Exhibit 10.1
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (“Agreement”) is entered into as of June 18, 2010, by
and among RBS CITIZENS, N.A., dba CHARTER ONE (the “Lender”), JOHN D. OIL AND
GAS COMPANY, a Maryland corporation (“John D. Oil”), GREAT PLAINS EXPLORATION
COMPANY, LLC, an Ohio limited liability company (“GPE”), OZ GAS LTD. (“Oz”), a
Pennsylvania limited liability company, RICHARD M. OSBORNE (“Osborne”) and THE
RICHARD M. OSBORNE TRUST (the “Trust”). John D. Oil, GPE, and Oz are sometimes
referred to collectively as the “Receivership Defendants.” The Receivership
Defendants and Osborne and the Trust are sometimes referred to collectively as
the “Defendants.”
R E C I T A L S:
A. On or about March 28, 2008 John D. Oil and Osborne executed and delivered to
Lender an Amended and Restated Revolving Credit Note (the “2008 Note”) in the
principal amount of Nine Million Five Hundred and 00/100 Dollars
($9,500,000.00).
B. The 2008 Note was executed and delivered to Lender pursuant to the terms of a
First Amended and Restated Loan and Security Agreement dated as of March 28,
2008 (the “2008 Loan Agreement”) by and among John D. Oil and Osborne and
Lender. The 2008 Loan Agreement sets forth, among other things, the interest
rate due under the 2008 Note. The 2008 Loan Agreement defines “Maturity Date” as
August 1, 2009. The 2008 Note provides that the entire balance of principal and
interest on the 208 Note is due and payable on the Maturity Date.
C. John D. Oil and Osborne, jointly and severally, owe to Lender on the 2008
Note the amount of $9,500,000, plus interest in the amount of $7,062.66 as of
August 14, 2009. Interest continues to accrue at the rate of $543.28 per diem
from August 14, 2009, and attorneys’ fees, costs and other amounts allowable
pursuant to the terms of the 2008 Note and 2008 Loan Agreement.
D. On or about March 28, 2008, the Trust, by and through Richard M. Osborne as
Settlor and Trustee of the Trust, executed and delivered to Lender an Unlimited
Guaranty (“Guaranty”) in which the Osborne Trust unconditionally guaranteed
payment to Lender of all amounts owing under the 2008 Note, as well as the
performance by Defendants John D. Oil and Osborne of all obligations to Lender.
E. On or about August 2, 2007, GPE and Oz executed and delivered executed and
delivered to Lender, a Revolving Credit Note (the “2007 Note”) in the principal
amount of Twenty-Five Million and 00/100 Dollars ($25,000,000.00).
F. The 2007 Note was executed and delivered to Lender pursuant to the terms of a
Loan and Security Agreement (the “2007 Loan Agreement”) by and among GPE and Oz
and Lenders. The 2007 Loan Agreement sets forth, among other things, the
interest rate due under the 2007 Note.

 

 

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G. The 2007 Loan Agreement defines “Maturity Date” as August 1, 2009. The 2007
Note provides that the entire balance of principal and interest on the 2007 Note
is due and payable on the Maturity Date.
H. GPE and Oz owe to Lender on the 2007 Note the amount of $21,211,495.54, plus
interest in the amount of $15,769.42 as of August 14, 2009. Interest continues
to accrue at the rate of $1,213.03 per diem from August 14, 2009 on this
balance, plus attorneys’ fees, costs and other amounts allowable pursuant to the
terms of the 2007 Note.
I. On or about July 30, 2007, Osborne executed and delivered to Lender an
Unlimited Guaranty (the “2007 Guaranty”) in which Defendant Osborne
unconditionally guaranteed payment to Lender of all sums which were due and
owing and of all sums which in the future became due and owing to Lender from
GPE and Oz under the 2007 Note, as well as the performance by Defendants GPE and
Oz of all obligations to Lenders.
J. On or about August 21, 2009, the Cuyahoga Common Pleas Court entered judgment
(the “Judgment”) in Case No. CV 09 702078 (the “Collection Case”) against the
Defendants as follows:

  (i)  
against Defendants John D. Oil and Osborne, jointly and severally, for the
amount of $9,500,000, plus accrued interest as of August 14, 2009 in the amount
of $7,062.66, plus interest at the rate at the rate of $543.28 per diem from
August 14, 2009, plus late charges in the amount of $475,842.09 as of August 14,
2009 (the “JDOG Judgment Late Charges”), plus attorneys’ fees, costs and other
amounts allowable pursuant to the terms of the 2008 Note and the 2008 Loan
Agreement; and

  (ii)  
against Defendant the Trust, jointly and severally with Defendants John D. Oil
and Osborne, for the amount of $9,500,000, plus accrued interest as of
August 14, 2009 in the amount of $7,062.66 plus interest at the rate at the rate
of $543.28 per diem from August 14, 2009, plus late charges in the amount of
$475,842.09 as of August 14, 2009 (the “JDOG Guaranty Judgment Late Charges”),
plus attorneys’ fees, costs and other amounts allowable pursuant to the terms of
the 2008 Note and the Loan and Security Agreement and the Guaranty; and

  (iii)  
against Defendants GPE and Oz, jointly and severally, for the amount of
$21,211,495.54, plus interest as of August 14, 2009 in the amount of $15,769.42,
plus accrued interest at the rate of $1,213.03 per diem from August 14, 2009,
plus late charges as of August 14, 2009 in the amount of $1,062,454.98 (the “GPE
Judgment Late Charges”), plus attorneys’ fees, costs and other amounts allowable
pursuant to the terms of the 2007 Note and the 2007 Loan Agreement; and

  (iv)  
against Defendant Osborne, jointly and severally with Defendants GPE and Oz, for
the amount of $21,211,495.54, plus accrued interest as of August 14, 2009 in the
amount of $15,769.42, plus interest at the rate of $1,213.03 per diem from
August 14, 2009, plus late charges as of August 14, 2009 in the amount of
$1,062,454.98 (the “GPE Guaranty Judgment Late Charges”), plus attorneys’ fees,
costs and other amounts allowable pursuant to the terms of the 2007 Note and the
2007 Loan Agreement and the 2007 Guaranty.

