the recent progress made in obtaining the concessions in Nicaragua and described the request for formal approval by the Board in said meeting to authorize the Execution of the documents related to the Concession contracts, the establishment of a Company Branch and offices in Nicaragua and to grant limited and general powers to the Company’s local Counsel in Nicaragua. Mrs. Friedman described the powers proposed and the possibility of limitations with respect to certain powers. The Board discussed in detail certain limitations of the powers to be granted through a General Power-of-Attorney, including the express limitation of powers relative to the sale, transfer or taxation of the Concession contracts. Mr. Melsheimer participated in the meeting and described the requirements of the General Corporate laws of Nicaragua with respect to the establishment of a Company branch and the Hydrocarbons Law, which usually require the designation of a legal representative domiciled in Nicaragua with power to bind the Company. Mr. Melsheimer described his discussions with legal counsel concerning possible limitations of powers granted in the general and limited powers. The Board continued discussing about the limitation of powers granted to the Nicaraguan legal counsel according to the general and limited powers and posed questions and received answers from Mr. Melsheimer concerning same. After said discussion and the motion made and seconded, the board unanimously adopted the following resolutions: RESOLVES that Stanton Edwards Ross, of age, marries, businessman in Chanute, State of Kansas, United States of America passport number Z8411524, as chairman of the Board of Directors of the Company, is hereby authorized to negotiate and sign (a) Negotiate and sign the PETROLEUM CONCESSION CONTRACTBETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES INC. for (i) the Area of Perlas, awarded to the company pursuant to Resolution 39-02-2006 and (ii) the Area of Tyra, awarded to the company pursuant to Resolution 38-02-2006,; both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM); (b) to grant, on behalf of the company, a limited power (special power of Representation) in accordance with ANNEX A of this Act, Mr. Roberto Octavio Villavicencio, of age, single, attorney and identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua and (c) to perform any other act necessary to negotiate and execute the above mentioned contracts; and RESULVE that (i) the Company, through a branch (“Branch”) established for this purpose, is hereby authorized to operate and carry out any and all businesses in the Republic of Nicaragua that constitute the purpose of the Company as defined in the Articles of Incorporation of the Company and its amendments; and FURTHER RESOLVE that (i) the Company hereby allocates the amount of one hundred seventy five thousand córdobas (C$175,000.00) as the initial capital of the Branch; (ii) the Branch office will be located in the city of Managua, Nicaragua, and (iii) the opening of additional offices in other cities in the entire territory of the Republic of Nicaragua is hereby authorized; and FURTHER RESOLVE that Ms. Angélica Arguello Damha, of age, single, attorney, identification card No. 001-270381-0053N, domiciled in the City of Managua, Republic of Nicaragua, is hereby authorized to (i) perform any and all act necessary and to sign all documents necessary to establish the Branch of the Company and to incorporate the Branch in the republic of Nicaragua; (ii) to appear before a Notary Public in Nicaragua to request registration of the documents necessary to legalize the establishment of the Branch; however, Ms. Arguello Damha may not act on behalf of the Company or the Branch to grant any power or to make any decision that is not duly authorized by the Board of the Company in this instrument; FURTHER RESOLVE that this minutes of the meeting of the Board of the Company will be sufficient in order for Ms. Arguello to prove her authority to establish the Branch of the Company; FURTHER RESOLVE that once the Branch is registered in the Public Trade Registry of Managua, Nicaragua, Angélica Arguello Damha, of age, single, attorney, identification No. 001-270381-0053N, domiciled in the city of Managua, Republic of Nicaragua, is hereby authorized to appear before a Nicaraguan Notary Public to grant, on behalf of the Branch, a General Power, in accordance with the annex to this minutes, Annex B, to Mr. Roberto Octavio Arguello Villavicencio, of age, single, attorney, identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua, granting the attorney-in-fact authority to represent the Branch in all of its activities carried ou in Niaragua, to sell, mortgage, or otherwise transfer or encumber all types of the Branch assets in Nicaragua and to legally manage, sign all types of contracts and perform all other legal activities that the Branch performs in Nicaragua, except: (i) the activities that, pursuant to the law, must be personally performed by the owners of the Company; (ii) the activities for which the law expressly requires special powers granted by the Company; (iii) activities that involve a sum greater than ten thousand seven hundred córdobas (C$10,700.00) which must be expressly approved by the Board of the Company; (iv) the power to sell, mortgage or otherwise transfer or encumber the Petroleum Concession Contract for the Area of Perlas (pursuant to Resolution 39-02-2006) and the Concession Contract for the Area of Tyra (pursuant to resolution 38-02-2006) and (v) the power to delegate to any other person any of the powers granted to him in accordance with these general powers; and FURTHER RESOLVE that no power associated with the business of the Company in Nicaragua that is not expressly authorized in these resolutions may be granted by or in the name of the Company without the express approval of the Board.
Adjournment.
Without further business to be discussed before the Board, the meeting was adjourned at approximately 13:25 hours. Submitted. (F) Illegible. Deborah Friedman. Meeting Secretary.”
ANNEX A. SPECIAL POWER OF REPRESENTATION.
The undersigned, as President of the Board of Directors of Infinity Energy Resources, Inc. (“the Company”), a company organized and existing in accordance with the laws of Delaware and domiciled in Denver, Colorado, with sufficient power granted herein, hereby grants a SPECIAL POWER OF REPRESENTATION to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua, identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) with power to represent the Company before the Instituto Nicaraguense de Energia (INE), Ministerio del Ambiente y los Recursos Naturales (MARENA) and any other administrative and/or government institution of the republic of Nicaragua in all transactions carried out by the company with such institutions with respect to the Company’s operation associated with the exploration and exploitation of hydrocarbons project in the republic of Nicaragua and in particular with respect to administrative matters with MEM and the acquiring of an environmental permit from MARENA or any other necessary transaction with MEM or MARENA. This SPECIAL POWER of Representation does not grant power or authority to negotiate terms or to sell, rescind, change, transfer, mortgage, loan, deliver as collateral or charge, dispose of or encumber in any way the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. with respect to the area of Perlas in accordance with resolution 39-02-2006 issued by MEM or the Contra Petrolera between the state of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company. This Special Power of representation does not grant the power or the authority to delegate powers herein granted to another person or to grant powers of any kind to third parties in the name of the Company, which is expressly reserved to the Board of Directors of the Company. Given and signed in Chanute, Kansas on ____ of March of two thousand six. Stanton E. Ross, Chairman of the Board of Directors of Infinity Energy Resources, Inc. Before me, on this ___ day of March of 2006, appeared Stanton E. Ross, known to me to be the President of Infinity Energy Resources Inc., who signed, before me, the preceding certificate and I hereby certify and give under my hand and seal of office. Notary Public, in and for the State of Kansas. My Commission Expires ____ ANNEX B DEED NUMBER _____() POWER G In the city of ____, at ____ of the ___ of ___ of the year two thousand six, before me, Attorney and Notary Public Republic of Nicaragua, with domicile and residence in this city and duly authorized to act before the Supreme Court during ____ appears Mr. ____, of age _____ (general provisions). I swear to personally know the appearing party and that in my judgment he has the legal capacity necessary to bind, and contract and especially with respect to what is granted herein, who acts in the name and representation of INFINITY ENERGY RESOURCES, INC., NICARAGUA BRANCH, recorded in the Minutes of the Board of Directors Meeting of “INFINITY ENERGY RESOURCES INC.” held in the city of ____ at ____ of ____ of the year two thousand six (2006), duly authenticated by the Ministry of Foreign Relations. I swear to have seen the documents mentioned above that empower the appearing party for execution of this document. Mr. _____ appears and says:
SOLE PARAGRAPH:
That through this public instrument, ample and sufficient GENERAL POWERS are granted to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua and identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) to represent the branch of INFINITY ENERGY RESOURCES, INC. opened in the Republic of Nicaragua, with respect to said branch’s matters and business to be carried out exclusively in the Republic of Nicaragua, for which the attorney-in-fact will intervene through the power granted unto him through this instrument to sell, mortgage and otherwise transfer and encumber all types of assets; to legally manage, sign all types of contracts and carry out all other legal activities the grantor could himself perform, except those that according to the law must be carried out by the owner in person and those activities for which the law expressly requires very special powers, limited to the sum of seven thousand córdobas (C$17,000), requiring prior approval from the Board of Directors. This General Power does not grant the authority to negotiate terms or to rescind, sell, change, transmit, mortgage, loan, delivery as guarantee, or burden, transfer or encumber the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by the MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company. This General Power of Representation does not grant the authority to delegate the powers granted herein to another individual nor to grant any type of powers to a third party on behalf of the Company, which is expressly reserved to the Board of Directors of the Company. So expressed the appearing party as instructed by me, the Notary Public, with respect to the object, value and legal criteria of this act, the general clauses that ensure its validity, the special clauses herein and those concerning waivers and implicit and explicit stipulations, as well as its registration with the competent Public Registry. This deed was fully read by me, Notary Public, in to the appearing party, found to be in agreement, the appearing party approves, ratifies and signs it with me, Notary Public, who swears to all contained herein. The expert continues to speak and expresses that the authentication from the State of Colorado which is in English saws the following in Spanish: DOS) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO SS. I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereinafter certify that DIANNE HAWK-BROWN, whose name is subscribed in the certificate that proves acknowledgment of the attached instrument and that a duly commissioned, sworn and authorized Notary Public by the laws of the State of Colorado was present at that time. And I hereby certify that the signature and official seal of the above mentioned Notary Public, to the best of my knowledge, is genuine. The signature of the notary was compared to the signature on file in my office. In witness whereof, I hereinafter affix the great seal of the State of Colorado, in the city of Denver, on the 22nd day of the month of March A.D. 2006 (f) Ginette Dennos, Secretary of State. The authentication in Spanish reads as follows: THREE) subject to those preferences, rights and privileges expressly granted to the holders of all types of shares that are in circulation at the moment with previous rights and all series of preferred shares that may be in effect in the future, except as otherwise stipulated by the State of Delaware, the holders of ordinary shares will have exclusively all other rights of the Company’s shareholders, including .but not limited to the right to dividends whenever declared by the Board with respect to the legally available assets and (ii) in case of distribution of assets due to dissolution or liquidation of the Company, the right to receive all of the Company’s assets in a proportionate and equitable manner upon payment of the specific amounts to the holders of preferred shares, if applicable, that have the right to such or is so stipulated herein or is in accordance with this instrument. 4.2
Preferred Shares
(a) The total number of preferred shares of $0.,0001 nominal value per share that the Company is authorized to issue is 10,000,000 (b) The Board is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special rights that are relative, participating, optional or others and requirements, limitations or restrictions to same that indicate or express, in the resolution or resolutions that determine the issuance of such shares as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions set forth in this instrument, including but not limited to the following: (1) the designation of the series and number of shares that make up the series; (2) the rate of dividends of the series, the conditions and dates on which such dividends are due, the relation such dividends will have with respect to the payable dividends in any other class or classes of shares and if such dividends will be cumulative or not; (3) if the shares in the series will be subject to repurchase by the company and, if so, the period, prices and other clauses and conditions of such repurchase; (4) the clauses and the amount of any amortization fund for the purchase r repurchase of the shares of the series; (5) if the shares of the series will be converted to or exchanged for shares of another class or classes or another series of any class or classes of shares of the company and, in case of conversion or exchange, the periods, prices, rates, modifications and other clauses and conditions of said conversion or exchange; (6) as the holders of shares of the series will or will not have the right to vote in the election for directors; (7) the restrictions, if applicable, with respect to the issuance or reissuance of any preferred share; (8) the rights of the holders of the shares of the series in case of liquidation or dissolution of the company. ARTICLE 5 – DIRECTORS. 5.1 Duties, Number and Election of Directors. The operations of the Company will be carried out by the Board. The number of directors of the Company must be established periodically as indicated in the by-laws and may be increased or decreased periodically as stipulated in the by-laws, under the condition that the number of directors is not less than three or more than seven, unless otherwise provided in this Article. 5. the election of the
directors does not necessarily have to be by written vote except as provided in the by-laws. The directors will be
divided into three classes designated as Class I, Class II and Class III. Each class will consist, as much as possible, of a third of the total
number of directors that constitute the Board. The term of the directors for the initial Class I will end in
2006, the terms of the directors for the initial Class II will end in 2007, and the terms of the directors for the initial Class III will end in 2008. The functions of the initial class will be determined by the Board. In each ordinary shareholders meeting, the successors of the directors whose term will end on such ordinary meeting will be elected and the successors’ term will run for three years. If the number of directors changes, any increase or decrease will be distributed among the classes so that the number of directors in each class remains as homogenous as possible, but under no circumstance will a decrease in the number of directors reduce the term of a director in the current term. Each director will exercise his/her functions up to the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified, subject however, to death, resignation, retirement, incapacity or destitution of such director from his position. In the event the holders of any class or series of preferred shares have the right, through a separate class vote, to elect directors, in accordance with Article 4, then the provisions of such class or series of shares will apply with respect to his/her rights. The number of directors that the holders of any of such classes or series of preferred shares can elect will be in addition to the number established in the preceding paragraph. Articl4. 5.2
Removal from office
. Subject to all rights of holders of all series of preferred shares, a director may be removed from office by the shareholders prior to the expiration of his/her term for just cause only. 5.3
Quorum.
.The Quorum for the Board for a business transaction will be of no less than a majority with respect to the total number of directors except as otherwise provided in this instrument or the by-laws with respect to the filling of vacancies. 5.4
Directors positions and recent vacancies.
Except as otherwise provided in accordance with the rights of the holders of any class or series of preferred shares to elect directors under specific circumstances, the position of director recently created that result in an increase in the number of directors an those resulting from death, resignation, incapacity, removal or any other reason, must be filled only with the affirmative vote by the majority of the directors remaining in office or by a single remaining director, although representing less than a quorum for the Board. Every director elected in accordance with the preceding sentence will exercise his/her functions for the remaining period until the expiration of the term of the new director position created or that of the vacant office and until the successor of such director has been elected and qualified. ARTICLE 6 - BY-LAWS. Except as otherwise provided herein, but not limited to the powers granted by the by-laws, the Board is expressly authorized to adopt, revoke, alter, amend and rescind any or all of the Company’s by-laws. ARTICLE 7 – STATE OF COLORADO, CITY AND COUNTY OF DENVER. The previous minutes of the board of Infinity Energy Resources Inc. of March 17, 2006 was acknowledged before me on _____ 22, of James A. Tuell. For the purpose of greater integrity of the document, following is the authentication from the Consulate General of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua, in the ___ language. FOUR) The Consulate General of the republic of Nicaragua in Houston, hereby CERTIFIES that the preceding signature that says: GINETTE DENNIS is AUTHENTIC and corresponds to the name Ginnette Dennis, Position: Secretary of State for Colorado. Date: March 28, 2006. “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.” (F) Illegible. Seal. “Authentication from the Ministry of Foreign Affairs of Nicaragua inserted for greater integrity of the document, which says: FIVE) “Ministry of Foreign Relations. Consular Office in Managua, Nicaragua. The undersigned, Consular Director General, hereby “Certifies” that the preceding signature that says MARIA MERCEDES BECK is “authentic and corresponds” to the one this date used by Maria Mercedes Beck, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America. The employee (a) does not assume responsibility with respect to the content of the document. Managua, Wednesday, April 05, 2006, 11:16:27 a.m. (F) Illegible. Lic. Maria Josefina Rojas Romero., Consular Services Director. Seal from the Ministry of Foreign Affairs. Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this deed, of the general clauses that ensure its validity, the special ones they contain and those that involve waivers and implicit and explicit stipulations. This deed was read in full by me, Notary Public, to the appearing parties and having been found in agreement, they approve, ratify and sign it with me, who swears to all (F) Angélica Arguello D. (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B – PRESENTED TO ME THE FRONT OF THE PAGE NUMBER FORTY SEVEN, THE FRONT OF PAGE NUMBER FIFTY OF MY PROTOCOL NUMBER THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELICA ARGUELLO DAMHA, THE BOOK OF FIRST WITNESS IN FOUR PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT TWO O’CLOCK AND THIRTY MINUTES OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX- Boanerges Ojeda B., Notary Public (S) – BOANAERGE ANTONIO OJEDA BACA, Attorney and Notary Public B) WITNESS OF PUBLIC DEED NUMBER THIRTY THREE (33) TRANSLATION OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES INC., which integrates and literally says: WITNESS OF DEED NUMBER THIRTY THREE (33) PROTOCOL NUMBER THIRTEEN TRANSLATION OF DOCUMENT. In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six. Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua,
duly authorized to act before the Supreme Court
during the five year period that expires on June eight of the year two thousand eight, appear Angelica Arguello
Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, zero, five, three, letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight dash zero, zero, six, zero, letter B” (001-0708787-0060B)
the latter acting as Interpreter. I swear to personally know the appearing parties and that in my judgment they have the legal civil capacity necessary to bind and to contract, and particularly to execute this instrument; the appearing parties express themselves in their own name and representation. FIRST: The first appearing party has in her possession the ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES, INC. and that the articles and by-laws are in the English language and two of their authenticated copies are in English; therefore, it is hereby requested a notarized translation of the documents and authenticated copies be provided through an interpreter so that this instrument is valid in the republic of Nicaragua. In accordance with Law number one hundred thirty, the Law that gives greater responsibility to the office of notary Public, and article one thousand thirty two of the Code of Civil Procedure, the undersigned Notary Public proceeds with the translation of the portions of the document that are in English, through an interpreter. To this end, based on the mentioned law, the undersigned Notary Public, with more than ten years of association with the Supreme Court, hereby nominates and designates as interpreter, to verify the translation from English into Spanish, to the appearing party, Roberto Arguello Villavicencio, who has vast knowledge of English and Spanish. SECOND: TRANSLATION. Having understood it, he accepts the nomination made and was warned of the penalties for false testimony, thereby promising to tell the truth, and says that: To his knowledge, the document in English says the following in Spanish: ONE ) State of Delaware, Secretary of State, Companies Division. Delivered at 04:43 pm on 04/29/2005 SRV 0503-48989-34944450 File: ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC. ARTICLE 1. LEGAL NAME. The legal name of the company is Infinity Energy Resources, Inc. (“Company”). ARTICLE 2. REGISTRATION. The domicile of the head offices of the Company in the State of Delaware is the Trust Center Corporation, 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent
at said domicile is Corporation Trust Company. ARTICLE 3. PURPOSE. The purpose of the Company is to participate in any legal activity for which it can organize a company in accordance with the Delaware General Law of Corporations and its amendments (“GDCL”). ARTICLE 4 – REGISTERED CAPITAL 4.1
ORDINARY SHARES
(a) The total number of ordinary shares of $0.0001 nominal value per share that the Company is authorized to issue is: 75,000,000 (b) Each holder of ordinary shares will have the right to one vote per each of these shares owned for all holders of ordinary shares have the right to vote. Except for and SHAREHOLDERS. 7.1 Meeting. The shareholders meetings in or outside the State of Delaware, as determined by the shareholders meeting will take place at the date, time and place, the Board. Except as otherwise required by law and subject to the rights of the holders of any class or preferred shares, the extraordinary shareholders meetings can only be called by the president, executive director, the president or any employee of the Company through prior request submitted in writing by a majority of the Board or in accordance with the by-laws. 7.2
Action through written consent
. Action that is required or can be taken in any ordinary or extraordinary shareholders meeting that can only be taken without a meeting, in writing. ARTICLE 8 VOTING REQUIREMENTS Notwithstanding any other provision in these Articles of Incorporation or the by-laws (of the Company (and in spite of the fact that a lower percentage can be specified otherwise by law, by these Articles of Incorporation or the by-laws) the affirmative vote of the shareholders will be required at least sixty six days and two-thirds percent (66-2/3%) of the shares in circulation of the Company with the right to vote, usually in the election of directors (considered for this purpose as a class), if necessary to amend, revoke or adopt any provision contrary to Articles 5,8,9,10 of these Articles of Incorporation. ARTICLE 9 OBLIGATIONS OF EMPLOYEES AND DIRECTORS 9.1
General.
A director of the Company will not be responsible before the Company or its shareholders for monetary damages caused by a breach of fiduciary obligat8ion as director, except in case such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect or in accordance with its future amendments. 9.2
Amendment.
No amendment, modification or revocation of this Article 9 can impair any right or protection of a director in office at the time of such amendments, modification or revocation. ARTICLE 10 INDEMNIFICATION 10.1 – General . The Company will indemnify up to the limit allowed and in accordance with the DGCL and its future amendments (however, in case of amendments, they will only be accepted if they allow the Company to provide indemnification rights that are more ample than the law allows prior to such amendments) to any person who is a party to, or subject to being a party to any legal action, complaint, judgment or imminent process, pending or completed, whether criminal, civil, administrative or under investigation, due to the fact that such person (a) is or has been a director ro employee of the Company or any predecessor or the Company, and has worked for any other company, union, joint company, trust, benefit plan for employees or other position, such as director, employee, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company, subject to the condition that, except as indicated in Section 10.4, the Company will indemnify any person that seeks indemnification associated with a legal process (or part thereof) initiated by said person, only if said process (or part thereof) was authorized by the Board. 10.2
Expense Advance
– The right of indemnification as granted in this Article 10 will be a contractual right and will include the right to receive payment by the Company for expenses incurred with any legal process prior to the final judgment. Such advances will be paid by the Company within twenty day from the date of receipt of a report or reports from the claimant requesting such advance or advances on a timely basis, under the condition that if DGCL so requires, payment of said expenses incurred by such director or employee in his/her capacity as director or employee (and not in another capacity provided or that has been provided by such person during his/her term as director or employee, including but not limited to, services to benefit the employee) prior to the final judgment of a legal process be carried out only through previous presentation before the Company of a commitment by such director or employee or on behalf of the same to reimburse all amounts paid to same as an advance if it is determined that said director or employee does not have the right to be indemnified in accordance with this Article 10 or another. 10.03
Procedure to obtain indemnification.
In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the company a request in writing including all documentation and information available and necessary to determine if the claimant has the right, and up to what point, to receive indemnification. Based on the claimant’s written request for indemnification, in accordance with the first sentence in this section 10.3, a decision with respect to the claimant’s right to receive such indemnification, if required by the applicable law, will be taken as follows: (a) if requested by the claimant or if there are no uninterested Directors (as defined below) or (b) if it is requested by a majority vote of the uninterested Directors, although a quorum is not reached, or by a majority vote of a uninterested Directors committee designated by a majority vote of uninterested Directors, although a quorum is not reached. If it is determined that the claimant has the right to receive indemnification, payment will be made within ten days following such determination. 10.04
Appeals
. If the Company does not pay the full amount of a claim under section 10.1 within thirty days from the date the written claim as established in Section 10.3 is received by the Company, the Claimant may, at any time thereafter, file a claim against eh Company to collect the amount of the claim unpaid; if successful, as a whole or in part, the claimant will have the right to also charge for expenses incurred when submitting such claim. It will be a defense to such action (distinct from an action submitted to require a claim to be fulfilled with respect to expenses incurred in defense of such procedure prior to its final disposition whereby the procedure required, if applicable, will have been offered to the Company) that the claimant has not complied with the code of conduct, which make possible, according to the DGCL, for the Company to indemnify the claimant for the amount claimed,; however, the obligation to provide such defense will rest on the Company (including the Board, the independent legal counsel or the shareholders), has not made a determination prior to the beginning of the action where the indemnification of the claimant is valid under the circumstances due to the fact that the claimant has met the applicable code of conduct, may not be considered as a defense to the action and will not create an assumption that the claimant has not complied with the applicable code of conduct. 10.5
Obligatory Effect
. If it was necessary to determine that the claimant has the right to an indemnification, in accordance with section 10.3, the Company will be bound by such determination throughout the legal process initiated in accordance with Section 10.41.06
Validity of this article
. The Company will not any legal procedure initiated in accordance with Section 10.4 than the procedures and provisions of this Article 10 are not valid, obligatory and applicable, and must stipulate in said procedure that the Company commits to comply with all clauses of this Article 10. 10.07
No Exclusivity, etc.
The right to indemnification and payment of expenses incurred with the defense of a procedure prior to its final judgment granted through this Article 10 will not be exclusive of all other right that any person can have or acquire in accordance with any decree, clause of constitutive certificate, by-laws, agreement, shareholders or non interested directors vote or any other form. No revocation or modification of the Article 10 will decrease in any way or affect in an adverse manner the rights of any director, employee, agent, present or past of this Company or of any predecessor of the same with respect to any event or problem arising prior to said amendment or modification. 10.08
Insurance.
The Company can maintain an insurance on its own to protect itself and any director, employee or agent of the Company, partnership, joint venture, trust or another company, against all cost, debt or loss, whether the Company has the capacity to indemnify such person or not against such cost, debt or loss in accordance with the DGCL. 10.09
Indemnification of other persons.
The Company may grant the right of indemnification and to receive payment from the Company to any of its employees or agents, current or past, for expenses incurred with respect to any procedure prior to the final judgment, in accordance with the clauses of this Article 10 addressing indemnification and estimate of expenses incurred by the directors and employees of the Company. 10.10
Divisibility.
If any clause or clauses of this Article 10 are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, but not limited to, each part of every paragraph of this Article 10 that contains such clause deemed invalid, illegal or not applicable) will be interpreted in such manner as to give effect to the intent manifested by the clause deemed invalid, illegal or not applicable. BY-LAWS OF INFINITY ENERGY RESOURCES, INC. Adopted on April 29, 2006. ARTICLE 01. Office. The head office of Infinity Energy Resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”). The Company will have offices in every place the Board so decides. ARTICLE 2 SHAREHOLDERS – 2.1
Ordinary Meetings
. The shareholders ordinary meetings for the election of directors and to address any other business that is deemed appropriate prior to the meeting will be carried out on the date and time set by resolution of the Board. 2.02
Extraordinary Meetings
. Except as otherwise established, the shareholders extraordinary meetings will be convoked by the individuals indicated in the Articles of Incorporation and must be called by the Secretary of the Company at the written request of the shareholders that have 25% or more of the capital stock of the Company with the right to vote with respect to the directors. Such written request will establish the purpose of the proposed meeting and will include all relevant information contemplated in Section 2.5. The topics discussed in every shareholders extraordinary meeting will be limited to those duly included in the written request and about which all necessary information has been timely provided in accordance with Section
2.5, 2.03 Notice of
Meeting. Written notice will be given no less than ten days and no more than sixteen days prior to the date of the meeting showing the place, date and time of the meeting, and in case of an extraordinary meeting, include the purpose for which such meeting was called, except as otherwise provided by law or the Articles of Incorporation. Such notice will be delivered in person or by postal service, prepaid telegram, telex, facsimile transmission, cablegram or express courier to each registered shareholder authorized to vote in such meeting. If such notice is sent by mail, it will be deemed received when deposited in the United States mail, prepaid, addressed to the shareholder and sent to his/her address as shown in the Company’s shareholders registry. 2.04 Waiver. The presence of a Company’s shareholder, whether in person or through proxy, in any meeting, whether ordinary or extraordinary, will constitute a waiver to the right of notice and such meeting, except when a shareholder is present at the meeting for the express purpose of objecting, at the beginning of such meeting, the addressing of every topic due to the fact the meeting was not properly called. A written waiver to the right of receiving notice of such meeting, signed by the shareholder or shareholders authorized to received such notice before, during or after the time of the notice of said meeting, signed by the shareholder or shareholders authorized to receive such notice before, during or after the time of the notice or time of the meeting, will be equivalent to notice. It will not be necessary to specify the matter to be discussed nor the purpose of every meeting in the written waiver to the right of receiving notice. 2.5
Notice of the topic to be discussed in the shareholders meeting.
No topic will be discussed in any shareholders meeting, including the designation or election of individuals for the Board other than those specified in the meeting notice (or any attachment to same) granted by the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or extraordinary meeting called by any of the individuals listed in Section 7.1 of the Articles of Incorporation; (b) duly presented before the meeting by or according to the direction of the Board, duly authorized by it); or (c) duly presented before the meeting by any of the Company’s shareholders (1) that is a registered shareholder on the date in which the notice mentioned in Section 2l5 was given and on the date of registration for determination by the shareholders authorized to vote in said meeting and (2) that complies with the notice procedures established in this Section 2.5. Besides all other applicable requirement in order for the topic to be duly presented at the meeting by a shareholder, the shareholder must have submitted written notice concerning such topic in a timely manner and proper format to the Secretary of the Company (a) so that the shareholder’s notice be timely delivered or sent by mail and is received at the Company’s main office no less than ninety days and no more than one hundred twenty days prior to the date of the meeting; nevertheless (1) in case of public disclosure of the date of the meeting started in less than one hundred twenty days with respect to the date of the meeting, in order for the shareholder’s notice to be timely, it cannot be received after the closing of the tenth business day following the date on which the public disclosure of the meeting date has been made and (3) notwithstanding the preceding, with respect to an extraordinary meeting called through written request by the shareholders in accordance with Section 2.2, all notices submitted by a shareholder with a request must be delivered simultaneously with such request (b) in order for the shareholder’s notice to reach the Secretary in a timely manner with respect to any matter other than the nomination of individuals for election of the Board, must make reference to each of the topics said shareholder proposes to discuss before the ordinary meeting and must establish (i) a brief description of the matter to be discussed during the ordinary meeting and the reasons for which such topic should be discussed; (ii) the name and registered address of said shareholder; (iii) the class or series and number of shares in the Company owned by such shareholder, whether as usufruct or registered; (iv) a description of all understandings and agreements between said shareholder and any other person or persons (including their names) with respect to the proposal of such topics and (v) a statement that such shareholder intends to be show up in person or through proxy in a meeting to present such topic before the meeting. (c) in order for the shareholder’s notice related to the nomination of individuals for the board reach the Secretary in a timely manner, it must establish (a) with respect to each of the proposed candidates (i) name, age, business and residence address; (iii) the class or series and number of shares in the Company owned by the candidate, whether as usufruct or registered and (iv) any other information related to the candidate that could be required to be disclosed in a statement of representation with respect to the requests for representation for election of board members in accordance with Section 14 of the Securities Exchange Act of 1934 and its modifications (“Securities Exchange Act”) and the provisions and regulations established below and (b) with respect to the shareholder delivering the notice, (i) the name and address of registration, (ii) the class or series and the number of shares of the Company owned by the shareholder, whether as usufruct or registered; (iii) a description of all understandings or agreements between said shareholder and each of the proposed candidates and of any other person or persons (including their names) in accordance with the nominations , (iv) a statement that said shareholder has the intent of appearing in person or through a proxy at the meeting to nominate the individuals mentioned in the notice and (v) any other information related to said shareholder that needs to be disclosed in a statement of representation or other necessary presentations with respect to the requests of representation for the election of board members in accordance with Section 14 of the Securities Exchange Act with the provisions or norms promulgated by virtue of the same. Such notice must be accompanied by a written consent from each candidate proposed to be nominated as such and to provide services as a director in case said individual is elected. (d) in the shareholders meeting there can be no discussion of any topic and the individuals nominated by a shareholder may not be elected as director unless notice has been given with respect to the action proposed in accordance with the procedures set forth in this Section 2.5. The decisions of the president concerning those procedures will either be complied with or not and, in a particular case, it will be definitive and binding. 2.06
Quorum
. Except as otherwise provided by law or in the Articles of Incorporation or the By-Laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meetings, whether appearing in person or through proxy, will constitute a quorum and whatever the majority of said quorum decides will be deemed as a decision by the shareholders, except in the case of the election of directors. If a quorum is not present at the meeting, the president of the meeting will suspend the meeting without prior notice if the time and the place are announced in the meeting, until such time a quorum is present. In the suspended meeting, where a quorum is present, any topic may be discussed that could have been discussed in the original meeting. In case the suspension lasts more than thirty days or right after it is suspended a new date is established for the suspended meeting, notice of suspension will be given to each shareholder registered with the right to vote in a meeting. 2.07
Procedure
. The items in the agenda of the day and all other topics to be discussed in each shareholders meeting will be determined by the president of the meeting. The president of every shareholders meeting will be the President of the Board or, in his/her absence, it will be the one present at the meeting with the most seniority with the Company. ARTICLE 3 DIRECTORS. 3.01
Number
Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and in a timely manner based on a resolution adopted by the Board. 3.2.
Ordinary Meetings.
The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of said meeting to legitimately hold it. The ordinary meetings of the Board will be carried out at the places and times as determined by the Board. 3.3 –
Extraordinary Meetings.
The extraordinary meetings of the Board can be called at any time or place and for any reason by the president of the board, the general director or the majority members of the Board. 3.04
Notice of meetings.
It is not necessary to give notice of ordinary meetings of the Board. Notice will be given with regard to each extraordinary meeting of the Board to each director, at their habitual work address or to an address such Director provides for such purpose. Such notice will be deemed as timely given when such notice is (a) placed in the mail of the United States no later than three calendar days prior to the date of the meeting or (b) personally delivered by telegram, facsimile or telephone communication at least twenty four hours prior to the time set for the meeting. It is not necessary for such notice to include either a statement of the subject to be discussed or the purpose of same. 3.5
Waiver
The presence of the director in a Board meeting will constitute a waiver to the right of notice to said meeting, except when the director participates in a meeting with the for the express purpose of objecting, at the beginning of the meeting, to the discussion of any topic due to the fact the meeting was not formally convoked or called. A waiver in writing to the right to receive notice, signed by the authorized director or directors to said notice, whether before, during or after the time of notice or the time of the meeting will be the equivalent of a notice. 3.06
Quorum.
Except as otherwise provided by law, the Articles of Incorporation or the By-Laws, it will be necessary to have a majority of directors present at this time and this will be sufficient to constitute a quorum to discuss the topics in any Board meeting, and the decision reached by the majority of the directors present in the meeting in which there is a quorum will be deemed as presented by the Board. In case it does not arrive, the Board meeting will be timely suspended without prior notice. 3.07
Telephone participation in the meetings.
The Board members or members of any Board committee may participate in a Board meeting or committee meeting through a conference call or similar communication equipment through which all individuals participating in the meeting can mutually hear each other and said participation will constitute a personal presence in such meeting. 3.8
Decisions without a meeting.
Except as otherwise provided by the Articles of Incorporation or the By-laws, any necessary action can be taken in case all of the Board members or members of the Board committee sign an agreement, in writing, and such consent in writing, is filed with the minutes of the Board or committee procedure. Any consent may be equivalent and will be in effect on the date of the last signature on it, unless otherwise established. ARTICLE 4 COMMISSIONS – 4.01
Designation of committees.
The Board will establish committees for the performance of delegated or designated functions as allowed by law; each committee will be composed of one or more directors of the Company. In the absence or disqualification of a member of a committee, he/she or the members present at all meetings who are not disqualified to vote, whether such members constitute a quorum or not, may unanimously designate another member of the Board to represent said absent or disqualified member at the meeting. 4.02
Authority and powers of the committee
. Except as otherwise provided by law, the Board d may. Establish, through resolution or amendment to these By-Laws, that a committee may exercise all powers and authority of the Board in managing the business and matters of the Company. ARTICLE 5 – OFFICERS. 5.01 – Number – The officers of the Company will be designated or elected by the Board. The officers will consist of a general director, a president, if applicable, the number of executive vice-presidents that the Board so determines, a secretary, if applicable, the number of assistant secretaries that the Board so determines, and a treasurer. Any individual may hold two or more positions at the same time. 5.02
Additional Officers.
The Board may nominate any other officer as it deems appropriate. 5.03
Term of office
. Waiver. All officers, agents and employees of the Company will maintain their respective positions as desired by the Board and may be removed from their positions at any time the Board deems appropriate, with or without cause. Any officer may resign at any time by giving notice in writing to the general direct, president or secretary, in order for it to be effective, and acceptance of such resignation is not necessary for it to be effective unless the notice so establishes.. Any vacancy of a position will be covered by the Board.
Functions:
The officers of the Company will carry out the functions and will exercise the powers as delegated by the Board or the president and the director general. ARTICLE 6 – CAPITAL STOCK – 6.01 Certificates – The Board will authorize the issuance of certified or not certified capital. Each shareholder, through written request, will have the right to one or more certificates signed by or in the name of the Company by the (a) director general or the president and (b) the secretary or the assistant secretary certifying the number of capital shares of the Company owned by said shareholder. Any or all the signatures in the certificate can be by facsimile. 6.02 –
Registered
Shareholders. The Company will have the right to treat the holder of the registry of any share or shares of the Company as the holder in fact of such share or shares and, as a result, such holder will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any person, whether such holder has or not notice of same, unless otherwise established. 6.003
Cancelation of the
certificates. All certificates delivered to the Company will be cancelled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until they, or previous ones (for the same number of shares of the same class of capital), have been delivered and canceled. 6.04
Stolen or destroyed certificates.
The Board may establish that new certificates be issued in place of any certificate or certificates issued to date by the Company that have been declared to be lost, stolen or destroyed, by preparing a sworn statement to do in an acceptable manner to the Board or the person who claims the certificate or certificates have been lost, stolen or destroyed. The Board, at its discretion and as prior condition for the issuance of any new certificate or certificates, may require that the owner of the lost, stolen or destroyed certificate or certificates, or their legal representative, provide the Company or its agent or agents in charge of transfers, registration or registrations a title in such manner and amount as specified by the Board, as indemnification for all claims that may arise against the Company and its transfer or registration agent or agents with respect to the loss, theft or destruction of any certificate or the issuance of a new one.
ARTICLE 7
FISCAL YEAR Fiscal Year.
The Company’s fiscal year
will end on December 31 of each year.
ARTICLE 8 – AMENDMENT.
The expert continues to speak and says that the authentication from the State of Colorado that is in English reads as follows in Spanish:
TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO. SS. I, GINETTE DENNIS,
Secretary of State for the State of Colorado, hereby certify that
HAWK-BROWNS
, whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of taking such acknowledgment a
NOTARY PUBLIC
duly commissioned, sworn and authorized by the laws of the State of Colorado. And I hereby certify that the signature and affixed official seal of said NOTARY PUBLIC, to the best of knowledge is genuine. The signature of the notary has been compared with the signature on file at my office. In witness whereof, I hereby affix the great seal of the state of Colorado, in the city of Denver, on march 8, A.D. 2006 (f) Ginette Dennos. Secretary of State. Following is the certification of the Secretary of INFINITY ENERGY RESOURCES, INC., which reads as follows in Spanish:
THREE)
CERTIFICATE OF THE SECRETARY OF INFINITY ENERGY RESOURCES, INC. I, Timothy A. Ficker, duly elected, qualified and acting as Secretary in accordance with the By-laws of Infinity Energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Articles of Incorporation and the By-Laws of the Company, which are attached to this certificate, are true and correct copies of the original Articles of Incorporation and By-laws of the Company and said Articles of Incorporation and By-Laws have not been modified, reformed or revoked. In my presence I sign it as Secretary of Infinity Energy Resources, Inc. on March 6, 2006 (F) Timothy A. Ficker. Secretary of Infinity Energy Resources, Inc. Before me on March 6, 2006 appears Timothy A. Ficker, as Secretary of Infinity Energy Resources, Inc. who, before me, signed the certificate and, to certify it, in witness whereof, I set my signature (f) illegible, Notary Public in and for the State of Colorado. My commission expires eleven/zero, five/zero, seven (11/05/07). Seal. For greater effect of the document, below is the authentication from the Consulate General of the republic of Nicaragua in Houston and the Ministry of Foreign Affairs in Nicaragua , which is in Spanish and reads as follows:
FOUR)
The General of the Republic of Nicaragua in Houston CERTIFIES that the preceding signature says: GINETTE DENNIS is authentic and corresponds to that of the name: Ginnette Dennis. Position: Secretary General of Colorado. Date: March 28, 2006. “
THIS CONSULATE DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.”
Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua which reads as follows:
FIVE)
“Ministry of Foreign Affairs, Consular Department, Managua, Nicaragua. The undersigned, Consular General Director “Certifies” that the preceding signature and says MARIA MERCEDES BECK is authentic and corresponds” to the on used on this date by MAARIA MERCEDES BECK, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America. The Institution and the employee (a) do not assume responsibility with respect to the content of the document. Managua, Wednesday, April 5, 2006, 11.15.45 a.m. (F) Illegible. Lic. Maria Josefina Rojas Romero. Director of Consular Services. Stamp. Ministry of Foreign Relations. Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal matter of this document, the general clauses that ensure its validity, the special clauses it contains and those that involve waivers and implicit and explicit stipulations. This deed was read by me, Notary Public, in full, to the appearing parties, who found it to be in agreement. They approve, ratify and sign, together with me (F) Angelica Arguello D (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B. FROM PAGE NUMBER FIFTY TO THE FRONT OF PAGE NUMBER FIFTY SEVEN IN MY PROTOCOL THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELEICA ARGUELLO DAMHA, FIRST BOOK WITH SEVEN USEFUL PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT THREE THIRTY OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX. (F) Boanerge Ojeda B, Notary Public (S) BOARNERGE ANTONIO OJEDA BACA, Attorney and Notary Public. I swear to have seen the documents listed above which grant sufficient power to the appearing party. (SECOND) REQUEST FOR REGISTRATION OF BRANCH: The appearing party, acting in its capacity as described above says that it is requesting the registration of said branch to perform its activities and therefore wishes to begin its operations as of the registration date in the Public Registry of Companies for the purpose of completing the transactions for acquiring its legal entity in accordance with the Code of Commerce in effect and therefore kindly requests to the Public Registry Clerk to register such branch in the Public Registry writing at the foot of the testimony in the deed the corresponding reason for its registration. The appearing party also declares that the copies of the original documents in English of the opening minutes of the branch and the articles of incorporation of Infinity Energy Resources Inc. will also be attached to this document. So expressed the appearing party, well instructed by me, Notary Public, with respect to the object, value and legal content of this document and the general clauses that ensure its validity, the special clauses that contain and those that involve waivers and implicit and explicit stipulations, as well as the need to register this deed in the corresponding registry. This deed was read in its entirety by me , Notary Public, in .the presence of the appearing party, and found to be in order; it was approved, ratified and signed with me, Notary Public, who swears to all of its contents. (F) Angelica Arguello D. (F) Ana Teresa Rizo B, Notary Pubic. Before me, entered in the front of page number forty six and the front of page number fifty six in my Protocol Number Ten of this year, at the request of Angelica Arguello D, in the name and representation of INFINITY ENERGY RESOURCES INC., which book contains eleven (11) useful pages of law, that I sign, seal and initial in the city of Managua, at ten o’clock and two minutes of the morning of April twenty five of the year two thousand six, registered under number twenty one thousand seven hundred twenty one dash b two (21,721-B2), page five hundred fifty one and five hundred seventy (551-570) volume seven hundred eight five dash B two (785-B2), Second Book of Companies, under number fifty seven thousand two hundred sixteen dash A (57,216-A), pages two hundred eighty and two hundred eighty one (280 and 281) of volume one hundred fifty nine dash A 9159-A) of the Book of Individuals, both part of the Public Trade Registry of the Managua department. The undersigned, Notary Public, records and swears that the documents listed grant sufficient powers to the appearing parties to execute this document. Both appearing parties together state that once the requirement established in article twenty six (26) of law two hundred eighty six (286) “Special Law of Exploration and Exploitation of Hydrocarbons and article fifty seven (57) of its Regulation is fulfilled, and the Ministry of Energy and Mines has the Public Deed Number Four of Several Guarantee in its possession, authorized in the city of Managua at five o’clock in the afternoon of January twenty two of the year two thousand nine at the Notary Public Office of Ramón Alberto Castro Romero, which has the required guarantee in accordance with the provisions mentioned above, proceed to sign a
CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS, “TYRA” PROSPECT
, which will be governed by the following Clauses:
CLAUSE ONE (1) OBJECT
The object of this Contract is to establish the rights and obligations of the parties with respect to the Petroleum Concession for the Exploration and Exploitation of Hydrocarbons located in the Caribbean Region Offshore Nicaragua, granted by the Republic of Nicaragua to INFINITY ENERGY RESOURCES, INC.
CLAUSE TWO (2): DEFINITIONS
The following words and terms used in this Contract, unless otherwise expressly specified in the Contract, shall have the following respective meanings.
1 (ONE): "Calendar Year"
means a period of twelve (12) consecutive months, beginning on the first day of January and ending on the following thirty first (31) day of December.
2 (TWO): "Contractual Year"
means a period of twelve (12) consecutive months within the terms of the Contract, beginning on the Effective Date or on any anniversary date.
3 (THREE): "Contract Area"
means the specific area in which the Contractor has a concession to perform exploration and/or exploitation activities of the hydrocarbons resources located in such area.
4 (FOUR): “Exploration Area”
means the portion of the Contract Area that consists of rectangular blocks oriented from North to South, East to West, designated for the study of the Minimum Exploration Program.
5 (FIVE): “Exploitation Area"
means the portion of the Contract Area designated in the approved Development Plan that covers a Commercial Discovery and a reasonable security boundary.
6 (SIX): "Barrel"
means a barrel consisting of 158.9074 liters (42 United States gallons) in liquid measure, corrected to a temperature of 15.56 degrees centigrade under one atmosphere of pressure (14.7 pounds per square inch).
7 (SEVEN): “C.I.F” (Cost, Insurance, Freight):
means the sum of the cost of the product, insurance plus freight. Term used in international commerce.
8 (EIGHT): "Affiliated Company" or "Affiliate"
means a company or organization : in which an entity comprising the Contractor owns directly or indirectly share capital that confers unto it a majority of votes at the stockholders' meeting of such company; which is the owner, directly or indirectly, of share capital that confers unto it a majority of votes at the stockholders' meeting of a company or entity comprising the Contractor; which is the owner, directly or indirectly of share capital that confers unto it a majority of votes at the stockholders' meeting of such company and a majority of votes at the stockholders' meeting of an entity comprising the Contractor, and are owned directly or indirectly by the same company.
9 (NINE): “Contractor”
means any natural or legal person, national or foreign, that has entered into a contractual relationship with the State to perform exploration and exploitation activities of Hydrocarbons in Nicaragua. In this Contract, it means Infinity Energy Resources, Inc. or its successors.
10 (TEN): "Contract"
means this Exploration and Exploitation contract and its annexes, executed by the State’s representative and the Contractor, pursuant to the Law and its Regulation and covers the Contract Area.
11 (ELEVEN): "Commercial Discovery"
means a discovery of Hydrocarbons in the Contract Area that the Contractor considers being commercially exploitable and commits to develop and produce it under the terms of the Contract.
12 (TWELVE): "Development" or "Development Operations"
of the "Development Work" means all the work performed under a Development and Production Program submitted by the Contractor and approved by the MEM, which must include, but not be limited to the following: all the operations and activities under the Contract with respect to the drilling of development wells, production wells, maintenance wells, plugging, completing and equipping of such wells, together with the design, construction and installation of such equipment, pipes or lines, installations, production units and all other systems relating to such wells as may be necessary; pursuant to the international petroleum industry practices and regulations in effect.; all operations and activities relative to the servicing and maintenance of pipelines, lines, installations, production units and all activities associated with the production and management of the wells.
13 (THIRTEEN): “State"
means the State of the Republic of Nicaragua.
14 (FOURTEEN): "Appraisal"
means work conducted for the purpose of evaluating the commercial potential of a geological structure or prospect in which Hydrocarbons have been discovered.
15 (FIFTEEN): “"Exploration" or "Exploration Operations"
means the activities that shall include, but will not be limited to geological, geo-chemical, geophysical, seismic and other surveys; any interpretation of data relating thereto as may be contained in the Minimum Exploration Program (PME); as well as drilling to obtain core samples, and stratigraphic tests, Wildcat wells for the discovery of Hydrocarbons, Appraisal wells and other related operations.
16 (SIXTEEN): "Effective Date"
means the date of signature of this Contract by both parties
17. (SEVENTEEN): “F.O.B.” (Free on Board):
Value of the merchandise placed in the means of transportation at the Shipping Port. Term used in international commerce.
18 (EIGHTEEN): “Natural Gas”
: is the mixture of Hydrocarbons in gaseous state.
19 (NINETEEN): “Associated Natural Gas”
: means all gaseous Hydrocarbons produced in association with crude oil and separated therefrom.
20 (TWENTY). “Non-Associated Natural Gas”
: means all gaseous Hydrocarbons produced from gas wells, including wet gas, dry gas and residual gas remaining after the extraction of Liquid Hydrocarbons from the wet gas.
21 (TWENTY ONE): “Hydrocarbons”
: is the organic chemical compound of carbon (C) and hydrogen (H), whatever their physical state, be it oil, gas, condensate, as well as associated or derivative substances.
22 (TWENTY TWO): “Liquid Hydrocarbons”
: means any Hydrocarbon produced from the Contract Area which remains in a liquid state under atmospheric pressure and temperature conditions.
23 (TWENTY THREE):“Law”:
means the Special Law for Exploration and Exploitation of Hydrocarbons, Law No. 286, published in the Official Gazette No. 109 on June 12, 1998.
24 (TWENTY FOUR): “MARENA”
: means the Ministerio del Ambiente y Recursos Naturales of the Republic of Nicaragua (The Environmental and Natural Resources Ministry) or any entity that may succeed it.
25 (TWENTY FIVE): MEM: “Ministry”
, which is the Ministry of Energy and Mines of the Republic of Nicaragua.
26 (TWENTY SIX):“Month” or “Calendar Month”
: means a Calendar Month.
27 (TWENTY SEVEN): “MHCP”
: means the Ministerio de Hacienda y Credito Público of the Republic of Nicaragua (The Treasury Department of the Republic of Nicaragua).
28 (TWENTY EIGHT): “Petroleum Operations”
: means operations and activities carried out by the Contractor by virtue of the rights granted to the Contractor under this Contract.
29 (TWENTY NINE):“Parties”
: in this Contract are the State and the Contractor.
30 (THIRTY): “Wildcat Well”
: means any well drilled with the objective of finding Hydrocarbons in a structure or geologic trap in which Hydrocarbons in quantities having commercial potential have not been previously encountered.
31 (THIRTY ONE): “Development and Production Program”
: means the work program during the first five years for the development and operation of the field, which must specify the location of the transportation and storage facilities to the Fiscalization Point agreed upon, as well as other transportation and storage facilities to the point or points of internal or external commercialization.
32 (THIRTY TWO): “Minimum Exploration Program” (MEP):
is the work program provided for in Clause 6.1 that is divided into sub phases under which the Contractor has committed itself to carry out exploration activities in the Contract Area.
33 (THIRTY THREE): “Work Program”:
means the program that specifies the Petroleum Operations to be conducted within a designated area and time schedule for accomplishing such operations.
34 (THIRTY FOUR): “Fiscalization Point”:
means the location or locations approved as part of the Development and Production Plan where Hydrocarbons are metered for fiscal purposes, which in no event shall be beyond the point of export or point of first sale of such Hydrocarbons in Nicaragua, pursuant to the Law.
35 (THIRTY FIVE): “Prospect”
is a hydrocarbon trap delimited by a rock.
36 (THRITY SIX): “Regulation”
: means the Regulation to the Special Law for Exploration and Exploitation of Hydrocarbons, Decree No. 43-98 (forty three dash ninety eight), published in the Official Gazette No. 117 on June 24, 1998.
37 (THIRTY SEVEN): “Subcontractor”
: is a specialized entity contracted by the Contractor to carry out a specific exploration or exploitation job under the supervision and for the account of the Contractor.
38 (THIRTY EIGHT):“Quarter” or “Calendar Quarter”:
means a period of three (3) consecutive months beginning on the first day of January, April, July, or October.
CLAUSE THREE (3): GRANT OF RIGHTS
One (1). Subject to the provisions of this Contract and by virtue of the same, the Contractor is hereby granted the exclusive rights, during the term of this Contract, to explore and exploit Hydrocarbons in the Contract Area, as well as the non-exclusive right to construct and operate such facilities and infrastructure within or outside of the Contract Area up to the Fiscalization Point, as may be required in relation to the exploration and exploitation operations. Subject to making the payments to the State as set forth herein, the Contractor shall be entitled to receive, upon extraction, the Hydrocarbons that are produced within the Contract Area. However, this Contract does not grant the Contractor ownership of the Hydrocarbons in situ or any preferential rights to the surface or subsurface of the Contract Area.
Two (2). The Contractor, by virtue of this Contract, has the right to transport, store and commercialize, on its own behalf, any Hydrocarbons that such Contractor produces within the Contract Area and does not consume in the Petroleum Operations. Such right refers to the activities engaged by the Contractor in Nicaragua between the Fiscalization Point and the point of export or point of first sale in Nicaragua of such Hydrocarbons. Activities in Nicaragua beyond such point of export or point of first sale are outside of the scope of this Contract and are governed by Law No. 277, Supply of Hydrocarbons, of February 6, 1998.
Three (3). For the operations authorized under this Contract, the Contractor shall have the right to the following: 3.1 Free access to and from the Contract Area and to and from facilities and infrastructure within or outside of the Contract Area and to the use, without restriction, of the area required by the Contractor pursuant to Clause 27, of this Contract, and, 3.2 To use the following for its operations as authorized under this Contract: sand, alluvial material, select banks of materials and water belonging to the public domain by prior arrangement with the competent authorities and based on payment of the prevailing charges for such resources.
Four (4). The Contractor may not begin any Exploration operation in situ until it has complied with the requirement of preparing the Environmental Impact Study (EIA) in accordance with the Terms of Reference prepared by MARENA in coordination with the MEM and the Interdisciplinary and Inter-institutional Committee, as established by Decree seventy six dash two thousand six (No. 76-2006) published in La Gaceta number two hundred forty eight (248) , item b) of article fifty one (51) of Law Number two hundred eighty six (286), and has not submitted the Environmental Management Program. The Contractor must request the Environmental Form from MARENA which, within forty-five (45) days from the date or receipt of such request, will provide the Contractor with the Terms of Reference, pursuant to Article 51 of Law number two hundred eighty six (286) and Decree seventy six dash two thousand six (76-2006).. The Exploration Period and the first phase set forth in Clause 6.1 of this Contract will begin once the Contractor receives such Environmental Permit from MARENA. Once the Environmental Impact Assessment (“EIA”) has been submitted by Contractor, the Exploration Period contained in Clause 6.1 will be suspended until such time MARENA issues the Environmental Permit. The Contractor must obtain the Environmental Permit from MARENA prior to the commencement of on-site operations, pursuant to Article 51 (Fifty One) of the Law, the environmental regulations and the national and international technical and environmental norms.. In the event that MARENA does not issue the Environmental Permit within one hundred twenty (120) business days, to a maximum of two hundred forty (240) business days as of the date the Contractor submits its EIA pursuant to the Terms of Reference prepared by MARENA, the Contractor shall have an additional right to invoke Force Majeure at the end of the aforementioned period.
CLAUSE FOUR (4): RISK
One (1). The Contractor assumes all risks, costs and responsibilities for the activities object of this Contract, as well as for obtaining the Environmental Permit required to carry out Petroleum Operations, and agrees to provide the capital, machinery, equipment, materials, personnel and technology necessary to comply with all of its obligations hereunder.
Two (2). The State does not assume, under any circumstance, any risk or responsibility for the investments, nor for the exploration and exploitation operations to be performed, nor for any damages that may result from same, even when the act or deed may result from an action on the part of the Contractor that has been approved by MEM. Three (3) If there is no Commercial Discovery in the Contract Area or if production from the Contract Area is insufficient to cover the Contractor's cost of the Petroleum Operations, the Contractor shall bear and be solely responsible for such losses.
CLAUSE FIVE (5): CONTRACT AREA
.
The Area awarded to INFINITY is defined as the “TYRA PROSPECT” OFFSHORE CARIBBEAN, pursuant to Resolution No. zero, eight, dash, two thousand three (08-2003) published in La Gaceta Number one hundred (100) of May thrity (30) two thousand three (2003). The Are granted in this contract is in accordance with the laws in effect for the purpose of complying with article thirty three (33) of Law No. four four five (445) “Law of Community Property of the Indigenous People and Ethnic Communities of the Autonomous Regions of the Atlantic Coast of Nicaragua and the Rivers Bocay, Coco, Indio and Maiz., published in La Gaceta No. sixteen (16) of January twenty three (23) of two thousand three (2003) as follows: One (1). The Contract Area of the “Tyra Prospect” Offshore Caribbean, as of the Effective Date of this Contract, comprises an area of three hundred thirty four thousand two hundred thirty Hectares (334,230 Ha) equivalent to three thousand, three hundred forty two square kilometers (3,342 km2) rectangular in shape, divided into blocks adjacent to each other, located in the Nicaragua Offshore Caribbean Region, in the area denominated as “TYRA PROSPECT”. Two (2). Except for the rights expressly set forth in the Contract, no right is granted to the Contractor with respect to the surface area, sea-bed, sub-soil or to any natural or aquatic resources. Three (3). The Concession Contract Area includes the following blocks with their respective identification within the Area Opening Map: AG-10: AG-15, AG-16, AG-21, AG-22, AG-27, AG-28, AG-32, AG-33, AG-34, corresponding to ten (10) blocks defined by the following coordinates: Vertex 1: Latitude North 13° 50´ 00”, Longitude West 82° 30´ 00”, Vertex 2: 13° 50´ 00”, Longitude West 82° 20´ 00”, Vertex 3: Latitude North 13° 00´ 00”, Longitude West 82° 20´ 00”, Vertex 4: Latitude North 13° 00´ 00”, Longitude West 82° 50´ 00”; Vertex 5: Latitude North 13° 10´ 00”, Longitude West 82° 50´ 00”, Vertex 6: Latitude North 13° 10´ 00”, Longitude West 82° 40´ 00”, Vertex 7: Latitude North 13° 40´00”, Longitude West 82° 40´00”; Vertex 8: Latitude North 13° 40´00”, Longitude West 82° 30´00”, Vertex One: Latitude North 13° 50´00”, Longitude West 82° 30´00”,
CLAUSE SIX (6): CONTRACTUAL TERMS
:
One (1) The exploration period shall be for six (6) Contractual Years (“Exploration Period”) as of the Effective Date, divided as follows: 1.1) A first sub-period of one point five (1.5) Contractual Years, divided into a nine (9) month environment phase and a nine (9) month operational phase. 1.2) A second optional sub-period of half (0.5) Contractual Year. 1.3) A third optional sub-period of two (2) Contractual Years. 1.4) A fourth optional sub-period of two (2) Contractual Years. The Contractor's right to enter the next sub-period is subject to the fulfillment of its obligations for the preceding sub-period.
TWO (2). The Contractor shall notify MEM of its decision to enter the next sub-period at least ninety (90) days prior to the expiration of the previous sub-period. Such notice shall be accompanied by the guarantee required by Clause 9 of this Contract covering the Minimum Exploration Program corresponding to such sub-period. If the Contractor decides not to enter the next sub-period, the Contract shall terminate at the end of the then current sub-period.
THREE (3). At the Contractor’s written request submitted to the MEM within a period of no more than thirty (30) days prior to the expiration of the Exploration Period set forth in number 1 of this Clause, the MEM may grant an extension of up to one (1) Contractual Year to the Exploration Period in order to enable the Contractor to complete (1) the drilling of a Wildcat Well in progress or (2) an appraisal program under the terms set forth in Clause 12, number 2, of this Contract, or any other study the Contractor may have requested. In any case, the decision of the MEM granting the requested extension must be pursuant to the provisions set forth in Articles 97 and 99 of the Regulation.
FOUR (4). In the event of a Commercial Discovery, the term of the Exploitation Contract shall be of thirty (30) years from the Effective Date, plus the period relative to the Natural Gas Exploitation Area for any market development phase utilized in accordance with Clause 14, number 2 of this Contract associated with such Exploitation Area.
FIVE (5). If the commercial production of an Exploitation Area would be possible beyond the applicable term specified in the preceding Clause, the Contractor may request, through notice submitted to the MEM at least one year prior to the end of such term, to extend the duration of the Contract with respect to such Exploitation Area for up to an additional period of five (5) years under the terms and conditions mutually agreed between the MEM and the Contractor. Such terms and conditions must be established between the date of notice given by the Contractor and the effective date of such extension.
CLAUSE SEVEN (7): RELINQUISHMENT OF AREAS
.
ONE (1). The Contractor must relinquish part of the Contract Area at the end of each sub-period of exploration as follows: For the First Sub-Period, at least 0.8% (zero point eight percent) of the Contract Area, equivalent to two lots of 2 minutes x 2 minutes each, corresponding to an area measuring 2,666 (two thousand six hundred sixty six) hectares. For the Second Sub-Period, at least 1.2% (one point two percent) of the Contract Area, equivalent to four lots of 2 minutes x 2 minutes each, corresponding to an area measuring 3.999 (three thousand nine hundred ninety nine) hectares. For the Third Sub-Period, at least 4.8% (four point eight percent) of the Contract Area, equivalent to twelve lots measuring 2 minutes x 2 minutes each, corresponding to an area measuring 15,996 (fifteen thousand nine hundred ninety six) hectares.
TWO (2). At the end of the last sub-period, the Contractor shall relinquish all portions of the Contract Area, except (i) Exploitation Areas and (ii) Natural Gas discovery Area retained for a market development phase pursuant to Clause 14, number 1, of this Contract. The Contract Area shall be reduced to the commercial fields under production and development, plus a surrounding area for technical security for each field that shall not exceed five (5) kilometers.
THREE (3). The Contractor must relinquish the lots that have been the object of extension of the Exploration Period as set forth in Clause 6.3 of this Contract, at the end of the extension of the Exploration Period, except for the lots described in number 2 of this Clause.
FOUR (4). Unless the Contract is terminated early, the Contractor shall inform the MEM of the number of lots that will be relinquished not more than thirty (30) days prior to the deadline for the relinquishment set forth in this Clause, under number 1, items 1.1),1.2), 1.3) and number 2.
FIVE (5). The lots designated for relinquishment pursuant to number 4 of this Clause shall consist, as much as possible, of groups comprising an area of sufficient size and shape to enable Petroleum Operations to be conducted by third parties. Within a group, the lots must be contiguous and joined by at least two sides. No group shall be less than twenty (20%) percent of the total area being relinquished at such time.
SIX (6). At the request of the Ministry of Energy and Mines, the Contractor shall waive its rights to conduct Petroleum Operations in the lots corresponding to an Exploitation Area where, for reasons other than force majeure or scheduled maintenance, as approved in the Contractor’s Work Program, production of such Exploitation Area has ceased for more than one hundred eighty (180) consecutive days for oil and three hundred sixty five (365) days for gas.
SEVEN (7). No relinquishment shall relieve the Contractor of accumulated or unfulfilled obligations under the Contract.
EIGHT (8). Prior to the surrender or relinquishment of any area, the Contractor shall perform all necessary clean-up activities to reasonably restore such area as much as possible to its condition on the Effective Date, including the removal of the facilities that were built and used for the Contractor’s Petroleum Operations and its equipment, following the instructions provided by the Ministry of Energy and Mines, and shall take all other action necessary to prevent hazards to human life, property and the environment. Upon the Ministry of Energy and Mine’s acceptance of such relinquishment, the MEM will issue the respective final discharge to the Contractor.
CLAUSE EIGHT (8): OBLIGATIONS DERIVING FROM THE MINIMUM EXPLORATION PROGRAM
.
ONE (1). The Contractor shall commence the Minimum Exploration Program (PME) activities, attached hereto as an “Annex”, which is an integral part of this Contract and is within this same clause, within ninety (90) days after receiving the Environmental Permit issued by MARENA. Such Exploration Operations shall be diligently carried out for the duration of the Exploration Period.
TWO (2). During the first sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
THREE (3). .During the second sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
FOUR (4). During the third sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
FIVE (5). During the fourth sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
SIX (6). For purposes of compliance with the PME under numbers 2 through 4 of this Clause, the following is taken under consideration: 6.1 The obligations related to the second, third and fourth sub-period of the PME will accrue only if the Contractor opts to enter the following sub-period and continues to hold areas of exploration operations in the Contract Area. 6.2 Each Wildcat well shall be drilled to a minimum depth of at least three thousand five hundred (3,500) meters or a depth that intercepts the Cretaceous era, whichever is less. 6.3 Additional seismic surveys and Wildcat wells beyond the minimum required for any sub-period of the PME that could be carried out to satisfy the respective seismic survey and drilling obligations of a subsequent sub-period of the PME. 6.4 The prevailing PME obligation is the performance of the specified work with the estimated cost being used solely for establishing the guarantees of performance and the applicable non-performance penalties. Below is the transcription of the annex relative to the Minimum Exploratory Program for the Area of Perlas, which says: “PME Annex of the Tyra Prospect Area – INFINITY RESOURCES INC. (INFINITY ENERGY RESOURCES INC.). The duration of the first sub-period is of one and one half year (1-1/2) which will be divided in two phases: First Phase: The Contractor must prepare the Environmental Impact Study (EIA). Second Phase: a) Purchase, evaluation and interpretation of six hundred sixty seven kilometers (667 km) of Fugro-Geoteam 2 D seismic; and b) Acquisition of six hundred sixty seven kilometers of 2D seismic or the option to perform this seismic survey in 3D. During the second sub-period of the Exploration Period, which is half a year (1/2), the Contractor must carry out the processing and interpretation of six hundred sixty seven kilometers (667 km) of 2D seismic acquired in the previous sub-period or the option to perform this seismic survey in 3D. During the third sub-period, which is of two (2) years, the Contractor must carry out the acquisition, processing and interpretation of two hundred fifty square kilometers (250 Km2) of 3D seismic. During the fourth sub-period, which is of two (2) years, the Contractor must perform the following: a) The drilling of one (1) Wildcat with sufficient depth to drill the Cretaceous Era or three thousand five hundred meters (3.500 m) whichever is the lesser of the two (2); and b) A geochemical analysis of the petroleum.“
CLAUSE NINE (9): GUARANTEES
.
ONE (1). Within fifteen (15) days following the Effective Date of the Contract and submittal of each of the notices mentioned in Clause 6, number 2, of this Contract to enter the following Exploration sub-period, the Contractor shall provide an irrevocable guarantee in favor of the Ministry of Energy and Mines, which must be irrevocable, payable in Nicaragua at the request of the Ministry of Energy and Mines, issued by a guarantor financially acceptable to the Ministry of Energy and Mines, for an amount equal to the estimated cost, specified in number 2 of this Clause, to carry out the Minimum Exploration Work for such sub-period, with an accumulated credit carried forward pursuant to Clause 8, sub-Clause 6.3, for the excess work performed in the preceding sub-period. Such guarantee shall be in the form and fund acceptable to the Ministry of Energy and Mines and may not be the object of compensation with any other obligation.
TWO (2). The respective amounts of such guarantees will be: For the first sub-period of the Exploration Period, four hundred eight thousand four hundred fifty United States Dollars (US$408,450.00). For the second sub-period of the Exploration Period, two hundred seventy eight thousand four hundred fifty (US$278,450.00). For the third sub-period of the Exploration Period, one million eight hundred eighteen thousand six hundred sixty seven (US$1,818,667.00). For the fourth sub-period of the Exploration Period, ten million, four hundred eighteen thousand six hundred sixty seven United States Dollars (US$10,418,667.00).
THREE (3). The guarantees will be granted within the first fifteen (15) days as of the Effective Date of the Contract for the first sub-period and for the following sub-periods within the first fifteen (15) days of the date of request for continuation.
FOUR (4). The relevant guarantee shall be reduced in accordance with the procedures established in Article 59 of the Regulation to the Law.
FIVE (5). If, at the end of any sub-period of the Exploration Period, or upon termination of the Contract, the Contractor has failed to perform all or any part of the accrued Minimum Exploration Program, the Contractor or its guarantor shall, upon request from the MEM immediately pay the entire amount of such outstanding work to be performed under the PME, except where the MEM and the Contractor agree that such pending obligations can be transferred to other Contract Areas. SIX (6).Upon signature or subscription of the Contract, the Contractor will provide the MEM with a guarantee document issued by the parent company of each company comprising the Contractor, whereby the parent company will provide technical and financial resources that the subsidiary may require to meet the Contractor’s obligations in a timely manner under the Contract, including liability for any damages or losses that the operations herein may cause to the State, third parties or the environment pursuant to Article 26 of the Law.
CLAUSE TEN (10): CONTRACTOR’S OBLIGATIONS
.
ONE (1).The Contractor shall maintain throughout the term of this Contract a legal representative domiciled in Nicaragua, who shall have full authority to represent the Contractor with respect to legal matters related to the Contract and to receive notices addressed to the Contractor.
TWO (2). Within ninety (90) days following the Effective Date, the Contractor shall establish an office in Managua.
THREE (3). The Contractor shall conduct all operations hereunder in a diligent and professional manner, in accordance with applicable law, and the provisions set forth in this Contract, and the International Petroleum Industry practices and regulations in effect and the environmental standards applicable under similar circumstances. The Contractor shall ensure that all materials, equipment, technologies and facilities used for the operations described below comply with generally accepted engineering and environmental standards in the international Petroleum industry, and are kept in good working order. The Contractor shall carry out its operations in a manner that will maximize the optimum economic recovery in the Contract Area.
FOUR (4). The Contractor shall provide the MEM with regular and complete information concerning all operations under this Contract, including the schedule for execution of specific work.
FIVE (5). The Contractor shall prepare and maintain in Nicaragua accurate and current records of its operations under the Contract throughout the term of the Contract.
SIX (6). The Contractor shall keep the MEM continuously informed regarding all operations under this Contract and shall deliver to the MEM, without cost, in the form and frequency prescribed by the MEM, all materials, samples, studies, information, documents and data, unprocessed, processed, and interpreted that is obtained by the Contractor, including pertinent financial information. Furthermore, the Contractor must inform the MEM of the results of other activities from the exploration and development activities of the hydrocarbon resources investigated. The delivery requirement is extended to all information, data and work product of whatever nature for which the cost is entered by the Contractor as Petroleum Operation cost. The Contractor shall keep all technical-economic data related to its activities hereunder at the office in Managua.
SEVEN (7). The Contractor shall enable authorized representatives of the State to inspect any part of its operations and all facilities, installations, offices, records, books, or data related to operations under this Contract. The authorized State representatives will bear any costs related to all such inspections.
EIGHT (8). The Contractor shall provide facilities to a reasonable number of authorized personnel and representatives of the MEM or other Government agencies, to perform their duties and obligations associated with this Contract, including, in the case of field operations, transportation, lodging, food and other provisions similar to those provided by the Contractor to its own personnel. NINE (9). The Contractor shall bear responsibility, in accordance with the applicable law, for any loss or damage to third parties caused by its employees or sub-contractors or their employees related with the activities under this Contract, for wrongful or negligent acts contrary to the Law, or omissions, and will indemnify the proper party against any third-party’s claim.
