UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (fee required)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (no fee required)
For the transition period to
Commission file number 0-16487
INLAND RESOURCES INC.
(Name of small business issuer in its charter)
Washington 91-1307042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
475 17th Street, Suite 1500,
Denver, Colorado 80202
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (303)
292-0900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO 1<PAGE>
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained herein, and none will be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [
]
The registrant's revenues for its most recent fiscal year were:
$2,230,988
The aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the average bid and
asked price of such stock, was $7,089,000 as of March 1, 1996.
At March 1, 1996, the registrant had outstanding 40,927,999
shares of par value $.001 common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates
certain information by reference from the definitive Proxy
Statement for the registrant's Annual Meeting of Stockholders
scheduled to be held on May 22, 1996.
Transitional Small Business Disclosure Format (check one):
Yes ______ No X
2
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . 3
General . . . . . . . . . . . . . . . . . . . . . . . . . 3
Merger with Inland Production Company (formerly known as
Lomax Exploration Company) . . . . . . . . . . . . . 4
Mining Operations . . . . . . . . . . . . . . . . . . . . 4
Sale of Duchesne County Fields. . . . . . . . . . . . . . 5
Acquisition of Federal Leases . . . . . . . . . . . . . . 5
Oil and Gas Operations. . . . . . . . . . . . . . . . . . 5
Operations . . . . . . . . . . . . . . . . . . . . . 5
Secondary Recovery Enhancement Activities. . . . . . 6
Markets. . . . . . . . . . . . . . . . . . . . . . . 7
Gas Gathering Systems. . . . . . . . . . . . . . . . 8
Regulation . . . . . . . . . . . . . . . . . . . . . 8
Environmental. . . . . . . . . . . . . . . . . . . . 8
Competition. . . . . . . . . . . . . . . . . . . . . 9
Operational Hazards and Insurance. . . . . . . . . . 9
Title to Properties. . . . . . . . . . . . . . . . . 9
Employees . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . 9
Oil and Gas . . . . . . . . . . . . . . . . . . . . . . . 9
Acreage. . . . . . . . . . . . . . . . . . . . . . 10
Productive Oil and Gas Wells . . . . . . . . . . . 10
Reserves . . . . . . . . . . . . . . . . . . . . . 11
Volumes, Prices and Production Costs . . . . . . . 12
Drilling Activities. . . . . . . . . . . . . . . . 13
Mining. . . . . . . . . . . . . . . . . . . . . . . . . 13
Other Property. . . . . . . . . . . . . . . . . . . . . 14
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Results of Operations Fiscal 1995 Compared to 1994. . . 16
Continuing Operations. . . . . . . . . . . . . . . 16
Discontinued Operations. . . . . . . . . . . . . . 18
Extraordinary Loss . . . . . . . . . . . . . . . . 19
Liquidity and Capital Resources . . . . . . . . . . . . 19
Inflation and Changes in Prices . . . . . . . . . . . . 21
3<PAGE>
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . 22
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . 22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT*
ITEM 10. EXECUTIVE COMPENSATION*
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT*
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS*
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8K . . . . . . 22
_________________________
* Incorporated by reference to Proxy Statement.
4
<PAGE>
INLAND RESOURCES INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Inland Resources Inc. ("Inland" or the "Company") was
incorporated on August 12, 1985 in the State of Washington
for the purpose of acquiring, exploring and developing
interests in mining properties. During 1987, Inland
developed a leased property located on the Eureka-Battle
Mountain gold belt in central Nevada (the "Toiyabe Mine").
Operations at the Toiyabe Mine have included open-pit
mining, crushing, agglomeration, heap leaching and gold and
silver recovery processes. During 1992, processing
activities ceased and Inland began reclamation procedures as
further discussed under "Mining Operations" below.
During 1992, Inland's Board of Directors began
investigating and evaluating business opportunities in areas
other than precious metals mining. The Board agreed,
however, that Inland's emphasis should continue in the
natural resource industry segment. This investigation and
evaluation culminated on February 23, 1993, when the Board
approved Inland's acquisition of an undivided 50% interest
in certain oil and gas leases and other assets located in
Duchesne County, Utah (the "Duchesne County Fields"), for a
purchase price of approximately $3 million in cash (obtained
from the sale of gold and silver inventory) and an option
granted to the seller to acquire 2,008,894 shares of
Inland's common stock, par value $.001 per share ("Inland
Common Stock"), (approximately 12% of the outstanding shares
at such time) at any time prior to April 1, 1996 for a
purchase price of $0.65 per share (an aggregate of
$1,305,781). The acquisition was consummated with a March
1, 1993 effective date. On September 19, 1995, Inland sold
its undivided working interest in the Duchesne County
Fields, as further described below under "Sale of Duchesne
County Fields."
5
<PAGE>
Effective upon the acquisition of the Duchesne County
Fields, Inland's mining operations were limited to final
detoxification, reclamation and closure of the Toiyabe Mine,
and Inland's business emphasis shifted to oil and gas
development and production.
Inland's strategy for achieving profitability is to
increase reserves and production through acquisition of
existing oil and gas production in developed fields, and
further developing such existing production through
development drilling, reworking existing wells and engaging
in secondary recovery enhancement operations. This
increased level of production should allow for more
efficient operations at the field level which in turn should
have a positive impact on Inland's equivalent per barrel
lifting costs. In addition, general and administrative costs
should decrease in relation to production since these costs
are generally fixed in nature and thereby do not increase
proportionate to production. Inland also has protected the
price it receives for a portion of its oil production by
entering into hedging arrangements. The ultimate success of
Inland's plan to achieve profitability is primarily
dependent on locating and purchasing properties on terms
acceptable to Inland, continuing to secure sufficient
capital to acquire target properties and conduct extensive
development and secondary recovery operations, then
successfully implementing development and secondary recovery
plans.
Inland does not generally intend to pursue exploratory
drilling in undeveloped oil and gas properties due to the
industry's relatively high historical failure rate relating
to exploratory drilling and the resulting higher associated
finding costs. However, from time to time Inland may for
various reasons determine to drill exploratory wells in
certain areas considered strategic by it.
Merger with Inland Production Company (formerly known as
Lomax Exploration Company)
Consistent with its strategy of increasing reserves and
production through acquisition of existing oil and gas
production in developed fields, effective September 21,
1994, Inland acquired by triangular merger (the "Merger")
all of the common and preferred stock of Lomax Exploration 6<PAGE>
Company, now known as Inland Production Company ("IPC"), in
exchange for 7,704,508 shares of Inland Common Stock and
107,546 shares of Inland Series A convertible preferred
stock, par value $.001 per share (each share of which is
presently convertible into 93.995 shares of Inland Common
Stock) ("Inland Series A Preferred Stock"). Such shares of
Inland Common Stock and Inland Series A Preferred Stock were
issued pursuant to a registration statement on Form S-4,
Commission file no. 33-80392 (the "Form S-4 Registration
Statement"), filed with the Securities and Exchange
Commission ("Commission") that became effective August 3,
1994, and following approvals of the transactions by the
stockholders of both Inland and IPC at special meetings held
August 29, 1994. The Inland Series A Preferred Stock bears
a dividend of 8% per annum on the Redemption Price (defined
below); has a liquidation preference over Inland Common
Stock equal to $50.00 per share plus any accumulated and
unpaid dividends; is redeemable at a "Redemption Price"
equal to $50.00 per share during the first year after the
effective date of the Merger, $54.00 per share during the
second year and $58.32 per share, plus accumulated and
unpaid dividends, during the third year or thereafter; is
convertible at a "Conversion Price" of $0.60 per share
(divided into the applicable Redemption Price then in
effect) subject to certain anti-dilution adjustments; and is
initially entitled to elect three of the seven members of
the Board of Directors of Inland. At the time of the
Merger, IPC owned working interests varying from 4% to 100%
in 8,508 net acres of oil and gas leases in the Uinta Basin
Area located in Duchesne and Uintah Counties, Utah, in the
oil and gas field known as the "Monument Butte Field", and
also owned oil and gas properties in the States of Wyoming
and Oklahoma. References to "Inland" or the "Company"
herein shall include its subsidiary, IPC, on a consolidated
basis, unless the context clearly indicates otherwise.
Mining Operations
Inland's mining operations are limited to the final
detoxification, reclamation and closure of the Toiyabe Mine
in compliance with Nevada and federal laws. Effective
January 1, 1994, Inland entered into a contract with a
nonaffiliated entity, GD Resources, Inc. ("GDR"), to assist
it as a general contractor in the detoxification and
reclamation of the Toiyabe Mine. Inland reimburses GDR's 7<PAGE>
costs in connection with the performance of its services,
pays a management fee of up to $3,500 per month, leases from
GDR certain equipment to be used in the detoxification and
reclamation and pays certain other fees or charges as
needed. There are numerous federal and state laws and
regulations related to environmental protection which have
direct application to mining and processing activities. The
more significant of these laws deal with mined land
reclamation and the prevention of ground water contamination
from mining and processing operations. Inland estimates
that between $575,000 and $900,000 will be expended over the
five years subsequent to December 31, 1995 in connection
with the detoxification and reclamation of the Toiyabe Mine
and has established a reserve for mine reclamation of
$600,000. Although the ultimate future reclamation cost is
dependent upon certain events which cannot be precisely
predicted, Inland believes that based on factors presently
known or anticipated, the current reserve of $600,000 will
be adequate to fully reclaim the Toiyabe Mine in compliance
with Nevada and federal laws. However, should unforeseen
circumstances arise that cause the closure timetable to be
delayed or additional labor, material and holding costs to
be incurred, future reclamation exposure could exceed
$900,000. See Item 6 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition
- --Results of Operations -- Fiscal 1995 Compared to 1994."