 

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K. On or about August 28, 2009, Lender filed the Emergency Motion for the
Immediate Appointment of a Receiver (the “Receivership Motion”) in the
Collection Case.
L. The Defendants have requested that the Lender enter into an agreement under
which the Lender would agree to forbear from exercising its remedies as a result
of the Judgment, including but not limited to an agreement to stay the
Receivership Motion.
M. Defendants have filed with the Cuyahoga County Common Pleas Court (the
“Court”) a Rule 60(B) Motion To Vacate (the “Motion to Vacate”) the Judgment,
challenging the Judgment taken, and challenging the JDOG Judgment Late Charges,
the JDOG Guaranty Judgment Late Charges, the GPE Judgment Late Charges and the
GPE Guaranty Judgment Late Charges (collectively, the “Late Charges”). In
addition, Defendants have filed pleadings opposing the Receivership Motion on
the grounds that, among other things, the Cuyahoga County Common Pleas Court
lacks jurisdiction to appoint a receiver, and other arguments challenging
Lender’s rights to assert its rights as a judgment creditor under the Judgment
(the “Other Post-Judgment Motions”).
N. The Lender is willing to forbear from exercising certain of its rights and
remedies but only on the terms specifically set forth in this Agreement and for
the consideration set forth in this Agreement.
NOW, THEREFORE, the Lender and Defendants agree as follows:
1. Definitions. As used herein, the term “Loan Documents” means the 2008 Note,
the 2008 Loan Agreement, the Guaranty, the 2007 Loan Agreement, the 2007 Note,
the 2007 Loan Agreement, and the 2007 Guaranty, as defined in the Complaint,
together with the mortgages and security agreements set forth in Exhibit A
hereto. Defined terms used herein and not otherwise defined shall have the same
meaning as provided in the Loan Documents.
2. Acknowledgments.
(a) Accuracy of Recitals. The parties hereby acknowledge that the Recitals to
this Agreement are true and accurate and agree that such Recitals are
incorporated into this Agreement by reference and are a material part of this
Agreement.
(b) Validity of Judgment. In consideration of Lender’s agreement to waive the
Late Charges, Defendants hereby stipulate to the validity and enforceability of
the Judgment as reduced.
(c) Defaults. The Defendants acknowledge that they are liable to the Lender in
the amounts set forth in Paragraph J of the Recitals (reduced by the amount of
the Late Charges), and that as a result the Lender has the right to exercise its
rights and remedies under the Loan Documents and as a judgment creditor under
the Judgment.

 

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(d) Additional Amounts. The Defendants acknowledge that additional amounts of
interest, premiums, penalties, expenses (including without limitation,
attorneys’ fees and costs), and other amounts will become due under the
Judgment, the Loan Documents and under this Agreement.
(e) Security Interests. The Defendants acknowledge that the Lender has perfected
first priority security interests in the Collateral described in the Loan
Documents. Such Collateral secures the obligations of Defendants as provided in
the Loan Documents. The Defendants represent that they have no claims, set offs
or defenses to any amounts owed to the Lender or the Lender’s exercise of any
rights or remedies available to it as a creditor in realizing upon any such
Collateral.
(f) Status of Loan Documents. The Defendants acknowledge that the Loan Documents
are legally enforceable against the Defendants, that they have received and are
in possession of each of the Loan Documents and the Judgment, and that they
remain bound, in all respects, under the Loan Documents and the Judgment, except
as specifically modified by this Agreement or any subsequent court rulings. The
Defendants acknowledge that, subject to any court rulings on Defendants’ Other
Post-Judgment Motions, the Judgment is fully enforceable against each of the
Defendants in the amount set forth in Recital J above, less the Late Charges.
Interest shall continue to accrue on the Judgment during the Forbearance Period
(as defined below) at the rate set forth in Section 7(b).
3. Forbearance.
(a) Forbearance Period. Subject to the terms of this Agreement, the Lender shall
forbear from exercising its remedies with respect to the Judgment and the Loan
Documents and the indebtedness evidenced thereby until the earlier of
(i) July 1, 2011, and (ii) the occurrence of a Termination Event as defined in
Section 8 of this Agreement. This period of forbearance is hereinafter referred
to as the “Forbearance Period.”
(b) No Waiver of Defaults. The Lender’s execution, delivery and performance of
this Agreement shall not waive, cure or otherwise affect the Judgment or any
other default or Event of Default (as defined in the Loan Documents) under any
of the Loan Documents. The Defendants acknowledge such non-waiver
notwithstanding the Lender’s agreement to enter into this Agreement.
(c) Dismissal and Stay of Certain Motions. Within five (5) business days after
this Agreement is executed by both parties, Defendants will dismiss its Motion
to Vacate. During the Forbearance Period, Lender will stay, without any
prejudice to the Lender, any action upon its Motion For the Immediate
Appointment of A Receiver, and any other post-Judgment motion or pleading filed
by Lender. During the Forbearance Period, Defendants, without any prejudice to
the Defendants, will stay any action upon their Other Post-Judgment Motions, and
will not file any other motion to challenge the Judgment.