TEN (10). The Contractor expressly waives diplomatic claims and submits to the jurisdiction of Nicaraguan courts. Without prejudice to the foregoing, the State and the Contractor hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID in accordance with Clause Thirty One (31) of this Contract.
ELEVEN (11). In performing their activities, the Contractor and Subcontractor must comply with the national and international environmental protection laws and the technical security norms, and apply the international recommended practice for each case. Such activities shall be performed in a manner compatible with the protection of human life, property, conservation of Hydrocarbons, and other resources, avoiding as much as possible damage to the infrastructure, historical sites and ecosystems of the country, whether land or marine.
TWELVE (12). Prior to the beginning of the PME, the Contractor must submit to the MARENA the Environmental Impact Study (EIA), based on the Terms of Reference (ToR) as defined by MARENA and the MEM. In addition, the Contractor must submit the Environmental Protection Plans and Contingency Plans that must be updated at least once a year and/or whenever the MEM so requests. Through these Plans, the Contractor must: 12.1. ensure the security areas around all machinery and equipment; 12.2. provide secure storage areas for all explosives, detonators, and similar dangerous materials used in operations under this Contract; 12.3. prevent pollution or damage to any water and other Natural Resources;12.4. contain any blowout, fire or other emergency situation that would result in loss of reserves or damage to the reservoir; 12.5. prevent unintentional entrance of fluids into hydrocarbon bearing formations and the production of Hydrocarbons from reservoirs at higher rates than those consistent with the international petroleum industry practices and regulations in effect; 12.6. take all reasonable precautions to prevent the pollution of or damage to the environment, including the undertaking of remedial measures within a reasonable period of time to repair or offset damage to the environment in cases where any work or installations erected by the Contractor or any operations conducted by or on behalf of the Contractor endanger third party property or cause pollution or harm to the wildlife or the environment, including where pollution occurs rapidly, in order to treat or disperse it in an environmentally acceptable manner; 12.7.report to the MEM and other entities, pursuant to the laws in effect, if any worker is injured while performing duties associated with the operations under this Contract; 12.8. have an adequate supply of first-aid medicines and equipment in each area and maintain a healthy environment for the workers; 12.9.provide safety and fire-fighting equipment in each work area; and 12.10. prepare and submit to MEM for approval prior to commencing any drilling activities, an oil spill and fire contingency plan, which plan shall be implemented in the event of such a catastrophe.
THIRTEEN (13). In case of an accident or emergency involving damage to persons or property, the Contractor must immediately inform the MEM of such event and take reasonable steps, including temporary suspension of the operations, to protect the safety of individuals and property.
FOURTEEN (14). A Regulation and Monitoring Committee will be formed, consisting of employees of MEM, MARENA and other State institutions associated with these activities, two qualified members of each Regional Council of the Caribbean Coast and two of the Contractor’s employees. The Committee shall meet at least twice (2) a year unless otherwise agreed by the parties. The meetings will take place in the city of Managua or in the field where the Contractor’s exploration and exploitation activities are performed. It is understood that the meetings to be held in the city of Managua may be open, that is, other MEM and MARENA members may be invited to participate in such meetings, whenever such nominated parties are directly involved in the exploration and exploitation activities in the Contract Area. With respect to the meetings to be held in the field, it is hereby understood that the number of MEM and MARENA participants is to be agreed between the MEM and the Contractor for budget and safety reasons; the criteria for participation in such meetings will be based on the activities carried out in the field. Each party shall bear its own costs of the representatives attending the meetings.
FIFTEEN (15). The MEM will have the opportunity to attend, as an observer, without the right to speak or vote, the Contractor’s annual shareholders meetings where investment and important decisions will be made regarding the Minimum Exploration Program (PME) and the project of the Contractor in Nicaragua. The MEM commits to keep the information gathered at the meetings confidential and will assume all costs incurred to attend such meetings.
SIXTEEN (16). The Contractor will submit to the MEM, on a yearly basis, a proposal for qualification and training of the MEM personnel in relation to the PME and the contract in general, for which a minimum annual budget of US$50,000 (fifty thousand United States Dollars) will be submitted by the Contractor. Qualification and training may include the purchase of books, software, hardware and any other supplement item needed. The types of qualification and training for the MEM personnel will be on site whenever referring to seismic operations and wildcat drilling. Furthermore, within the annual budget, the Contractor will offer at least two (2) annual seminars in Managua in connection with the PME and will also offer, on a yearly basis, participation in international seminars and conferences emphasizing the exploration and production of Hydrocarbons. In addition, the MEM may include topics of qualification and training of its interest, which must correspond to the budget in this clause and be mutually agreed upon with the Contractor.
CLAUSE ELEVEN (11) ASSISTANCE BY THE MINISTRY OF ENERGY AND MINES
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ONE (1). To enable the Contractor to fulfill the Contract in an expeditious and efficient manner, the MEM shall assist the Contractor, whenever specifically requested by the latter, in the following matters:1.1 obtaining the right to use the land as may be required for the operations under the Contract;1.2 obtaining licenses or permits for transportation and communication facilities;1.3 complying with customs formalities and regulations, and import/export control;1.4 obtaining entry and exit visas for the Contractor’s and Sub-Contractor’s foreign personnel that will come to Nicaragua to perform the Contract, including family members.
TWO (2). All reasonable expenses incurred associated with the assistance provided by MEM in accordance with this Clause, shall be reimbursed by the Contractor within thirty (30) days after receipt of the corresponding invoice.
CLAUSE TWELVE (12): DISCOVERY AND COMMERCIALIZATION
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ONE (1). If Hydrocarbons are encountered in a Wildcat well, the Contractor shall immediately notify the MEM of such discovery and within thirty (30) days thereafter; the Contractor shall also provide the MEM all available information regarding the discovery, including a preliminary classification of the discovery as (1) Liquid Hydrocarbons or (2) Natural Gas.
TWO (2). The Contractor shall notify the MEM in writing within one hundred eighty (180) days if the discovery of Liquid Hydrocarbons has commercial potential, based on the Appraisal Program described in this Clause, which will be deemed approved if no objections are submitted in writing by the MEM within thirty (30) days following receipt of such notice. The Appraisal Program shall: specify the appraisal work in a reasonably detailed form, including seismic, drilling of wells, production tests, and studies to be carried out and the time frame within which the Contractor shall commence and complete the program; and identify the lots to be appraised ("Appraisal Area") which shall not exceed the lots encompassing the geological structure or prospect plus a buffer area not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
THREE (3). If the Contractor notifies that a discovery of Natural Gas has commercial potential, the Contractor shall, within ninety (90) days after the notice, present to MEM a plan for assessing the discovery in sufficient detail for approval, to be able to seek a market for the Natural Gas ("Assessment Plan"). The Contractor must notify the MEM in writing within one hundred and eighty (180) days if the discovery of Natural Gas has commercial potential, based on the Assessment Plan. The Assessment Plan shall be deemed approved if no written objections are raised by MEM within thirty (30) days after receipt thereof. As soon as the Contractor develops a market for such Natural Gas, but in any event pursuant to the terms of the Contract, including any market development phase, under Clause 14, number 2 of this Contract, the Contractor shall conduct an Appraisal Program as set forth in number 1 of this Clause.
FOUR (4). If the Contractor notifies MEM, pursuant to number 1 of this Clause, of a discovery that the Contractor deems to have no commercial potential or if the Contractor fails to present an Evaluation Program, pursuant to number 2 of this Clause, or an Assessment Plan, pursuant to number 3 of this Clause, the Contractor, upon MEM’s request, must surrender at any moment the area that contains at least the blocks encompassing the geological structure or prospect where the discovery was made.
FIVE (5). The Contractor shall carry out the approved Appraisal Program within the timeframe specified therein. Within one hundred eighty (180) days after completion of such Appraisal Program, the Contractor shall submit to MEM a comprehensive appraisal report concerning the Appraisal Program. Such appraisal report shall include, but will not be limited to the following information: geological conditions, such a structural configuration; physical properties and extent of reservoir rocks; pressure, volume and temperature analysis of the reservoir fluids; fluid characteristics, including the gravity of the Liquid Hydrocarbons, sulfur percentage, sediment and water percentage, and product yield pattern; Natural Gas composition; results of production tests; production forecasts (per well and per field); and estimates of recoverable reserves.
SIX (6). With the submission of the appraisal report, the Contractor shall submit a written declaration to the MEM indicating one of the following: that it has determined that the discovery is a Commercial Discovery; or that it has determined that the discovery is not a Commercial Discovery, in which case the Contractor must relinquish the respective Appraisal Area immediately; or that it has determined that the discovery is a significant discovery which may become a Commercial Discovery subject to the outcome of future work that the Contractor commits to carry out under a future Exploration or Appraisal Program in specific areas within or outside the Appraisal Area.
SEVEN (7). In the event the Contractor makes a declaration pursuant to number 6.3 of this Clause, the Contractor shall be entitled to retain an Appraisal Area subject to its completion within the Exploration Period of future work committed pursuant to the provision set forth in number 6.3, at which time the Contractor shall notify the MEM about its decision with respect to the discovery, as to whether or not it is a Commercial Discovery, and the provisions set forth in number 6.1 or 6.2 of this Clause will apply accordingly.
EIGHT (8). If the Contractor declares, pursuant to number 6.1 of this Clause, that a discovery is a Commercial Discovery, the Contractor shall submit, together with the appraisal report (1) a Development Plan proposal including all installations and facilities for the operations under this Contract, (2) a proposal of designation of the lots that comprise the Exploitation Area, and (3) a comprehensive environmental impact study including the Development proposal and any facilities or infrastructure inside or outside of the Contractual Area and up to and beyond the Fiscalization Point. All three items shall be subject to MEM’s approval which will not be unreasonably withheld, and shall be deemed approved if the MEM does not submit any objections to it, in writing, within sixty (60) days from its receipt. In the event the MEM and the Contractor are unable to reach an agreement concerning the objections raised or changes proposed by the MEM within ninety (90) days following the date of notice to the MEM expressing such objections or proposed changes, the Contractor shall have the right to request that the matter in dispute be resolved through experts, in which case the decision of the expert, regardless of the case, will involve both the MEM and the Contractor. Following the approval of the documents submitted by the Contractor in accordance with items (1), (2) and (3) mentioned above, the Contractor will proceed, promptly and diligently, in accordance with the good international petroleum industry practices, to develop the discovery, installing all the infrastructure described in the Development Program in order to start up the commercial production and produce the discovery in such manner as to reach the maximum economic recovery of the reserves.
NINE (9). The Contractor's proposed Development Plan under the preceding item will detail the Contractor’s proposals for the development and operation of the Exploitation Area, shall include all the information required under Article 111 of the Regulation and will specify the Fiscalization Point it proposes. Furthermore, it shall identify any facility and infrastructure required outside the Contract Area, specifying those that are located before the Fiscalization Point and those that fall within the category authorized by Clause 3 number 2 of this Contract. The Development Plan will detail the parameters of production, number and distance between the wells; the facilities and infrastructure (including the proposed locations) to be installed for production; storage, transportation and loading of Hydrocarbons and a time estimate to conclude each phase of the Development Program, a production forecast and an estimate of ongoing capital and operating expenses involved to achieve the production forecast, as well as any other factor that might affect the economic or technical feasibility of the proposed development, and any such other particulars as the MEM may request.
CLAUSE THIRTEEN (13): EXPLOITATION WORK PROGRAMS
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ONE (1). Commencing with the Calendar Year in which the first Development Plan for the Contract Area is approved, the Contractor shall prepare and submit to the MEM for approval, in such format as the MEM may require, an Exploitation Work Program specifying by Calendar Quarter all aspects of the proposed operations to be carried out in relation to each Exploitation Area and related facilities and infrastructure up to the Fiscalization Point, the estimated cost thereof, the duration and location of each operation, and, where applicable, the estimated monthly rate of production for each field. Each such proposed Work Program shall also include a forecast of yearly Development and Production activities and costs resulting from the four (4) Calendar Years or the corresponding period up to the end of the term of the Contract, whichever is shorter.
TWO (2). The first such Exploitation Work Program, covering the balance of the Calendar Year, in which the Development Plan is approved, shall be submitted within thirty (30) days following the date of approval of such Development Plan. Thereafter, the Contractor shall submit its proposed annual Exploitation Work Program at least ninety (90) days before the beginning of the relevant Calendar Year.
THREE (3). The Contractor’s Exploitation Work Program proposed and submitted to the MEM shall be deemed approved if the MEM does not raise any objections thereto following the sixty (60) days from the date of receipt.
FOUR (4). If MEM objects to any part of the Contractor's proposal, the MEM shall notify the Contractor within the sixty (60) day period specified in the preceding item number. The notice from the MEM shall specify the suggested modifications. If the Contractor deems that any revision required by the MEM renders the Exploitation Work Program unacceptable to the Contractor, the Contractor shall notify and substantiate to MEM, within ten (10) days after receipt of such notice, the reasons for its decision. Following receipt of the justification from the Contractor, the Parties shall meet for the purpose of resolving any differences. If they are unable to reach a resolution to such differences by the beginning of the Calendar Year in which the Exploitation Work Program is to begin, the Contractor shall incorporate the modifications required by the MEM in the proposed Exploitation Work Program pursuant to Clause 13, number 2, of this Contract, to the extent such changes do not increase or reduce the budget proposed by the Contractor by more than ten (10) per cent and do not substantially alter the general objectives of the Work Program as submitted by the Contractor. With regard to the levels of production, MEM may require the Contractor to modify the proposed rate of production for any Exploitation Area in which more than fifty per cent (50%) of the production on an energy equivalent basis is Liquid Hydrocarbons for any of the following reasons: 4.1 to optimize overall recovery of Hydrocarbons, 4.2 to minimize waste of Natural Gas, 4.3 for safety reasons, and 4.4 for operational reasons.
FIVE (5). The Contractor shall deliver to MEM within ten (10) days following each Calendar Quarter a status report concerning the progress of the operations carried out and the costs incurred under the approved Exploitation Work Program during such Calendar Quarter. The status report shall forecast any significant changes to such Exploitation Work Program that Contractor anticipates may be necessary during the balance of the Calendar Year. The report corresponding to the last Quarter of each Calendar Year shall also include a summary of the operations and costs incurred during such Year.
CLAUSE FOURTEEN (14) NATURAL GAS
ONE (1). Upon completion of an Assessment Program agreed with MEM under Clause 12, number 3 of this Contract, the Contractor shall notify the MEM whether or not it wishes to retain the Natural Gas discovery for a market development phase. If the Contractor requests a market development phase for such discovery, the Contractor shall notify the MEM within the following thirty (30) days, of the selection of the lots within the Contract Area that will be subject to such phase. The selected area shall not exceed the lots encompassing the geological structure or prospect where the discovery was made, as well as the lots containing a reasonable margin not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
TWO (2). The duration of such market development phase shall not exceed ten (10) years from the date of the Contractor's notice mentioned in the preceding sub-clause, whereby the Contractor decides to enter into the market development phase. The market development phase shall end upon the occurrence of the first of the following events: 2.1 the date on which the Contractor declares the Natural Gas discovery to be a Commercial Discovery, 2.2 the date on which the Contractor voluntarily abandons the market development area or 2.3 the end of the market development phase.
THREE (3). The Contractor shall lose all its rights over a Natural Gas discovery if it does not declare such discovery as being a Commercial Discovery at the end of the market development phase or if it relinquishes the lots corresponding to the market development areas or terminates the Contract early.
FOUR (4). For availing itself of such market development phase, the Contractor shall pay the MEM at the end of each Calendar Year of the market development phase an annual tenancy fee of one hundred thousand (US$100,000) United States dollars, which will be reduced by duly verified amounts that the Contractor has expended during such year under specific programs approved by the MEM on activities or projects directly attributable to the market development area. Expenditures for the following types of activities will be eligible as credits against the tenancy fee: 4.1 future geochemical, geophysical or geological surveys in the market development area; 4.2 the drilling and testing of any additional wells in the market development area; 4.3 consulting, feasibility and marketing studies; and 4.4 other market development activities approved by the MEM. Excess amounts expended in a particular year with respect to the tenancy fee, may be entered as a credit against the next year's tenancy fee.
FIVE (5). The tenancy fee shall be applied pro rata on a daily basis in the event the Contractor relinquishes the market development area or declares the Natural Gas discovery to be a Commercial Discovery prior to such year, payable within thirty (30) days following such relinquishment or declaration of Commercial Discovery, as the case may be.
SIX (6). Together with the notice requesting to enter into the market development phase, the Contractor shall provide the MEM the results of the Assessment Program carried out pursuant to Clause 12, number 3 of this Contract including the estimated recoverable reserves, projected delivery rate and pressure, quality specifications and any other relevant technical and economic factors.
SEVEN (7). All the available Natural Gas existing in such market development area, shall be considered from the beginning as freely available by the Contractor to any market or markets, including exportation, as arranged by the Contractor, in a gaseous or transformed phase, or a combination of such phases.
EIGHT (8). The Contractor shall notify the MEM concerning the sales contract or contracts for Natural Gas, as well as any exportation arrangements. In such notice, the Contractor must demonstrate that the price of Natural Gas at the Fiscalization Point is representative of the fair market price, having taken into consideration a fair market price for transporting the Natural Gas from the Fiscalization Point to the consumer and, whenever applicable, for liquefaction and re-gasification costs.
NINE (9). The Contractor shall give priority to the Petroleum Operations of Associated Natural Gas, including reinjection for maintaining pressure and recycling operations in order to obtain maximum economic recovery of Liquid Hydrocarbons.
TEN (10). The MEM may, at any time, call upon the Contractor to deliver to it or to any MEM designated third party at the proper delivery point, without compensation, any quantity of Associated Natural Gas not being required for the Contractor's Petroleum Operations or committed for sale, in the event the MEM requires the associated natural gas, the MEM will take such associated natural gas in a manner as agreed between the parties, to be used for public interest, whenever such delivery does not negatively interfere with the Contractor's Petroleum Operations or add to the cost of Contractor’s Petroleum Operations. In such case, the MEM shall provide and maintain, for its own account, any facility beyond the delivery point required in connection with the gathering, compression, transport, or utilization of such Associated Natural Gas.
ELEVEN (11). Under no circumstance may the Contractor release Natural Gas into the atmosphere.
TWELVE (12). Whenever the Contractor does not require the Natural Gas for the Petroleum Operations, cannot sell it or the MEM does not elect to take it pursuant to number 10, of this Clause, the Contractor shall endeavor to reinject the gas into a suitable stratum or, as a second option, store it underground in accordance with the international petroleum industry practices and regulations in effect. The Contractor shall seek to obtain prior approval from the MEM and MARENA to flare any Natural Gas that cannot be reinjected due to specific reservoir considerations or for other reasons, including economic reasons, acceptable to the international Petroleum industry and in line with good oil field practices. Before flaring the gas, the Contractor shall take reasonable measures to ensure the extraction of natural gasoline and other liquids contained in the Associated Natural Gas if the Contractor deems that such extraction is economically justifiable. Notwithstanding anything in this Clause to the contrary, the Associated Natural Gas may be flared at any time if necessary in order to run well and/or production tests and on an emergency.
CLAUSE FIFTEEN (15): FINANCES AND AUDITING
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ONE (1). Notwithstanding the books required by the Commercial Code of Nicaragua, the Contractor shall maintain in Nicaragua, in accordance with the generally accepted accounting practices used in the international petroleum industry, accounting books and such other books and records as may be necessary to show the work performed under the Contract, as well as the costs incurred, and the quantity and value of all Hydrocarbons inspected at the Fiscalization Point.
TWO (2). The Contractor shall prepare, for each Calendar Year, separate balance sheets and profit and loss statements reflecting its operations under the Contract 1) up to the Fiscalization Point and 2) beyond the Fiscalization Point. The accounting procedures, rules and practices applied for determining revenue and expenses shall be consistent with sound and usual international petroleum industry practices. Each such balance sheet and profit and loss statement shall be certified by an independent firm of certified public accountants of international standing acceptable to MEM and the MHCP. Such balance sheet and loss and profit statements must be submitted, along with the auditor's report, to MEM and the MHCP within ninety (90) days after the end of the Calendar Year to which it belongs.
THREE (3). The MEM has the right to inspect and audit the Contractor's books, accounts and records relating to the operations under this Contract for the purpose of verifying the Contractor's compliance with the terms and conditions herein. Such books, accounts and records shall also be available at any reasonable time for inspection and audit by duly authorized representatives of the MEM and the MHCP, including independent auditors that may be employed by them, for fiscal audits. The MEM and the MHCP may conduct their audits within two (2) years after the end of each Calendar Year. Any exception by MEM or the MHCP must be communicated to the Contractor within the earlier of 1) twelve (12) months after the commencement of the specific authorized audit or 2) two (2) years after the end of the Calendar Year under audit, provided, however, that if information is required under the Clause number below, the period for filing exceptions shall commence upon receipt by the Government authority that requested the audit of such requested information from the parent company's independent auditors.
FOUR (4). The MEM and the MHCP may require the Contractor to engage Contractor’s parent company’s auditors to examine at Contractor’s cost and in accordance with generally accepted auditing standards, the books and records of Contractor’s Affiliate to verify the accuracy and compliance with the terms of the Contract insofar as a charge from the Contractor’s Affiliate (or of any entity comprising the Contractor) is included directly or through the Contractor as a) a Petroleum Operations cost or b) a part of a tariff for infrastructure beyond the Fiscalization Point. The request from the Governmental authority shall specify in writing the item or items for which it requires verification from such independent audit. A copy of the independent auditor’s findings shall be delivered to the Government authority that requested such verification within thirty (30) days after the completion of such audit.
FIVE (5). The Contractor's books for its operations under this Contract shall be kept on the accrual basis in United States dollars. Accounts reflecting operations up to the Fiscalization Point shall be set apart from those reflecting operations beyond the Fiscalization Point. Such accounting books shall be in the Spanish and English languages and shall comply with internationally accepted accounting principles consistent with modern petroleum industry practices and procedures and the provisions set forth in the Contract. All U.S. dollar income shall be entered in the amount received and all U.S. dollar expenditures shall be charged in the amount expended. Income received or expenditures made in foreign exchange other than U.S. dollars shall be entered or charged at the applicable rate of exchange for U.S. dollars pursuant to the rate of exchange posted by the Central Bank of Nicaragua on the last business day of the week in which such income is received or expenditure made. All expenditures in local currency shall be converted to U.S. dollars at the documented cost of the national currency purchased by the Contractor with foreign currency. All income in local currency and costs paid with such national currency shall be converted to U.S. dollars at the rate of exchange for commercial transactions quoted by the Central Bank of Nicaragua in effect on the business day when the national currency was received by the Contractor.
SIX (6). The Parties agree to use the depreciation method pursuant to the principles established in Law 453 (four hundred fifty three), the Law of Fiscal Equity and its modifications and Decree No. 46-2003 (Forty Six dash Two Thousand Three), Regulation of the Fiscal Equity Law, that are hereby incorporated to this Contract.
SEVEN (7). The Contractor will be subject to payment of Income Tax at the rate of 30%, applicable to the net income originating from its exploitation activities. This rate is the maximum rate and shall apply throughout the term of this Contract, pursuant to Clause 64 of the Law and the principles prescribed by Law No. 453 (four hundred fifty three), the Law of Fiscal Equity, that are incorporated to the Contract through this provision.
CLAUSE SIXTEEN (16): PRODUCTION, MEASUREMENTS AND RIGHTS OF EXPORT
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ONE (1). The Contractor shall have the right to use, free of charge, the Hydrocarbons produced within the Contract Area to the extent reasonably required for the Petroleum Operations pursuant to this Contract. The Contractor must purchase, at market value, the Hydrocarbons from the Contract Area it uses for its operations beyond the Fiscalization Point.
TWO (2). All the Liquid Hydrocarbons and/or Natural Gas produced and reserved from the Contract Area and not used in the Petroleum Operations shall be measured at the applicable Fiscalization Point(s) approved in the Development Plan. Such measurements and measuring devices shall comply with Chapter XII of the Regulation and the international petroleum industry practices and regulations in effect. Production tests or experiments shall also belong to the Contractor and no royalty shall be paid for such production. The market value of such production tests or experiments at the point of production shall be entered as income to the Contractor. Even though the Contractor is authorized to receive all the Hydrocarbons produced within the Contract Area, for purposes of any calculations hereunder involving volumes of production, the volume measured at the Fiscalization Point shall govern.
THREE (3). Subject only to Clause 14, number 7, and Clause 17 of this Contract, the Contractor may freely export any Hydrocarbons that it produces within the Contract Area and that it does not use in the Petroleum Operations.
CLAUSE SEVENTEEN (17): SUPPLY TO THE INTERNAL MARKET
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ONE (1). Whenever so requested by the MEM, the Contractor shall supply Liquid Hydrocarbons from the Contract Area to meet the internal market requirements of Nicaragua.
TWO (2). Such request from the MEM shall be in writing and shall be given no less than sixty (60) days before commencement of deliveries by Contractor. The request shall indicate the volume of the Contractor's Liquid Hydrocarbons required, based on estimates and forecasts, and the duration of the desired supply.
THREE (3). The maximum volume that the MEM may require the Contractor to supply, pursuant to this Clause, shall be determined by multiplying the total estimated volume of Liquid Hydrocarbons needed to meet the internal market demand during the first corresponding Calendar Quarter by a fraction which numerator will be the Contractor’s Liquid Hydrocarbons inspected and estimated within the Contract Area for such Calendar Quarter and which denominator will be the total estimated Liquid Hydrocarbons to which the MEM is entitled and all the products in Nicaragua for such period.
FOUR (4). Delivery of the Liquid Hydrocarbons supplied shall be at the Fiscalization Point or another Point agreed between the Contractor and the MEM. The Liquid Hydrocarbons supplied may be refined in Nicaragua.
FIVE (5). The price to be paid to the Contractor for such Liquid Hydrocarbons shall be the export market value at the Fiscalization Point determined in accordance with Clause 18 of this Contract, satisfactorily adjusted to reflect the cost of transport if the agreed delivery point is not the Fiscalization Point.
SIX (6). Payment for the Liquid Hydrocarbons supplied shall be in U.S. dollars to a bank account outside Nicaragua, as specified by the Contractor.
SEVEN (7). The MEM and the Contractor may enter into a Liquid Hydrocarbons sales contract covering the duration of the desired purchases. The MEM may assign its rights as purchaser to one or more local or regional refineries subject to the assignee's providing the Contractor, at the time of each delivery, with an irrevocable letter of credit acceptable to the Contractor covering the corresponding purchase. The Contractor has the right to cease deliveries under any sales contract if it does not receive timely payment for each delivery.
CLAUSE EIGHTEEN (18): VALUATION
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ONE (1). The value of Liquid Hydrocarbons within the Contract Area shall be the competitive international market value of such Liquid Hydrocarbons at the Fiscalization Point.
TWO (2). The competitive international market value of the Liquid Hydrocarbons, other than natural gasoline, shall be the price in United States dollars at which an independent third party buyer would be prepared to buy such Liquid Hydrocarbons at a particular time at the Fiscalization Point, on independent basis, taking into account the quality, volume, cost of transportation, payment terms, and any other relevant condition, including the then prevailing world market conditions.
THREE (3). Whenever different grades of Liquid Hydrocarbons are produced within the Contract Area, the value shall be determined and applied for each grade of Liquid Hydrocarbons. However, in the event that different grades of Liquid Hydrocarbons are blended together for sale, the value of such blend shall be determined by the grade that determines the applicable price in the international market.
FOUR (4). The value of Liquid Hydrocarbons, other than natural gasoline, shall be determined in United States dollars per barrel for each Calendar Month as follows: 4.1 The Contractor shall present to the MEM its proposal as to the value of the particular Liquid Hydrocarbons for the preceding Month, within the first ten (10) business days of the current month during which the Liquid Hydrocarbons, other than natural gasoline, will be produced and measured from the Contract Area, such proposal shall be accompanied by information supporting the Contractor's proposal, including evidence of independent current prices, F.O.B. sales prices to third parties effected by the Contractor for Liquid Hydrocarbons within the Contract Area during such Calendar Month, as well as F.O.B. prices published from Liquid Hydrocarbons exportation prices comparable and applicable to that same period. Such value shall be netback price from the point of export or the first sale in Nicaragua to the Fiscalization Point applying the tariffs for transportation and storage beyond the Fiscalization Point approved by the MEM in accordance with the Law governing the supply of Hydrocarbons. 4.2 If the MEM accepts the value proposed by the Contractor set forth in the preceding clause number, or does not make any objections in writing within ten (10) business days after receipt of same, the value proposed by the Contractor shall be deemed the value for the Calendar Month for which the price is being determined. 4.3 If the MEM objects, in writing, to the Contractor's proposal within the prescribed period, the MEM shall include, together with such notice, a counter-proposal for the value, as well as information supporting the counter-proposal. 4.4 If the Contractor accepts the MEM's proposal or does not object to it in writing within ten (10) business days after receipt of same, the MEM's counter-proposal shall be the value for the Calendar Month for which the price is being determined. 4.5 If the Contractor objects in writing to the MEM's proposal within the prescribed period, the MEM and the Contractor’s authorized representatives shall meet within forty eight (48) hours after MEM's receipt of the Contractor's notice of objection in an endeavor to establish, through negotiation, the price to be used as the value for the Calendar Month for which the determination is being made. 4.6 If within fifteen (15) days after receipt of the Contractor's objection notice under item 4.5 of this Clause, a value has not been agreed upon through negotiation, such value shall be determined in accordance with number 5 of this Clause.
FIVE (5). The following procedure shall apply for determining the value of Liquid Hydrocarbons, other than natural gasoline, whenever the procedure under number 4 of this Clause does not result in timely agreement: 5.1 The value shall be determined on the basis of three internationally traded crude oil prices. The crude oils that qualify for inclusion in the price basket shall be those for which the market value or F.O.B. price is published in the Platt’s Oilgram. The price of crude oils will be from three different regions of the world, which physiochemical properties must be similar to those found in the Caribbean Margin. 5.2 The crude oils to be included in the price basket shall be proposed by the Contractor as part of the Development Plan under Clause 12, number 8 of this Contract for approval by the MEM. 5.3 In the event that one or more of the crude oils agreed upon do not meet the requirements of number 5.1 of this Clause, a replacement crude oil shall be determined by agreement between the MEM and the Contractor. 5.4 For each of the reference crude oils included in the price basket agreed upon, the equivalent C.I.F. value in Houston, Texas, U.S.A., shall be determined as follows: 5.4.1 the arithmetic average of the daily export price for the Calendar Month under consideration, plus the competitive and independent transportation costs from the point of export of the reference crude oils to Houston, Texas, U.S.A. 5.4.2 the quality differential between the reference crude oil and the Liquid Hydrocarbons for which the value is being determined. 5.5 The quality differential shall be based on the yields under normal distillation and the market prices in the Gulf Coast of the United States published in the Platt's Oilgram for the products obtained. 5.6 The arithmetic average of the three equivalent values shall be determined pursuant to number 5.4 of this Clause and the transport costs of the Liquid Hydrocarbons being valued from the relevant Fiscalization Point in Nicaragua to Houston, Texas U.S.A. shall be deducted from the results obtained in order to reach the value.
SIX (6). The value of natural gasoline at the Fiscalization Point shall be the average for the Calendar Month for which the calculation is being made of the daily average of the high and low prices as published in the Platt's Oilgram Price Service for motor gasoline which physiochemical properties are similar to those found in the Caribbean Margin.
SEVEN (7). The value of the Natural Gas shall be the weighted average sales price at the Fiscalization Point for deliveries of Natural Gas during the Calendar Month.
CLAUSE NINETEEN (19): ROYALTIES
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ONE (1). The Contractor shall pay to MEM a royalty, in cash, based on the Production from the Contract Area measured at the Fiscalization Point during each Calendar Month. The royalty will be calculated separately for Liquid Hydrocarbons and for Natural Gas in accordance with Articles 54 and 57 of the Law, which are incorporated herein by this reference, and the norms issued by the Board of Directors of the MEM.
TWO (2). The rate of the royalty for Liquid Hydrocarbons will be determined at the end of each Calendar Month on the basis of the "R" factor established in Article 58 of the Law. The rates of the royalty on Liquid Hydrocarbons are as follows: Value of "R" Factor of zero (0) to less than 1.5 (one point five), a Royalty Percentage of 5.0% (five percent); Value of “R” Factor of 1.5 (one point five) to less than 3 (three), a Royalty Percentage of 10% (ten percent); Value of “R” Factor greater than 3.0 (three), Royalty Percentage of 15.0% (fifteen percent).
THREE (3). The royalty rate for Natural gas is of 5% (five percent) of the value of the production measured at the Fiscalization Point.
FOUR (4). For calculating the amount of royalty to be paid, the Hydrocarbons shall be valued at the market value determined in accordance with Clause 18 of this Contract.
FIVE (5). With respect to its exploration and exploitation activities, the Contractor is subject to the special regime established by Article 58 of the Law, which provisions are incorporated herein through this reference and is exempt from payment of any other fiscal or municipal tax by virtue of the provision set forth in Article 62 of the Law.
SIX (6). The Contractor’s activities other than the Exploration and Exploitation of Hydrocarbons are subject to the general fiscal regime in effect in Nicaragua.
CLAUSE TWENTY (20): CONTRIBUTIONS
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ONE (1). For the purpose of supporting and fulfilling its social function in the Autonomous Regions in connection with the social, economic and infrastructure development, environmental preservation, health, education and services, the Contractor will contribute and/or donate, on a yearly basis, a total of three percent (3.0%) of its net utilities obtained as a result of the exploitation of Hydrocarbons based on its operations as established in the Concession Contract (hereinafter such contribution or donation will be called “Community Development Fund” or simply “FDC”) to the Atlantic North Autonomous Regions (RAAN) and the South Atlantic Autonomous Region (RAAS). The FDC shared between the corresponding Regions will be of one point five percent (1.5%) to each Region. The FDC will be deposited in the accounts indicated by the North Atlantic Regional Council and the South Atlantic Regional Council. Therefore, the Contractor will calculate the FDC based on each fiscal/accounting year, in accordance with the principles established by Law number four hundred fifty three (No.453), the law of Fiscal Equity, which is hereby incorporated to this Contract.
CLAUSE TWENTY ONE (21): PAYMENTS
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ONE (1) The Contractor .to the MEM at the beginning of each contractual year, a nonrefundable area fee based on the number of hectares (ha) comprising the Contract Area. The rate per hectare for the area of Perlas is as follows: from 1 to 3 years: US$0.05 (zero point zero five cents of United States Dollar) per hectare; from 4 to 7 years: US$0.10 (zero point ten cents of United States Dollar) per hectare; from 8 years on:US$0.15 (zero point fifteen cents of United States Dollar) per hectare. Those rates per area will be readjusted annually on the date immediately preceding the anniversary payment date on the basis of the average variation in the "Consumer Price Index" as published by the U.S. Department of Commerce during the preceding twelve (12) month period. This fee shall be used by the MEM to help defray its general administrative costs of the activities described in this Contract, but not in lieu of amounts payable by Contractor under Clause 11, to cover the costs of assistance provided by the MEM
. TWO (2). All payments which the Contract obligates the Contractor to make to the State, even when the amount is expressed in U.S. dollars, shall be made in national currency. The conversion to national currency shall be at the rate of exchange posted by the Central Bank in effect for commercial transactions on the date of fulfillment of the obligation.
THREE (3). Notwithstanding the applicable exchange regulations to the contrary, the Contractor is guaranteed, through the terms of this Contract, the financial rights granted by Article 63 of the Law, which are incorporated to this Contract through this reference.
FOUR (4). For the purpose of filing and calculating the Income Tax, the applicable revenue and expenses as shown in U.S. dollars shall be converted into the national currency at the rate of exchange posted by the Central Bank of Nicaragua at the opening of business on the date of compliance with the obligation. Payments of estimated tax shall be entered according to its cost in U.S. dollars corresponding to the national currency cost incurred, calculated in accordance with Clause 15, number 5 of this Contract and then reconverted to the national currency at the time of filing of the income tax.
CLAUSE TWENTY-TWO (22): MATERIALS AND EQUIPMENT
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(ONE) 1. The Contractor shall provide all materials, equipment, machinery, tools, spare parts and any other similar materials required for the operations under this Contract.
TWO (2). Such Materials shall be provided by the Contractor in accordance with its Work Program set forth in Clause 13 of this Contract.
THREE (3). The Contractor shall give preference, although not obligated to do so, to locally available materials when such are comparable to and compete with imported materials in quality and availability and the price of which does not exceed the C.I.F. price (including import duties where applicable) of the imported materials placed in Nicaragua.
FOUR (4). Subject to the preceding number, the Contractor shall have the right to import any materials required for its activities under this Contract. With regard to the temporary importation and the exemption from import duty during the Exploration Period and the first four (4) years after declaration of Commercial Discovery, the provisions of Articles 60 and 61 of the Law shall govern, and by this reference are incorporated as part of this Contract..
CLAUSE TWENTY-THREE (23): OWNERSHIP OF ASSETS
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ONE (1). The Contractor owns the assets provided by it under the terms of this Contract. Subject to the provision under the clause number below, ownership of any such asset, whether fixed or moveable, whether within or outside of the Contract Area, used in connection with the rights granted to the Contractor under this Contract, including pipelines and storage facilities, shall become the property of the State, free of any charge or encumbrance, at the end of the term of the Contract, except where the State notifies the Contractor that it will not accept the transfer of property of a particular asset. Where the State elects not to accept ownership of an asset, the Contractor shall carry out the approved clean-up program under Clause 34 of this Contract with respect to such assets and the area where they are located and shall be free to dispose of such asset in accordance with the applicable laws.
TWO (2). Where the installations serve more than one Contract Area assigned to the Contractor, the Contractor may continue to use such facilities for the other Contract Areas until the end of the term of other Contracts. In this case, the State, through the MEM, and the Contractor shall enter into an operating agreement that will govern the actual use, operation and maintenance of such facilities.
THREE (3). The provisions of number 1 under this Clause shall not apply to materials or other property that are rented or leased to the Contractor or which belong to the Contractor’s employees, provided that the ownership of any such materials by other than the Contractor, is clearly documented with the State at the time of entry into Nicaragua or its local acquisition.
CLAUSE TWENTY-FOUR (24): SUBCONTRACTORS, PERSONNEL AND TRAINING
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ONE (1). The Contractor has the right to use qualified Sub-Contractors to provide specialized equipment or services.
TWO (2). The Contractor shall offer similar opportunities to the national companies that compete with foreign entities with respect to the provision of any service or equipment required with respect to its operations. The Contractor shall give preference to Nicaraguan professionals and Sub-Contractors that are competitive with foreign bidders in skills, experience, availability and price.
THREE (3) The Contractor shall provide the MEM all necessary information covering each Sub-Contractor including, at the request of the MEM, an executed legalized copy of any contract or change thereto.
FOUR (4). The Contractor and its Sub-Contractors shall give priority of employment to local personnel in order to satisfy the staffing requirements to the extent that nationals of Nicaragua fulfill the qualification, experience and availability requirements.
FIVE (5). The Contractor and its Sub-Contractors may employ foreign nationals, 5.1 to the extent that qualified nationals cannot be found to fill the positions required, 5.2 to fill a reasonable number of technical or managerial positions, and 5.3 to provide short-term expertise.
SIX (6) The Contractor shall undertake the development and training of its national personnel (including training for the specific purposes, such as taking over positions held by expatriate personnel) for all positions including administrative, technical and executive management positions. The Contractor shall prepare and submit its annual development and training programs to the MEM for approval, subject to Article 70 of the Regulation.
SEVEN (7). In accordance with Article 28 of the Law, the Contractor guarantees payment of taxes, fines and other tributes for the services provided by its Sub-Contractors under their respective sub-contract, as well as payment of the salaries and social benefits for its sub-contractors’ local personnel. Likewise, and in accordance with Article 68 of the Regulation, the Contractor assumes joint liability with its Sub-Contractors to guarantee payment of any legally binding obligation contracted by the Sub-contractor on behalf of any individual resident in Nicaragua for goods or services provided to the Sub-contractor associated with the Contractor’s activities.
CLAUSE TWENTY-FIVE (25): UNITIZATION
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ONE (1). If a Hydrocarbons discovery in the Contract Area extends beyond the boundaries of the Contract Area, MEM may require, in accordance with Article 47 of the Law, that the Development of the discovery and the Production of Hydrocarbons therefrom be carried out in collaboration with the entity or entities that have the right to conduct Petroleum Operations in the area into which the discovery extends.
TWO (2). In such case, the procedures and terms established in Articles 126 through 131 of the Regulation shall apply. 3.In case the Hydrocarbons deposit extends beyond the national boundaries, the unitization agreement shall be negotiated between the affected governments. The Contractor shall provide technical assistance to the Government of the State in the negotiation of such agreement.
CLAUSE TWENTY-SIX (26): CONFIDENTIALITY
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ONE (1). All technical data and any other information related to operations under this Contract shall be maintained by the contracting parties as strictly confidential and shall not be disclosed by either party without the prior written consent of the other party for a period of two (2) years after receipt of the written consent by either of the Parties, except to the extent required to comply with a decision of a competent court, pursuant to Article 32 of the Law or as required to comply with any law, regulation or procedure from the Arbitration Court, governmental investigation, or the Stock Exchange.
TWO (2). Either Party may disclose any information to its employees, Affiliates, consultants, buyers, potential investors, bank institutions, insurance companies, and sub-contractors to the extent required for the efficient conduct of its activities, provided it obtains from such individuals or entities, prior to disclosure, a written confidentiality undertaking approved by both Parties.
THREE (3). For the purpose of obtaining bids on open areas, the MEM may, after the two (2) year period from the date of receipt of the information from the Contractor has elapsed, disclose the information associated with the areas relinquished by the Contractor within the Contract Area.
FOUR (4). After the two (2) year period from the date of the receipt of the information from the Contractor, MEM shall be entitled, in the national interest, to prepare or cause to prepare by third parties and publish reports or studies of a general or regional nature using information derived from any reports or data related to the Contract Area. Geo-scientific reports can be prepared for publication upon previous written consent by the Contractor
CLAUSE TWENTY-SEVEN (27): PIPELINES AND STORAGE
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ONE (1). The Contractor has the right to construct and operate within and outside of the Contract Area such pipelines and other facilities as required to transport and store the Hydrocarbons produced from the Contract Area up to the point of export or point of first sale in Nicaragua, subject to compliance with the technical, safety and environmental regulations.
TWO (2). All the infrastructure shall be included in the Development Plan set forth in Clause 12, number 8 of this Contract.
THREE (3). In accordance with Article 68 of the Law, the Contractor is obligated to transport, store and ship Hydrocarbons owned by third parties, including the State, whenever and to the extent that its installations have available capacity and the Hydrocarbons are compatible with the normal operations. Likewise, the Contractor shall have access on non-discriminatory terms to third parties transportation and storage facilities with available capacity. This Clause number specifically excludes gathering lines or other installations belonging to the Contractor or third parties that are used for its own exploitation and are located before the applicable Point or Points of Fiscalization under the respective owner’s exploration and exploitation contract. The tariff for use of such installations shall be calculated and approved by the MEM as the Regulatory Authority in accordance with Article 163 of the Regulation and supplement regulations that may be issued by MEM from time to time.
CLAUSE TWENTY-EIGHT (28): INSURANCE
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ONE (1). The Contractor shall provide all the insurance required by the applicable law and such other insurance as the Contractor deems justified.
TWO (2). Except for insurance policies issued by the Overseas Private Investment Corporation (“OPIC”), all such insurance policies shall contain and express a waiver of subrogation against the State and any of its agencies.
THREE (3). The Contractor shall provide copies of all insurance policies to the MEM.
CLAUSE TWENTY NINE (29): ASSIGNMENT
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ONE (1). Subject to the prior written approval from the MEM, which shall not be unreasonably withheld, Contractor may assign all or an indivisible percentage interest in its rights and obligations under this Contract. For consideration to be given to any such request: 1.1 all accrued obligations of the assignor deriving from the Contract must have been duly fulfilled as of the date such request is made, or assignor and assignee must jointly and severally guarantee fulfillment of any unfulfilled accrued obligations by the assignor; 1.2 the proposed assignee or assignees must be qualified in accordance with the Regulation to be a Contractor and must have satisfied the requirements of the Law in regard to constitution and naming of a legal representative; 1.3 the instruments of assignment shall be submitted to MEM for their review and approval and shall include provisions stating precisely that the assignee is bound by all covenants contained in the Contract; and 1.4 Where the assignment will result in the Contractor being comprised of more than one entity, the designation of the entity that will act as operator shall be stipulated, along with a copy of the joint operating agreement among such entities comprising the Contractor.
TWO (2). Any assignment made pursuant to the provisions of this Clause shall be free of any transfer or related taxes, stamp duty charges or other charges. 3. No assignment shall in any way release the assignor from its obligations undertaken under the Contract except to the extent that such obligations are in fact performed by the assignee.
CLAUSE THIRTY
(30): MISCELLANEOUS
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ONE (1). The validity, interpretation and application of this Contract shall be governed by the laws of the Republic of Nicaragua.
TWO (2). This Contract may only be amended by mutual written agreement of the Parties.
THREE (3). The Spanish text of this Contract is the only official text and shall govern for all purposes.
FOUR (4). In accordance with Article 64 of the Law, the State guarantees to the Contractor throughout the term of this Contract, the stability of the tax regime and the royalties set forth in Articles 58 to 62 of the Law and the exchange regime set forth in Article 63 of the Law in effect on the Effective Date of this Contract. No changes to those regimes will be adversely applied to the Contractor with respect to its Exploration and Exploitation activities under this Contract.
FIVE (5). The Contractor will be treated, for all legal purposes, as a private law entity and therefore expressly renounces the right to invoke diplomatic intervention in any matter related to this Contract.
SIX (6). In accordance with Article 4 of the Law, the exploration and exploitation activities under this Contract have been declared to be of national interest and public utility. In the event the Contractor would be required to use property owned by third parties, the MEM shall assist the Contractor pursuant to the laws in effect governing the declaration of public utility and rights of way.
CLAUSE THIRTY ONE (31): SETTLEMENT OF DISPUTES
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ONE (1). The Parties shall endeavor to settle amicably through consultation any dispute related to or arising out of the performance or interpretation of any Clause of this Contract.
TWO (2). If any dispute has not been settled within thirty (30) days after the dispute arises, either Party may, through notice given to the other Party, propose that the dispute be referred to a sole expert or to arbitration for resolution in accordance with the provisions of this Clause. The waiting period will not apply in the cases set forth in Clause 12, number 8 or Clause 33, number 3 of this Contract.
THREE (3). Following the notice given pursuant to the preceding Clause number, the Parties agree to refer the dispute for determination by a sole expert to be appointed by agreement between the Parties.
FOUR (4). If the Parties fail to refer such dispute to a sole expert under number 3 of this Clause within thirty (30) days of the notice given, as set forth in number 2 of this Clause, the parties hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID.
FIVE (5). For arbitration purposes, the Parties agree to apply the rules of arbitration of the ICSID as follows: 5.1 The arbitration shall be heard and determined by three (3) arbitrators. Each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration. The Party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within fifteen (15) days following the appointment of both Party-appointed arbitrators. If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal and/or one Party refuses to appoint its Party-appointed arbitrator within said fifteen (15) day period, the appointing authority for the implementation of such procedure shall be the ICSID, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim. All decisions and awards by the arbitration tribunal shall be final, binding and made by majority vote. 5.2 Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings: ONE (1) The arbitration proceedings shall be held in Mexico City, Mexico; TWO (2) The official language will be Spanish with translation to the English language during the arbitration proceedings. The arbitrators shall be fluent in the both the Spanish and English languages. All of the materials used at the hearings, the complaint or defense documents, the arbitral award and the reasons supporting it will be in Spanish with translation to the English language; THREE (3) The arbitrators shall be and remain at all times wholly independent and impartial; FOUR (4) The arbitration proceedings shall be conducted under the Arbitration Rules of the ICSID, as amended from time to time; FIVE (5) Any procedural issues not determined under the arbitral rules shall be determined by the arbitration act and any other applicable laws of the site of the arbitration, other than those laws that would refer the matter to another jurisdiction; SIX (6) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; SEVEN (7) The decision of the majority of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or offset; and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law be charged against the Party resisting such enforcement; EIGHT (8) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full; NINE (9) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be; TEN (10) The arbitration shall proceed in the absence of a Party who, after due notice, fails to answer or appear. An award shall not be made solely on the default of a Party, but the arbitrators shall require the Party who is present to submit such evidence as the arbitrators may determine is reasonably required to make an award; and ELEVEN (11) If an arbitrator should die, withdraw or otherwise become incapable of serving, or refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator. SIX (6). The parties agree that this Contract is an investment agreement between the State and the Contractor and that the activities associated with this Contract are commercial in nature. The Parties agree that they do not have the right, and through this Contract, expressly and irrevocably renounce whatever right to assert as a defense any immunity from jurisdiction they may have or immunity from execution of a judgment, award, or seizure of property, from execution of any award or judgment, or any attachment of assets in order to seize assets prior to judgment or issuance of an award, with respect to activities or any legal action or procedure arising out of or related to this Contract.
CLAUSE THIRTY-TWO (32): FORCE MAJEURE
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ONE (1). Neither Party shall be considered in default of the performance of any of its obligations under this Contract if the failure to perform or the delay in performing such obligations results from events occurring under the following circumstances: 1.1 the performance of any obligation hereunder is prevented, hindered or delayed because of any event or combination of events including, but not limited to earthquake, war, fire, flood or other natural disaster beyond the reasonable control of such Party; 1.2 any event or combination of events that is the direct cause for preventing, hindering or delaying any of the Parties from performing its obligations under this Contract; 1.3 whenever any such event or combination of events has occurred, such Party shall take all necessary actions to overcome any cause that prevents, hinders or delays performance of its obligations, as well as to minimize its consequences and, insofar as is practicable, to continue to perform its obligations hereunder and 1.4 The provision set forth in Clause 3, number 4 of this Contract associated with the issuance of the Environmental Permit by MARENA. 2. Notice of any force majeure event and their conclusion shall be immediately given to the other Party by the Party invoking force majeure. 3. If the operations under this Contract are partially or entirely suspended as a result of a force majeure event, the period for carrying out the suspended operations shall be extended by a period equivalent to the suspension.
CLAUSE THIRTY-THREE (33): NOTICES
. Any notice and other communications required or given under this Contract shall be deemed given when delivered in writing either by hand or fax transmission, appropriately addressed as follows: To The Ministry of Energy and Mines, to the attention of: Ing. Emilio Rappaccioli Baltodano R. Via fax: 505 + 2224629 (FIVE ZERO FIVE + TWO TWO TWO FOUR SIX TWO NINE); Correo Postal 159 (ONE FIVE NINE); Email at
emilio.rappaccioli@mem.gob.ni
; Physical Address: Hospital Bautista una (1) cuadra al oeste y una (1) cuadra al norte, Managua. To the CONTRACTOR: Infinity Energy Resources, Inc, to the attention of: Mr. Stanton E. Ross, at 11900 (one one nine zero zero) College Boulevard, Suite rtwo hundred four (204), Overland Park, Kansas, six, six, two, one, zero (66210), USA; By fax to one, nine, one, three, three, three, eight dash four, four, five eight (1 (913) 338-4458), Attention: Infinity Energy Resources, Inc. 2. Either Party may change its address or addresses or representatives for the purpose of receiving notices by giving at least ten (10) days prior written notice of the change to the other Party.
CLAUSE THIRTY-FOUR (34): TERMINATION
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ONE (1). This Contract will terminate by its own terms in the cases specified in Article 70 of the Law, which by reference is incorporated herein.
TWO (2). The Contractor shall have the right to terminate this Contract by electing to relinquish the entire Contract Area pursuant to number 2 of Clause 7 of this Contract.
THREE (3). If either Party to the Contract commits a material breach of Contract not covered by Article 70 of The Law, the other Party shall have the right to terminate the Contract using the following procedure: 3.1 The Party claiming the right to terminate shall give notice to the other Party specifying the particular material breach and requiring the other Party, within ninety (90) days of such notice, to remedy the same or make reasonable compensation to the complaining Party, as the case may be; 3.2 If the Party receiving the notice fails to comply with said notice, the complaining Party may, after the expiration of the ninety (90) days notice, terminate this Contract immediately provided; however, that in the event the breach has been referred to arbitration or to an expert, pursuant to Clause 31 of this Contract, Miscellaneous Provisions, the complaining Party may not exercise its right of termination until such time the result of the determination by an arbiter or expert is made known; whenever the Party that elects to refer the dispute to the determination of an arbiter or expert is willing to continue its claim diligently under such procedures.
FOUR (4). Notwithstanding termination of the Contract and without prejudice to number 6 of Clause 7 of this Contract, the Contractor remains responsible for the clean-up of the Contract Area pursuant to Clauses 7 number 7 and 35 of this Contract.
FIVE (5). In the event the Environmental Permit required for the exploration phase is not issued by MARENA at the end of one (1) year as of the Effective Date or if the permit is issued within such period but contains conditions that restrict the Contractor's access to or the right to conduct Petroleum Operations in more than twenty percent (20%) of the Contract Area, or if as a direct result of such conditions the cost of the Minimum Exploration Program is increased for the first sub-period by more than fifty percent (50%) of the estimated investment, pursuant to Clause 8, number 2, of this Contract, the Contractor within thirty (30) days after the expiration of one (1) year or the date of issuance of the conditional permit by MARENA, whatever the situation may be, may elect to terminate the Contract by giving notice to MEM without further responsibility or obligation, unless the Environmental Permit problems are resolved to the satisfaction of the Contractor within thirty (30) days from the date of the notice given of its intention to terminate the Contract. If the Contract is terminated pursuant to this Clause, the MEM shall release the guarantees provided by the Contractor and its parent company pursuant to Clause 9 of this Contract. The area rental paid under Clause 21, number 1 of this Contract shall not be reimbursed and the Contractor shall have no claim against MEM or the State for costs it incurred in relation to this Contract.
CLAUSE THIRTY-FIVE (35): CLEAN-UP AND ABANDONMENT
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ONE (1). Within sixty (60) days after the expiration of the term of the Contract or the relinquishment of all or a part of the Contract Area, the Contractor shall propose and carry out to the satisfaction of the MEM and the MARENA an abandonment program mutually agreed with the MEM, for all of the Contractor’s facilities that MEM does not elect to receive in accordance with Clause 22, number 1 of this Contract. With respect to the area and/or facilities being relinquished, such abandonment program shall comply with the internationally accepted standards at the time of the relinquishment.
TWO (2). No later than three (3) years before the earlier of (a) the scheduled expiry of the term of the Contract or (b) Contractor's early termination of production from an Exploitation Area or termination of an infrastructure operation included in the approved Development Plan, the Contractor shall submit a proposed abandonment program covering all such facilities for MEM’s approval.
THREE (3). The MEM shall make a decision, within ninety (90) days, concerning the proposal submitted by the Contractor pursuant to the preceding sub-clause and may approve or modify or impose conditions. Prior to modifying or imposing conditions to the proposal, the MEM shall notify the Contractor concerning the modifications or conditions proposed and shall give the Contractor the opportunity to submit written statements within the following sixty (60) days concerning the proposed modifications. After reviewing such statements, the MEM shall issue its final decision with respect to the Contractor’s proposal.
FOUR (4). In the event the Contractor does not present a timely proposal to the MEM under sub-clause 2 of this Clause, the MEM, after giving thirty (30) day notice to the Contractor requesting it to do so, may prepare an abandonment program for such facilities if the Contractor does not present a proposal by the end of the thirty (30) day period, and whenever the MEM has prepared such program, it shall have the same effect as if it had been submitted by the Contractor and approved by the MEM. FIVE (5). The approved budget for carrying out the approved abandonment program shall be consolidated with the Contractor’s payment into an account that generates interest with a depositary approved by the MEM, per unit of production calculated by dividing the approved abandonment budget by the estimated units of production to be produced and reserved by the Contractor between the date of the MEM’s approval and the anticipated date of abandonment. Such cost shall be considered for purposes of calculation of the Contractor’s income tax as an operating cost incurred at the time of payment of the accounts. If the Contractor carries out the abandonment program, any portion of the account, including accrued interest not required for the abandonment program, shall belong to the Contractor, but will be deemed taxable income in the year received. If the amount deposited (including accrued interest) is insufficient to complete the abandonment program, the Contractor shall pay all additional costs required to complete the abandonment program. With respect to the facilities transferred to the MEM pursuant to Clause 22, number 1, of this Contract, the portion of the account corresponding to the clean-up of such facilities shall be transferred to the Ministry of Energy and Mines, who shall assume all responsibility for the facility and its abandonment and shall hold the Contractor harmless against any liability with respect to the accumulation after the date of such transfer to the Ministry of Energy and Mines. The parties appearing before me, Notary Public, so expressed with respect to the object, value and legal effect of this instrument, the object and significance of the special clauses contained herein and the general clauses that ensure its validity. The undersigned Notary Public states to have seen the documents inserted and associated with this deed. This deed was read by me, Notary Public, in its entirety, before the appearing parties, who fully agree with, approve and ratify it in all and each of its parts, without any changes made, and sign it together with me, Notary Public. I swear to all listed (f) Legible; (f) legible; Dr. Joaquin Hernán Estrada Santamaría (f) Illegible: Stanton Edward Ross. (f) Illegible: Roberto Octavio Arguello Villavicencil. (f) Illegible: Geovanny Francisco Salinas Brenes , State Notary Public –.
BEFORE ME: the front of page number two hundred sixty five to the front of page number three hundred sixteen of protocol number Two of the 11
th
Notary Office of the State during the current year and at and at the request of the Attorney General for the Republic, Doctor Joaquin Hernán Estrada Santamaría, I hereby release this first authenticated copy in fifty two pages that I sign, seal and initial in the city of Managua at eleven o’clock in the morning of March twenty four of the year two thousand nine.
(Signature and Seal for the Attorney General’s office of the Republic)
Republic of Nicaragua
Central America
GEOVANNY FRANCISCO SALINAS BRENES
ELEVENTH NOTARY PUBLIC FOR THE STATE
EXHIBIT 10.10
AMEGY BANK NATIONAL ASSOCIATION
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
August 31, 2007
INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
Re: Forbearance Agreement
Ladies and Gentlemen:
This letter (this “
Agreement
”) sets forth the forbearance agreement among INFINITY ENERGY RESOURCES, INC. (“
Borrower
”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL
&
GAS OF WYOMING, INC., a Wyoming corporation (collectively “
Guarantors
”); and AMEGY BANK NATIONAL ASSOCIATION (“
Lender
”). Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the “
Loan Agreement
”).
1.
Borrowing Base
. Effective as of August 10,2007, Lender has reduced the Borrowing Base to $10,500,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base. Lender reserves the right to make the next redetermination of the Borrowing Base at any time,
2. Borrowing Base Deficiency. The new Borrowing Base results in a Borrowing Base deficiency in the amount of $11,500,000.00 (the “
Deficiency
”). On or before the end of the Forbearance Period (as defined below), Borrower and Guarantors agree to cure the Deficiency by sale of assets as provided below to pay down the Revolving Loan and cure the Deficiency, refinance of the Revolving Loan, or raise capital on terms acceptable to Lender to pay down the Revolving Loan and cure the Deficiency.
3. Events of Default. Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the “
Existing Defaults
”):
(a) Borrower and Guarantors breached the Interest Coverage Ratio set forth in Subsection (a) of Section 8 of the Loan Agreement for the period ended June 30, 2007;
(b) Borrower and Guarantors breached the Funded Debt to EBITDA Ratio set forth in Subsection (d) of Section 8 of the Loan Agreement for the period ended June 30, 2007; and
(c) Borrower and Guarantors failed to deliver all lien releases required by Subsection (k) of Section 9 of the Loan Agreement.
4. Forbearance. Lender, Borrower, and Guarantors agree to a forbearance period commencing as of the date of this Agreement, and continuing through November 30, 2007, unless terminated earlier by Lender due to a Default, as defined below (the “
Forbearance Period
”). During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents. Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety days thereafter. If a Definitive Sale Agreement (as defined below) has been executed on or before November 30, 2007, and there is no additional Default, then Lender will seek credit approval for an extension of the Forbearance Period through January 31, 2008.
5. Temporary Waiver. Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults. Lender hereby waives the Existing Defaults through the Forbearance Period only. This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future. This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document. Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents. Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
6. Interest. Borrower and Lender hereby agree that during the Forbearance Period and so long thereafter as any Event of Default remains uncured and outstanding, the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the default rate of Stated Rate,
plus
six percent (6.0%) (the “
Default Rate
”), as set forth in the Revolving Note; provided, however, that accrued interest on the entire unpaid principal balance owed on the Revolving Note shall be payable monthly on each Interest Payment Date (as defined in the Revolving Note) calculated at the sum of the Stated Rate,
plus
the Applicable Margin; and the difference between the Default Rate and the sum of the Stated Rate,
plus
the Applicable Margin, shall accrue and shall be payable only upon the earlier of (i) the termination of the Forbearance Period, or (ii) the cure of the Deficiency. Effective as of the date of this Agreement, the LIBOR Balance (as defined in the Revolving Note) is hereby converted to the Stated Rate Balance (as defined in the Revolving Note); and Borrower shall be obligated to pay Lender for any LIBOR breakage costs required under the Revolving Note or any Consequential Loss (as defined in the Revolving Note).
7. Additional Collateral. Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes.
In
this regard, Borrower and Guarantors agree within five (5) days of Lender’s written request (i) to sign and deliver mortgages, deeds of trust, or amendments in Proper Form, covering all such oil and gas properties and leasehold interests owned by Borrower or Guarantors and not previously mortgaged to Lender; and (ii) to provide copies of recorded assignments and all title information requested by Lender, relating to Borrower’s and Guarantors’ oil and gas properties and leasehold interests. Further, Borrower and Guarantors agree to use their reasonable best efforts to obtain a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas, and thereafter to mortgage this lease.
8. Lockbox. Borrower and Guarantors agree to the following provisions regarding production proceeds attributable to their oil and gas properties:
(a) Borrower and Guarantors will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the “
Lockbox Account
”). Contemporaneously with the execution of this Agreement, Guarantors will sign and deliver to Lender letters in lieu of transfer orders to all purchasers of production directing those parties to pay all proceeds attributable to Guarantors’ interest in the Properties to the Lockbox Account and will provide a schedule with the name, address, telephone number, and contact of the first purchaser of production for all of the oil and gas properties.
(b) All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower’s request and verification of those amounts. Borrower and Guarantors shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by Borrower, Guarantors, or any affiliates of Borrowers or Guarantors within the meaning of Securities and Exchange Commission Rule 144, shall be paid from the Lockbox Account proceeds.
(c) Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
(d) At Borrower’s request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits below), capital expenditures, and transaction costs related to the sale of the Sale Properties, including broker fees, if any, due prior to closing, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied). Borrower and Guarantors shall not pay in any month operating expenses, general and administrative expenses, capital expenditures, or transaction costs exceeding the aggregate budgeted expenses for each such category for that month, unless Lender has approved such payments. Borrower shall, not later than two business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, capital expenditures, and transaction costs and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month. Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
(e) All sums remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the Revolving Note and collection costs as set forth in Section 3.2 of the Deed of Trust. If the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
(f) Notwithstanding the provisions of Subsection (t) of Section 8 of the Loan Agreement, Borrower and Guarantors shall not permit cash general and administrative expenses on a consolidated basis to exceed $150,000.00 (excluding broker fees as approved by Lender, if any, due prior to closing) per month during term of this Agreement; provided, however, that general and administrative expenses in excess of this monthly limit may be accrued and paid only after the Revolving Loan and Hedge Liabilities have been paid in full.
9. Sale of Oil and Gas Properties. In order to cure the Deficiency, Borrower and Guarantors have advised Lender that they intend to sell the assets of Infinity Oil & Gas of Wyoming, Inc. (“
IOGW
”), and Borrower and Guarantors have requested that Lender allow Borrower to accomplish these sales. In this regard, Borrower and Guarantors agree to take the following actions:
(a) Borrower and Guarantors shall proceed with the sale and marketing of all assets of IOGW (the “
Sale Properties
”); and Borrower and Guarantors shall accept any commercially reasonable offer to buy the Sale Properties; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.
(b) Borrower and Guarantors shall deliver on or before August 31, 2007 an updated evaluation of the Sale Properties with target sale prices.
(c) On or before September 4,2007, Borrower and Guarantors shall enter into an agreement with an oil and gas broker or consultant, reasonably acceptable to Lender, to facilitate the sale and marketing of the Sale Properties. Thereafter, Borrower and Guarantors shall use their best efforts to (i) promptly open a data room on the Sale Properties,
(ii)
to obtain firm proposals for the sale of the Sale Properties on or before October 31,2007, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of Sale Properties with proceeds sufficient to repay the Deficiency (a “
Definitive Sale Agreement
”) on or before November 30, 2007, and (iv) seek stockholder approval, if required, and consummate the sale of the Sale Properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period (as it may be extended). Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with the oil and gas broker or consultant; and thereafter Borrower and Guarantors shall provide a monthly report on the first
(I
SI) day of each month, to be prepared by the oil and gas broker or consultant engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, including the Texas Properties (as defined below), that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Sale Properties and the Texas Properties. Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all broker fees and other transaction costs related to the sale of the Sale Properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
(d) In addition, upon the written directive of Lender, to be exercised in Lender’s sole discretion, Borrower and Guarantors shall proceed with the sale and marketing of all Texas assets of Infinity Oil and Gas of Texas, Inc. (the “
Texas Properties
”); and if elected by Lender, Borrower and Guarantors shall thereafter accept any commercially reasonable offer to buy the Texas Properties; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender. To facilitate this future sale, Borrower and Guarantors shall promptly provide the oil and gas broker or consultant retained with respect to the sale of the Sale Properties with all information needed for the future sale of the Texas Properties. Upon Lender’s election to proceed with the sale of the Texas Properties, Borrower and Guarantors shall thereafter use their best efforts to (i) promptly open a data room on the Texas Properties, (ii) to promptly obtain firm proposals for the sale of the Texas Properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of Texas Properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the Texas Properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.
(e) Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Sale Properties and, if required by Lender, the Texas Properties, and will take all lawful actions as will result in the prompt payment of the Deficiency as provided herein.
(f) No sale of any of the Sale Properties or the Texas Properties will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
(g) Borrower and Guarantors will direct the net sale proceeds from the sale of any of the Sale Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and collection costs in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and collection costs as herein provided.
10. Joint Venture of Barnett Shale Acreage. Lender acknowledges and agrees that Borrower and Guarantors may proceed with the negotiation and documentation of a joint venture arrangement, on substantially the terms previously disclosed to Lender or other terms required by Lender to preserve the leasehold interests and the value of the Texas Properties, with respect to the Barnett Shale acreage. Borrower and Guarantors will seek formal consent under the Loan Agreement prior to the execution of a definitive agreement regarding this joint venture.
11. Nicaragua Concession. So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
(a) They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua concession, without the prior written consent of Lender, except for
(i)
the sale of hydrocarbons in the ordinary course of business, and (ii) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use; and
(b) They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua concession (or any interest in the Nicaragua concession), without the prior written consent of Lender, except Permitted Encumbrances.
12. Hedge Transactions. Borrower acknowledges that the Existing Defaults also constitute an “Event of Default” under Section 5(a)(vi) of the ISDA Master Agreement dated January 9, 2007, between Borrower and Lender (the “
ISDA Master Agreement
”). Notwithstanding Section 6(a) of the ISDA Master Agreement, upon any termination of the Forbearance Period for any reason, Lender may immediately designate an “Early Termination Date” as defined in the ISDA Master Agreement for any or all outstanding Hedge Transactions, without the notice required by the ISDA Master Agreement. Lender has not yet designated any Early Termination Date, and Lender reserves all rights and remedies in this regard.
13. Audit and Inspections. (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower’s and Guarantors’ offices and examine, audit, and make and take away copies or reproductions of Borrower’s and Guarantors’ books and records reasonably required by Lender, relating to
(i)
the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower’s and Guarantors’ oil and gas properties. Lender will provide Borrower and Guarantors with one business day written notice of its intention to commence the audit. Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender’s auditors of Borrower’s third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
14. Reporting Requirements. Until the Revolving Note and all other obligations and liabilities of Borrower under the Revolving Note and the other loan documents are fully paid and satisfied, Borrower and Guarantors will furnish to Lender the following in Proper Form:
(a) On or before August 31, 2007, a ISO-day operating/cash flow forecast for Borrower and Guarantors and a proforma working capital balance for Borrower and Guarantors as of August 22, 2007.
(b) Within five (5) days of the end of each month, a pro-forma working capital balance for Borrower and Guarantors as of the end of the prior month.
(c) On or before August 31, 2007, a written plan to pay-down the pro forma Accounts Payable balance of $5,767,351.00.
(d) On or before August 31, 2007, an in-house valuation of Borrower’s and Guarantors’ entire leasehold/producing assets.
(e) As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
(f) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas broker or consultant, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Sale Properties and shall promptly inform Lender of any unwritten offers or bids.
(g) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note and Hedge Liabilities.
(h) Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within forty-five (45) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
(i) On or before August 31, 2007, evidence of the payments and all lien releases required by Subsection (k) of Section 9 of the Loan Agreement, or evidence of Borrower’s and Guarantors’ efforts in this regard if unable to provide any lien releases; and
(j) such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
15. Forbearance Fee. In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a forbearance/waiver fee in the amount of $220,000.00, due on or before the earlier of the following: (i) the end of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) refinance of the Revolving Note by another lender; provided, however, that if Borrower and Guarantors are able to fully resolve the Deficiency by the sale of the Sale Properties closed and funded on or before November 30,2007, then the amount of the forbearance/waiver fee shall be reduced to $110,000.00. All fees are non-refundable and earned by Lender upon execution of this Agreement.
16. Conditions Precedent. The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
(a) Except for the Existing Defaults, Borrower shall be in material compliance with the conditions set forth in Subsection (a) of Section 5 of the Loan Agreement as of the date of this Agreement, and all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement.
(b) the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
(i) this Agreement; and
(ii) a Lockbox Account agreement using Lender’s typical form;
(iii) Letters in Lieu; and
(iv) a Borrowing Resolution.