Sale of Duchesne County Fields
On September 19, 1995, Inland sold its undivided 50%
interest in the Duchesne County Fields to Petroglyph Gas
Partners, L.P. ("PGP"). The purchase price paid by PGP was
(i) $3 million in cash (less $53,000 in net closing
adjustments among the parties); (ii) the assumption by PGP
of Inland's liability under its Loan Agreement, dated August
24, 1994, with Joint Energy Development Investments Limited
Partnership ("JEDI"), a nonrecourse loan having an
outstanding balance at September 19, 1995 of $2.5 million
(the "Inland Loan Agreement"); and (iii) the assignment by
PGP to Inland of PGP's undivided 38.23% interest in 8,277
gross acres of oil and gas leases located within the
Monument Butte Field in Duchesne County, Utah (the "Ashley
Federal Unit") bringing Inland's total interest in the
Ashley Federal Unit to 76.47%. The sale was effective July
1, 1995. JEDI consented to the sale and the assumption of
the Inland Loan Agreement by PGP, therefore, Inland has no
further liability or obligation under the Inland Loan 8<PAGE>
Agreement.
Acquisition of Federal Leases
In November 1995, IPC entered into four oil and gas
leases (the "Utah Federal Leases") with the Department of
Interior covering 6,200 gross acres (5,861 net acres)
located within the Monument Butte Field. The aggregate
purchase price for the Utah Federal Leases was $7,157,646,
which was paid in cash from funds on hand. The leases
provide for payment of annual rentals of $2 per acre and a
royalty rate of 12.5%. The Utah Federal Leases did not have
any producing wells at the purchase date causing all of the
acreage to be considered undeveloped. A portion of the
purchase price for the Utah Federal Leases was obtained from
a sale by Inland of 12,000,000 shares of Common Stock to
Pengo Securities Corp. ("Pengo"), an affiliate of Randall D.
Smith and Woodstead Associates II, L.P., for consideration
of $6 million in cash ($.50 per share). Pengo and such
affiliates presently beneficially own approximately
20,600,000 shares of Common Stock, or approximately 50% of
the issued and outstanding shares of Common Stock.
Oil and Gas Operations
Operations. Presently, all oil and gas acreage, wells,
gas gathering systems and other oil and gas related tangible
assets are owned by IPC. The only property owned directly
by Inland is the Toiyabe Mine. IPC serves as operator for
the drilling, completion and operation of the majority of
wells in which it has an interest within the Monument Butte
Field. John E. Dyer, Vice President and Chief Operating
Officer of Inland, evaluates drilling, exploration,
reworking and secondary recovery enhancement operations for
the Company. Field operations of the Company are performed
from a production office located in Roosevelt Utah.
On August 24, 1994, Inland entered into the Inland Loan
Agreement with JEDI, an affiliate of Enron Corp., to provide
nonrecourse financing for the development of the Duchesne
County Fields. As noted above, the Inland Loan Agreement
was assumed by PGP and JEDI released Inland from further
liability or obligation under the Inland Loan Agreement. On
September 21, 1994, IPC entered into a separate Loan
Agreement with JEDI to provide nonrecourse financing for the
development of the IPC oil and gas properties (the "IPC Loan 9<PAGE>
Agreement"). The IPC Loan Agreement was paid in full by IPC
from the proceeds of a Credit Agreement (the "TCW Loan
Agreement") dated November 29, 1995 between IPC, Inland,
Trust Company of the West and affiliated entities
(collectively, "TCW"), which provides a recourse loan
facility to IPC of up to $25 million for development of its
oil and gas properties.
IPC drew down an initial $5 million under the TCW Loan
Agreement on November 29, 1995, of which $4,123,500 was used
to repay the IPC Loan Agreement, $400,000 was used to pay
closing costs associated with the TCW Loan Agreement and
$476,500 was used for working capital. The remaining $20
million of loan availability will be used to fund IPC's
development drilling program in the Monument Butte Field
during 1996. The TCW Loan Agreement provides that IPC may
borrow up to the additional $20 million during the
commitment period, which expires on September 30, 1996,
unless earlier terminated pursuant to certain provisions.
The TCW Loan Agreement bears interest at a rate of 10% per
annum. Interest is payable quarterly, commencing March 27,
1996, and minimum payments of principal will be required
quarterly, commencing in March 1997, in the following
amounts per quarter: $275,000 in 1997, $550,000 in 1998,
$1,300,000 in 1999, $1,400,000 in 2000, $1,200,000 in 2001,
$750,000 in 2002, $425,000 in 2003, and $350,000 in 2004,
with the final payment being due and payable on December 31,
2004. Commencing in March 1997, additional principal
payments may be due under certain circumstances out of
excess cash flow, as defined in the TCW Loan Agreement. In
addition to these payments, IPC granted TCW an equity yield
enhancement in the form of an initial 7% overriding royalty
interest, proportionately reduced by IPC's working interest
in the oil and gas properties, commencing November 29, 1995
and continuing until the internal annual rate of return to
TCW equals 16% on the aggregate amounts advanced to IPC
under the TCW Loan Agreement, at which time it reduces to 3%
until TCW's internal annual rate of return equals 22%. IPC
paid a loan commitment fee of $250,000 upon closing of the
TCW Loan Agreement. IPC is required to meet certain minimum
ratios, is subject to covenants not to engage in various
activities without TCW's prior consent, and may not pay any
dividends or make any other distributions to Inland without
TCW's prior written consent. The TCW Loan Agreement is
collateralized by IPC's interest in substantially all of its 10<PAGE>
oil and gas and other properties. At December 31, 1995, IPC
had borrowed $5 million under the TCW Loan Agreement.
Inland has also guaranteed repayment of all amounts advanced
under the TCW Loan Agreement together with accrued interest
thereon, and Inland may not pay any dividends or make other
distributions to its stockholders without TCW's prior
written consent.
Effective July 1, 1995, the Company entered into a
Farmout Agreement (the "Farmout") with Randall D. Smith (the
"Farmee") covering the six month period through December 31,
1995. Twenty-one wells totaling approximately $6.8 million
were drilled (of which 20 were completed and one was a dry
hole) under the Farmout in the Monument Butte Field. Under
terms of the Farmout, the interest in each drill site
assigned to the Farmee reverts to the Company after Payout.
Payout is defined on a lease basis as the point in time when
the Farmee has recovered through production proceeds, net of
production taxes, 100% of the cost to drill, complete and
operate the well or wells on the affected lease plus a 22%
annual rate of return. The Farmee is also required to pay
the Company a management fee of $25,000 per well,
proportionately reduced to the Farmee's interest and net of
COPAS drilling overhead charges, as reimbursement to the
Company for land, geological, engineering and accounting
services. Ryder Scott Company, an independent engineering
firm, performed an analysis of the Farmout properties (all
proved developed) at January 1, 1996 using current SEC
guidelines and valued them at $11,565,000 using a 10%
discount factor. The Company emphasizes that reserve
estimates are imprecise and may be expected to change as
additional information becomes available.
On November 22, 1995, the Company entered into an
Option Agreement with the Farmee which allows the Company
the right to purchase the Farmout interests on March 10,
1997 by issuing Common Stock of the Company. The value of
the Farmout interests on March 10, 1997 (the "Farmout
Value") is computed using the Payout calculation as defined
in the Farmout. The number of shares of the Company's
Common Stock to be issued is calculated by dividing the
Farmout Value by a value of $0.50 per Common Share. In
addition, the Company issued the Farmee a Warrant
Certificate dated November 22, 1995 whereby if the Company
does not exercise its rights under the Option Agreement on 11<PAGE>
March 10, 1997, the Farmee has three days to purchase for
cash the number of shares of the Company's Common Stock
equal to the Farmout Value divided by a value of $0.50 cents
per Common Share. The Company expects to exercise the
Option Agreement since it is a requirement under the TCW
Loan Agreement. Subject to changes in oil price, operating
costs, production rates and other factors, the Company
estimates the Farmout Value on March 10, 1997 to be between
$3.75 and $4.25 million, which would cause the issuance of
7.5 million to 8.5 million new shares of the Company's
Common Stock.
Inland will actively seek to acquire other producing
oil and gas properties upon terms considered to be
attractive by Inland. Generally, Inland does not plan to
engage in oil and gas exploration and development in new or
unproven areas, and plans to focus its acquisition efforts
on proven properties with a history of ongoing production.
However, from time to time Inland may for various reasons
determine to purchase unproven properties or drill
exploratory wells in certain areas considered strategic by
Inland. All such oil and gas activities will be conducted
through IPC.