 

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(d) Rights Upon Termination of the Forbearance Period.
(i) Upon termination of the Forbearance Period, the Lender shall be under no
obligation to grant, continue, or extend forbearance in any respect. Except to
the extent as may be limited by any subsequent Court rulings on the Other
Post-Judgment Motions, the Defendants acknowledge that upon the termination of
the Forbearance Period, the Lender will no longer be required to forbear from
exercising its rights and the Lender will be entitled to immediately exercise
all of its rights and remedies under the Judgment and the Loan Documents,
including without limitation all of its rights and remedies after a default or
Event of Default, as well as all of its rights under this Agreement and under
any document, instrument, or agreement referenced in this Agreement or entered
into pursuant to this Agreement, including, without limitation, the right to
demand immediate payment of all amounts outstanding under any or all of the Loan
Documents and/or the Judgment (as modified pursuant to Paragraph 2(b) herein),
pursue rights and/or remedies under the Loan Documents and/or the Judgment (all
without notice or cure periods of any kind, which notice and cure periods are
hereby waived by Defendants), and/or pursue its Renewed Motion For the Immediate
Appointment of A Receiver or any other remedy at law or in equity. All rights
and remedies shall be cumulative and not exclusive. To the extent permitted by
applicable law, and subject to any Court ruling on the Other Post-Judgment
Motions, the Defendants waive, renounce and forever relinquish all right to
notice prior to the disposition of any Collateral under the Loan Documents, and
all other rights that are waivable under Article 9 of the Uniform Commercial
Code, as enacted in any applicable state, whether such rights are waivable
before or after default, including, without limitation, those rights with
respect to the compulsory disposition of collateral and with respect to
redemption of collateral, and the right to notice of any disposition of
collateral.
(ii) Upon termination of the Forbearance Period, Defendants may pursue their
Other Post-Judgment Motions or any other post-Judgment motion or pleading.
(e) Preservation Rights Not Impaired. This forbearance by the Lender does not
extend to any actions the Lender may take to preserve and protect the Collateral
under the Loan Documents, including by way of example and not of limitation,
(i) filing actions against or defending or intervening in actions brought by
third parties relating to such Collateral, or the interest of the Lender
therein, or (ii) sending or filing documents concerning the existence or
continuation of liens in favor of the Lender or concerning such Collateral.
(f) Termination of Forbearance Period Not a Termination of this Agreement. The
parties agree that the termination of the Forbearance Period only affects the
Lender’s commitment to forbear on exercise of its remedies during the
Forbearance Period. This Agreement shall remain in full force and effect after
the termination of the Forbearance Period, except for such forbearance
commitment by the Lender.
4. Conditions.
(a) The Lender’s agreement to forbear is conditioned upon and is subject to the
satisfaction of each of the following conditions on or before the dates
hereinbelow specified:
(i) Forbearance Fee. The Defendants shall have paid to the Lender a forbearance
fee in the amount of $40,000.00 upon the execution of this Agreement. Hereafter,
Defendants shall pay a forbearance fee of $40,000.00 on the first day of each
month, commencing on July 1, 2010, and on the first day of each month thereafter
during the Forbearance Period. These payments shall be consideration for
Lender’s willingness to enter into this Agreement and to continue forbearance
described herein, and shall not be applicable to Debt Service Payments or any
other amounts due hereunder.

 

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(ii) No Change in Condition. As of the date of this Agreement there shall have
been no material adverse change in the condition, financial or otherwise, of the
Defendants from that existing on as set forth in the financial statements for
the period ended September 30, 2009 for GPE and Oz, and for the period ended
November 30, 2009 for John D. Oil, delivered by or on behalf of the Defendants
to the Lender.
(iii) Additional Collateral. Upon the date of signing of this Agreement, the
Defendants shall provide the additional collateral listed below in subsections
4(a)(iv), (v) and (vi)to secure the debt owed to Lender, which collateral shall
be delivered and/or secured upon the execution of this Agreement, or within the
time frames set forth below.
(iv) Alpha and Panzica Wells. Upon the date of signing of this Agreement,
Defendants John D. Oil and GPE shall deliver to Lender the Assignment and
Security Agreement attached hereto as Exhibit B to pledge and grant a security
interest in all of their right, title and interest in and to their economic
interests in the Alpha and Panzica Wells, pursuant to the terms and provisions
of the Loan Documents (whether by means of a mortgage, security agreement or
otherwise). Defendants Osborne, the Trust and Oz represent and warrant that they
have no right, title or interests whatsoever in either of the Alpha or Panzica
Wells.
(v) Pledge of Kykuit Interest. Upon the date of signing of this Agreement, the
Defendants shall have delivered to Lender the Pledge Agreement attached hereto
as Exhibit C to pledge Defendants’ ownership interest in Kykuit Resources LLC as
security for Defendants’ performance of its obligations under this Agreement.
(vi) Pledge of Energy, Inc. Upon the date of signing of this Agreement,
Defendant Osborne shall pledge or cause to be pledged a first and best security
interest to Lender of not less than 800,000 shares of common stock in Energy,
Inc., with such stock having a market value (as of the date hereof) of not less
than $9,600,000.00, and shall be pledged pursuant to the Pledge Agreement and
the Stock Powers which are attached hereto as Exhibits D and E. The share
certificates representing said pledged common stock of Defendant Osborne shall
be physically delivered to Wells Fargo to be held under the aforementioned
Pledge Agreement and Control Agreement. Defendant Osborne shall also provide a
list to Lender of all other pledges of Energy, Inc. stock currently outstanding,
the number of shares so pledged and to whom pledged. Lender acknowledges that
Defendant Osborne will be permitted to receive dividends from the pledged shares
of up to $30,000 monthly, notwithstanding such pledge, so long as a Termination
Event has not occurred hereunder.
(vii) Other Documents. Defendants shall deliver to the Lender any and all other
agreements, instruments and documents as the Lender may reasonably request in
order to further protect its security or evidence compliance by the Defendants
with this Agreement and the other Loan Documents.
(viii) Recordings and Filings. Defendants shall execute and deliver any and all
financing statements and other instruments as the Lender may reasonably request
to perfect and maintain the perfection of the security interests which secure
the obligations of the Defendants to Lender.