(c) there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
17. Default and Remedies. (a) As used in this Agreement, “
Default
” means
(i)
any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, or (iii) any further Event of Default under the Loan Agreement, including additional defaults under the provisions covered by the Existing Defaults.
(b) Upon a Default, Lender may terminate the Forbearance Period and exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or anyone or more of them. All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
18. Other Representations. Borrower and Guarantors hereby represent to Lender as follows:
(a) The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower’s and Guarantors’ respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
(b) There are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
19. Confirmations. (a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note or the Hedge Liabilities.
Principal
|
|
$
|
22,000,000.00
|
|
Interest
|
|
$
|
190,723.39
|
|
Non Use Fee
|
|
$
|
950.01
|
|
Total
|
|
$
|
22,191,673.40
|
|
(b) As security for the Notes, Borrower and Guarantors previously executed the Security Documents. Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
(c) In connection with the Revolving Note, Guarantors executed the Guaranties. Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note. Guarantors agree that there is no defense to payment under the Guaranties.
(d) Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
20. Validity and Defaults. The Loan Agreement remains in full force and effect. Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement. Borrower and Guarantors ratify the Loan Agreement.
21. Release. For valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “
Released Parties
”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “
Claims
”), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, fraud, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, fraud, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act.
22. Advice from Counsel. Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement. The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
23. Governing Law and Venue. THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS. BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
24. Savings Clause. Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
25. Fax Provision. This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower. At Lender’s option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender. Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery.
It
will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
26. Captions. Captions are for convenience only and should not be used in interpreting this Agreement.
27. Final Agreement. (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the “
Written Loan Agreement
”).
(b) It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents. Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
(c) THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter. Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Texas time, on Friday, August 31, 2007.
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Yours very truly,
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AMEGY BANK NATIONAL ASSOCIATION
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By:
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/s/
Tim E. Merrell
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Tim E. Merrell,
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Senior Vice President
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Accepted and agreed to
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this 31st day of August, 2007:
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BORROWER:
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INFINITY ENERGY RESOURCES, INC.
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By:
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/s/ Stanton E. Ross, Chairman
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Stanton E. Ross, Chairman
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and Chief Executive Officer
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GUARANTORS:
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INFINITY OIL AND GAS OF TEXAS, INC.
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By:
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/s/ James A. Tuell
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James A. Tuell, President
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INFINITY OIL
&
GAS OF WYOMING, INC.
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By:
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/s/ James A. Tuell
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James A. Tuell, President
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Exhibits
:
None
EXHIBIT 10.11
AmegyBank
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
March 26, 2008
INFINITY ENERGYRESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
Re: Second Forbearance Agreement
Ladies and Gentlemen:
This letter (this “
Agreement
”) sets forth the second forbearance agreement among INFINITY ENERGY RESOURCES, INC. (“
Borrower
”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “
Guarantors
”); and AMEGY BANK NATIONAL ASSOCIATION (“
Lender
”). Borrower, Guarantors, and Lender previously entered into a Forbearance Agreement (the “
First Forbearance Agreement
”) dated August 31, 2007. Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the “
Loan Agreement
”).
1.
Forest Transactions
. Borrower and Guarantors have consummated the following transactions as contemplated by the First Forbearance Agreement:
(a) The sale of certain oil and gas properties of Infinity Oil & Gas of Wyoming, Inc. (“
IOGWy
”), excluding, however, an undivided 20% interest retained in all undeveloped leasehold acreage, pursuant to an Asset Purchase and Sale Agreement dated December 26, 2007, but effective October 1, 2007, between IOGWy, as seller, and FOREST OIL CORPORATION (“
Forest
”), a New York corporation, as buyer; and
(b) The farmout of certain undeveloped leasehold acreage of Infinity Oil and Gas of Texas, Inc. (“
IOGTx
”), pursuant to a Farmout and Acquisition Agreement (the “
Farmout Agreement
”) dated December 26, 2007, between IOGTx, as farmor, and Forest, as farmee.
2.
Borrowing Base
. Effective as of the date of this Agreement, Lender has reduced the Borrowing Base to $3,806,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base. Lender reserves the right to make the next redetermination of the Borrowing Base at any time.
3.
Borrowing Base Deficiency
. The new Borrowing Base results in a Borrowing Base deficiency in the amount of $7,097,468.29 (the “
Deficiency
”). On or before the end of the Forbearance Period (as defined below), Borrower and Guarantors agree to cure the Deficiency by selling assets, refinancing of the Revolving Loan, or raising capital on terms acceptable to Lender.
4.
Events of Default
. Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the “
Existing Defaults
”):
(a) The Existing Defaults set forth in the First Forbearance Agreement;
(b) Borrower and Guarantors breached the financial covenants set forth in Subsection (a)-(h) of Section 8 of the Loan Agreement for the periods ended September 30 and December 31, 2007; and
(c) Borrower and Guarantors breached the covenants set forth in Subsections (g), (h), (i), and (m) of Section 7 of the Loan Agreement for the periods ended September 30, 2007 and December 31, 2007.
5.
Forbearance
. Lender, Borrower, and Guarantors agree to a forbearance period commencing as of December 1, 2007, and continuing through May 31, 2008, unless terminated earlier by Lender due to a Default, as defined below (the “
Forbearance Period
”). During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents. Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety (90) days thereafter.
6.
Temporary Waiver
. Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults and additional defaults under the provisions covered by the Existing Defaults, excluding, however, the following (the “
Excluded Defaults
”): (i) any additional defaults under the additional debt prohibitions in Subsection (h) of Section 7 of the Loan Agreement, and (ii) any additional defaults under the use of Free Operating Cash Flow prohibitions in Subsection (h) of Section 8 of the Loan Agreement. Lender hereby waives the Existing Defaults through the Forbearance Period only. This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future. This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document. Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents. Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
7.
Interest
. Borrower and Lender hereby agree that during the Forbearance Period (including the Forbearance Period under the First Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose the default rate of Stated Rate, plus six percent (6.0%) (the “
Default Rate
”), as set forth in the Revolving Note, at any time after the termination of the Forbearance Period, in the event that an Event of Default remains uncured and outstanding. Further, in lieu of the additional interest accrued and unpaid under the First Forbearance Agreement, calculated as the difference between the Default Rate and the sum of the Stated Rate, plus the Applicable Margin, Borrower shall pay the Forbearance/Waiver Fee set forth below.
8.
Additional Collateral
. In consideration of the forbearance under this Agreement, Borrower agrees to sign and deliver a Commercial Security Agreement (the “
Security Agreement
”) in Proper Form, granting a security interest in any future sale proceeds from the sale of all or any part of the rights Borrower may have in the Tyra and Perl as Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “
Nicaragua Concessions
”), and affected by Sentencia No. 92, Expediente No. 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006, in any future subsidiaries in which the rights with respect to the Nicaragua Concessions are assigned, and in any proceeds or rights related to Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“
OPIC
”) related to the Nicaragua Concessions (the “
OPIC Policies
”). Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua Concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes. Further, Borrower and Guarantors agree to use their reasonable best efforts to obtain within thirty (30) days of the date of this Agreement a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas, and thereafter to mortgage this lease. Lender agrees to release without delay the Security Agreement in the event that the OPIC notifies Borrower of payment of compensation for a claim made by Borrower under the OPIC Policies; provided, however that if released the Security Agreement under such circumstances, Borrower agrees that the compensation for a claim made by Borrower under the OPIC Policies shall still be paid to Lender for application to the Revolving Loan.
9.
Lockbox
. Section 8 of the First Forbearance Agreement regarding payment of all production proceeds to the Lockbox Account shall remain in effect until all amounts lawfully due and owing on the Revolving Note and the Hedge Liabilities are paid in full, except Subsection (f) of Section 8 of the First Forbearance Agreement is modified to read as follows:
“(f) Notwithstanding the provisions of Subsection (f) of Section 8 of the Loan Agreement, beginning April l, 2008, Borrower and Guarantors shall not permit cash general and administrative expenses on a consolidated basis to exceed $75,000.00 per month during term of this Agreement; provided, however, that general and administrative expenses in excess of this monthly limit may be accrued and paid only after the Revolving Loan and Hedge Liabilities have been paid in full.”
10.
Sale of Oil and Gas Properties
. In order to cure the Deficiency, Borrower and Guarantors agree to take the following actions:
(a) Upon the written directive of Lender, to be exercised in Lender’s sole discretion, but subject to shareholder approval to the extent required by applicable law, Borrower and Guarantors shall proceed with (i) the sale and marketing of the interest retained in the oil and gas properties ofIOGWy (the “
Rockies Properties
”); and (ii) the sale and marketing of interests in the Texas oil and gas properties of IOGTx (the “
Texas Properties
”). If elected by Lender, Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Rockies Properties and the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Rockies Properties and the Texas Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.
(b) Upon Lender’s election to proceed with the sale of the Rockies Properties and the Texas Properties, or any of them, Borrower and Guarantors shall thereafter use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.
(c) Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas broker or consultant retained to assist with sales under this Section; and thereafter Borrower and Guarantors shall provide a monthly report on the first (1st) day of each month, to be prepared by the oil and gas broker or consultant engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and the Texas Properties. Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
(d) No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
(e) Borrower and Guarantors will direct the net sale proceeds from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and collection costs in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and collection costs as herein provided.
11.
Nicaragua Concessions
. So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
(a) They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (i) the sale of hydrocarbons in the ordinary course of business, and (ii) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, and (iii) the assignment or transfer required under Section 10.02 of the OPIC Policies after payment of compensation for a claim made by Borrower under the OPIC Policies; and
(b) They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
12.
Escrow Agreement
. In
connection with the Farmout Agreement with Forest, IOGTx, Forest, Lender, and Amegy Bank National Association, as escrow agent, have entered into an Escrow Agreement (the “
Escrow Agreement
”) dated December 27, 2007, providing for the payment of certain liens and claims from funds held in escrow, in accordance with the terms therein.
13.
Lease Operating Expense
. By March 31, 2008, Borrower and IOG Tx shall provide evidence to Lender that the lease operating expense on the Texas properties of IOGTx does not exceed an average of $2,500 per well per month; and thereafter Borrower and IOGTx shall not permit the lease operating expense on the Texas properties of IOGTx to exceed an average of $2,500 per well per month.
14.
Hedge Transactions
.
(a) In
connection with the sale of the Rockies oil and gas properties to Forest, Borrower and Guarantors terminated all outstanding Hedge Transactions. A hedge termination fee in the amount of $56,085.00 is owed by Borrower to Lender in connection with the termination of those Hedge Transactions, and this hedge termination fee shall be payable on or before the Deferral Date (as defined below).
(b) Notwithstanding the terms of Section 4 of the Loan Agreement, Borrower and Guarantors agree that during the Forbearance Period and so long thereafter as any Event of Default remains outstanding and uncured, Borrower and Guarantors shall not enter into any Hedge Transaction without the prior written consent of Lender. If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.
15.
Audit and Inspections
. (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower’s and Guarantors’ offices and examine, audit, and make and take away copies or reproductions of Borrower’s and Guarantors’ books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower’s and Guarantors’ oil and gas properties. Lender will provide Borrower and Guarantors with one business day written notice of its intention to commence the audit. Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender’s auditors of Borrower’s third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
16.
Reporting Requirements
. Until the Revolving Note and all other obligations and liabilities of Borrower under the Revolving Note and the other loan documents are fully paid and satisfied, Borrower and Guarantors will furnish to Lender the following in Proper Form:
(a) On or before March 31, 2008, a 180-day operating/cash flow forecast for Borrower and Guarantors and a pro-forma working capital balance for Borrower and Guarantors as of February 29, 2008.
(b) Within ten (10) days of the end of each month, a pro-forma working capital balance for Borrower and Guarantors as of the end of the prior month.
(c) On or before March 31, 2008, a written plan to pay-down the pro forma Accounts Payable balance.
(d) As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
(e) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas broker or consultant, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
(f) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note and Hedge Liabilities.
(g) Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within fifty (50) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
(h) Within ten (10) days of the release of any funds under the Escrow Agreement, evidence of the payments made under the Escrow Agreement and lien releases in recordable form acceptable to Lender, releasing any lien claims made with respect to those amount paid under the Escrow Agreement;
(i) On or before March 31, 2008, Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures; and
(j) Such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
17.
Forbearance Fee
. In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the “
Deferral Date
”): (i) the termination of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) the refinance of the Revolving Note by another lender:
(a) Forbearance Waiver Fee under the First Forbearance Agreement in the amount of $220,000.00; plus
(b) Forbearance/Waiver Fee due because of the failure to pay the additional interest and the original Forbearance Waiver Fee under the First Forbearance Agreement in the amount of $333,666.67; plus
(c) Forbearance/Waiver Fee for December 2007 in the amount of $223,666.67; plus
(d) Forbearance/Waiver Fee for each month from January 2008 through May 2008, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
The Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
18.
Conditions Precedent
. The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
(a) Except for the Deficiency and the Existing Defaults, all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement, except for Subsection (d) of Section 6 which is qualified by the lawsuits set forth in
Schedule A
attached.
(b) the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
(i) this Agreement;
(ii) the Security Agreement; and
(iii) Borrower and Guarantors Resolutions.
(c) there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
19.
Default and Remedies
.
(a) As used in this Agreement, “
Default
” means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, or (iii) any further Event of Default under the Loan Agreement, other than additional defaults under the provisions covered by the Existing Defaults, excluding the Excluded Defaults.
(b) Upon a Default, Lender may terminate the Forbearance Period and exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or anyone or more of them. All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
20.
Other Representations
. Borrower and Guarantors hereby represent to Lender as follows:
(a) The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower’s and Guarantors’ respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
(b) Except as set forth on
Schedule A
hereto, there are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
21.
Confirmations
.
(a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to the Revolving Note as of March 12, 2008:
Principal
|
|
$
|
10,903,468.29
|
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Interest
|
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$
|
21,655.50
|
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Total
|
|
$
|
10,925,655.50
|
|
Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note or the Hedge Liabilities.
(b) As security for the Notes, Borrower and Guarantors previously executed the Security Documents. Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
(c) In connection with the Revolving Note, Guarantors executed the Guaranties. Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note. Guarantors agree that there is no defense to payment under the Guaranties.
(d) Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Subsection (d) of Section 6 which is qualified by the lawsuits set forth in
Schedule A
attached; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
22.
Validity and Defaults
. The Loan Agreement remains in full force and effect. Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement. Borrower and Guarantors ratify the Loan Agreement.
23.
Release
. For valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “
Released Parties
”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “
Claims
”), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, fraud, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, fraud, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act.
24.
Advice from Counsel
. Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement. The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
25.
Governing Law and Venue
. THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS. BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
26.
Savings Clause
. Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
27.
Fax Provision
. This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower. At Lender’s option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender. Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery. It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
28.
Captions
. Captions are for convenience only and should not be used in interpreting this Agreement.
29.
Final Agreement
.
(a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the “
Written Loan Agreement
”).
(b) It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents. Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
(c) THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter. Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Houston, Texas time, on Thursday, March 27, 2008.
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Yours very truly,
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AMEGY BANK NATIONAL ASSOCIA TION
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By:
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/s/ A. Stephen Kennedy
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A. Stephen Kennedy, Senior Vice President/
Manager - Energy Group
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Accepted and agreed to
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this 27th day of March, 2008:
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BORROWER:
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INFINITY ENERGY RESOURCES, INC.
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By:
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/s/ Stanton E. Ross
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Stanton E. Ross, Chairman
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and Chief Executive Officer
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GUARANTORS:
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INFINITY OIL AND GAS OF TEXAS, INC.
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By:
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/s/ Stanton E. Ross
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Stanton E. Ross, President
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INFINITY OIL & GAS OF WYOMING, INC.
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By:
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/s/ Stanton E. Ross
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Stanton E. Ross, President
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Exhibits and Schedules
:
Schedule A -Lawsuits
Exhibit 10.12
AmegyBank
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
October 16, 2008
INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
Re: Third Forbearance Agreement
Ladies and Gentlemen:
This letter (this "
Agreement
") sets forth the third forbearance agreement among INFINITY ENERGY RESOURCES, INC. ("
Borrower
"), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively "
Guarantors
"); and AMEGY BANK NATIONAL ASSOCIATION ("
Lender
"). Borrower, Guarantors, and Lender previously entered into a Forbearance Agreement (the "
First Forbearance Agreement
") dated August 31, 2007, and a Second Forbearance Agreement (the "
Second Forbearance Agreement
") dated March 26, 2008. Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the "
Loan Agreement
").
1.
Forbearance
. (a) Lender, Borrower, and Guarantors agree to a forbearance period commencing as of June 1, 2008, and continuing through May 31, 2009, unless extended as set forth in Subsection (b) below or unless terminated earlier by Lender due to a Default, as defined below (the "
Forbearance Period
"). During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents. Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety (90) days thereafter.
(b) The Forbearance Period shall be extended until June 15, 2009, if Borrower has satisfied the following conditions as of May 31, 2009:
(i) The sum of the principal amount outstanding on the Revolving Loan, plus the aggregate undrawn amount on the Nicaragua Letters of Credit (as defined below), is $5,000,000.00 or less; and
(ii) There is no existing Default.
2.
Extension of Revolving Loan
. The "
Termination Date
" as defined in the Loan Agreement is hereby extended until 11:00 a.m. (Dallas, Texas time) on May 31, 2009. Borrower agrees to sign and deliver a First Amendment of the Revolving Note to reflect this extension.
3.
Events of Default
. Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the "
Existing Defaults
"):
(a) The Existing Defaults set forth in the First Forbearance Agreement and the Second Forbearance Agreement;
(b) Borrower and Guarantors breached the financial covenants set forth in Subsection (a) - (h) of Section 8 of the Loan Agreement for the periods ended March 31 and June 30, 2008; and
(c) Borrower and Guarantors breached the covenants set forth in Subsections (g), (i), and (m) of Section 7 of the Loan Agreement for the periods ended March 31 and June 30, 2008; provided, however, that the breach of Subsection (i) of Section 7 of the Loan Agreement was solely attributable to involuntary mineral lien claims made under Chapter 56 of the Texas Property Code or similar applicable law.
4.
Temporary Waiver
. Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults and additional defaults under the provisions covered by the Existing Defaults, excluding, however, the following (the "
Excluded Defaults
"): (i) except as contemplated under this Agreement, any additional defaults under the additional debt prohibitions in Subsection (h) of Section 7 of the Loan Agreement, and (ii) any additional defaults under the use of Free Operating Cash Flow prohibitions in Subsection (h) of Section 8 of the Loan Agreement. Lender hereby waives the Existing Defaults through the Forbearance Period only. This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future. This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document. Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents. Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
5.
Borrowing Base and Deficiency
. (a) The Borrowing Base has not been redetermined since the Second Forbearance Agreement and remains at $3,806,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base. Lender agrees that it will not redetermine the Borrowing Base during the Forbearance Period.
(b) As of September 3, 2008, the Borrowing Base results in a Borrowing Base deficiency in the amount of $6,104,493.64 (the "
Deficiency
"). On or before the end of the Forbearance Period, Borrower and Guarantors agree to cure the Deficiency by selling assets, refinancing of the Revolving Loan, or raising capital on terms acceptable to Lender.
6.
Nicaragua Concessions
. (a) On or before December 31, 2008, or such later date as agreed by Lender in writing, Borrower shall have received all governmental authorizations necessary for the validation and ratification of the concessions ("
Governmental Approval
") in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the "
Nicaragua Concessions
"), and affected by Sentencia No. 92, Expediente No 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006.
(b) So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
(i) They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (1) the sale of hydrocarbons in the ordinary course of business, (2) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, (3) the assignment or transfer required under Section 10.02 of Borrower's insurance policies issued by the Overseas Private Investment Corporation ("
OPIC
") related to the Nicaragua Concessions (the "
OPIC Policies
"), after payment of compensation for a claim made by Borrower under the OPIC Policies, and (4) in connection with capital raising transactions, the conveyance of one or more overriding royalty interests in the Nicaragua Concessions in an aggregate net revenue amount not to exceed four percent (4.0%), in exchange for cash equity contributions or Subordinate Loans (as defined below) to Borrower in an amount not less than $100,000.00 for each two-tenths of one percent (0.2%) of royalty conveyed; and
(ii) They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
7.
Nicaragua Letters of Credit
. Lender agrees, upon the request of Borrower, to issue one or more Letters of Credit in an aggregate amount not to exceed $850,000.00, in favor of the Direccion General de Hidrocarburos, Insituto Nicaraguense de Energia, for the account of Borrower and as security for Borrower's obligations with respect to the Nicaragua Concessions (the "
Nicaragua Letters of Credit
"). Any fundings under the Nicaragua Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents. The Nicaragua Letters of Credit shall be on terms reasonably acceptable to Lender and shall be for a term of up to one year and, if necessary, to renew automatically unless Lender gives prior written notice. Borrower will sign and deliver Lender's customary forms for the issuance of Letters of Credit. Lender agrees to take any and an reasonable actions in relation to the Nicaragua Letters of Credit as may be reasonably requested, and comply with the terms and conditions reasonably set forth, by the Nicaraguan government. Borrower agrees to pay to Lender a Letter of Credit fee on the Nicaragua Letters of Credit equal to three and one-quarter percent (3.25%) per annum, calculated on the aggregated stated amount of the Nicaragua Letters of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days), and due on or before the Deferral Date (as defined below).
8.
Stock Options
. On or before October 31, 2008, Borrower shall cause Stanton E. Ross and Dan Hutchins to exercise existing stock options granted at the most-recent annual meeting of Borrower for shares in Borrower (the "
Stock Options
") at a cash price of not less than 38¢ per share and for an aggregate cash equity contribution received by Borrower of not less than $200,000.00. The net proceeds from the Stock Options may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth in
Section 15
below or for development of the Nicaragua Concessions.
9.
Subordinate Loans
. On or before October 31, 2008, Borrower shall receive one or more subordinate loans in an aggregate amount not less than $1,500,000.00, which shall be subordinated in writing to the Loans and Hedge Liabilities on terms acceptable to Lender (the "
Subordinate Loans
"). Lender will allow the Subordinate Loans to be secured by the Security Documents on a fully-subordinated basis, pursuant to loan documents or amendments reasonably acceptable to Lender. The proceeds from the Subordinate Loans will be held in an escrow account at Lender until such time as Borrower shall have received the Governmental Approval, and thereafter, the proceeds from the Subordinate Loans may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth in
Section 15
below or for development of the Nicaragua Concessions; provided, however, that if the Governmental Approval is not obtained, all escrowed proceeds from the Subordinate Loans shall be promptly returned to the Subordinate Creditor.
10.
Cash Flow
. Borrower agrees that it will use its commercially reasonable best efforts to cause the contribution of cash to Borrower to the extent necessary so that Borrower's consolidated cash flow is a minimum of break even, after payment of interest expense on the Revolving Loan, to prevent any additional accounts payable from becoming past due, and to prevent any mineral liens under Chapter 56 of the Texas Property Code or similar applicable law from being filed against the Properties.
11.
Lockbox
. Borrower and Guarantors agree that the following provisions regarding production proceeds attributable to their oil and gas properties continue to apply:
(a) Borrower and Guarantors will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the "
Lockbox Account
").
(b) All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person's or entities' royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower's request and verification of those amounts. Borrower and Guarantors shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by Borrower, Guarantors, or any affiliates of Borrower or Guarantors within the meaning of Securities and Exchange Commission Rule 144, shall be paid from the Lockbox Account proceeds.
(c) Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
(d) At Borrower's request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits in Section 15 below), and capital expenditures, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied). Borrower and Guarantors shall not pay in any month operating expenses, general and administrative expenses, or capital expenditures exceeding the aggregate budgeted expenses for each such category for that month, unless Lender has approved such payments. Borrower shall, not later than two (2) business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, or capital expenditures and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month. Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
(e) All production proceeds remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the Revolving Note and collection costs as set forth in Section 3.2 of the Deed of Trust. If the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
12.
Escrow Account
. Under the Second Forbearance Agreement, INFINITY OIL AND GAS OF TEXAS, INC. ("
IOGTx
"), FOREST OIL CORPORATION ("
Forest
"), a New York corporation, Lender, and AMEGY BANK NATIONAL ASSOCIATION, as escrow agent, entered into the Escrow Agreement (the "
Escrow Agreement
") dated December 27, 2007. The purpose for which the Escrow Agreement was set up has been completed. Borrower and Guarantors shall cause Forest and IOGTx to terminate the Escrow Agreement in writing. Upon termination of the Escrow Agreement, one-half of all sums in the Escrow Account covered by the Escrow Agreement shall be transferred by Lender into the Lockbox Account and shall thereafter be held and used solely for the payment of monthly interest payments on the Revolving Loan and any other fees due under the Loan Agreement or this Agreement (other than fees due on the Deferral Date) and one-half of all sums in the Escrow Account shall be applied by Lender to the reduction of the principal balance of the Revolving Note.
13.
Sale of Oil and Gas Properties
. In order to cure the Deficiency, Borrower and Guarantors agree to take the following actions:
(a) Borrower and INFINITY OIL & GAS OF WYOMING, INC. ("
IOGWy
") shall proceed with the sale and marketing of the interest retained in the oil and gas properties of IOGWy (the "
Rockies Properties
"). Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Rockies Properties and the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Rockies Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender. Borrower and Guarantors shall use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period. Borrower further agrees to deliver marketing packages on the Rockies Properties to not less than ten (10) prospective buyers on or before December 15, 2008.
(b) After Borrower obtains the Governmental Approval, upon the written directive of Lender, to be exercised in Lender's sole discretion, Borrower and Guarantors shall proceed with the sale and marketing of interests in the Texas oil and gas properties of IOGTx (the "
Texas Properties
"). If elected by Lender, Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Texas Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender. Upon Lender's election to proceed with the sale of the Texas Properties, or any of them, Borrower and Guarantors shall thereafter use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.
(c) Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas broker or consultant retained to assist with sales under this Section; and thereafter Borrower and Guarantors shall provide a monthly report on the first (1st) day of each month, to be prepared by the oil and gas broker or consultant engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and, when applicable, the Texas Properties. Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender, reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
(d) No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
(e) Except as set forth below, Borrower and Guarantors will direct all of the net sale proceeds from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and collection costs in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and collection costs as herein provided. Lender hereby agrees that, so long as there is no Default at the time of the sale of the Rockies Properties, Borrower and IOGWy may retain ten percent (10%) of the net sale proceeds from the sale and use those net sale proceeds solely for working capital and development of the Nicaragua Concessions; and if Borrower receives the full amount of the Subordinate Loans required by
Section 9
above, then Borrower and IOGWy may retain twenty percent (20%) of the net sale proceeds from the sale and use those net sale proceeds solely for working capital and development of the Nicaragua Concessions.
14.
Lease Operating Expense
. Borrower and IOGTx shall not permit the lease operating expense on the Texas properties of IOGTx to exceed an average of $2,500 per well per month.
15.
General and Administrative Expense
. Notwithstanding the provisions of Subsection (f) of Section 8 of the Loan Agreement, Borrower and Guarantors shall not permit cash general and administrative expenses on a consolidated basis to exceed $75,000.00 per month during term of this Agreement; provided, however, that (i) the net proceeds from the Stock Options under
Section 8
above and the proceeds from the Subordinate Loans under
Section 9
above may be used by Borrower for general and administrative expenses in excess of this monthly limit, (ii) reasonable costs and expenses incurred by Borrower in connection with the Subordinate Loans shall not be subject to this limit, and (iii) unpaid general and administrative expenses in excess of this monthly limit may be accrued and paid only after the Revolving Note and all other obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender's satisfaction.
16.
Use of Proceeds
. Notwithstanding any term of this Agreement or the Loan Agreement to the contrary, Borrower and Guarantors shall not use any proceeds from the Lockbox Account, any proceeds from any capital contribution, including under the Stock Options, any proceeds of the Subordinate Loans, or any net sale proceeds from the sale of any of the Rockies Properties or the Texas Properties for the purpose of acquiring any oil and gas properties or leases or drilling any well, without the prior written consent of Lender.
17.
Hedge Transactions
. Notwithstanding the terms of Section 4 of the Loan Agreement, Borrower and Guarantors agree that during the Forbearance Period and so long thereafter as any Event of Default remains outstanding and uncured, Borrower and Guarantors shall not enter into any Hedge Transaction without the prior written consent of Lender. If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.
18.
Audit and Inspections
. (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower's and Guarantors' offices and examine, audit, and make and take away copies or reproductions of Borrower's and Guarantors' books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower's and Guarantors' oil and gas properties. Lender will provide Borrower and Guarantors with five (5) business days written notice of its intention to commence the audit. Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender's auditors of Borrower's third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
19.
Reporting Requirements
. Until the Revolving Note, the Hedge Liabilities, and all other obligations and liabilities of Borrower under the Revolving Note and the other loan documents are fully paid and satisfied, Borrower and Guarantors will furnish to Lender the following in Proper Form:
(a) Within ten (10) days of the end of each month, a report showing Borrower's consolidated actual cash flow for the month and for the period from the beginning of the fiscal year through the end of the month and consolidated projected cash flow for the next six months.
(b) Within ten (10) days of the end of each month, a pro-forma working capital balance for Borrower and Guarantors as of the end of the prior month.
(c) Within ten (10) days of the end of each month, an accounts payable listing and aging, along with copies of all additional liens or claims made by any account creditors.
(d) As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
(e) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas broker or consultant, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
(f) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note and Hedge Liabilities.
(g) Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within fifty (50) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request.
(h) As received and available, copies of the daily farmout activity reports from Forest, including any additional information received from Forest related to the Farmout and Acquisition Agreement (the "
Farmout Agreement
") dated December 26, 2007, between IOGTx, as farmor, and Forest, as farmee.
(i) such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
20.
Additional Collateral
. Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua Concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes. Within thirty (30) days of the date of this Agreement, Borrower and IOGTx agree to provide evidence to Lender documenting their efforts to obtain a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas.
21.
Interest
. Borrower and Lender hereby agree that during the Forbearance Period (including the Forbearance Period under the First Forbearance Agreement and the Second Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose the default rate of Stated Rate, plus six percent (6.0%) (the "
Default Rate
"), as set forth in the Revolving Note, at any time after the termination of the Forbearance Period, in the event that an Event of Default remains uncured and outstanding. Further, in lieu of the additional interest accrued and unpaid under this Agreement, Borrower shall pay the Forbearance/Waiver Fee set forth below.
22.
Forbearance Fee
. (a) In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the "
Deferral Date
"): (i) the termination of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) the refinance of the Revolving Note by another lender:
(i) Forbearance/Waiver Fee under the First Forbearance Agreement in the amount of$553,666.67; plus
(ii) Forbearance/Waiver Fee under the Second Forbearance Agreement in the amount of $723,666.33; plus
(iii) Until Borrower has received Governmental Approval, a Forbearance/Waiver Fee shall be due for each month from June 2008 through the end of the Forbearance Period, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
(iv) After Borrower has received Governmental Approval, a Forbearance/Waiver Fee shall be due for each month through the end of the Forbearance Period, calculated as three-quarters of one percent (0.75%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
Except as set forth below, the Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
(b) If on or before January 31, 2009, the Revolving Note, the Hedge Liabilities, and all other obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender's satisfaction, then Lender hereby agrees to waive all of the Forbearance/Waiver Fees accrued, but unpaid, under subsection (a) above. If on or before January 31, 2009, the outstanding principal balance owed on the Revolving Note has been paid down, then Lender hereby agrees to waive a pro-rata portion of the Forbearance/Waiver Fees accrued, but unpaid, under subsection (a) above, equal to the percentage of the current principal balance of $9,910,493.64 owed on the Revolving Note that has been paid as of that date.
(c) Borrower may make a written proposal to Lender regarding the payment of the Forbearance/Waiver Fees due under this Section by (i) delivery of unrestricted, marketable stock in Borrower to Lender or its nominee, or (ii) assignment of an overriding royalty interest in the Nicaragua Concessions to Lender or its nominee. The proposal will be subject to Lender's credit approval and must be upon terms and pricing acceptable to Lender, in its sole discretion. Lender does not yet have credit approval for payment of the Forbearance/Waiver Fees by delivery of stock or assignment of royalty.
23.
Other Fees
. Borrower acknowledges the following additional fee owed to Lender that is due on or before the Deferral Date: a hedge termination fee in the amount of $56,085.00, due pursuant to the Second Forbearance Agreement in connection with the termination of Hedge Transactions.
24.
Conditions Precedent
. The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower's satisfaction, in Lender's sole discretion, of the following conditions precedent:
(a) Except for the Deficiency and the Existing Defaults, all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement, except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in
Schedule A
attached, and Subsection (i) of Section 6, which is no longer applicable.
(b) the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
(i) this Agreement;
(ii) First Amendment to Revolving Note; and
(iii) Borrower and Guarantors Resolutions.
(c) other than as contemplated in this Agreement, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
(d) Lender's receipt and satisfactory review of a 180-day operating/cash flow forecast for Borrower and Guarantors.
(e) Lender's receipt and satisfactory review of a proposed budget from Borrower of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
25.
Default and Remedies
. (a) As used in this Agreement, "
Default
" means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, (iii) any default by IOGTx under the Farmout Agreement that results in Forest declaring an event of default and giving notice of its intent to exercise its remedies under the Farmout Agreement, or (iv) any further Event of Default under the Loan Agreement, other than the existing Borrowing Base deficiency or any additional defaults under the provisions covered by the Existing Defaults, excluding the Excluded Defaults.
(b) Upon a Default, Lender may terminate the Forbearance Period and exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or anyone or more of them. All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
26.
Other Representations
. Borrower and Guarantors hereby represent to Lender as follows:
(a) The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower's and Guarantors' respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
(b) Except as set forth on
Schedule A
hereto, there are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
27.
Confirmations
. (a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to
Principal
|
|
$
|
9,910,493.64
|
|
Interest
|
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$
|
96,902.60
|
|
Total
|
|
$
|
10,007,902.60
|
|
Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note or the Hedge Liabilities.
(b) As security for the Notes, Borrower and Guarantors previously executed the Security Documents, including the Security Agreement (as defined in the Second Forbearance Agreement). Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
(c) In connection with the Revolving Note, Guarantors executed the Guaranties. Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note. Guarantors agree that there is no defense to payment under the Guaranties.
(d) Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in
Schedule A
attached, and Subsection (i) of Section 6, which is no longer applicable; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
28.
Validity and Defaults
. The Loan Agreement remains in full force and effect. Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and except as contemplated by this Agreement, no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement. Borrower and Guarantors ratify the Loan Agreement.
29.
Release
. For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively "
Released Parties
"), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively "
Claims
"), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties in connection with the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act; provided, however, that any acts of willful misconduct or fraud by the Releases Parties shall not be released or discharged.
30.
Advice from Counsel
. Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement. The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
31.
Governing Law and Venue
. THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS. BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
32.
Savings Clause
. Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
33.
Fax Provision
. This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower. At Lender's option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender. Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery. It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
34.
Captions
. Captions are for convenience only and should not be used in interpreting this Agreement.
35.
Final Agreement
. (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the "
Written Loan Agreement
").
(b) It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents. Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
(c) THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter. Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Houston, Texas time, on October 17, 2008.
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Yours very truly,
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AMEGY BANK NATIONAL ASSOCIATION
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By:
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A. Stephen Kennedy,
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Senior Vice President/
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Manager - Energy Group
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Accepted and agreed to
|
this __day of October, 2008:
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BORROWER:
|
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INFINITY ENERGY RESOURCES, INC.
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By:
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Stanton E. Ross, President
|
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and Chief Executive Officer
|
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GUARANTORS:
|
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INFINITY OIL AND GAS OF TEXAS, INC.
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By:
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Stanton E. Ross, President
|
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INFINITY OIL & GAS OF WYOMING, INC.
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By:
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Stanton E. Ross, President
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Exhibits and Schedules
:
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Schedule A - Lawsuits
|
SCHEDULE A
Lawsuits
Southwest Aviation Specialist, LLC filed an action in the District Court in and for the County of Tulsa, State of Oklahoma, number CS200708783, on October 31, 2007, against Infinity Oil and Stan Ross.
Exhibit 10.13
AmegyBank
FIRST AMENDMENT TO REVOLVING PROMISSORY NOTE
This First Amendment to Revolving Promissory Note is executed effective October 16, 2008, by INFINITY ENERGY RESOURCES, INC. (“
Borrower
”), a Delaware corporation, and AMEGY BANK NATIONAL ASSOCIATION (“
Lender
”).
Recitals:
Borrower is legally obligated to pay a Revolving Promissory Note (the “
Revolving Note
”) dated January 9, 2007, in the maximum principal amount of $50,000,000.00, executed by Borrower, and payable to the order of Lender. The Revolving Note is governed by the Loan Agreement dated January 9, 2007, among Borrower, Lender, and Guarantors (as defined therein), as amended (the “
Loan Agreement
”), as modified by the Forbearance Agreement dated August 31,2007, among Borrower, Lender, and Guarantors, the Second Forbearance Agreement dated March 26, 2008, among Borrower, Lender, and Guarantors, and the Third Forbearance Agreement (the “
Third Forbearance Agreement
”) of even date herewith, among Borrower, Lender, and Guarantors. The Revolving Note matures on January 9, 2009, and Borrower has requested that Lender extend the Maturity Date in connection with the Third Forbearance Agreement as set forth below. Unless otherwise defined herein, capitalized terms herein have the meanings assigned in the Revolving Note.
Agreement:
For valuable consideration, including the funds previously advanced by Lender to Borrower under the Revolving Note, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender agree and stipulate as follows:
1. The recitals above are true and correct and form the basis for this amendment.
2. The Maturity Date of the Revolving Note is extended until May 31, 2009.
3. The Revolving Note will continue to be due and payable as follows:
(a) accrued, unpaid interest on this Note shall be due and payable on each Interest Payment Date, commencing on the date of this Amendment, and continuing until the Maturity Date;
(b) the principal of this Note shall be due and payable as required by the Loan Agreement as modified by the Third Forbearance Agreement, to meet any Borrowing Base deficiency or Monthly Commitment Reductions (if and when required by Lender under the Loan Agreement); and
(c) the outstanding principal balance of the Revolving Note, together with all accrued but unpaid interest, shall be due and payable on the Maturity Date, as extended.
4. Borrower acknowledges that the outstanding principal balance of the Revolving Note as of September 3,2008, is $9,910,493.64, and that Borrower has no defenses or setoffs to payment of the Revolving Note.
5. Except as specifically amended herein, the Revolving Note remains unchanged; and Borrower ratifies the Revolving Note, as amended. All liens and security interests securing payment of the Revolving Note are renewed and extended until the Revolving Note is paid in full.
6. At Lender’s option, this Amendment may be executed by Borrower in remote locations with signature pages faxed to Lender. Borrower agrees that the faxed signatures are binding upon Borrower, and Borrower further agrees to promptly deliver the original signatures for this Amendment by overnight mail or expedited delivery.
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
Executed effective on the date stated above.
BORROWER:
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INFINITY ENERGY RESOURCES, INC.
|
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|
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By:
|
|
|
|
Stanton E. Ross, President
|
|
|
and Chief Executive Officer
|
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|
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LENDER:
|
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AMEGY BANK NATIONAL ASSOCIATION
|
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By:
|
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A. Stephen Kennedy,
|
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Senior Vice President/
|
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Manager - Energy Group
|
This Amendment was prepared by:
Paul D. Bradford
HARRIS, FINLEY & BOGLE, P.C.
777 Main Street, Suite 3600
Fort Worth, Texas 76102-5341
(817) 870-8700
Exhibit 10.14
AMEGY BANK
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
December 4, 2009
INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
Re: Fourth Forbearance Agreement
Ladies and Gentlemen:
This letter (this “
Agreement
”) sets forth the fourth forbearance agreement among INFINITY ENERGY RESOURCES, INC. (“
Borrower
”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “
Guarantors
”); and AMEGY BANK NATIONAL ASSOCIATION (“
Lender
”). Borrower, Guarantors, and Lender previously entered into a Forbearance Agreement (the “
First Forbearance Agreement
”) dated August 31, 2007, a Second Forbearance Agreement (the “
Second Forbearance Agreement
”) dated March 26, 2008, and a Third Forbearance Agreement (the “
Third Forbearance Agreement
”) dated October 16, 2008. Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the “
Loan Agreement
”).
1.
Forbearance
. Lender, Borrower, and Guarantors agree to a forbearance period commencing as of June 1, 2008, and continuing through January 31, 2010, unless terminated earlier by Lender due to a Default, as defined below (the “
Forbearance Period
”). During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents. Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety (90) days thereafter.
2.
Revolving Loan
. (a) The “
Termination Date
” as defined in the Loan Agreement is hereby extended until 11:00 a.m. (Dallas, Texas time) on January 31, 2010. Borrower agrees to sign and deliver a Second Amendment of the Revolving Note to reflect this extension.
(b) Notwithstanding any provision in the Loan Agreement or the Revolving Note to the contrary, Borrower may not request any further advances on the Revolving Loan without the prior written consent of Lender.
3.
Events of Default
. Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the “
Existing Defaults
”):
(a) The Existing Defaults set forth in the First Forbearance Agreement, the Second Forbearance Agreement, and the Third Forbearance Agreement;
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 2 of 18
(b) Borrower and Guarantors breached the financial covenants set forth in Subsection (a) - (h) of Section 8 of the Loan Agreement for the periods ended September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009, and September 30, 2009; and
(c) Borrower and Guarantors breached the covenants set forth in Subsections (g), (i), and (m) of Section 7 of the Loan Agreement during the periods ended September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009, and September 30, 2009; provided, however, that the breach of Subsection (i) of Section 7 of the Loan Agreement was solely attributable to involuntary mineral lien claims made under Chapter 56 of the Texas Property Code or similar applicable law.
4.
Temporary Waiver
. Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults and additional defaults under the provisions covered by the Existing Defaults, excluding, however, the following (the “
Excluded Defaults
”): (i) except as contemplated under this Agreement, any additional defaults under the additional debt prohibitions in Subsection (h) of Section 7 of the Loan Agreement, and (ii) any additional defaults under the use of Free Operating Cash Flow prohibitions in Subsection (h) of Section 8 of the Loan Agreement. Lender hereby waives the Existing Defaults through the Forbearance Period only. This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future. This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document. Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents. Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
5.
Borrowing Base and Deficiency
. (a) Lender has set the Borrowing Base as of the date of this Agreement at $2,900,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base. Lender agrees that it will not redetermine the Borrowing Base during the Forbearance Period.
(b) As of the date of this Agreement, the Borrowing Base results in a Borrowing Base deficiency in the amount of $8,003,468.00 (the “
Deficiency
”). On or before the end of the Forbearance Period, Borrower and Guarantors agree to pay the Revolving Loan and all other fees and obligations under this Agreement and the Loan Agreement, in full and cure the Deficiency by selling assets, refinancing of the Revolving Loan, or raising capital on terms acceptable to Lender.
6.
Nicaragua Concessions
. (a) Borrower has received all governmental authorizations necessary for the validation and ratification of the concessions (“
Governmental Approval
”) in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “
Nicaragua Concessions
”), and affected by Sentencia No. 92, Expediente No 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 3 of 18
(b) So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
(i) They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (1) the sale of hydrocarbons in the ordinary course of business, (2) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, (3) the assignment or transfer required under Section 10.02 of Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“
OPIC
”) related to the Nicaragua Concessions (the “
OPIC Policies
”), after payment of compensation for a claim made by Borrower under the OPIC Policies, (4) in connection with the consulting arrangements identified on
Schedule B
attached, the conveyance of the overriding royalty interest in the Nicaragua Concessions identified thereon, and (5) such conveyances of one or more overriding royalty interests in the Nicaragua Concessions as approved by Lender in writing; and
(ii) They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
7.
Nicaragua Letters of Credit
. Lender has issued two Letters of Credit in an aggregate amount equal to $851,550.00, in favor of the Direccion General de Hidrocarburos, Insituto Nicaraguense de Energia, for the account of Borrower and as security for Borrower’s obligations with respect to the Nicaragua Concessions (the “
Nicaragua Letters of Credit
”). Any fundings under the Nicaragua Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents. The Nicaragua Letters of Credit shall be on terms reasonably acceptable to Lender and shall be for a term of up to one year and, if necessary, to renew automatically unless Lender gives prior written notice. Borrower will sign and deliver Lender’s customary forms for the issuance of Letters of Credit. Lender agrees to take any and all reasonable actions in relation to the Nicaragua Letters of Credit as may be reasonably requested, and comply with the terms and conditions reasonably set forth, by the Nicaraguan government. Borrower agrees to pay to Lender a Letter of Credit fee on the Nicaragua Letters of Credit equal to three and one-quarter percent (3.25%) per annum, calculated on the aggregated stated amount of the Nicaragua Letters of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days), and due on or before the Deferral Date (as defined below).
8.
Subordinate Loans
. Borrower has entered into one or more subordinate loans in an aggregate amount not less than $1,250,000.00, which are subordinated to the Loans (the “
Subordinate Loans
”). The Subordinate Loans are secured by security documents on a fully-subordinated basis. Unless otherwise agreed by Lender in writing, the proceeds from the Subordinate Loans may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth below or for development of the Nicaragua Concessions
.
9.
Cash Flow
. Borrower agrees that it will use its commercially reasonable best efforts to cause the contribution of cash to Borrower to the extent necessary so that Borrower’s consolidated cash flow is a minimum of break even, after payment of interest expense on the Revolving Loan, to prevent any additional accounts payable from becoming past due, and to prevent any mineral liens under Chapter 56 of the Texas Property Code or similar applicable law from being filed against the Properties.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 4 of 18
10.
Lockbox
. Borrower and Guarantors agree that the following provisions regarding production proceeds attributable to their oil and gas properties continue to apply:
(a) Borrower and Guarantors will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the “
Lockbox Account
”).
(b) All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower’s request and verification of those amounts. Borrower and Guarantors shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by Borrower, Guarantors, or any affiliates of Borrower or Guarantors within the meaning of Securities and Exchange Commission Rule 144, shall be paid from the Lockbox Account proceeds.
(c) Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
(d) At Borrower’s request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits in
Section 15
below), and capital expenditures, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied). Borrower and Guarantors shall not pay in any month operating expenses, general and administrative expenses, or capital expenditures exceeding the aggregate budgeted expenses for each such category for that month, unless Lender has approved such payments. Borrower shall, not later than two (2) business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, or capital expenditures and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month. Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
(e) All production proceeds remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the principal and interest on the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement as set forth in Section 3.2 of the Deed of Trust. If the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly interest payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 5 of 18
(f) Borrower and Guarantors agree that the insurance proceeds in the approximate amount of $100,000.00, from the 2008 saltwater disposal tank fire, shall be promptly deposited upon receipt, into the Lockbox Account and used for the purposes set forth above.
11.
Sale of Oil and Gas Properties
. In order to cure the Deficiency and pay the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement in full, Borrower and Guarantors agree to take the following actions:
(a) Borrower, INFINITY OIL & GAS OF WYOMING, INC. (“
IOGWy
”), and INFINITY OIL AND GAS OF TEXAS, INC. (“
IOGTx
”) shall proceed with the sale and marketing of the interest retained in the oil and gas properties of IOGWy (the “
Rockies Properties
”) and the Texas oil and gas properties of IOGTx (the “
Texas Properties
”). Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Rockies Properties and the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Rockies Properties and the Texas Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender. Borrower and Guarantors shall use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter.
(b) Borrower and Guarantors have entered into an agreement with an oil and gas divestiture firm acceptable to Lender, to assist with sales of the Rockies Properties and the Texas Properties under this
Section
. Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas divestiture firm retained to assist with sales under this
Section
; and thereafter Borrower and Guarantors shall provide a monthly report on the first (1
st
) day of each month, to be prepared by the oil and gas divestiture firm engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and the Texas Properties. Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender, reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
(c) No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 6 of 18
(d) Except as set forth below, Borrower and Guarantors will direct all of the net sale proceeds from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement, and to cash securing all outstanding Letters of Credit, including the Nicaragua Letters of Credit, in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement, and cash security for all outstanding Letters of Credit, including the Nicaragua Letters of Credit, as herein provided. Lender hereby agrees that, so long as there is no Default at the time of the sale of the Rockies Properties, Borrower and IOGWy may retain twenty percent (20%) of the net sale proceeds from the sale and use those net sale proceeds solely for working capital and development of the Nicaragua Concessions.
12.
Use of Proceeds
. Notwithstanding any term of this Agreement or the Loan Agreement to the contrary, Borrower and Guarantors shall not use any proceeds from the Lockbox Account, any proceeds from any capital contribution, any proceeds of the Subordinate Loans, or any net sale proceeds from the sale of any of the Rockies Properties or the Texas Properties for the purpose of acquiring any oil and gas properties or leases or drilling any well, without the prior written consent of Lender.
13.
Hedge Transactions
. Notwithstanding the terms of Section 4 of the Loan Agreement, Borrower and Guarantors agree that during the Forbearance Period and so long thereafter as any Event of Default remains outstanding and uncured, Borrower and Guarantors shall not enter into any Hedge Transaction without the prior written consent of Lender. If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.
14.
Audit and Inspections
. (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower’s and Guarantors’ offices and examine, audit, and make and take away copies or reproductions of Borrower’s and Guarantors’ books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower’s and Guarantors’ oil and gas properties. Lender will provide Borrower and Guarantors with five (5) business days written notice of its intention to commence the audit. Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender’s auditors of Borrower’s third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
15.
Reporting Requirements
.
Until the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, Borrower and Guarantors will furnish to Lender the following in Proper Form:
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 7 of 18
(a) Within ten (10) days of the end of each month, a report showing Borrower’s consolidated actual cash flow for the month and for the period from the beginning of the fiscal year through the end of the month and consolidated projected cash flow for the next six months.
(b) Within ten (10) days of the end of each month, an accounts payable listing and aging, along with copies of all additional liens or claims made by any account creditors.
(c) As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
(d) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas divestiture firm, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
(e) As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note.
(f) Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within fifty (50) days of the end of each month
,
a production report, on a lease-bylease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
(g) such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
16.
Additional Collateral
. In consideration of the forbearance under this Agreement, Borrower agrees to sign and deliver a Restated Commercial Security Agreement (the “
Security Agreement
”) in Proper Form, amending and restating the March 26, 2008, granting a security interest in any future sale proceeds from the sale of all or any part of the rights Borrower may have in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “
Nicaragua Concessions
”), in any future subsidiaries in which the rights with respect to the Nicaragua Concessions are assigned, and in any proceeds or rights related to Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“
OPIC
”) related to the Nicaragua Concessions (the “
OPIC Policies
”), and acknowledged by the Overseas Private Investment Corporation. Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua Concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes. Within thirty (30) days of the date of this Agreement, Borrower and IOGTx agree to provide evidence to Lender documenting their efforts to obtain a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas. Lender agrees to release without delay the Security Agreement in the event that the OPIC notifies Borrower of payment of compensation for a claim made by Borrower under the OPIC Policies; provided, however that if released the Security Agreement under such circumstances, Borrower agrees that the compensation for a claim made by Borrower under the OPIC Policies shall still be paid to Lender for application to the Revolving Loan.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 8 of 18
17.
Interest
. (a) Borrower and Lender hereby agree that during the Forbearance Period (including the Forbearance Period under the First Forbearance Agreement, the Second Forbearance Agreement, and the Third Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose the default rate of Stated Rate, plus six percent (6.0%) (the “
Default Rate
”), as set forth in the Revolving Note, at any time after the termination of the Forbearance Period, in the event that an Event of Default remains uncured and outstanding. Further, in lieu of the additional interest accrued and unpaid under this Agreement, Borrower shall pay the Forbearance/Waiver Fee set forth below.
(b) Lender has suspended the interest payments due on May 1, 2009, and June 1, 2009, and that accrued interest shall be due and payable on the Deferral Date. Accrued, unpaid interest on the Revolving Note shall be due and payable monthly, commencing on July 1, 2009, and continuing on the first (1
st
) day of each month thereafter during the Forbearance Period. Interest payments shall be made from the funds available from the Lockbox Account, or from additional cash equity contributions to Borrower deposited into the Lockbox Account, or from a combination of both. If any cash equity contribution to Borrower is deposited into the Lockbox Account for the purpose of paying the monthly interest payments due under this Forbearance Agreement, then Borrower shall be entitled to the credit against the Forbearance/Waiver Fee as set forth in
Section 21(c)
below.
18.
Forbearance Fee
. (a) In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the “
Deferral Date
”): (i) the termination of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) the refinance of the Revolving Note by another lender:
(i) Forbearance/Waiver Fee under the First Forbearance Agreement in the amount of $553,666.67; plus
(ii) Forbearance/Waiver Fee under the Second Forbearance Agreement in the amount of $723,666.33; plus
(iii) Forbearance/Waiver Fee under the Third Forbearance Agreement in the amount of $1,189,259.24; plus
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 9 of 18
(iv) A Forbearance/Waiver Fee shall be due for each month from June 1, 2009 through the end of the Forbearance Period, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
Except as set forth below, the Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
(b) If on or before January 31, 2010, the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, then Lender hereby agrees to waive one-half of the Forbearance/Waiver Fees accrued, but unpaid, under Subsection (a) above.
(c) If any cash equity contribution to Borrower is deposited into the Lockbox Account for the purpose of paying the monthly interest payments due under this Forbearance Agreement, then Borrower shall receive a credit to the Forbearance/Waiver Fees accrued, but unpaid, under Subsection (a) above, equal to three hundred percent (300%) of the amount of the equity contribution used for the purpose of paying the monthly interest payments due under this Forbearance Agreement, up to the full amount of the Forbearance/Waiver Fees accrued, but unpaid, under Subsection (a) above.
(d) Borrower may make a written proposal to Lender regarding the payment of the Forbearance/Waiver Fees due under this Section by (i) delivery of stock in Borrower to Lender or its nominee, or (ii) assignment of an overriding royalty interest in the Nicaragua Concessions to Lender or its nominee. The proposal will be subject to Lender’s credit approval and must be upon terms and pricing acceptable to Lender, in its sole discretion. Lender does not yet have credit approval for payment of the Forbearance/Waiver Fees by delivery of stock or assignment of royalty.
19.
Other Fees
. Borrower acknowledges the following additional fee owed to Lender that is due on or before the Deferral Date: a hedge termination fee in the amount of $56,085.00, due pursuant to the Second Forbearance Agreement in connection with the termination of Hedge Transactions.
20.
Conditions Precedent
. The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
(a) Except for the Deficiency and the Existing Defaults, all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement
,
except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in
Schedule A
attached, and Subsection (i) of Section 6, which is no longer applicable.
(b) the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 10 of 18
(i) this Agreement;
(ii) Second Amendment to Revolving Note;
(iii) Restated Security Agreement signed by Borrower and acknowledged by the Overseas Private Investment Corporation; and
(iv) Borrower and Guarantors Resolutions.
(c) other than as contemplated in this Agreement, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
(d) Lender’s receipt and satisfactory review of a 180-day operating/cash flow forecast for Borrower and Guarantors.
(e) Lender’s receipt and satisfactory review of a proposed budget from Borrower of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
(f) Lender’s receipt of satisfactory written evidence that Borrower was provided with an additional commitment on the Subordinate Loan in May, 2009, in an amount not less than $250,000.00, for the payment of trade payables with respect to the Rockies Properties and the Texas Properties, and that as of the date of this Agreement, Borrower has funded not less than $100,000.00 from this additional commitment and used the funds for payment of trade payables with respect to the Rockies Properties and the Texas Properties.
21.
Default and Remedies
. (a) As used in this Agreement, “
Default
” means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, or (iii) any further Event of Default under the Loan Agreement, other than the existing Borrowing Base deficiency or any additional defaults under the provisions covered by the Existing Defaults
,
excluding the Excluded Defaults.
(b) Upon a Default, Lender may terminate the Forbearance Period and the maturity of the Revolving Note shall automatically be accelerated as of the date of the termination of the Forbearance Period, without presentment, demand for payment, notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of protest of any kind, all of which are expressly waived by Borrower. Thereafter Lender may exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or any one or more of them. All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 11 of 18
22.
Other Representations
. Borrower and Guarantors hereby represent to Lender as follows:
(a) The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower’s and Guarantors’ respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
(b) Except as set forth on
Schedule A
hereto, there are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
(c) Borrower has fully performed all of its obligations under the Farmout and Acquisition Agreement (the “
Farmout Agreement
”) dated December 26, 2007, between IOGTx, as farmor, and Forest, as farmee; and the Farmout Agreement has terminated under its terms.
23.
Confirmations
. (a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to the Revolving Note as of December 3, 2009:
Principal
|
|
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$
|
10,010,493.64
|
|
Interest
|
|
|
$
|
420,703.59
|
|
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Total
|
|
$
|
10,431,197.23
|
|
Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note.
(b) As security for the Notes, Borrower and Guarantors previously executed the Security Documents, including the Security Agreement. Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
(c) In connection with the Revolving Note, Guarantors executed the Guaranties. Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note. Guarantors agree that there is no defense to payment under the Guaranties.
(d) Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in
Schedule A
attached, and Subsection (i) of Section 6, which is no longer applicable; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 12 of 18
24.
Validity and Defaults
. The Loan Agreement remains in full force and effect. Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and except as contemplated by this Agreement, no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement. Borrower and Guarantors ratify the Loan Agreement.
25.
Release
. For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “
Released Parties
”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “
Claims
”), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties in connection with the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act; provided, however, that any acts of willful misconduct or fraud by the Releases Parties shall not be released or discharged.
26.
Advice from Counsel
. Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement. The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
27.
Governing Law and Venue
. THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS. BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 13 of 18
28.
Savings Clause
. Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
29.
Fax Provision
. This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower. At Lender’s option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender. Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery. It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
30.
Captions
. Captions are for convenience only and should not be used in interpreting this Agreement.
31.
Final Agreement
. (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the “
Written Loan Agreement
”).
(b) It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents. Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
(c) THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 14 of 18
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter. Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Houston, Texas time, on Wednesday, December 9, 2009.
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Yours very truly,
AMEGY BANK NATIONAL ASSOCIATION
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By:
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A. Stephen Kennedy,
Senior Vice President/
Manager - Energy Group
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INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 15 of 18
Accepted and agreed to
this ____ day of December, 2009:
BORROWER:
INFINITY ENERGY RESOURCES, INC.
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B
y:
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Stanton E. Ross, President
and Chief Executive Officer
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GUARANTORS:
INFINITY OIL AND GAS OF TEXAS, INC.
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B
y:
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Stanton E. Ross, President
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INFINITY OIL & GAS OF WYOMING, INC.
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B
y:
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Stanton E. Ross, President
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Exhibits and Schedules
:
Schedule A - Lawsuits
Schedule B - Overriding Royalty conveyances
SCHEDULE A
Lawsuits
Southwest Aviation Specialist, LLC filed an action in the District Court in and for the County of Tulsa, State of Oklahoma, number CS200708783, on October 31, 2007, against Infinity Oil and Stan Ross.
SCHEDULE B
Overriding Royalty conveyances
[Amegy Bank, N.A. Letterhead]
February 11, 2011
Via Federal Express
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Attention: Stanton E. Ross
11900 College Blvd., Suite 204
Overland Park, KS 66210
Re: Fifth Forbearance Agreement; Forbearance Period Advances
Ladies and Gentlemen:
This letter (this “
Agreement
”) sets forth (i) the fifth forbearance agreement among
Infinity Energy Resources, Inc.
, a Delaware corporation (“
Borrower
”),
Infinity Oil and Gas of Texas, Inc.,
a Delaware corporation (“
Infinity Texas
”),
Infinity Oil
&
Gas of Wyoming, Inc.,
a Wyoming corporation (“
Infinity Wyoming
” and, together with Infinity Texas, “
Guarantors
”; Guarantors and Borrower are referred to herein collectively as the “
Credit Parties
”), and
Amegy Bank, N.A.
(“
Lender
”) and (ii) the terms and conditions of certain forbearance period advances to be made under the Loan Agreement (as hereinafter defined). The Credit Parties and Lender previously entered into a Forbearance Agreement dated August 31, 2007 (the “
First Forbearance Agreement
”), a Second Forbearance Agreement dated March 26, 2008 (the “
Second Forbearance Agreement
”), a Third Forbearance Agreement dated October 16, 2008 (the “
Third Forbearance Agreement
”) and a Fourth Forbearance Agreement dated December 4, 2009 (the “
Fourth Forbearance Agreement
” and, together with the First Forbearance Agreement, the Second Forbearance Agreement and the Third Forbearance Agreement, the “
Forbearance Agreements
”). Unless otherwise defined herein, capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among the Credit Parties and Lender, as amended (the “
Loan Agreement
”).
1.
Forbearance
. Subject to the complete satisfaction of each of the conditions precedent set forth in
Section 19
hereof, Lender and the Credit Parties hereby agree to a forbearance period commencing as of January 31, 2010, and continuing through December 31, 2011, unless terminated earlier due to a Default, as defined in
Section 20
hereof (such period, the “
Forbearance Period
”). During the Forbearance Period, but subject to the occurrence of a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents (as used herein, Security Documents shall include the Security Agreement defined in
Section 16
of the Fourth Forbearance Agreement), the Guaranties, and the other Loan Documents (collectively, the “
Transaction Documents
”). The Credit Parties agree that all statutes of limitation with respect to enforcement of any Transaction Document will be tolled during the Forbearance Period and for ninety (90) days thereafter.
2.
Revolving Loan
. The “
Termination Date
” as defined in the Loan Agreement is hereby extended until 11:00 a.m. (Houston, Texas time) on December 31, 2011; provided, however, that notwithstanding any provision in any Transaction Document to the contrary, the parties hereto acknowledge and agree that (a) Borrower shall not be entitled to any further advances on the Revolving Loan, except as expressly set forth in
Section 3
and
Section 6
hereof, and (b) any advance made by Lender under the Loan Agreement (i) prior to the date hereof or (ii) at any time during the Forbearance Period, in each case, in excess of the Borrowing Base then in effect, and notwithstanding the existence of any Deficiency (as defined in any Forbearance Agreement, as applicable), constitutes a Revolving Loan.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page
2
3.
Forbearance Period Advances
.
(a)
Lender Commitment
.
(i)
Subject to the terms and conditions set forth in this
Section 3
, Lender agrees to make, on the date hereof, and at any time prior to the Forbearance Period Advance Maturity Date (as hereinafter defined), one or more Revolving Loans to Borrower in an aggregate amount not to exceed the $1,050,000.00 (collectively, the “
Forbearance Period Advances
”). “
Forbearance Period Advance Maturity Date
” means the earlier to occur of (A) the Termination Date and (B) a Default (as defined in
Section 20
hereof).
(ii)
Any amount borrowed under
Section 3(a)(i)
hereof and subsequently repaid or prepaid may not be reborrowed. Subject to
Section 3(h)
hereof, all amounts owed with respect to the Forbearance Period Advances shall be paid in full no later than the Forbearance Period Advance Maturity Date. Lender’s commitment shall terminate immediately and without further action on the Forbearance Period Advance Maturity Date.
(b)
Borrowing Mechanics for Forbearance Period Advances
.
(i)
Following the date hereof, whenever Borrower desires that Lender make Forbearance Period Advances, Borrower shall deliver to Lender a fully executed and delivered Funding Notice no later than 12:00 p.m. (Houston, Texas time) at least one business day in advance of the proposed borrowing. “
Funding Notice
” means a notice substantially in the form of
Exhibit A
, executed and delivered by any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), chief operating officer, chief financial officer or treasurer of Borrower (such Person, an “
Authorized Officer
”), which notice shall be irrevocable and shall specify (A) the aggregate principal amount of the requested Forbearance Period Advance, (B) the requested borrowing date (which shall be a business day), (C) the location and number of Borrower’s account in which the proceeds of such requested Forbearance Period Advance are to be deposited and (D) a detailed request specifying the use of proceeds of the entire amount of such requested Forbearance Period Advance and attaching supporting documentation, including invoices, if any, with respect thereto.
(ii)
Notwithstanding
Section 5(b)
of the Loan Agreement, upon satisfaction of the conditions precedent specified in the immediately succeeding clauses (A) through (D), then Lender shall make its Forbearance Period Advance available to Borrower not later than 2:00 p.m. (Houston, Texas time) on the applicable borrowing date to Borrower’s account designated in the applicable Funding Notice.
A.
Lender shall have received a fully executed and delivered Funding Notice;
B.
as of such borrowing date, the representations and warranties contained herein and in the other Transaction Documents, except for the Existing Defaults and
Section 6(i)
of the Loan Agreement, which is no longer applicable, in each case, shall be true and correct in all material respects on and as of such borrowing date to the same extent as though made on and as of that date.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
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C.
as of such borrowing date, no event shall have occurred and be continuing or would result from the consummation of the applicable Forbearance Period Advance that would constitute a Default (as defined in
Section 20
hereof) or, other than with respect to the Existing Defaults, a Default.
D.
Lender consents, in its sole discretion, to make such Forbearance Period Advance.
E.
Lender shall be entitled, but not obligated to, request and receive, prior to the making of any Forbearance Period Advance, additional information satisfactory to it confirming the satisfaction of any of the foregoing.
(c)
Use of Proceeds
. The proceeds of the Forbearance Period Advances shall be used by Borrower (i) on the date hereof, to repay in an amount not less than $452,459.89 a portion of Existing Amegy Indebtedness (as hereinafter defined) as follows: $100,000 principal amount of the June 2010 Note (as hereinafter defined), $10,000 principal amount of the October 2010 Note (as hereinafter defined), $122,462.44 principal amount of the December 2010 Note (as hereinafter defined), $163,912.45 principal amount of the Overdraft Fees (as hereinafter defined) and $56,085.00 principal amount of the Hedging Termination Fee (as hereinafter defined), it being understood and agreed that any interest owing on any Existing Amegy Indebtedness repaid on the date hereof shall be due and payable on the Forbearance Period Advance Maturity Date, (ii) on the date hereof, to pay Transaction Costs (as hereinafter defined) and (iii) on or after the date hereof, for working capital and general corporate purposes related to the Nicaragua Concessions (as defined in
Section 6
hereof) and as set forth in Budgeted Expenses in Section 15(e) below. Neither Borrower nor any of its directors, officers, agents, employees or other Persons associated with or active on behalf of Borrower, will directly or indirectly, use the proceeds of any Forbearance Period Advance (y) in any manner that causes or might cause such Forbearance Period Advance or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Securities Exchange Act of 1934, as amended from time to time, and any successor statute or (z) to lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, to make any offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value directly or indirectly to or for the benefit of any public official including any foreign officials as such terms is defined in the Foreign Corrupt Practices Act of 1977, as amended, or any foreign political party of official thereof or any candidate for foreign political office or for a third party to benefit any of the foregoing, if doing so would or might violate the law of any relevant jurisdiction. “
Existing Amegy Indebtedness
” means indebtedness and other obligations (i) outstanding under the Loan Agreement, including certain overdraft fees (“the “
Overdraft Fees
”) in respect thereof, (ii) outstanding under that certain Demand Promissory Note dated June 30, 2010 (the “
June 2010 Note
”), between Borrower and Lender, (iii) outstanding under that certain Demand Promissory Note dated October 8, 2010 (the “
October 2010 Note
”), between Borrower and Lender, (iv) outstanding under that certain Demand Promissory Note dated December 6, 2010 (the “
December 2010 Note
”), between Borrower and Lender and (v) outstanding in respect of that certain hedge termination fee (the “
Hedge Termination Fee
”) due pursuant to the Second Forbearance Agreement. “
Transaction Costs
” means the fees, costs and expenses payable by Borrower or any of Borrower’s Subsidiaries on or before the date hereof in connection with the transactions contemplated by this Agreement not to exceed, unless otherwise approved in writing by Lender, $15,000.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
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(d)
Evidence of Forbearance Period Advance
. Borrower shall execute and deliver to Lender a promissory note in form and substance satisfactory to Lender to evidence Lender’s Forbearance Period Advances (the “
Forbearance Period Advance Note
”).
(e)
Interest on Forbearance Period Advances
.
(i)
Except as otherwise set forth herein, each Forbearance Period Advance shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof at Prime Rate (as hereinafter defined) plus 2%. “
Prime Rate
” means, on any day, the rate of interest per annum most recently publicly announced by Lender as its prime rate in effect at its principal office in Houston, Texas; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
(ii)
Interest payable pursuant to
Section 3(e)(i)
hereof shall be computed on the basis of a 360 day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Forbearance Period Advance, the date of the making of such Forbearance Period Advance shall be included, and the date of payment of such Forbearance Period Advance shall be excluded; provided, if a Forbearance Period Advance is repaid on the same day on which it is made, one day’s interest shall be paid on that Forbearance Period Advance.
(iii)
Except as otherwise set forth herein, interest on each Forbearance Period Advance shall be payable in arrears on and to (i) the date of any voluntary prepayment of that Forbearance Period Advance and to the extent accrued on the amount being prepaid; and (ii) the Forbearance Period Advance Maturity Date.
(f)
Default Interest
. Upon the occurrence and during the continuance of a Default (as defined in
Section 20
hereof), the principal amount of all Forbearance Period Advances outstanding and, to the extent permitted by applicable law, any interest payments on the Forbearance Period Advances or any fees or other amounts then due and owing hereunder, shall thereafter bear interest (including post petition interest in any proceeding under applicable bankruptcy laws) payable on demand at a rate that is 3.0% per annum in excess of the interest rate otherwise payable hereunder with respect to the Forbearance Period Advances (or, in the case of any such fees and other amounts then due and owing hereunder, at a rate which is 3.0% per annum in excess of the interest rate otherwise payable hereunder with respect to the Forbearance Period Advances). Payment or acceptance of the increased rates of interest provided for in this
Section 3(f)
is not a permitted alternative to timely payment and shall not constitute a waiver of any Default (as defined in
Section 20
hereof) or otherwise prejudice or limit any rights or remedies of Lender.
(g)
Fees
.
(i)
Borrower agrees to pay to Lender a commitment fee equal to $21,000.00. This commitment fee shall be payable on the Forbearance Loan Maturity Date.
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Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
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(ii)
Borrower agrees to pay to Lender such other fees in the amounts and at the times separately agreed upon between Borrower and Lender.
(h)
Mandatory Prepayments/Commitment Reductions
.