Secondary Recovery Enhancement Activities. Inland
presently engages in secondary recovery enhancement
operations in the Monument Butte Field through water
flooding. Water flooding consists of drilling a water
injection well or converting an existing producing well into
a water injection well and then pumping volumes of water at
acceptable pressures and injection rates into the well and
into the oil producing horizons of the reservoir to maintain
higher reservoir pressures and increase production in other
producing wells connected to that reservoir. IPC proved the
geology of certain portions of the Monument Butte Field is
susceptible to such flooding techniques.
IPC has been engaged in secondary waterflood operations
in the Monument Butte Field since 1987, and currently has
five approved water flood units or areas; the Monument Butte
Unit, the Gilsonite Unit, the Travis Unit, the Boundary Unit
and the Monument Butte Northeast Area. In 1995, IPC
continued development of water flood operations by drilling
five development wells and one lease line injection well
within or immediately outside of these water flood project 12<PAGE>
areas. Water injection operations continued throughout the
year in the Monument Butte and Gilsonite Units. Water
injection in the Travis Unit ceased in July 1995 pending the
formulation of a new strategy for injection zones and
injection patterns. The Boundary Unit and Monument Butte
Northeast Area are expected to begin water injection
operations during 1996.
On January 12, 1989, IPC entered into an agreement with
the Johnson Water District to take up to 5,000 barrels of
water per day ("BWPD"), subject to availability, from their
water pipeline to provide water for IPC's water flood
injection operations in the Monument Butte Field until such
time as IPC terminates the agreement. IPC also purchases
approximately 500 BWPD from a neighboring operator for
injection operations in the Gilsonite Unit. During February
1996, IPC successfully drilled a water source well in the
Boundary Unit capable of supplying 500 barrels per day of
injection quality water for the Boundary Unit and
surrounding area. IPC currently injects approximately 1,000
BWPD into the Monument Butte Unit and 500 BWPD into the
Gilsonite Unit. Before the end of 1996, IPC expects to be
injecting between 4,000 and 5,000 BWPD into the various
secondary recovery enhancement projects. Inland believes
that the agreement with the Johnson Water District, excess
capacity from neighboring operators and existing groundwater
sources will provide sufficient water to facilitate
significant water flood operations.
In October 1992, IPC and the U. S. Department of Energy
("DOE") signed a cooperative agreement to further develop oil
production and reserves in the Monument Butte Field by using
secondary water flood recovery. The agreement is a cost
sharing program pursuant to which the DOE reimburses IPC and
its working interest partners 41.5% of the total project
expenditures. Total project expenditures for the three year
project were $4.4 million, of which the DOE's share was
approximately $1.8 million. As of December 31, 1995,
substantially all expenditures under this program were
incurred and IPC expects to receive an additional $30,700 from
the DOE for IPC's share of the project costs. IPC has also
contracted with the University of Utah to conduct certain
research for IPC regarding its water flood techniques.
Markets. The availability of a ready market and the 13<PAGE>
prices obtained for IPC's oil and gas depend on many factors
beyond IPC's control, including the extent of domestic
production and imports of oil and gas, the proximity and
capacity of natural gas pipelines and other transportation
facilities, fluctuating demands for oil and gas, the marketing
of competitive fuels, and the effects of governmental
regulation of oil and gas production and sales. Future
decreases in the prices of oil and gas would have an adverse
effect on IPC's proved reserves, revenues, profitability and
cash flow, although the Company has mitigated this risk by
entering into certain hedging arrangements. The oil produced
from the Monument Butte Field is sold at the posted field
price (an industry term for the fair market value of oil in a
particular field) less a deduction of approximately $0.85 per
barrel for oil quality adjustments. The posted field price
ranged from $16.50 to $20.00 during 1995 and $13.75 to $20.50
during 1994, and was an average of $19.00 per barrel on
December 31, 1995.
The natural gas produced by IPC not subject to gas
purchase agreements is sold on a month-to-month basis in the
spot market, the price of which ranged from $1.00 to $1.87
during 1995 and $1.26 to $2.31 per Mcf of gas during 1994.
The Company did not sell any natural gas on the spot market
during December 1995. IPC has entered into three separate gas
purchase agreements with Interline Natural Gas, Inc.
("Interline") with respect to the Monument Butte Field.
Pursuant to one of these gas purchase agreements, IPC
has dedicated its gas production from the "Monument Butte
Unit", the "Boundary Unit", and the "Gilsonite Unit" to
Interline until October 31, 1997 and thereafter on a year to
year basis until either party cancels the contract upon 180
days' notice. IPC is paid for gas sold to Interline in the
amount by which the price received by Interline for its gas
resales exceeds $1.65 per MMBTU. If the price received by
Interline exceeds $3.30 per MMBTU, then IPC and Interline
share in the proceeds above $3.30 MMBTU on a 50/50 basis. The
price of gas under this contract at December 31, 1995 was
$1.34 per MMBTU.
IPC has also dedicated its gas production in the "Castle
Peak" prospect to Interline under a gas purchase agreement
that may terminate when $60,000 has been recovered by
Interline. Currently, because the $60,000 has not been 14<PAGE>
recovered by Interline, IPC receives 10% of the gas proceeds
after transportation costs. When the $60,000 is recovered,
the net gas proceeds will be shared on a 50/50 basis until
either party cancels the contract with 90-days' notice. The
net revenue for payout purposes of the $60,000 is defined as
net gas proceeds less taxes and operating expenses incurred by
Interline inclusive of a prorated overhead and direct charges
allocated to the gas sales.
IPC sells its gas in the "Travis Unit" to Interline
pursuant to a gas transportation contract. IPC pays a
transportation charge of $.25 per Mcf to Interline. The
contract is cancellable by either party upon 30 days written
notice.
During 1995 and 1994, Inland and IPC (on a combined
basis) sold approximately 21% and 44%, respectively, of their
combined oil production to EOTT Energy Corporation, and
approximately 78% and 54%, respectively, to Chevron U.S.A.
They sold approximately 58% and 82%, respectively, of their
combined gas production to Grand Valley Gas Company and
approximately 42% and 18%, respectively, to Interline.
Subsequent to the sale of the Duchesne County Fields,
substantially all oil sales were to Chevron and substantially
all gas sales were to Interline. Inland believes that the
loss of either Chevron or Interline as a purchaser of its
production would not have a material adverse effect on its
results of operations due to the availability of other
purchasers in the area.
Gas Gathering Systems. IPC owns an undivided 43% and
81% partnership interest in the Castle Peak Pipeline and West
Monument Butte Pipeline gas pipeline facilities for
transporting its natural gas production to an existing market.
The remaining interests are owned by working interest owners
of the respective producing wells and other parties.
Regulation. IPC's oil and gas exploration, production
and related operations are subject to extensive rules and
regulations promulgated by federal and state agencies.
Failure to comply with such rules and regulations can result
in substantial penalties. The regulatory burden on the oil
and gas industry increases IPC's cost of doing business and
affects its profitability. Because such rules and regulations
are frequently amended or interpreted, Inland is unable to 15<PAGE>
predict the future cost or impact of complying with such laws.
These laws and regulations include state and federal
regulation of oil and gas production, federal regulation of
gas sold in interstate and intrastate commerce, regulations
governing environmental quality and pollution control, state
limits on allowable rates of production by a well or proration
unit, the amount of oil and gas available for sale, the
availability of adequate pipeline and other transportation and
processing facilities and the marketing of competitive fuels.
For example, a productive gas well may be "shut-in" because of
an over-supply of gas or lack of an available gas pipeline in
the areas in which Inland may conduct operations. State and
federal regulations generally are intended to prevent waste of
oil and gas, protect rights to produce oil and gas between
owners in a common reservoir, control the amount of oil and
gas produced by assigning allowable rates of production and
control contamination of the environment. Pipelines are
subject to the jurisdiction of various federal, state and
local agencies.
Many state authorities require permits for drilling
operations, drilling bonds and reports concerning operations
and impose other requirements relating to the exploration and
production of oil and gas. Such states also have ordinances,
statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and
gas properties, the regulation of spacing, plugging and
abandonment of such wells, and limitations establishing
maximum rates of production from oil and gas wells. However,
no Utah regulations provide such production limitations with
respect to the Monument Butte Field.
Inland does not expect compliance with any of the
foregoing ordinances or regulations to have any material
adverse effect on its oil and gas production and secondary
recovery enhancement activities.
Environmental. Inland is subject to numerous laws and
regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection.
These laws and regulations may require the acquisition of a
permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be
released into the environment in connection with drilling and
production activities, limit or prohibit drilling activities 16<PAGE>
on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for
pollution resulting from Inland's operations. Moreover, the
recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For
instance, legislation has been proposed in Congress from time
to time that would reclassify certain oil and gas production
wastes as "hazardous wastes," which reclassification would
make such wastes subject to much more stringent handling,
disposal and clean-up requirements. If such legislation were
to be enacted, it could have a significant impact on the
operating costs of Inland, as well as the oil and gas industry
in general. Inland does not presently anticipate that it will
in the near future be required to expend amounts relating to
its oil and gas operations that are material in relation to
its total capital expenditure program by reason of
environmental laws and regulations, but because such laws and
regulations are frequently changed, Inland is unable to
predict the ultimate cost of such compliance. However, see
the discussions at Item 6 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition" for
a discussion of the material expenditures already made, and
expected to be made, to reclaim Inland's Toiyabe Mine in
compliance with established governmental standards.
The Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), also known as the "Superfund"
law, imposes liability, without regard to fault or the
legality of the original conduct, on certain classes of
persons who are considered to have contributed to the release
of a "hazardous substance" into the environment. These
persons include the owner or operator of the disposal site or
sites where the release occurred and companies that disposed
or arranged for the disposal of the hazardous substances under
CERCLA and may be subject to joint and several liability for
the costs of cleaning up the hazardous substances that have
been released into the environment and for damages to natural
resources. It is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances
released into the environment. Inland is not presently aware
of any potential claims against Inland in this regard.
Competition. Many companies and individuals are engaged
in the oil and gas business. Inland is faced with strong 17<PAGE>
competition from major oil and gas companies and other
independent operators attempting to acquire prospective oil
and gas leases, producing oil and gas properties and other
mineral interests. Some competitors are very large,
well-established companies with substantial capabilities and long
earnings records. Inland may be at a disadvantage in
acquiring oil and gas prospects since it must compete with
individuals and companies which have greater financial
resources and larger technical staffs than Inland.
Operational Hazards and Insurance. Inland's operations
are subject to the usual hazards incident to the drilling and
production of oil and gas, such as blowouts, cratering,
explosions, uncontrollable flows of oil, gas or well fluids,
fires, pollution and other environmental risks. These hazards
can cause personal injury and loss of life, severe damage to
and destruction of property and equipment, pollution or
environmental damage and suspension of operations.
IPC maintains insurance of various types to cover its
operations. IPC is also required under various operating
agreements to maintain certain insurance coverage on existing
wells and all new wells drilled during drilling operations,
and to name IPC and others as additional insureds thereunder.
The occurrence of a significant adverse event, the risks of
which are not fully covered by insurance, could have a
material adverse effect on Inland's financial condition and
results of operations. Moreover, no assurances can be given
that IPC will be able to maintain adequate insurance in the
future at rates it considers reasonable.
Title to Properties. IPC has obtained title opinions on
substantially all of its producing properties. Inland
believes that IPC has satisfactory title to all of its
properties in accordance with standards generally accepted in
the oil and gas industry. As is customary in the oil and gas
industry, IPC performs a minimal title investigation before
acquiring undeveloped properties. A title opinion is obtained
prior to the commencement of drilling operations on such
properties. IPC's properties are subject to customary royalty
interests, liens incident to operating agreements, liens for
current taxes and other burdens which Inland believes do not
materially interfere with the use of or affect the value of
such properties. 18<PAGE>
Employees
At March 1, 1996, the Company had 32 employees,
consisting of four executive officers, 14 clerical and
administrative employees and 14 field operations staff.
ITEM 2. DESCRIPTION OF PROPERTY
Oil and Gas
As noted in Item 1 - "Description of Business", as of
the date of this Form 10-KSB and at December 31, 1995, all oil
and gas properties were owned by IPC.
Acreage. The following table reflects the developed and
undeveloped acreage that IPC held as of December 31, 1995:
<TABLE>
<CAPTION>
Developed Undeveloped
Acreage(1)(2) Acreage(1)(3)
----------------- ------------------
Gross Net Gross Net
Location Acres Acres Acres Acres
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Utah 3,343 1,998 39,301 24,167
Wyoming(4) 40 32 8,922 8,720
Other 1,280 374 - -
------ ----- ------ ------
Total 4,663 2,404 48,223 32,887
====== ===== ====== ======
</TABLE>
________________________
(1) A gross acre is an acre in which IPC holds any working
interest without adjustment to reflect the actual
percentage interest held therein by IPC. Net acres is
the sum of the actual percentage working interest owned
by IPC in gross acres.
(2) Developed acreage is acreage included in the spacing
unit for or assignable to productive wells.
(3) Undeveloped acreage is acreage on which wells have not 19<PAGE>
been drilled or completed to a point that would permit
the production of commercial quantities of oil and gas,
regardless of whether or not such acreage contains
proved reserves. Undeveloped acreage includes 33,617
gross (18,709 net) acres held by production at December
31, 1995.
(4) As of December 31, 1995, there were no producing oil or
gas wells on the Company's Wyoming acreage and the
Company had no reserves attributed to such acreage.
________________________
As of March 1, 1996, the undeveloped acreage involves eight
leases with remaining terms of up to 10 years, with leases
covering 580 net acres expiring in 1996. IPC intends to renew
expiring leases in areas considered to have good development
potential. IPC also intends to continue to pay delay rentals
and minimum royalties necessary to maintain a lease (an
expense of approximately $20,000 in 1996), in the event IPC
decides to develop the acreage subject to such lease prior to
expiration of the lease term. To the extent that wells cannot
be drilled in time to hold a lease which IPC desires to
retain, IPC may negotiate a farm out arrangement of such lease
retaining an override or back-end interest.
Productive Oil and Gas Wells. The following table
reflects the number of productive oil and gas wells in which
IPC held a working interest as of December 31, 1995:
<TABLE>
<CAPTION>
Productive Wells(1)
-----------------------------------
Gross(2) Net(2)
------------------ ----------------
Water Water
Oil(2) Injection Oil(1) Injection
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Utah 94 23 33 8.5
Other 2 - .5 -
-- -- ---- ---
Total 96 23 33.5 8.5
== == ==== ==== 20<PAGE>
</TABLE>
________________________
(1) Productive wells are producing wells or wells capable of
production. Multiple completions have been counted as
one well. All of the wells have multiple completions,
and all of the wells include both oil completions and
gas completions. However, pursuant to the rules of the
Securities and Exchange Commission ("Commission"), all
wells are shown as oil wells since one of the multiple
completions in each well is an oil completion. IPC is
an operator of 87 gross wells (40.0 net) and a non-
operator with respect to 32 gross (2.0 net) wells.
(2) A gross well is a well in which IPC holds a working
interest, without adjustment to reflect the actual
percentage interest held therein by IPC. Additionally,
the 20 wells completed under the Farmout arrangement
have been included in the totals for gross wells. Net
wells represent the sum of the actual percentage working
interests owned by IPC in gross wells at December 31,
1995. Since IPC does not currently have any working
interest in the 20 Farmout wells, these wells have no
effect on IPC's net wells amounts.
________________________
Reserves. The following tables set forth the estimated
oil and gas reserves of IPC (attributable to its net working
interest only) and the estimated discounted future net cash
inflows before income taxes as of December 31, 1995. The
first table is a summary of a report of estimates of IPC's net
proved reserves estimated by the independent petroleum
engineers, Ryder Scott Company. This table sets forth the
estimated net quantities of proved developed and undeveloped
oil and gas reserves and total proved oil and gas reserves
owned by IPC at December 31, 1995. The second table sets
forth, for the net quantities so reported, the future net cash
inflows (by reserve categories) discounted to present value at
an annual rate of 10%. The discounted future net cash inflows
were calculated in accordance with current Securities and
Exchange Commission guidelines concerning the use of constant
oil and gas prices and operating costs in reserve evaluations.
Future income tax expenses have not been taken into account in 21<PAGE>
estimating future net cash inflows. See, also, the
Supplemental Oil and Gas Disclosures appearing on pages F-19
through F-22 of this Form 10-KSB.
Net proved reserves at December 31, 1995:
<TABLE>
<CAPTION>
Proved Developed Proved Undeveloped Total Proved
----------------- ------------------ ------------
Gas Gas Gas
Location Oil(Bbls)*(Mmcf)* Oil(Bbls)* (Mmcf)* Oil(Bbls)* (Mmcf)*
- -------- -------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Utah 1,225,760 1,221 1,789,283 4,439 3,015,043 5,660
Other 936 2 - - 936 2
--------- ----- --------- ----- --------- -----
Total 1,226,696 1,223 1,789,283 4,439 3,015,979 5,662
========= ===== ========= ===== ========= =====
</TABLE>
_______________
* "Bbls" means barrels, "MMcf" means one million cubic feet of
gas and "Mcf" means one thousand cubic feet of gas.
_______________
Discounted future net cash inflows before income taxes at
December 31, 1995:
<TABLE>
<CAPTION>
Location Proved Developed Proved Undeveloped Total Proved
- --------- ---------------- ------------------- -------------
<S> <C> <C> <C>
Utah $ 9,251,320 $3,111,751 $12,363,071
Other 1,804 - 1,804
---------- ---------- -----------
Total $9,253,124 $3,111,751 $12,364,875
========== ========== ===========
</TABLE>
Future net cash inflows from reserves at December 31,
1995 were calculated on the basis of average prices in effect 22<PAGE>
on that date combined with the effects of hedging agreements
and approximated $18.14 per barrel of oil and $1.08 per Mcf of
gas. The gas price used to calculate future net cash inflows
on the Monument Butte Field is net of gas transportation costs
payable by IPC.
The foregoing estimated pretax discounted future net
cash inflow figures relate only to the reserves tabulated
above. The estimates were prepared without consideration of
income taxes and indirect costs such as interest and
administrative expenses, and are not to be construed as
representative of the fair market values of the properties to
which they relate.