 

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(b) If all of the foregoing conditions have not been satisfied concurrently with
the execution and delivery of this Agreement, or on such later date as specified
herein, then in the Lender’s sole discretion, any obligations of the Lender to
provide any forbearance hereunder shall be void.
(c) Within two (2) business days following the execution of this Agreement and
the documents referenced in subsections (iv), (v) and (vi) above, Lender shall
execute and deliver to Defendants the Agreed Judgment Entry for Release of Writ
of Garnishment attached hereto as Exhibit F, thereby causing the garnishment
filed in the Cleveland Municipal Court, Case No. 2009CVH018200 to be dismissed,
and all attachments resulting therefrom to be released of record. In addition,
Lender shall promptly execute and deliver to Defendants any and all other
agreements or documents as Defendants may reasonably request in order to dismiss
the aforementioned garnishment and attachments.
5. Covenants.
(a) Each Defendant agrees that during the Forbearance Period, such Defendant
will continue to comply with all covenants and other obligations under the Loan
Documents to which such Defendant is a party, except as modified herein,
including, without limitation, all modifications set forth in Schedule 5(a).
Defendants shall cause all payments set forth in Section 7 hereof to be made
promptly when due.
(b) The Defendants shall pay to the Lender all of the fees, expenses and other
amounts required by this Agreement. In addition to the Forbearance Fee described
in Paragraph 4(a)(i) above, Defendants shall pay all of the fees of Lender’s
legal counsel incurred to the date of this Agreement and thereafter, including,
but not limited to, fees incurred in connection with the Judgment, the
Receivership Motion and the drafting, negotiation and/or enforcement of this
Agreement. The parties acknowledge that the amount of attorney and agent fees
owed through May 7, 2010 is $535,846.38, less the $150,000 previously paid by
Defendants. The first Debt Service Payment paid by Defendants pursuant to
Section 7(a) hereof shall be applied to the payment of these fees. Within three
(3) days after this Agreement is executed, Lender shall provide Defendants with
an affidavit signed by an authorized representative of Lender attesting that
they have paid or will pay to Argus the full amount of all of the aforementioned
invoices without any type of diminution, reduction or set off whatsoever.
(c) The parties will request that the judge assigned to the Collection Case stay
further proceedings on the Receivership Motion and Other Post-Judgment Motions
without prejudice to either Lender or the Defendants during the Forbearance
Period.
(d) Copies of all memorandum of leases and titles to real property and all oil
and gas well leases, wherever located, including but not limited to Ohio,
Pennsylvania and Montana, which John D. Oil, GPE and/or Oz own or hold an
economic interest in, will be delivered to Lender’s counsel before the end of
business on June 30, 2010. Additional mortgages will be executed, notarized and
delivered as additional wells are identified, as required under the Loan
Documents.

 

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(e) Lender shall obtain (at Borrower’s expense) appraisals of all natural gas
wells, oil wells, pipelines and related gas and oil interests and reserves
pledged as security for this Agreement.
(f) Attached hereto as Exhibit G is a true and accurate description of the
Defendants’ stock interests in Kykuit Resources, LLC and Energy, Inc. Within
30 days of the date of this Agreement, Defendants shall deliver or cause to be
delivered to Lender, security agreements, mortgages and/or deeds of trust in
recordable form, granting valid and enforceable first liens on all real property
in which John D. Oil, Oz and/or GPE have an interest, and granting valid and
enforceable first liens upon all interests of any kind of said John D., Oz
and/or GPE in any natural gas wells, oil wells and/or pipelines. A list of such
property interests is attached hereto as Exhibit H. Attached hereto as Exhibit I
are copies of all material contracts related to the production, transmission,
transportation and/or sale of natural gas or oil.
(g) John D. Oil, Oz, GPE shall not be permitted to sell, assign, transfer, lease
or sublease any well owned, maintained, leased or otherwise controlled by any of
them unless or until they obtain the prior written consent of Lender, which
consent may be withheld by Lender in its sole discretion.
(h) The Lender will be allowed full and unfettered access to the books and
records of John D. Oil, Oz, and GPE. John D. Oil, Oz, and GPE will deliver
monthly statements of financial condition in form reasonably acceptable to
Lender. The Lender may conduct such periodic examination of these companies’
books and records as Lender deems reasonably necessary.
(i) The Judgment will remain in full force and effect, subject to the
forbearance provided in this Agreement and reduced by the amount of the Late
Charges. Upon Defendants’ request, but subject to the provisions of subsection
(o) below, the Lender shall in its sole discretion, release its judgment lien on
a portion of the assets subject to Lender’s security interest to permit
Defendants to sell or refinance such assets.
(j) During the Forbearance Period, John D. Oil, Oz and GPE shall not grant any
collateral to other creditors without the prior written approval of the Lender,
nor shall such Defendants pay any creditor except in the ordinary course of
business, without first obtaining the Lender’s prior written consent, which will
not be unreasonably withheld. All transactions engaged in by said Defendants
will be at arms length.
(k) Osborne and the Trust shall pay to Lender fifty percent (50%) of the net
proceeds of any assets sold by either of them during the Forbearance Period.
Lender’s portion of the net proceeds of each such sales shall be applied by
Lender as follows: (i) the first $400,000 of Lender’s portion of the net
proceeds from each sale shall be applied to the Debt Service Payment (as defined
in Section 7(a) hereof) for the month in which the sale closes or, if Defendants
have already made the Debt Service Payment for that month, then said proceeds
will be applied to the following month’s Debt Service Payment and (ii) the
balance shall be applied to the principal amount due under the Judgment.
Further, Defendants shall provide Lender with an accounting of any of
Defendants’ assets that are sold during the Forbearance Period every sixty
(60) days.