(i)
Asset Sales
. No later than the first business day following the date of receipt, in any given month, by Borrower or any of its Subsidiaries of any Net Asset Sale Proceeds (as hereinafter defined) in excess of the aggregate amount of Budgeted Expenses (as defined in
Section 15(e)
hereof) as set forth in the most recent Budget (as defined in
Section 15(e)
) required to be delivered pursuant to
Section 15(e)
hereof, Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an aggregate amount equal to such excess amount; provided, that (A) such Net Asset Sale Proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (B) if, within 30 days of Borrower’s receipt of such Net Asset Sale Proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an amount equal to the amount not so paid. “
Net Asset Sale Proceeds
” means, with respect to any Asset Sale (as hereinafter defined), an amount equal to: (1) cash payments received by Borrower or any of its Subsidiaries from such Asset Sale, minus (2) any bona fide direct costs and expenses incurred in connection with such Asset Sale to the extent paid or payable to non-Affiliates, including (x) income or gains taxes payable or reasonably estimated to be payable by the seller as a result of any gain recognized in connection with such Asset Sale during the tax period the sale occurs, (y) payment of the obligations (other than the Loans) secured by a Lien on the assets in question, which is required to be repaid under the terms thereof as a result of such Asset Sale, and (z) a reasonable reserve for any adjustments in respect to sale price of such assets and any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Borrower or any of its Subsidiaries in connection with such Asset Sale; provided that upon release of any such reserve, the amount released shall be considered Net Asset Sale Proceeds). “
Asset Sale
” means a sale, lease or sublease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer, license or other disposition to, or any exchange of property with, any Person (other than to or with a Credit Party), in one transaction or a series of transactions, of all or any part of any Credit Party’s businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, leased or licensed, including, without limitation, the capital stock of any Credit Party, other than inventory or other assets sold or leased, or cash or cash equivalents disposed of, in each case, in the ordinary course of business. For purposes of clarification, “Asset Sale” shall (i) include (x) the sale or other disposition for value of any contracts or (y) the early termination or modification of any contract resulting in the receipt by any Credit Party of a cash payment or other consideration in exchange for such event (other than payments in the ordinary course of business for accrued and unpaid amounts due through the date of termination or modification) and (ii) exclude any taking or other disposition by means of power of eminent domain, condemnation or similar power, threat or right.
(ii)
Insurance/Condemnation Proceeds
. No later than the first business day following the date of receipt, in any given month, by Borrower or any of its Subsidiaries, or Lender as loss payee, of any Net Insurance/Condemnation Proceeds (as hereinafter defined) in excess of the aggregate amount of Budgeted Expenses (as defined in
Section 15(e)
hereof) as set forth in the most recent Budget (as defined in
Section 15(e)
hereof) required to be delivered pursuant to
Section 15(e)
hereof, Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an aggregate amount equal to such excess amount; provided, that (A) such Net Insurance/Condemnation Proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (B) if, within 30 days of Borrower’s receipt of such Net Insurance/Condemnation Proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an amount equal to the amount not so paid. “
Net Insurance/Condemnation Proceeds
” means an amount equal to: (1) any cash payments or proceeds received by Borrower or any of its Subsidiaries (a) under any casualty, business interruption or “key man” insurance policies in respect of any covered loss thereunder, or (b) as a result of the taking of any assets of Borrower or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (2) (a) any actual and reasonable costs incurred by Borrower or any of its Subsidiaries in connection with the adjustment, prosecution or settlement of any claims of Borrower or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (1)(b) of this definition to the extent paid or payable to non-Affiliates, including income or gains taxes payable or reasonably estimated to be payable as a result of any gain recognized in connection therewith.
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Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
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(iii)
Issuance of Equity Securities
. On the date of receipt, in any given month, by Borrower or any of its Subsidiaries of cash proceeds from (A) any capital contribution to, or the issuance of any capital stock of, Borrower or any of its Subsidiaries, (B) any capital stock issued pursuant to any employee stock or stock option compensation plan other than any such issuance that constitutes and Exempted Issuance (as defined in the Warrants (as defined in
Section 19(b)
hereof) or (C) any capital stock issued for purposes approved in writing by Lender, in an aggregate value in excess of the aggregate amount of Budgeted Expenses (as defined in
Section 15(e)
hereof) as set forth in the most recent Budget (as defined in
Section 15(e)
hereof) required to be delivered pursuant to
Section 15(e)
hereof, Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an aggregate amount equal to such excess amount; provided, that (1) such proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (2) if, within 30 days of Borrower’s receipt of such cash proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an amount equal to the amount not so paid.
(iv)
Issuance of Debt
. On the date of receipt, in any given month, by Borrower or any of its Subsidiaries of any cash proceeds from the incurrence of any indebtedness of Borrower or any of its Subsidiaries (other than with respect to any indebtedness permitted to be incurred pursuant to
Section 7(h)
of the Loan Agreement) in excess of the aggregate amount of Budgeted Expenses (as defined in
Section 15(e)
hereof) as set forth in the most recent Budget (as defined in
Section 15(e)
hereof) required to be delivered pursuant to
Section 15(e)
hereof, Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an aggregate amount equal to such excess amount; provided, that (A) such proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (B) if, within 30 days of Borrower’s receipt of such cash proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in
Section 3(i)
hereof in an amount equal to the amount not so paid.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 7
(v)
Prepayment Certificate
. Concurrently with any prepayment of the Forbearance Period Advances pursuant to
Sections 3(h)(i)
through
3(h)(iv)
hereof, Borrower shall deliver to Lender a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds and compensation owing to Lender. Within 30 days of Borrower’s receipt of any such proceeds pursuant to
Sections 3(h)(i)
through
3(h)(iv)
hereof, Borrower shall deliver to Lender a certificate of an Authorized Officer identifying the Budgeted Expenses so paid and supporting documentation reasonably satisfactory to Lender. In the event that Borrower shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Borrower shall promptly make an additional prepayment of the Forbearance Period Advances in an amount equal to such excess, and Borrower shall concurrently therewith deliver to Lender a certificate of an Authorized Officer demonstrating the derivation of such excess.
(i)
Application of Prepayments/Reductions
. Any voluntary prepayments of Forbearance Period Advances and any mandatory prepayment of any Forbearance Period Advance pursuant to
Section 3(h)
hereof shall be applied as follows:
(i)
first
, to the payment of all fees and all expenses owed to Lender which are then due and payable;
(ii)
second
, to the payment of any accrued and unpaid interest on the Forbearance Period Advances at the Default Rate, if any;
(iii)
third
, to the payment of any accrued and unpaid interest on the Forbearance Period Advances (other than Default Rate interest); and
(iv)
fourth
, to prepay the Forbearance Period Advances.
4.
Events of Default
. The Credit Parties have identified to Lender and acknowledge that the following Events of Default have occurred and remain outstanding as of the date hereof (the “
Existing Defaults
”):
(a)
The Existing Defaults set forth in the First Forbearance Agreement, the Second Forbearance Agreement, the Third Forbearance Agreement and the Fourth Forbearance Agreement;
(b)
The Credit Parties breached the financial covenants set forth in
Subsections (a) - (h) of Section 8
of the Loan Agreement for the periods ended March 31, 2010, June 30, 2010 and September 30, 2010; and the Credit Parties breached the covenants set forth in
Subsections
(g), (i), and (m) of Section 7
of the Loan Agreement during the periods ended March 31, 2010, June 30, 2010 and September 30, 2010; provided, however, that the breach of Subsection (i) of
Section 7
of the Loan Agreement was solely attributable to involuntary mineral lien claims made under Chapter 56 of the Texas Property Code or similar applicable law.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
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5.
Temporary Waiver; No Novation
. The Credit Parties have requested that Lender temporarily waive the Existing Defaults. Subject to (a) the complete satisfaction of each of the conditions precedent set forth in
Section 19
hereof and (b) the occurrence of a Default, Lender hereby temporarily waives the Existing Defaults through the Forbearance Period only. This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all applicable provisions under each of the Transaction Documents, including the provisions violated as set forth above, in the future. Except as otherwise expressly provided in this Agreement, and both during and following the expiration of the Forbearance Period, each of the Transaction Documents and the indebtedness and other obligations of the Credit Parties thereunder shall remain in full force and effect, and shall not be waived, modified, superseded or otherwise affected by this Agreement, except as expressly set forth herein. This Agreement is not a novation nor is it to be construed as a release, waiver or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in any Transaction Document, except as expressly set forth herein. Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any other Transaction Document. Neither the negotiation nor execution of this Agreement will be an election of any right or remedy available to Lender and, except as specifically limited or postponed herein, Lender reserves all rights and remedies provided under each of the Transaction Documents or by law.
6.
Nicaragua Concessions
.
a)
Borrower represents and warrants to Lender (i) that Borrower has received all governmental authorizations necessary for the validation and ratification of the concessions (“
Governmental
Approval
”) in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “
Nicaragua Concessions
”), and affected by Sentencia No. 92, Expediente No 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006, (ii) that such Governmental Approval remains in full force and effect and (iii) that no adverse change or modification to such Governmental Approval or the Nicaragua Concessions has occurred or is reasonably expected to occur.
(b)
Each Credit Party represents and warrants to Lender that such Credit Party has not, and covenants that such Credit Party shall not, sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (A) the sale of hydrocarbons in the ordinary course of business, (B) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, (C) the assignment or transfer required under
Section 10.02
of Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“
OPIC
”) related to the Nicaragua Concessions (the “
OPIC Policies
”), after payment of compensation for a claim made by Borrower under the OPIC Policies, (D) in connection with the consulting arrangements identified in the Forbearance Agreements pre-dating this Fifth Forbearance Agreement, the conveyance of the overriding royalty interest in the Nicaragua Concessions identified thereon, and (E) such conveyances of one or more overriding royalty and similar interests in the Nicaragua Concessions as approved by Lender in writing, which include conveyances to the officers, directors and consultants previously approved by the Lender; and
(c) Each Credit Party represents and warrants to Lender that such Credit Party has not, and covenants that such Credit Party shall not, mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
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7.
Nicaragua Letters of Credit
. Lender has issued two Letters of Credit in an aggregate amount equal to $851,550.00, in favor of the Direccion General de Hidrocarburos, Instituto Nicaraguense de Energia, for the account of Borrower and as security for Borrower’s obligations with respect to the Nicaragua Concessions (the “
Nicaragua Letters of Credit
”). Any fundings under the Nicaragua Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents. The Nicaragua Letters of Credit shall be on terms reasonably acceptable to Lender and shall be for a term of up to one year and, if necessary, to renew automatically unless Lender gives prior written notice. Borrower will sign and deliver Lender’s customary forms for the issuance of Letters of Credit. Lender agrees to take any and all reasonable actions in relation to the Nicaragua Letters of Credit as may be reasonably requested, and comply with the terms and conditions reasonably set forth, by the Nicaraguan government. Borrower agrees to pay to Lender a Letter of Credit fee on the Nicaragua Letters of Credit equal to three and one-quarter percent (3.25%) per annum, calculated on the aggregated stated amount of the Nicaragua Letters of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days), and due on or before the Deferral Date (as defined in
Section 17(a)
hereof); provided, however, that Lender reserves the right to impose, at any time after the termination of the Forbearance Period, the default rate of Stated Rate, plus six percent (6.0%) (the “
Default Rate
”), as set forth in the Revolving Note in the event that an Event of Default remains uncured and outstanding.
8.
Subordinate Loans
. [Borrower has entered into one or more subordinate loans in an aggregate amount equal to $1,275,000.00, which are subordinated to the Loans (the “
Subordinate Loans
”). The Subordinate Loans are secured by security documents on a fully-subordinated basis.]
1
Unless otherwise agreed by Lender in writing, the proceeds from the Subordinate Loans may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth below or for development of the Nicaragua Concessions.
9.
Cash Flow
. Borrower agrees that it will use its commercially reasonable best efforts (a) to cause the contribution of cash to Borrower to the extent necessary so that Borrower’s consolidated cash flow is a minimum of break even, after payment of interest expense on the Revolving Loan, (b) to prevent any additional accounts payable from becoming past due, and (c) to prevent any additional mineral liens under Chapter 56 of the Texas Property Code or similar applicable law from being filed against the Properties.
10.
Lockbox
. The Credit Parties agree that the following provisions continue to apply:
(a)
The Credit Parties will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the “
Lockbox Account
”).
(b)
All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower’s request and verification of those amounts. The Credit Parties shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by the Credit Parties or any affiliate (within the meaning of Rule 144 of the Securities Act of 1933, as amended) thereof shall be paid from the Lockbox Account proceeds.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 10
(c)
Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
(d)
At Borrower’s request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits in
Section 15
below), and capital expenditures, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied). The Credit Parties shall not pay in any month operating expenses, general and administrative expenses, or capital expenditures exceeding the aggregate budgeted expenses for each such category for that month set forth pursuant to
Section 10(c)
above, unless Lender has approved such payments. Borrower shall, not later than two (2) business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, or capital expenditures and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month. Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
(e)
All production proceeds remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the principal and interest on the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement as set forth in
Section 3.2
of each of the Deeds of Trust. Subject to
Section 16(b)
hereof, if the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly interest payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
11.
Sale of Oil and Gas Properties
. In order to pay a portion of the Revolving Note and other fees and obligations under this Agreement and the Loan Agreement, the Credit Parties proposed to Lender, and agree to take, the following actions:
(a)
The Credit Parties shall proceed with the sale and marketing of the interest retained in the oil and gas properties of Infinity Wyoming (the “
Rockies Properties
”) and the Texas oil and gas properties of Infinity Texas (the “
Texas Properties
”). The Credit Parties shall use their best efforts
i)
to promptly obtain firm proposals for the sale of the properties,
ii)
to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Revolving Note,
iii)
to seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter and
iv)
to notify Lender of any developments with respect to any of the foregoing.
(b)
The Credit Parties shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas divestiture firm acceptable to Lender and retained to assist with sales under this
Section 11
; and thereafter the Credit Parties shall provide a monthly report on the first (l
st
) day of each month, to be prepared by the oil and gas divestiture firm engaged by the Credit Parties to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and the Texas Properties. Notwithstanding any provision to the contrary, at least two (2) business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender, reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Account, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 11
(c)
No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of the Credit Parties, unless Lender consents in writing.
(d)
The Credit Parties will direct all of the sale proceeds (the “
Sale Proceeds
”) from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to reduce the amounts owing to Lender under any Transaction Document or as otherwise agreed by Lender, in each case, in its sole discretion.
12.
Use of Proceeds
. Notwithstanding any term of this Agreement or any Transaction Document to the contrary, the Credit Parties shall not use any proceeds from the Lockbox Account, any proceeds from any capital contribution, any proceeds of the Subordinate Loans, or any net sale proceeds from the sale of any of the Rockies Properties or the Texas Properties for the purpose of acquiring any oil and gas properties or leases or drilling any well, without the prior written consent of Lender.
13.
Hedge Transactions
. Notwithstanding the terms of
Section 4
of the Loan Agreement or any term of any Transaction Document to the contrary, the Credit Parties agree that during the Forbearance Period and so long thereafter as any Event of Default has occurred and is continuing, the Credit Parties shall not enter into any Hedge Transaction without the prior written consent of Lender. If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of
Section 4
of the Loan Agreement.
14.
Audit and Inspections; Financial Adviser
.
b)
The Credit Parties agree that Lender and its auditors, accountants or other representatives (including the financial advisors and financial professionals referred to in the immediately succeeding clause (b)) may, from time to time until the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, conduct an inspection or an audit at each Credit Party’s offices and examine, audit, and make and take away copies or reproductions of each Credit Party’s books and records reasonably requested by Lender or any of its representatives, relating to
i)
the sources and uses of all funds advanced by Lender under the Revolving Note,
ii)
the sources and uses of all production proceeds attributable to any Credit Party’s oil and gas properties,
iii)
the sources and uses of the Sale Proceeds,
iv)
the sources and uses of all proceeds received from the issuance of any subordinated debt or capital raises,
v)
the Governmental Consent and the Nicaragua Concessions,
vi)
each Credit Party’s compliance with the terms of any Transaction Document,
vii)
any collateral granted by any Credit Party to secure the performance by the Credit Parties of their obligations under the Transaction Documents and
viii)
the transactions contemplated under this Agreement and any other Transaction Document. Lender will provide the applicable Credit Party with three (3) business days written notice of its intention to commence the inspection or audit. Each Credit Party agrees to cooperate with Lender and its representatives and comply with all reasonable requests in connection with the audit, and each Credit Party hereby consents to the review and use by Lender and its representatives of any Credit Party’s third-party audit of the books and records of the Credit Parties and any other subsidiaries thereof, including the supporting documentation and work papers of such independent auditors.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 12
c)
During the Forbearance Period, Lender shall have the right, in its sole discretion, to engage at Borrower’s expense, one or more financial advisors or other financial professionals in connection with any “workout” or restructuring of the Credit Parties and during any legal proceeding, including any proceeding under the Bankruptcy Code or any other law relating to bankruptcy, insolvency or reorganization or relief of debtors.
15.
Reporting Requirements
. Until the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, the Credit Parties will furnish to Lender the following in Proper Form:
(a)
As soon as available, and in any event within thirty (30) days after the end of each month, the consolidated balance sheet of Borrower and its Subsidiaries as at the end of such month and the related consolidated and consolidating statements of operations, consolidated statements of stockholders’ equity and consolidated statements of cash flows of Borrower and its Subsidiaries for such month and for the period from the beginning of the then current fiscal year of Borrower to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, all in reasonable detail, together with (i) a certificate from the chief financial officer of Borrower, certifying that such financial statements fairly present, in all material respects, the financial condition of Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, and (ii) any other operating reports prepared by management for such period.
(b)
Together with each delivery of financial statements of Borrower and each other Credit Party pursuant to
Section 15(a)
hereof and
Sections 9(a)
and
9(b)
of the Loan Agreement, (i) a summary of the accounts receivable aging report of each Credit Party as of the end of such period, and (ii) a summary of accounts payable aging report of each Credit Party as of the end of such period.
(c)
Within ten (10) days of the end of each month, a report showing Borrower’s consolidated actual cash flow for the month and for the period from the beginning of the fiscal year through the end of the month and consolidated projected cash flow for the immediately succeeding six-month period.
(d)
Within ten (10) days of the end of each month, an accounts payable listing and aging, along with copies of all additional liens or claims made by any account creditors.
(e)
Within ten (10) days of the end of each month, a budget (the “
Budget
”) of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties (the “
Budgeted Expenses
”) expected to be paid during the next succeeding month and supporting documentation for those expenses and expenditures, as well as a reconciliation of such amounts to the amounts provided pursuant to
Section 10(c)
hereof.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 13
(f)
On Monday of each week, a report showing Borrower’s consolidated projected cash flow for the immediately succeeding thirteen (13)-week period.
(g)
As received, the Credit Parties shall promptly provide to Lender all information related in any way to their ability to raise additional capital, including sale and capital raise materials and other expressions of interest, and other information reasonably requested by Lender.
(h)
As received, the Credit Parties shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas divestiture firm, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
(i)
As received, the Credit Parties shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the repayment of all or any portion of the outstanding amount owed on the Revolving Note.
(j)
Within ten (10) days of the end of each month, a notice to Lender indicating whether any Credit Party obtained production from any of its Properties and an identification of such Properties.
(k)
Notwithstanding the provisions of
Section 9(h)
of the Loan Agreement, within fifty (50) days of the end of each month for which production is obtained from any of its Properties, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request.
(l)
such other information as Lender may from time to time reasonably request.
16.
Interest
.
d)
The parties hereto hereby agree that during the Forbearance Period (including the forbearance period under each of the First Forbearance Agreement, the Second Forbearance Agreement, the Third Forbearance Agreement and the Fourth Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose, at any time after the termination of the Forbearance Period, the Default Rate, in the event that an Event of Default remains uncured and outstanding.
(b)
Lender has suspended the interest payments due during the Forbearance Period. Interest shall continue to accrue during the Forbearance Period and any such suspended interest shall be due and payable on the earlier to occur of (i) the Deferral Date and (ii) receipt of the Sale Proceeds. Subject to a Default, accrued, unpaid interest on the Revolving Note shall be due and payable monthly, commencing on December 31, 2011, and continuing on the first (1
st
) day of each month thereafter. Interest payments shall be made from the funds available from the Lockbox Account.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 14
17.
Forbearance Fee
.
e)
In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the “
Deferral Date
”): (i) the expiration or termination of the Forbearance Period, (ii) the repayment in full of the Revolving Note or (iii) the refinance in full of the Revolving Note by another person or entity:
(i)
Forbearance/Waiver Fee under the First Forbearance Agreement in the amount of $553,666.67; plus
(ii)
Forbearance/Waiver Fee under the Second Forbearance Agreement in the amount of $723,666.33; plus
(iii)
Forbearance/Waiver Fee under the Third Forbearance Agreement in the amount of $1,189,259.24; plus
(iv)
Forbearance/Waiver Fee under the Fourth Forbearance Agreement in the amount of $800,839.52; plus
(v)
A Forbearance/Waiver Fee shall be due for each month from January 31, 2010 through the end of the Forbearance Period, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month); provided, however, that Lender reserves the right to impose, at any time after the termination of the Forbearance Period, the Default Rate, in the event that an Event of Default remains uncured and outstanding.
The Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
18.
Other Fees
. Borrower acknowledges the following additional fee owed to Lender that is due on or before the Deferral Date: a hedge termination fee in the amount of $56,085.00, due pursuant to the Second Forbearance Agreement in connection with the termination of Hedge Transactions.
19.
Conditions Precedent
. The obligation of Lender to forebear from exercising any remedies with respect to the Existing Defaults, pursuant to the terms and conditions of this Agreement, is subject to Lender’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
(a)
All representations and warranties set forth (i) in this Agreement and (ii) in the Transaction Documents, except for the Existing Defaults and
Section 6(i)
of the Loan Agreement, which is no longer applicable, in each case, must be true and correct as of the date of this Agreement.
(b)
the negotiation, execution, and delivery of Transaction Documents in Proper Form, including, but not limited to, the following:
(i)
this Agreement;
(ii)
Third Amendment to Revolving Note;
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 15
(iii)
Forbearance Period Advance Note;
(iv)
Personal guaranty by Stanton E. Ross of the Forbearance Period Advances, pursuant to documentation in Proper Form and not to exceed $500,000.00;
(v)
Resolutions of the board of directors of each Credit Party; and
(vi)
Documents executed by the Credit Parties, Holder (as defined in that certain Subordinate Secured Promissory Note, dated March 23, 2009, by Borrower in favor of the Holder (the “
Subordinate Note
”)), or its permitted assigns, and Lender, in each case, with respect to the subordination of repayment of the Subordinate Note to the Revolving Note and Forbearance Period Advance Note, as amended.
(vii)
the negotiation, execution and delivery of warrant(s) (the “
Warrants
”) of Borrower to be issued to Lender or its designee, which warrant(s) shall initially be exercisable into 4.99% of the issued and outstanding Common Stock of Borrower and a registration rights agreement with respect thereto, in each case pursuant to documentation in Proper Form.
(viii)
other than as contemplated in this Agreement, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, financial condition or prospects of the Credit Parties or in the facts and information regarding such entities as represented to date.
(c)
Lender’s receipt and satisfactory review of a 180-day operating/cash flow forecast for the Credit Parties and the documents required pursuant to
Section 10(c)
hereof.
(d)
Lender’s receipt and satisfactory review of a proposed budget from Borrower of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
(e) Lender’s receipt of satisfactory written evidence of the location and account number of each of Credit Party’s operating accounts.
20.
Default and Remedies
.
f)
As used in this Agreement, “
Default
” means
i)
the failure of any Credit Party to observe or perform any term, covenant, condition, agreement or other obligation under this Agreement,
ii)
the failure of any representation or warranty made in this Agreement to be true and correct, or
iii)
the occurrence of an Event of Default under the Loan Agreement or any other Transaction Document, other than the Existing Defaults.
(b)
Each Credit Party acknowledges and agrees that, upon a Default, Lender may terminate the Forbearance Period and the maturity of the Revolving Note and the payment of all other interest, fees and obligations shall automatically be accelerated as of the date of the termination of the Forbearance Period, without presentment, demand for payment, notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of protest of any kind, all of which are expressly waived by Borrower. Thereafter Lender may exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Transaction Documents, this Agreement, and any other instrument or agreement relating hereto, or any one or more of them. All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of Lender.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 16
21.
Other Representations and Warranties
. Each Credit Party hereby represents and warrants to Lender as follows:
(a)
The execution, delivery, and performance of this Agreement by such Credit Party has been duly authorized by such Credit Party’s boards of directors and this Agreement constitutes such Credit Party’s legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
(b)
Except as set forth on
Schedule A
hereto, there are no actions, suits, or proceedings pending or threatened against or affecting such Credit Party, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any Credit Party, or the Credit Parties, taken as a whole.
(c)
Set forth on
Schedule B
hereto are all liens, statutory, contractual or otherwise, on any assets of any Credit Party, as well as the payment or other obligations underlying such liens.
(d)
Borrower has fully performed all of its obligations under the Farmout and Acquisition Agreement (the “
Farmout Agreement
”) dated December 26, 2007, between Infinity Texas, as farmor, and Forest, as farmee; and the Farmout Agreement has terminated under its terms.
22.
Remedies
.
Section 11(a)
of the Loan Agreement is hereby amended by adding the following text at the end of the first sentence thereof: “; provided, however, that upon the occurrence and during the continuation of any Event of Default specified in Subsection 10(a)(10) or Subsection 10(a)(11), the entire unpaid principal balances of the Notes, together with all accrued but unpaid interest thereon, and all other indebtedness then owing by Borrower to Lender shall automatically become immediately due and payable without such further presentation, demand, protest or notice.”
23.
Confirmations
.
g)
The Credit Parties agree that, after giving effect to this Agreement but subject to any Default, the following amounts are due and outstanding with respect to the Revolving Note as of January 31, 2011:
Principal
|
|
$
|
10,010,493.64
|
|
Interest
|
|
$
|
1,069,037.30
|
|
|
|
|
0
|
|
Total:
|
|
$
|
11,079,530.94
|
|
Each Credit Party agrees that there is no set off or defense to payment of the Revolving Note.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 17
(b)
The Credit Parties agree that s
ubsequent to January 31, 2010, additional sums were advanced and are or have become due and payable. As of January 31, 2011, and, after giving effect to this Agreement but subject to any Default, the following amounts are due and payable as set forth below:
Overdraft
|
|
$
|
163,912.45
|
|
Letter of Credit Fees
|
|
$
|
19,431.31
|
|
|
|
|
0
|
|
Total:
|
|
$
|
183,343.76
|
2
|
(c)
On June 30, 2010, pursuant to a Demand Promissory Note, Lender advanced to Borrower a principal amount of $100,000.00. The Credit Parties agree that, as of January 31, 2011, interest in the amount of $2,986.11 has accrued on the principal amount thereof.
(d)
On October 8, 2010, pursuant to a Demand Promissory Note, Lender advanced to Borrower a principal amount of $10,000.00. The Credit Parties agree that, as of January 31, 2011, interest in the amount of $159.72 has accrued on the principal amount thereof.
(e)
On December 6, 2010, pursuant to a Demand Promissory Note, Lender advanced to Borrower a principal amount of $122,462.44. The Credit Parties agree that, as of January 31, 2011, interest in the amount of $952.49 has accrued on the principal amount thereof.
(f)
As
security
for the Notes, the Credit Parties previously executed the Security Documents, including the Security Agreement. Each Credit Party hereby (i) ratifies and confirms the Security Documents and the Security Agreement to which it is a party, (ii) acknowledges that the Security Documents and the Security Agreement to which it is a party are valid, subsisting, and binding upon such Credit Party, and (iii) agrees that the Security Documents to which it is a party secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan) and all other obligations of the Credit Parties under the Transaction Documents.
(g)
In
connection
with the Revolving Note, Guarantors executed the
Guaranties. Each Guarantor (i) ratifies and confirms the Guaranty to which it is a party, (ii) acknowledges that the Guaranty to which it is a party is
valid, subsisting, and binding upon such Guarantor, and (iii) agrees that the Guaranty to which it is a party guarantees payment
of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan)
and all other obligations of the Credit Parties under the Transaction Documents
. Each Guarantor agrees that there is no defense to payment under the
Guaranties.
(h)
Borrower
and
Guarantors hereby represent to Lender that all representations and warranties set forth in
Section 6
of the Loan Agreement are true and correct
as of the date of execution of this Agreement, except for
Section 7(d)
hereof, which is
qualified by the lawsuits set forth in
Schedule A
attached, and
Section 7(i)
hereof, which is no longer applicable; and that, except for the Existing Defaults, Borrower and Guarantors are
in compliance as of the date of execution of this Agreement with all covenants set forth in
Section 7
of the Loan Agreement, all financial covenants set forth in
Section 8
of the Loan
Agreement, and all reporting requirements set forth in
Section 9
of the Loan Agreement.
24.
Validity and Defaults
. The Loan Agreement remains in full force and effect. Each Credit Party acknowledges that (a) the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Transaction Documents to which it is a party are valid, subsisting, and binding upon such Credit Party, (b) no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults, and (c) except as expressly contemplated by this Agreement, no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement. Borrower and Guarantors ratify the Loan Agreement and each other Transaction Document to which it is a party.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 18
25.
Fees and Expenses
. The Credit Parties agree (a) to pay or reimburse Lender for all reasonable fees, costs and expenses incurred in connection with the evaluation, preparation, negotiation, and execution of this Agreement and any Transaction Document and any amendment, waiver, consent or other modification of the provisions hereof or thereof (whether or not the transactions contemplated hereby are consummated), including all reasonable attorneys’ fees and expenses and (b) to pay or reimburse Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement or preservation of any rights or remedies under this Agreement or any Transaction Document (including such costs and expenses incurred during any “workout” or restructuring in respect hereof or thereof and during any legal proceeding, including any proceeding under the Bankruptcy Code or any other law relating to bankruptcy, insolvency or reorganization or relief of debtors, including all financial advisors’ and attorneys’ fees and expenses).
26.
Release
. For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, including this Agreement, each Credit Party hereby RELEASES AND FOREVER DISCHARGES Lender and its affiliates and its and their respective officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “
Released Parties
”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “
Claims
”‘), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Transaction Documents, this Agreement, any other transaction between Lender and any Credit Party, or any act, omission, communication, transaction, occurrence, representation,
promise, breach, violation of any statute or law, or any other matter whatsoever or thing done,
omitted, or suffered by any of the Released Parties in connection with the Loan Agreement, the Revolving Note, the Security Documents, the Transaction Documents, this Agreement, any other
transaction between Lender and any Credit Party, whether those Claims are now or hereafter accrued or
possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including,
without limitation, claims for contribution or indemnity, claims of control, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act; provided, however, that any acts of willful misconduct or fraud
by the Released Parties shall not be released or discharged.
27.
Advice from Counsel
. Each Credit Party understands that this Agreement is legally binding and represents to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement. The decision by each signatory to enter into this Agreement is a fully-informed decision, and each such signatory is aware of all legal and other ramifications of such decision. The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
28.
Governing Law and Venue
. THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN HARRIS COUNTY, TEXAS. EACH CREDIT PARTY AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY TRANSACTION DOCUMENT SHALL BE IN HARRIS COUNTY, TEXAS.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 19
29.
Waiver of Jury Trial
. NOTWITHSTANDING ANYTHING IN ANY TRANSACTIOON DOCUMENT TO THE CONTRARY, EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR THE LENDER/BORROWER RELATIONSHIP THAT HAS BEEN ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO CONTINUE THEIR BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS
SECTION 29
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY TRANSACTION DOCUMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE EXTENSIONS OF CREDIT MADE HEREUNDER AND THEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
30.
Savings Clause
. Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Transaction Documents, or this Agreement, it is the express intent of the parties that at no time shall any Credit Party pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 20
31.
Fax and PDF Provision
. This Agreement and the related Transaction Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower. At Lender’s option, this Agreement and the related Transaction Documents may also be executed by the Credit Parties in remote locations with signature pages faxed or electronically submitted in .pdf format to Lender. Each Credit Party agrees that the faxed signatures or signatures electronically submitted in .pdf format are binding upon such Credit Party, and each Credit Party further agrees to promptly deliver such Credit Party’s original signatures for this Agreement and the related Transaction Documents by overnight mail or expedited delivery. It will be an Event of Default if any Credit Party fails to promptly deliver all required original signatures.
32.
Captions
. Captions are for convenience only and should not be used in interpreting this Agreement.
33.
Final Agreement
.
h)
In connection with the Loans, the Credit Parties and Lender have executed and delivered this Agreement, the Loan Agreement, and the Transaction Documents to which it is a party (collectively the “
Written Loan Agreement
”).
(b)
It is the intention of the Credit Parties and Lender that this paragraph be incorporated by reference into each of the Transaction Documents. The Credit Parties and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, the Credit Parties and Lender that are not reflected in the Written Loan Agreement.
(c)
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
34.
Severability
. In case any provision in or obligation hereunder or any other Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, (a) the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic and legal effect of which comes as close as possible to the intent of the illegal, invalid or unenforceable provisions.
35.
Reaffirmation of Guaranty and Liens.
(a)
Infinity Texas and Infinity Wyoming each (i) has consented and agreed to the incurrence by Borrower of the Forbearance Period Advances, (ii) has reviewed this Agreement, including the terms of the Forbearance Period Advances, (iii) waives any defense arising by reason of any disability, lack of organizational authority or power, or other defense of Borrower or any other guarantor of the obligations hereunder or under any Transaction Document, and (iv) agrees that the guaranty by such Person, pursuant to the terms of that certain Commercial Guaranty, effective January 9, 2007, by Infinity Texas for the benefit of Lender and that certain Commercial Guaranty, effective January 9, 2007, by Infinity Wyoming for the benefit of Lender, as applicable, will each continue in full force and effect to guaranty the obligations hereunder, including the Forbearance Period Advances, and under the Loan Agreement and the other Transaction Documents (collectively, the “
Obligations
”), as the same are hereby and may in the future be amended, supplemented, or otherwise modified.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 21
(b)
The Credit Parties (i) are party to certain Security Documents securing and supporting the Obligations, (ii) has reviewed this Agreement, including the terms of the Forbearance Period Advances, (iii) waive any defense arising by reason of any disability, lack of organizational authority or power, or other defense of such Credit Party, and agrees that according to their terms the Security Documents to which the applicable Credit Party is a party will continue in full force and effect to secure the Obligations under the Transaction Documents, as the same are hereby and may in the future be amended, supplemented, or otherwise modified, and (iv) acknowledge, represent, and warrant that the liens and security interests created by the Security Documents are valid and subsisting and create a first priority perfected security interest subject to liens permitted under the Loan Agreement.
36.
Expenses
. Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to pay promptly (a) all Lender’s actual and reasonable costs and expenses of preparation of the Transaction Documents and any consents, amendments, waivers or other modifications thereto; (b) all the reasonable fees, expenses and disbursements of counsel to Lender in connection with the negotiation, preparation, execution and administration of the Transaction Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Borrower; (c) all Lender’s actual costs and reasonable fees, expenses for, and disbursements of any of Lender’s, auditors, accountants, consultants or appraisers whether internal or external, and all reasonable attorneys’ fees (including allocated costs of internal counsel and expenses and disbursements of outside counsel) incurred by Lender; (d) all other actual and reasonable costs and expenses incurred by Lender in connection with the negotiation, preparation and execution of the Transaction Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (e) after the occurrence of a Default (as defined in
Section 20
hereof), all costs and expenses, including attorneys’ fees (including allocated costs of internal counsel) and costs of settlement, incurred by Lender in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Transaction Documents by reason of such Default (including in connection with the enforcement of any guaranty of the such Obligations) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work out” or pursuant to any insolvency or bankruptcy cases or proceedings.
37.
Indemnity
.
(a)
Whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees’ selection of counsel), indemnify, pay and hold harmless, Lender, its Affiliates and its and their respective officers, partners, directors, trustees, employees and agents (each, an “
Indemnitee
”), from and against any and all Indemnified Liabilities (as hereinafter defined), IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE; provided, no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 37
may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. “
Indemnified Liabilities
” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including environmental claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any hazardous materials activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and environmental laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Transaction Documents or the transactions contemplated hereby or thereby (including the Lender’s agreement to make Revolving Loans or Forbearance Period Advances or the use or intended use of the proceeds thereof, or any enforcement of any of the Transaction Documents (including the enforcement of any guaranty of the Obligations)) or (ii) any environmental claim or any hazardous materials activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of the Borrower or any of its Subsidiaries.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 22
(b)
To the extent permitted by applicable law, no Credit Party shall assert, and each Credit Party hereby waives, any claim against Lender and its respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any Transaction Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Revolving Loan or Forbearance Period Advance or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Borrower hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
38.
Set Off
. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, Lender and its Affiliates are each hereby authorized by each Credit Party at any time or from time to time subject to the consent of Lender (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Lender), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts (in whatever currency)) and any other indebtedness at any time held or owing by Lender to or for the credit or the account of any Credit Party (in whatever currency) against and on account of the obligations and liabilities of any Credit Party to Lender hereunder and under the other Transaction Documents, including all claims of any nature or description arising out of or connected hereto or with any other Transaction Document, irrespective of whether or not (a) Lender shall have made any demand hereunder, (b) the principal of or the interest on the Loans or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured or (c) such obligation or liability is owed to a branch or office of Lender different from the branch or office holding such deposit or obligation or such indebtedness.
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 23
39.
Patriot Act
. Lender hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Lender to identify Borrower in accordance with the Act.
40.
No Fiduciary Relationship
. No fiduciary relationship has been or will be created between Lender and any Credit Party in respect of any of the transactions contemplated by the Transaction Documents, irrespective of whether Lender and/or its affiliates have advised or are advising any Credit Party on other matters, and no provision therein shall be deemed to impose on Lender any fiduciary or implied duties to any Credit Party. Furthermore, Lender has not taken any actions to control the day-to-day management or operations of any Credit Party and each Credit Party should refrain from advising any person or entity to the contrary or otherwise referring any such person or entity to Lender for payment of any outstanding amounts owed or to be owed. Neither Lender nor its affiliates shall have any liability to any Credit Party in respect of any fiduciary duty or to any person or entity asserting a fiduciary duty claim on behalf of or in right of any Credit Party, including its equityholders, employees and/or creditors.
[Remainder of page intentionally left blank]
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter. Notwithstanding any provision to the contrary, this Agreement shall only be effective if each Credit Party returns an executed copy hereof to Lender by 5:00 p.m., Houston, Texas time, on February 11, 2011.
Yours very truly,
Amegy Bank, N.A.
By
:
Hank Holmes
Executive Vice President
Accepted and agreed to
this 11th day of February, 2011:
BORROWER:
Infinity Energy Resources, Inc.
By
:
Stanton E. Ross, President
and Chief Executive Officer
GUARANTORS:
Infinity Oil and Gas of Texas, Inc.
By
:
Stanton E. Ross, President
Infinity Oil & Gas of Wyoming, Inc.
By
:
Stanton E. Ross, President
Exhibits and Schedules:
Exhibit A – Funding Notice
Schedule A – Lawsuits
Schedule B – Liens
Exhibit 10.17
Execution Version
OMNIBUS AMENDMENT
AND
AGREEMENT
TO THE
SUBORDINATION
DOCUMENTS IDENTIFIED
HEREIN
T
his
Omnibu
s
Amend
m
e
nt and
Ag
r
eeme
nt
(this
"
A
greement
"
)
i
s
mad
e
effective a
s of Fe
bruary
16
,2
011
,
b
y a
n
d
a
mong Amegy
Bank
,
N
.
A. ("
Se
nior Lend
er
"
), Of
f-
S
hore Finance
,
LL
C, a Nevada
lim
i
ted
liabili
ty
com
pan
y
("
S
ub
o
rdinate
Lender
"
)
,
Infinity En
e
r
gy
Re
s
o
ur
ces,
In
c.,
a
Delawar
e corporatio
n
(
"
Borr
ower
"
)
,
Infini
ty Oi
l
and
Gas of
Texa
s
,
I
nc.
,
a
Dela
ware
corporation ("
Infini
ty
T
exa
s
"
)
,
an
d
I
nfi
nit
y
O
i
l & Ga
s
of
Wyom
in
g,
In
c.
,
a W
yo
m
i
n
g
corporat
i
o
n
(
"
Infini
ty
Wyom
ing
"
a
n
d
,
toget
h
e
r
w
it
h
B
orro
wer and
In
finit
y
Texas
,
t
h
e
"
Loan
Partie
s
"
)
.
Ca
pi
ta
l
ize
d
t
e
rm
s
u
s
ed
but
n
o
t
defined
he
r
ei
n
s
h
all
ha
v
e
th
e
m
ea
n
ing
s
a
s
c
ribed
to
s
u
c
h
term
s
i
n
the
Loa
n
Agree
men
t
referen
ced
b
e
l
ow.
Reference
i
s
hereb
y
made to
(i)
that
ce
rtain
Loa
n
Agree
ment dat
ed Ja
nu
ary
9
,
2007 (as
amend
e
d
,
r
es
tated
,
modifi
ed,
s
upplemented
.
e
x
tended
,
r
e
plac
ed o
r renewed
from lim
e to
time
,
and including that
certa
in F
o
rbearan
ce Agree
m
e
nt
dated
A
u
gust 3
1
,
2007,
Second Forbearanc
e
Ag
r
eement dated
March 26,
2008
,
Third
Forbea
ran
ce
Agree
m
ent dated
Octobe
r
16
,2008, Fourth Forbeara
n
ce
Agreem
e
nt
dated Decembe
r
4
,
2009 and F
i
ft
h
Forbearan
ce
Agreeme
nt
dated
Feb
ruary
16
,
20
1
1,
the
"
2
00
7
Loan
Ag
r
ee
m
ent
"
)
,
by a
n
d among
Sen
i
or
Len
der
a
n
d t
he
Loan
Parties, (
ii
)
t
hat
certa
i
n Secu
ritie
s
Purcha
s
e Agree
m
e
nt
,
dated
as
o
f
Marc
h
23
.
2009
(
the
"
Sec
u
r
i
ti
es
Pu
rchase
Agreement
"
)
,
by
and
betwee
n B
o
rr
owe
r
and
Su
b
o
r
dina
t
e
Le
n
de
r
,
(ii)
t
ha
t
c
ertain
S
u
bor
din
ate Sec
u
red
P
ro
m
issory Not
e,
d
a
t
e
d
March
23
,
2
00
9 (
th
e
"
S
u
bor
din
ate
Promi
ss
ory No
t
e
")
,
made
b
y
Borrower in favor
of
Subordinate Le
n
der
,
(i
i
i)
t
ha
t
certai
n
S
ub
or
dinate Deed
o
f
Tru
s
t a
n
d
Sec
urity
Agreement
(O
il
and Gas)
filed
i
n
Comanche and
E
ra
t
h
Cou
nti
e
s,
Texas
dated
Ma
r
c
h
23
,
2009 (t
he
"
Subordinat
e
Deed of Trus
t-
TX
"
),
b
y
Infinit
y
Te
xas
in
fa
vo
r
of S
ub
o
rdinate
Lend
er
,
(
i
v)
that
certa
in
Subordinate
Deed of T
ru
s
t and
Security
Agree
m
e
nt
(Oi
l
and
Gas)
fil
ed
in Routt
Co
un
ty
,
Co
l
o
rado and
Sweetwater
Co
unty
,
Wyoming d
a
ted
Marc
h
23,
2009 (th
e "
S
ub
or
dinate Deed
of
Tru
s
t--CO
/
WY
"),
b
y
Infini
ty Wyoming
in favor
of S
u
bordinate
Lender,
(v) that
ce
rtain
Co
mmer
c
i
al
G
u
aranty
dated
March
23
,
2
00
9 (
t
he
"
Subo
rdin
ate Gua
r
anty
"
) made
b
y
t
he
Loan
Part
ies
f
o
r
t
h
e benefit
of S
u
bo
rdinate Le
n
d
er
,
a
n
d
(vi)
that
ce
rtain
Subordi
n
at
i
on and
I
n
t
erc
r
ed
it
or Agreeme
nt
da
ted a
s
o
f
Ma
r
c
h
23, 200
9
(t
h
e
"
S
u
bordi
n
at
i
o
n
Ag
r
eemen
t
"
a
n
d
,
toget
h
e
r
with
the
Sec
u
ritie
s
P
ur
c
hase
Agree
m
e
n
t
,
S
ub
o
rdinat
e
Pr
om
i
ssory Note
,
S
ubord
ina
te D
ee
d
of
Tr
u
s
t-TX
,
Su
b
o
rdinate
Deed
of T
ru
s
t
-CO-WY
and
S
u
bord
i
n
ate
Guaranty
,
th
e
"
S
u
bordina
ti
o
n D
ocu
ment
s
"
) by an
d
among Senio
r
Lender,
Subord
i
nat
e
Lender and Bo
r
rower.
Sec
tion 1.
No
twithstanding a
n
ythin
g
in any
S
ub
o
rdination
D
oc
um
e
nt
t
o
th
e
contrary
,
eac
h
o
f th
e
parties
her
eto agrees as
f
o
ll
ows:
(a)
the
Subordi
n
ate Lo
an
(
a
s
defined
i
n t
h
e S
u
bordina
ti
on
Ag
r
eeme
n
t) i
s
s
u
bor
d
i
na
ted
t
o t
he
i
nd
efeas
i
ble
r
epay
m
e
nt
in fu
ll
o
f th
e
Re
vo
l
v
in
g
Loa
n
s,
in
cl
u
d
i
ng
t
h
e
F
orbeara
nc
e
Per
i
o
d
A
d
v
an
ces (as eac
h
is
defined
i
n
t
h
e
2007 Loa
n
Agreemen
t
)
and a
ll
o
ther p
aymen
t
o
b
l
i
ga
ti
on
s
of
a
n
y
Loa
n
P
arty
s
et fo
rt
h
in
the
F
i
ft
h
Fo
rb
eara
n
c
e
Agre
emen
t o
r
an
y
o
t
he
r
T
r
ansactio
n
D
ocu
ment
(co
ll
ec
ti
ve
l
y,
t
he
"
Se
ni
o
r
Ob
l
igatio
n
s
").
(
b)
Sen
i
o
r
Deb
t
(as
defined
in
the
S
u
bo
rdinat
e
Promissory
Note)
s
h
a
ll
be
deemed
to includ
e
th
e
Se
ni
o
r
Ob
li
ga
ti
o
n
s.
(c)
u
po
n
a
n
d
a
ft
er
the
executi
o
n
o
f thi
s Ag
reement b
y
ea
c
h
of
the pa
rt
ies
heret
o
,
each
r
eference
in
an
y
Subo
r
dinat
i
on
D
oc
ument
t
o
any
Subordina
ti
on
D
ocu
m
e
nt
sha
ll
m
ean an
d
be
a
refe
r
ence
t
o
s
uc
h
S
u
bo
rd
i
n
at
i
on
Docume
n
t as
modified
he
r
eby
.
(
d
)
except a
s
mo
difi
e
d herein
,
t
h
e
2007 Loa
n
Ag
re
ement,
each ot
h
er
the
Tra
nsac
t
i
o
n
Documen
t
a
n
d each
S
u
bordination
D
ocume
nt
t
o
which it is a
party
sh
all r
e
m
a
in
in
fu
ll
f
o
rce and
effect a
s
or
i
g
inall
y
executed
an
d
amended
o
n
o
r
prior
to t
h
e dale
h
ereo
f
,
and
n
ot
hin
g
h
erei
n
s
h
a
ll
act as
a
waiver
of
any of Se
nior
Lender
's
rig
h
ts
u
nder
the
2007 Loan Agreemen
t
,
any
ot
her
Tra
n
sac
tion
D
ocu
ment
or any Su
b
o
rdination
Document.
(e)
at any
tim
e
and
from time to tim
e
up
o
n
the
request of
Senior
Le
nd
e
r
,
each
Loan Party and
Su
b
o
rdinate Lender
will
,
at
their
ow
n expen
se,
pr
ompt
l
y exec
ute, a
c
kn
ow
l
edge an
d deliver
s
u
c
h
further documents and do
s
u
c
h
o
th
er acts
and
things as
Senior Len
d
er
may reasonably request in
orde
r
to
effect fu
ll
y
the purposes
of
foregoin
g.
In
fu
rt
he
ran
ce
and
n
ot
in
l
i
m
ita
tion
of
t
he
foregoing
,
each
Loa
n Party
a
n
d Subordi
n
a
t
e
Lend
er sha
l
l
take
such
actions as
Se
ni
o
r
Lender may
rea
sonab
l
y
reque
st
f
r
om
time to
ti
m
e
t
o e
n
s
ur
e (i)
tha
t repayme
n
t of t
h
e i
ndebted
ness
and
o
bli
ga
ti
ons owing
b
y each Loa
n
Party
t
o Su
b
o
rd
i
n
ate Len
d
e
r u
n
d
er
the
S
u
bordina
t
io
n
Documents
i
s
s
u
bo
rdinat
ed
to repayment
of t
h
e Se
ni
or Ob
li
g
at
ions
and
(i
i
)
th
a
t
the
lien
s,
sec
uri
ty
i
nterests
and guarantee
s
made i
n
favor
o
f
Subordinate
Le
n
der a
re
s
ubordinat
ed
t
o
the
lien
s,
security intere
s
t
s
and g
uarante
es
m
a
d
e
in
favor
of Se
ni
o
r Lend
er.
Section
2.
Eac
h party hereto und
e
r
sta
nd
s
that
this
Agreement
i
s
l
eg
all
y
binding
and represents
to
Se
ni
or
Lender that each
has
o
btain
ed
indep
e
ndent legal
co
un
s
el
from the
a
ttorne
y of
their
c
h
o
i
ce rega
rdin
g
th
e mean
in
g
and
legal
sign
ifi
cance of this
letter
agreement
.
T
h
e
decision
by
each
s
i
g
nat
ory to
enter into thi
s
Agree
ment i
s
a f
u
ll
y-
in
formed decis
i
on,
an
d
each
such s
i
g
n
a
t
ory is
aware
o
f
a
ll l
ega
l
and
o
t
he
r
ramification
s
of s
u
c
h d
ec
i
s
i
o
n
.
The parti
es
agree
t
h
a
t
n
o
pr
ov
i
sio
n
of
th
is Agre
em
e
nt
s
hall
b
e i
n
te
rpret
ed
or
co
n
st
ru
e
d
aga
in
st a
party
beca
u
se
that
party p
r
epa
red
t
h
e
pr
ovis
i
on, it be
in
g
agreed
t
ha
t
a
ll
parties have
pa
rti
c
ip
ated
in
the
draftin
g o
f
th
i
s Agreement
and have had
l
ega
l
counsel o
f t
h
eir
choice
.
Section
3
.
THE
SU
BORDI
NA
TI
ON DOCUMENTS,
AS
AMENDED
HEREBY, SHALL BE GOVERNED BY
AND CONST
RUED IN
A
CCO
RDANCE WITH
THE
LAWS
OF
THE STAT
E OF TEXAS
AND
S
HA
LL BE PERFORM
ED I
N
HARRI
S COUN
TY
,
TEXA
S. EACH
PARTY
HERET
O
AGREES
THAT
VENUE FOR ANY
AC
TI
ON OR CLA
I
M
RELAT
E
D
TO
ANY SUBO
RDI
NAT
I
ON DOCUMEN
T
SHALL BE IN HARRIS
COUNTY,
TEXAS
.
Sec
tion
4.
Thi
s
Ag
r
ee
ment
may
b
e exec
uted i
n coun
t
erparts
,
a
n
d Se
ni
o
r
Lender
i
s
aut
h
or
i
ze
d t
o
attach
t
h
e
s
i
g
n
a
t
ure
pa
ges
from
th
e coun
t
erpa
rt
s
to
co
p
ies fo
r
Senior
Lender
.
Subordinate
Le
n
der
and
eac
h
Loan Party. At Se
ni
or
Lender
's
option, this Ag
re
ement
may
a
l
so
be
executed b
y
the part
ie
s
he
reto i
n r
emote
locations
wi
th
sig
n
atu
re p
ages
faxed
or
electronically
s
ubmitted
in
.pdf
f
ormat
to
Se
ni
o
r
L
ender
.
Each
p
arty
h
ere
t
o
agrees that
the faxed
s
i
g
natures
o
r
s
i
g
n
a
tur
es e
l
ec
tronicall
y s
ubmitted in
.
pdf format are bindin
g
upon
such
party
,
and
eac
h party hereto further
agree
s
to
pr
o
mptly deliver t
o Se
ni
o
r Lender
s
uch
party'
s
o
riginal
signatures
f
o
r
this
Agreement b
y ove
rni
g
ht mail
or expedited delivery.
[Remainder
of
page
l
eft
blank]
|
E
xec
uted
a
s o
f the date
fir
s
t
w
ritten
above.
Amegy Bank, N.A.
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By:
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/s/:Hank Holmes
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Hank
Ho
lm
es
Exec
uti
ve
V
i
ce
President
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Accep
t
ed
and agreed to
thi
s
l
6'h
day
of
February
,
20
11:
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SUBORDINATE LENDER:
Off-S
h
ore
Finance
,
L
L
C
|
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B
y::
|
/s/:Daniel Haake
|
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N
ame
: Daniel Haake
|
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Title: Managing member
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BORROWER:
Infinity
E
n
ergy Reso
ur
ces,
In
c
.
|
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B
y:
|
/s/: Stanton Ross
|
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Sta
nt
o
n
E
.
R
oss,
P
re
s
ident
and
Ch
ie
f Execu
ti
ve
Officer
|
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GUARANTORS
:
Infinit
y
Oi
l
and
Gas
of Texas
,
Inc.
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B
y:
|
/s/: Stanton Ross
|
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Stanton
E. Ross,
Pre
s
id
e
nt
|
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Infini
ty Oi
l
& Gas o
f
Wyoming, I
n
c.
|
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B
y:
|
/s/: Stanton Ross
|
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Stanto
n
E
.
Ross, Preside
nt
|
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Exhibit 10.18
THIRD AMENDMENT
TO
REVOLVING PROMISSORY NOTE
This Third Amendment to Revolving Promissory
N
ote is executed effective January
31,2010,
by
INFINITY ENERGY
RESOURCES
,
INC. ("Borrower"), a Delaware corporation, in favor of
AMEGY
BA
N
K,
N
.A. (
"
Lender").
Recital
s:
Borrower is legally obligated to pay a Revolving Promissory
Note
dated January 9, 2007
,
in the maximum principal amount of
$50,000,000.00,
executed by Borrower, and payable to the order of
L
ender
,
as amended
by
the First Amendment dated
October
16,
2008
and the Second
Amendment
dated
May
31,
2009 (as
amended, the
"
Revolving
N
ote
").
The Revol
v
ing
Note
is governed
by
the Loan
Agreement
dated January
9,
2007
,
among Borrower
,
Lender
,
and
Guarantors
(as defined therein)
(as
amend
e
d, supplemented or otherwise modified and including each forbearance agreement
with
respect thereto
,
including
without
limitation the Fifth Forbearance
Agreement
dated the date hereof, among the Borrower,
Lender
and
Guarantors,
the
"
Loan
Agreement").
The
Revolving Note
matured on January 31
,
2010 and Borrower has requested that Lender
extend
the Maturity
Date
in connection
with
the Fifth Forbearance
Agreement
as
set
forth below.
U
nless otherwise defined herein
,
capitalized terms herein have the meanings
assigned
in the
Revolving Note.
Agreement:
For
valuable
consideration
,
including the funds previously
advanced
by Lender to Borrower under the
Revolving Note,
the receipt and
sufficiency
of
which are
hereby acknowledged, Borrower
and
Lender
agree
and
stipulate
a
s
follows:
1. The recitals abo
v
e are true and correct and form the ba
s
is for thi
s
amendment.
2.
The
Maturity
Date of the Revolving
N
ote is extended until 11
:00
a.m.
(Houston,
Texas time) on
December 31,2011.
3
. The Revolving
Note will
be due and payable as required by the Loan
Agreement.
4.
Except
as
specifically amended
herein
,
the Revolving
Note
remains unchanged; and Borrower ratifies the
Revolving Note,
as amended.
All
lien
s
and security interests
securing
payment of the Re
vo
lving
N
ote are renewed and
extended
until the Revol
v
ing
Note
is paid in
full.
THIS
REVOLVING
PROMISSORY
NO
TE
,
THE LOAN
AGREEMENT AND
THE
OTHER
TRA
N
S
ACTION
DOCUMENTS EXEC
UTE
D BY BORROWER
,
LENDER
OR ANY GUARANTOR
REPRESE
NT
THE FINAL AGREEMENT
BETWEEN OR
AMONG
SUCH PARTIES, AS
THE
CASE
MAY
BE, AND MAY
N
OT BE
CONTRADICTED
BY EVIDE
NC
E
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BY THE
PARTIES.
THERE
ARE
NO
UNWRITTEN
ORAL
AGREEMENTS
BETWEE
N
THE P
A
RTIES.
Executed effective on the date stated above.
INFINITY ENERGY RESOURCES, INC.
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B
y:
|
/s/Stanton E. Ross
|
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|
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Name: Stanton E. Ross
Title: President
|
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Exhibit 10.19
FORBEARANCE PERIOD ADVANCE
PROMISSORY NOTE
$1,050,000
|
February 16, 2011
|
FOR
VALUE
RECEIVED, the undersigned, INFINITY ENERGY RESOURCES, INC., a Delaware corporation
(the "
Borrower
"
),
promises and agrees to pay to the
order
of AMEGY BANK,
N.A. (the "
Lender
"),
at the principal
office of Amegy
Bank,
N.A.
at 4400 Post Oak Parkway,
Suite
1300,
Houston,
Texas
77027,
on the Forbearance Period
Advance Maturity
Date, the principal sum
of One Million Fifty
Dollars ($1,050,000.00)
,
or
such
lesser amount as shall equal the aggregate unpaid principal amount
of
the Forbearance Period
Advances
owed to the Lender under the Loan
Agreement.
The Borrower further
agrees
to pay interest
on
the unpaid principal
amount
of each such Forbearance Period
Advance,
at such
office,
in like funds, for the period commencing on the date of
such Forbearance Period Advance
until
such
principal amount is paid in full
,
at the rates per annum and on the dates provided in the Loan
Agreement. All
payments of principal and interest hereunder in respect of each Forbearance Period
Advance
shall be made in immediately
available
funds in U.S. dollars. If any amount is not paid in full
when
due hereunder
,
such
unpaid amount
shall
bear interest from the due date thereof until the date
of actual
payment (and before
as well
as after judgment) computed at the per annum rate and payable at the times
set
forth in the Loan
Agreement.
This Promissory Note evidences
the Forbearance Period
Advances
owed to the Lender under that certain Loan
Agreement,
dated January 9,
2007, among
the Borrower, Infinity
Oil
and
Gas of
Texas, Inc.,
a Delaware corporation
("
Infinity
Texas
"),
Infinity
Oil
&
Gas
of
Wyoming,
Inc.
,
a
Wyoming
corporation ("
Infinity
Wyoming
"
and, together
with
the Borrower and Infinity Texas, the
"
Credit Parties
"), and the Lender
(as
amended, supplemented or
otherwise
modified and including,
without
limitation, that certain Fifth Forbearance
Agreement,
dated
February
16, 2011
,
among the
Credit
Parties and the Lender, the
"
Loan Agreement
"
),
and
shall
be
governed
by the Loan
Agreement. Capitalized
terms used in this Promissory
Note
and not defined in this Promissory
Note
,
but
which
are defined in the Loan
Agreement,
have the respective meanings herein as are assigned to them in the Loan
Agreement.
The Borrower and any and all
co-makers, endorsers,
guarantors and
sureties severally waive
notice (including but not limited to notice
of
intent to accelerate and notice
of
acceleration, notice
of
protest and notice of dishonor), demand, presentment for payment,
protest,
diligence in collecting and the filing
of suit
for the purpose of fixing liability, and
consent
that the time
of
payment hereof may be
extended and
re-extended from time to time
without
notice to any of them. Each
such
person agrees that his
,
her or its liability
on or with
respect to this
Promissory Note shall
not be affected by any release of
or change
in any guaranty or
security
at any time
existing or
by any failure to perfect or maintain perfection
of
any lien against or
security
interest in any such
security
or the partial or complete unenforceability of any
guaranty or
other
surety
obligation, in each case in
whole
or in part,
with or without
notice and before or after maturity.
The Loan
Agreement
provides for the acceleration
of
the maturity
of
this Promissory
Note
upon the occurrence
of
certain events and
for
prepayment
of
Forbearance
Period
Advances
upon the terms and conditions
specified
therein. Reference is made to the Loan Agreement for all other pertinent purposes.
This Promissory Note is issued pursuant to the Loan Agreement and
i
s
entitled to the benefits of the Loan
Agreement
and the other Transaction Documents.
THIS
PROMISSORY NOTE
SHALL BE
GOVERNED BY
AND
CONSTRUED
IN ACCORDANCE WITH THE
LAWS OF
THE STATE
OF
TEXAS
AND
SHALL BE PERFORMED IN HARRIS COUNTY, TEXAS.
|
IN WITNESS WHEREOF:
INFINITY ENERGY RESOURCES
,
INC.,
a Delaware corporation
|
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By:
|
/s/: Stanton E. Ross
|
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|
Name: Stanton E. Ross
Title: President
|
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Exhibit 10.20
REGISTRATION
RIGH
TS
AGREEMENT
REGI
STRAITON
ON
RI
G
HTS
AGREEMENT
(t
hi
s
"
AG
REE
MEN
T")
,
da
ted
a
s
o
f Febru
ary
16,
20
11
,
b
y a
nd
am
o
n
g
Infi
n
i
ty
Energy
Re
so
urces
,
Inc
.,
a
De
l
a
ware
co
rp
o
rati
on
,
with
h
ea
dqu
a
rt
ers
l
ocated
at
1
1
900
Co
ll
ege
Bl
vd
.
S
uite
204
,
Overland
Park
,
Ka
n
sas 66210 (the
"
C
OMPA
NY
"
)
,
a
nd
A
m
egy
Bank
, N
.
A. (the
"
B
UYE
R
").
W
H
EREAS,
A.
In conne
c
tion
w
ith
the
Securiti
e
s
Purchase
Agreement by
and
amo
ng the partie
s
hereto
o
f
eve
n
date
here
wi
th
(
t
he "SECUR
I
T
I
ES PURCHASE AGREEMENT")
,
the Company
ha
s
ag
ree
d
,
u
po
n the
terms and s
ubj
ect to
th
e co
nditi
on
s o
f
t
he Sec
u
ri
t
ies
Pu
rchase Agreement
,
t
o
i
s
s
u
e an
d
s
e
ll
o
n
the
C
los
in
g
Dat
e
t
o
the
Bu
ye
r
warrants
t
o
pu
rchase s
h
a
re
s of Co
mmon
Stoc
k
(the
"
WA
RRA
N
TS
,
"
a
nd the
s
hares of Common Stock i
s
s
uabl
e upon
ex
e
r
c
i
se o
f the
Warrants
,
the
"
WARRA
N
T
SHARES");
B. To
indu
c
e the Buye
r
to exec
ute
and deliver t
he
Secu
ritie
s P
u
rchase Ag
re
ement
,
the Company
ha
s agreed
t
o prov
ide
ce
rtain r
eg
i
s
tration ri
g
ht
s
under
th
e Sec
uriti
es Ac
t
of 19
33
,
as amended
,
a
n
d t
h
e r
ule
s a
nd
regu
l
at
i
o
n
s
th
er
e
u
nde
r, or any s
imi
lar
s
u
cce
ss
or s
tat
u
t
e (co
ll
ec
ti
ve
l
y
.
t
he
"
1933 Act
"
)
,
and
a
p
plicab
l
e sta
t
e
s
ec
uriti
e
s
laws.
NOW, THEREFORE,
i
n co
n
si
der
a
t
io
n
o
f
the prem
i
se
s
and the
mutual
cove
nan
ts con
tain
e
d herein
and
o
ther goo
d
a
n
d v
al
uab
l
e co
n
s
id
eratio
n
,
t
h
e
receipt a
nd
s
u
ffic
i
e
n
cy
o
f
wh
i
c
h
a
r
e hereby ac
kn
ow
l
e
d
ge
d
,
the
Co
mpany
and
the
B
u
ye
r
her
eby ag
ree
as fo
llo
ws:
1.
DEFINITIONS
As
u
se
d
in
thi
s Agreement
,
the
f
o
ll
ow
in
g
term
s s
hall
h
av
e
th
e fo
llo
w
in
g
m
ea
nin
g
s
:
(a)
"
EF
FE
CTIVENESS
DEADLINE
"
means
th
e
Init
ial
Effective
n
e
ss
Dead
l
i
ne o
r
a
Defici
e
n
cy
Eff
ect
ivene
ss
Dead
lin
e (e
ach
as
d
e
fined
be
l
ow), a
s
ap
pli
cab
l
e.
(b)
"
F
IL
ING DEADLINE
"
m
ea
n
s
th
e
In
i
t
ia
l
Fil
i
n
g
Deadlin
e o
r
a Defic
ie
nc
y
F
i
lin
g
Deadline (each
as
defin
e
d
be
low
)
,
as
applic
a
ble.
(c)
"
REG
I
S
TRATI
ON S
T
ATEMENT
'
mea
n
s a reg
i
s
tr
a
t
io
n
sta
tem
e
nt
o
r
r
egis
tr
a
ti
o
n
s
tatem
e
nts
o
f
the
Co
mp
a
n
y
filed und
er
th
e
19
33
Act
cov
erin
g
the
Re
g
i
s
trable
Secu
rit
ies.
(d)
"
INVESTO
R
"
mean
s
the
Buye
r
,
a
ny t
ran
sferee or
as
s
ig
n
e
e
t
he
r
eo
f
to whom
the Buyer
a
s
si
g
ns it
s
right
s
under
this
Agree
me
nt and
w
h
o
agre
e
s
t
o
be
co
m
e
bound by
the pr
ovis
i
o
n
s
of
thi
s Agreemen
t
i
n
acco
rdan
ce
w
ith Sec
ti
on
9 and
an
y
tr
a
n
sf
eree
or
assign
ee
there
of t
o whom a
tran
s
fe
ree or
assignee assign
s
it
s
right
s
under
t
h
i
s
Ag
r
eement
and
w
h
o agree
s
to bec
o
me
bo
und b
y
th
e
pr
ovision
s o
f
this
Agreeme
nt in accordance
w
it
h Section 9.
[Signa
ture Pag
e to
R
eg
istration Rights Agreement]
(e)
"
PERSON
"
me
a
n
s a
n
i
ndi
vid
ual
,
a
limit
e
d
liability co
m
pa
n
y
,
a partne
r
s
hi
p
,
a joi
n
t
venture, a
corpo
r
ation,
a
trus
t
,
an
unincorporated organ
iz
a
t
ion and
a
governmental
or an
y
department or agency thereof
.
(f)
"
REGISTER
," "
REG
I
STERED
,"
and
"
REGI
S
TRATI
O
N"
ref
e
r
t
o
a re
g
i
s
t
r
ation eff
e
cted
by preparing
and filin
g one o
r m
ore Reg
i
s
tr
atio
n
Statem
e
nt
s
(a
s
d
e
fined
be
l
ow)
in
com
pli
ance w
ith
the
1933
A
c
t
and
pur
s
u
ant to
R
u
l
e 415
u
nde
r
the 1
933 Act or any successo
r
ru
l
e
providin
g
f
o
r
offe
rin
g
sec
u
r
it
ies
on a
cont
inu
ous
or
d
elayed
ba
s
i
s (
"
RULE 4
1
5
"
)
,
a
nd the d
ecla
r
ation
or ord
e
ri
ng
of eff
e
ct
iv
e
ness
of s
uch Reg
i
s
tration
Statement(
s
)
b
y
the
U
nit
ed S
t
ates Se
c
u
rities
and Ex
c
h
a
n
ge
Commi
ssi
on (t
h
e
"SEC").
(g) "REGISTRA
BL
E
S
ECU
R
ITI
ES
"
means (i)
th
e
Wa
rr
a
nt
Share
s
i
ss
ued
o
r
i
ss
uable
up
o
n
exercise of
the Warrant
s
and (i
i
) any
shares
of capital
s
t
oc
k i
ss
ued
or
issuabl
e wit
h
r
espect t
o
the
Warra
nt
Share
s
a
n
d
t
h
e
Wa
rr
a
n
ts
a
s
a
r
e
s
u
lt
o
f
a
n
y s
t
ock
s
pli
t
,
s
tock d
i
v
i
d
e
nd
,
re
c
apit
a
li
za
tion
,
excha
n
ge o
r
s
i
m
ilar
event
or
ot
h
erwise
,
with
o
ut
r
egard
t
o
a
n
y
limit
atio
n
s
on
exerci
s
e
s
of
th
e
Warrants
;
prov
i
de
d
,
howe
ver,
that
any
s
uch
Regi
s
trable Securiti
es s
hall
cease
to
be
Regi
s
trable
Se
c
urities
w
h
en
(x)
a Regi
s
tratio
n
Statement w
ith
re
s
pect
to the
sa
l
e
of
s
uch
secur
iti
es
become
s
e
ffective und
e
r
t
h
e
1933
Act
a
nd
s
u
c
h
secu
rities ar
e
di
s
posed
o
f in
accordance w
i
th
s
uc
h
Re
gis
tration Stat
e
men
t
,
(y)
s
u
c
h
sec
u
r
i
ti
es ar
c so
ld in
a
cco
r
da
n
ce
wit
h
R
ul
e
1
44
(a
s
defined
in
Section
8)
o
r
(z)
suc
h
se
c
u
r
i
t
i
es
beco
m
e
t
ransfera
ble
w
i
t
h
ou
t
a
n
y
re
s
tricti
o
ns in accordance
with Rule
144(k)
(or
any
s
uc
cessor
provision)
.
(h)
"TRADING
DAY
"
mea
n
s
a
n
y da
y
on whic
h
th
e
Co
mmon
S
t
o
ck
i
s
trad
ed
on
the
p
r
i
n
ci
pal
s
ec
u
r
iti
es
exc
han
ge or
s
ecuri
ti
es
m
arket o
n
wh
i
c
h
the
Co
mm
on Stock
is then tr
a
ded
;
pro
v
i
ded
th
at
"
Trading Da
y" s
ha
l
l
n
o
t
incl
u
de a
n
y
da
y o
n
which
t
h
e Commo
n
Stock
i
s sc
h
edu
l
ed
t
o
tra
de
,
o
r
a
c
tu
ally
trade
s
o
n
s
uch
ex
chang
e or market
,
for
le
ss
than
4.5
h
ours.