Reserve estimates are imprecise and may be expected to
change as additional information becomes available.
Furthermore, estimates of oil and gas reserves, of necessity,
are projections based on engineering data, and there are
uncertainties inherent in the interpretation of such data as
well as the projection of future rates of production and the
timing of development expenditures. Reserve engineering is a
subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and the
accuracy of any reserve estimate is a function of the quality
of available data and of engineering and geological
interpretation and judgment. Accordingly, there can be no
assurance that the reserves set forth herein will ultimately
be produced nor can there be assurance that the proved
undeveloped reserves will be developed within the periods
anticipated. The Company emphasizes with respect to the
estimates prepared by the independent petroleum engineers that
the discounted future net cash inflows should not be construed
as representative of the fair market value of the proved oil
and gas properties belonging to IPC, since discounted future
net cash inflows are based upon projected cash inflows which
do not provide for changes in oil and gas prices nor for
escalation of expenses and capital costs. The meaningfulness
of such estimates is highly dependent upon the accuracy of the
assumptions upon which they were based.
No major discovery or other favorable or adverse event
is believed to have caused a significant change in these
estimates of IPC's proved reserves since January 1, 1996.
No estimates of total proven net oil and gas reserves 23<PAGE>
have been filed by the Company with, or included in any report
to, any United States authority or agency pertaining to the
Company's individual reserves since the beginning of the
Company's last fiscal year except for information required by
the Department of Energy under IPC's cooperative agreement
discussed in Item 1. There was no difference between the
reserve information filed with the Department of Energy and
the reserve information included in this Form 10-KSB with
regard to the properties covered by the cooperative agreement.
Volumes, Prices and Production Costs. The following
table sets forth on an actual basis for the twelve months
ended December 31, 1995 and 1994 and the ten months ended
December 31, 1993, certain information regarding the
production volumes of, average sales prices received for, and
average production costs for the sales of oil and gas by the
Company. The Company sold the Duchesne County Fields
effective July 1, 1995. Consequently, the information below
for the twelve months ended December 31, 1995 includes only
six months of operations from the Duchesne County Fields.
Inland merged with IPC effective September 21, 1994.
Therefore, the information below for the twelve months ended
December 31, 1994 includes approximately three months of IPC
operations. See, also, the Supplemental Oil and Gas
Disclosures appearing on pages F-19 through F-22 of this Form
10-KSB.
<TABLE>
<CAPTION>
Twelve Twelve Ten months
months ended months ended ended
December 31, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net Production: . .
Oil (Bbls) . . . . 104,564 46,089 29,567
Gas (Mcf). . . . . 108,927 170,925 159,622
Total (BOE*) . . 122,718 74,577 56,170
Average Sale Price:.
Oil (per Bbl). . . $ 17.10 $ 16.09 $ 17.63
Gas (per Mcf) (1). $ 1.21 $ 1.78 $ 2.12
Average Production Cost:
($/BOE) (2). . . . $ 8.23 $ 12.27 $ 10.82
</TABLE> 24<PAGE>
_______________
* "BOE" means equivalent barrels of oil. In reference to
natural gas, natural gas equivalents are determined using
the ratio of six Mcf of natural gas to one Bbl of crude oil,
condensate or natural gas liquids.
(1) Includes natural gas liquids.
(2) Includes direct lifting costs (labor, repairs and
maintenance, materials and supplies) and the administrative
costs of production offices, insurance and property taxes.
_______________
Drilling Activities. The following table sets forth the
number of oil and gas wells drilled in which the Company had an
interest during 1995, 1994 and 1993. Inland did not drill any
oil or gas wells during 1993. All 1993 data represents drilling
by IPC before the merger with Inland.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1994 1993
--------------- ----------- ----------
Gross(1) Net(1) Gross Net Gross Net
------- ------ ----- ---- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development wells:
- -----------------
Oil(2). . . . 33 6.8 9 4.9 1 .3
Water 1 .2 - - - -
Injection .
Dry . . . . . 1 - 2 .9 1 1
-- --- -- --- -- ---
Total 35 7.0 11 5.8 2 1.3
== === == === == ===
Exploratory wells:
- -----------------
Oil(2). . . . 4 3.9 - - - -
Dry . . . . . 1 1 3 2 - - 25<PAGE>
-- --- -- --- -- ---
Total 5 4.9 3 2 - -
== === == === == ===
Total wells:
- -----------
Oil(2). . . . 37 10.7 9 4.9 1 .3
Water
Injection . 1 .2 - - - -
Dry . . . . . 2 1 5 2.9 1 1
-- --- -- --- -- ---
Total 40 11.9 14 7.8 2 1.3
== === == === == ===
</TABLE>
- -----------------
(1) 1995 development wells gross column includes the
drilling of 21 wells under the Farmout arrangement.
Since the Company had no working interest in the Farmout
wells at December 31, 1995, these wells are not included
in the 1995 development wells net column.
(2) All of the completed wells have multiple completions,
including both oil completions and gas completions.
Consequently, pursuant to the rules of the Commission
each well is classified as an oil well.
___________________________
The information contained in the foregoing table should
not be considered indicative of future drilling performance
nor should it be assumed that there is any necessary
correlation between the number of productive wells drilled and
the amount of oil and gas that may ultimately be recovered by
IPC.
The Company does not own any drilling rigs and all of
its drilling activities are conducted by independent
contractors on a day rate basis under standard drilling
contracts. From December 31, 1995 to March 1, 1996, IPC
drilled eight gross (6.2 net) development oil wells.
Mining
On December 31, 1986, Inland purchased all rights, title 26<PAGE>
and interest in a mining lease involving unpatented mining
claims in Lander County, Nevada (known as the "Toiyabe Mine"),
from N.A. Degerstrom, Inc. ("Degerstrom"), a stockholder of
Inland. The property currently consists of 192 unpatented
mining claims.
Degerstrom commenced development operations on Inland's
property in January 1987. Heap leaching began in July 1987,
with the initial gold pour during September 1987. Mining
activities continued until May 1991, when mining activities
ceased and only processing activities continued. In July
1992, Inland began the detoxification phase of the Toiyabe
Mine's ultimate reclamation by rinsing the leach pads with
fresh water and recycled leaching solution. Inland's mining
operations at the Toiyabe Mine are limited to the final
detoxification, reclamation and closure of the Toiyabe Mine in
compliance with Nevada and federal laws. Through December 31,
1995, Inland had recovered and sold 87,074 ounces of gold, and
expects additional recoveries to be minimal. For the year
ended December 31, 1995, Inland incurred reclamation and
detoxification costs at the Toiyabe Mine site of approximately
$434,000. At December 31, 1994, Inland had anticipated
performing all detoxification related activities in 1995 and
performing substantially all land reclamation during 1996. A
significant component of the detoxification phase was
receiving approval from the State of Nevada to land apply
rinse solutions in a controlled manner at levels above state
drinking water standards. Although Inland had received
preliminary indications that land application would be
allowed, on October 27, 1995 the state denied land application
due to new concerns regarding the hydrogeology of the area and
other test conclusions. As a result, Inland must now achieve
drinking water standards for all draindown solutions. Thus
the net expense from the reclamation and detoxification
process will be higher than originally anticipated and has
reduced the funds otherwise available to Inland for 27<PAGE>
acquisition and development of oil and gas properties. Inland
estimates that after considering the extra labor, materials
and holding costs required to achieve this level of
purification, between $575,000 and $900,000 will be expended
over the five years subsequent to December 31, 1995, and has
established a reserve for mine reclamation of $600,000.
Although the ultimate future reclamation cost is dependent
upon certain events which cannot be precisely predicted,
Inland believes that based on factors presently known or
anticipated, the current reserve of $600,000 will be adequate
to fully reclaim the Toiyabe Mine in compliance with Nevada
and federal laws. However, should unforeseen circumstances
arise that cause the closure timetable to be delayed or
additional labor, material and holding costs to be incurred,
future reclamation exposure could exceed $900,000. See Item 6
- - "Management's Discussion and Analysis of Results of
Operations and Financial Condition --Results of Operations --
Fiscal 1995 Compared to 1994."
As noted in Item 1 - "Description of Business", Inland
has entered into a contract with a nonaffiliated entity, GD
Resources, Inc., to assist it as a general contractor in the
detoxification and reclamation of the Toiyabe Mine.
Other Property
The Company's principal executive office is located in
Denver, Colorado. The Company leases approximately 9,500
square feet pursuant to a lease which expires in June 2000 and
provides for a rental rate of $10,354 per month. Until June
30, 1995, the Company also leased a one room office in Laguna
Beach, California, computer equipment and software from John
D. Lomax, Chairman of the Board, and affiliated entities.
Total lease payments paid to Mr. Lomax and his affiliates for
the years ended December 31, 1995 and 1994 were $4,212 and
$8,424, respectively.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None. 28<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is quoted on the National
Association of Securities Dealer's Automated Quotation System
("NASDAQ"). The ticker symbol is "INLN".