 

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(l) During the Forbearance Period and except as hereinafter provided, no
distributions shall be made by any of Defendants to any “insider” of any
Defendant (as that term is defined in Section 101(31) of the United States
Bankruptcy Code), nor shall any loans made by insiders to any of Defendants be
repaid, except that Defendants John D. Oil, GPE and Oz may transfer funds among
themselves to meet operating costs during the Forbearance Period, and may pay
salary and/or compensation to such insiders and in such amounts as set forth on
Exhibit J attached hereto. Salary and other compensation owed to Defendant
Osborne by any or all of Defendants John D. Oil, GPE and/or OZ shall not exceed
an aggregate gross compensation of $450,000 annually, payable only upon the
following conditions: (i) salary and other compensation shall be payable
semiannually in two installments not to exceed gross compensation of $225,000
for each such installment, payable immediately after December 1 and May 1 of
each year but only if Defendants have timely made each payment due to Lender
pursuant to the terms and provisions of this Agreement during the six (6) months
ended on such December 1 and May 1; and (ii) no accrued and unpaid salary and
other compensation otherwise due to Defendant Osborne by any or all of
Defendants John D. Oil, GPE and/or OZ on the date hereof shall be paid on top of
the amounts set forth in clause (i). In addition, Osborne shall be permitted to
loan money to John D. Oil, GPE and/or Oz, provided that said loans shall at all
times be subordinated in writing to the loans evidenced by the Loan Documents
and the Judgments, and shall not be permitted to be repaid until the Judgments
are paid in full and/or as otherwise agreed by the Lender in its sole
discretion. In addition, John D. Oil, Oz and/or GPE shall be permitted during
the Forbearance Period to pay to or on behalf of Oz Gas Aviation, LLC, the
airplane loan payments due to FirstMerit not to exceed Nineteen Thousand Dollars
($19,000) per month. In addition, John D. Oil, Oz and GPE shall be permitted
after the Forbearance Period to pay the normal operating and maintenance expense
for said airplane, provided that all such expenditures shall be offset against
the amount RMO is permitted to take as compensation pursuant to Exhibit J.
(m) All proceeds of John D. Oil, Oz and GPE’s operations will be deposited into
accounts maintained at the Lender. During the Forbearance Period the Lender will
take no action to set off funds in any such account.
(n) Upon execution of this Agreement, Defendants Osborne and the Trust will
provide the Lender their Federal income tax returns for the tax year 2008, and
the tax returns for tax year 2009 or any request for extension to file his 2009
return (and a copy of the actual 2009 federal income tax returns within 15 days
of the date when each such return is filed). Annually during the Forbearance
Period, Defendants Osborne and Trust, commencing May 15, 2010 and each year
thereafter by May 15, shall provide Lender with a copy of Osborne’s and the
Trust’s federal income tax return or request for extension filed with the IRS,
and a copy of the actual federal income tax return within 15 days of the date
when such return is filed. Further, on the date this Agreement is signed,
Osborne and the Trust will provide personal financial statements in the form
attached hereto as Exhibit K, which financial statements shall be accompanied by
an affidavit signed by Osborne attesting that said financial statements are true
and correct to the best of Osborne’s and the Trustee’s knowledge. Thereafter and
continuing throughout the Forbearance Period, Osborne and the Trust shall
deliver to Lender updated financial statements, along with the aforedescribed
affidavit every six months.

 

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(o) During the Forbearance Period, John D. Oil, Oz and GPE shall provide monthly
financial statements, commencing for the month ended May 31, 2010. Such
financial statements shall be delivered to Lender within forty-five (45) days of
the prior month end, commencing July 15, 2010, and shall be prepared in
accordance with generally accepted accounting principles, in such detail and in
such form as Lender may reasonably request. On or before July 15, 2010: 1) John
D. Oil shall deliver to Lender the monthly financial statements for periods
ending on or after November 30, 2009, together with its annual audited financial
statement for the period ending December 31, 2009; and 2) Oz and GPE shall
deliver to Lender the monthly financial statements for periods ending on or
after September 30, 2009, together with their annual audited financial statement
for the period ending December 31, 2009.
(p) Lender filed judgment liens on the real property of the Defendants in
multiple jurisdictions. In the event Defendants propose to sell or refinance any
parcel of such real property (and/or any improvements thereon) in an arms-length
transaction to any third party or commercial lender, and such sale or
refinancing requires Lender to release its judgment lien in order to consummate
such sale or refinancing, Defendants shall provide to Lender copies of all
documentation, agreements and other information reasonably requested by Lender,
including but not limited to evidence and materials establishing the fair market
value of the property proposed to be sold or refinanced. Lender will promptly
review the request.
(i) Regarding sales of real property, if Lender is satisfied in its commercially
reasonable discretion that any such sale is for fair market value it shall
approve such sale, in exchange for receiving the net proceeds from such sale, if
any, and Lender shall promptly submit into escrow a release of its judgment lien
with respect to the individual parcel of real property so sold. The net proceeds
of any such sale shall be applied in accordance with Section 5(k). If Lender
approves such sale in its commercially reasonable discretion but there shall be
no net proceeds from such sale after payment to the holder of a prior lien upon
such parcel of real property, then in exchange for the payment to Lender of a
release payment of $3,500.00 per parcel Lender shall promptly submit into escrow
a partial release of its judgment lien with respect to the individual parcel of
real property so sold.
(ii) Regarding refinancing of real property, if Lender is satisfied in its
commercially reasonable discretion that any such refinancing is for fair market
value, and shall result in a reduction of the Defendants’ debt service
requirements regarding the loan on such real property parcel, Lender shall
approve such refinancing, in exchange for receiving the net proceeds from such
refinancing, if any, and Lender shall promptly submit into escrow a release of
its judgment lien with respect to the individual parcel of real property so
refinanced. If Lender approves such refinancing in its commercially reasonable
discretion but there shall be no net proceeds from such refinancing after
payment to the holder of a prior lien upon such parcel of real property, then in
exchange for the payment to Lender of a release payment of $3,500.00 per parcel
Lender shall promptly submit into escrow a partial release of its judgment lien
with respect to the individual parcel of real property so refinanced, and
Defendants shall at their option either (a) deliver into escrow a duly executed
second lien mortgage in recordable form (and containing terms and provisions
acceptable to Lender) upon said parcel (the “Second Mortgage Lien”) which will
be filed by the escrow agent on the Real Property Records immediately after the
refinancing of Lender’s first mortgage, or (b) pay to Lender the Equity Payment
(as defined below), in lieu of granting Lender the Second Mortgage Lien. For
purposes of this Agreement the term “Equity Payment” shall mean and equal the
difference between the amount being refinanced and the appraised value of the
subject parcel, as determined by the appraisal of the lender that is refinancing
the subject parcel, less the $3,500.00 release payment.