C
apitali
zed
terms
u
sed
herein and
n
ot ot
herwise
defined
herein
s
h
a
ll
have the
re
s
pective
me
a
nin
gs
set fo
rth
in
the
Secu
r
i
ti
es
Pur
c
h
a
s
e Agreement.
2.
REGISTRATION
(a)
Man
datory
Regist
r
atio
n
.
The
Co
mp
any
s
hall prepa
re,
and
,
as
soo
n
a
s
pra
cticable
b
ut
in n
o
e
v
e
n
t
l
ater
than
120 d
ays
afte
r
t
he
Buyer
's
re
q
ues
t
(the
"
INITIAL
FILING
DEADLI
N
E
"),
fil
e
w
ith
the
SEC
the Regi
s
t
rat
i
o
n
Sta
t
emen
t
o
n
Fo
rm
S-3, cove
ri
ng
the re
s
a
l
e of a
ll
o
f
t
h
e
Re
g
i
s
trable Securitie
s;
provided
,
h
owever,
that
the B
u
yer
's
request shall not be
made unle
ss
the Company
's
Commo
n
Stock i
s
re
g
i
ste
red
und
e
r
Sec
ti
o
n
1
2 of
the
19
34 Act (as
d
efined
in
Sec
ti
o
n
3(
b))
.
In
the
event
th
a
t
Form S-3
i
s
u
nava
il
able for
s
u
c
h
a
regi
s
trati
o
n, the
Com
pa
n
y
sha
ll
u
s
e
s
u
c
h
other for
m
as
is
avai
l
ab
l
e
f
o
r
s
u
ch
a
r
egi
s
t
ra
ti
o
n
,
s
u
bject t
o
th
e
p
rov
i
s
i
ons of Sectio
n
2(
d)
.
Th
e
Regist
r
atio
n
State
m
ent
pr
e
p
ared
p
u
r
sua
n
t
h
ereto
sha
l
l
register
f
or resale
Re
g
i
s
t
rable
Securitie
s
co
n
s
i
s
tin
g of
a
t least t
h
at
n
u
mbe
r
of
s
hares of Commo
n
Stock
equa
l
to 110
% o
f
the
nu
m
ber
of
Warra
n
t
S
h
are
s
i
ss
uab
l
e upon
exerc
i
s
e
of a
ll
the o
ut
s
tanding
Warrant
s
as
of
th
e
se
co
nd
Trading
Day
imm
ediate
l
y
precedin
g
the date
t
h
at the
Regi
s
tration
Statement is initiall
y
filed with the
SEC.
The
ca
lculation
s set
f
o
rt
h
in thi
s
pa
r
agrap
h
s
hall
be made with
ou
t
regard
to
a
n
y
lim
ita
ti
o
n
s
o
n
th
e
exercise
o
f
the
Warrant
s
a
n
d
s
u
c
h
ca
lcu
lat
ion
sha
ll
a
ss
um
e t
h
at
t
h
e Warrants
are
t
h
en
exerc
isable int
o s
hares
of
Co
m
m
o
n
Stock
at
t
he
then-pr
evai
li
ng
Warrant E
x
e
r
cise
P
r
ice (a
s
define
d
in
the Warrants). The
Co
mpan
y
s
h
a
ll
use it
s
be
s
t efforts to
ha
ve
the Regi
s
tration Statement
d
ec
l
are
d effective
by
the
SEC a
s so
o
n
as
pr
act
i
ca
ble
after
s
u
c
h filin
g (t
h
e
"
I
NI
TI
AL
EFFECT
I
VENESS DEADLINE
")
.
(b)
A
ll
oc
ation
of
Reg
i
s
trable
Sec
uriti
es
. The
i
nitia
l
nu
m
b
er o
f Re
g
i
s
trab
l
e Securities
includ
ed
in
a
n
y
Re
g
i
s
tratio
n
Statem
e
nt
a
nd ea
c
h
in
crease
in
th
e
number
of Regi
s
t
r
ab
le
Se
c
urities
includ
e
d therein
s
h
a
ll
be allo
cated
pro
rat
a among
the In
ve
s
t
o
r
s
based
o
n
t
h
e
number
of
s
u
c
h Re
gi
s
trab
l
e Se
cu
ritie
s
h
eld b
y
each
Inve
stor
at t
he
time the Registrati
on
Sta
teme
nt cover
in
g s
u
c
h
i
nitia
l
nu
mber
o
f
Re
g
i
st
rab
l
e
Se
c
ur
i
t
ies o
r in
c
re
ase
t
h
e
reof
is
d
ec
l
ared effe
c
ti
ve
b
y
t
h
e
SEC.
I
n
t
he
eve
n
t th
a
t
an
In
v
e
s
t
o
r
se
ll
s
or otherw
i
se
tran
s
fers any
of
suc
h
In
ves
t
o
r
's
Registrable
Secu
ritie
s,
each tran
s
feree
sha
ll
be a
l
located
a
p
ro
rata
p
o
rtion
of
th
e
then
remaining
nu
mber
of
Registrab
l
e
Sec
uritie
s
includ
ed
in
s
u
c
h
R
egis
tration
Statement for
s
u
c
h
transfer
o
r
.
A
n
y
s
ha
re
s
of
C
ommon
Stock
inclu
ded
in
a
Regi
s
trati
o
n
S
tatement
an
d
which remain all
ocat
ed
to
a
n
y
Per
so
n wh
ic
h
ce
a
s
es to hold an
y
Regi
s
t
rable
Securitie
s
covered by
s
u
c
h
Reg
i
st
ration
Sta
t
em
en
t
s
h
a
ll
be
a
ll
ocate
d
to
t
h
e
re
m
aini
n
g
In
ves
t
ors, pro
r
ata based
o
n
t
h
e
n
um
ber of
R
egis
tr
a
b
l
e
Secu
riti
es
then h
e
l
d by s
u
c
h
Inv
estors
which are covered by
s
u
c
h
Regist
r
atio
n
Statement.
For
purposes hereof,
t
he
n
u
m
ber
of
Registrable
Securities
held
by an
Inve
stor
i
n
clu
d
es
a
ll
Reg
i
st
r
ab
l
e Secu
ri
ties
i
ss
uable upon
exercise of Warran
t
s
h
eld by s
uch In
vestor, w
i
thout regard
to
a
n
y
limitation
on the exercise of the Warrants.
(c)
Lega
l
Cou
n
se
l
.
S
ubj
ect
t
o
Sect
i
on
5
hereof, t
h
e
I
nves
t
ors
h
ol
ding
securit
ie
s
representing at least
tw
o-t
h
ir
d
s (2/3)
of
t
h
e
Regi
st
rable
Sec
u
rit
i
es
s
hall
h
ave the r
i
g
h
t to
se
l
ect
o
n
e
l
ega
l
co
unsel to
review
and
oversee any offering
pursuant to this
Section 2 ("LEGAL
COUNSE
L
"),
which s
h
a
ll
be
designated in
w
ritin
g
to
t
h
e Company by
the
In
vesto
r h
o
lde
rs of at
lea
s
t
two-thirds (2
/3) of
the Reg
istrable
Securities.
The
Compa
n
y
shall reasonably cooperate with Lega
l
Counse
l
in
performing t
h
e Compa
n
y's
obligations
und
er
th
is
Agreement.
(d)
Ineligibility
fo
r
Form S-3
.
In
the
eve
nt
that Fo
rm
S-3 is
n
ot
available
for
the
registra
ti
on of the
resale
of Registrable
Sec
urities
h
ereunder,
th
e Compa
n
y s
hall
undertake
t
o
regi
ste
r
the Reg
i
strab
l
e
Secu
ritie
s
on Form S-3 as
soo
n
as
suc
h
form is ava
i
lable
,
provided that
the
Co
m
pany
sha
ll
ma
int
ain
the
effectiveness of t
h
e
Reg
i
s
t
rat
i
on S
tatement t
he
n
i
n
effe
c
t until
s
u
ch
t
ime
as a
Reg
istrat
i
on Stateme
n
t on
Form
S-3 cove
r
ing t
h
e Regis
tr
able
Secu
ritie
s
h
as
bee
n
declared
effe
ctive
by the SEC.
(e)
S
u
fficient
Nu
mber of
Shares
Registered
.
In the
event t
h
e
number
of s
h
ares
o
f
Co
m
mon Stock availab
l
e under t
h
e
In
itia
l
Regi
stratio
n
Statement
filed
p
ursuant to Section 2(a)(
i
)
i
s
i
nsuffic
i
en
t
to cove
r
a
ll
of
th
e
Initial
Reg
i
s
tr
ab
l
e Securit
i
es required to be covered
by
t
h
e
Ini
tial Registration Statement o
r
an
In
vesto
r
's
allocated portion of the
Initial
Regist
r
a
b
le Secu
r
ities pursuant to Sect
i
o
n
2(b),
th
e
Co
mpany
s
h
a
ll
,
as soo
n
as
practicable
,
but
in
a
n
y
event
n
ot
l
ate
r than 1
5
days after the fir
s
t
date
on
w
hi
c
h
the
number of
s
hares
available
under
the
I
nitial Registration Sta
t
e
ment
i
s so
insufficient
(the
"
DEF
I
C
IENCY
FILING DEADLINE")
,
ame
n
d the
Ini
tia
l
Regi
stration
Sta
t
ement, or
file
a
new
Registration S
t
atement (o
n
t
h
e
s
h
ort
f
o
rm
ava
i
lable
t
herefo
r
,
if
appli
cab
l
e), o
r
both,
so
that
th
ere
a
r
e registered for
re
sa
l
e
In
i
tial
Regist
r
able Securities
co
n
s
i
sting of at
l
east that n
um
ber of
s
hares
of Common S
t
ock eq
ual
to
110
%
of
the num
ber of
Initial
Wa
rr
a
nt
S
h
a
r
es
i
ss
uable
upon
exerc
i
se of a
ll
the
o
ut
sta
ndin
g Initial Warrants
as
of t
h
e
second
Trading Day
immedi
ate
l
y
preceding
t
h
e date
of
the
filing
of
the amendme
nt
or new Registration
Statemen
t
wi
th
t
h
e SEC. The
Co
m
pa
n
y sha
ll
use
i
ts best efforts
t
o cause suc
h
amendme
nt
and/o
r n
ew Regist
r
at
i
o
n
Statement to become effec
ti
ve as
soon
as practicab
l
e, but
in
a
n
y
event not
lat
e
r
than
75
day
s
following
th
e app
l
icable Deficiency F
il
ing Dead
lin
e (the
"
DEFICIEN
CY
EFFECTIV
E
NESS DEADLINE"). F
or purp
oses
o
f th
e forego
ing
provi
s
ion
,
th
e
numb
e
r
of
s
h
a
r
es of Common S
t
ock ava
i
lab
l
e
under
the
Initial Regi
st
ration
Statement shall
be
deemed "i
n
sufficie
nt
to
cover a
ll
of
th
e
Initi
al
Re
g
i
stra
ble
Securities" if as of a
n
y
date of determinatio
n
,
the nu
mb
e
r
o
f
sha
r
es of
Co
m
mon Stock
eq
u
al
to
100%
o
f the
number of Init
i
al Warrant Shares
i
ss
u
ab
l
e as of
s
uch
time upon exercise
of
all
the
outsta
n
d
in
g
Initial
Wa
rrant
s
is grea
ter
than the number
of sha
res
of
Co
mmon
Stock ava
il
ab
l
e for
re
sa
le under the
Initi
a
l
Regist
ration
Stateme
nt. Th
e ca
l
c
ul
a
tion
s
set
fort
h
in
thi
s
paragraph
s
h
a
ll
be
mad
e wi
th
o
ut
regard to any
limi
tations on the
exercis
e
of
the Initial
Warrants.
(f) Effect of Failu
r
e
to File
a
n
d Obtain and Maintain
Effectiveness o
f R
eg
i
s
tration
Stateme
nt.
(i) If (i) a Registration Statement coveri
n
g all
the Regi
strab
le
Secu
r
i
tie
s
a
n
d required to
b
e fi
l
ed
by
t
h
e
Compa
n
y
p
u
rs
u
ant
to
Sectio
n
2(a) of th
i
s Agree
men
t
i
s
not
(A)
filed wit
h
the SEC on
o
r before
the appl
i
cable Fi
l
ing Dead
l
ine
o
r
(B) declared effect
i
ve by
th
e SEC
on
or
before the applicable
Effect
iv
e
n
ess De
adlin
e or (ii)
on any
day after
th
e
Reg
i
stratio
n
S
tatement ha
s
bee
n
declared
effective by the SEC
sa
l
es of
all
t
h
e Registrab
l
e Sec
uriti
es
r
eq
uired
t
o be inclu
ded
o
n
s
uch Reg
istration
Stateme
n
t
ca
n
not
b
e
made
(other than
during
an A
l
lowable Grace
Period
(as defined in
Sectio
n
3(s))
pur
s
uant
t
o
the
Registration Statement (including
becau
se
of
a failure
to
keep
the
Registration
State
ment
effec
tive
,
to disclose
suc
h inf
ormat
ion
as i
s
ne
cessary
for sales to be made pursuant to the
Registration Statement or to
regi
ste
r
s
uffi
cient shares of Common Stock
as determined in
accordance with Sect
i
on 2(e),
then
,
as
partial
re
l
ief for t
h
e
damages to
a
n
y
holder
of
the
Warra
n
ts
by rea
so
n
of any
s
u
ch de
l
ay
in
or reductio
n
of
its ability to
se
ll
the underlying
s
hares
of
Co
mmon
Stock (which
remedy
s
hall not
be exclusive of
any
other
remedie
s
available
at
law
or
in
equ
ity)
,
the
Co
mpan
y sha
ll p
ay
to
suc
h h
o
l
de
r
an
amount
in
cas
h
equal t
o
the
product
of (i)
t
he total Aggregate Exerc
i
se
Price (as defined in
the
Warrants) of all
Warrant
s
h
eld
by
such
holder and
t
o w
hi
ch
the Regi
st
ration
S
t
ate
m
ent
relat
es,
m
u
ltipl
ied by (
ii
) the
s
um
o
f
(A)
0.02
,
if the Regi
st
ration
Statement
i
s
not filed by
the app
li
cable
Filing
Dead
l
i
n
e, plus (B) 0.02, if
the
Registration Statement
is
n
ot dec
l
ared
effective by the applicable
Effectiveness
Deadline, plus
(C)
the product
of (
I
) 0.000667 m
ult
ipl
i
ed by (II)
the
s
um
(without
dupli
ca
ti
o
n)
of (x) the number
of
days after the app
l
icable Fil
i
ng Dead
li
ne
that
such Registration Statement
i
s
n
ot filed w
it
h the SEC,
plu
s
(y) t
h
e
number
of days
after the
app
li
cab
l
e Effectiveness
Deadline that
such Registratio
n
Statement is not declared
effective by t
he
SEC, p
lu
s (z)
the
num
b
er of
days
after
suc
h Regi
stra
tion
Statement
h
as been
declared
effective by
the
SEC
that
s
u
c
h Regi
s
tr
atio
n
S
t
ateme
n
t
i
s
not
available (ot
h
er
than during an
Allowab
l
e Grace
Period) f
o
r
the
sale
of at
lea
st
a
ll
th
e
Regis
tr
ab
l
e Securi
ti
es
required
to be
in
cluded and maintained on
s
u
c
h
Reg
is
tration
S
tatement pursuant to
Sect
ion
2(e).
(ii) Th
e
payment
s
to w
h
ich a
h
o
ld
er
s
hall
be e
ntitl
ed
pursuant to this
Sect
i
on
2(f)
are
referred
t
o
herein as
"
REGIS
T
RAT
I
ON
DELAY
P
AYMENTS." Registration Delay Pay
ment
s
s
hall
b
e
paid
on
th
e ear
lier
of (I)
the
l
ast
day of the
ca
lend
ar
month
during
which
s
u
ch Registration Delay Payments are
incurred
and (II)
the
third
Busine
ss
Day after the event or
failure
giv
in
g r
i
se
to the
Reg
i
s
t
ratio
n
Delay
Pa
y
ments
i
s
c
ured.
I
n
th
e event
the
Com
pan
y
fa
i
ls
t
o
mak
e Registration De
l
ay
Pa
y
ments
in a
timely
manner, suc
h
Registrati
o
n Dela
y
Payments
s
hall
bear interest
at
the rate of t
h
e
l
esser of
1.5% per month (prorated for partial
month
s)
or the highest
la
wfu
l maximum inter
est rate,
in
each
case, until
paid
in full.
3.
RELATED OBLIGATIONS
At
suc
h
time as the Company is obligated,
to
file a
Registrati
o
n
Statement wit
h
the
SEC pursuant
to
Sec
ti
o
n
2(a)
,
t
h
e Company w
il
l
u
se
its
be
st
efforts to effect t
h
e registrat
i
on of t
h
e
Regi
s
trable
Secur
i
ties
in
accordance with
the intended m
e
thod
of
d
ispo
sition there
o
f
and, pursuant thereto,
the
Compa
n
y sha
ll
have
the
f
o
ll
owing ob
li
ga
ti
ons:
(a) The Co
m
pany
s
hall
pro
m
p
tl
y p
r
epare a
n
d file with t
h
e
SEC
a
Re
gis
tr
a
tion
Stateme
n
t wit
h
respect
to
the
applica
bl
e Registrable
Secur
ities
(but
in
no
event
later than
the applicable F
ilin
g
Deadline) and u
se
it
s
be
s
t
effo
rt
s
to
ca
u
se suc
h
Registration
Sta
tem
ent
relating t
o
the Regi
s
trable
Secu
riti
es to
becom
e
effect
i
ve as soo
n
as
practicabl
e
afte
r
suc
h
fi
l
ing (but in no event
later than
the app
l
icable Effectiveness
Deadline). The
Co
mpa
ny
s
h
a
ll k
eep eac
h
Regi
s
tration
Sta
t
e
m
en
t
effective
pursuant to
Rule 415 at all
time
s
until the
earlier of (i) the date as
of
which
th
e
Investor
s
may
sell all
of
the Registrable Sec
uriti
es
cove
red
by
s
uch Regi
s
tration
Stateme
nt
witho
ut restri
ction
pursuant to Rule 144(d)
(o
r
s
ucce
ssor
theret
o) p
romulgated under the
1
933 Act or (ii) t
h
e date on which the
Inv
estors
s
hall have
so
l
d all
the Re
g
i
st
rable
Secur
i
ties cove
r
ed
b
y
suc
h Registration
Stateme
n
t (the
"
REG
I
STRATION
PERIOD
"
). Suc
h
Re
g
i
strat
ion
Statement (incl
udin
g any
amendments
or supp
lem
ents
thereto
and
pro
spec
tuses
co
ntained
therein) shall
not contain any
unt
rue statement of
a
material fact
or omit
to
state a
material fact required
t
o
be stated
therein
,
or
necessary
to make
the
s
tatement
s
there
in
,
in
light of
the
c
ircumst
ances
in
which they were
m
ade, not
mi
s
l
eading.
The term
"bes
t
efforts"
sha
l
l mean, among ot
h
er
thing
s,
t
h
at the
Co
mpany
sha
ll
submit
to
t
he
SE
C
,
within two (2)
Busine
ss
Days aft
e
r the
Compa
n
y
learn
s
that
no
review
of a particu
l
ar
Registrati
o
n
Statement wi
ll
be made by the
s
taff
of the SEC or that
the
staff
ha
s
n
o further
comme
n
ts on
the
Regi
s
tration
Statemen
t
,
as t
h
e c
a
se
m
ay
be,
a
r
equest
for
acceleratio
n
of effective
n
ess of
s
uch
Re
g
i
s
tr
a
tion
S
tatem
e
nt
to
a time
and d
ate
n
ot
l
a
ter
than 48
h
o
ur
s
after the
s
ubmi
ss
i
on of s
uch r
eq
uest.
(b) T
h
e Compa
n
y sha
ll
p
r
epare and fi
l
e wit
h
t
h
e SEC
suc
h amendments
(incl
udin
g post-effective
amendments) and
s
upplem
ents
to a
Reg
i
st
ration
Statement and the
pro
spec
tus u
se
d
in
connect
ion
with
such
Registration
Stateme
nt
, wh
i
c
h pro
spect
u
s
i
s
to
be
filed pur
s
uant
to
Rule 424
p
r
om
ul
gated
u
nder the 1933 Act, as may
be
necessary to
keep
suc
h
Regis
tr
ation S
tat
ement effective at
all
times during
the
Registrat
i
o
n
Peri
o
d
,
and
,
dur
i
ng suc
h
pe
ri
od, co
m
p
l
y
w
it
h
t
he prov
i
sio
n
s
of
t
he 1933 Act wit
h re
spect
to the disposition
of a
ll
Regi
s
trable Securities
of
the
Co
mpany
cove
red
by
s
u
c
h
Registration
Stateme
nt
until
suc
h
time
as
a
ll
of s
u
c
h
Registrab
le
Securi
tie
s
s
hall
ha
ve
been
disp
osed of
in
accordance with t
h
e intended methods of disposi
t
ion
b
y
the
selle
r
or
se
ll
ers thereo
f
as
set
forth
i
n
suc
h
Registratio
n
State
m
ent. In the case of
amendments
and
s
upplement
s
to a
Regi
st
r
ation Statement wh
i
ch are requ
i
red to be
filed
pur
s
uant to
thi
s Agree
ment
(inc
ludin
g purs
uant
to thi
s
Sectio
n
3(b)
by rea
so
n
of
the
Co
mpan
y
filing
a
report
o
n
Form
10-K
,
For
m 10-Q
or
Form
8
-
K or
any
ana
l
ogo
u
s report
under
the Sec
u
rities Exc
h
ange Ac
t
of
1
934, as amen
d
ed (the "
1
934 Act
"
), t
h
e
Co
m
pa
n
y sha
l
l
h
ave
in
corpo
r
ated
s
u
c
h
report b
y
r
eference into the Registration Stateme
nt
,
if appli
cab
le
, o
r
sha
ll
file
s
u
ch ame
nd
ments or s
u
pplemen
t
s with the SEC
o
n
the
sa
m
e
da
y on w
hi
c
h
the 1
934 Act repo
rt i
s
fil
ed w
hich
create
d the r
equ
ir
e
m
e
nt
fo
r
the
Company
t
o amend
or
s
upplement
the
R
egist
r
ation S
t
ateme
nt.
(c) The Company
s
hall
(A) permit Legal Counse
l
to
rev
i
ew a
n
d com
m
en
t
upon (i) the
Reg
i
st
ra
t
i
on S
tatem
ent
at
lea
st
five (5) Bu
s
in
ess
Day
s
prior t
o
it
s
filing
w
ith
the
SEC a
nd
all
amendments and suppleme
nt
s
t
o
a
ll R
egistrat
i
o
n
State
m
ents (except fo
r
An
nu
a
l R
eports o
n F
orm 10
-K
,
Q
u
arte
rl
y
Repo
rt
s o
n
Form
10
-Q an
d
Cu
r
re
n
t Reports
o
n
Form
8-K an
d
a
n
y sim
i
la
r
o
r
successo
r
reports) within a reasonab
l
e number of
da
ys
prior
to t
h
eir
filin
g
w
it
h t
h
e SEC, a
n
d (8)
not
fi
l
e any
document,
reg
i
s
trati
on
s
tatement
,
a
mendm
e
n
t or s
uppl
eme
nt de
sc
rib
ed
in th
e
foregoing clause
(A)
in
a
form
t
o w
hi
c
h
Legal Counse
l
rea
so
nabl
y
objects. T
h
e
Co
m
pany
sha
ll
not
s
u
bmit
a reque
st
for acce
l
eratio
n
of
the effec
ti
ve
n
ess of a Registrat
i
on Statemen
t
or a
n
y ame
n
dme
n
t o
r
su
pplement
t
hereto wit
h
out
pro
v
iding prior
not
i
ce
ther
eof
to Legal
Cou
nsel
and eac
h
Inve
s
tor.
The
Co
mp
any
sha
ll
furni
sh
to Legal
Counsel, without c
harge
, (i) p
r
om
ptl
y afte
r the
same
i
s
prepared
and
filed with
t
h
e S
E
C, one
copy
of a
n
y
Re
gis
tr
atio
n
Statement and
any
amendment(s) t
her
eto
,
including
financial
statements and sc
he
dules,
all documents
in
corpora
t
ed
therein
by
refere
n
ce
t
hat
ha
ve
not
been
fi
l
ed via EDGAR, and a
ll
exhibits an
d
(i
i
)
u
po
n
t
h
e effec
ti
veness of
any
Registration
S
tatement
,
one copy
o
f
th
e
pr
ospec
tu
s included
in
s
u
c
h Regi
strat
i
on
Sta
tement
a
nd
all amendments
and s
uppl
e
m
e
nt
s
ther
eto.
The
Compa
n
y s
h
a
ll r
easo
n
ab
l
y coo
perat
e w
ith
Lega
l
Cou
n
se
l
i
n
performing
th
e Co
m
pany
's
ob
li
gatio
n
s
pursuant
to
this
Section 3.
(d) The Co
m
pany sha
ll
furn
i
s
h
t
o
each Investor
whose
Regi
strab
le
Securities are
in
c
lu
ded
in
any Regi
s
tration
Statem
ent
,
witho
ut
c
h
arge, (i)
pr
ompt
l
y
after
the
sa
me i
s
prepared
a
nd filed
wit
h t
he SEC
,
at least
o
ne
co
p
y of s
u
ch
Regi
st
ra
t
i
o
n
Statement
and
a
n
y amendment(s) t
h
ereto, including
financial
stateme
nt
s
a
n
d
sc
hedule
s,
all
docu
men
ts
in
corporate
d
the
re
in
by refere
n
ce
th
at
h
ave
no
t
bee
n
fi
l
ed via EDGAR, al
l
exhibits
an
d
each
preliminary prospectus
,
(i
i
)
up
o
n the effectiveness
of any
Regi
s
tration
Statement, te
n
(
10)
copies o
f
the
prospect
u
s
included in
s
u
c
h
Regi
s
tration
Stateme
nt
a
n
d a
ll am
e
ndm
e
nt
s an
d
su
p
plemen
t
s t
h
e
r
eto (or such
o
ther
n
um
be
r
of copies as s
u
ch Investor
ma
y
reasonably
reque
s
t
) and (i
ii
)
suc
h
other documents
,
i
n
cludi
n
g cop
i
es
of
a
n
y
preliminary
o
r
final prospect
u
s,
as
s
u
ch
In
ves
t
o
r
may reasonab
l
y
r
e
que
st
fr
o
m
time to
time
in
o
r
der
to facilitate
th
e dispos
iti
on of
the Regi
st
r
ab
l
e Secu
riti
es ow
n
ed
by
s
uch Invest
or.
(e) T
h
e
Co
m
pany
s
hall u
se
it
s
best
effo
rt
s
t
o (i) reg
i
s
ter
and qua
li
fy,
u
n
l
ess
an
exe
mpti
o
n
fro
m re
gistratio
n
and qualification
appli
es, t
h
e
re
sa
l
e
by the Investors
of
the Regi
st
rable
Sec
uritie
s
covered
by
a Registration Statement
under the
sec
uritie
s or "
blue
sky"
laws
of a
ll
the
states of
the
United
S
tates
,
(ii)
prep
a
r
e and
file
in
those
ju
risdic
ti
ons,
s
uch
a
m
endments
(
includin
g
p
os
t
-effec
ti
ve ame
n
d
m
e
n
ts)
an
d
s
u
pplements
t
o
such
registrat
i
o
n
s a
n
d
q
u
alifica
ti
ons
as
m
ay
be
n
ecessary
to
m
ainta
i
n t
h
e effect
i
ve
n
ess thereof
durin
g
th
e Registration Period, (
iii
)
take
such o
th
er
actions as may be necessary
to
m
a
int
a
in
s
uch
reg
i
s
trati
ons
a
nd
qualification
s
in
eff
ec
t at all
times
duri
ng
the
Regis
trati
o
n Period
,
and (
i
v)
take
a
ll
ot
h
er
actio
n
s reasonab
l
y
ne
cessary o
r
a
d
v
i
sable
t
o
qu
a
l
ify
the
Reg
i
st
rabl
e Secu
r
ities
for
sa
l
e i
n
s
uch
jurisdictions; provided,
h
ow
ever
,
that
t
he
Compa
n
y s
h
all not
be
required in connection
therewit
h or
as a condition
ther
eto
to (x)
qua
lify t
o do
bu
s
in
ess
in
an
y
ju
risdi
c
ti
o
n where
it
wo
ul
d
not otherwise be required
to q
u
a
li
fy
but
fo
r
t
hi
s Sec
tion
3(e) or (y) su
bject
i
tse
l
f to general taxat
i
on
in
any such j
u
risdiction. The Company
s
h
a
ll
prompt
l
y
notify Legal Counsel a
n
d eac
h I
nvestor who
h
o
ld
s
Registrab
l
e Sec
u
rities
o
f
t
h
e
receipt by the
Co
mpan
y
of
a
ny
n
o
tification
wit
h
re
spe
ct
t
o
the
s
uspen
s
i
o
n
o
f t
he regis
trati
o
n
or
qu
a
li
fica
ti
o
n
of any
of
the
Registrab
l
e
Secur
i
ties for
sa
l
e
under the
sec
uritie
s or
"blue
sky"
law
s
of
a
ny
jurisdict
i
on
in the
Un
i
ted
S
tate
s or
its
re
ce
ip
t
of
actua
l
notice of
th
e
initiati
o
n
o
r th
reate
nin
g
of a
n
y
proceed
in
g fo
r
s
u
c
h purp
ose.
(f) T
h
e Com
p
a
n
y s
h
a
ll n
o
tify L
ega
l
Cou
n
se
l
and
eac
h
In
vestor i
n
wr
i
ti
n
g
of t
h
e
happenin
g of
a
n
y event,
as pr
o
mptl
y as
practi
cab
le after b
eco
min
g
aware
of suc
h
event, as a result
of
which
the pro
spec
tus included in
a Reg
i
st
r
ation
Stat
e
ment
,
as
then
in
effect,
includes an
untrue
state
m
e
nt
of
a
mater
i
a
l
fact
o
r
om
i
ss
i
o
n
t
o state
a
m
a
t
er
i
a
l
fa
c
t
requ
ir
ed
t
o be stated
t
herei
n
or
n
ecessary to
m
ake
t
he
s
tatem
e
nt
s
therein
,
in li
ght
of t
h
e circumstances under which
t
hey
were
made,
not mis
l
eading
(
pro
vided
that
in
n
o
eve
nt
s
h
a
ll
such
notice
co
ntain any
mat
eria
l
,
nonpubli
c
in
for
mati
on)
,
a
nd
pr
o
mptly pr
e
pare
a
su
p
p
l
eme
n
t o
r
amend
m
e
n
t
to
s
u
c
h
Reg
i
s
t
ratio
n
S
t
ateme
n
t
t
o corre
ct
s
u
c
h
un
tru
e
s
tatement
or
omission,
an
d
deli
ver
t
e
n
(
1
0)
co
pies
of su
ch
supp
l
e
me
nt
or
amendme
n
t
t
o
Legal Counsel and each
In
vestor
(o
r
suc
h
ot
h
er
numb
e
r
o
f
copie
s
as
Lega
l
Counse
lor
such
Inv
estor
ma
y
rea
so
nabl
y
req
u
est). T
he
Com
pany
s
hall also
promptly
noti
fy L
egal
Counse
l
and
each
I
nvestor in writi
n
g (i) whe
n
a
p
r
ospec
t
us
or
any prospect
u
s s
uppl
eme
nt
o
r
p
os
t-e
ffec
tive
amend
m
e
n
t
h
as
been
filed
,
and w
h
e
n
a Registratio
n
State
m
e
n
t
or
any
post-effective
a
mendment
ha
s
be
co
me
effe
ct
i
ve
(n
o
tification
of s
u
ch effec
ti
veness shall be delivered to Lega
l
Co
un
se
l
and each
Invest
or
by facsimile
o
n
the
sam
e
day
of s
uch
ef
fectivene
ss
and
by
ove
rni
g
ht
mail
), (ii) of
any
r
eques
t
b
y t
h
e S
E
C
for amendmen
t
s or s
u
p
pl
ements to
a
Regist
r
at
i
on S
t
a
t
e
m
ent
o
r
re
l
a
t
ed
pro
spect
us
or related
in
format
i
on,
a
nd (iii
) of
the Compa
n
y's
reasonable
determin
a
tion
that a
post-
effect
i
ve
ame
n
dment to a Registratio
n
Statement
wou
ld
be
app
r
op
riat
e
.
(g) The Co
m
pany s
h
a
ll
use
it
s
best efforts to
pre
vent
the
issuance
of any stop
o
rd
er
or o
ther
suspe
n
s
i
on of
eff
e
ctivene
ss of
a
Regi
s
tration
S
t
ateme
nt
, o
r the
s
u
s
pension
of
the qualifi
c
ation
of
a
ny of
t
h
e Reg
i
st
rab
le
Sec
ur
it
i
es
fo
r
sa
l
e
i
n any
juri
sd
icti
o
n
a
n
d
,
i
f s
u
c
h
an
o
r
der
o
r
suspensio
n
is issued, to obtain the
w
ithdrawal
of s
u
ch
or
d
er
o
r
s
u
spe
n
s
i
on
at the
ea
rlie
st poss
ible
moment a
n
d
to
n
ot
i
fy Lega
l
Co
un
se
l
an
d
each Invest
or
w
h
o
h
o
l
ds
Regi
s
trable Securities being
so
ld
o
f
th
e i
ss
uance
of
s
u
ch o
rd
er a
nd
the r
eso
l
u
ti
o
n ther
eof
or
i
ts
rece
ip
t
of
actu
al
notice o
f
th
e ini
tiati
on o
r
t
hre
at
of
any proceeding for such purpose.
(h) At t
h
e
rea
so
nable
request
(
in
t
he
context
of the
sec
uriti
es
la
ws)
of
any Investor
,
the
Company sha
ll
fu
rni
s
h
to such
In
vestor, o
n th
e
date of t
h
e
effectiveness
of
the Re
gis
tration
Sta
t
eme
n
t a
n
d
t
h
e
r
ea
fte
r
fro
m
t
im
e
to
t
ime
o
n
s
u
ch
dates as an
In
v
e
stor
may
rea
s
o
n
ably
req
u
est
(i)
a
l
etter
,
dated
s
uch dat
e,
fro
m
th
e Co
mpan
y's
independent
certified
publi
c
ac
co
untant
s
in fo
rm
a
n
d
s
ubstan
ce
as
i
s
customarily g
i
ven by
ind
epe
ndent
certified
publi
c acco
un
tan
t
s
to
und
e
rwriter
s
in
a
n
underwritten
pub
li
c
offe
r
i
n
g
,
add
r
e
s
se
d t
o
t
h
e
In
v
e
stors,
a
n
d (i
i
) a
n
op
in
io
n
,
dated
as o
f
s
uch
da
t
e
,
o
f
co
u
nse
l r
epresenti
n
g
the
Company
for
purp
os
e
s of su
ch Re
g
i
s
trati
on State
m
ent
,
in
form
, s
co
pe
a
n
d
su
b
s
tan
ce
as
i
s c
u
stoma
r
ily given
in
an
und
erwr
itt
e
n
public
offer
in
g,
addressed
t
o
the
In
ves
t
ors; provi
d
ed
that
s
u
c
h Invest
o
r
s
hall r
eimb
ur
se
the
Com
pan
y for
it
s o
u
t
-
o
f-po
c
ket
expenses
inc
ur
red
i
n co
n
nec
ti
o
n
wi
th
t
h
e furnis
h
ing
of
a
n
y suc
h l
etter and
op
ini
o
n.
(i) At
the
reasonable request (in
the
context
o
f th
e s
ecuritie
s
la
ws)
o
f an
y
In
vestor,
t
h
e Co
mpan
y
s
h
all
m
a
k
e
a
va
il
a
ble f
o
r i
nspec
ti
o
n
d
u
ring
reg
ular
b
u
sin
e
ss
h
o
u
rs
b
y
(i)
a
ny
Inv
estor, (ii)
Leg
al
Coun
s
el and
(
iii
)
on
e
firm
of
acco
untant
s
or
o
th
e
r
age
nt
s
retained by
the In
vestors
(co
ll
ect
i
ve
l
y,
th
e "
I
NSPECTORS
"),
all
pert
i
nent
financial
a
nd
oth
e
r
recor
ds
,
an
d
pert
inent
co
rporate d
oc
u
me
n
ts
a
n
d pro
perti
es o
f the
Co
mpa
ny
(co
llecti
ve
l
y,
t
he
"
RECORDS
"
)
,
as
s
h
a
ll
be
r
easo
na
bly
d
ee
med
ne
ce
ssa
ry by
eac
h
In
spec
t
o
r
,
and
ca
u
se
the
Co
mp
a
n
y's o
ffi
cers,
directors and
emp
l
oyees
t
o supp
l
y
all information
whic
h
any
In
s
pect
or
may
re
aso
nabl
y
request;
prov
ided
,
h
ow
ever
,
that
each
In
specto
r
s
hall
ag
ree t
o
h
old
in
str
i
c
t
confi
den
ce a
nd
sha
ll n
o
t
ma
ke
any di
sc
losure
(excep
t t
o an
In
vesto
r)
or
u
se
of
a
n
y
Re
co
rd
o
r
o
the
r i
n
formation which t
he
Company
determ
in
e
s
i
n
goo
d
fai
th
t
o
b
e co
nfidenti
a
l
,
and
of w
h
ic
h determination the Inspe
c
t
o
r
s
ar
c
so
notified
,
unles
s (a)
the
di
sc
l
os
ure
of s
uch R
eco
rds i
s
n
ecessary
t
o
avoid
o
r
correc
t a
mi
ss
tate
m
e
n
t
o
r
om
i
ssio
n
in
an
y
Registration Statement
or
i
s
o
ther
w
i
se
required under
t
h
e 1
933
Act
,
(b) t
h
e
rel
ease of such
Re
co
rd
s
is
o
r
dere
d pur
s
ua
n
t
t
o a
fina
l
,
no
n-appealab
le
s
u
b
p
oena o
r
or
d
er
from a
court
or gove
rnm
en
t
bod
y o
f competent juri
s
diction
,
o
r (c
)
the
in
formation
in
s
u
c
h
Record
s
has b
een
made generall
y
av
a
il
able
to
th
e
pub
l
ic
ot
her than
by discl
os
ure in
v
i
o
lati
on o
f thi
s o
r
a
n
y o
th
e
r agr
eeme
nt
of
w
hi
c
h
t
h
e
In
spec
t
o
r
h
as
k
now
l
edge.
Eac
h In
ves
t
o
r
agrees
t
ha
t
it
s
h
al
l
,
u
pon
l
earning
t
hat
d
is
cl
os
u
re of suc
h Re
cords
is sought in
o
r
by a
co
urt
o
r
go
ve
rnm
e
nt
al
body
of
com
petent
ju
ri
s
di
c
ti
o
n
o
r thr
o
u
g
h
other means, give
pro
mpt
n
o
tice to th
e Co
mpan
y
a
nd
all
ow
the
Com
pan
y,
at
its exp
e
n
s
e,
t
o
undertake
appropr
i
ate action
t
o
pr
eve
n
t disc
l
osu
re
of, o
r
to
o
b
ta
in
a protec
t
ive o
r
d
er
fo
r
,
t
h
e Records
d
ee
m
e
d
confidential. Each
In
spector which
exerc
i
ses
its
right
s
und
er
this Section
3(
i)
s
h
a
ll
be ob
li
gated
t
o
execute
a non
-di
s
closure ag
re
eme
nt
containing
s
u
c
h
rea
so
n
a
ble term
s
as
the
C
ompany
ma
y
reque
s
t. Th
e
fees and
expe
n
ses
of
th
e
Inspect
o
rs
s
h
all
be
born
e
b
y
t
h
e ap
pl
ic
abl
e
In
v
e
stor.
(j) T
he
Compa
n
y s
h
a
ll h
o
ld in
co
nfid
e
n
ce
and n
o
t
mak
e any
dis
c
l
os
ure
of
in
f
orma
t
ion concern
i
ng
an
In
v
e
stor
p
r
ov
i
ded to
t
he
Co
mpan
y
un
le
ss (i)
di
s
cl
osure
of
s
uc
h inf
or
m
ation
i
s
ne
cessary
to
co
mpl
y w
ith
federal
or state sec
u
rities
l
aws, (
ii) th
e
disclo
s
ur
e
of
s
u
ch
i
n
formatio
n i
s
necessary
to av
o
id
o
r
correc
t
a mi
ss
tatem
e
nt
o
r
om
i
ss
ion
in
a
n
y Regi
s
tration
Sta
tement,
(
iii
)
th
e
r
elease
of s
u
ch
i
nf
ormat
i
on is
o
rdered
pursu
a
n
t
to a
s
u
bpoe
na
or ot
her
fina
l
,
non
-
ap
peal
ab
l
e o
rder
from
a co
urt
o
r
gove
rn
me
n
ta
l
bo
d
y
o
f
co
mpetent ju
r
i
s
di
c
ti
on,
o
r
(iv)
s
u
ch info
rmati
o
n ha
s
bee
n
made
genera
l
l
y
a
vai
l
ab
l
e
t
o
the public
o
th
er
than b
y
d
i
s
closur
e
in
vio
l
a
ti
o
n
of thi
s
Ag
r
eeme
nt
o
r
any other
ag
reem
ent.
The
Co
mpany
agree
s
t
hat
it
s
h
a
ll
,
up
on
l
ea
rnin
g
that
discl
os
ure
o
f
s
uch inf
ormat
ion
c
o
n
ce
rnin
g a
n Inve
s
t
o
r is
soug
ht in
or
b
y
a
court o
r
gove
rnme
nta
l
body
of co
m
pete
nt
j
u
r
i
sdic
tion
or
t
h
ro
u
g
h
o
ther m
eans, give
prompt
wr
itt
en
noti
ce
t
o s
uch
In
vestor
a
nd
allow
s
u
c
h In
vesto
r
,
at th
e
In
v
e
s
t
o
r
's
expen
se,
to
und
erta
ke
appropriate
action
to prevent disclo
s
ure
of,
o
r t
o
obtain
a
protective or
de
r
f
o
r
,
suc
h
informati
o
n
.
(k) The Company shall use its best effort
s
to
(i) cause
all
t
he R
eg
i
s
trab
l
e
Securit
i
es
cov
ered
by a
Reg
istrati
o
n
S
tat
ement
to
be
li
s
ted
on each securit
i
es exc
h
a
nge
o
n
w
hi
ch
s
ecu
ritie
s of
t
h
e
sa
me
cla
ss
o
r
ser
i
es
i
ss
ued
by the
Com
pan
y are
t
h
en
li
s
ted
,
if
any
,
if the li
s
ting
of
s
uch
R
egistr
able
S
ecur
it
i
es
is then permitted
under
t
h
e
rul
e
s o
f
s
u
ch exc
han
ge, o
r
(
ii
)
sec
ure
des
i
gnatio
n
a
n
d
q
u
o
t
ation of
all
the R
eg
i
s
trable
Sec
uriti
es
cover
e
d by
th
e
Regi
s
tration
Sta
t
e
m
e
nt
o
n The
NAS
DAQ
Na
tional
Market System,
o
r
(
i
i
i
)
i
f
,
des
pit
e
the Company's be
s
t effort
s
to s
ati
sfy
t
h
e
pre
cedi
ng
clau
s
e
(i)
o
r
(ii),
the
Company is
un
suc
cessf
ul
i
n sat
i
sfying
t
he
p
rece
d
i
n
g
cl
ause
(i) o
r
(
i
i),
t
o
sec
u
re
t
he
i
ncl
u
sio
n
f
o
r qu
o
tati
on
on
T
h
e NASDAQ
Small
Ca
p
Marke
t
for
s
u
c
h
R
egis
trabl
e Sec
uritie
s
and,
wit
h
o
ut
limiting th
e ge
neralit
y
of
th
e
foregoing
,
to arrange f
o
r
at
l
ea
s
t two
m
arket
mak
ers
to
r
egister
wit
h
th
e
Financ
i
a
l
Indu
s
try
R
eg
ulatory
Au
t
hority ("
FI
NRA")
a
s s
uch with
re
s
p
ec
t
to
s
u
ch
R
eg
i
stra
bl
e S
e
cu
r
i
t
ies.
The
Com
p
a
n
y
s
hall
pay a
ll
fees a
nd
expe
n
ses
in
co
nn
ection w
it
h
s
atisfying
it
s
obligation
und
er
thi
s Sec
ti
o
n 3
(k).
(l)
T
h
e
Company
s
h
al
l
coope
r
a
t
e w
ith t
he
In
ves
t
o
r
s w
h
o
h
o
l
d
R
eg
i
s
trabl
e
Securities
be
i
ng
o
ffered
a
n
d,
t
o
the extent
ap
plicabl
e,
facilitate
th
e ti
m
ely preparati
o
n
a
n
d
del
ivery
of
ce
rtifi
ca
tes
(not
bearin
g
any
re
s
trictive
l
ege
nd) r
e
pre
s
enting the R
eg
i
s
trabl
e Sec
uriti
es
to
be
o
ffered
pu
rsua
nt t
o
a R
eg
i
s
tration
Statement a
nd
e
nable
s
uch
cert
ifi
ca
t
es
to
be
in
s
uch denominations
or amounts
,
as the
c
a
s
e
ma
y
be, as
the Inve
s
t
o
r
s
ma
y
rea
so
nabl
y
reque
s
t
and
regi
s
t
e
r
ed
in
such name
s
as
the
In
ves
t
ors
ma
y
request.
(m) The
Company s
hall
pro
v
ide a transfer
agent
and regi
s
trar
of a
ll
s
u
c
h
Reg
i
s
t
r
ab
le
Se
c
u
rities
not
later
th
an
the eff
ec
ti
v
e date
of
th
e
appl
i
c
able Regi
s
trat
io
n Stateme
nt.
(n) If
reque
sted
by an
In
vestor,
the
Co
mp
any
s
hall
(i)
as
soo
n as
pr
acticable
in
co
rporate in
a
pro
s
pectus
s
upplement
or
p
os
t
-
effectiv
e
ame
ndment
s
uch information as an
Inv
estor request
s
to be
inclu
ded therein
relating to the
sa
le and di
s
tribution
of
Re
g
i
s
trable
Sec
u
rities,
in
c
lu
ding
in
format
i
on wi
t
h re
s
pec
t
to th
e
n
umber
of
R
eg
i
st
rable
Secur
iti
es be
in
g o
ffered
o
r
sold,
the purcha
se
price bein
g
paid theref
or
and
an
y
other
terms
of the offer
in
g
of
the Regi
stra
ble
Securities
to be
so
l
d in
suc
h
offe
rin
g;
(ii) a
s soo
n as practicable make all required filings of
s
uch prospectu
s
supplement
o
r
po
st
-effective
amendme
nt
after being
n
otified of
the
matter
s
to be incorporated in
s
uch pr
ospec
tus
s
upplement
or
p
os
t-eff
ect
i
ve
amend
ment
;
and
(
i
i
i)
as s
oo
n
as
practicable
, s
upplement
o
r
make
amendments
to any
Registration
S
tatement
if
r
eason
abl
y req
u
es
ted b
y
a
n In
v
e
s
t
o
r
of
s
uch Registrab
le Secu
r
i
tie
s.
(o) T
h
e
Company
s
hall use
it
s
be
s
t
efforts t
o
ca
u
s
e
the
Regi
s
trable Securitie
s
covered
b
y
the
app
li
cab
le
R
eg
i
st
ration
Statement
t
o
be registered
w
ith
or approved by su
c
h
o
ther
gove
rnmental agen
c
i
es
or
author
itie
s
in
th
e U
nite
d State
s
as
ma
y
be
necessary to
co
nsummate the di
s
posit
i
o
n
of
s
u
c
h Registrable
Securit
ie
s.
(p) The Company
s
hall mak
e gener
ally
available
to
it
s s
ecurity
hold
ers
as
soo
n
as
practi
cal
,
but
not later than 90 da
ys
after
the cl
ose
of
the peri
o
d
covered
th
ere
b
y,
an
earni
n
gs
s
t
a
t
eme
n
t (
in
f
o
rm
co
mplyin
g
with
the pro
v
i
sio
n
s
of
Rule
158 u
n
de
r
the
1
933
Act)
covering
a
twelve
-
m
o
nth
pe
r
iod
beginning
n
o
t
later than t
h
e
first
day
of
the
Co
m
pany's
fi
sca
l
q
ua
rt
e
r
n
ext
f
o
ll
ow
in
g
the
eff
ective
date
of
a
Registrati
o
n
Sta
tement.
(q) Within tw
o
(2)
Business
Days
after a Regi
s
tration Statement
which covers
applicable Regi
s
tr
a
bl
e
Securitie
s
i
s
ordered effect
i
ve
b
y
the
SEC,
th
e Com
pany
s
h
a
ll
del
i
ve
r
,
and
s
hall
cau
s
e
l
ega
l
c
o
un
se
l for
t
he
Compa
n
y
to
deliv
er, to
the
tran
s
fer
agent f
o
r
such
Regi
s
trable
Secu
r
it
i
es (w
i
th cop
i
es
to the In
vesto
rs who
se
Registrabl
e Se
curities are included in
s
u
ch
Regi
s
tration Stat
eme
nt) confirmation that
s
uch Registrati
o
n
Statement
h
as
been
declared effective by the SE
C
in
s
ub
s
tantiall
y
the form
attac
hed
hereto
as
Exhib
i
t
A,
provid
ed
that if the
Co
mpany
changes
its tran
s
fer agent
,
it
s
hall
i
mmed
i
ate
l
y
de
li
ve
r
any
p
rev
i
ous
l
y
de
l
ivered
n
o
tice
s
u
nder this Sect
i
on 3(q)
and
any
s
ub
se
quent
n
ot
i
ces
to
s
u
c
h new tran
s
fer
age
n
t.
(r) T
he
Company
s
hall
mak
e
s
uch
filing
s
with the
Nat
i
o
nal Associati
o
n
of Securities
Dealer
s,
I
nc.
(incl
ud
ing
providing a
ll
required inf
orm
ati
on
and paying
required
fees
thereto)
as
a
n
d
w
h
e
n
requ
ested by
an
In
ve
s
t
o
r and
make
a
ll
o
ther
filing
s
reasonab
ly
necessary
fo
r
I
nvestors
t
o se
ll
Re
g
i
st
rable Securitie
s
pursuant
to a
Registra
tio
n Statement.
(s) Notw
ith
standing
anything to the contrary in
Sect
i
on 3(f), at
any time
afte
r
the R
e
gi
s
tration
S
t
a
tement ha
s
been
declared
effect
i
v
e
by the
SEC,
the
Com
pan
y
ma
y
dela
y
the
di
sclos
ure
of materia
l n
on-pub
l
i
c
information co
n
ce
rnin
g
the
Company t
h
e
d
i
sclo
s
u
re o
f
w
h
ic
h
a
t th
e
time
i
s
n
o
t
,
i
n
the
good faith op
ini
o
n
of
the
Boa
rd
o
f Dire
cto
r
s
of the Company and
it
s co
un
se
l, in the
best interest
o
f the
Co
mpan
y
and
,
in
the opinion
o
f
cou
n
se
l
to the Company
,
o
therwise required (a
"G
RA
C
E PERIOD"); pro
v
id
ed,
that the
Co
mpany
s
hall
promptly
(i)
n
o
tify the
In
vestors
in
writing of the exi
s
tence of material n
o
n-publi
c
inf
orm
a
t
i
on g
i
v
in
g r
i
se
to
a Gra
ce
Period
(provided
that in
each not
i
ce
th
e Co
m
pany
s
hall
not
di
sclose
t
he co
nt
ent of s
u
ch
m
a
t
e
r
ia
l
non-public information to
th
e
In
vestors)
and
t
he
date
o
n
which
the
G
r
ace
Period
w
ill
begin
,
and
(ii)
n
o
tify
t
h
e
I
nvestors
in
w
r
iti
n
g of
t
he
d
ate o
n
wh
ich t
he Grace
Peri
od en
d
s;
and
,
p
r
ov
ided
further
,
that
n
o Grace
P
e
riod
s
h
a
ll
exceed 20 consec
uti
ve
day
s
and during
a
n
y 365
day
period s
u
c
h
G
race Peri
ods
s
h
a
ll not
exceed
an ag
g
re
gate o
f 40
day
s
and
th
e
fir
s
t
day
of
any
G
r
ace
Period
mu
st
b
e
at l
east two (2)
Trading Days
after t
h
e
last
day o
f
any
prior
Grace
Peri
o
d
(a
n
"ALLOWA
BLE
GRACE
PERIOD
").
For
purp
os
es
of dete
rm
in
in
g t
h
e
l
e
n
gt
h
o
f
a Grace
Period
above.
th
e Grace
Period
s
h
a
ll
begin on and inclu
d
e the da
t
e
the
h
o
ld
ers
receive
the notice
r
eferred to
in
clause
(i) and
shall e
n
d on
and
incl
u
de
th
e
lat
er
of
the
date the
hold
ers
r
ece
i
ve
the
notice
referr
ed
t
o
in
clause
(ii) and
the
d
ate
referred
t
o
in
s
u
c
h n
o
ti
ce.
The p
rovisions o
f
Section
3(g)
her
eof s
hall not
be
ap
plicable
during
the p
e
ri
od of
any
A
ll
owab
l
e Grace Period.
Upon
expiratio
n
of the
Grace Period
,
the
Company shall
again
be
bound
by the
first
sentence
of
Sec
tion
3(t) w
it
h
r
espec
t
to
the
in
formatio
n
g
i
v
i
ng
r
ise t
heret
o
u
n
l
ess s
u
c
h
material
non-publi
c
information is
no
l
onger app
li
cable.
4.
OBLIGATIONS OF THE
INVESTORS
(a) At
le
as
t
s
i
x (6)
Busines
s
Days
p
r
ior t
o
t
he
first
ant
ic
ip
ated
fi
l
i
ng da
t
e o
f
a
Regi
stra
ti
o
n
Stateme
n
t
and
at least
fi
ve (5) Busin
e
ss
Da
ys
prior to th
e
filing of a
n
y
a
mendm
en
t
or s
uppl
eme
nt t
o a Reg
i
s
trati
o
n
S
tatement
,
th
e Co
mpan
y
s
h
a
ll notif
y eac
h Inve
s
t
or
in writing
of
the
in
format
i
o
n
,
if
any
,
t
h
e Company
requires from each
s
u
ch
I
nves
tor if
s
uch
Inve
stor e
l
ec
ts
t
o
ha
ve a
n
y of s
u
c
h
Investor
's
Regist
r
a
ble
Secu
ri
t
ie
s
included
i
n s
u
c
h
Regist
ra
tion
State
ment
or, wit
h
respect to a
n
ame
n
d
m
e
n
t o
r
a
s
u
pp
l
e
men
t,
i
f
s
uch Inve
s
t
or's Regis
t
ra
b
le Sec
uri
ties are in
cluded i
n
suc
h Re
g
i
stra
ti
o
n
Stateme
nt
(
e
ach a
n
"
I
NFORMATION
REQUEST
")
.
Pro
vide
d
that
the
Com
p
a
n
y s
h
all have complied with
it
s o
bli
ga
tions
se
t
forth
in the pr
eced
ing
sentence,
it
shall be
a co
nditi
o
n
precedent to the
ob
li
g
ati
o
n
s of
the
Company
to
co
m
p
l
ete
the
re
gistration
pursuant to
thi
s Ag
r
eemen
t
with re
spec
t
t
o
the Registrable
Sec
uritie
s of a
particular
Inves
t
or
th
a
t
s
uch In
v
e
s
t
or
sha
ll
f
urn
is
h
t
o
t
h
e Compa
n
y
,
in respo
n
se
to
an
I
n
f
o
rm
ation Reques
t
,
such
i
nforma
t
io
n r
ega
r
d
in
g
i
tse
l
f, t
h
e
Registrable
Secu
r
i
tie
s he
ld
b
y
it
and
t
he i
nt
en
d
ed
m
e
t
hod of dispos
i
tion
of the
Registra
bl
e
Sec
urities
h
e
ld
by
it
as s
h
all be
reasonabl
y
required
to
effect
the
re
gistration o
f
s
u
c
h Registrabl
e Sec
uritie
s a
nd
s
hall e
xec
ut
e
s
uch do
c
ument
s
in
connection with
s
u
c
h
registration
as
th
e Co
m
pany
ma
y
r
easonab
l
y
r
equest.
(b) Eac
h In
vestor
,
by
such
In
vestor's
acceptan
ce
of
t
he
Regi
s
t
rable Sec
u
rities,
agree
s
to
cooperate w
ith the
Co
mpany as
r
easona
bl
y requested
by the
Co
mpany
i
n
connec
ti
on with
the preparation
and filin
g
of any
Reg
i
s
trati
o
n
Sta
t
e
ment h
ere
under
,
unl
ess s
u
c
h In
vesto
r ha
s
notifi
ed
the
Co
m
pany in writing of
such Inve
sto
r
's
e
lection to exc
l
ude al
l
of
such
In
vestor's
Registrable
Secu
rit
ies fro
m
s
u
c
h
Regis
t
ratio
n
Sta
t
ement.
(c)
Eac
h In
vestor agrees
that
,
upon receipt
of
a
ny
notice fr
o
m
the Company
o
f
th
e
h
appe
nin
g of
a
ny
eve
nt
of the
kind de
sc
rib
ed
in
Section
3(g) or
the fi
rst
se
ntence
of 3(f) o
r
written notice
from the Com
p
a
n
y or a
G
r
ace Perio
d
,
s
u
c
h
Inve
sto
r
wi
ll
immediately
di
scontin
ue dispo
s
i
tion of
Regi
strab
l
e Sec
ur
i
tie
s p
u
rs
u
a
n
t
t
o
any R
eg
i
s
t
ratio
n
Sta
t
e
m
e
n
t(s) cove
rin
g s
u
ch
R
eg
i
s
tra
b
l
e Sec
urit
ies
u
nti
l
s
u
ch
In
vestor's
receipt
of
the
copies of
th
e supp
l
eme
n
ted or ame
n
ded prospectus contemp
l
ated
by
Sec
ti
o
n
3(g)
or
th
e
first sentence
o
f
3(f
)
o
r
receipt of
n
ot
i
ce t
hat no
s
uppl
em
ent
or a
m
en
dment
is required
or
that the
Grace
Period
ha
s
ende
d
.
Notwithstanding
a
n
yt
hin
g
to th
e co
ntrary
,
th
e
Co
mpan
y s
h
a
ll
ca
u
se
it
s t
r
a
n
s
fer
agent to del
iv
er
u
n
l
egend
e
d s
h
ares of Com
m
o
n
Stock
t
o
a
transferee of an Investor in acco
rd
ance w
ith
the
t
erms of
th
e Sec
uri
ties
Purcha
se
Ag
re
emen
t
in
co
nn
ect
i
o
n
w
it
h
an
y
sa
l
e
o
f
Reg
i
s
tr
able Sec
u
r
i
ties with
r
espect
t
o
which an
I
nvestor
ha
s
ente
red
int
o
a
con
tract
for
sa
l
e
prior t
o
the
I
nvestor's receipt o
f
a not
i
ce
from
the
Co
mp
a
n
y of
the
happ
e
nin
g o
f a
ny eve
nt
o
f the
kind
descr
ib
ed
in
Sect
ion
3(g) o
r
the
fir
s
t
sente
n
ce of 3(f) an
d for
which
the
In
vestor
has
not
yet
se
ttled.
5.
EXPENSES OF REGISTRA
TION
A
ll
reaso
n
ab
l
e expense
s,
othe
r
tha
n
underwriting
di
sco
u
nts and co
mmi
ss
i
ons
,
incurred
i
n con
necti
o
n
with
registrations
,
filings
or
qualification
s
pursuant to Section
s
2 a
n
d
3,
incl
ud
in
g a
ll r
eg
i
stra
ti
o
n
,
li
s
tin
g
and qualifications
fe
es
,
pr
inter
s and acco
un
ting
fees,
and
fees
and
disbursement
s
of cou
n
se
l
for the
Company s
hall b
e
paid
b
y
th
e
Co
mpan
y, exc
ept
as
provided
in
Sec
tion
3(h).
The
Co
mpany
sha
ll
a
l
so re
im
b
u
rse the
Investor
s
f
o
r
the rea
sonab
l
e
fee
s
a
n
d
disbur
se
m
ents of Lega
l
Counsel
i
n connection w
i
t
h re
g
i
s
tr
a
ti
o
n
,
filing
or
qualification
p
u
rsua
n
t to Sectio
n
s
2 a
nd
3
of
t
his Agree
m
e
nt.
6.
INDEMNIFICATION
I
n
t
he
event
any
Registrable
Secur
iti
es are
inclu
de
d in
a
Reg
i
s
tra
tio
n
Sta
t
e
ment und
e
r
thi
s
Ag
r
e
em
e
n
t:
(a) To
the
f
u
ll
e
s
t
ex
tent
perm
i
tted
by
law,
the
Co
m
pa
n
y w
ill
,
and
hereb
y
does
,
i
nde
m
nify
,
ho
l
d harm
l
ess
and
d
e
fend
eac
h In
ves
t
o
r
,
th
e
dir
ec
t
ors,
officers
,
partners
,
emp
l
oyees
,
agen
t
s
,
rep
re
s
ent
atives of,
and
eac
h
Per
so
n, if
a
ny, who co
nt
ro
l
s
a
n
y
Inve
s
t
o
r
w
ithin
the meanin
g
of
the 193
3
Act o
r
the 1934
Act (each, an
"
INDEMNIFIED
PERSON
"
)
,
aga
in
s
t
any
l
osses, c
l
a
im
s,
damages
,
li
abi
litie
s,
judgment
s,
fines, pena
ltie
s, c
h
a
r
ges,
costs
,
r
easonab
l
e atto
rn
eys
'
fees
,
am
o
unts paid
in
sett
l
ement or expenses
,
j
o
in
t o
r
seve
r
a
l
,
(co
ll
ective
l
y,
"C
LAIMS
"
)
in
cu
rr
ed
in
invest
i
gat
in
g,
preparing or de
f
e
nd
ing any ac
ti
o
n
,
claim
,
s
uit
,
inqui
ry,
pr
oceedi
n
g,
in
vest
i
gat
i
o
n
or ap
peal t
ake
n
from the
fo
r
egoing
by or
b
efore
any
co
urt
or govern
ment
al, adm
ini
s
trative
or othe
r
regulatory agency
,
body
o
r
the
SEC, whet
her pendin
g or
t
hrea
ten
ed
,
w
h
e
ther
o
r
not a
n i
nde
mnifi
ed
party
is
o
r m
ay
be
a
pa
rty
thereto
(
"
I
N
DEM
N
IFIED
DAMAGES
"
), to wh
i
c
h
a
n
y of them
may become
s
ub
ject insofar as
such
C
l
aims (or
action
s
or proceed
i
ngs, w
h
e
ther
co
mmenced
o
r
threatened,
in r
espect
ther
eof) a
ri
se o
ut
of
or
are
based upon
:
(i)
any
un
true
s
tatement
or a
ll
eged untrue sta
t
e
m
e
nt
of a mater
ial
fact in
a
Regi
strat
i
o
n
Statemen
t
or any
post-effe
c
tive
amen
d
me
n
t t
h
ereto or
in
any filing made
in
con
n
ect
i
o
n
w
ith t
he q
u
al
ifi
cat
i
o
n
of
t
he
offer
in
g u
n
de
r
t
h
e
s
ecu
r
ities or othe
r
"bl
u
e
sky"
law
s
of
an
y jurisdictio
n i
n w
hi
c
h
Regi
s
trable
Securit
ie
s are
off
ered
(
"
BLUE SKY
FILING")
,
or th
e o
mission
or a
lleged
o
mi
ss
ion
to
s
tate
a mat
er
ial
fact
r
eq
uired t
o
be
s
tated therein or
necessary
t
o
make the
s
tatement
s
there
in
not
misl
ead
i
ng, (ii) any
untru
e
s
tatement
or
alleged untrue
s
t
ate
men
t of a material fac
t
con
t
ai
n
e
d
in
a
n
y
preliminary
p
ros
p
ectus
i
f used prior to
t
he
e
ffective date
of
s
uch
R
egistration State
m
e
nt
, or con
tain
ed
in
t
he
final
p
r
ospectus (as
amended
o
r
supplemented,
if
the
Co
mpan
y
files any amendment thereof
or
s
upplement thereto
wi
th the
SEC) o
r
the
o
mi
ss
ion
o
r
a
ll
ege
d
omission to
sta
te therein any mater
i
al fact
necessary
to make the
stateme
nt
s
made therein
,
in li
ght
o
f the
c
ir
cu
m
sta
n
ces
under
wh
i
c
h
the
s
tatemen
t
s
therein
were made,
n
o
t
mi
s
leading
,
(
i
i
i
)
an
y viola
ti
o
n
or al
l
ege
d
v
i
o
lati
o
n
by
the
Company of
th
e
1933
Act
,
the 1934
Act
,
any other
law,
including any
state
sec
u
rities law, or a
n
y
rul
e o
r regulati
on
thereund
e
r relatin
g
to the
offer o
r
s
ale
of
the
Regi
s
tr
a
bl
e
Securities
pur
s
u
ant
to
a
Regis
t
rat
i
o
n
S
ta
t
em
ent or (iv) any
mat
e
ri
a
l
violation of this Agreeme
n
t
b
y
the
Co
m
pany (the matters
in
the
f
o
re
goi
n
g cla
u
ses (
i
)
through
(iv)
being
,
co
l
lectively
, "
V
I
OLA
TI
ONS
"
).
S
u
bject
t
o Sec
t
ion 6(c)
,
the
Co
mpan
y
sha
ll
reimbur
se
the Indemnified
Perso
n
s,
promptly
a
s suc
h
expenses a
r
e
in
curred an
d
are
due and paya
ble
,
for
any
le
ga
l
fees
or
o
th
er
rea
so
nabl
e expe
ns
es
incurred
by them
in
co
nnecti
o
n
with
in
vest
i
gat
ing
or
defendin
g
any
s
u
c
h
C
l
a
im
.
No
t
with
s
t
anding anyth
i
ng to
the contrary
con
tai
ned
herein
,
the
i
n
de
m
n
ifi
ca
tion
agree
m
e
nt
contained
i
n
thi
s
Sec
ti
o
n
6(a
)
: (
i
) shall
n
o
t
ap
pl
y
to a C
lai
m
b
y
an
I
nde
mn
ified Perso
n
aris
in
g o
ut
of o
r
based upon a
V
i
o
l
atio
n
w
hi
ch occ
ur
s
in
re
lian
ce
up
o
n and in
conformity wit
h inf
o
rmati
on f
urni
s
h
ed
in
wr
itin
g
to the Company by
suc
h Indemnifi
ed
Person
fo
r
s
uch Ind
e
mnifi
ed Pe
r
so
n
exp
ressl
y
for
u
se
in
connectio
n
wit
h
t
h
e preparatio
n
of the
Re
g
i
st
r
at
i
on Stateme
n
t or any
s
uch amendment
t
hereo
f
or
s
u
pp
lem
e
nt
thereto
,
if
s
u
c
h p
rospect
u
s was t
im
ely made ava
il
ab
l
e
b
y
t
h
e Compa
n
y p
u
rs
u
a
nt
to
Sect
i
o
n
3(d);
(ii)
w
ith
respect to
any
preli
minary
pro
spec
tus,
shall
not
inur
e to
the
benefit of any
s
uch
pe
r
so
n
from
w
h
om
the
person assert
ing
any
s
uch Claim purcha
se
d
t
he Re
gistrab
le
Secur
iti
es
that
are
th
e
s
u
bjec
t
t
h
ereof
(or
to
t
he
benefit
o
f
any
per
son
co
n
tro
llin
g
s
u
c
h p
erson)
if
the
u
n
tr
u
e
sta
tement
o
r
omi
ss
io
n
of
m
aterial
fa
c
t
co
n
ta
in
e
d
in
th
e prel
im
inary p
rospect
u
s
was
co
rrected
in
th
e
prospectus
,
as t
h
e
n
a
m
ended o
r
su
pp
le
m
e
nted
,
if
s
u
ch p
rospect
u
s
was
time
ly
made
avai
l
a
bl
e
by
the
Company
pu
rs
u
a
nt
to S
ection
3(
d
),
and
the
In
de
mnifi
ed Person was promp
tl
y
advi
sed
in
writing
not
to
use
th
e
in
correct p
r
e
l
iminary
pro
s
p
ect
u
s
pri
o
r
to
the
use
giv
in
g
ri
s
e t
o a
violation and
s
u
c
h Indemnifi
ed
Person,
n
otw
ith
s
tandin
g
s
u
c
h
advice
,
u
se
d
it
; and (iv)
sha
ll
not be availab
l
e to the exte
n
t
such
C
l
a
im i
s
ba
se
d
on
a
failure
of
the
I
nv
e
stor to de
li
ve
r
or to cause
t
o
be
d
e
l
ive
r
e
d th
e
p
r
ospectus
m
ade
avai
l
able by
t
he
Co
m
pa
n
y,
if
s
u
c
h
prospectus was ti
m
ely
ma
d
e
available
by the
Compa
n
y
purs
u
ant to Sec
ti
on 3
(d); and (iv)
s
h
a
ll
not app
l
y
t
o
a
m
ou
nt
s
paid
i
n
se
ttlem
e
n
t
o
f any
C
l
ai
m if
s
u
ch
se
tt
l
e
ment
i
s
effecte
d
wit
h
out
the
pri
or wr
i
tte
n
consent of
the
Co
m
pany, w
hi
ch
co
n
se
n
t
s
hall
n
o
t
be
unr
easona
bl
y
withheld. Such
i
ndemnity sha
ll
r
e
main
in full
f
o
r
c
e a
nd
effect
re
g
ard
l
es
s
of
a
ny
in
vestiga
ti
on
made
by or
o
n
be
h
alf o
f
the
Indemnified Person and
sha
ll
s
u
rvive
t
he transfer
of
the
R
egistrab
l
e Securities
b
y
the
In
vestors
pu
rs
u
a
nt
to S
e
c
ti
o
n
9.