As of March 1, 1996, there were 540 holders of record of
the Company's Common Stock and approximately 55 holders of the
Company's Series A Preferred Stock. The following table sets
forth the range of high and low bid prices as reported by
NASDAQ for the periods indicated. The quotations reflect
inter-dealer prices without retail mark-up, mark-down or
commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION> 1995 1994
---- ----
High Bid Low Bid High Bid Low Bid
-------- ------- -------- -------
<S> <C> <C> <C> <C>
First Quarter $ .53 $.31 $.47 $.31
Second Quarter .47 .31 .41 .31
Third Quarter .56 .38 .38 .28
Fourth Quarter .56 .44 .47 .28
</TABLE>
Inland has not paid cash dividends on Inland's Common
Stock during the last two years and the Board of Directors of
Inland does not currently intend to pay cash dividends on
Common Stock in the foreseeable future. The Company may not
declare or pay dividends on Common Stock if there are
accumulated and unpaid dividends on Inland Series A Preferred
Stock. After August 29, 1997 until redeemed by the Company,
the outstanding Inland Series A Preferred Stock will bear a
dividend of $4.66 per annum, which will equal an annual 29<PAGE>
dividend of approximately $497,921 as long as all 106,850
shares are outstanding. These dividends will accumulate and
be payable in full prior to any distributions on Common Stock.
Inland Series A Preferred Stock is redeemable at any time by
Inland by payment of a per share redemption price of between
$54 and $58.32, or an aggregate of $5,769,900 to $6,231,492
depending when it is redeemed.
The TCW Loan Agreement expressly prohibits Inland from
paying any cash dividends on Common Stock or Series A
Preferred Stock while any amounts owing under the TCW Loan
Agreement remain unpaid, unless TCW consents to such dividend.
Likewise, the TCW Loan Agreement prohibits Inland from
redeeming or repurchasing any shares of Common Stock or Inland
Series A Preferred Stock without TCW's prior consent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
General
Effective March 1, 1993, Inland Resources Inc. (the
"Company") acquired an undivided 50% interest in certain oil
and gas leases and other assets located in Duchesne County,
Utah (the "Duchesne County Fields"). Since the purchase of
the Duchesne County Fields, the Company's business emphasis
has been oil and gas development and production. The
Company's mining operations are limited to final
detoxification, reclamation and closure of the Toiyabe Mine.
Effective September 21, 1994, the Company acquired all
the outstanding common and preferred stock of Lomax
Exploration Company, now known as Inland Production Company
("IPC"). IPC is also engaged primarily in oil and gas
development and production activities in the Monument Butte
Field in Northeastern, Utah. At the acquisition date, IPC
owned varying working interests in 62 wells of which the
majority were operated and located adjacent to the Duchesne
County Fields. IPC's property interest included 8,508 net
acres of oil and gas leases in the Monument Butte Field and
8,847 net acres of mostly undeveloped leasehold in Wyoming.
The IPC acquisition was accounted for as a purchase,
therefore, the net assets and results of operations of IPC are
included in the Company's consolidated financial statements
30<PAGE>
from the acquisition date forward. IPC operates as a wholly-owned
subsidiary of the Company.
Effective July 1, 1995, the Company sold its undivided
interest in the Duchesne County Fields. As a result, the
Company is now focused on the development of the Monument
Butte Field where the Company controls operations for the
majority of its holdings and has a significant
infrastructure in place to conduct water flood operations.
In November 1995, the Company further increased its position
in the Monument Butte Field by entering into four oil and
gas leases (the "Utah Federal Leases") covering 6,200 gross
acres (5,861 net acres).
The Company's strategy for achieving profitability is to
increase oil and gas reserves and production through
acquisition of existing oil and gas production in developed
fields, and further developing such existing production
through development drilling, reworking existing wells and
engaging in secondary recovery enhancement operations. This
increased level of production should allow for more efficient
operations at the Field level which in turn should have a
positive impact on the Company's equivalent per barrel lifting
costs. In addition, general and administrative costs should
decrease in relation to production since these costs are
generally fixed in nature and thereby do not increase
proportionate to production. The Company also has protected
the price it receives for a portion of its oil production by
entering into hedging arrangements. The ultimate success of
the Company's plan to achieve profitability is primarily
dependent on locating and purchasing properties on terms
acceptable to the Company, continuing to secure sufficient
capital to acquire target properties and conduct extensive
development and secondary recovery operations, then
successfully implementing development and secondary recovery
plans.
The Company does not generally intend to pursue
exploratory drilling in undeveloped oil and gas properties due
to the industry's relatively high historical failure rate
relating to exploratory drilling and the resulting higher
associated finding costs. However, from time to time Inland
may for various reasons determine to drill exploratory wells
in certain areas considered strategic by the Company. 31<PAGE>
Results of Operations- Fiscal 1995 Compared to 1994
Continuing Operations. Effective July 1, 1995, the
Company sold the Duchesne County Fields and effective
September 21, 1994, the Company acquired IPC. Accordingly, the
results of operations for 1995 include six months of activity
from the Duchesne County Fields and a full year of IPC
activity, while the results of operations for 1994 include a
full year of Duchesne County Fields activity but only three
months and 10 days of IPC activity.
Oil and gas sales - Oil and gas sales during 1995
exceeded the previous year by $841,000 or 79%. The increase
was primarily attributable to increased oil sales volumes in
the Monument Butte Field and increased average oil sales
prices as summarized below:
<TABLE>
<CAPTION>
(Oil sales in Bbls,
gas sales in Mcf) 1995 1994
--------- ---------
<S> <C> <C>
Oil sales - Monument
Butte Field 82,251 13,833
Oil sales - Duchesne
County Fields 22,313 32,256
--------- ---------
Total oil sales 104,564 46,089
========= =========
Average oil price per
barrel sold $ 17.10 $ 16.09
Gas sales - Monument
Butte Field 45,830 5,532
Gas sales - Duchesne
County Fields 63,097 165,393
--------- ---------
Total gas sales 108,927 170,925
========= =========
Average gas price
per Mcf sold $ 1.21 $ 1.78
</TABLE> 32<PAGE>
The increased oil and gas sales volumes in the Monument
Butte Field are attributable to a full year of activity in
1995 and the drilling and completion of ten producing wells on
the Company's behalf during late 1994 and 1995. The decreased
oil and gas sales volumes in the Duchesne County Fields is due
to their sale resulting in six months less activity during
1995. Oil sales as a percentage of total oil and gas sales
increased from 70% in 1994 to 93% in 1995. Crude oil is
expected to continue as the predominant product produced from
the Monument Butte Field.
As further discussed in "Liquidity and Capital
Resources" below, the Company has entered into price
protection agreements to hedge against the volatility in crude
oil prices. Although hedging activities do not affect the
Company's actual sales price for crude oil in the Field, the
financial impact of hedging transactions is reported as an
adjustment to crude oil revenue in the period in which the
related oil is sold. The effects of these contracts resulted
in a loss of $15,500 and a gain of $4,000 during 1995 and
1994, respectively.
Management fees - As further discussed in "Liquidity and
Capital Resources" below, during 1995 the Company entered
into a Farmout Agreement (the "Farmout") with a significant
stockholder (the "Farmee"). The Farmout required the Farmee
to pay the Company a management fee of $25,000 per well,
proportionately reduced to the Farmee's interest and net of
COPAS drilling overhead charges, as reimbursement to the
Company for land, geological, engineering and accounting
services. Management fees represent the reimbursement for
the 21 wells drilled under the Farmout in 1995. No similar
arrangement existed in 1994 and no additional wells are
expected to be drilled under the Farmout in 1996.
Lease operating expenses - Lease operating expense
increased $95,000 or 10% between periods primarily due to a
full year of IPC operations. On a consolidated basis, lease
operating expense per barrel of oil equivalent ("BOE")
decreased from $12.27 in 1994 to $8.23 in 1995. This reduction
is attributable to the sale of the Duchesne County Fields as
shown below:
33<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Monument Butte Field
Lease operating expense $ 602,537 $ 152,193
Lease operating expense
per BOE $ 6.70 $ 10.31
Duchesne County Fields
Lease operating
expense $ 407,513 $ 762,870
Lease operating expense
per BOE $ 12.41 $ 12.75
</TABLE>
The Company's policy is to expense the costs of water
injection operations during the start-up phase of secondary
recovery water flood operations. These expenses include the
costs of purchasing water and operating water source wells,
water injection wells and water injection stations. As a
result of this policy, the Company's per barrel lifting costs
will be higher than if the Company would capitalize and
deplete these costs as part of secondary recovery enhancement
projects. The reduction of lease operating expenses within the
Monument Butte Field is the result of an effort to eliminate
unnecessary labor and material charges in conjunction with
increased production levels which allows for more efficient
operating procedures and wider allocation of fixed costs.
Lease operating expense in the Monument Butte Field
benefits from one of the Company's gas transportation
contracts. Under the terms of the contract, the Company is
allowed to use natural gas produced from the Monument Butte,
Gilsonite and Boundary Units to power field operations
throughout the Monument Butte Field. As a result of this
provision, the Company does not recognize lease operating
expense for natural gas used as lease fuel since their is no
charge to the Company for such usage and, if sold, the related
gas proceeds would not inure to the benefit of the Company.