 

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(iii) Prior to closing of the sale or refinancing of any such parcel, Defendants
shall deliver to Lender a preliminary HUD-1 statement showing the sources and
uses of all funds involved in the transaction, and after the closing shall
deliver to Lender a final HUD-1 statement (signed by the selling Defendant and
the purchaser) showing the final sources and uses of all funds involved in the
transaction.
(iv) All net sale proceeds, refinance proceeds, and/or release payments describe
in this subsection (p) will be applied by Lender as an additional Debt Service
Payment according to the formula set forth in Section 7(a) hereof; provided,
however, that Lender’s receipt of such proceeds and/or fees under this
subsection 5(p) shall not reduce the Debt Service Payment required under Section
7(a) hereof.
(q) Lender hereby waives and relinquishes its right to recover the Late Charges
against any Defendants and hereby releases Defendants from any and all claims or
actions relating to such Late Charges.
6. Representations and Warranties. To induce the Lender to enter into this
Agreement, the Defendants, jointly and severally, represent and warrant to
Lender as follows:
(a) Each Defendant has full authority, respectively, to execute, deliver and
perform its obligations under this Agreement and has taken all action required
by law and its organizational documents to authorize the execution, delivery and
performance of this Agreement. This Agreement is the valid and binding
obligation of each Defendant enforceable against such Defendant in accordance
with its terms.
(b) Exhibit G is a complete list of the Defendants’ ownership interests
(regardless of whether such ownership interests are in the form of stock,
warrants, rights, options or other equity interests if any kind) in and to
Kykuit Resources, LLC and Energy, Inc. Defendants represent and warrant that
Exhibit H is a complete list of the gas and oil well interests of John D. Oil,
GPE and Oz, including leases, licenses, fee simple ownership, or other interest
in of any nature, whether as sole owner, shareholder, partner, member,
joint-venturer or otherwise, of John D. Oil, GPE and Oz that relate in any way
to the business operations of any Defendant, and a complete list of John D. Oil,
GPE and/or Oz’s interests in any real estate, including leases, licenses, fee
simple ownership, or other interest in real property of any nature. Defendants
represent and warrant that Exhibit I is a complete list of the material
contracts and agreements of John D. Oil, GPE and Oz concerning the production,
transmission, transportation and/or sale of related to gas and oil well
interests, including leases, licenses, fee simple ownership, or other interest
in gas and oil wells of any nature, whether as sole owner, shareholder, partner,
member, joint-venturer or otherwise, of John D. Oil, GPE and Oz that relate in
any way to the business operations of said Defendants or are set forth on the
financial statements of John D. Oil, GPE and Oz. of John D. Oil, GPE and Oz
agree that during the Forbearance Period, none of them will transfer any of the
interests set forth on Exhibits F, G and/or H without the prior written consent
of Lender.

 

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7. Debt Service Payments.
(a) Commencing July 1, 2010 and continuing on the same day of each month
thereafter, Defendants shall pay Lender the amount of $400,000 (the “Debt
Service Payment”) until all amounts due under the Judgment are paid in full.
Each Debt Service Payment will be applied as follows: (a) first to fees and
expenses of the Lender incurred under the Loan Documents and this Agreement
(including, but not limited to, the monthly forbearance fee); (b) second, to
accrued but unpaid interest due under the Judgment; and (c) third to the
principal amount due under the Judgment.
(b) Provided no Termination Event (as defined in Section 8 of this Agreement)
occurs, then effective as of the date of this Agreement until the Judgment is
paid in full, the Judgment shall bear interest at a rate equal to the LIBOR Rate
plus the LIBOR Rate Margin; provided, for purposes of this Agreement the term a)
“LIBOR Rate” shall have the same meaning as set forth in Loan Documents, except
that the LIBOR Rate shall never be less than three percent (3.0%) per annum, b)
“LIBOR Rate Margin” shall mean one and three quarters percent (1.75%) per annum;
and c) “LIBOR Interest Period” shall have the same meaning as set forth in the
Loan Documents, except that the Libor Interest Period shall never be more than
one (1) month. All other terms related to the LIBOR Rate set forth in the Loan
Agreements, including the LIBOR Breakage Fee, LIBOR Reserve Percentage, and the
Miscellaneous LIBOR Rate Loan Terms set forth in Section 2.6 of each of the Loan
and Security Agreements, are incorporated herein by reference. Notwithstanding
the foregoing, if a Termination Event occurs under this Agreement, the default
interest rate shall apply to the Judgment throughout the Forbearance Period and
thereafter, as if no interest rate accommodation had been made under this
paragraph.
(c) (1) If the Defendants repay $10,000,000 during the Forbearance Period (in
addition to all other sums due and payable under this Agreement), and (2) if,
after application of said $10,000,000 payment and the release of the collateral
and pledges described below, the then outstanding balance of the Judgment does
not exceed 65% of the Current Producing Reserve Value (as that term is defined
in the Loan Documents) of Defendants John D. Oil, GPE and Oz based upon
appraisals reasonably acceptable to Lender, then Lender shall thereupon release
the following pledges and collateral:
(i) The pledge of the Defendant Osborne’s ownership interests in Kykuit
Resources LLC; and
(ii) The pledge of shares of Energy, Inc.
Lender shall apply any such payment to the Judgment in the order set forth in
section 7(a) hereof.
Lender understands that the payment of $10,000,000 may come from the sale by one
or more of the Defendants of the pledged shares of Energy, Inc., and, so long as
Lender shall receive net sale proceeds of such stock sale, Lender shall agree to
permit such a sale of Energy, Inc. stock.