(b) In
co
nne
c
ti
o
n with
an
y Reg
i
s
trati
o
n
State
ment in
whic
h
an Inve
sto
r
i
s
parti
c
ipating
,
ea
c
h
s
uch
In
ves
t
o
r
ag
r
ees
t
o
seve
rall
y
and not j
o
intl
y
ind
e
mni
fy,
h
o
l
d
h
arm
l
ess
and
d
efend
,
to th
e sa
m
e
ex
t
en
t
a
n
d
in
the
sa
m
e manne
r
a
s
i
s set
fort
h
in
Sec
ti
o
n 6(a
)
,
the
Co
mpan
y,
each
o
f it
s
dir
ecto
r
s
,
each of its o
ffi
cers
w
h
o
s
i
gns
t
h
e
Re
g
i
s
tr
a
ti
o
n
Sta
t
ement
,
an
d
ea
c
h
P
erso
n
,
i
f a
n
y
,
who
co
n
tro
l
s t
h
e
Compa
n
y
w
it
hin
the meaning
of
the
19
33 Act
or
the 1
934
Act (each an
"
I
NDE1vfN
I
FIED
PART
Y
"
),
a
g
ain
s
t
a
n
y
C
lai
m
or
Indemnifi
ed Dam
age
s
to
w
hi
c
h an
y
o
f them may become
s
ubje
ct,
under the
1
933 Act,
the
1
934
Act o
r
o
th
erwise,
in
so
f
ar
as s
uch
C
l
aim o
r
Indemnified Dama
ges
ar
i
s
e
out
of o
r
are
ba
se
d up
o
n
a
n
y
Vio
l
a
ti
on,
in eac
h
case to
th
e exten
t
, a
n
d o
nl
y
to
t
he exte
n
t,
that
suc
h
Violation
occ
ur
s
in rel
i
a
nce
upon a
n
d
in
co
n
form
i
ty w
ith
writte
n
info
rm
at
i
on
f
urn
is
h
e
d
to t
h
e Co
m
pany by
s
u
c
h
I
nv
e
stor
exp
re
ssly
fo
r u
se
in
con
n
ec
tion
wit
h
s
u
ch
Registrati
o
n
Statement; and
,
s
ubject
to
Sec
tion 6(c
), s
u
c
h In
vestor w
ill
r
eimb
u
rse
any
leg
a
l
o
r
ot
her
e
xpe
n
ses
reas
o
n
ab
l
y
incurr
ed by a
n Ind
e
mnifi
ed
Party in
con
n
ec
tion
with
in
ves
ti
gati
n
g or
defending an
y such C
laim
;
pro
v
ided
,
however
,
that the ind
em
ni
ty
agreement
co
ntain
ed
in this
Sec
ti
on
6(b)
and
t
h
e
agreeme
nt
w
ith re
s
pe
ct
t
o co
n
t
ri
bu
ti
on
con
ta
ined
in
Sectio
n
7 s
h
all
no
t
app
l
y
to
am
o
u
nts
paid
in
se
ttl
e
me
n
t
of any
C
l
aim
if
s
u
c
h
settle
m
ent
is e
ff
ec
ted
wi
th
o
ut the
pri
or wr
i
tte
n
co
n
se
nt
of
s
u
c
h
Investor, wh
i
c
h
cons
en
t
s
hall n
ot
be unrea
sona
bly
withheld;
provided
,
furt
h
er,
h
oweve
r
,
that
t
he agg
r
egate
li
ability
o
f
th
e
Investor
in
con
n
ec
tion
with
a
n
y
V
i
o
l
ation
s
hall
n
ot exceed the
net
pr
ocee
d
s
to
suc
h In
ves
tor
as
a
re
s
ult
of
th
e sa
le
o
f
Registrab
l
e
Secu
riti
es
p
u
r
s
u
ant
t
o
t
h
e
Regi
s
trati
o
n
S
tat
e
m
ent giving
ri
se
to
s
uch
C
l
aim.
S
u
c
h
indem
ni
ty
s
hall
r
e
m
a
in
i
n full
f
o
r
ce
an
d
effec
t
r
ega
rdle
ss of a
n
y
in
ves
ti
ga
ti
on
m
ade by
o
r
on
be
half
of
s
u
ch
In
dem
ni
fied
Party
a
nd
s
hall
s
urvive
the
tra
n
sfer o
f
the
R
egis
trable
Sec
uriti
es
b
y
th
e
I
nves
t
o
r
s
p
ursua
nt
t
o
Sectio
n
9. No
t
withstanding a
n
y
thing
t
o
the
co
n
trary containe
d her
ein,
th
e
indemnifi
ca
tion
ag
r
eement containe
d in thi
s S
ecti
o
n
6(b) with
re
spec
t t
o a
n
y
pre
limin
ary
p
r
os
pectu
s s
ha
ll
n
o
t inur
e
t
o
the benefit
of
a
ny
Ind
e
mn
i
fied Part
y
i
f
the
u
ntrue
stat
ement
or o
mission
o
f
ma
teria
l
fact contained
in
t
h
e
preliminary
prospectus was
correct
ed
o
n
a
tim
ely
bas
i
s i
n th
e
prospe
ct
u
s, as
then
a
m
e
nded
o
r
su
pplemented
.
(c) Promptly
after
r
ece
ipt
b
y
a
n
Indemnifi
ed
Person
or
In
dem
nifi
ed Party
und
e
r th
i
s Sec
ti
on 6
of
n
o
ti
ce o
f
the
co
mm
e
n
c
ement
o
f any
a
c
ti
on or
proceeding
(
includin
g
a
n
y
governm
ental
action
or
procee
di
ng)
inv
o
l
v
ing
a C
l
ai
m
,
such
Indemnified
Person or
Ind
e
mnified
P
arty
sha
ll,
i
f a Cla
im i
n respect
there
o
f
i
s
to be
made
against
a
n
y
i
nd
e
m
nifying
p
arty
u
nde
r
t
h
is Section 6,
deli
ve
r t
o t
h
e
ind
em
n
ify
in
g
party
a
w
r
itten
n
otice
of
the
commenceme
nt
the
r
eof
,
and
the
i
n
dem
n
ifying
part
y s
hall
have
th
e
right to
p
art
i
c
i
pate
in
,
and
,
t
o
the extent the
ind
e
mni
fying
party
so
des
ir
es,
j
o
intly
w
ith
an
y o
ther indemnifying part
y S
imilarl
y
n
o
ti
ce
d, to
assume co
ntr
o
l
of
the
defen
se
thereof with
cou
nsel
mutua
ll
y
sat
i
sfactory
to
the
indemnifyin
g
party and t
h
e
Indemn
ified
Person
or
the
I
nde
mnifi
e
d
Party
,
as
the
case may be.
I
n a
n
y
s
u
ch
pr
ocee
ding
,
any
Ind
e
m
n
ifi
ed Pe
r
so
n
or
I
n
d
e
mnified
P
arty
m
ay
re
ta
in it
s own
cou
n
se
l
, b
ut
,
ex
cep
t
as
p
r
ovided
in
the fo
ll
owing se
ntence
,
t
he
fee
s
and expenses of
that cou
n
s
el
w
ill
be
a
t
the expense
of
th
a
t
Inde
mnifi
ed Perso
n
or
In
demn
ifi
e
d
Party
,
as
the
c
a
se
m
ay
be,
unles
s (
i
)
the indemnif
y
ing
party
and
th
e
Ind
em
nified
Per
son or
Indemnified Party
,
a
s
app
li
cab
le
, s
hall
h
ave
mutu
a
ll
y
ag
reed
to the retention
of
that
counsel
,
(ii)
t
h
e
in
dem
n
ify
in
g
p
arty do
e
s
n
o
t
assu
m
e the
defe
nse
of suc
h
p
r
oceed
i
ng
in
a time
l
y
m
anner
or (iii)
i
n
the
reasonable op
ini
on
of
co
u
nse
l
r
etaine
d
b
y
t
he
in
d
e
m
n
i
fying
p
arty
,
t
he
represe
ntati
o
n
b
y s
u
ch
counse
l
for the
Indemnified Person
o
r Indemn
ified
Party
a
nd
the
ind
em
ni
fy
in
g
party wo
uld
be
i
napp
rop
r
iate
d
ue
to
ac
tua
l o
r p
o
ten
t
i
al differi
n
g
int
erests
bet
wee
n
s
u
c
h Ind
e
mnifi
ed
Pers
on
or
Ind
e
m
nified Party
a
nd an
y
o
ther pa
rty
r
ep
resented by
suc
h
cou
n
sel
i
n
s
uch pr
ocee
din
g.
The
Compa
n
y
s
h
a
ll
pa
y
reas
o
n
ab
l
e
fee
s
for
up
to o
ne
separ
ate
l
ega
l
co
un
se
l
for th
e
In
v
e
stor
s,
and
s
uch
leg
a
l
co
unsel
s
hall be
selecte
d b
y
t
h
e
Inves
t
or
s
h
o
ldin
g a
t
leas
t
tw
o-t
hir
ds
(2/3)
i
n inte
r
es
t
of the
Re
g
i
strab
le
Securities included in t
h
e Re
g
i
s
tra
ti
on St
atem
ent
t
o
which
the
C
l
ai
m
re
l
ate
s.
The
Inde
m
n
ified Party
or
In
dem
n
ifie
d Pe
rso
n
s
hall
cooperate
fully
w
ith
t
h
e
indemni
fy
ing
part
y
in
conn
ec
ti
o
n
wit
h
any negotiati
o
n
or def
ens
e
of any
s
u
ch ac
ti
o
n
or
C
l
a
i
m
by t
h
e
inde
m
n
i
fy
in
g
party and
s
h
all
furni
s
h
to
the
indem
ni
fying
part
y
a
ll
inf
ormat
i
on
reasonabl
y
avai
l
a
b
le
t
o
th
e
In
demnified
Pa
rty or
In
dem
n
i
fie
d
Pe
rso
n
wh
i
c
h
rel
a
t
es
t
o s
u
c
h
ac
ti
o
n
or Cla
i
m.
The indemnif
y
in
g
part
y s
hall
ke
ep
the
Ind
e
mnified
Part
y
or
In
de
mnifi
ed Perso
n
fu
ll
y apprised at all
time
s
as to
t
h
e s
tatu
s of
t
h
e
d
efe
n
se o
r
any
se
ttl
eme
nt
ne
got
iati
ons wi
th re
spec
t ther
eto. No
indemnify
in
g
party
s
hall
be
l
i
a
bl
e
f
or
any
s
ett
l
e
m
en
t
o
f
any
ac
ti
o
n
, c
l
a
im
or
pr
oce
ed
i
n
g effec
t
e
d
w
it
ho
ut
i
t
s p
r
io
r
wr
itten
co
n
sent
,
pro
v
i
ded,
how
eve
r
,
that
t
h
e
indemnifyin
g
party
s
ha
ll
n
ot
unrea
so
n
ab
ly
wit
h
ho
l
d, de
l
ay o
r
con
di
ti
o
n
its
co
n
se
nt.
No
indemnifying party
s
hall
,
w
ithout
the
pri
o
r
wri
tten
consen
t
of
the
Ind
e
mn
i
fie
d
Pa
rty or
I
n
d
e
m
n
ifi
ed
Per
son,
co
n
se
n
t
t
o
e
ntry
of any
ju
dgme
nt
or en
ter
in
t
o
any
settleme
nt
or othe
r
compromise
w
ith r
espec
t
to any pending
o
r threat
ened
ac
ti
on or
claim
in
respect
of
whi
c
h in
demn
ification
or
contribu
ti
on may
be
o
r has been
so
u
g
ht
h
e
reund
e
r
(w
he
t
h
e
r
o
r n
o
t
the
Indemnified P
arty
o
r
Ind
e
mnified
Per
so
n
is
an actua
l
or
po
t
e
nt
ia
l
party
to such ac
ti
o
n
or
cla
im), wh
i
c
h
d
oes
not
in
cl
ud
e
a
s
a
n
un
cond
it
ional te
r
m the
r
eof t
h
e
giving
by
the claimant or plai
nti
ff to
suc
h
Indemnified Party
o
r
In
demnified Per
son
of a
relea
s
e
from
a
ll li
a
bili
ty
in
r
espect to s
u
c
h
C
laim
or
liti
g
ati
o
n
.
Followin
g
ind
e
mnificati
o
n
as
pro
vi
d
e
d
for
h
ereunder
,
th
e i
nd
em
ni
fy
in
g
party
s
h
al
l
be
su
brogated
to
all r
ights
of
the
Indemn
ifie
d
P
a
rt
y o
r
Ind
em
nified Per
so
n
w
ith
r
es
pe
ct
to a
ll t
h
i
rd
partie
s,
firm
s o
r
corporations
r
e
latin
g
t
o t
h
e matter f
o
r
whic
h indemnificati
o
n has
b
een
mad
e.
T
he
failu
re
to
deli
ve
r written notic
e
t
o
the
ind
e
mnifying part
y
wit
hin
a reasonable
tim
e
o
f the
co
mmenceme
n
t of
any
s
uc
h
act
i
o
n
sha
ll n
o
t
relieve
suc
h
indemnify
in
g party
o
f an
y
l
ia
b
il
i
t
y
t
o
t
he
In
de
m
n
ifi
ed
Per
so
n
o
r
Ind
e
m
nifie
d
P
arty
un
der
thi
s Sec
ti
on
6
,
exce
pt
to
the
exte
nt
that
t
h
e
ind
emnify
in
g
p
arty
i
s
prejudiced in its
abili
t
y
to
d
efend
s
uch
act
i
on.
(d) The
in
dem
nificat
io
n
re
quired b
y
t
h
i
s
Sec
tion
6
s
h
a
ll
b
e
m
a
de
by
p
er
i
odic
paym
e
nt
s
of
th
e
amount
thereof d
u
ring
th
e co
urs
e of
the
in
v
es
t
igation
or
def
e
n
se,
as and
w
h
en bills
a
re
re
c
eiv
ed
or
In
demni
fie
d Dam
a
ge
s
a
re
in
curred
.
(e) The
ind
emn
ity
agreements
co
ntai
n
ed
h
ere
in
sha
ll
be
i
n
addition
to (i) a
n
y
ca
u
se of
action
or si
milar
right
of
the Ind
em
nified
Party
or
Indemnifi
ed
Pers
o
n
aga
in
st
the
indemni
fy
in
g
pa
rt
y o
r
ot
h
er
s,
a
n
d (
i
i) any
l
i
abili
t
i
es
th
e i
n
dem
ni
fying
pa
rty
ma
y
be
s
ubject
t
o
pursuant to the law.
7.
CONTRIBUTION
To
t
he
ext
ent
any
inde
m
n
ific
ati
on by
an
i
nde
m
nify
in
g
party
i
s
p
rohibit
e
d
or
l
imit
ed by law,
the
ind
em
ni
fy
in
g
party agr
ees
t
o
m
ake
the m
ax
imum
co
ntributi
o
n
w
ith
re
s
pec
t
t
o a
n
y
am
o
unt
s
for
w
hi
ch
it
would
otherw
i
se
be
li
abl
e
u
n
der
Sect
i
o
n
6 t
o
the
full
est
extent
pe
rmitted
by
l
aw; provided
,
h
owev
er
,
that (i)
no
Per
son
in
vo
l
ved
i
n
the
sa
l
e
o
f
Reg
i
st
rabl
e
S
ec
uriti
es w
hi
c
h Per
so
n i
s
gu
i
lty
o
f
f
raud
ul
ent
misrepr
ese
ntati
o
n (w
ithi
n
th
e
meaning
of
Sec
tion II
(f) of
the
1933
A
ct)
in
co
n
nect
i
on wi
th
s
u
ch
sa
l
e,
s
hall
be entit
l
ed
to
co
n
t
ributi
o
n from
any
Pers
on
in
vo
l
ve
d
in
su
c
h
s
a
le
of Regis
tr
ab
l
e Sec
uriti
es
wh
o
was
not
gui
l
ty o
f fraudul
e
n
t
m
isrep
re
sen
tati
on;
a
n
d
(
ii
) co
n
tr
i
but
i
o
n
by
an
y
sel
l
e
r
of
Re
gis
trable
Sec
uriti
es
s
h
a
ll
be
l
imited
t
o
an
amo
unt
eq
u
a
l t
o
the
net
am
o
unt
o
f
proceeds received by
s
u
c
h
se
ller
f
ro
m
t
h
e
sa
l
e
of
suc
h Regi
s
tr
ab
l
e
Secur
i
t
ie
s
pur
s
uant t
o
the R
eg
i
s
trati
o
n
S
tatem
e
nt giving ri
s
e t
o
s
u
c
h
actio
n
or
clai
m f
o
r
in
d
em
nifi
ca
t
ion
le
ss
t
h
e
amo
u
nt
o
f
an
y
damag
e
s
t
h
at
s
uc
h
se
l
l
e
r
ha
s o
th
erw
i
s
e
b
een
requi
red
t
o
pay
in
co
nn
ect
i
o
n
wi
th
s
u
ch
sa
l
e.
8.
REPORTS
UNDER
THE 1934 ACT
Wi
th
a view to
making
ava
il
ab
le
to
the
I
nvestors
the
benefits of Rule
1
44
promul
gat
ed
under the
1
933 Act or
any
other
s
imil
ar ru
l
e or
re
g
ul
ation
o
f the
SEC that
may at any time
permit
the
In
vestors
to
se
ll
securities of t
h
e
Com
pany t
o
the
p
u
b
l
ic wi
t
hout
registrati
on
(
"
RULE
144")
,
the
Company agrees
to
:
(a) make and keep public
in
format
i
on available
,
as
tho
se
terms are
u
nderstood and defined
in
Rule
144;
(b) file with
th
e
SEC in a time
l
y
man
ner a
ll
reports
and other documents required
of
t
he
Co
mpan
y
under the
1
933 Act and
t
he 1934 Act
so
l
ong as the Company rema
in
s s
u
bject to
suc
h requiremen
ts
(it being
und
erstoo
d that
no
thing
h
erein
s
hall limit
the
Company's ob
ligati
ons
under Section 4(c) of
the
Sec
uritie
s
Purc
ha
se Agreeme
n
t)
and the filing
of such
reports
a
n
d
othe
r
document
s
i
s
required for the
applicab
le
pr
ovisio
ns
of
Rule 144
;
a
nd
(c) fu
rni
s
h t
o eac
h I
nvestor
so
lo
n
g
as
s
u
c
h I
nvestor ow
n
s
R
egis
t
ra
b
l
e Securit
i
es,
promptl
y
upon w
ri
tten request,
(i) a
written
s
tatement
by the
Co
mpany
t
h
at it has comp
li
ed w
i
th
the reporting requirements
of
Rule
1
44,
th
e
1
933 Ac
t
and the
1934 Act, (i
i
) a co
p
y
of t
he
most recent
ann
u
a
l
or quarterly report
of
the
Company a
n
d such othe
r
reports and documents
so
fi
l
ed by the
Co
mpany
,
a
n
d
(iii)
s
u
ch o
ther
i
nfo
rm
a
t
ion as
m
ay be
reas
o
na
b
l
y
requested to pe
rmit
t
h
e
Investors to
se
ll
suc
h
secur
it
ies
pur
sua
nt
to Rule
144
without
re
g
i
s
tration.
9.
ASSIGNMENT OF REGISTRATION RIGHTS
The
ri
ghts un
der
t
hi
s
Agreement
sha
l
l
be
automatically assignable
b
y
th
e
Inve
s
t
ors
to any transfe
r
ee
of all
or a
n
y
p
ortio
n
of
Registrable Secur
iti
es if
:
(
i
) t
h
e
In
ve
s
tor agrees in
w
riting
with
th
e
t
r
ansferee o
r
a
ss
ignee to as
s
i
gn such
right
s,
and a copy
of suc
h
agreement
i
s
furnished to the
Company
w
ithi
n
five
(5) Bus
in
ess
Day
s
after s
uch
tran
s
fer or
assignmen
t
;
(ii) the
Co
mp
any
i
s,
w
ithin
five
(5) Business Days after
s
uch
transfer
or
assign
m
ent,
furnished
with wr
itten
notice of (a)
th
e
name and
address of
s
uch
transfere
e or
assig
n
ee
,
a
n
d (
b)
t
he
sec
ur
i
tie
s
with respect
to
w
h
ich
such
reg
i
s
trat
ion
r
i
ghts are being tra
n
sfe
rred
o
r
as
si
gned; (
i
i
i
)
imm
ediate
l
y follow
in
g suc
h
transfe
r
or assignment t
h
e
further disp
os
i
tion
o
f
such
sec
urities b
y
th
e
transferee
o
r
assignee i
s
restricted
und
er the
1933
Act and
applicable
state
securities
l
aws;
(iv) at or bef
o
re the
tim
e
th
e
Co
mpan
y receives
the
written
noti
ce
co
ntemp
l
ated by clause
(i
i)
of
this
sentence,
the t
r
ansferee or assignee agrees
i
n writing wit
h
t
h
e
Compa
ny
to be bou
n
d
by
a
ll
of
the
provisions
co
n
tai
n
ed here
i
n; and (v)
s
u
c
h
tran
s
fer
s
h
a
ll ha
ve been made
in
acco
rd
a
n
ce w
ith
t
h
e
a
ppli
cable
r
equire
m
ents o
f
the Sec
u
r
iti
es Purchase Agreement.
10.
AMENDMENT OF REGISTRATION
RIGHTS
Pro
vis
i
o
n
s o
f
this Agreeme
n
t may be
a
mended
a
n
d
t
h
e
observance thereof may
be
waived
(ei
ther
generally or
in
a
parti
c
u
l
ar
in
stance
a
n
d ei
t
her
r
et
roa
c
ti
vely or
p
r
ospective
l
y), o
nl
y wit
h
t
h
e
wr
itt
en conse
n
t of
th
e Co
mp
any and
Investors
who
then hold
at
l
east two
-
th
ir
ds (2/3) of the
Registrable
Sec
urit
ies. Any
amendment or
waiver ef
fect
ed
in
accorda
n
ce with
this Section
10
s
hall
be b
inding up
on eac
h In
vestor an
d
the
Co
m
pany. No
suc
h amendment
shall be effective to the extent that
i
t app
l
ies
t
o
le
ss
tha
n
all
of
the
h
older
s
o
f
th
e
Regi
strab
l
e Sec
u
rities. No
co
n
si
derati
on sha
ll
be
o
ffered
or paid to a
n
y Per
s
o
n
to
a
m
end o
r
conse
n
t
to a
waiver or
m
odificat
i
o
n
of
any
pr
ovis
ion
of
any of this
Ag
reem
ent u
n
less
th
e sa
me
consideration
al
so
is offered
to
all of t
h
e
parti
es
to
t
hi
s Agreemen
t
.
11.
MISCELLANEOUS
(a) A
P
erso
n i
s
deemed
t
o
be
a
h
o
l
der of
Registrable
Secur
iti
es wheneve
r
s
u
ch
Person
owns or is
deemed
to
ow
n
of
rec
ord
s
u
ch Reg
i
st
r
a
b
le Sec
uriti
es.
If
t
he Compa
n
y
r
ece
i
ves con
fli
cti
n
g
instructi
ons,
notices or election
s
from two
or more Persons with respect
t
o
the
sa
m
e Regist
r
able Secu
riti
es,
the
Co
mp
any
s
hall
act
up
on
th
e
basis of
in
str
u
ctions,
notice
or e
l
ectio
n
received from the registered
owner o
f
such Regi
s
trable Securitie
s.
(b) A
n
y
notice
s,
conse
nt
s, wa
i
vers
or o
ther
communications req
ui
red o
r
pe
rmitt
ed
t
o
be g
i
v
en
un
der
th
e
te
rm
s
o
f th
is Ag
r
ee
m
e
n
t m
u
st
b
e
in
w
riti
ng
and
will
b
e
deemed
to ha
ve bee
n
d
eli
vered: (i)
upon
rece
ipt
,
when
de
l
ive
red
persona
ll
y; (
i
i)
upon
rece
i
pt
,
when se
n
t
by
facsi
m
i
le
(p
r
ov
id
ed
co
nfirm
ation of
transmissi
o
n
is
mechanically
or elect
r
o
ni
cally ge
n
e
r
ate
d
and kept
o
n
file
by
th
e sending
party
); or (
iii
) o
n
e
(1)
Bu
s
in
ess Day
after
dep
os
it
wit
h
a
nationall
y
recognized
ove
rni
ght
delivery service, in
e
ach
case
properly addressed to the
party t
o
r
eceive
the
s
ame
.
T
h
e addresses
and fa
csim
il
e
number
s
for
s
u
ch co
m
munications shall
be:
I
f
t
o
the
Co
m
pany:
Infinity
E
n
e
r
gy
Re
so
urce
s,
Inc:
1
1
900 Co
llege Bl
v
d.
,
S
uite
20
4
Overland Park,
Kan
sas 662
10
Te
l
ephone: (
913)
948
-
0512
Facs
i
m
i
le: (9
1
3) 938-4458
Attent
i
o
n
:
Ch
i
ef Exec
u
tive Office
r
If to the Buyer
,
to it
s
address
and fac
sim
ile number
set forth o
n
t
he
Schedu
l
e of
Buyers attach
ed
heret
o, w
ith
cop
ie
s
to
suc
h
Buyer's
representatives
as se
t f
o
rth
o
n th
e Sc
h
ed
ule
of Buye
r
s,
or
if, in
the
case o
f the
Buyer
o
r
other
party n
amed
above, to
s
u
ch ot
her addre
ss
an
d
/or
facsimile number and/or
t
o
the attention
o
f
suc
h
o
th
er
person
as the
recipient party
h
as sp
ecifi
ed by wr
itten
notice
given to
each
othe
r
party
at leas
t
five (5)
days prior
to
the
effect
iv
eness of s
u
c
h
change.
If
to an Investor (other tha
n
the
Buyer)
,
to
s
u
c
h
Inve
stor
at
the address
and/or facsimi
l
e nu
m
ber
reflected in
t
h
e
r
eco
rd
s of
th
e
Co
mpany.
Written co
nfirmati
on of
receipt
(A)
given b
y
the recipient
of
s
uch
notice
,
co
n
se
nt
,
waiver
o
r
o
th
e
r
communicati
o
n
,
(B)
mech
a
ni
ca
ll
y o
r
electronically
ge
nerated
by the
se
nd
er's facsimi
le
machine
conta
inin
g
the tim
e,
date
,
recipient fac
s
imile number and
a
n ima
ge of
th
e
fir
st
page
o
f
s
uch transmission
or (C) prov
id
ed by a
co
u
rier or overnight courier service
s
hall be rebuttable
evide
n
ce of
pers
o
nal service
,
rece
i
p
t
by
f
acs
imi
le or
deposit
with a
n
at
i
o
n
a
ll
y recog
ni
zed ove
rni
g
h
t delivery
serv
i
ce in accorda
n
c
e
w
ith cl
ause (i)
, (
ii)
o
r
(iii)
above,
r
es
pe
ct
i
ve
l
y
.
(c)
Fa
ilure
of
an
y
part
y
to
ex
er
c
i
se any
right
o
r remed
y
under this
Ag
r
ee
m
ent
or otherwi
se,
o
r dela
y
b
y a
party
in
exercising
s
uch right or
remed
y,
s
h
a
ll n
o
t
operate
as a w
aiver ther
eof.
(d) A
ll
q
u
estio
n
s
conce
rnin
g
t
he co
n
s
tru
ctio
n
, va
lidi
ty
,
enfo
rcem
e
n
t and in
terpr
etatio
n
of
th
is Agreement
s
h
a
ll
be
governed
b
y
the
i
n
te
rn
a
l
laws o
f
t
h
e S
tat
e of Texas, w
i
t
h
o
ut
giv
in
g effect
t
o any
c
hoice
of
l
aw or conflict of
l
aw
provi
s
ion
or
rule
(w
hether
of t
he
State of Texas o
r
a
n
y other
jurisdiction
s)
that would
cause
the application
of the
la
ws of a
n
y
juri
sd
i
ctio
n
s o
th
er
than the
S
t
ate of New
York.
Eac
h
party
hereb
y
irr
evoca
bl
y s
ubmit
s
to the
exc
lusive juri
s
diction
of the
s
tate and
federal
co
urt
s
s
ittin
g
th
e
City
of
Houston,
for
the adjudication
of a
n
y
disput
e
h
ereunde
r
or
in connecti
o
n h
e
rewith
or w
ith
any t
r
a
n
sactio
n
cont
emplat
ed hereby or
di
sc
u
ssed
herein, and
he
r
e
b
y
irrevoc
abl
y
wa
i
ves
,
and
agree
s
n
ot
to
asse
rt
in
a
n
y
s
ui
t, act
i
o
n
o
r
p
r
oceed
i
ng,
an
y
cla
im
t
h
at i
t
is
n
ot
p
erso
nally
su
b
ject to t
h
e
ju
ri
s
diction
of
any s
u
ch co
urt
,
that
suc
h
su
i
t, action
or
proceedi
n
g is
brought
i
n an
in
co
n
venie
n
t
forum
o
r t
hat the ven
u
e of
s
u
ch
suit
,
act
i
o
n
o
r
pr
ocee
ding
i
s
im
p
r
o
per
.
Each
party
hereb
y
irrevocably
waives
personal
se
rvice
of p
r
ocess
and
consents
to process being
s
erved in any
such su
it
,
actio
n
o
r
proceeding by
mailing a
copy thereof to
such
party at the
address
for
s
uch notices to it under this
Agreement and agrees
that
s
uch
service
sh
all
constitute
good
and s
ufficient
se
rvice of process and notice thereof.
Nothi
ng
contained herein
sha
ll
be deem
ed
to li
mit
in
any way
any
right
to
serve
process in
any manner
permitted by law
.
If
any
provi
s
i
o
n
of
thi
s
Ag
r
ee
men
t
s
h
a
ll
be
in
va
li
d or u
nenf
orceab
le
i
n
any juri
sd
i
ct
i
on,
s
uch
inv
a
l
idity
o
r unenforceab
il
i
ty s
h
all
not affect the
validity or enfo
rceabil
ity of the
remainder
of
this
Agreement i
n t
hat jurisdict
i
on or the
validity or
enf
orceability
of any provision
of
this Agreement in any
other
jurisdiction.
EACH
PARTY HEREBY IRR
EVOC
ABLY WAIVES
ANY
RIGHT
I
T
MAY HAVE, AND AGREES
NOT
TO
REQUEST, A
JURY TRJAL
FOR
THE
ADJUDICATION OF
ANY
DISPUTE
H
EREUN
DER
OR IN CONNECTION
HEREWITH
OR AR
ISI
NG OUT OF TH
I
S AGREEMENT OR ANY TRANSACT
I
ON
CONTEM
PLATED HEREBY
.
(e) This Agreement
and
the
other
Transaction Documents
constitu
te th
e entire agreeme
n
t among the
partie
s
hereto w
ith
re
s
pect
to the
s
ubject matter hereof and thereof. There
are
n
o
r
estr
i
ctions,
promi
ses,
wa
rranti
es or
undertaking
s,
ot
h
er
than
t
h
ose
set
forth
or
r
eferred
to
herein and therein.
This
Agreement
and
the other Transaction
D
ocu
m
ents supersede
all pri
or
agreements and
under
s
tandings among the
p
arties
hereto
w
ith
respect
to
the
s
ubject matter hereof and thereof.
(f) Subject to
the
requirements
o
f
Sect
i
on 9,
this
Ag
re
ement
s
hall
inure to the benefit of a
nd
be
b
in
ding
up
on
the
pe
rmitt
ed
successors
and ass
i
g
n
s of each
o
f the partie
s
hereto.
(g) T
he headin
gs
in
this Agreement are for
conve
nience
of
reference
on
l
y and shall not
limit
o
r
o
therwise
affect the
meaning hereof.
(h) This Ag
r
eement
ma
y
be
executed
in t
wo o
r
m
o
r
e
id
ent
i
ca
l
co
unt
erparts, all of whic
h
sha
ll
be
considered one an
d
the
same agreement and shall
be
come
effective w
h
en counterparts
ha
ve
been signed
by eac
h
party
and
delivered to each other party; provided that a fac
s
imile
signature sha
ll
be
considered due
exec
uti
o
n
and
s
hall be binding upon the
s
ignatory thereto
wit
h
the
same
force and
effect as
if the
signa
ture
we
r
e an o
ri
g
in
a
l
,
not a fac
s
imile
signat
u
re.
(i)
Each
pa
rty
s
hall do and perform, or cau
se
to be done
and
performed
,
all s
u
ch
further act
s
and
things
,
and s
hall
execute and deliver all
suc
h
other
agreements, certificates
, instr
uments and
documents, as
the
ot
he
r
party
may
reasonabl
y
request in
order
to
carry
o
ut the
intent and accompl
i
s
h
the purpo
ses
of
th
is
Ag
r
eement and t
h
e consu
mm
at
i
on of the transact
i
o
n
s
contemplated
h
ereby.
(j) A
ll
co
n
sents and ot
her
determination
s
to be made by the Inve
sto
rs pur
s
uant to this
Agree
ment
s
h
all
be
mad
e,
unless
o
ther
wise s
pecified
in this
Ag
r
eement,
by
In
vestors
holding
a
t
lea
s
t
two-th
ird
s (2/3) of the
Registrable
Securities, determined as
if
all of the Notes and
the
Warrants t
h
en outstand
in
g
h
ave been converted
into
or exercised
for Regi
s
trable
Securities without
reg
a
rd to
any
limitati
o
n
s
on conve
r
s
i
o
n
of
the
Notes or the exercise of
the
Warrants. Any co
n
sent
or
other
determination approved by Inve
s
t
o
rs as provided
in
the immediately
pr
eceding sen
ten
ce
s
h
al
l
be binding
on
all Inve
s
tors.
(k) The
lan
g
u
age
u
se
d
in
thi
s
Ag
r
eement wi
ll
be dee
m
ed to
be
the
l
anguage chosen by
the partie
s
to express their
mutual intent
and
n
o
rule
s
of strict construct
i
on will be applied against
any party.
(l)
Thi
s
Agr
ee
ment
i
s
intended f
o
r the b
e
n
e
fit
o
f th
e
parti
es
heret
o
and their
re
s
pe
ctive
p
ermitted
s
u
ccesso
r
s an
d
ass
i
g
n
s
,
and
,
t
o
the ex
te
n
t
p
ro
vid
e
d
in
Sec
ti
o
ns
6
(a
) a
nd
6(
b
)
h
e
reof
,
each
I
n
v
e
s
t
o
r
,
th
e
dire
c
t
o
r
s, o
ffi
ce
r
s,
partn
e
r
s,
empl
oy
ee
s,
a
g
ent
s, represe
n
t
at
iv
e
s
o
f
,
an
d e
ach
Pe
r
so
n
,
if
a
n
y w
h
o
c
o
ntr
o
l
s a
n
y
In
v
e
s
tor within th
e
meanin
g o
f
the
1
933
Act
a
nd
the
1
93
4 A
ct a
nd
ea
c
h
o
f
the
Com
p
any's d
i
recto
rs
,
eac
h
o
f
th
e Co
mp
any's o
ffi
cers w
h
o
s
i
gns t
h
e R
egi
s
tr
a
t
ion S
t
a
t
e
m
e
nt
,
an
d
e
a
c
h Per
so
n
,
if
an
y, w
h
o
c
on
t
rols
t
h
e
Co
mpa
ny w
ithin
t
h
e
me
a
nin
g o
f th
e
1
933 Ac
t
an
d th
e
1
934 Act, a
n
d
i
s
n
o
t f
o
r th
e
b
e
nefit
o
f
,
nor
m
ay
an
y
pr
ov
i
s
ion
h
e
reof
be
e
nforced b
y,
an
y o
th
e
r
Per
so
n
.
(m)
U
n
less t
h
e co
n
t
e
xt
o
t
h
erwi
se
req
uires, (
a
) a
ll refer
e
n
ces t
o
Sect
i
o
n
s
,
Schedul
es
or
Ex
hibits
ar
e
t
o
Secti
o
n
s,
Sch
e
dul
e
s or
Ex
hibit
s co
ntained in
o
r
atta
c
h
e
d
to
thi
s
Agreem
e
nt,
(b)
e
a
c
h
acco
untin
g te
rm n
o
t
o
the
rw
i
se
d
efin
e
d
i
n thi
s Ag
reemen
t
h
as
th
e m
e
a
nin
g
a
ss
i
g
n
e
d
to
it in a
ccor
dance
wi
th
GAA
P
,
(c) wo
rd
s
in
th
e s
in
g
u
lar o
r
p
l
u
ra
l includ
e
the
s
i
ngu
lar
a
nd
plural
a
n
d
pron
ou
n
s
sta
t
ed
in
e
i
t
h
er
the
ma
s
culine
,
th
e
feminin
e
or neut
e
r gend
e
r
s
hall include th
e
mas
c
ulin
e,
feminine and n
eu
ter and
(
d
)
th
e
u
se
of
t
h
e word
"i
ncludin
g"
in th
is Ag
ree
men
t
s
hall
be
b
y
w
ay o
f e
xa
mpl
e
rath
er
than l
i
mitation.
[
R
e
m
a
in
d
er
o
f pa
ge
in
t
ent
iona
l
ly
left
b
lan
k]
IN
WITNESS WHEREOF, the part
i
es
have
ca
u
sed
thi
s
Registration Rights Ag
r
eeme
n
t to be
du
l
y
executed
as
of day a
n
d
year
fir
s
t
above w
ritt
en.
|
Com
pany:
Infinity Energy Resources,
In
c.
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
Stanton E. Ross
|
|
|
Title:
|
President
an
d
C
h
ief Exec
uti
ve Officer
|
|
|
|
|
|
|
Buyer:
A
m
egy
Bank
, N.A.
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
Hank H
o
lm
es
|
|
|
Title:
|
Exec
uti
ve Vice
President
|
|
|
|
|
|
[Signa
ture Pag
e
10 R
eg
istration Rights Agreement]
[Signa
ture Pag
e to
R
eg
istration Rights Agreement]
Sc
h
e
dul
e o
f Bu
y
er
s
Am
e
gy Ba
n
k, N.A
.
4
40
0
P
os
t
Oa
k P
a
r
kw
a
y, S
uit
e
1
30
0
Houst
o
n
,
T
exas 77
027
EXHIBIT A
FORM
OF NOTICE
OF
EFFECTIVENESS OF
REGISTRAT
I
ON STATEMENT
[TRANSFER
AGENT]
ATTN:
RE: INFIN
I
TY
ENERGY RESOU
R
CES
,
INC
.
L
ad
i
es
and
Ge
n
tlemen:
We
are co
un
se
l
to
I
nfinity E
n
e
r
gy Re
s
ources,
In
c., a
De
l
aware
co
rp
o
r
ation
(t
h
e "COMPANY")
,
a
nd h
ave represe
nt
ed t
h
e
Compa
n
y
in
co
nn
ect
i
on
w
ith
t
h
a
t
certain
Sec
uri
t
i
es Purchase Ag
reem
e
n
t (t
h
e
"
P
URCHASE AGREEMENT")
e
n
tered into
by and a
m
o
n
g the
Company
and t
h
e
b
u
yer
named
t
herein
(the "
H
OLDER
"
)
pu
r
s
u
ant
t
o w
h
ich the
Compa
n
y
i
ss
ued
to
t
he Holder
warran
t
s
to p
u
rcha
s
e an
aggrega
t
e of
_____
s
h
ares
of Co
mm
on Stock
,
s
u
bjec
t
to
adj
u
st
m
e
n
t (t
h
e
"
WARRANTS
"
)
.
as set
forth
i
n
,
and
subject
to the
terms
and
conditio
n
s
of, the
Secu
r
it
i
es Purchase
Agreement
.
Pur
s
uant
t
o
the Purcha
s
e
Agreement
,
t
h
e Co
m
pany
a
l
s
o
h
as entered
i
nto
a
Registra
t
ion Rights Agreement
with
the Ho
l
der
(the "
R
EG
I
STRATION
RJ
GHTS AGREEMENT") p
ur
s
u
a
nt t
o w
h
ich t
h
e Co
mp
a
n
y ag
r
eed,
am
o
n
g
ot
h
e
r
t
hin
gs,
to register t
h
e Reg
i
strab
l
e Secu
r
i
ti
es (as defined i
n t
he Registra
t
io
n
R
i
g
h
ts
Agree
m
e
n
t)
,
i
ncl
u
ding the
s
h
ares of
C
ommon
Stock
i
ss
uab
l
e
upon exercise
of the
Warrant
s,
under the
Securitie
s
Act
of 1933
,
a
s
ame
n
ded
(the
"
1
933
ACT
'
)
.
In co
n
nec
ti
o
n
with
t
h
e Com
p
a
n
y
'
s ob
l
igat
i
o
n
s
u
nder
t
h
e
Reg
i
stra
ti
o
n
Right
s
Ag
r
eement
, o
n ________________
,
201
1
,
t
he Compa
n
y
filed
a
Re
g
i
s
trat
i
o
n
S
t
atement
o
n
Form S-3 (File No. 333
-________________
)
(the
"
REGIS
T
RATION
S
T
ATEMENT")
with
t
h
e
Securities
and Exc
h
ange Commission
(the
"SEC")
relati
n
g
t
o Reg
i
st
r
a
bl
e Securities (s
u
b
j
ect to adjustme
nt
)
i
ss
u
ed or
i
ss
u
ab
l
e
u
pon
EXERC
I
SE
OF
WARRANTS ISSUED ON _________________
,
2
011
, w
hi
ch names
th
e Ho
l
der
as
a
se
ll
i
n
g stock
h
o
l
der t
h
ereu
n
der. In co
n
nection with the forego
i
ng
,
we advise
you
that
a
m
embe
r
of
the SEC's
s
t
aff has adv
i
sed
u
s
b
y
telephone t
h
at
the
SEC
h
as e
n
tered
an
o
rd
er declar
in
g
the Reg
i
stration
Sta
t
eme
n
t
effec
ti
ve u
nd
er
the
1933 Ac
t
at
[ENTER TIME
OF
EFFE
C
TIVENESS]
o
n
[EN
T
ER DATE
OF
EFFECTIVENESS
)
and
we
h
ave
no
k
now
l
edge
,
after
telephonic
inquiry of
a member
of
t
h
e
SEC's
staff
,
t
h
at a
n
y stop order s
u
spending
i
t
s
effec
ti
veness has been
i
ssued
or
that any
pr
oceeding
s
for
that
p
urpo
s
e are
p
e
ndin
g
before,
o
r thre
a
t
e
n
ed
by
,
th
e S
E
C a
n
d t
h
e Reg
i
s
trabl
e
Securi
ti
es a
r
e
a
va
il
ab
l
e for
r
esa
l
e
un
de
r th
e
19
33
Act
pursuan
t
to
th
e Reg
i
s
trat
i
on
Sta
t
ement.
|
Very
tru
l
y yo
u
rs
,
[I
SSUER
'
S COUNSEL]
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
cc: [LIST NAME OF
H
OLDER]
Exhibit 10.22
TH
E SECU
RI
TIES
REPRESENTED BY
THI
S
WARRANT
H
AVE NOT
BEEN REGISTERED
UNDER
THE
SECURIT
I
ES
ACT OF
1933
,
AS AMENDED
,
OR
APPLICABLE STATE
SECUR
ITIE
S
LAWS. THE
SECURIT
I
ES
MAY
NOT
BE OFFERED FOR
SALE
,
SOLD
,
TRANSFERRED OR ASSIGNED (I) IN
TH
E
ABSENCE OF
(A)
AN
EFFECT
IV
E
REGISTRATION STATEMENT
FOR
THE
SECURITIES
UNDER THE
SECUR
ITIES
ACT
OF 1933
,
AS
AMENDED
,
OR AP
PLI
CA
BL
E
STATE SECURITIES LAWS
OR (B)
AN
OPIN
I
ON OF COUNSEL
,
I
N A GENERAL
LY
ACCEPTABLE FORM
,
THAT REGISTRATION
IS
NOT REQUIRED UNDER
SA
ID
ACT
OR APPLICABLE
STATE SECURITIES LAWS
OR
(
II)
UNLESS SOLD
PURSUANT TO RULE 144
UNDER SAID ACT.
N
O
TWI
THSTANDING
THE FOREGOING
,
THE
SECUR
ITI
ES
MAY
B
E
PLEDGED IN
CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT
OR
OTHER LOAN OR FINAN
C
ING
ARRANGEMENT SECURED
BY
THE
SECURITIES
.
ANY TRANSFEREE OF T
HI
S WARRANT SHOULD CAREFULLY
REVIEW THE
TERMS OF
THIS
WARRANT
,
I
NCLUDING
SECTION 2(1) HEREOF.
THE
SECURITIES
REPR
ESENTED
BY THIS WARRANT
MAY
BE LESS THAN
TH
E NUMBER SET FORTH ON
THE FACE HEREOF PURSUANT TO
SEC
TI
ON
2(1) HEREOF.
INFINITY
ENERGY
RESOURCES, INC.
WARRANT TO
PURCHASE
COMMON STOCK
Warrant
N
o.: I AB
|
Numbe
r
of Shares
:
931
,
561
|
Date
of
I
ssuance:
February 16,
20
1
1
Infini
ty Energy
Resource
s,
In
c.
,
a
Delaware
corporation (the "COMPANY
"
)
,
hereby
certifies that
,
f
or
Ten
United
State
s
Dollars
($10.00) a
nd
ot
her
good and va
lua
b
l
e
consideration
,
t
h
e
receipt and
suffic
i
e
n
c
y
of which are
h
ereby
acknowledged, Amegy Bank,
N.A
.
,
or the
regi
stered
h
older
hereof
or
its a
ss
igns, is entitled
,
subject
to the
terms set fort
h
below
,
to purchase
from
the
Company
upon
s
urrender
of
this Warrant
(i
f
required
b
y Sect
io
n 2(0)
,
at
an
y
time
or ti
me
s on o
r
after
t
h
e
dat
e hereof, b
ut n
o
t
after
II :59
P.M.
New
York Time
on
the
Expiration
Date (as defined herein)
931
,
561 (Nine
Hundred Thirty One
Th
ou
s
and
Five Hundred
S
ixty
One)
full
y
paid nonassessable
s
hare
s of
Common Stock (as defined
in
Sect
i
o
n
l(b»
of the Compa
n
y (the
"
WARRANT
SHARES") at
the Warrant
Exercise
Pr
i
ce (as defi
n
ed
in
Section
1(b»;
prov
ided
,
however
,
that in no event
s
hall the Holder
(as
defined in
Section
1 (b)); be
e
n
tit
led
or
r
equired
to
exerc
ise
this Warrant
for
a
number
of
Warrant
Sha
re
s
in
excess of
that
number
of Warrant
Share
s
that,
upo
n
g
i
v
in
g effec
t
to
s
uc
h
exercise
,
would cause the aggregate number of
s
h
ares of
C
ommo
n
Stock
beneficially ow
n
ed
by the Holder and its affiliates to
exceed
4.99
%
of
the
o
utstanding
share
s
of
t
he Co
mm
o
n
Stock following
s
uch
exercise.
Fo
r
purposes of
th
e
foregoing proviso, the
a
ggrega
te number
of
s
h
are
s
of Co
m
mon
Stock beneficially owned
by
the Holder
and
its
affiliates
sha
ll
include the number
of
s
hare
s
of Common
Stock
i
ssuab
l
e
upon
exercise of
this Warrant
w
ith
respect
t
o
which
t
h
e
determination of such proviso is being made, but
sha
ll
exclude shares of
Commo
n
Stock
that
would be i
s
suable
upon (i)
exerc
i
se of
the
remaining
.
unexercised
SPA Warrant
s
(as
defined in
Sectio
n 1
(a)) beneficially
owned
by the Holder and
it
s
affiliate
s
a
nd
(ii)
exerc
i
s
e
,
conver
s
ion o
r
exc
ha
nge of the
unexercised
,
unconverted
or
unex
changed
portion of
any
other
sec
uriti
es o
f th
e Company
beneficially
owned
by the Holder
and
its affiliate
s
(including
any
ot
her
convertible notes or preferred
s
tock)
s
ubje
ct
t
o
a
limitati
on o
n
conversion.
exe
r
cise
o
r exchange analogous
t
o
the
l
imita
tio
n
conta
ine
d herein. Exce
p
t as
s
et forth
i
n
the preceding
sentence.
for purposes
of
this paragraph,
beneficial ownership shall be
calculated in
accorda
n
ce
with
Section
13(d
) of
the Securities
Exc
han
ge Act
of 1934
,
as
ame
nded.
For purposes of this Warrant, in determining
t
he
number
of outsta
n
ding s
h
ares
of
Co
mm
o
n
Stock
the Holder may
rely o
n
the number
of outstandi
ng
shares of Common Stock
as
reflected in (I) the Company
'
s
most recent Form 10-Q
or
Form
l0-K,
a
s
the
ca
s
e
ma
y
be
,
(2) a more
recent
public announcement by
th
e Co
mpan
y
or (3) any other notice
by
t
he Co
mp
any or
it
s
transfer
agent setti
n
g forth
the
num
ber of shares
of
Common Stock
outstanding.
Upon
the written reque
s
t
o
f
any
Holder
,
th
e Company
s
h
all prompt
l
y
.
but
in
n
o e
vent
l
ater t
h
an
o
n
e (I)
Bu
si
n
ess
Da
y (as
defin
ed
in Secti
on
l(b»
fo
ll
owing the
re
ce
ip
t
o
f
s
uch reque
s
t
,
co
nfirm in
writi
n
g
t
o
any
s
u
ch
H
ol
der
t
he
n
u
mb
e
r
o
f
s
h
a
r
es of Co
m
mon Stoc
k th
e
n
o
u
ts
t
a
n
d
in
g.
In
any case
,
t
he
n
u
mber of o
ut
s
tanding
s
h
ares
of
Co
mmon
S
t
oc
k
s
hall
be de
t
ermined
aft
e
r
g
i
v
i
ng effec
t
to
the
co
n
versio
n,
exercise
o
r
exc
h
ange
of
sec
uritie
s of
the
Com
pan
y,
includin
g
the
SPA
Warra
nt
s
b
y
su
c
h
Holder
a
nd
it
s affi
liate
s, s
in
ce
th
e
dat
e as o
f
w
h
ich s
u
c
h nu
m
b
e
r
of o
u
tstand
in
g
s
h
ares of
Co
mm
o
n
Stoc
k
was
repo
rted.
F
o
r
p
u
rpo
ses
o
f
dete
rm
i
n
ing
the
ma
xim
um
number
o
f
s
h
ares of Co
mm
on Stoc
k th
at
the
Compa
n
y may iss
u
e
to th
e
Ho
ld
er
u
po
n
exerci
s
e of thi
s
Warrant
,
s
uch H
o
lder
's
d
e
li
very
of
a
n
Exerc
i
se No
ti
ce
(as defi
n
e
d in
Section 2(a» w
ith
re
s
p
ec
t
to
s
u
c
h
exe
r
cise
s
ha
ll
const
i
t
ute
a
representat
i
on (on w
h
ic
h
the
Com
pan
y
m
ay
rely
wit
h
ou
t
in
ves
tiga
tion)
b
y t
h
e
H
older
that u
pon the iss
u
a
n
ce of
the
s
h
a
r
es of Co
mm
on Stock
to
be
i
s
su
e
d t
o s
u
ch Ho
ld
er,
the
s
hare
s
of Common S
t
ock
b
e
nefi
cially ow
n
e
d by
s
u
c
h Holder
a
nd
it
s
affiliates
s
ha
ll
not exceed
4.99% of
the
t
o
tal
o
u
tstanding
shares
of
Com
m
o
n
Stoc
k
of the Co
mp
any
im
med
iatel
y
after giv
in
g
effect
t
o such exe
r
c
i
se
as
d
etermi
ned
i
n acco
rdan
ce w
ith t
his parag
r
ap
h
.
Se
cti
on 1.
(a) Sec
uriti
es
Pur
c
h
ase
Agreement. Th
i
s
Wa
rrant i
s o
ne
o
f th
e wa
rrant
s
issued
pur
s
u
ant
t
o
Section
1
of
that certain Securitie
s
Pur
c
h
ase
Agreement
dated as
of Feb
ruary 1
6,
2011
,
a
mon
g
t
he
Co
mp
any
and A
m
egy
Ba
n
k,
N.A. (as s
u
ch
agr
ee
m
en
t m
ay be amended
fr
om t
ime
to
time
as provided
in
such
agreement,
th
e
"
SECURIT
I
ES
PU
RCH
ASE
AGREEMENT") or
of
an
y warrants
i
ss
u
ed in
e
xc
han
ge
or
s
ub
s
titution
t
h
erefor
o
r repla
ce
ment th
ereo
f (all
s
uch warrants bein
g
colle
c
tively
r
efe
rred to
as
th
e
"
SPA WAR
RA
NTS
"
).
(b) Defi
niti
o
n
s.
The
followi
n
g
wo
rds and
te
rm
s
as
u
se
d
in
thi
s
Warrant sha
ll
h
ave
th
e follow
in
g
meanings:
(i)
"
20
0
7
L
OAN
AGR
EEM
EN
T"
m
eans that certain
Loan
Ag
reem
e
nt dated
January
9, 2
0
07, as
am
ended,
re
s
t
ated,
m
odifie
d
,
supp
lement
e
d
,
extended,
repl
aced
or renewed
fr
o
m time t
o
ti
me,
a
nd i
n
clud
i
n
g t
h
a
t
ce
rtain
Forbearance
Agree
men
t
d
a
t
ed
August
3
1
,
2007, Secon
d F
o
r
bea
ra
nce
Agreement
d
ate
d
Ma
r
c
h
26,
2008
,
Third
Forbearance
Ag
r
ee
m
ent da
t
e
d
Octo
ber
16, 2008
,
Fou
rth
Forbearance
Agree
ment
dated December
4, 2
009
and Fifth Forbearance
Ag
reement dated
the
dat
e
hereof
,
i
n
each
case, a
m
o
n
g Com
pa
ny,
Infin
i
ty
O
i
l
and
Gas o
f Te
xas
.
In
c.
,
a
Texas
co
rporati
o
n
,
I
n
finit
y Oi
l
&
G
a
s of Wyom
in
g,
Inc.
, a
Wyoming
co
rp
o
r
at
i
on,
and Amegy
Ba
nk
, N
.
A.
(ii)
"A
PPROVED STOCK
PLA
N"
mean
s
any
e
m
p
l
oyee
be
n
e
fi
t p
l
a
n
that
ha
s been
approved
by
the board
of
directors a
n
d
s
h
a
r
eholders
of
th
e Company,
pursuant to
which
the
C
ompan
y's
securities
m
ay
be
i
ssued
to an
y co
n
sultant
,
emp
l
oyee,
officer
or dir
ecto
r for
se
rv
ic
es provided
t
o t
h
e Co
m
pany
.
(
iii
)
"A
RTICLES OF
I
NCO
RP
ORA
TIO
N"
means the Compa
n
y's Artic
le
s
of
I
nco
r
poration, as am
end
e
d fro
m
lime to
tim
e
as permitted
here
by.
(
iv)
"BU
SINESS
DA
Y
"
mean
s any
day
o
th
er
than
Satu
rda
y, Su
nd
ay
or other
da
y on w
hich
co
mmer
cia
l bank
s
in
the
City o
f
New
York are authorized
or r
eq
uired
b
y
l
aw
t
o
r
e
main cl
osed
.
(v)
"CA
PIT
AL ST
O
CK"
m
eans
,
as
to th
e Co
mpan
y.
its
s
h
a
re
s
of
Co
mmon
S
t
ock
,
preferred
s
tock
,
a
n
d/o
r
a
n
y ot
her
ca
pital
stock o
r
o
th
e
r
e
q
u
i
ty
intere
sts au
th
or
i
zed
fr
o
m
time
to
time,
and
any
ot
h
e
r
securit
i
es, options,
int
erests,
participation
s
o
r
other
eq
u
iva
l
e
n
ts
(how
ev
er designated)
o
f
or
in the
Co
mpan
y,
w
h
et
her
vo
ting
or
n
o
nv
oting,
includin
g,
without
limi
tat
i
o
n
,
optio
n
s
,
warrants,
ph
a
n
tom
s
tock
, s
t
ock appreci
a
tio
n
r
i
g
ht
s, co
n
v
ert
ib
l
e
n
o
te
s or debentures, s
t
ock
p
urchase
right
s,
and
all
agreem
e
nts
,
in
s
trument
s
,
document
s
and
sec
uritie
s
convertib
l
e
,
exerci
sa
ble
,
or
ex
changeable, in whole
or
in part
,
i
nto a
n
yo
ne or mo
re o
f
th
e
foreg
o
i
ng.
(v
i
)
"CO
MMO
N
STO
CK"
mean
s
(i)
the
Co
mpan
y's
comm
o
n
s
tock
,
$0.0
001 par
va
l
u
e
per
s
h
a
r
e, and (ii)
any
Ca
pital
Stock
int
o
w
hi
c
h
s
u
ch co
mm
on s
tock
s
hall ha
ve
been changed or
any
Ca
pital St
oc
k
re
s
ultin
g
from a
r
eclassification
o
f
s
u
c
h
commo
n
stoc
k
.
(vi
i
)
"CONVER
TIBL
E SECU
RITY
"
mean
s
any
evide
n
ce
of
indebted
ness o
r
C
apital
Stock (othe
r
than
Opt
i
ons)
dire
c
tl
y o
r indirectly
convertible
into
or
e
xc
h
a
n
geab
l
e or exerc
i
s
able for
Co
mmon
Stock.
(vi
ii)
"EX
PIRA
T
ION DATE
"
mea
n
s
t
h
e
date
t
h
a
t i
s
t
e
n
(
10
)
y
ea
rs afte
r th
e
Warrant Date (a
s
defined
in
Section
12)
o
r,
if
such
date d
oes
n
o
t
fall on a Bu
s
iness
Day,
then the
ne
xt
Bu
si
n
ess
Day
.
(ix)
"
HOLDER
"
mean
s
eac
h
and every h
o
lder
or beneficial
owner
o
f an
y
porti
o
n
o
f thi
s
Wa
rran
t or
any
of
the Warrant
S
hare
s.
Without in any way
limitin
g
the f
o
re
g
oing
,
the tem
"
H
o
ld
er
"
s
hall
i
nclud
e
Amegy
Bank
, N.A. a
nd i
ts
s
u
ccessors
and/
o
r
ass
i
gns
that at an
y
t
i
me
h
o
l
ds or otherwise
own
s
any
p
ortio
n of thi
s
Warrant or
the
Warra
nt
S
hares. If
at
an
y
t
i
me there
sh
all
exist more
than
one
Holder
,
then
,
with respect to
an
y act
ion
,
approval
o
r
co
nsent
of t
he
Holder
required
or
ot
herwi
se
permitt
ed
pur
s
u
a
nt t
o
th
e
provisions
hereof
,
such
ac
tion
,
approval
o
r
conse
nt
sh
all b
e
deemed
t
o
have been taken,
received
or o
therwi
se
obtained
if
s
u
c
h actio
n
,
approval
o
r
co
n
se
nt i
s
t
a
ken
.
r
eceived or
otherwi
s
e obtained
by
or
from
th
e
Requisi
te
Holder
s.
(x)
"O
PTIO
NS"
mea
ns
any r
i
g
ht
s
,
warrants
or
opt
i
ons
1
0 su
b
scr
i
be for or
purcha
s
e
Common
Stock
o
r Convertible
Sec
uritie
s.
(xi)
"
PERSO
N
"
means
an
i
ndivid
ual
,
a
l
im
i
ted
li
abi
lity
company
,
a partner
s
hip, a j
o
int venture
,
a corporation
,
a
trust
,
an unincorp
o
rated
orga
nizati
o
n
or
a
government
o
r an
y
department
or agency
there
o
f
or any other
le
g
al entity
.
(xii)
"
PRINC
I
PAL
MARKET
"
mea
n
s.
with
re
spec
t
10 the
Co
mmon
Stoc
k
or
any
other
security
,
the principal
sec
uritie
s
exc
han
ge
o
r
tradin
g
market for
th
e Co
mm
on
Stock
o
r
s
uch
ot
h
e
r
s
ec
u
rity
.
(xiii)
"
REGISTRATION RIGHT
S
AGR
EE
MENT"
m
eans
that
certai
n
Regi
s
tr
a
tion
Rights Agreemen
t
dated a
s of
February 16
,
20 II, b
y
and
a
mon
g
the Company
and
Amegy
Bank
,
N
.
A.,
a
s suc
h ag
re
ement m
ay
be
amended,
r
estated, modified,
s
up
ple
m
e
nted
.
ex
ten
ded,
rep
lace
d
or
renewed from time to
time
as provided in
s
uch agre
e
ment.
(xiv)
"
REQU
I
S
ITE H
OLD
ERS
"
mea
n
s
H
o
lde
rs
t
ha
t
o
wn
or
ot
h
erwise ho
l
d
more than fifty
perce
nt
(
50%
) of the Warrant
S
hare
s
i
s
s
ued
o
r i
ss
uabl
e
upon
exercise of the Warrant.
(xv)
"
SEC
URITIES
ACT'
m
ea
n
s
t
h
e
Se
c
u
r
itie
s
Act
o
f
19
33
,
a
s
am
en
d
ed.
(xvi)
"
TRADING
DAY
"
mean
s
any day
on
whi
c
h the
Co
mmon
S
t
oc
k
IS
t
r
a
d
ed o
n
the Prin
ci
pal
Mar
k
et.
(xv
ii)
"WA
RRA
N
T
"
me
a
n
s
this Warrant and all Warrants i
ss
ued in exchange
,
tran
sfer o
r repla
ce
ment th
ereo
f pur
s
ua
nt
1
0
the
terms of
this
Warrant.
(xv
iii
)
"
WARRANT EXERCISE PRICE"
s
h
a
ll be
equal
to,
with
respect to an
y
Warrant
Sha
r
e
$5.0
I
,
subject
t
o ad
ju
st
ment
a
nd h
ere
ina
fte
r p
rov
ided
.
(xix)
"
WEIGHTED AVERAGE PRICE" means, for
any
sec
urity
as
of
an
y
dat
e,
t
he
d
o
ll
a
r
vol
um
e-weig
hte
d ave
ra
ge
p
r
i
ce
f
or
s
u
ch security on
it
s
Pri
n
cipa
l
Market
d
uri
ng
t
he
period
beginnin
g
at
9:30
a.m.
,
N
e
w York City
Time
(or s
u
ch other time as
the
Pri
n
cipa
l
Mar
k
et
publicl
y
announces
i
s
th
e o
fficial
op
en
of trading),
a
nd
ending
at
4:00
p
.
m.,
New
York
C
ity
Time (or
s
u
c
h
o
ther tim
e
as t
h
e
Principal Market
pub
l
icly
announce
s
i
s
the
officia
l
close
of
trading),
as
reported by Bloomberg
Fi
n
ancia
l
Markets
(or any successor
th
ere
t
o,
"
BLOOMBERG
")
through
it
s
"Vo
l
u
m
e a
t
Price
"
functi
o
n
s,
or
,
if the foreg
o
ing d
ocs
not appl
y,
the
dollar
vo
lume-wei
g
hted a
ve
r
age
pri
ce of
such
sec
urity in t
he over
-th
e-co
unter market
o
n
the
e
l
ec
tro
nic bul
letin
boar
d
for
s
uch
sec
urity
during the
peri
od beg
in
ning
at 9
:30
a.m.,
New
York
C
ity
T
im
e
(or
suc
h
ot
he
r
t
im
e
as such over-the-co
u
n
t
e
r
mar
k
et p
u
b
li
cly
announces
is th
e o
fficial
o
pen
of
trading)
, an
d endin
g
at 4:00 p.m.,
New
York
C
i
ty Ti
m
e (o
r
suc
h
o
th
e
r
time
as
s
u
c
h
ove
r
-
the-
co
unter m
a
rk
et
publicly announces
i
s
the official close
of
tradin
g),
as
rep
orte
d b
y
Bl
oo
mber
g,
o
r
,
if
no do
ll
ar vol
um
e
-
weig
h
ted
average
p
r
ice
i
s
r
epo
rte
d
f
o
r
s
u
c
h
sec
urity
by
Bloomberg
f
or s
uch h
ou
r
s,
the
av
era
ge
o
f
the hi
g
he
s
t cl
os
ing
bi
d
price
a
n
d
the
l
owest
closing ask pri
ce
of
any
of t
h
e
mark
e
t maker
s
for
suc
h
s
ecurity
as
rep
orted
in th
e
"
pink
s
h
eets"
b
y
the
Pink
OTC
Markets
Inc
.
If th
e Weigh
t
ed
Average
P
r
i
ce can
n
ot be calc
ul
a
t
ed
for
suc
h
secur
i
ty
on
s
u
c
h dat
e
o
n
a
n
y o
f t
he foregoing
ba
ses,
the
Weighte
d
Ave
r
age
Price of
s
u
c
h
secu
r
ity on
s
u
c
h
date
s
h
a
ll
be the
fair ma
rket
va
lue
as
mutu
a
ll
y
determin
e
d b
y
the Company
and
the
H
o
ld
e
r. If th
e
Co
mpan
y a
nd th
e
Holder
are unabl
e
to agree
u
po
n t
he fa
i
r
m
a
r
ket va
lu
e o
f
t
h
e Common
Stoc
k
.
t
h
en such dis
pute
sha
ll
be re
so
l
ved
pur
s
uant
to
Sec
tion
2(a) below. A
ll
s
u
c
h
det
e
rminati
ons
to
be
a
ppropriately
adjus
t
ed
for
any s
t
oc
k
di
v
id
e
nd
, s
t
oc
k
sp
l
i
t
,
s
t
oc
k
combination or
o
ther
similar
tran
sac
tion
during
an
y
period
during
whi
c
h
the Weighted
Ave
ra
ge P
rice i
s be
in
g
determin
ed.
Sec
ti
o
n
2
.
Exerci
se
of
Warra
nt.
(a) Subjec
t
t
o
the term
s
and
co
nd
it
io
ns hereo
f
,
thi
s
Warra
nt m
ay
b
e exercised
by
t
he
Hold
er
then
registe
red
o
n the b
ooks of
th
e
Co
mpan
y,
in whole
o
r in p
art, at
any
ti
m
e on any
Bu
si
n
ess
Day
o
n
or after
th
e
o
p
e
nin
g of
busine
ss
o
n th
e
date
her
eo
f
and
pri
o
r t
o 11
:5
9 P.M
.
N
ew
York
Tim
e o
n th
e Ex
pira
tio
n
Date by
(i)
delivery
of
a
wr
itt
e
n
no
t
ice,
i
n
t
he
form
of t
he
subscri
pti
on for
m
attached
as E
xhi
bit A
h
ereto (
the
"EXE
RCISE
NOT
I
CE"),
of
s
uch Holder
's
election
t
o
exercise
t
h
is
Warrant
, w
hi
ch
notic
e
s
hall
specify
the number
of
Warrant
S
hares
to be
purch
as
ed
,
(ii
)
(A)
pa
y
m
e
nt to
the
Co
mpany
of
an
amount
eq
u
al
t
o t
h
e Warran
t
Exerci
se
Pric
e
m
u
lti
plied
b
y
the number
of Warrant S
ha
res
as to
which this
Warrant
is
bein
g
exerc
i
s
ed
(
th
e
"A
GGR
EG
ATE
EXE
RCI
SE P
RI
CE")
b
y wire
transfer
o
f i
mmed
i
ate
l
y
available
fund
s (o
r by
check
if th
e Co
mpany ha
s
n
o
t provid
ed
the H
o
ld
e
r
with wire
tran
s
f
e
r in
s
tru
ct
ion
s
for
s
u
c
h pa
y
m
e
n
t),
(8)
by
notif
y
i
ng
the
Co
mpan
y
tha
t
thi
s
Warrant
i
s
being
exercised
pursuant
t
o
a
Cas
h
less Exe
r
c
i
se
(as
defined
in
Sec
ti
o
n
2(e»
o
r
(C)
any
co
mbination
o
f t
he
f
orego
in
g,
and
(
ii
i)
if requir
ed
by
Section 2(0
o
r unle
ss
the
Hold
e
r has
previously delivered
thi
s
Warrant
to th
e Co
mp
a
n
y a
nd it
o
r
a n
ew
replaceme
nt
Warrant
h
as
not
y
e
t bee
n
delivered to the
Holder
,
the surre
nd
e
r t
o a com
m
on ca
rrier
fo
r
overnigh
t d
e
li
very to t
h
e Com
p
a
n
y as
soo
n
as prac
ti
cable
f
o
ll
ow
in
g
s
u
c
h
da
te
,
t
hi
s
Warrant
(o
r
an
indemnifi
c
ati
o
n undert
ak
ing
with
r
es
pe
ct
t
o
this Warrant in the
case of
it
s
loss. theft
o
r
destruction); provided
,
that
if s
uch
Warra
nt
Sha
res
are
to
be i
ss
ued in
a
n
y
nam
e o
ther than that
o
f the r
eg
i
s
tered H
o
ld
er, suc
h i
ssua
nce
s
h
a
ll b
e
de
e
m
e
d
a t
rans
fer
and
t
he
p
r
ovis
i
o
n
s
o
f
Sec
t
ion
7
s
h
a
ll
be
appl
icable.