The Company estimates the amount of natural gas used as lease
fuel, net to the Company's interest, was 66,000 Mcf and 8,000
Mcf during 1995 and 1994, respectively. The Company does not 34<PAGE>
currently intend to renew the contract when it expires on
October 31, 1997. After expiration of the contract, natural
gas production from these areas will be the property of the
Company causing natural gas used as lease fuel to have a
direct impact on natural gas sales.
Production taxes - Production taxes as a percentage of
sales decreased from 8.5% in 1994 to 7.0% in 1995. The
decrease was caused by an upward shift during 1995 in the
percentage of sales from the Monument Butte Field where the
effective production tax rate averaged 5.7%. The Duchesne
County Fields are located on the Reservation of the Ute Indian
Tribe and are subject to an additional severance tax. The
effective tax rate of sales from the Duchesne County Fields
during 1995 and 1994 was slightly over 10%.
Exploration and impairment - Exploration and impairment
expense in 1995 represents the Company's share of costs to
retain unproved acreage, drilling costs related to one
uneconomic exploration well and impairment of a Wyoming
property. The exploration well had the benefit of saving a
1,286 gross acre (779 net acre) lease for two years.
Exploration and impairment expense in 1994 primarily
represents the Company's share of drilling costs in three
uneconomic wells.
Depletion, depreciation and amortization - The increase
in depletion, depreciation and amortization resulted from
increased sales volumes and increased average depletion rate.
Depletion, which is based on the units-of-production method,
comprises the majority of the total charge and varies based on
proved reserves of the Company. The average depletion rate was
$5.80 per BOE during 1995 and $3.35 per BOE during 1994. The
increase between years was due to the effects of the merger
with IPC. Based on the December 31, 1995 reserve report, the
Company expects the depletion rate for 1996 to be slightly
below $4.00 per BOE.
General and administrative, net - General and
administrative expense increased $330,000 on a net basis
between years. General and administrative expense is reported
net of operator fees and reimbursements which were $1,105,000
and $245,000 during 1995 and 1994, respectively. The increase
in reimbursements is primarily a function of the level of
operated drilling activity. During 1995, the Company drilled 35<PAGE>
and operated 32 wells while in 1994 the Company drilled only
eight wells. Gross general and administrative expense
increased from $1,250,000 in 1994 to $2,440,000 in 1995. The
increase is related to increased salaries, payroll taxes and
employee benefits as the Company's employee base grew from
five employees at January 1, 1994 to thirty employees at
December 31, 1995. The increase in employees was required
since the Company became an operator of properties through the
IPC merger and to prepare for the level of expected drilling
activity during 1995 and 1996. The remaining increase is
associated with the cost of operating with a larger employee
base.
Interest expense - Interest expense primarily represents
the financing cost of borrowings to develop the Duchesne
County Fields and Monument Butte Field. This debt carried an
effective interest rate of 19% throughout the majority of 1994
and 1995. The first significant borrowing for this development 30
was advanced in the fourth quarter of 1994. Additional
advances were received throughout 1995 increasing the average
borrowing outstanding and related interest expense in 1995.
Other income - Other income in 1995 and 1994 primarily
represents interest earned on the investment of surplus cash
balances.
Gain on sale of Duchesne County Fields - As previously
stated, the Company sold the Duchesne County Fields effective
July 1, 1995. After netting the financial impact of the
transaction, the Company reported an $850,000 gain on sale.
Income taxes - In 1995 and 1994, no income tax provision
or benefit was recognized due to net operating losses incurred
and the recording of a full valuation allowance.
Discontinued Operations. As further explained in Note 4
to the consolidated financial statements, the Company has
reclassified all mining operations as discontinued operations.
During 1995, the Company focused operations on the
detoxification of leach pad #2 (the Toiyabe Mine has two leach
pads) and certain land recontouring activities, incurring
$434,000 of costs. The detoxification process generally
involves lowering the constituent levels in leachate solution
to concentrations considered acceptable by the Nevada
Department of Environmental Protection (the "NDEP"). The 36<PAGE>
Company applied for a permit and received preliminary approval
to land apply solutions in a controlled manner with levels of
certain constituents above state drinking water standards. In
October 1995, the NDEP denied the Company's formal Land
Application Discharge Permit citing new concerns over the
hydrogeology of the application area and certain other test
conclusions. As a result, the Company must now achieve state
drinking water standards for all constituents in the draindown
solution. Inland estimates that after considering the extra
labor, materials and holding costs required to achieve this
level of purification, between $575,000 and $900,000 will be
expended over the five years subsequent to December 31, 1995,
and has established a reserve for mine reclamation of
$600,000. Although the ultimate future reclamation cost is
dependent upon certain events which cannot be precisely
predicted, the Company believes that based on factors
presently known or anticipated, the current reserve of
$600,000 will be adequate to fully reclaim the Toiyabe Mine in
compliance with Nevada and federal laws. However, should
unforeseen circumstances arise that cause the closure
timetable to be delayed or additional labor, material and
holding costs to be incurred, future reclamation exposure
could exceed $900,000.
During 1994, the Company incurred net reclamation costs
of $267,000 while focusing operations on the detoxification of
leach pad #1. The net cost was comprised of $322,000 of gross
reclamation expense offset by $55,000 of gross profit from the
sale of incidental mineral recoveries during the reclamation
process. At December 31, 1994, Inland estimated that future
reclamation costs at the Toiyabe Mine could exceed previous
estimates and increased the reclamation reserve by $100,000.
Extraordinary Loss. On November 29, 1995, the Company
refinanced an existing obligation collateralized by the
Monument Butte Field. Unamortized debt issue costs of
$215,926 associated with the refinanced debt was written off
as an extraordinary loss as required by Statement of
Financial Accounting Standards No. 4.
Liquidity and Capital Resources
During 1995, the Company's unrestricted cash and cash
equivalents increased $1,279,000 and working capital
increased $1,054,000. The positive change was the result of 37<PAGE>
a number of factors, the largest of which was the sale of
the Duchesne County Fields to Petroglyph Gas Partners, L.P.
("PGP") for approximately $3 million in cash. In addition,
PGP assumed the entire balance of $2.5 million outstanding
under a nonrecourse loan agreement collateralized by the
Duchesne County Fields. At December 31, 1994, this loan
agreement had a balance of $1.8 million outstanding which
was reported as a current liability thereby negatively
affecting working capital at that date. In November 1995,
the Company used a portion of the cash proceeds from the
sale of the Duchesne County Fields and a $6 million private
equity placement to finalize the cash purchase of the Utah
Federal Leases for $7.16 million.
On November 29, 1995, the Company entered into a Credit
Agreement (the "TCW Loan Agreement") with Trust Company of
the West and affiliated entities (collectively "TCW"), which
provides a recourse loan facility to the Company of up to
$25 million for the development of the Monument Butte Field.
The Company drew down $5 million initially and used the
proceeds to repay $4,123,500 due under an existing
obligation collateralized by the Company's properties in the
Monument Butte Field and to pay $400,000 of closing costs
associated with the TCW Loan Agreement, with the balance of
funds increasing working capital. The remaining $20 million
of loan availability will be used to fund development
drilling in the Monument Butte Field during 1996. The TCW
Loan Agreement provides that the Company may borrow up to
the additional $20 million during the commitment period,
which expires on September 30, 1996, unless earlier
terminated pursuant to certain provisions. The TCW Loan
Agreement bears interest at a rate of 10% per annum.
Interest is payable quarterly, commencing March 27, 1996,
and minimum payments of principal will be required
quarterly, commencing in March 1997, in the following
amounts per quarter: $275,000 in 1997, $550,000 in 1998,
$1,300,000 in 1999, $1,400,000 in 2000, $1,200,000 in 2001,
$750,000 in 2002, $425,000 in 2003, and $350,000 in 2004,
with the final payment being due and payable on December 31,
2004. Commencing in March 1997, additional principal
payments may be due under certain circumstances out of
excess cash flow, as defined in the TCW Loan Agreement. In
addition to these payments, the Company granted TCW an
equity yield enhancement in the form of an initial 7%
overriding royalty interest, proportionately reduced by the 38<PAGE>
Company's working interest in the oil and gas properties,
commencing November 29, 1995 and continuing until the
internal annual rate of return to TCW equals 16% on the
aggregate amounts advanced under the TCW Loan Agreement, at
which time it reduces to 3% until TCW's internal annual rate
of return equals 22%. The TCW Loan Agreement also subjects
the Company to penalties if the loan is prepaid prior to its
second anniversary date of November 29, 1997. The Company
paid a loan commitment fee of $250,000 upon closing of the
TCW Loan Agreement. The Company is required to meet certain
minimum ratios, is subject to covenants not to engage in
various activities without TCW's prior consent, and may not
pay any dividends or make any other distributions to Inland
without TCW's prior written consent. The TCW Loan Agreement
also contains a provision that if any material adverse
change occurs in the Company's financial condition that is
not remedied within 60 days, TCW has the right to declare
the Company in default. The TCW Loan Agreement is
collateralized by the Company's interest in substantially
all of its oil and gas and other properties. At December
31, 1995, the Company had borrowed $5 million under the TCW
Loan Agreement.