 

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(d) If the Defendants repay the entire judgment amount during the Forbearance
Period (in addition to all other sums due and payable under this Agreement and
the Loan Documents), Lender shall release all collateral and pledges.
8. Termination Events. The occurrence of any one or more of the following shall
constitute a “Termination Event”:
(a) Any breach or default of any term, payment, representation, warranty,
covenant or condition set forth in, or any other event of default under, (i) any
of the Loan Documents or this Agreement (except as modified by Schedule 5(a) and
excluding the failure to pay in full the outstanding principal balance of the
2007 Note or the 2008 Note as of August 1, 2009, but specifically including the
failure to make any Debt Service Payment as required under Section 7 of this
Agreement) or (ii) under any other agreement, equipment lease or contract
between the Defendants and the Lender (or any division of the Lender) which is
not cured within five (5) days after Defendants receipt of written notice from
Lender specifying said breach or default; or
(b) There shall have occurred any event which in the good faith judgment of
Lender has a material adverse effect on (i) the business, assets, properties, or
financial condition of any Defendant; (ii) the ability of any Defendant to
perform its obligations under this Agreement or any Loan Document (as modified
by this Agreement); or (iii) the validity or enforceability of any Loan Document
or the rights and remedies of the Lender; or
(c) If the Court enters an order in response to any of the Other Post-Judgment
Motions that materially impairs the Lender’s rights as a creditor under the
Judgments and/or the Loan Documents.
9. Fees and Expenses. If any Termination Event shall occur under this Agreement
and except as to any fees and costs related to the Other Post-Judgment Motions
for which Defendants are granted affirmative relief by the Court, the Defendants
shall pay, jointly and severally, to the Lender such amounts as shall be
sufficient to reimburse the Lender fully for all of its costs and expenses
incurred in enforcing its rights and remedies under, or otherwise in connection
with any litigation arising out of or in connection with or relating to the Loan
Documents, this Agreement, and any related documents, and/or any business
relationship among the Lender and the Defendants, including without limitation
the Lender’s reasonable attorneys’ fees and court costs.
10. No Waivers. No action or course of dealing on the part of the Lender, its
officers, employees, consultants, or agents, nor any failure or delay by the
Lender with respect to exercising any right, power or privilege of the Lender
under the Loan Documents or this Agreement shall operate as a waiver thereof,
except to the extent expressly provided herein.
11. Notices.
(a) All notices or communications under this Agreement shall be in writing and
shall be (1) mailed by registered or certified mail, return receipt requested,
(2) hand delivered, or (3) delivered by overnight carrier, to the parties at the
addresses set forth below, and any notice so addressed and mailed or delivered
to and/or deposited with such carrier, freight prepaid, shall be deemed to have
been given when so mailed if mailed; or delivered if hand-delivered; or
delivered to such overnight courier if delivered by overnight courier.

 

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(b) Addressees:

     
If to the Lender:
  If to any Defendant:
 
   
RBS Citizens Bank
  c/o Richard M. Osborne
53 State Street, 9th Floor MBS970
  8500 Station Street
Boston, MA 02109
  Mentor, Ohio 44060
Attn: Patricia Timilty
   
 
   
With a copy to Lender’s Attorney:
  With a copy to Defendants’ Attorney:
 
   
Ulmer & Berne LLP
  Melvyn E. Resnick, Esq.
1660 W. 2nd Street, Suite 1100
  Dworken & Bernstein Co., L.P.A.
Cleveland, Ohio 44113-1448
  60 South Park Place
Attn: Alan W. Scheufler, Esq.
  Painesville, Ohio 44077

(c) The parties hereto may at any time, and from time to time, change the
address(es) to which notice shall be mailed, transmitted or otherwise delivered
by written notice setting forth the changed address(es).
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws (without regard to conflicts of laws rules) of the
State of Ohio.
13. Amendments. This Agreement cannot be amended, rescinded, supplemented or
modified except in writing signed by the parties hereto.
14. Further Assurances. The Defendants shall execute and deliver to the Lender
such documents or instruments, and take such actions as the Lender may
reasonably request to protect or perfect the Lender’s rights or interests under
this Agreement and/or the Loan Documents, and/or further the purposes of this
Agreement.
15. Benefit and Binding Effect; No Third Party Beneficiaries.
(a) This Agreement shall be binding upon the Defendants, and their successors,
heirs and personal representatives (to the extent applicable), and (to the
extent assignable) their assigns and shall inure to the benefit of, and be
enforceable by the Lender and its successors, transferees and assigns, including
each and every holder of any indebtedness, obligation or liability under or in
connection with the Loan Documents and/or this Agreement.
(b) No person or legal entity that is not a party to this Agreement shall have
any rights under or as a result of this Agreement. The parties to this Agreement
do not intend to create any third party beneficiary rights for or in favor of
any person not a party to this Agreement.

 