In
the
event o
f
an
y
exerci
se
of
the
ri
g
ht
s represe
n
ted by th
i
s
Warrant
in comp
li
ance w
ith
this
Section 2(a).
the
Co
mpan
y s
hall
on
th
e
s
econd (2nd)
Bus
ines
s
Day (the
"
WARRANT SHARE
D
ELIVE
RY
DATE")
f
o
ll
owing
t
he
d
ate of
i
ts
r
ecei
pt
of
the
l
a
t
e
r
of
the Exer
c
i
se Notice,
th
e Agg
re
gate
Ex
erci
se
Price
(or
n
ot
i
ce of Cas
hl
ess Exercise) and
if required by
Section 2(0 (o
r
u
nl
ess t
he H
olde
r
has
previou
s
l
y
del
i
vered t
hi
s
Warrant to
th
e
Co
mpany
a
nd it
o
r
a
new r
ep
lacement
Warrant
has n
o
t
ye
t b
ee
n
delivered
to th
e
"f
o
lder
), t
hi
s Warran
t
(or
an
indemnificati
o
n
un
d
erta
kin
g wit
h
respect to
this
Wa
rran
t
in the case
of its
l
oss
,
theft
or destr
u
c
tion)
(th
e "EXE
R
C
I
SE
DELIVERY
DO
CU
ME
N
T
S
"
)
,
(A)
prov
id
e
d
t
h
a
t
th
e
tra
n
s
f
e
r
agent
i
s
participating
in
The
Depo
s
it
ory
Trust
Com
pan
y
(
"
DT
C
"
)
Fa
st Automated Secur
i
t
i
es T
r
a
n
s
fer
P
r
ogra
m and pro
v
id
e
d that
the
H
o
l
de
r
is eligible
t
o
r
e
cei
ve sha
re
s
through DTC
,
cre
dit
suc
h
aggregate number
of shares of
Co
mm
o
n
Stock to whic
h
the H
o
l
der sha
ll
be
e
n
t
itled
to
the Holder'
s
o
r it
s
d
esig
ne
e's
balance account
wit
h
DTC
t
h
ro
u
g
h it
s Deposit W
i
t
hdra
wal Age
n
t Co
mmi
ss
i
on syste
m
a
n
d
p
ro
mpt
ly execu
t
e a
n
d
d
e
li
ve
r t
o
the
H
o
ld
e
r the
Ack
no
w
l
e
d
g
ment
attac
h
e
d to th
e Exercise No
ti
ce o
r
(8)
i
ss
ue
and
d
elive
r to
the addre
ss
s
p
ec
ifi
ed
in
t
he
Exe
r
cise Not
i
ce, a certificate,
regi
ste
red in
the
name
of the
Holder
or its designee
,
fo
r
the
number
of
s
hare
s
of Co
mm
o
n
Stock
t
o which the
Holder
s
h
a
ll
be e
n
titled. Upon
the
late
r
of
th
e
date of
d
e
li
very of
(x) the
Exercise No
ti
ce
and
(y)
the
Agg
re
gate
Exercise Price
ref
erred
to
in
c
lau
se
(
i
i)(A)
abo
ve
o
r
notifica
t
ion
to
t
h
e Co
mp
a
n
y
o
f
a Cas
h
less Exe
r
cise
referred
to i
n
Sectio
n
2(c),
t
he
Holder
sha
ll
be deemed
fo
r
a
ll purp
oses to
ha
ve
become the
H
olde
r
of
r
ecord of
the
Wa
r
ra
nt
Sha
r
es with respect
to
wh
i
ch this
Warrant
h
as
been exerci
se
d (the
dat
e the
re
of
being referred
t
o
as
th
e
"
DEEMED
I
SSUANCE
DATE
"
),
irr
espec
ti
ve
of
th
e date of del
i
very
o
f thi
s
Warra
nt
as
req
u
i
red
b
y c
l
a
u
se (
i
i
i
)
abo
ve
or the certificates
ev
iden
cing
such
W
arrant
S
har
es.
In
the
case of a
dispute as
to the
d
eterminatio
n
of
the
Warrant Exercise
Price,
the
Weighted
Average P
ri
c
e
of a security o
r
the arithmetic
ca
l
cu
lati
on of
th
e
num
ber
of
Warrant Shares, t
h
e
Com
p
a
n
y sh
all
prom
ptl
y
i
ssue
t
o
t
h
e
H
o
l
der
the
n
u
m
ber o
f
s
h
ar
e
s of
Com
mon
S
t
oc
k that i
s
not
di
s
puted
a
nd
shall
s
ubmit the
disputed
det
erm
inati
ons o
r
ari
thm
etic ca
l
c
ula
tio
n
s
to
th
e
Holder
v
i
a
fac
si
mile
with
i
n
tw
o
(2) Bus
ine
ss
Da
y
s
of
receipt
of
the Holder'
s Ex
erci
se
Not
i
ce.
If the
H
o
l
der
and
the
Com
pan
y
a
re un
ab
le
to agree upon
t
he de
termin
a
ti
on
of
t
h
e Warrant Exe
rci
se
Price,
th
e
Weighted Average Price or
arit
hmeti
c
calculation
of
the
numb
e
r
of Wa
rrant
S
har
es wit
hi
n one
(
I) B
us
i
ness Day
of
suc
h
d
i
sputed
determinat
io
n
o
r
arithmet
i
c
calc
ul
at
i
o
n
be
in
g submitted
to (he Holder, then
the
Company
s
hall promptly
submit via facsimile (i)
the disputed
de
termin
a
ti
on of
the
Warra
nt
Exe
rcise
P
ri
ce or the
Weighted
Ave
ra
ge
Price to
a
n ind
epe
ndent
,
reput
ab
le inv
est
ment
banking firm
agreed to by t
h
e Company a
n
d
the H
o
lder
or (i
i
)
t
he dis
put
e
d
a
r
ithmet
i
c calcu
la
t
i
on of
the
n
u
mber of
Warrant
Shares to
i
ts
independent
,
outside
publi
c
accountant. The Company s
h
a
ll
direct
the
inv
est
ment
bank
in
g
firm
o
r
t
h
e
accountant
,
as
the
case
may be
,
t
o pe
rf
orm
the
det
e
rminati
ons or ca
lcul
atio
n
s
and notif
y
t
h
e Co
m
pany a
nd
the
H
o
ld
er of t
h
e
re
s
ult
s
no
l
a
t
er
than
t
wo (2) B
u
siness
Da
ys
afte
r t
he
date
it r
eceives
th
e
disput
ed
d
eter
minati
ons o
r
ca
lcul
atio
n
s. S
u
c
h in
vestment
banking
firm
's
o
r
accoun
t
a
n
t's de
termin
a
ti
on
o
r
ca
l
cu
lati
o
n
,
as the ease may be,
s
hall
be
deemed conclusive
ab
se
nt demonstrable error.
Notwithstanding t
h
e
foreg
oi
ng
,
t
h
e
H
olde
r
may,
u
pon w
ritt
e
n
notice deli
vere
d
to
th
e
Com
pany
conc
urrentl
y
with the surrender of
thi
s
Warrant
f
or
e
xe
r
cise
as provided
h
e
rein
,
e
l
ec
t th
at
the exercise
of
all
or
any p
o
rti
on
of
th
is Warra
nt
be
co
n
ditio
n
ed upon
t
he cons
u
mmat
i
on
of
an
y
transactio
n
o
r
even
t
,
i
n w
h
ich
case
(x) s
u
c
h
exercise s
h
a
ll
not be deemed
to
be
eff
ective
u
n
le
ss
and
until
t
he
co
n
su
mm
ation
of
such
tran
sact
ion
o
r
eve
nt
occ
ur
s
and (y)
s
u
c
h
exercise
m
ay
be
r
evo
ked
by the
H
o
lder
at
a
n
y
tim
e
prior
t
o t
h
e co
n
s
u
mmatio
n
o
f
s
u
c
h transa
c
ti
o
n
o
r
eve
nt
.
I
f
s
u
ch
transaction
o
r
event
is
not
co
n
su
mmated
or
i
s
so
revoked, the
Company sha
ll
promptly
ret
urn
t
h
e surrendered Warra
nt
a
n
d the Aggregate Exercise
P
rice
paid
,
unle
ss o
therwi
se
in
structed
b
y
s
u
c
h H
older.
(b)
If
this
Warrant
i
s
s
ubmitt
ed
f
o
r
exercise, as
ma
y be
required by
Sec
tion
2<0,
and
unless
the
r
i
g
ht
s rep
re
sented
by
this
Warrant
sha
ll ha
ve ex
pired
or
shall
h
ave bee
n
fully
exerc
i
se
d
,
th
e
Com
pany
s
hall,
as
soo
n
a
s
practicable
and
in
no even
t l
ate
r
t
h
an fo
u
r (4) B
u
siness
D
ays afte
r
rece
ipt
of
thi
s
Warrant
(
the
"
WARRANT DELIVERY DATE")
a
nd at it
s
ow
n
expe
n
se,
i
ss
u
e a
ne
w War
rant i
dentical
in
a
ll
resp
ects
t
o
this Warrant except
it
sha
ll
represe
n
t r
i
ghts
to purcha
se
t
h
e
number
of Warrant S
h
ares
purchasable immediately
prior
to
s
uch
exe
r
cise u
n
de
r
th
i
s
Wa
rr
an
t
,
less
the
n
u
mbe
r
of Wa
rr
ant S
h
ares
with respect to which such Warrant
i
s
exercised
(toge
th
er
with
,
in
the ca
se
o
f
a
cas
hle
ss exerc
i
se, t
h
e n
u
mber of Warra
nt
Shares surre
n
de
r
ed
in
lieu
of
pa
y
m
e
n
t of
th
e Exe
r
c
i
se
Pri
ce).
(
c)
No fr
acti
ona
l
s
har
es
of
Com
m
o
n
Sto
ck
a
r
e
to b
e
i
ss
ued up
o
n
the
exe
r
c
i
se
o
f thi
s
Warran
t
,
b
u
t rat
h
er t
he num
ber of
s
h
ares of Co
m
mon
Stock
iss
u
e
d
u
po
n
exerc
i
se o
f
t
h
i
s
Warran
t
sha
ll b
e
r
o
unded up
o
r do
wn
to
th
e
nearest
w
h
o
le
number
(with
0.5
rou
nd
ed
up).
(d)
(i)
The
Company stipu
late
s
that the remedies
at
l
aw available
to
the Holder
in th
e
event
of a
n
y
default
o
r
t
h
reate
n
ed
default by the
Co
mpan
y
in the
perf
ormance of o
r
compl
ian
ce wi
t
h
any of the terms
of
this Warrant arc
not
and will not be
adequate
and that
,
to the fullest extent permitted by law
,
such
term
s
may,
wit
hout
the necessity of
s
h
owi
ng
economic
l
oss
and without any bond
or o
ther
sec
u
ring be
i
ng
required
,
be
specifica
ll
y enforced
by a decree for the
specific
performance
of any
agreement
contained herein
or by
an
injunction against a violation of any
of
the terms hereof or
otherwise.
Subject to the
la
st
sentence of
Sect
ion
6,
if
the
Comp
any
s
hall
fail to
issue
and
deliver to
the Holder
within
three
(3)
Busine
ss
Days
of rece
ipt
of
the Exercise Delivery Documents
a
certificate for
th
e
number
of s
ha
res of Com
m
on Stock
to
whic
h
the Holder i
s
entitled (taking
in
to
acc
o
unt
the
l
imita
ti
o
n
s
o
n th
e
exercise of
thi
s
Warrant
s
et forth
in the
first paragraph of this Warrant) or
to
credit
the
Holder
's
balance account
wi
th
DTC
for
suc
h
numb
er of shares
of
Common Stock
to
w
hi
ch
the Holder i
s
entit
l
ed (taki
ng
into ac
co
unt
the
limita
t
i
o
n
s on
the exercise
of
this Warrant
set fort
h
in the first paragraph
of t
hi
s Warran
t
)
upon
the Ho
l
der
's
exercise of this Warrant
,
in either case
,
the
is
sua
n
ce
and delivery
of
which would
vio
l
ate
existing
sec
uriti
es
law
applicable to
the
Company,
then the
Com
pan
y sha
ll
,
in
addition to any
o
ther
reme
d
ies
un
de
r
thi
s
Warrant
or
the
Sec
urit
ies
Purcha
s
e Agreement
o
r
ot
h
e
rwi
se ava
ilabl
e
to
suc
h
Holder
,
including any indemnification
under
Section
5 of
the Securities Purchase
Ag
reement
,
pay as additional damages in
cash
to
such
Holder
on
each day after
s
u
c
h
third (3rd) Busine
ss
Day that such
s
har
es of Common
Stock
a
re n
o
t i
ss
ued
and
delivered
t
o t
h
e
Holder,
an
amount
equa
l
to
the product
of
(A) the number
of shares of Commo
n
Stock not is
s
ued to the Holder
o
n
or
prior
to
the Warrant
Share
Delivery Date and (B) the Weighted Average Price
of
the
Com
mon
Stoc
k
on the Warrant Share Delivery Date
.
(
ii)
If the
Comp
any
s
hall
fai
l
to issue and deliver to the Holder
o
n the
Warrant Delivery Date a
n
ew
Warrant for the number
of shares
of
Common Stock
to which
such
Holder i
s
enti
tled
(taking into account
th
e
l
imita
t
ions on
t
he exerc
i
se of
this Warrant
set
forth
in
t
h
e
first paragraph
of
th
is
Warrant)
pur
s
uant to
Sect
ion
2(b),
if
any, then, at the election of the Holder
m
ade
in the
Hold
er's sale
d
i
scretion,
the
Co
mpa
ny
s
hall, in addition to any
othe
r
remedies
und
er
this Warrant
or
the
Secur
itie
s
Pu
r
c
h
ase Ag
r
eement
or
o
therwise avai
l
able to
suc
h
Ho
l
der
,
i
ncl
u
ding a
n
y
in
demn
ifi
catio
n
u
n
der Section .2.
of the
Sec
uritie
s
Pur
chase
Agreement
,
pay
as additional damages in
cash
to
s
uch Holder
on eac
h
day after
such
f
o
urth
(4th)
Business
Day
that
suc
h
Warrant is
n
ot
de
li
vered, an amount equal to 0.5%
of
the
product of (i) the
numb
e
r
of s
h
ares of Com
mon
Stock
is
s
uable u
pon exerc
i
se of
the Warrant a
s
of
the Warrant Delivery Date
,
and
(ii) the Weighted Average Price
of
the
Common
Stock
on
the
Warrant
Delivery Date.
(
iii
) Notwithstand
in
g
the foregoing, in
n
o
event
sha
ll
cash
damages
accrue
pur
s
uant
t
o
this
Sect
ion
2(d) during
th
e
peri
od,
if
any,
in
which a
n
y Warrant Shares
are
the s
u
bject of a bona
fide
dispute that
is
s
u
bjec
t
to
and
being resolved pursuant
t
o, and
in compliance
with
the time
p
eriods a
nd
other
provision
s
of, t
h
e d
i
sp
ute
resolution
provision
s
of
Section
2(a).
(iv) Alte
rna
t
iv
ely,
subject to the dispute
resolut
i
on
provisions of
Sect
i
on 2(a),
at the election
of
the Ho
l
der
made
in
t
h
e
Holder
's so
le discretion
,
t
he Co
mp
a
n
y s
hall
pay
to
the Ho
l
der
,
in
l
i
eu of
th
e add
ition
a
l
damages referred to
in
the immediately preceding clauses (i)
and (
ii)
(but in addition to all
other
available remedies that the Holder may pursue hereunder
and
under the Securities Purchase Agreement
(
inclu
ding
i
nde
mnifi
ca
ti
on p
ur
sua
n
t
t
o Sect
i
on 5
thereof)
,
110
%
of t
he
amount by
w
hi
c
h
(A)
the Holder's total purchase price
(i
ncludin
g
brokerage
com
mi
ss
i
ons,
if
any)
for
shares of Common Stock
purchased to make delivery
in
sat
i
sfac
tion
of
a sale by such Holder
of
the
shares
of
Co
mmon
Stoc
k to
which the Holder
i
s en
titl
ed b
ut h
as
not
rece
i
ved upo
n
a
n
exercise,
exceeds (B)
the
net
proceeds received by
th
e
Holder from the
sa
l
e of
t
he s
hare
s of Co
mm
on Stock to w
hi
ch
the Holder is
enti
tled
but has not received
upon
such
exercise.
(e) Notwithstandi
n
g anyt
hin
g
contained herein to the contrary,
th
e
Holder may
,
at
it
s election exe
r
c
i
se
d in
i
ts
sal
e discretion
,
exercise thi
s
Warrant
in
whole o
r in
part
a
nd
,
in lieu
of mak
in
g
the
cash
payment
o
therwi
s
e
contemp
lat
ed
to be made to the
Co
mpany upon
such exercise
in
pa
y
ment
of
the Aggregate
Exercise
Price, elect
instead
to
receive
upon
s
uch exercise
the
"N
et
N
umber"
of
sha
res
of
Common Stock
determined acc
o
r
ding
to the following formula
(a
"CAS
HLESS
EXERC
I
SE"):
Net
Number
=
(A
x B) -
(A
x C)
B
For purposes of the foregoing formula
:
A
=
the total
numb
e
r
of shares
with respect to which thi
s
Warrant
is
th
en being
exercised
;
B
=
th
e Weighted Average
Price
of
the
Common Stoc
k
on the
trading da
y
immediately preceding the date of the delivery
of
the
Exerc
ise
Notice;
and
C=
the
Warrant Exercise
Price then
in effect
for the
applicable War
ran
t Sha
re
s at
the time
of
s
uch exercise.
(f) Book
-
Entry. Notwithsta
nd
ing anything
t
o
the
contrary set
forth
herein,
upon
exe
r
c
i
se
of
thi
s
Warrant
in
accordance with
th
e term
s
hereof, the Holder
s
hall not be
requir
ed
t
o physically surrende
r
thi
s
Warrant to
th
e Company
unless it
i
s
being
exercised
for
all of
the
Warrant Shares rep
re
se
nted by the Warrant. The Holder
and
the
Compa
n
y
sha
ll
maintain record
s
showing
the number
of
Warrant
S
h
ares
exerci
se
d and
iss
ued
and the date
s
of such exercises or sha
ll
use
such other
method, reasonably
sat
i
sfac
tory to the Holder and the
Company, so
a
s
not
t
o
require phy
s
ical
surrender
of this
Warrant
u
pon
each
s
uch exercise.
In
t
h
e event of
any di
s
pute
or d
i
screpancy,
s
uch
records
o
f
the Company
establi
s
hing the number
of
Warrant Share
s
to which the H
o
lder is
entitled shall be controlling
and determinative in
th
e absence of
demonstrable
error. Notwithstanding
the
foregoing,
if this Warrant is
exerc
i
sed
as
aforesaid, t
h
e
Holder
ma
y not
tran
sfe
r
t
hi
s Warra
n
t
unless
the
Hold
er
fir
s
t ph
ys
i
cally surrenders this Warrant
t
o
t
he
Company, whereupon
the
Company will
forthwith issue
and
deliver upon the
order of
the
Ho
lder
a
new Warrant of
lik
e
tenor
,
registered as
the
Ho
lder
may request
,
representing
in
the aggregate
t
he remaining
number
of Warrant Shares
repre
sen
ted by
t
h
is
Warrant.
The
Holder
and
any assignee
,
by acceptance of
this
Warra
n
t,
a
ckno
wledge
and ag
r
ee
that
,
by
re
ason of the
pr
ov
i
s
i
ons of t
hi
s
paragraph, following exercise of
a
n
y
portion of
thi
s
Warrant
,
the number of Warrant
Shares
represented by thi
s
Warrant
may
be
l
ess
than
the
number
stated o
n
the face hereof.
Each Warrant shall bear
the following legend:
ANY
TRANSFEREE
OF
TH
I
S
WARRANT
SHOULD CAREFU
L
LY
REVIEW THE
TERMS OF
THIS WARRANT
,
I
NCLUDING SECT
I
ON 2(1)
HEREOF
.
THE
SECURIT
IE
S REPRESENTED
BY THIS
WARRANT
MAY
BE
LESS THAN THE
NUMBER
SET
FORTH ON
TH
E
FACE HEREOF PURSUANT TO
SEC
TI
ON 2(1)
HEREOF
.
(g)
Co
mpany to Reaffirm Obligations. The Company will
,
at the time of
eac
h
exercise of this
Warra
nt
,
u
pon
the request
of the
Holder
,
acknow
l
edge in writ
i
ng
it
s
co
nt
inuing obligation
to
afford
to
s
uch
Holde
r
all
rights
to
whic
h
such
Holder
is
entitled after
s
uch
exercise in
accordance
with
the terms
of
this Warrant; provided
,
however
,
that
if th
e
Holder
s
hall fail to make any such request
,
then
such
failure
s
hall
not affect the cont
in
uing
obligation
of the Company to
afford
such
rights t
o s
uch Holder.
S
e
ct
i
o
n
3.
(a)
Repr
ese
ntati
ons and
Warrantie
s
of
the
Compa
n
y. T
he
Co
mpan
y
h
ereby
repre
se
nt
s a
n
d warrants
that
eac
h
of the
representations
an
d
wa
rran
ties
of
the Co
mp
any
and its
s
ubsidiaries
set
f
o
rth in
the
Transaction Docu
m
ents (as defined in t
h
e
Securities
Purchase
Agree
m
ent) are true and correct
as
of
the date
he
reof,
each
such
r
e
pre
senta
ti
o
n
a
nd
warranty being
h
ere
b
y
incor
po
rated
by
reference
herein
,
mutatis mutandi,
for
all
pu
r
poses.
(
b
)
Cove
n
a
nt
s
as to
Common
Stock. The
Com
pan
y
hereby covenants and agrees
as
fo
ll
ows:
(
i
)
Thi
s
Warran
t i
s, and any Warrants
i
ss
ued
in
s
ub
stit
uti
on
for
or
replacement
o
f
th
i
s Warrant w
ill
up
o
n
issuance be,
duly
aut
h
orized and
val
idl
y
issued
.
(i
i
) A
ll
Wa
rr
a
nt
S
h
ares t
h
at
ma
y
be
issued
upon
the ex
ercise
of t
h
e rig
h
ts
represented by thi
s
W
arr
a
nt
s
h
a
ll
be duly authorized
and
w
ill
, upo
n
i
ss
uan
ce,
be
val
idl
y
i
ss
u
ed
,
fu
ll
y
paid
and nonassessable an
d
free
fr
om a
ll
tax
es,
li
ens and c
ha
rges wit
h
res
pe
ct to
the
i
ss
ue
thereof
.
(
iii
)
During
th
e
period
w
ithi
n
which
th
e
rights represented
b
y
thi
s
Warrant may be
exercised, t
h
e Co
mpan
y
wi
ll
at
all
time
s
h
ave au
th
orized
an
d
reserved
, so
l
ely
for
issua
n
ce
a
n
d de
l
ivery
upon
exe
rci
se o
f thi
s
W
arr
ant,
at l
eas
t 11
0%
of
t
h
e
number
of
s
hare
s of Com
m
o
n
Stoc
k
needed
to
pro
v
ide for
t
h
e exe
r
cise
o
f the right
s
then represented
by this Warrant.
(iv)
The
Co
m
pany sha
ll n
ot close
it
s
book
s
against
th
e tra
n
sfer
o
f thi
s
Wa
rr
a
nt
or
any Warrant Sha
r
es
i
n a
n
y
manner
w
hi
ch
in
terferes w
i
t
h
the
ti
m
e
l
y
ex
e
r
c
i
se
of
thi
s
Warrant in
a
cco
r
da
n
ce wi
th
the term
s
her
eof.
(v) The Compa
n
y s
h
a
ll
as
sist
and
coo
perate
with the
H
old
er
in
m
a
ki
ng
a
ny required governmen
t
al fi
l
i
n
gs
o
r
obta
inin
g any
r
e
q
uired governmen
tal
a
pprovals
pri
or
to
or
in connection
w
ith
any exe
r
cise of this Warrant
(including
,
witho
ut
l
i
m
it
ation, making any fil
in
gs req
ui
re
d
to be made
b
y
t
he Co
mpan
y)
.
(v
i
)
If
the
Pr
in
c
ipal
Mar
k
e
t
require
s
,
the
Co
mpa
ny
s
hall
promptly sec
u
re
the li
st
ing
of t
h
e shares of
Commo
n
Stock
issuable upon exercise
of
t
hi
s Warra
n
t on
the Principa
l
Ma
rket
(subject to
o
fficial
n
o
ti
ce of
issuance upon exercise
of
th
i
s
Wa
rr
ant) and eac
h
othe
r
market
o
r
excha
n
ge o
n
which t
h
e
Co
mm
on
Stock
i
s
traded
o
r
l
isted
and sha
ll mai
n
t
a
in
,
so
lon
g as
an
y ot
h
e
r
s
hares
of Co
mm
o
n
Stoc
k
s
h
a
ll
be so traded or
li
sted
,
s
u
ch
li
s
tin
g
of a
ll
sha
re
s of
Com
m
o
n
Stoc
k
fro
m
time
t
o time issua
bl
e upo
n
the exe
r
c
i
se
o
f thi
s
Warrant
;
a
n
d
if th
e P
rin
cipa
l
Ma
rket
requires
,
the Co
mpan
y sh
all
so
list
o
n
th
e P
rin
cipal Ma
r
ket an
d
eac
h
ot
h
e
r m
a
r
ke
t
or exchange on which
the
Com
mon
Stock is traded or
li
s
ted
and sha
ll
maintain
s
u
ch
listing
of, any other
s
hare
s
of Cap
i
tal Stock of the Compa
n
y
i
ss
u
ab
l
e upo
n
t
h
e exercise of this Warrant
i
f an
d
so
long
as
an
y sh
ares
o
f the
sa
me cla
ss
s
h
a
ll
be
li
ste
d on
the
Prin
cipa
l
Market
an
d
eac
h
othe
r
mar
k
et or exc
h
a
n
ge on which
the
Co
m
mon Stock
i
s
tra
ded or
li
sted
.
(v
ii
)
Th
e Co
mpan
y
wi
ll n
ot, by a
m
e
n
dme
n
t
o
f
its
Articles of
In
co
rp
oration or throug
h
a
n
y
reorganization, transfer
of
as
sets,
consolidation,
merger,
d
i
sso
lut
ion,
i
ss
u
e or
sa
l
e of
sec
u
rities, or any
othe
r
vo
l
u
n
tary act
i
on. avoid or
see
k to
avoid the observance or perfo
rm
ance of any of
the
t
erms
to
be
obs
erved
or pe
rf
ormed by it hereunder,
but
w
ill
at a
ll
times in
good faith ass
i
st
i
n t
h
e carry
in
g
o
u
t of
a
ll
the
prov
i
s
i
ons of
thi
s
Warrant and
in th
e ta
kin
g of
all
s
u
c
h
action
a
s
ma
y
reasonably be
r
eq
ue
s
t
ed
by the
Ho
l
de
r
in
order to protect the exerc
i
se privi
l
ege o
f
the
H
o
ld
er
again
s
t
impa
irm
e
n
t. cons
i
ste
n
t with the
t
e
nor
and
pur
pos
e
of this Warrant.
W
ith
out
limi
ting
th
e
ge
n
era
lit
y of the foregoing, t
he
Co
m
pany (A) will
n
o
t
i
n
crease the
par
value of any
s
hares
o
f
Common Stoc
k
rece
i
vab
l
e upon the exercise of
thi
s
Warrant
above
$0.
0
00
I per
sha
re
.
a
n
d (8) w
ill
take
all such actions as
m
ay be
nece
ssary
or approp
ri
ate
in
o
r
der that
the
Compa
n
y
m
ay
va
l
idly and
le
ga
ll
y
i
ss
u
e
fully
pa
id
and
n
onassessab
l
e s
h
ares of Co
mm
o
n
Stock
u
pon t
h
e exe
r
cise
o
f
t
hi
s
Wa
r
ra
nt
.
(v
i
i
i
)
This Warrant
wi
ll
be
b
i
n
di
n
g u
p
o
n
a
n
y
entity
succeed
in
g
to
t
h
e Co
m
pa
n
y
by
mer
ger,
consolidation
o
r
acqu
isiti
o
n
of
all
or s
ub
s
tantiall
y a
ll
of
the
Co
mpan
y's assets
.
Sec
ti
on 4.
Taxes. The
Co
mp
any s
h
a
ll
pay
an
y
an
d
a
ll
taxes (exclud
in
g
in
co
m
e taxes,
franchi
se
ta
xes
o
r other
t
axes
l
evied on g
r
oss
earnings, profits
or
t
he
like
of
the
H
olde
r
)
th
at
may be
pa
yab
l
e
with re
s
pect
t
o
the
issuance and d
e
li
very of
Warrant
S
h
a
res upon
exerci
s
e of
thi
s
Warrant.
Section 5.
(a)
Fiduciary
Duties
of
the
Compa
n
y. The Co
m
pa
n
y ack
n
ow
l
edges
and
agre
es
that
,
for
so
lon
g as
any
of
the Warrants are outstanding and
re
g
ardl
ess o
f
whether
th
e
Holder hereof
ha
s
exercised any portion
of t
hi
s Warra
nt,
(i) t
h
e
officers and directors
of
the
Comp
an
y w
ill
owe
th
e
same
duti
es
(fiduciary
an
d
ot
h
erw
i
se)
to the
H
ol
d
e
r
as
a
re owed
to
t
he
o
ther holders
of Com
m
o
n
Stock
a
nd (ii) th
e
Holder will
b
e enti
tled
to
a
ll right
s
and
r
emed
ies
with respect to
s
u
ch dut
i
es or
that are
ot
h
erw
i
s
e available
to
a s
hareh
o
l
der
of
th
e Com
p
any
under
the Delaware
Gene
ral
Corporation
Law,
a
s a
m
ende
d f
ro
m
time
t
o
t
ime.
(b) Wa
rrant
Holder
Not
Deem
e
d
a Shareholder. No
Hold
er,
as such, of
thi
s
Warrant
sha
ll
be
e
n
t
it
led
to vote
or
recei
ve
dividends
o
r
be
d
eemed
the
h
o
l
der o
f
shares of
the
Co
mpan
y
for
an
y
purpo
se
(o
th
er t
han t
o
the extent
t
hat
th
e
Holder is
deem
ed
to
be a beneficial holder of sha
r
es
under applicable
sec
u
r
ities law
s
after taking
int
o
account the
limitation
se
t
forth
in
the
fir
s
t
paragraph
of
thi
s Wa
rra
nt),
n
o
r
s
hall anything contained
i
n
this
Warran
t be
const
r
ued to con
fe
r upon the
Holder
,
as such, any of
the right
s
o
f
a
share
h
o
ld
er of
the
Com
pan
y
or
any
r
i
g
ht t
o vote, give or withho
ld
consent
to
any corporate
acti
o
n
(whether any
r
eo
r
g
anizati
o
n
,
is
s
u
e o
f
stock,
recla
ss
ifi
c
ati
o
n
of
s
t
ock, co
n
so
lidation
,
mer
ger, conveya
n
ce o
r
o
therwise)
,
receive
notice of
meeting
s,
receive dividend
s
or
subscription rights
,
or otherwise,
prior
to
t
he
Deemed
I
ssu
ance Date of
th
e
Warrant
S
har
es
that
s
u
c
h H
o
ld
e
r
is
th
e
n
entitled
to
recei
ve
upon the
due exercise of
this
Warrant.
In
add
iti
o
n
,
nothing
co
ntained in thi
s Warra
nt
s
hall be
construed
as imposing
a
n
y ob
li
gat
i
on o
n
s
uch
H
older
to purchase any
sec
uriti
es
(upon exercise
of
thi
s Warra
n
t or ot
h
erwise) o
r
as
im
pos
in
g
any
liabi
l
i
ty o
n
s
u
c
h
Holder
as
a
sha
r
e
h
o
lder
of
the
Com
pan
y,
whether
s
uch
ob
ligati
o
n
o
r li
ab
ilities
are
asse
rted
by
the
Co
mpan
y o
r
by
creditors of
the
Compa
n
y. Notwithsta
ndin
g this Section
5, the
Co
mp
a
n
y
will provide the
Holder
with copies
of
the
sa
me notic
es
and
ot
h
e
r i
nformatio
n
g
i
ven
t
o
the
s
h
are
h
olders o
f
the
Com
p
a
n
y
ge
n
e
r
a
ll
y, co
n
te
mp
o
r
aneo
u
s
l
y
w
i
t
h
the g
i
v
in
g
thereof to the
shareho
lder
s.
(c)
No
Effec
t
on
Lender Relation
s
hip
.
T
h
e Company
acknowledges
an
d
agrees that
,
notwith
s
tanding anything
in
t
h
is
Warrant
or
the Loan
Agreement to
the c
o
ntra
ry,
nothing
con
ta
i
n
ed i
n
thi
s
Warrant
s
hall
affect,
limit
o
r imp
a
ir the ri
g
ht
s
and
remedies
of
any
H
o
ld
e
r
or any
of
it
s
affiliates
(i)
in it
s o
r
their
capacity as
a
l
ende
r to
the Co
m
pany or any o
f
its
s
u
bsidiar
i
es
pursuant to any
agreement
under
wh
i
c
h
the Company or a
n
y of its su
b
s
idi
aries has bo
rr
owe
d
money
,
including
,
with
o
ut
l
imit
ation,
th
e
Loan
Agreement
,
or (ii) in
its
or
th
e
ir cap
ac
ity as
a
l
e
nder t
o a
n
y
other Person who
ha
s
borrowed money.
Without
limitin
g
the
genera
lit
y of
the foregoing, any
such
Person, in exerci
s
ing its rights
a
s
a
l
e
nder
,
i
n
cludi
ng
making
its
deci
s
i
on o
n
w
heth
e
r
to fore
close
o
n
a
n
y co
ll
a
t
eral secu
r
ity, w
ill ha
ve no
duty
t
o co
n
side
r
(x)
it
s o
r an
y of
it
s affi
liate
s'
s
tatus
a
s a
Hold
er, (y) t
h
e
intere
s
t
s
of
the
Company or
it
s s
ub
s
idi
ar
ies
or (z)
any duty
it m
ay
have
to
any
other
h
o
lder
s or
any
s
h
are
hold
ers o
f th
e Com
pan
y. excep
t
as may
be required
u
n
der
t
he
applicable
loa
n d
ocu
m
e
n
ts or by
commercial law appli
c
able
to
c
reditors generally.
No co
n
sent,
approval,
vo
te
or
other
acti
on
taken
o
r requir
ed to
be taken by any Holder in
such
capacity
s
hall in
any way
impact
,
a
ffe
ct o
r
alter
th
e
right
s a
nd remedies
of
the H
o
ld
e
r
or any
o
f it
s affi
li
ates as
a
lende
r.
Sec
tion
6.
Repre
se
ntati
o
n
s o
f
Holder.
The H
o
lder
,
b
y
the a
ccepta
nce h
e
reof
,
repre
se
nt
s
that it i
s acq
uiri
ng
thi
s Warrant,
and
u
po
n
exercise hereo
f
(other
than purs
uant
to
a
Cashle
ss
Exerci
s
e) will
acq
uire
the Warrant
Shares,
f
or
i
ts ow
n
accou
n
t and
n
ot with a view towar
d
s
,
or fo
r r
esale
in
co
n
nect
i
on wi
th
,
the
public
s
ale
or
distribution of this Warrant
or
the Warrant
Shares,
except
pur
s
uant
to
sa
le
s
regi
stere
d
or exempted under
t
he
Secu
r
ities
Act
;
provided,
h
owever,
that
b
y
making
the represe
n
ta
t
i
o
ns here
i
n
,
the Holder does
n
ot
agree to
hold
this Warrant
or
any of
th
e
Warrant
Sha
res
for any
m
inim
um
o
r
ot
her
specific terms
and
reser
ves
the
right to dispose of this Warrant and the Warrant Share
s
at any
time in
accordance
w
ith
o
r
pursuant
to a registrat
i
o
n
s
tat
eme
nt
or
a
n
exemptio
n un
der
the
Secu
ritie
s
Act. The
H
o
ld
er
further represent
s,
by acceptance hereof, that, as
of
this date,
such
Holder i
s
an
"
accredited investor" as
suc
h
term
i
s
defined
in
Rule 501(a)
of
Regulation
0 promulgated by the Securities
and
Exchange
Co
mmi
ss
ion u
nde
r
the
Securities
Act
(a
n
"ACCRED
ITED
INVESTOR").
Each
delivery
of
an Exerci
s
e
Notice,
o
ther than in
con
nection
with
a
Cas
hles
s Exercise
,
sha
ll
constitute confirmation
at suc
h tim
e
by
the
Holder of the representations concerning
th
e
Warrant
S
hare
s set
forth
in
the first two
sentences
of thi
s
Section
6
.
unless
contemporaneous
wi
th
the delivery
of s
uch
E
xercise
Notice,
the Holder
n
otifies
the
Company
in
wr
itin
g t
hat
it i
s
not
m
ak
ing
s
u
c
h repre
sentat
i
o
n
s (a "REPRESENTATION NOT
I
CE").
Sect
i
on 7.
Owner
s
hip
and Transfer
.
(a)
The
Company
sha
ll maint
a
in
at
it
s
principal executive office
s
(or
suc
h
other
office or
agency
of
the
Company
a
s
it ma
y des
i
g
nat
e
by
n
o
t
ice
t
o
the Holder)
,
a
regi
ster
for this Warrant, in which the
Compa
n
y
s
hall
rec
o
rd
the
n
a
m
e
and address
of
the per
so
n in who
se
name this
Warrant
h
as
been
i
ss
ued
,
a
s
well as the
name
an
d addre
ss
of each transferee. The
Co
mpany may
treat
the
person
in
whose
name
any Warrant
i
s
regi
s
t
ere
d
on t
he
regi
s
ter as the
ow
ner
and holder thereof
for
all purposes
,
notwithstanding
any
notice to the contrary
,
but
in all events recognizing
any
tran
s
fers made in accordance with
the
terms
of
this Warrant.
(b) This
Warrant and
t
h
e
rights
gran
te
d
hereunder
s
hall
be
assig
nabl
e
by
th
e
Holder without
the
consent
of
the
Co
mpan
y.
(c)
The
Co
m
pany
i
s Ob
l
igated to register the Warrant
Sha
re
s for
resale under the Securities Act pursuant to the Registration Rights Agreement, and the initial
Hold
er (and
assignees thereof) is
entitled
to the
re
g
istrati
o
n
rights in respect
of
the
Warrant
Sha
re
s
as
set
forth in
the Registration Right
s
Agreement.
Section
8.
Adjustment of Warrant
Exe
rcise
Price and Number
of
Warrant Shares.
The
Warrant Exercise Price
a
nd t
he n
umber
of s
har
es of
Common Stock
iss
uable
upon
exerc
i
se of
this Warrant
s
hall be adjusted from time to time
as
follow
s:
(a)
ADJUSTMENT OF WARRANT EXERCISE PRICE A
N
D
NUMBER
OF
SHA
R
ES UPON
I
SSUANCE OF COMMON
STOCK.
IF
AND WHE
N
EVER
ON
OR
AFTER
THE WARRANT DATE
,
THE
COMPANY
ISSUES OR
SE
LL
S, OR
IS
DEEMED TO HAVE ISSUED
OR SOLD,
ANY SHARES OF
CO
MMON STOCK (INCLUDING THE ISSUANCE OR
SALE OF
SHARES OF
COMMON
STOCK OWNED
OR
HELD BY OR
FOR
THE ACCOUNT
OF
THE
COMPANY
,
BUT
EXCLUDING EXEMPTED
IS
SUANCES (AS
DEFINED BELOW))
,
FOR A
CONSIDERAT
I
ON
PER
S
HA
RE
LESS THAN A PRICE EQUAL TO THE WARRANT
EXERC
I
SE
PRI
CE
IN
EFF
ECT
IMMEDIATELY
PRI
OR
TO
SUC
H
ISSUANCE
OR SALE (THE
"A
PPLICABLE PRICE
"),
THEN
IMM
EDIATELY
AFTER SUCH
I
SSUE OR
SALE THE WARRANT EXERCISE PRICE THEN IN
EFFECT
SHALL BE REDUCED TO AN AMOUNT EQUAL TO
SUCH CONSIDERATION
PER
SHARE. UPON
EACH
SUCH
ADJUSTMENT
OF
THE WARRANT
EXERC
I
SE
PRICE PURSUANT TO
THE
IMM
EDIATELY
PRE
CEDING SENTENCE,
THE
NUMBER
OF
SHARES OF
COMMON
STOCK
ACQUIRABLE UPON
EXE
R
C
I
SE
OF THIS WARRANT
SHA
LL
BE
ADJUSTED TO THE
NUMBER
OF
SHARES
DETERMINED BY
MULTIPLY
I
NG
THE WARRANT EXERCISE PRICE
I
N
EFFECT IMMEDIATELY PRIOR TO
SUCH
ADJUSTME
N
T BY THE
NUMBER OF S
HAR
ES
OF
COMMON STOCK
ACQU
I
RABLE
UPON
EXERC
I
SE
OF T
HI
S WARRAN
T
IMMEDIATELY PRIOR T
O
SUCH AD
J
USTM
E
NT AND DIV
ID
ING THE
PRODUCT THEREOF BY
THE WARRANT EXERC
I
SE
P
R
I
CE
RESU
LT
ING
FR
O
M
SUCH
AD
JUSTM
ENT. FO
R
PURPOSES
OF
THI
S
WARRANT,
"EXEMPTED
I
SSUANCES
"
SHALL MEAN:
(
I
)
SHARES
OF
COMMON
STOCK
I
SSU
ED
OR
DE
E
MED
TO
BE
I
SSUED BY
THE
C
OMPANY
,
PROVIDED THAT THE NUMBER OF SUCH SHARES ISSUED
O
R
DEEMED
TO
B
E
ISSU
ED
IN 201
1
DOES
NOT
EXCEED
10
.
0
%
OF THE NUMBER
OF
OUTSTANDING SHARES
O
F
COMMON
STOCK
AS OF DECEMBER
3
1
,
20
1
0 OR (II)
SHARES
OF
CO
MMON STO
C
K
I
SSU
E
D O
R
DEEMED
TO
BE
ISS
UE
D
BY
TH
E COM
PA
NY
UPON
EXERC
I
SE
OF
TH
E SPA
WARRANTS.
(b)
Effec
t
on Wa
rr
a
n
t Exe
r
c
ise
Pri
ce
o
f
Ce
rtain
Eve
nt
s. For
pur
poses of
determining
th
e adjus
t
e
d
Warra
n
t Exercise
Price u
n
d
er
Sectio
n
8(a)
,
t
he fo
ll
owing
s
h
a
l
l
b
e
applicable
to
i
ssu
an
ces
ot
h
e
r
than
Exempted
I
ss
uance
s:
(i)
I
ss
uan
ce of
Opt
i
o
n
s.
I
f
t
he
Compa
n
y
i
n
a
n
y
m
an
n
e
r
g
rant
s o
r
sells
a
n
y O
p
tio
n
s
and
the
l
owes
t pri
ce
per
s
h
a
r
e
for
w
hich
o
ne
s
h
a
r
e of
Common
S
t
oc
k
i
s
i
ss
uabl
e
u
po
n
the
exe
r
c
i
se o
f
a
n
y suc
h
Opti
o
n
o
r
u
p
o
n
conversion,
exchange or
exe
rci
se o
f
a
n
y Co
n
vert
ibl
e
Sec
uritie
s
i
ssuab
l
e
upon
exerc
i
se of any s
u
c
h Opti
o
n
i
s less than
t
he
App
l
icab
l
e
Pri
ce,
the
n s
u
ch s
h
a
re
of
Co
mm
on
Stock
sha
ll
be
de
e
med
t
o be o
u
tsta
ndin
g a
nd t
o
h
ave
be
e
n i
ss
u
ed a
nd
so
ld
by
th
e
Co
mp
any
at th
e
time
of
the
g
r
a
ntin
g
o
r
sa
le
of s
u
ch O
pti
o
n
for
such
pric
e
per
s
h
a
re
.
For
p
urp
oses o
f
t
hi
s Sect
i
on
8(b)(i)
,
the
"
l
ow
e
s
t
price per
s
h
a
r
e
f
or which
o
ne
s
h
are of
Co
mmon
Stock
i
s
issuable upon
exer
ci
se
of any
s
u
c
h
O
pti
on or
u
pon
conve
r
s
ion
,
exc
h
ange or exerc
i
se
o
f any
Co
n
vertib
l
e
Se
c
urity
i
ssuab
le u
po
n ex
e
r
cise
of
any s
uch
O
ption
" s
h
a
ll
be eq
u
a
l t
o
t
he su
m
o
f the
l
owest amou
n
ts
of co
n
s
id
eratio
n
(
i
f a
n
y)
received or
receivab
l
e by
th
e Co
mpany
wi
th r
espect
to
anyone
s
hare
of Co
mm
o
n
S
tock
upon
th
e
granting o
r
sale
of
suc
h
Option,
u
pon exercise
of suc
h
Option and upon conversion, exchange
or
exerc
i
se
o
f
any Convert
ibl
e Security
i
ss
uabl
e
u
pon
exe
r
cise of
su
ch
Option.
No
furth
er a
dju
s
tm
en
t
of t
h
e Warra
n
t Exerc
i
se P
ri
ce
sha
ll be
made upon
th
e
actual
i
ss
uan
ce of s
u
c
h
C
omm
o
n
St
oc
k
or
of
s
uch
Co
nverti
b
l
e Secur
ity
up
o
n
the
exerc
i
se of
such Optio
n
or
upon th
e
actual
i
ssu
an
ce o
f
suc
h
Co
mm
o
n
S
t
ock upo
n
conve
rsi
o
n
,
exchange
or
exe
rc
ise
o
f such
Co
n
ve
rti
b
l
e Sec
urit
y.
(i
i
)
I
ssuance of Conve
rtible
Sec
urit
ies
.
If
th
e Com
pan
y
in any
manner
iss
u
es o
r
sells any
Co
n
vert
i
ble
Securi
t
ies
a
n
d t
h
e
l
owest
pri
ce
per
sha
re for
w
h
ich
o
n
e
share
of
Com
m
o
n
S
t
ock is
i
ss
uable
u
pon
the
co
nver
sio
n
,
exc
hange
o
r
exer
c
i
se
ther
eof
is l
ess
than
the
Appl
ica
bl
e P
ri
ce,
then
s
u
c
h
share o
f
Co
m
mo
n
S
t
ock sha
ll
be
deem
e
d t
o
be
o
u
tst
a
n
ding a
nd
to
h
ave bee
n
issued
a
nd
so
l
d by
th
e Co
mpan
y
at
the time
of
the issuance
or
sa
l
e of
s
u
c
h
Co
n
ve
rtible
Sec
uriti
es
for
s
u
c
h pri
ce
pe
r
s
h
are.
F
or
th
e
purposes
o
f
thi
s
Section 8(
b
)(ii),
the
"
l
owes
t
price
per
s
hare
f
or
which
one
s
h
a
re of
Co
mmon
S
tock
i
s
issuable
u
pon s
u
ch co
n
ve
r
sio
n
,
excha
n
ge o
r
exe
r
cise" s
h
a
ll
be eq
u
al
t
o
th
e s
um
of
the
l
owes
t
a
m
o
u
nts
of
co
n
s
ider
ation (
if
any)
re
ceived
or
rece
i
vab
l
e
by th
e Co
mp
a
n
y
wi
th
respe
ct
t
o
o
n
e
sha
re
of Co
mm
on
Stock
up
o
n
the
i
ssua
n
ce o
r
sa
l
e
of
a
n
y s
u
c
h
Co
n
ve
rtible
Security
a
nd
u
po
n
con
ve
rsion
,
exc
h
ange or
e
xerc
ise
of suc
h
Co
n
ve
rtible
Sec
u
r
i
ty
.
No
furt
h
e
r
adjustment
of
th
e
Warrant
Ex
erci
se
Pr
ice s
hall
be
ma
de
up
on
t
he
actual
i
ss
u
a
n
c
e
of
s
uch
Co
mm
o
n
S
t
oc
k
upon
co
n
v
er
s
i
o
n
,
e
xc
h
a
n
ge
o
r exer
cise
of
s
uch
Convert
ibl
e Secu
rity
,
a
nd
i
f any
s
uch
issue or
sale o
f
suc
h
Conve
rti
b
l
e Sec
u
rity
i
s
mad
e
u
pon exercise o
f
an
y
Op
t
io
n
f
or which ad
ju
st
m
e
nt
o
f
th
e Warrant
Exe
rcise
Price
ha
d
been
or
are
t
o
be
made p
u
rsua
n
t
t
o
o
t
her
pr
ov
i
s
i
o
n
s o
f
thi
s S
ection
8(
b), n
o
furth
er
adju
s
tment
of
the
Warra
nt
Exerc
i
se Pr
i
ce
s
h
a
ll be
made
b
y
r
easo
n
of
s
u
ch iss
ue
or sa
l
e.
(
i
ii)
C
hange in
Option
Price
o
r
Rat
e of Convers
i
o
n
.
If th
e
purcha
s
e
,
ex
c
h
a
n
g
e
or exercise
p
rice
p
rov
id
e
d
for
in
an
y
Opt
i
ons,
th
e
a
dd
i
tional
considera
ti
on,
i
f
an
y, paya
bl
e u
p
o
n
th
e
i
ss
u
e,
conve
rsi
o
n
,
exchange
or
exe
rci
se o
f an
y Co
nvertible
Secur
iti
es
,
or
th
e
rate
at wh
i
ch
a
n
y
Optio
n
s
or Conve
rtibl
e Sec
u
rities are
co
n
vertib
le
int
o o
r
e
xc
h
a
n
geable or exercisab
l
e
fo
r
Co
mm
on
S
t
oc
k
changes at
an
y
tim
e,
the Warr
an
t
Exe
r
cise
Price
in
e
ff
ec
t
a
t t
he ti
m
e o
f
s
u
c
h
change sha
ll
be
a
dju
sted
to
t
h
e
Warra
nt
Exercise
Pri
ce
t
h
a
t
wou
l
d
have been
in
effect a
t
s
uch time had
suc
h
Options or Convert
ibl
e
Sec
urities pro
vi
d
e
d
f
o
r
such
cha
n
ged
p
ur
chase, exchange or exerc
i
se
price, add
i
t
i
o
n
a
l
co
n
s
id
erat
i
o
n
o
r
cha
n
ged conversion
rat
e, as
th
e case
m
ay be, at the time
i
nitially granted, issued or sold and the number
of s
h
ares o
f
Common Stoc
k
acq
uir
ab
l
e
h
ere
under
s
h
a
ll
be
corres
pondin
g
l
y
re
adjuste
d
. Fo
r
purpo
ses
of
thi
s Sec
tion
8(b)(
i
ii),
if
t
h
e
ter
m
s of any Optio
n
o
r
Co
n
ve
rtible
Sec
ur
i
t
y
that was outsta
n
d
in
g as
of the date of issuance of
t
his Warrant are changed
in
the man
n
er
described
in
t
h
e
immediately
prec
ed
i
ng
sen
t
e
nce
,
then
s
u
ch O
pti
on or Convert
ible
Sec
uri
ty and
the
Co
mm
on Stoc
k d
ee
m
e
d i
ssuab
le up
o
n
exercise, co
n
vers
i
on
or
excha
n
ge
ther
eof s
hall
be
deemed to have been issued as of the
date
of
suc
h
c
hange.
No
adjustment
s
hall
be made if such
a
djustm
en
t
wou
l
d result
i
n a
n
i
n
c
rea
se o
f
t
h
e
Warra
n
t Exe
r
c
i
se
Pr
i
ce t
h
e
n
in effect.
(c) Effect on Warrant Exercise Price of Certain Events. For p
u
rposes of determi
n
ing
the
adjusted Warran
t
Exercise
Price
under Sectio
n
s
8(a) an
d
8(b),
the
fo
l
lowing
sha
ll
be appli
ca
ble
:
(
i
)
Calc
ulati
on
of
Co
n
s
iderati
o
n Recei
ve
d. In
case any Options are
i
ss
ued
in
con
n
ect
i
on
wit
h
t
h
e
i
ssue o
r
sale of
o
t
he
r
sec
uriti
es
of
the
Com
pan
y
,
t
og
ether
co
m
pr
i
si
n
g o
n
e
inte
g
rated transa
ct
ion
or
se
ri
es of
related
transact
i
o
n
s
,
(A)
th
e
Options wi
ll
be deemed to
h
ave been
i
ss
u
ed
for a co
n
s
ideration
equa
l
to the
greater
o
f
$0.0
I
and
the
spec
ific
agg
re
gate co
n
siderat
i
on,
if
a
n
y,
all
oca
ted to
s
u
c
h
Opt
i
o
n
s
(in e
ith
er case,
th
e
"
OPTION CONSIDERATION") and,
f
or
purpo
ses of
applyi
n
g
the provi
sio
n
s
of this Section 8, t
h
e Option
Consi
derati
on s
hall
be a
ll
ocated pro rata a
m
ong a
ll
t
h
e
sha
r
es
of Common S
to
ck issuab
l
e
upon exercise of
s
uch Option
s
to
determine
th
e co
n
s
id
erat
i
o
n
per
eac
h
suc
h
s
har
e
of Common
Stock
and
(B)
the
ot
her
securities
will
be dee
m
ed to have
b
een issued fo
r
an
aggregate cons
i
derat
i
on equal to t
h
e
aggregate consideration
received
b
y
t
h
e
Com
pan
y
for
the
Options and o
t
her sec
uri
ties
(determined
as
pr
ovided
below with re
s
pect to
eac
h
s
h
a
r
e of Commo
n
Stock
repre
se
nted
thereby)
,
less the
sum of (I) the Black-Scholes Value (as defined below) of
s
uch
Opt
i
ons
and
(2)
t
h
e Option
Consi
d
era
ti
o
n
.
I
f any
Commo
n
S
t
oc
k
,
Opt
i
ons
or
Co
n
vertib
l
e Sec
u
r
i
ties are
i
ss
u
ed
o
r
so
l
d
o
r deem
ed
to
ha
ve bee
n i
ssued o
r
sold
for
cas
h
,
the consideration
received
therefor wi
ll
be
deemed
to be
th
e net amou
n
t received
b
y
the Co
m
pany
theref
or.
If
any Common Stock
,
Op
ti
o
n
s or
Convert
ibl
e Secu
riti
es are issued o
r
sold
fo
r
a
co
n
side
rat
io
n
ot
h
er
than
cash
,
the
amou
n
t of
s
u
c
h
considerat
i
o
n
r
ece
i
ved
by
the
Company w
ill
be t
h
e fair va
lu
e
of such co
n
siderat
i
o
n
,
except where
such co
nsiderat
ion
consists
of
market
ab
l
e securities,
in
wh
ich
case
the
amount of co
n
sideratio
n
received b
y
t
h
e Compa
n
y wi
ll
be
th
e Weighted Average
Pri
ce of s
uch
sec
uritie
s
on t
h
e date of
rec
ei
pt
of
s
u
c
h
sec
u
r
i
t
i
es.
If an
y Co
mm
on Stock, Options or Convertible Sec
ur
ities
are
issu
ed
to
t
he
owne
rs
of the non-surviving e
nti
ty
in
connection wi
t
h
any merger
in
w
hi
c
h
the
Co
mp
any
is
th
e
s
urviving
ent
ity
,
the amount
of
con
s
ideration therefor
w
ill
be
deemed to
b
e
th
e
fa
ir
va
l
ue of suc
h
porti
o
n
o
f the
net asse
t
s and
b
u
s
in
ess
of the non
-
surviving entity as
i
s
attributab
l
e
t
o
suc
h
Common Stock, Op
t
ions
o
r
Convertible Sec
u
r
i
ties,
as
t
he case may
be
.
The
fair v
alue of any
co
n
si
d
erat
i
o
n
ot
h
er
than
cas
h
o
r
sec
uritie
s
w
ill b
e dete
rmin
ed
jointly
by
the
Co
mpan
y and
th
e
H
older.
If
s
uch parties
arc
unable
to
reach
ag
r
eement w
ithi
n ten
(
10)
days after the occurrence of an event
r
equiri
n
g
v
aluat
io
n
(
t
he
"V
ALUATION
EVENT")
,
t
h
e
fa
ir
va
l
ue
o
f
suc
h
co
n
s
id
e
r
at
i
o
n
w
i
ll be
determin
ed w
ith
in
fi
ve (5) Busi
n
ess D
a
ys after
the
tent
h
(10th) day
follow
in
g the Va
lu
ation Event by
an indep
ende
n
t,
reputa
bl
e appraiser jointly selected by the Company a
n
d the
Holder. The
dete
rmi
natio
n
of
suc
h
a
ppraiser
s
hall be
fina
l
a
nd
b
ind
i
n
g
upon
all parties abse
nt
dem
o
n
s
tr
ab
l
e error, and
t
he fees and expe
n
ses
of s
u
ch appra
i
ser s
hall
be
borne
by the Company.
(
ii
)
Rec
o
rd
Date.
If
th
e Co
m
pany takes a reco
r
d
o
f
t
h
e
holder
s o
f
Co
mmon
Stock
f
or the purpose of
en
titlin
g
them (1)
t
o
receiv
e
a
di
vidend or other distribution payable in
Co
m
mon
Stoc
k
,
Options or
in
Co
nvertible
Securities
or
(2)
to
sub
sc
ribe f
o
r
or
pur
c
h
ase Com
m
o
n
Stoc
k
, Optio
n
s or
Co
n
vertible
Secur
itie
s
,
t
h
e
n
such
record date will be
deem
ed
to be
the
date
o
f
t
h
e
i
ssue
o
r
sale of
the
s
h
ares
of
Common Stock
deemed t
o
have been issued
o
r
so
l
d
u
pon
t
he declara
ti
on
of
such
di
v
idend
or
the
makin
g of s
u
c
h
other
di
s
tribution
or t
he
date
of
the
gra
ntin
g
of
s
uch
right of
s
ub
sc
ripti
on o
r pur
chase,
as
the case
may
be.
(ii
i
)
B
la
ck-Scho
l
es Va
l
ue.
Th
e
"
B
L
ACK-SC
H
OLES VALUE" of
any
Op
t
i
o
n
s
s
hall
mean t
h
e s
um
of
t
h
e a
m
ou
n
ts
r
es
u
l
t
i
n
g fro
m a
p
pl
y
i
ng
t
he B
l
ack-Scholes pr
i
c
i
ng model
t
o eac
h
suc
h
O
p
t
i
on,
w
hi
c
h
ca
l
c
ul
a
ti
on
i
s
m
ade w
i
t
h th
e fo
ll
ow
i
ng in
p
uts: (
i
) t
he
"
optio
n
stri
ki
ng price
"
be
i
ng equ
a
l
t
o
t
h
e l
owes
t
exercise
pri
ce
poss
i
b
l
e
u
n
der
t
h
e te
rm
s
o
f
s
u
c
h
Op
tion
on
t
he d
ate o
f th
e
i
ss
uan
ce
of
s
u
c
h
Op
t
ion (t
h
e
"VALUATION
D
ATE"), (i
i
) the
"
i
nterest rate
"
being
equa
l
to
t
he inte
r
es
t r
a
t
e
o
n
one-year
Un
i
ted Sta
t
es Treas
u
ry B
i
lls
i
ss
u
ed
most rece
n
tly p
r
ior to t
h
e Valuation Date
,
(
i
i
i
) the
"
t
ime unti
l
o
p
tion ex
p
iratio
n
" being
th
e
ti
me
f
ro
m th
e Va
lu
at
i
o
n D
ate
until th
e
expir
a
ti
o
n d
ate
o
f
s
u
c
h
O
pti
o
n
,
(
i
v)
th
e
"c
urr
ent stoc
k
p
r
ice" being e
q
ua
l
to the Weig
h
ted Average Price of the
Co
m
mon Stock
on
the
Val
u
ation Date
,
(v)
t
h
e
"
vo
l
at
il
ity
"
bei
n
g the
1
00
-
day h
i
sto
r
ica
l
vo
l
at
i
l
i
ty
of
t
he
Common S
t
oc
k
as
of
t
h
e Val
u
at
i
on D
at
e (as re
p
orted
b
y
th
e
B
l
o
om
berg "
H
VT" sc
r
ee
n
),
an
d (vi)
th
e
"d
i
v
id
e
n
d rate" bei
n
g e
qu
a
l
to ze
r
o. W
i
t
hi
n
three
(3) Business Days after the
Co
m
pany
Va
l
uation Date, eac
h
o
f
the Com
p
a
n
y and
t
he Ho
ld
er
sha
ll
de
li
v
e
r
t
o
t
h
e ot
h
er
a w
ri
tten ca
l
c
u
lation
of
its
d
e
t
er
m
ina
t
io
n
of
t
h
e B
l
ac
k-
Scholes
val
u
e o
f t
he O
pti
ons.
If th
e
Ho
ld
e
r
and
th
e
Com
pan
y arc
un
ab
l
e
t
o
a
gree
up
on t
h
e calc
u
lat
i
on
of t
h
e B
la
ck
-
Sc
h
o
le
s
Value
of
t
he
Options
w
i
thi
n
five (5) Business Days
o
f th
e Val
u
at
i
on Date,
th
en t
h
e Com
p
a
n
y
s
h
a
ll
s
ubmit
v
i
a facsimi
l
e
t
he
dis
put
ed calc
u
latio
n
to a
n i
nvestme
n
t ban
kin
g
fi
rm
(join
tl
y selec
t
e
d
by t
h
e Co
m
pany a
n
d
th
e Ho
ld
er) wit
h
i
n
seven (7) Bus
in
ess Days of t
h
e
V
al
uat
i
o
n
Date. The
Company sha
ll
direct
such
i
nvestment ba
n
ki
n
g
fi
rm to pe
r
form t
h
e ca
lcul
at
i
ons a
n
d
n
otify t
h
e Compa
n
y and t
h
e
H
o
l
de
r
o
f th
e res
ult
s no late
r
t
h
an
t
en (
1
0) Bus
i
ness
Days after the
Valuat
i
o
n D
a
t
e. Such
i
nvest
m
e
n
t
ban
kin
g
firm's calcu
l
a
ti
on
of
t
h
e
Black
-
Scho
l
es Va
lu
e o
f t
he O
p
tions
s
h
a
ll
be deemed concl
u
sive
absent demo
n
s
trable error. T
h
e Co
m
pany s
h
a
ll
bea
r t
he
f
ees and ex
p
enses
of
suc
h in
vest
m
e
nt
ba
nkin
g fi
rm
fo
r
p
r
ov
i
d
in
g s
uch
calc
u
la
ti
on.
(
d)
A
dju
s
tm
e
n
t o
f
Wa
rr
a
nt
Exe
r
c
i
se Pr
i
ce
up
o
n
S
ubd
ivisio
n
o
r
Co
mbin
at
i
o
n
of
Co
mm
o
n
Stoc
k
. If the
Company at
a
n
y
t
i
me after the
d
ate
of
i
ssuance of
t
h
is Warra
n
t
subdiv
i
des
(
b
y any
stock s
p
lit
,
stock
di
v
i
dend,
r
ecapita
li
zation
or o
t
herw
i
se) its o
u
ts
t
a
n
di
n
g
shares
of
Com
m
o
n
S
t
ock
i
n
t
o a
greater
numb
er
of s
h
ares,
th
e Wa
rrant
Exe
r
c
i
se P
ri
c
e in
effec
t im
me
diat
e
l
y pr
i
or to
s
u
c
h
subd
i
v
i
s
i
on wi
ll
be proport
i
onate
l
y
red
u
ced
an
d t
he nu
m
ber
of s
h
a
r
es
of
Co
m
mon Stock
ob
t
a
i
nab
l
e
u
po
n
exe
r
c
i
se of
th
is Warra
n
t w
ill
be propo
rti
onate
l
y increased.
I
f t
h
e
Co
m
pa
n
y
at a
n
y
time after t
h
e
d
a
t
e
of
i
ss
u
ance
o
f t
his W
a
rrant co
m
bines (by
comb
in
at
i
on,
reverse
s
t
oc
k
sp
l
it or
o
t
herwise) its outstand
i
ng
shares
of
Common
Stock into a
s
m
a
ll
er
n
umbe
r
of
s
h
a
r
es, the Warrant E
x
ercise P
ri
ce
in
e
ffe
c
t immedi
a
t
e
l
y
pr
ior to
s
u
c
h
com
bin
at
i
o
n
wi
ll
be
pr
opo
rti
onate
l
y
in
creased
a
nd the
n
umbe
r
o
f
s
h
ares of
Commo
n
Stock
obtai
n
able
u
pon
exe
r
cise
of
t
hi
s Warran
t
w
ill
be pro
p
ortio
n
ately
d
ec
r
eased. Any
adjustme
n
t under t
h
is
Sectio
n
8(d)) s
hall
beco
m
e
effec
ti
ve at t
h
e close
o
f busi
n
ess
on
t
h
e
d
a
t
e
th
e
s
u
bd
i
v
i
s
i
o
n
o
r
co
m
b
in
a
ti
o
n
beco
me
s effective.
(e) D
i
s
tribut
io
n of
Asse
t
s.
I
f t
h
e Co
m
pa
n
y
s
h
a
ll decl
are o
r m
ake
an
y
di
v
id
e
nd
or
o
th
e
r
dis
t
rib
u
tion
of
its
assets (or
rights to acquire i
t
s
assets)
t
o holders
of Commo
n
Stock
,
by
way
of return of
capita
l
or
otherw
i
se
(i
n
clu
d
ing
any dis
t
r
i
but
i
o
n
of cas
h
, s
t
ock or
ot
h
e
r
sec
uriti
es,
pro
p
erty
o
r
op
ti
o
n
s
by w
a
y of a
di
v
i
de
nd
,
sp
in
o
ff
,
r
e
cl
ass
ifi
cat
i
o
n
, co
r
po
r
ate
r
earra
n
g
em
ent o
r
other s
im
i
l
a
r
t
ran
saction) (a
"DISTRIBUT
I
ON"),
at
any
time
after
the iss
u
ance
of
this Warra
n
t, then
,
in
each
s
u
c
h
case:
(
i
)
th
e
W
a
r
r
an
t
Exe
r
c
i
se
P
ri
ce in e
ff
ec
t
im
m
e
d
iate
l
y
p
ri
o
r
to t
h
e close
of
b
u
s
i
ness on t
h
e reco
r
d date fix
e
d for t
h
e determ
i
natio
n
o
f h
o
lde
rs of C
o
m
m
on Stock e
ntitl
ed to
r
ece
i
ve
th
e Distr
i
b
u
tion
s
h
a
ll b
e
r
ed
u
ced
.
effective a
s
o
f t
he close
of
b
usiness
on
such
r
eco
r
d date
, t
o a
p
r
i
ce
de
t
ermined by
m
u
l
t
ipl
y
i
ng
such
War
r
ant
Exerc
i
se Pr
i
ce
by a f
r
ac
t
ion of
w
h
ich (A)
t
h
e numerator
sha
ll
be
th
e We
i
g
h
t
ed
Ave
r
a
g
e Price o
f
t
h
e
Co
mm
on
S
t
oc
k
o
n
t
h
e
tr
ad
in
g
d
ay
imme
d
i
ate
l
y
pr
eced
in
g s
u
c
h r
eco
rd d
ate mi
n
us t
h
e va
lu
e
of
t
h
e D
i
st
ri
b
u
t
i
o
n
(as de
t
ermine
d
in good faith
by the Compa
n
y's Board of D
i
rectors) applicable
t
o o
n
e sha
r
e of
Common Stock, and (B) the denom
i
nator
s
h
a
ll
be t
h
e We
i
g
h
ted Average P
ri
ce
of
t
h
e Com
mon
S
t
ock
on th
e t
r
a
din
g day
imm
ed
i
a
t
e
l
y prece
din
g
s
u
c
h r
eco
r
d d
at
e; a
n
d
(ii)
e
i
t
her
(A) th
e num
ber
of
Warra
nt
Shares
obtainable up
o
n exerci
se
o
f thi
s
Wa
rrant
s
hal
l be
inc
r
ea
s
ed
t
o
a
n
u
mb
e
r
of
s
hare
s e
q
ua
l
to t
h
e
num
be
r
o
f
s
h
ar
e
s
of
Co
mm
o
n
S
t
oc
k
o
bt
a
inabl
e
imm
ed
iatel
y
pri
or
to th
e
close
o
f busine
ss on
the
reco
rd
d
ate
fi
xed fo
r
the d
ete
rm
i
n
ation of
h
o
lder
s o
f
Common Stock
e
ntitled
t
o
receiv
e
t
h
e
Di
str
ibution
m
ultipli
ed
b
y
the
r
ec
ipro
c
al
o
f
the
fra
c
tion
se
t
f
o
rth
in
t
h
e
im
medi
at
e
l
y p
re
ced
in
g
clau
se (
i
), o
r
(
B
)
i
n
th
e even
t
th
at t
h
e
D
is
tribut
io
n i
s
of
com
m
o
n
s
t
ock
of a
co
m
pany who
se
co
mm
on s
tock
is
trad
ed o
n
a
nationa
l
sec
u
rities
exc
han
ge or
a
nationa
l
automated
quot
a
ti
o
n
system
,
then th
e
Holder
s
h
a
ll r
ece
i
ve
an
add
iti
o
nal
wa
rrant
,
th
e
term
s of
w
hi
c
h
s
hall b
e
i
de
ntical
to
t
hose
o
f thi
s
Wa
rr
ant
,
excep
t
th
at s
u
c
h
wa
rran
t
sh
all be
exerc
i
sab
l
e
for
t
he amo
u
nt
of
the
a
sse
ts
that
would
ha
v
e
been payable
to
the H
o
ld
er p
u
rs
uant t
o t
he Di
st
ri
but
i
on
h
ad t
he
H
o
l
de
r
exe
r
cised
th
is
W
arrant
imm
e
diately pri
o
r to
s
u
c
h re
cord
date
and with
an
exerci
se
pri
ce
e
qual to the amount
b
y w
hi
c
h th
e exercise
pri
ce of
this
Warran
t
was
dec
rea
se
d
with
respect
to
the
Distribut
i
on
p
urs
uant
to the
term
s
o
f
the
im
mediately
p
r
eced
in
g c
l
a
u
se
(i)
.
(f) Ce
rtain
Eve
nts.
If
any
e
ve
nt
occ
u
r
s
as
to
w
h
ic
h
t
he pr
ov
i
s
ion
s
o
f thi
s Sec
tion
8
a
r
e
not
st
ri
c
tl
y
appli
ca
bl
e b
u
t w
ith
respect
t
o
w
hi
ch
th
e
fail
ure
t
o
make a
n
y a
d
jus
tm
e
nt
wo
u
ld not
fa
irl
y
pr
ot
e
c
t
the H
o
l
der or fair
l
y
p
re
se
rve and
g
ive
effect (0
th
e
anti-diluti
o
n
r
i
g
h
ts
repr
ese
nted
by t
h
is Warra
n
t
in
acco
r
dance with
it
s
e
sse
ntial int
en
t and principle
s
(
includi
ng
the
g
r
an
tin
g of
s
tock appreciati
o
n
ri
g
ht
s,
pha
n
t
o
m
s
t
oc
k righ
ts or ot
h
e
r
r
i
g
ht
s wi
th
equ
i
ty
fe
a
ture
s),
th
e
n
,
in
eac
h
such case
,
t
h
e Com
p
an
y
s
hall
appoint
a firm
of
in
depen
dent
investment
banker
s o
f
recogn
ized
nat
i
o
nal
s
tanding
(whic
h
s
hal
l
be complete
l
y
ind
epe
nd
e
nt
o
f the
Co
mpan
y
a
nd
s
hall be
s
ati
s
factory
t
o
the H
o
ld
e
r)
,
that
s
hall
g
i
ve
their
opinion
u
pon
t
he
adj
u
st
ment
,
if
any, necessary
to
preserve, without
dil
u
ti
o
n,
the rig
ht
s
represented by this Warrant;
pro
vide
d
t
hat no
such adj
u
stment will
in
crease
th
e
Warrant
Exer
cise
Pr
ice
or
d
ecrea
se
t
he
numb
e
r
o
f
s
h
are
s
o
f
Co
mmon
St
oc
k
o
btain
ab
le
as
o
th
e
rwi
se
d
e
termin
ed
pur
s
uant
to
thi
s Se
ction
8.