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(c) This Agreement and any rights under this Agreement are not assignable or
transferable by the Defendants without the prior express written consent of the
Lender. Any attempt by the Defendants to assign this Agreement or any rights
under this Agreement shall be void.
16. Headings. The headings in this Agreement have been included for ease of
reference only, and shall not be considered in the construction or
interpretation of this Agreement.
17. Counterparts.
(a) This Agreement may be signed by each party hereto upon a separate copy, and
in such case one counterpart of this Agreement shall consist of enough of such
copies to reflect the signature of each party.
(b) This Agreement may be executed by each party in multiple counterparts, each
of which shall be deemed an original. It shall not be necessary in making proof
of this Agreement or its terms to account for more than one such counterpart.
(c) Signatures transmitted by facsimile shall be accepted as original
signatures. All such counterparts together shall constitute one and the same
document, and each counterpart is deemed an original.
18. CONSENT TO JURISDICTION. THE PARTIES CONSENT TO ONE OR MORE ACTIONS BEING
INSTITUTED AND MAINTAINED IN THE CUYAHOGA COUNTY, OHIO, COURT OF COMMON PLEAS
AND/OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO (AT
THE LENDER’S DISCRETION) TO ENFORCE THIS AGREEMENT AND/OR ONE OR MORE OF THE
OTHER LOAN DOCUMENTS, AND WAIVE ANY OBJECTION TO ANY SUCH ACTION BASED UPON LACK
OF PERSONAL OR SUBJECT MATTER JURISDICTION OR IMPROPER VENUE. THE PARTIES AGREE
THAT ANY PROCESS OR OTHER LEGAL SUMMONS IN CONNECTION WITH ANY SUCH ACTION OR
PROCEEDING MAY BE SERVED BY MAILING A COPY THEREOF BY CERTIFIED MAIL, OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL, ADDRESSED TO THE ADDRESSES PROVIDED IN
SECTION 11 OF THIS AGREEMENT. THE PARTIES ALSO AGREE THAT NONE OF THEM SHALL
COMMENCE OR MAINTAIN ANY ACTION IN ANY COURT, ADMINISTRATIVE AGENCY OR OTHER
TRIBUNAL OTHER THAN THE CUYAHOGA COUNTY, OHIO, COURT OF COMMON PLEAS OR THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO WITH RESPECT TO
THIS AGREEMENT, ANY OTHER OF THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS
PROVIDED FOR OR CONTEMPLATED IN ANY OF THE LOAN DOCUMENTS, OR ANY CAUSE OF
ACTION OR ALLEGED CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH ANY
DEBTOR AND CREDITOR RELATIONSHIP BETWEEN OR AMONG THE PARTIES THAT MAY EXIST
FROM TIME TO TIME.

 

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19. JURY WAIVER. EACH OF THE PARTIES (BY ACCEPTANCE HEREOF) HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLING ANY DISPUTES (WHETHER BASED ON CONTRACT, TORT, OR
OTHERWISE) BETWEEN THEM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREIN. THIS PROVISION IS A MATERIAL INDUCEMENT
TO THE LENDER TO PROVIDE THE FINANCING ESTABLISHED BY THIS AGREEMENT.
20. Entire Agreement; Merger. This Agreement and the Loan Documents constitute
the entire and exclusive statement of the agreement of the parties with respect
to the subject matter hereof and thereof, and supersede all prior understandings
with respect to the subject matter hereof and thereof. No change, modification,
addition or amendment of this Agreement and the other Loan Documents shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought.
21. Survival of Covenants. All covenants, agreements, warranties and
representations made by the Defendants herein and/or in any of the other Loan
Documents shall survive the execution and delivery of this Agreement and the
termination of the Forbearance Period.
22. Not a Novation. This Agreement shall not be deemed to be a novation of any
of the Loan Documents and/or any of the indebtedness and obligations evidenced
by the Loan Documents.
23. Severability. If any court shall finally determine that any part, term, or
provision of this Agreement is in any way unenforceable, such part, term, or
provision shall be reduced to the extent necessary to make such provision
enforceable to the greatest extent allowable by law. Consistent with the
foregoing, if any provision of this Agreement or its application shall be
invalid, illegal, or unenforceable in any respect, the validity, legality and
enforceability of all other applications of that provision and all other
provisions and applications of this Agreement shall not in any way be affected
or impaired.
24. Acknowledgment. The Defendants acknowledge that each of them has received a
copy of this Agreement as fully executed by the parties thereto. They jointly
and severally represent and warrant that each of them (a) has read this
agreement and the Loan Documents, or has caused such documents to be examined by
their representatives or advisors; (b) is thoroughly familiar with the
transactions contemplated in this Agreement; and (c) together with their
representatives or advisors, if any, have had the opportunity to ask questions
of representatives of the Lender, and receive answers thereto, concerning the
terms and conditions of the transactions contemplated in this Agreement as each
deems necessary in connection with the decision to enter into this Agreement.
25. Power of Attorney. Each Defendant does hereby irrevocably constitute and
appoint Lender its true and lawful attorney-in-fact for it, in its name, place
and stead, with full power of delegation and substitution, to make, execute, and
deliver any and all instruments, papers and documents, which shall become
necessary, proper, convenient or desirable to further evidence perfection of
Lender’s liens against, or to liquidate any of, the Collateral described in the
Loan Documents, including, without limitation, the right to supply any necessary
endorsement for any instrument. This power of attorney is coupled with an
interest and irrevocable.

 

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26. No Oral Waiver or Course of Dealing by Lender. No oral representations or
course of dealing on the part of Lender or any of their respective officers,
employees, consultants, professionals or agents, nor any failure or delay by
Lender with respect to the exercise of any right, power, privilege or remedy
under any of the Loan Documents, this Agreement and/or applicable law shall
operate as a waiver thereof and the single or partial exercise of any such
right, power, privilege or remedy shall not preclude any later exercise of any
other right, power, privilege or remedy.
[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                  RBS CITIZENS, N.A. dba CHARTER ONE    
 
           
 
  By:   /s/ Patricia J. Timalty
 
Patricia J. Timalty, V.P.    
 
                JOHN D. OIL AND GAS COMPANY    
 
           
 
  By:   /s/ Gregory J. Osborne
 
Print Name: Gregory J. Osborne    
 
      Print Title: President and COO    
 
                GREAT PLAINS EXPLORATION COMPANY, LLC, an Ohio limited liability
company    
 
           
 
  By:   /s/ Richard M. Osborne
 
Print Name: /s/ Richard M. Osborne    
 
      Print Title: Managing Member    
 
                OZ GAS LTD., a Pennsylvania limited liability company    
 
           
 
  By:   /s/ Richard M. Osborne    
 
     
 
Print Name: Richard M. Osborne    
 
      Print Title: President    
 
                /s/ Richard M. Osborne                   RICHARD M. OSBORNE,
Individually    
 
                /s/ Richard M. Osborne                   Richard M. Osborne,
Settlor and Trustee of THE RICHARD M. OSBORNE TRUST, under Third Amendment and
Restatement of Richard M. Osborne Trust Agreement dated April 25, 2005, as
amended by Fourth Amendment to the Richard M. Osborne Trust Agreement dated
August 22, 2006