(g) No
ti
ces.
(i)
Wit
hi
n
one (
I
)
Bu
s
i
ness Day
o
f an
y adj
u
s
tm
e
nt
of
th
e
Warrant
Ex
erci
se
Price
,
t
h
e
Co
m
pa
n
y w
ill
give writte
n
n
o
t
ice
thereof to
t
he
H
o
ld
e
r
,
s
ett
ing
f
o
rth
i
n
reasonable
deta
i
l,
and
c
ertif
y
ing
,
the
ca
lculati
o
n
o
f
s
u
ch
ad
justm
e
nt.
(
i
i)
The
Compa
n
y wi
ll
give
w
ritt
e
n
n
o
ti
ce
t
o
th
e
H
o
l
der at
l
e
a
st
ten
(10)
da
ys
pri
or
t
o
the d
a
te
o
n
which
the
Com
pan
y
c
l
oses
it
s
books
or
ta
ke
s a
r
eco
r
d
(A)
w
i
t
h r
espect
to
a
n
y
divid
end or
distribution
u
pon
the
Co
mmon
S
t
oc
k
,
(B)
w
ith r
espect
to
any
pro rat
a
s
ub
sc
ription
offer
t
o
h
o
ld
ers
of
Com
m
o
n
Stoc
k
or (C)
f
o
r
de
term
i
n
ing
r
igh
t
s
t
o vo
t
e wi
th
respec
t
to a
n
y
Organic Change (as defined in Sec
ti
on
9(b), dissolution
o
r l
i
qu
idat
i
o
n
,
prov
i
ded tha
t
such
in
f
ormatio
n
s
h
a
ll
be
made
kn
ow
n
to
t
h
e
public prior
t
o or
in
conjunction with
s
u
c
h n
o
tice
b
e
in
g
provid
e
d to
s
u
c
h
Holder.
(ii
i
)
T
h
e Company
w
ill
a
l
so give w
ritt
en not
i
ce to
the H
o
ld
e
r
at
l
eas
t
ten
(10)
da
ys
prior
to
the
dat
e
o
n
which
a
n
y Orga
ni
c
C
h
a
n
ge
,
di
sso
luti
o
n
o
r liquid
at
ion
w
ill
take pla
ce,
p
rovided
that
s
u
c
h i
n
f
o
r
mation
s
hall b
e
made known to the
publi
c
p
ri
or
t
o o
r in
co
njuncti
o
n
with
suc
h
notice bein
g p
r
ov
id
ed
to
s
u
c
h
H
o
ld
e
r
.
Sec
ti
on 9.
Purchase R
i
g
ht
s;
Reorganizat
i
o
n
,
Reclassificat
i
on
,
Co
n
s
olidation
,
Merge
r
or
S
a
le. (a)
In
additi
o
n t
o a
n
y
adj
u
s
t
m
e
n
ts purs
uant
to Sec
ti
o
n
8 above
,
if a
t
a
n
y ti
me
t
h
e Co
mpa
ny
g
rants
,
i
s
sue
s
o
r
s
ells
any Option
s,
C
on
vert
ible
Sec
urities
or
ri
g
ht
s
t
o
purchase
s
t
ock,
warrants,
sec
uri
t
ie
s or ot
her propert
y
pro rat
a
to
th
e rec
ord
h
o
ld
e
r
s of any
cl
ass
o
f it
s
Ca
pital St
oc
k (the
"
P
U
RCH
AS
E RIGHTS")
,
t
h
en
t
h
e
H
o
ld
e
r
w
ill
be
e
n
t
i
t
l
ed
t
o
acquire
,
u
p
o
n
the
t
e
rm
s
app
li
ca
ble t
o
s
uch Purcha
s
e
Right
s,
the aggregate Purchase Rig
h
t
s
that
such
Hold
e
r
co
ul
d
h
ave
a
c
quir
ed
i
f
such
H
o
l
der
had
h
e
ld
t
he
n
umbe
r
of s
har
es
o
f
Co
m
mon
Stock
acq
uir
ab
l
e
upon
co
mplet
e
exe
rci
se o
f this Warrant
immediat
e
l
y
before the date
o
n
whic
h a
r
ecord
i
s
t
ake
n
f
or
th
e gr
ant
,
i
ss
uance
or
sa
l
e of
suc
h Purch
ase
Ri
ghts, o
r
,
if no
suc
h
reco
rd
is taken
,
the
date
as
o
f
which
the r
eco
rd
h
o
ld
e
r
s
of
Com
mon
Stock
are t
o
be
determined f
o
r the
grant,
i
ss
u
e
o
r
sa
l
e o
f
s
u
c
h
Pur
chase
Rights
.
(b)
An
y
re
ca
pitalizati
o
n
,
reorg
a
nization
,
recla
ss
ification
, co
nsolidation
,
mer
ge
r
,
sale
of
all
or
s
u
bsta
n
ti
all
y a
ll
of
t
h
e
Co
mpan
y
'
s
assets to a
n
other
Per
so
n
or
o
ther tran
sac
ti
o
n
that
is effec
ted in
s
uch
a
way
t
ha
t hold
ers of Co
mm
o
n
Stock
a
re
en
titled
to receive (either
dir
ec
tl
y
or upon
s
u
bseque
nt liqui
da
tion
) s
tock
, sec
uriti
e
s
or
asset
s
with r
esp
ect to
o
r
in exchange f
o
r
Co
mm
o
n
Stock
i
s
referr
e
d to herein a
s
an
"
ORGAN
I
C
C
H
ANGE.
"
Prior
to
the
cons
u
mmati
o
n of
any
(
i
)
sa
l
e o
f all
o
r
s
ubstantially all
o
f the
Company
's
as
se
t
s
t
o
an
a
cq
u
iring
Per
so
n
o
r (
ii)
other
Organic
C
ha
nge
fo
ll
ow
in
g w
hi
c
h
the
Co
m
pa
n
y
i
s
not a
s
urvivin
g
ent
ity
,
the
Co
mp
any
will
se
cure
fr
o
m the P
erso
n
purcha
s
ing
s
u
c
h asset
s
or
the
s
u
ccesso
r
resulting from
s
uch Or
g
anic Change
(
in
each case
,
th
e "ACQU
IRI
NG EN
TITY
"
) a written agreement (i
n
f
o
rm
and
s
ub
s
tance
sat
i
s
factory
t
o
the R
e
qui
s
i
t
e H
o
lders
)
to
deli
ve
r
to each
ho
lder
of
S
P
A
Warrants
i
n exchange for
eac
h su
c
h
S
PA
Warrant,
a sec
urity
o
f th
e Ac
quiring
Entity evidenced
by
a
w
ritten
instrument sub
sta
ntiall
y
s
imilar
in f
o
rm
an
d
s
ub
s
tan
ce
to thi
s
Warrant
a
nd
sa
ti
s
factory
t
o
the h
o
ld
e
rs of
s
u
c
h
S
PA
Warrant
(i
nclu
ding,
an adj
u
s
t
e
d
warra
nt
ex
erci
se
price
eq
u
a
l
t
o
th
e v
alue
f
o
r the
Co
mmon
Stock
reflected
by
the t
e
rm
s
of
s
u
c
h
con
so
lidation
,
merger
or s
ale
,
and exerci
sa
b
le
f
or a
corre
spo
nding
numb
e
r
o
f
s
hare
s
of
Co
mmon
Stoc
k a
cq
uirable
and
recei
va
ble
up
o
n
exerci
s
e of
s
uch
SPA
Warrant
(w
ith
ou
t
rega
rd
to
any
limitati
ons o
n
exerci
ses),
i
f t
h
e
va
l
ue
so
reflected
i
s less
than
t
h
e
Warrant
Exercise
Price
in effect
i
mmediately
pri
o
r
to
su
ch
conso
l
idati
o
n
,
merger or sa
l
e).
Pri
or
to
the c
o
n
su
mmati
o
n
o
f
any ot
her
Org
anic
C
hange
,
the
C
ompany
s
hall
make appr
o
priate pr
ov
isi
on (i
n
form
and
sub
s
tance
satisfactory
to th
e
Requisit
e
H
o
lders
) to
en
s
u
re t
hat
eac
h
o
f
the
h
o
lder
s
of t
he
S
P
A
Warrant
s
will thereafter ha
v
e the
r
ig
ht t
o
acquire
a
nd re
ceive
in
lieu
o
f
or in
ad
diti
o
n
to (as the
cas
e ma
y
be
)
th
e
s
hare
s o
f
C
omm
o
n
S
tock immediately theretofore
acq
uirabl
e
and receivable upon th
e
exercise of
such holder
's
SPA
W
a
rrant
s (without
re
gar
d t
o
an
y
li
m
i
t
ati
o
n
s o
n
exer
cises), suc
h
shares o
f
s
tock
, s
ecuritie
s
or
assets that would
have
been
iss
u
ed or paya
ble in
s
uch
O
r
gan
i
c C
h
a
n
g
e
with respect
t
o o
r in
e
x
change
f
or
the number
of
s
hare
s
o
f
Co
mm
o
n
Stock
that
would
have been
acquirab
l
e
and
recei
va
ble up
o
n th
e
exercise
of s
uch h
o
lder
's
Warrant as
of
the date
of s
uch Organic
Cha
n
ge
(without
taki
ng
into
accou
nt
an
y
limit
ati
o
n
s
o
r re
s
tri
c
tion
s on
th
e exe
rci
sabi
l
i
t
y
o
f t
his
Warr
a
nt
).
(c)
In the
eve
nt
that
an
Acquiring
Entity
i
s
not
a publicly traded
co
rporati
o
n
whose
co
mmon
s
t
oc
k i
s
li
s
te
d o
n the
NAS
DAQ
G
l
o
bal
Ma
r
ket
,
the
NAS
DA
Q Glo
bal
S
ele
c
t
M
arket
o
r the
New
York
S
tock
Excha
n
ge
(a
"
Pr
iva
t
e
Company
Or
ganic
Chan
ge"
)
,
the H
o
ld
er
s
h
a
ll ha
ve
the
right
(
in
additi
on
t
o
all
o
ther ri
g
ht
s
h
e
r
e
under) t
o
requir
e
the Compan
y
to r
ed
eem thi
s
Warrant for a
cas
h payment equal to the Pr
iva
t
e
Co
mp
any Redemptio
n
Amo
unt
(a
s
defined
be
l
ow). Suc
h
ri
g
ht ma
y
be
exe
rci
se
d
as
t
o a
ll
o
r an
y
portion
o
f
t
hi
s
Warrant
and s
hall be
exerci
se
d
,
i
f
at
a
ll
,
by a
n
o
ti
c
e
(or
notice
s) s
p
e
cifyi
ng
the number
o
f Warrant
Shares a
s
to
w
hi
c
h this
Warra
nt
i
s
to be redeemed
(each,
a
"
Wa
rrant
Rede
mpti
o
n Right
Exe
rci
se
N
otice
"
and
the
date o
f d
e
li
v
e
ry
t
hereof,
t
he
"
Warra
nt
Red
e
m
ptio
n
Ri
g
ht Exer
cise Notice
Date
"
)
,
which
s
hall
be i
rrev
oca
bl
e
provided
th
a
t
t
he
Co
m
pa
n
y
compl
i
es
w
ith its
o
bligation
s
h
e
r
e
u
nd
e
r
and except a
s
expres
s
l
y
provided in thi
s S
ection
9,
g
i
ven
t
o
the
Co
mpany
at
a
ny tim
e
during th
e
peri
od
(i)
be
g
inning
o
n
and
incl
u
ding th
e
earlier
o
f
(A) the
date written
n
o
tic
e of
a
Pr
i
vate Company
Orga
nic
C
h
ange
i
s
delivered
t
o
the Holde
r
,
wh
i
c
h
writte
n
notice
th
e
Com
pan
y
s
h
a
ll deli
ver
n
o
t
le
ss
t
h
an twenty (20
)
Tra
d
i
n
g
Da
ys
prior t
o s
uch
Private
Co
mpan
y O
r
g
anic
C
hange
(pr
ov
ided that the
Co
mpan
y
s
hall pr
ov
ide
such
n
o
tice
contemporaneou
s
l
y
with
(
but n
o
t
ea
rlier
than)
th
e
fir
s
t public discl
os
ure of the information
contained
there
i
n
an
d
s
imu
lta
ne
o
u
s
l
y
t
o
t
h
e
h
olders of a
ll
out
s
tandin
g
Warrant
s),
and
(8) t
he d
a
te
th
a
t
i
s
twen
ty
(20)
Tradin
g
Days pri
o
r
to th
e
consummation
of
s
uch
P
rivate
Company Organic
C
han
ge (
th
e ea
rlier
of
(A)
and (8)
,
t
h
e "
Warr
a
nt Redemption
Right
Exerci
s
e Peri
o
d Comm
e
ncem
ent Date
"
)
,
and
(ii) endi
n
g
o
n and
includ
i
n
g
t
h
e
da
te
t
h
a
t
i
s
three
(3)
Tradin
g
Days
p
r
ior
to
the cons
ummation
o
f
s
u
ch
Pri
v
ate
Co
mpany
O
r
gan
ic
Change.
Following the d
e
l
i
very by
the H
o
ld
er o
f
a Warra
n
t Redempti
o
n
Righ
t
Exercise
No
ti
c
e
,
the
Co
mpany
and
the H
o
ld
er
shall
eac
h
pr
o
mptly determine the applic
a
ble Priv
a
te
Company
Red
e
mption
Va
lu
e (as
defined
bel
ow)
and
n
o
tif
y
in
w
riting
t
h
e o
ther
of
the
Pri
vate Co
m
pany
R
edempt
i
on
V
a
lue
so
d
etermined. If
t
h
e
H
o
ld
e
r
a
nd
t
h
e Co
m
pany are u
n
ab
l
e
t
o ag
ree
on
t
h
e
ca
l
cu
l
ati
o
n
of
th
e app
li
ca
ble
Pri
vate Compa
n
y
Redemption Value
,
such
di
sp
ut
e
re
ga
rdin
g
the
calcula
tion
of the
a
p
p
licabl
e
Private Company Redemption Value shall
be r
eso
lved in
accordance with the procedures
set
forth in Section 8(b)(iii) of this Warrant. The applicable
"
Pri
vate
Company Redemption Value
"
shall be the Blacks
h
o
les
Value of thi
s
Warrant
as
to
one
(I) Warrant Share
,
except that
in
ca
lculating
such
Black-Schole
s
Value, (x) the Valuation Date shall
be
the applicable Warrant Redemption Right Exercise Notice
Dat
e, (y)
the
"o
ption
st
rikin
g price" s
hall
be the Warrant Exercise Price on
such
Valuation Date, and
(z)
the
"current stock
pri
ce" s
hall
be the Weighted Average
Pr
ice of
the
Co
mmon
S
t
ock on such Valua
ti
o
n Date
.
The
Co
mpany
shall pay
th
e
Private
Co
mpany Red
e
mption
Amount to
the
Holder
s
imultaneously
with
th
e
con
s
umma
t
i
o
n
of t
he P
r
iv
ate Compa
n
y Orga
nic
C
han
ge.
To
th
e exten
t
perm
itt
ed
by applicable
l
aw,
th
e Com
pan
y
s
hall n
ot
enter into any
bindin
g
agreement
or o
ther
arrangeme
nt
w
ith
respect
t
o
a Private
Company Organ
ic
C
han
ge (ot
her
than a
sa
le
of all
o
r
sub
s
tantially
a
ll
of the Company's assets)
unless th
e Co
m
pa
n
y
provide
s
that the payments provided for
in
thi
s
Sectio
n
9
sha
ll ha
ve
priority to
pa
y
ments
t
o
stockholders
in
connection with
suc
h
Private Company
Orga
nic
Change a
nd
the
Com
pan
y
complies
w
ith
s
u
ch
provision.
The
applicab
l
e
"Private Company
Redemption Amount"
s
hall
be
the product
of
(I)
th
e
re
su
lt
of
(X) the Private
Com
pan
y
Redemption Value, minus (Y)
if
all
of
the
Conditio
n
s
to Redemption Amount Reduction (as
defined bel
ow)
have
been
sat
isfied
as of the
dat
e of
consummation of (he Private
Company
Organic
Change,
the amount, if
any,
by which the Weighted Average Price
of
the
Common
Stock
on
the applicable Warrant Redemption Right Exercise
Notice
Date exceeds the Warrant Exercise
Pri
ce
on
suc
h
Warrant Redemption
Right
Ex
erci
se
Notice
Date
,
o
r if
one of
m
o
re
of
the
Conditions
t
o
Private
Co
m
pa
n
y
Redemption Reduction
have n
ot
been
s
atisfied
as o
f
the
date
of consum
mati
on of
the Private
Compa
n
y O
r
ga
ni
c Change, zero (0),
multiplied by (II) the number
of
Warrant
S
h
a
re
s as
to which the Holder has demanded this Warrant be redeemed,
a
s
se
t forth
in the
applicable Warrant
Redempti
o
n
Right Exercise
Not
i
ce
(th
e
date
of
delive
ry
the
reof
by
t
he
H
o
ld
er
bei
ng
r
eferred
to as
t
he
"
Applicable Redemption Notice Date
"
), and has
not
revoked
s
uch demand as provided
i
n
this Section 9; provided
,
h
owev
er
,
that
such number
sh
all
not exceed the number
of
Warrant Shares for which this Warrant could be
exercised
on the
a
pplic
ab
le
Warrant Redemption Right Exerci
se
Period
Co
mmenc
e
m
e
nt
Date
,
minu
s
(a) the
number
of
Warrant Shares
as t
o
which this Warrant has been exerci
s
ed since
the
Warrant Redemption Right
Exe
r
cise
Peri
od Comme
ncement
Date
an
d
(b)
the
number
of
Warrant Shares as to
which
the
Holder
h
as
dem
ande
d
thi
s
Warrant be
redee
m
ed,
as
se
t
fort
h
in
a
n
y
Redemption Right
Exercise Notices
delivered
o
n date
s
prior to
the
Applicable Redemption
No
tice
Date, and
has
not revoked such demand as
provided
in
thi
s
Section
9.
Notwi
th
s
t
and
ing
anything
to
the contrary
contained
in
this
Section
9, a Warrant Redemption Exercise
No
ti
ce s
hall
be deemed
re
vo
k
ed
in
full,
a
nd
sha
ll
be
of
n
o
furth
er
f
orce
and effect
,
o
n
an applicable Termination Date (as defined below)
.
(d) For purposes of this
Se
ctio
n
9,
"
Conditions
to Redemption
Amo
unt
Reduction
"
mean
s
th
e
following conditions:
(
i)
during the period beginning on
the
Warrant Date
and
e
nding
o
n
and
i
nclu
d
in
g
the
date
of co
n
s
ummati
o
n
of
t
he
Private
Co
mpa
ny
Organic
Change (the
applicable
"Transac
ti
o
n
Consummation Date"),
the
Co
mp
any
shall
have
delivered Warrant Shares upon
exerc
i
se of
the Warrant
s
on a
timel
y
basis
as
se
t forth
in
Section 2(a); (ii)
o
n
each day during the period (the
"Rede
mption
Amo
unt
R
e
duction
Con
diti
on
Period
"
) beginning
o
n
and including the Warrant Redemption Right Exerci
se
Period Commencement Date
relating to
suc
h
Transaction
Co
nsummation
Date and ending on and
includin
g
such Transaction
Consumm
ati
on
Date, the
Common Stock is
listed
on
the
NASDAQ
Global
Market,
the
NASDAQ Global Se
l
ect
Ma
rket
o
r the
New
York
S
t
ock Exc
hange
and the
Common Stock
ha
s
not been suspended from
trading
on the NASDAQ
G
lobal
Market,
the
NASDAQ
G
l
o
bal
Select Market or the New York
S
t
oc
k
Exc
h
a
n
ge; (i
i
i) on
each day
d
uring
t
h
e
Redemption Amount Reduction Condition Period
,
a
Registration
Statement
(a
s
defined
in the
Registration
Ri
g
ht
s
Agreement)
s
hall
be effective
and
available
for the sale
of
all
of
the Registrable Securities
issuable up
on
exercise of the Warrants,
in
acco
rdance
with the Registration Rights Agreement, and there
sha
ll
not
have been
any
Grace
Period (a
s
defined
in
the
R
egist
rati
on
Rights Agreement) applicable to such Registration
Statement;
and
(
iv)
the
Company s
h
a
ll hav
e obtained
all requisite approvals of its stockholders for
th
e
issuance of all of the Warrant Share
s
issuable upon exerci
se
o
f
the Warrants.
(e
)
If
a
t
any time
durin
g
a
p
e
r
iod
(a
"C
o
mpen
s
ated
Exe
r
c
i
se Pe
ri
od
"
)
beginning
o
n
a Warrant
R
ede
m
p
ti
on
Ri
gh
t
Ex
erci
se
Per
i
od
Co
mmen
c
eme
nt
Date
and ending
on
the ea
rl
ier of (
i
) the
Tradin
g
Da
y
immediat
e
l
y
p
re
ceding
the
app
l
ica
ble
Tra
n
s
a
c
t
io
n
C
o
n
su
mm
a
ti
o
n Da
te
an
d
(i
i
)
the term
i
n
a
ti
o
n
or
abandonm
e
nt
of
th
e
Pri
vate
Company
Orga
nic
C
hang
e
as
to
w
hich
suc
h
Wa
rrant
R
e
dempti
o
n
Ri
g
ht
Exerc
i
se Per
i
od
Co
mmen
ce
m
ent Date re
l
ates
and
t
h
e
p
u
bl
i
c
di
s
cl
os
ure
t
hereof,
w
hi
c
h
p
u
bl
i
c d
i
sc
lo
s
ur
e
th
e
Co
mp
any
s
h
a
ll
make
n
o
lat
er
than th
e
firs
t
Bu
si
ne
ss
Da
y
foll
ow
ing
suc
h
te
rm
ina
t
io
n
or
aband
o
nment
(a
date
o
f
s
uch public di
sc
l
os
u
re, a "Te
rminati
o
n Date
"),
the Holder
exe
rci
ses
this Warrant
as
to an
y
Warra
n
t
S
h
ares
(a
n
y s
u
c
h
ex
erci
se
bei
n
g
refe
rred
t
o
a
s
a
"
C
o
m
pen
sa
ted
Exe
r
cise"),
and
if t
h
e
H
olde
r h
as
d
e
li
ve
r
ed a Warrant
Red
em
pti
on R
i
ght
Exe
r
cise Not
i
ce o
n
o
r
after
s
u
c
h
Warra
nt
Redempt
io
n
Right Exerc
i
se Pe
ri
o
d
Co
mmen
ce
ment
Date and
prior t
o
the
date o
f
s
uc
h e
xercis
e
(
th
e "Exe
r
c
i
se
D
a
te
"),
th
e
H
old
er
s
h
a
l
l
d
es
i
gnat
e
in
the app
l
ica
bl
e
Exerc
i
se N
otice
whe
th
er s
u
c
h
exe
r
c
i
se
r
evo
k
es s
u
ch
Warrant
R
ede
mpti
o
n Right
Exe
rci
s
e
N
oti
ce
as
to
th
e
Warrant
Share
s s
ubj
ect
to
such exercise. W
i
th
resp
ect
to any
Compensate
d
Exerc
i
s
e
,
but with
ou
t
lim
iting
or
ot
herwise
affect
in
g
th
e Co
mp
a
n
y's o
bligati
ons
und
er Sect
i
o
n
2 w
i
t
h r
espec
t
th
ereto,
th
e Com
pan
y sh
all
pa
y
t
o
the H
o
ld
er a
n
a
m
ou
n
t eq
u
al
to t
h
e prod
u
ct
(a "
Warrant
Ex
erci
se
Ad
diti
ona
l
Co
mp
e
nsati
o
n
A
m
o
unt
"
)
of
(I)
th
e
re
s
ult
of (A)
th
e B
la
ck~Sc
h
o
l
es Va
lu
e
of
t
hi
s
Warra
n
t
as t
o o
ne
(I) Warrant S
ha
re,
except that
in ca
lcul
ating s
u
ch
Black
-
Sc
h
o
l
es
Valu
e,
(x)
the
Valua
tion
Date
s
h
all
be
th
e
app
li
cab
le
Exerc
i
s
e
Date,
(y)
t
he
"o
ption
str
ikin
g
p
rice
"
s
h
all
b
e
t
he
Wa
rr
ant Exe
r
cise Price
on
s
uch Valuation
Da
te
,
a
nd
(z)
t
h
e
"
curr
e
nt
s
to
ck
price
"
s
hall
be
the
We
i
g
hted
Ave
ra
ge
Price
of
the
Common
Stock
o
n
such V
alua
t
i
o
n
Date (wi
t
h
a
n
y
d
isp
u
te
r
eg
ardin
g th
e
ca
l
c
ula
t
i
o
n
o
f
s
u
ch
Bla
c
k-
Scho
l
es
Value
be
ing
re
so
l
ved
in
a
c
c
o
rd
ance w
it
h
the procedures
set
f
o
rth in
Sec
ti
o
n
8(b) (i
ii
)
,
minu
s
(B
)
the am
o
unt
,
i
f any,
b
y
w
hi
c
h the
Weig
ht
ed Ave
ra
ge
Price
of
th
e
Co
mm
o
n Stock
o
n th
e
applicab
l
e Exe
r
c
i
se
Da
t
e excee
d
s
th
e
Warra
n
t Exerc
i
se
Price on
s
u
c
h
Exercise Date.
Th
e
Co
mp
a
n
y
sha
ll
pay
th
e
Wa
rrant
Exe
rci
se Ad
diti
o
nal
Compe
n
sa
ti
o
n
Amoun
t
t
o
the
H
o
l
de
r
n
o
l
ate
r
than
the
ea
rlie
st
t
o occ
ur
of (I) a
Tran
sac
ti
o
n
Co
n
s
ummati
on
Da
te
, (2)
a Te
r
minati
o
n
Date
,
a
nd
(3) t
he thi
rt
ieth
(30
th
)
d
ay after
s
u
c
h
Exerc
i
se
Da
t
e.
(f) U
p
o
n an
y
Wa
rr
ant Redemptio
n
Rig
h
t Exerc
i
se Per
i
od
Com
men
ceme
nt
Date
rel
at
in
g
to
a
Pri
vate Compa
n
y O
r
ga
ni
c C
h
a
n
ge, t
h
e Wa
rr
ant
Exe
r
cise
Pr
ice
th
e
n
i
n
eff
ect s
h
a
ll
be
re
d
u
ce
d
,
effective a
s
of
s
u
c
h
Warrant
Exe
rci
s
e
Pe
ri
o
d
Co
mm
ence
ment
Date
,
to
the
We
i
g
hted
Av
era
ge
Pric
e of
th
e
Co
mm
o
n
S
t
oc
k
o
n
the
Tradin
g Da
y
immed
i
a
t
ely
p
reced
i
n
g suc
h
Warra
n
t
Redempt
i
on R
i
g
h
t
Exe
rci
se
Peri
od Co
mmen
ce
ment
Date;
pr
ov
ided
that,
in
the
case
of
a
Warrant
Red
e
mpti
o
n Right
Exerc
i
se
Period
Comm
en
cem
ent
Date
rel
a
ting
t
o a
Pri
vate Compa
n
y
O
rganic
C
han
ge
that
i
s
not
a
s
ale
of
all
o
r
s
u
bs
t
an
ti
a
ll
y
a
ll
of t
h
e as
se
t
s
of
th
e Co
mp
a
n
y,
th
e
Warrant Exercise Pr
i
ce
th
e
n
i
n e
ff
ect
s
h
a
ll
i
n
s
tea
d
be
redu
ce
d t
o a
pric
e e
qual
to
the
va
lu
e, a
s
determined j
o
in
tly
b
y
the
Co
mpan
y
a
nd
[
h
e
Hold
er,
of the
cons
iderati
o
n to
b
e
rec
ei
ved
per
s
h
a
re
o
f
Co
mm
o
n
Stock by stock
h
o
lder
s o
f
th
e
Co
mpan
y
in su
c
h
Privat
e Com
pan
y Org
anic
C
h
a
n
ge
if
suc
h
va
lu
e is
l
ess
th
an
such We
igh
ted
A
ve
r
age
Pri
c
e.
In
no
eve
nt
s
hall
th
e
Warra
nt
Exerc
i
se Pr
i
c
e be increa
se
d
pu
rsua
nt
to
t
hi
s
Section 9(F).
Sectio
n 10
.
Lost,
Sto
l
en
,
Muti
l
a
ted
o
r De
s
t
royed
Wa
rr
a
n
t.
If t
h
i
s
Wa
rra
n
t
i
s
l
os
t
,
sto
l
en
,
mutilated
o
r
de
s
tr
oyed,
th
e
C
ompany shall
promptl
y, o
n r
ece
ipt
of a
n ind
e
mnifi
cat
i
o
n un
dert
akin
g
by the
H
o
l
de
r
(or
i
n
t
h
e
case
o
f
a mu
til
ated
Warran
t,
the
Warrant)
,
issue
a
n
ew
Warrant
o
f
li
k
e denominat
i
o
n
and tenor
as
t
h
is
Warra
n
t so
l
ost, s
to
len,
mutilat
ed o
r
destroyed
.
Sectio
n
11
.
No
tice
. Any
n
otices,
co
n
sen
t
s, wa
i
ver
s
or
other
comm
uni
c
ati
ons
require
d
o
r
pe
r
mitted
to be given
und
e
r
the
term
s
of
thi
s
Wa
rr
an
t
m
ust be
in
wr
iting
and
w
ill
be
deemed to have bee
n
deli
ve
red
: (1)
up
o
n
rece
i
pt
,
whe
n
de
li
ve
r
ed
personall
y;
(ii)
up
o
n
r
ece
ipt
,
when se
nt
by
fa
cs
imile (provided
co
nfirmati
o
n
of t
r
a
n
s
mi
ss
i
on
i
s mec
h
a
ni
ca
ll
y
or
elect
r
o
ni
ca
ll
y gener
ated
a
nd ke
p
t
o
n
fil
e
b
y
t
he
se
n
din
g
p
arty);
or
(
iii) one
(
I
)
Bu
s
in
ess
Day after
depos
it
wit
h
a
nat
i
o
nall
y
r
ecognized
ove
rni
ght delivery
s
erv
i
ce
,
in
eac
h
case properly ad
d
ressed
t
o
the
part
y
to
r
ece
i
v
e th
e sa
me
.
The
addr
esses a
n
d
fac
s
imile
num
be
r
s
f
or s
u
ch c
omm
u
nicati
o
n
s s
h
a
ll
b
e:
If to the
C
o
mp
a
n
y
:
Infini
ty Energy
Re
s
o
urce
s
,
Inc.
Atte
nti
o
n
:
S
tan
ton E
.
Ro
ss
11900
C
o
ll
eg
e
Blvd., Suite
204
Ove
rland
Park, KS 66210
Te
l
ep
h
o
n
e: (913) 948
-0
512
Facsimile
:
(913) 9
3
8-4458
If
to a
Holder,
to
it
at
t
he address and
fac
s
i
mile
number
se
t
fort
h
in the
Sec
uri
t
i
es
P
urchase
Agreement
,
wi
t
h
co
pi
es
t
o suc
h H
o
ld
er
'
s repre
s
en
tati
ve
s
as set
forth
the
rein
,
or,
in t
he
case
o
f
th
e
H
o
l
de
r
or any ot
h
e
r Per
so
n
named
abo
ve
,
at
s
uch other address
a
nd/or
facsimi
l
e number
and
/
or
t
o t
h
e
attention of
such o
ther pe
rson a
s
the r
ecipient party
ha
s speci
fie
d by w
ritt
en
notice to the
o
th
er
p
arty a
t l
eas
t fi
ve (5)
da
y
s
pr
i
o
r t
o
t
he effec
ti
ve
n
e
ss
of such cha
n
ge
.
Written
con
firm
atio
n
o
f re
c
eipt
(A) given
b
y
the
rec
ipient
o
f
suc
h n
o
ti
ce
,
consent
,
wa
iv
er or o
ther
com
muni
cat
i
o
n
,
(8)
m
echan
i
ca
ll
y o
r
electronically
generated by
the
s
end
er's
facsimile
ma
ch
in
e co
n
taini
n
g
th
e
time,
d
ate
,
recipient facsimile
numb
e
r
and an
ima
ge of
the
fir
s
t pa
ge of
s
uch
t
r
a
n
s
m
i
ss
i
o
n
or (C) p
r
ovided
by
a
nat
i
o
nall
y
re
c
og
ni
zed ove
rni
ght
delivery
s
ervice
s
ha
ll
be
rebutt
able
e
vidence of
personal
s
ervice
,
rece
ipt
b
y
facsimil
e
o
r
deposi
t
wit
h
a nationa
ll
y
re
cog
niz
ed ov
erni
g
ht
delivery
s
ervi
ce
in ac
corda
nce
wit
h clau
se (
i)
, (
ii
) o
r
(i
ii) ab
ove,
re
spec
tivel
y
.
Sectio
n
12.
Date. The date of t
h
is Warra
n
t
is F
e
bruary
1
6
,
201
1
(
t
he
"
WARRAN
T
DATE
"
).
Thi
s
Warrant,
in
a
ll
e
ve
n
ts, s
hall
be wholly void
an
d o
f
n
o effec
t
after
II
:59
P
.
M.,
New
York
Ti
m
e, o
n
t
h
e
E
xp
i
ratio
n
Date
,
except t
ha
t no
t
w
i
thstandi
n
g a
n
y
o
ther
provision
s
hereof, the provisions of
Sect
i
o
n
7 sha
ll
c
o
ntinue
in
full
for
c
e
and
effec
t
after
s
uc
h d
ate as
t
o an
y
Wa
rr
ant Share
s
o
r
ot
h
e
r
s
ecuriti
es
iss
ued upon th
e ex
er
c
i
s
e
o
f thi
s Wa
rrant.
Sec
ti
on
13
.
A
m
e
nd
ment
and
Waiver. E
x
ce
p
t a
s o
therwi
s
e prov
id
ed herei
n
,
the
pro
vi
si
ons of
the
SPA W
arr
a
nt
s
ma
y be a
mend
ed
and the
Co
mp
any
ma
y take
an
y actio
n h
erein prohibi
t
ed, or om
it
to
p
erform a
n
y act
herein
requ
ir
ed to
be
performed
b
y
it
,
o
nl
y
if the
Co
mpan
y
ha
s o
bt
ai
ned th
e w
ritten
consent
o
f
t
h
e
Req
ui
si
t
e
H
o
ld
ers
;
p
rov
id
ed
th
a
t
no
s
u
ch ac
t
ion
m
ay
in
c
r
ease
th
e Warra
nt
Exe
r
c
i
s
e
Price
of a
n
y SPA Warrant o
r
decrease the
number
of sha
re
s o
r c
h
ange
the cla
ss
o
f
s
t
oc
k
obtainable
upon
e
x
ercise o
f
any
SPA Warra
nt
without
the
wr
itten
co
n
s
en
t
of the
hold
e
r
of
s
u
c
h
SPA
Warrant.
Sec
ti
on
14.
Desc
r
iptive
He
a
d
ings; Gov
e
rni
n
g Law.
The
d
es
c
ri
ptive head
in
g
s
o
f
the
s
evera
l
sect
i
ons
and paragraph
s
of
this
Warrant
a
r
e
in
se
rt
ed
f
o
r con
ve
nien
ce o
nl
y
and
do
not
const
itute
a
part
of
th
is Warrant. Al
l que
st
i
o
n
s conce
rnin
g
the
c
o
n
struct
i
o
n,
va
li
dity
,
enf
o
rce
m
e
n
t a
n
d
interpretation
of
this
Warrant sha
l
l
be
governed
by
t
h
e inte
rn
a
l
laws of t
h
e S
tat
e
o
f
Texa
s,
w
ith
out g
i
v
in
g effec
t
to
a
n
y choice
of law
o
r
conflict
o
f
l
aw provision
o
r
r
ule
(whether
of
th
e State
of
Texas o
r
a
n
y
other
jurisdicti
on)
that
wou
l
d
c
a
u
se
th
e
appl
i
cati
o
n
of
th
e
laws
of an
y
jurisdiction
other
than
the
St
at
e of
Texas.
Sec
ti
o
n
15
.
S
eve
rabili
ty
.
In
ca
s
e
a
n
y
provision
in
o
r
ob
li
gatio
n h
e
reund
er
s
ha
ll b
e inva
lid
,
ill
ega
l
o
r
unenf
o
rceable in
a
n
y
juri
s
diction
,
(a) t
h
e va
lidi
ty
,
l
ega
lity
a
nd
e
nf
orceabi
li
ty
of
the remainin
g
pr
ov
i
s
ions
o
r
ob
li
ga
ti
on
s,
or o
f
s
u
c
h
provi
s
i
on or
o
bligation in
a
n
y o
t
he
r
jurisdiction,
sha
ll n
o
t in
any wa
y
be affected
o
r
impaired thereby
and (
b
)
the
pa
rt
ies
s
h
a
ll
endeavor
in
good
fait
h nego
tiati
o
n
s
to
replace the i
ll
egal
,
inva
li
d
or
unen
forcea
bl
e
provision
s
w
ith
valid provision
s
the
eco
nomi
c a
nd le
ga
l
e
ffect
of
which
come
s
as
close
a
s
p
ossib
l
e
to
the
i
n
ten
t
o
f
the
ille
ga
l
,
inva
l
id o
r
u
n
e
n
forceab
l
e pro
v
i
s
i
o
n
s
.
Sec
ti
o
n 1
6.
Ru
le
s
o
f
Co
n
s
tru
c
ti
o
n.
Un
l
e
ss
the
context otherwise
r
e
quire
s,
(a)
a
ll refer
e
n
ces
to
Sec
ti
o
n
s,
Sche
d
u
les o
r
E
x
h
i
b
i
ts are to Se
c
ti
o
ns
,
S
c
hedules
o
r Exh
i
bit
s
co
ntai
ned
i
n
o
r attached to
this
Warrant
,
(b) ea
c
h
accounting terms
n
ot ot
h
er
w
i
se
d
e
fined
i
n
thi
s
Warran
t h
a
s
th
e
m
e
an
i
n
g
a
ss
i
g
n
ed
t
o
it i
n
accordance with GAAP,
(c
)
words
in the
s
ingular
or
plural include
the singu
l
ar
and
plur
al
and pronouns
s
tated
in
either the
ma
sc
ul
ine
,
the feminine
o
r
ne
u
ter
ge
nder
s
hall include the masculine,
feminine
and neuter and
(d)
the
use
of the word
"
includin
g
"
in this Warrant s
h
all be
b
y
way
o
f
exam
ple
rathe
r than
limitation.
[Remaind
e
r
of page
intentionall
y
left
blank]
IN WITNESS WHEREOF, the Company
has
caused thi
s
Warrant
t
o
be
exe
cute
d
a
s
of
the
16
th
day
of
February,
20
I
I.
|
INFINITY
ENERGY
RESOURCES, INC.
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
|
|
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
|
EXHIBIT A
TO
WARRANT
EXE
R
C
I
SE NO
TI
CE
TO BE
EXECUTE
D
B
Y
THE REGISTERED HOLDER TO
EXERC
I
SE
THIS
WA
RRA
N
T
INF
I
N
ITY
EN
ERGY
RES
OURC
ES
,
I
NC.
The unde
r
si
gned
h
o
ld
er
hereby
exerc
i
ses t
h
e
r
ight
t
o
pu
rc
hase of the
sha
re
s
o
f
Co
mmon
Stock ("WARRANT
SHARES")
of
Infinity
Energy
Re
so
ur
ces,
In
c.
,
a
Del
awa
re
corpora
tion
(t
h
e
"COM
PANY
"
)
,
ev
i
dence
d
b
y
the
attached Warr
ant
(t
h
e "WARRANT"). Ca
pitali
ze
d
terms
used h
er
e
in
a
n
d
not
ot
h
erw
i
se
defined
sha
ll
ha
ve
the
re
spectiv
e
mea
nin
gs
set
fo
rth
i
n
t
he
Warrant.
1
Fo
rm
of
Warrant
Exercise
Price
.
The
h
o
ld
e
r
intend
s
that
pay
m
e
nt
o
f the
Wa
rrant
Exerc
i
se
Pri
ce
s
h
a
ll
be
made
as:
|
_____________
|
a
"CAS
H
EXE
RCI
SE"
with re
s
pect
t
o
___
_________
__
____
Warra
nt
S
h
ares;
and/or
|
|
_____________
|
a
"C
ASHLESS EXERCISE
"
with
re
s
p
ec
t to
_______
Warrant Sh
a
r
es
(to the
extent
permitted by
th
e
terms
of
the
Warra
n
t).
|
2
Payment
of Wa
rr
ant
Ex
e
rcise
Pri
ce.
I
n
th
e event
that the holder
h
as e
l
ected a Cash
Exer
c
i
se
wit
h
respect to
som
e
or
a
l
l o
f t
he Warra
n
t S
ha
res to
be
i
ssued p
urs
uant
heret
o,
the
h
o
l
de
r
s
ha
ll
pa
y
th
e
Aggregate Exercise
Pri
ce
in th
e s
um
o
f
$
t
o
th
e Co
mp
any
in
acco
rdance
w
ith th
e
t
erms of
th
e
Warrant.
3
Delivery
of
Warrant Share
s.
The
Co
mpan
y
s
hall deliver ________
Wa
rrant
S
h
a
r
es
in accordance with the
ter
ms of
the Warrant in the
f
o
ll
ow
ing n
ame a
nd
to the
foll
ow
in
g
addr
ess:
I
ss
u
e
to
:
____________________________________________________________________
Facsimi
l
e Num
b
e
r
:_____________________________________________________
DTC Participant
N
umber
and Name (if
el
ect
r
o
nic b
ook
e
ntry
tr
a
n
s
fer
):
____________
Accoun
t
N
umber
(i
f e
lec
t
ro
ni
c book e
n
try
tran
s
fe
r
):
___________________________
Date
:
________________
Name
o
f Registered
Hold
e
r
B
y:_________________________
Name:
Title
:
ACKNOWLEDGMENT
The
Co
mpan
y
hereby
acknowledges this Exercise
No
ti
ce
and
h
ere
by direct
s
[
TRA
NSFE
R
AGENT] to
i
ss
ue the
above
indicated
n
umber
o
f
shares of
Co
mmon Stock to
th
e
Re
g
i
s
tered
Ho
ld
er
in
accordance
wit
h
the Transfe
r
Agent
In
st
ru
c
tion
s
dated _______________
,
2
0
__
fr
o
m the
Compan
y
and acknow
ledged
and agreed
t
o
by [TRANSFER
AGENT] (a
copy
of whic
h
i
s
attac
h
ed
hereto)
.
|
I
NF
I
N
ITY
ENERGY
R
ESOU
R
C
ES, I
NC.
|
|
|
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
|
Title:
|
|
|
|
|
|
|
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT.
SUBORDINATE SECURED PROMISSORY NOTE
$1,275,000
|
March 23, 2009
|
|
Denver, Colorado
|
FOR VALUE RECEIVED,
Infinity Energy Resources, Inc., a Delaware corporation (the “Company”), promises to pay to the order of Off-Shore Finance, LLC, a Nevada limited liability company (the “Holder”), the principal sum of One Million Two Hundred Seventy Five Thousand Dollars (US$I,275,000) or, if less, the aggregate unpaid principal amount loaned and outstanding when due, whether upon the Maturity Date, as defined below, acceleration, redemption or otherwise (the “Note”) (in each case in accordance with the terms thereof). Payment of the Note will be secured by (i) two second-lien Deeds of Trust and Security Agreements dated March 23,2009 (collectively, the “Security Agreement”), by and between Infinity Oil and Gas of Texas, Inc. and Infinity Oil and Gas of Wyoming, Inc., respectively, and the Buyer, covering certain collateral as more particularly described therein and (ii) a Commercial Guaranty by each of Infinity Oil and Gas of Texas, Inc. and Infinity Oil & Gas of Wyoming, Inc. in favor of Holder (the “Commercial Guaranties”) and the Note is further subject to a Subordination and Intercreditor Agreement dated March 23, 2009 (the “Subordination Agreement”), by and among the Holder, the Company and Amegy. This Note is issued in connection with that certain Securities Purchase Agreement, dated March 23, 2009 between the Company and the Holder (the “Purchase Agreement”) and any terms used but not defined in this Note shall have the definitions assigned to them in the Purchase Agreement.
The Company agrees to pay interest on the outstanding unpaid principal amount of the Note at a rate of6.0% per annum (“Interest”) from the date of borrowing, and continuing until paid in accordance with the provisions of this Note, subject, however, to the provisions of the Subordination Agreement. Interest on this Note shall be computed on the basis of a 360-day year and actual days elapsed. Amounts are deemed borrowed under the Note as follows:
1. For amounts loaned under Section 2 hereof, as of the date such funds are deposited in the Company’s operating account at U.S. Bank.
2. For amounts required to be funded by Holder by Amegy under Section 1.3(c) of the Off-Shore Escrow Agreement, as of the date such funds are transferred out of the Off-Shore Escrow Account.
The Loan Origination Fee and all Commitment Fees (as charged to the Company from time to time as provided in the Purchase Agreement) shall be deemed accrued interest hereunder.
1.
Payment of Principal and Interest
. The entire unpaid balance of principal and all unpaid and accrued interest shall become fully due and payable on March 23, 2012 (the “Maturity Date”) or such earlier date as the maturity hereof shall be accelerated in accordance with the terms of Section 3 below. The principal and unpaid accrued Interest under this Note may be prepaid, in whole or in part, in cash, at any time and from time to time, without penalty, in the sole discretion of the Company by fifteen (15) days prior notice.
2.
Draw Down Procedure
. The Holder shall make loans to the Company upon the Company’s request and in accordance with this Section 2, from time to time until the Maturity Date, provided that in no event shall the aggregate principal amount of such loans at any time exceed $1,275,000. A request for a loan, in substantially the form attached hereto as Exhibit 1, shall be executed by the Company’s Chief Executive Officer or Chief Financial Officer and be delivered to the Holder, specifying the requested amount and date of the loan (a “Loan Request”). Prior to making any Loan Requests, the Company shall have submitted a budget to the Holder and Amegy for approval, setting forth the proposed use of the funds being borrowed hereunder (the “Approved Budget”). All items under the Approved Budget shall relate to the Company’s direct and indirect expenditures in connection with the concessions in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to the Company by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “Nicaragua Concessions”). Each Loan Request shall identify how the requested loan amount fits within the Approved Budget. Any Loan Request which either alone or with previous loan amounts designated for the same purpose exceeds the corresponding Approved Budget line item by ten percent (10%) or more shall require the Holder to convene a meeting of its executive committee to consider the Loan Request, and approval of such amounts shall be in the reasonable discretion of the Holder’s executive committee. The Approved Budget may be periodically revised with the written approval of the Holder, Amegy and Infinity. Loans shall be made by the Holder to the Company not less than five (5) business days after a Loan Request has been delivered to the Holder, and the amount of the Loan Request shall be deposited into the Company’s operating account at U.S. Bank.
3.
Events of Default; Acceleration
. (a) An “Event of Default” under this Note shall occur upon the occurrence of any of the following events: (i) failure to make any payment of any amount owed to the Holder pursuant to this Note when the same shall be due and payable and such failure continues for ten (10) days after written notice thereof to the Company; (ii) appointment of a receiver for any part of the property of, or assignment for the benefit of creditors by, the Company; (iii) the commencement of any proceedings under any bankruptcy or insolvency laws by the Company; (iv) the commencement of any involuntary proceedings under any bankruptcy or insolvency laws against the Company if the same have not been fully discharged within sixty (60) days after the commencement thereof; or (v) the Company defaults in the performance of or compliance with any material term, covenant or agreement contained in this Note, if any, and such failure continues for ten (10) days after written notice thereof to the Company.
(b) If any Event of Default shall occur and be continuing, the Holder may, at any time, at its option by prior written notice to the Company, declare this Note to be immediately due and payable. The Company shall reimburse the Holder for all court costs and the reasonable out-of-pocket fees and expenses of the Holder and its legal counsel paid by the Holder in connection with the Holder’s collection of any amounts due and payable to the Holder.
(c) Upon this Note becoming due and payable under this Section 3, this Note will forthwith mature and the entire unpaid principal amount of this Note, plus all accrued and unpaid interest, shall all be immediately due and payable.
4.
Priority of Note
. Except with respect to the debt evidenced by the Company’s Loan Agreement with Amegy dated January 9, 2007, as amended and supplemented by the First, Second and Third Forbearance Agreements (“Senior Debt”), which is senior to the Note in all respects, no indebtedness of the Company will rank senior to or
pari passu
with the Note in right of payment, whether with respect of payment of principal, interest, damages or upon liquidation or dissolution or otherwise.
5.
Voting Rights
. The Holder shall have no voting rights as the Holder of this Note.
6.
Release
. Upon the payment in full of the amounts specified in this Note, the Company shall be released from all its obligations and liabilities under this Note.
7.
Governing Law; Waiver of Jury Trial
. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Colorado, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
8.
Agreement, Amendment and Waiver
. This Note and the agreements, documents and instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and constitute the entire agreement of the parties with respect to the transactions contemplated hereby and supersede all other prior agreements or understandings among the parties hereto with respect to the subject matter hereof. This Note may be amended only upon the written consent of the Company and the Holder.
9.
Severability
. Any provision of this Note which is prohibited or unenforceable in any jurisdiction where such provision would otherwise be applied shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Note or affecting the validity or enforceability of such provision in any other jurisdiction.
10.
Successors and Assigns
. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned in whole or in part by either the Company or the Holder without the prior express written consent of the other party (or its permitted assigns). Except as otherwise provided herein, the terms and conditions of this Note shall inure to the benefit of, and be binding upon, the respective successors and assigns of the Company and the Holder. Nothing in this Note, express or implied, is intended to confer upon any party other than the Company, the Holder or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Note.
11.
Waiver
. The Company waives delivery, acceptance, performance, presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and any defense by reason of extension of time for payment or other indulgences. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived by the Company to the fullest extent permitted by law. The acceptance of any partial payment or other payment which does not fully pay all amounts then due hereunder and fully cure all defaults hereunder shall not constitute a waiver of the right to payment of the balance of such payment or other amount then or thereafter due, of any default hereunder, of the right to declare a default hereunder or cause the entire unpaid balance hereof to become immediately due and payable in full, or of any other right or remedy.
12.
Note Record
. The Holder shall, and is hereby authorized, to record on the Note Record attached to this Note as Exhibit 2, the date and principal amount of each loan and the date and amount of each principal payment hereunder; provided, however, that neither the failure to so record nor any error in this recordation shall affect the Company’s obligations under this Note.
13.
Computation of Time
. If any event or performance under this Note is scheduled or required to occur on a date which is on a Saturday, Sunday, or legal state or federal holiday in Denver, Colorado, the event or performance shall be required to occur on the next day which is not a Saturday, Sunday or legal state or federal holiday in Denver, Colorado.
[Signatures on Following Page]
In Witness Whereof, the Company has executed this Note as of the date first above written.
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INFINITY ENERGY RESOURCES, INC.
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/s/ Stanton E. Ross
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By: Stanton E. Ross, its Chief Executive Officer
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Accepted and Agreed as of the date
First written above.
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OFF-SHORE FINANCE, LLC
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/s/ Daniel J. Haake
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By: Daniel J. Haake, Managing Member
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Exhibit 10.25
Execution Version
REVENUE SHARING AGREEMENT
This Revenue Sharing Agreement (the “
Agreement
”) dated March 23, 2009 is entered into by and between INFINITY ENERGY RESOURCES, INC. (“
Assignor
”) and OFF-SHORE FINANCE, LLC, a Nevada limited liability company (“
Assignee
”). Assignor and Assignee are collectively referred to as the “Parties.”
In consideration of the premises and mutual covenants and obligations below, the Parties agree as follows:
1. Assignor hereby assigns unto Assignee a monthly payment (the “
RSP
”) equal to the revenue derived from one percent (1 %) of 8/8ths of Assignor’s share of the hydrocarbons produced at the wellhead from certain oil and gas concessions in the Tyra and Perlas Blocks, offshore Nicaragua (the “
Concessions
”). The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including without limitation, its share of production, severance and similar taxes, as well as its share of all costs of gathering, treating, compressing, dehydrating and processing produced hydrocarbons (or otherwise rendering the same marketable) and transporting the same to the point of sale. Assignor will employ the accounting procedures and standards in the 2005 COPAS Accounting Procedure.
2. Assignor shall pay the RSP to Assignee by the last day of each month based on the revenue received by Assignor from the purchaser of the production during the previous month from the Concessions. The Parties expressly agree that this Agreement does not create any rights in the Concessions. No obligation, express or implied, shall arise by reason of the RSP that obligates Assignor to maintain or develop either of the Concessions. All operations under the Concessions shall be solely at the discretion of Assignor.
3. Assignee, upon notice in writing to Assignor, shall have the right to audit Assignor’s accounts and records relating to the RSP (“
Audit Rights
”), for any calendar year within the twenty-four (24) month period following the end of such calendar year. Assignor shall bear no portion of Assignee’ audit cost, and the audits shall not be conducted more than once each year without prior approval of Assignor.
4. At any time within three (3) years from the date of this Agreement, Assignor shall have the right to redeem the RSP by paying to Assignee an amount as follows: (i) if during the first year of this Agreement, a sum equal to three (3) times the amount of investor funding by Off-Shore Finance, LLC to Assignor as of December 31, 2009 (the “
Funding Amount
”); (ii) if during the second year of this Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of this Agreement, a sum equal to ten (10) times the Funding Amount. Upon the redemption of the RSP by Assignor, this Agreement shall terminate and all rights of Assignee under this Agreement shall immediately cease, provided Assignee shall be entitled to payment of the RSP accruing up until the redemption of the RSP.
5. This Agreement may be executed in several counterparts, all of which are identical. All of such counterparts together shall constitute one and the same instrument.
6. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties. This Agreement shall not be assignable or transferable by Assignee without the prior written consent of Assignor.
7. This Agreement contains the entire agreement between the Parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract and supersedes any previous written or oral agreement between the Parties in relation to the matters dealt with in this Agreement.
8. This Agreement will be governed by, construed, interpreted and applied in accordance with the laws of the State of Colorado, excluding any choice of law rules which would refer the matter to the laws of another jurisdiction. All disputes arising out of or related to the interpretation or enforcement of this Agreement shall be fully and finally resolved under Commercial Arbitration Rules of the American Arbitration Association by a panel of three arbitrators appointed in accordance with those rules. The arbitration proceeding shall take place in Denver, Colorado, or any such other location as the Parties may mutually agree, and shall be conducted in the English language. The arbitration award shall be final and binding on the Parties. A Party may enter judgment upon the award in any court of appropriate jurisdiction upon application thereto.
9. The Parties agree that this Agreement and its contents shall be considered confidential and shall not be disclosed to any other person or entity without the prior written consent of Assignor.
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ASSIGNOR:
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INFINITY ENERGY RESOURCES, INC.
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Name:
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/s/
Stanton E. Ross
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By: Stanton E. Ross
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Title: Chief Executive Officer
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ASSIGNEE:
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OFF-SHORE FINANCE, LLC
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Name:
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/s/
Daniel J. Haake
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By: Daniel J. Haake
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Title: Managing Member
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Execution Version
Exhibit 10.26
REVENUE SHARING AGREEMENT
This Revenue Sharing Agreement (the “Agreement”), dated June 6, 2009, is entered into by INFINITY ENERGY RESOURCES, INC. (
“Assignor”
) and Stanton E. Ross (“Ross”), Leroy C. Richie (“Richie”) and Daniel E. Hutchins (“Hutchins”) (the
“Assignees”
). Assignor and the Assignees are collectively referred to as the “
Parties
.”
RECITALS
WHEREAS, the Assignor has an interest in certain oil and gas concessions in the Tyra and Perlas Blocks, off shore Nicaragua, as more specifically defined in Exhibit A attached hereto (the “
Concessions
”);
WHEREAS, the Assignees are directors and/or officers of the Assignor and have provided services to the Assignor without compensation for a substantial period of time and Assignor desires to compensate the Assignees with such services;
WHEREAS, the Assignees who are directors of the Assignor are interested parties in the transaction and have approved the transaction, they have determined that such terms are fair and in the best interests of the Assignor.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:
1.
Assignment
. Assignor hereby assigns unto the Assignees an amount equal to the revenue derived from one percent (1%) of 8/8ths of Assignor’s share (the
“RSP”
) of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including without limitation, its share of production, severance and similar taxes, as well as its share of all costs of gathering, treating, compressing, dehydrating and processing produced hydrocarbons (or otherwise rendering the same marketable) and transporting the same to the point of sale. Assignor will employ the accounting procedures and standards in the 2005 COPAS Accounting Procedure in calculating the RSP. Assignor shall pay the RSP to the Assignees on or before the last day of each month based on the revenue received by Assignor during the previous month from the purchaser of the production from the Concessions. The RSP shall be reduced in proportion to any reduction in Assignor’s interest in the Concessions. For example, if Assignor’s revenue from the Concessions is reduced by 80%, whether through sales or transfers of interest in the Concessions to third parties or otherwise, the RSP of the Assignees shall be equal to 1% multiplied by the remaining 20%, or 0.002 of the revenue that Assignor derives from the Concessions.
2.
Interest in Concessions
. The Parties expressly agree that this Agreement does not create any rights in the Concessions, but rather is an interest in the revenue derived from the Concessions. No obligation, express or implied, shall arise by reason of the RSP that obligates Assignor to maintain or develop either of the Concessions. All operations under the Concessions shall be solely at the discretion of Assignor.
3.
Audit Rights
. The Assignees, upon notice in writing to Assignor, shall have the right to audit Assignor’s accounts and records relating to the RSP (the “
Audit Rights
”) for any calendar year within the twenty-four (24) month period following the end of such calendar year. Assignor shall bear no portion of the Assignees’ audit cost, and the audits shall not be conducted more than once each year without prior approval of Assignor.
4.
Ownership of RSP
. The Assignees shall own the RSP as tenants in common in the following percentages: Ross - forty percent (40%); Hutchins - thirty-five percent (35%); and Richie - twenty-five percent (25%). Assignor shall pay each Assignee’s portion of the RSP to each Assignee in such percentages at the Assignee’s direction.
5.
Conditions Precedent to Effectiveness.
The effectiveness of this Agreement is subject to satisfaction of the following:
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(i)
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Execution of a fourth Forbearance Agreement with Amegy Bank that consents to this Agreement; and
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(ii)
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Approval of this Agreement by the holders of a majority in interest of Offshore, LLC.
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6.
Subordination of RSP.
Assignor’s obligation to pay and Assignees' right to receive the RSP under this Agreement shall be subordinated to the following:
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(i)
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Payment of Assignor’s obligation to Amegy Bank in full;
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(ii)
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Payment in full of Assignor’s outstanding obligations to third party vendors; and
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(iii)
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Repayment of the promissory note of Offshore Finance, LLC.
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7.
Counterparties.
This Agreement may be executed in several counterparts, all of which are identical. All of such counterparts together shall constitute one and the same instrument.
8.
Term.
This Agreement shall commence on the date first above written and terminate upon Assignor’s sale or transfer of its right, title and interest in and to the Concessions, including its right to receive distributions from operation or sale of the Concessions.
9.
Benefit.
This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties and to the legal representatives, heirs, successors and permitted the assigns of the Assignees.
10.
Assignment of RSP
. This Agreement shall be not be assignable or transferable by the Assignor without the prior written consent of Assignees. The respective interests of the Assignees in the RSP under this Agreement are assignable and transferrable by any of the Assignees in whole or in part, provided that the transferee agrees to be bound by each and every provision of this Agreement. The Parties shall amend this Agreement to effect the Assignees transfers or assignments of their RSP interests.
11.
Entire Agreement
. This Agreement contains the entire agreement between the Parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract and supersedes any previous written or oral agreement between the Parties in relation to the matters dealt with in this Agreement.
12.
Governing Law
. This Agreement will be governed by, construed, interpreted and applied in accordance with the laws of the State of Kansas, excluding any choice of law rules which would refer the matter to the laws of another jurisdiction. All disputes arising out of or related to the interpretation or enforcement of this Agreement shall be fully and finally resolved under Commercial Arbitration Rules of the American Arbitration Association by a panel of three arbitrators appointed in accordance with those rules. The arbitration proceeding shall take place in Overland Park, Kansas, or any such other location as the Parties may mutually agree, and shall be conducted in the English language. The arbitration award shall be final and binding on the Parties. A Party may enter judgment upon the award in any court of appropriate jurisdiction upon application thereto.
13.
Confidentiality
. The Parties agree that this Agreement and its contents shall be considered confidential and shall not be disclosed to any other person or entity without the prior written consent of Assignor.
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the date and year first above written.
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ASSIGNOR:
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INFINITY ENERGY RESOURCES, INC.
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Stanton E. Ross
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Its Chief Executive Officer
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Daniel F. Hutchins
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Its Chief Financial Officer
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ASSIGNEES:
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Stanton E. Ross
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Daniel F. Hutchins
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Leroy C. Richie
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Exhibit 10.28
INFINITY ENERGY RESOURCES, INC.
September 16, 2009
Jeff Roberts
The Unconventionals
1420 Dudley Dr.
Carrollton, TX 75007-2769
Via Email -
jeff@theunconventinals.gmail
Dear Jeff:
This letter Will confirm Jeff Roberts’ engagement to assist Infinity Energy Resources, Inc. in its oil and gas holdings in Nicaragua.
Jeff Roberts will assist in the following in connection with Infinity Energy Resource Inc.’s Nicaragua oil and gas holdings.
Phase I - Technical Studies
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·
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Preparation of a geological and geophysical interpretation of existing data in the two blocks (in coordination with TKGES).
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·
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An evaluation of the petroleum system and potential reserves in the area.
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·
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An economic assessment considering various scenarios and sensitivities.
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Phase II - Farmout
Oversee:
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·
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Preparation and disseminating of promotional materials
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·
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Organizing of data room
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·
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Management of the data and the sales process.
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·
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Assist in all negotiations.
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Jeff Roberts will be compensated as follows
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·
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A success fee of 5% of the upfront cash paid to Infinity by a third party earning an interest in the Nicaragua assets up to $20,000,000 and 10% of any amount exceeding $20,000,000.
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·
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A success fee of 2% of the remainder value of the transaction, which will include all investment and any other form of contribution firmly committed by a third party to the Nicaragua project.
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·
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A cost fee 1% overriding royalty interest on all oil and gas produced.
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11900 College Blvd., Ste. 204 • Overland Park, KS 66210 • PH (913) 948-9512 • FAX (913) 338-4458
Jeff Roberts’ work product will be based on information furnished by and through Infinity Energy Resources, Inc. and Jeff Roberts makes no representation or warranties with regard to its work product nor the success of any work associated with this agreement. Infinity Energy Resources, Inc. release and indemnities Jeff Roberts for all claims associated with this agreement.
Jeff Roberts we look forward to working with you.
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Sincerely,
Stanton e. Ross
CEO & Chairman
Infinity Energy Resources, Inc.
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Agreed to and accepted this 17th day of December, 2009.
11900 College Blvd., Ste. 204 • Overland Park, KS 66210 • PH (913) 948-9512 • FAX (913) 338-4458
Thompson & Knight
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GLOBAL
ENERGY
SERVICES
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333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
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September 8th, 2009
Stanton E. Ross
Chairman and CEO
Infinity Energy Resources, Inc.
7311 W 130th St., Suite 170
Overland Park, KS 66213
Via Email -
rossy1979@aol.com
Re: Consulting Services
Dear Stan:
This letter will confirm Thompson & Knight Global Energy Services’ (“TKGES”) engagement to assist Infinity Energy Resources, Inc. in its oil and gas holdings in Nicaragua.
TKGES will perform the following in connection with Infinity Energy Resources, Inc.’s Nicaragua oil and gas holdings.
Phase I - Technical Studies
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·
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Preparation of a geological and geophysical interpretation of existing data in the two blocks (in coordination with Jeff Roberts).
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·
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An evaluation of the petroleum system and potential reserves in the area.
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·
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An economic assessment considering various scenarios and sensitivities.
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TKGES will be compensated as follows:
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·
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$100,000 ($50,000 per block) as follows: 50% upon completion seismic interpretation and mapping and preliminary assessment of the petroleum systems, and 50% upon presentation of the final report.
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Phase II - Farmout
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·
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Prepare and disseminate promotional materials
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·
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Manage the data and the sales process.
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·
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Assist in all negotiations.
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Thompson & Knight
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GLOBAL
ENERGY
SERVICES
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333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
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TKGES will be compensated as follows
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·
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A success fee of 5% of the upfront cash paid to Infinity by a third party earning an interest in the Nicaragua assets up to $20,000,000 and 10% of any amount exceeding $20,000,000.
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·
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A success fee of 2% of the remainder value of the transaction (which will include all investments and any other form of contribution firmly committed by a third party to the Nicaragua project;
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·
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A cost-free 1% overriding royalty interest on all oil and gas produced.
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Delivery of E&P Business Management Program: as part of the training program committed by Infinity under the two Nicaragua contracts TKGES will deliver, at the venue and dates mutually agreed with the Nicaragua government, its four day E&P Management Program, subject to the approval of such program by the government.
TKGES will be compensated as follows:
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·
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a total of $25,000.00 ($12,500.00 per block) plus expenses.
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The above terms do not include legal services or expenses. Infinity Energy Resources, Inc. will separately compensate Thompson & Knight LLP for legal services and will reimburse TKGES for expenses as provided in Attachment A. Attachment A to this letter is a description of TKGES’s client cost reimbursement policies that reflect the basis upon which we will request reimbursement of expenses. We will seek Infinity Energy Resources, Inc.’s approval before incurring any extraordinary reimbursable expenses.
TKGES’s work product will be based on information furnished by and through Infinity Energy Resources, Inc. and TKGES makes no representations or warranties with regard to its work product nor the success of any work associated with this agreement. Infinity Energy Resources, Inc. releases and indemnities TKGES for all claims associated with this agreement.\
We appreciate your confidence in entrusting this matter to us and we look forward to working with you.
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Sincerely,
Andrew B. Derman
Vice-Chairman
Thompson & Knight Global Energy Services
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Thompson & Knight
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GLOBAL
ENERGY
SERVICES
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333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
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AGREED AND APPROVED BY INFINITY ENERGY RESOURCES, INC.
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INFINITY ENERGY RESOURCES, INC.
CHAIRMAN AND CEO
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SEPTEMBER 9th, 2009
AGREED AND APPROVED BY AMEGY BANK
SEPTEMBER ___, 2009
Thompson & Knight
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GLOBAL
ENERGY
SERVICES
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333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
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ATTACHMENT A
Policy Regarding Expenses Incurred on Behalf of Clients
General Policy
TKGES asks its clients to pay for certain incremental costs which are incurred in the course of providing consulting services. These costs, which are detailed below, are itemized separately from professional time charges to ensure that each client is billed only for those services utilized on its behalf. It is TKGES’s general policy to provide these incremental services to clients at or near its actual cost. TKGES frequently reviews its expense charges to ensure ongoing compliance with this general policy. It should be recognized that many expense charges are positively influenced by volume economies. Lower costs derived from volume discounts are calculated into our expense charges to benefit tour clients.
Long Distance Telephone Calls
TKGES’s telephone tracking system generates long distance long distance telephone charges based on rate tables used by our service provider. This rate is adjusted by a factor that blends the volume discount the Firm has negotiated with the service provider and taxes associated with all such calls. Long distance calls made via a calling card, cellular phone or from a hotel are billed to clients at the our actual cost.
Photocopies
TKGES uses an Equitrac automated system for accurately capturing the number of copies made on behalf of each client matter. Clients are billed a flat rate of $.10 per page for both letter and legal size photocopies. Dual sided copies are billed at $.10 per side. We staff an in-house print shop to provide cost effective and expedient client service. Personnel intensive projects, including glass work, book copying, binding and Bates stamping, will be charged at competitive rates, generally from $.12 to $.20 per copy.
Airfare, Hotels, Car Rentals and Meals
All charges to clients for out-of-town travel on their behalf are billed at actual cost. Our standard approved travel class for domestic travel in the United States is economy class and business class foreign travel. We may charge clients fares above these stated classes of service only with the client’s prior approval.
Thompson & Knight
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GLOBAL
ENERGY
SERVICES
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333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
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Courier Costs
Federal Express, DHL and other long distance delivery costs are also charged to clients at actual cost.
Telecopy (FAX) Costs
The standard rate for all outgoing facsimiles is $.45 per page, whether local or long distance. The rate covers the cost of facsimile machines, paper, supplies, any fax related long distance costs, maintenance, and personnel (non-secretaries) dedicated or partially dedicated to the sending and receiving of faxes. We do not bill for incoming faxes. Based on current utilization, the standard rate billed does not exceed our total costs to provide telecopy services.
Mileage
Our personnel may charge a client a mileage charge when using a personal motor vehicle for client work that takes them outside the city limits of their office location. Mileage is not charged for travel within the city. The mileage rate is based on the Internal Revenue Service deductible rate. Actual parking costs may be charged to clients when a personal motor vehicle is used for client work outside the office.
Postage and Related Supplies
Postage and related supplies for routine letters, documents and informational mailings are not billed to clients. Postage and envelope costs are billed to clients at cost for large mailings that are made on behalf of a client at its request. No extra charges are made for personnel who facilitate the mailings.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME
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JURISDICTION OF FORMATION
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Infinity Oil & Gas of Kansas, Inc.
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Kansas
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Infinity Oil and Gas of Texas, Inc.
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Delaware
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Infinity Oil & Gas of Wyoming, Inc.
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Wyoming
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EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use of our report dated May 9, 2011, with respect to the consolidated balance sheets of Infinity Energy Resources, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of the operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2010 and 2009 included in this Registration Statement on Form 10.
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/s/ Ehrhardt Keefe Steiner & Hottman PC
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May 9, 2011
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Denver, Colorado
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