During 1995, the Company used borrowings and working
capital to further develop its properties in the Monument
Butte Field. Development expenditures during 1995 included
the cost of five development wells, five exploratory wells
and one water injection well. Although the Company does not
generally intend to pursue significant exploratory drilling,
the Company drilled a high percentage of exploratory wells
in 1995 to save or earn additional acreage in perimeter
areas of the Monument Butte Field. The Company intends on
using availability under the TCW Loan Agreement in 1996 to
further develop its core area in the Monument Butte Field.
Development expenditures are expected to concentrate on
expansion of existing water flood areas and implementation
of new water flood areas. The Company intends on drilling up
to 85 gross (65 net) wells in 1996 with monies borrowed
under the TCW Loan Agreement. Approximately 25 of the wells
are expected to be completed as water injectors depending on
connectivity with surrounding wells, sand porosity and
permeability and overall injection patterns. Development
will also include the conversion of existing producing wells
to water injection wells, the drilling of water source
wells, the expansion of the water delivery infrastructure 39<PAGE>
and the expansion of the gas gathering infrastructure, among
other things. Based on results to date, the Company believes
it will be able to meet the terms of the TCW Loan Agreement
and draw down the entire $20 million of remaining
availability. Should the Company experience unfavorable
drilling results, it is possible the Company may not be able
to draw down the entire $20 million. Although less
borrowings could potentially slow the development of the
Company's properties in the Monument Butte Field and
associated cash flow, the Company believes it would be able
to meet all of its financial obligations during 1996.
Through March 25, 1996, the Company had borrowed $10 million
under the TCW Loan Agreement.
The Company is required to cover reclamation costs of
the Toiyabe Mine, net general and administrative expenses,
lease operating expenses, production taxes, undeveloped
acreage holding costs and discretionary exploratory capital
expenditures during 1996 out of cash generated from
operations and its current cash holdings. The Company
believes that cash sources and holdings will be sufficient
to cover such costs and meet its working capital needs
throughout 1996.
Effective July 1, 1995, the Company entered into the
Farmout covering the six month period through December 31,
1995. Twenty-one wells totaling approximately $6.8 million
were drilled (of which 20 were completed and one was a dry
hole) under the Farmout in the Monument Butte Field. Under
terms of the Farmout, the interest in each drill site
assigned to the Farmee reverts to the Company after Payout.
Payout is defined on a lease basis as the point in time when
the Farmee has recovered through production proceeds, net of
production taxes, 100% of the cost to drill, complete and
operate the well or wells on the affected lease plus a 22%
annual rate of return. The Farmee is also required to pay
the Company a management fee of $25,000 per well,
proportionately reduced to the Farmee's interest and net of
COPAS drilling overhead charges, as reimbursement to the
Company for land, geological, engineering and accounting
services. Ryder Scott Company, an independent engineering
firm, performed an analysis of the Farmout properties (all
proved developed) at January 1, 1996 using current SEC
guidelines and valued them at $11,565,000 using a 10%
discount factor. The Company emphasizes that reserve 40
stimates are imprecise and may be expected to change as
additional information becomes available.
On November 22, 1995, the Company entered into an
Option Agreement with the Farmee which allows the Company
the right to purchase the Farmout interests on March 10,
1997 by issuing Common Stock of the Company. The value of
the Farmout interests on March 10, 1997 (the "Farmout
Value") is computed using the Payout calculation as defined
in the Farmout. The number of shares of the Company's
Common Stock to be issued is calculated by dividing the
Farmout Value by a value of $0.50 per Common Share. In
addition, the Company issued the Farmee a Warrant
Certificate dated November 22, 1995 whereby if the Company
does not exercise its rights under the Option Agreement on
March 10, 1997, the Farmee has three days to purchase for
cash the number of shares of the Company's Common Stock
equal to the Farmout Value divided by a value of $0.50 cents
per Common Share. The Company expects to exercise the
Option Agreement since it is a requirement under the TCW
Loan Agreement. Subject to changes in oil price, operating
costs, production rates and other factors, the Company
estimates the Farmout Value on March 10, 1997 to be between
$3.75 and $4.25 million, which would cause the issuance of
7.5 million to 8.5 million new shares of the Company's
Common Stock.
The Company has entered into price protection agreements
to hedge against volatility in crude oil prices and to help
insure the repayment of indebtedness. The Company has a
hedge in place with Enron Capital and Trade Resources Corp.
(an affiliate of Enron Corp.) (the "Enron Hedge") to hedge
crude oil production over a five year period beginning
January 1, 1996 in monthly amounts escalating from 8,500
Bbls in January 1996 to 14,000 Bbls in December 2000. The
hedge is structured as a cost free collar whereby if the
average monthly price (based on NYMEX Light Sweet Crude Oil
Futures Contracts) (the "Average Price") is between $18.00
and $20.55 per barrel, no payment is due under the contract.
If the Average Price is less than $18.00, the Company is
paid the difference between $18.00 and the Average Price,
multiplied by the barrels of crude oil hedged that month.
Similarly, should the Average Price exceed $20.55 per
barrel, the Company is required to pay the difference
between $20.55 and the Average Price, multiplied by the 41<PAGE>
barrels of crude oil hedged that month. The Company entered
into a similarly structured contract with Koch Gas Services
Company on November 20, 1995. This contract hedges crude oil
production over a thirteen month period beginning December
1, 1995 and ending December 31, 1996. This hedge is also
structured as a cost free collar with a floor price of
$16.00 and a ceiling of $18.20. Since hedged quantities are
based on expected future development in the Monument Butte
Field and because hedging activities do not affect the
actual sales price for the Company's crude oil, there exists
risk to the Company's financial position and results of
operations should the Average Price rise significantly above
the ceiling prices of $20.55 and $18.20, respectively, and
development activities not produce the expected results or
progress on a slower than expected timetable. The Company is
aware of and continually evaluates this financial risk and
has the ability to enter into commodity contracts to
mitigate potential financial loss should risk factors begin
to materialize.
In order to further protect the price the Company
receives for crude oil production during 1996, on January
18, 1996 the Company entered into three additional contracts
with Enron Capital and Trade Resources Corp. The effect of
two of the contracts was to lower the floor under the Enron
Hedge from $18.00 to $16.50 during the eleven month period
from February through December 1996. The Company received
$52,400 as a result of this restructuring. Under the final
contract, the Company purchased for $149,000 a put option
with a strike price of $16.50, covering the period February
through December 1996, to put to the purchaser an aggregate
of 257,000 barrels of oil in monthly amounts escalating from
10,000 barrels to 35,000 during the contract period. The net
cost of these three additional contracts and the net gain or
net loss on all hedging transactions will be included as an
adjustment to crude oil revenue in the period the related
oil is sold.
The Company continues to aggressively seek other
opportunities to acquire existing oil and gas production in
developed fields. The Company will attempt to finance such
acquisitions through (i) seller financing, whenever
possible; (ii) joint operating agreements with industry
partners where the Company may sell part of its position to
provide acquisition and development funds; (iii) sales of 42<PAGE>
equity or debt of the Company; or (iv) traditional bank
lines of credit, although the Company currently has no
existing bank lines of credit or arrangements with any bank
to loan funds.
The Company is subject to numerous federal and state
laws and regulations relating to environmental matters.
Increasing focus on environmental issues nationally has lead
the Company to continue to evaluate its responsibilities to
the environment. The Company believes it is in compliance in
all material respects with applicable federal, state and local
environmental regulations. There are no environmental
proceedings pending against the Company. At December 31, 1995,
the Company had recognized a liability of $600,000 to cover
the future costs of reclaiming the Toiyabe Mine.
New Accounting Pronouncement
The Financial Accounting Standards Board issued
Statement No. 123 on the "Accounting for Stock-Based
Compensation". This statement prescribes the accounting and
reporting standards for stock-based employee compensation
plans and is effective for the Company's 1996 reporting year.
The Company has not decided if it will adopt the recognition
criteria within the standard or simply make pro forma
disclosures as an acceptable alternative provided by the
standard.
Inflation and Changes in Prices
The Company's revenues and the value of its oil and gas
properties have been and will be affected by changes in oil
and gas prices. The Company's ability to borrow from
traditional lending sources and to obtain additional capital
on attractive terms is also substantially dependent on oil and
gas prices. Oil and gas prices are subject to significant
seasonal and other fluctuations that are beyond the Company's
ability to control or predict. Although certain of the
Company's costs and expenses are affected by the level of
inflation, inflation did not have a significant effect on the
Company's result of operations during 1995 or 1994.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this item begin at 43<PAGE>
page F-1 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
For information called for by Items 9, 10, 11 and 12,
reference is made to the Company's definitive Proxy Statement
for its Annual Meeting of Stockholders scheduled to be held
May 22, 1996, which the Company intends to file with the
Securities and Exchange Commission on or before April 28,
1996, which information is incorporated herein by reference.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this
Annual Report on Form 10-KSB:
1. Financial Statements: The financial
statements filed as part of this report are listed
in the "Index to Financial Statements" on Page F-1
hereof.
2. Exhibits required to be filed by Item 601
of Regulation S-B:
Exhibit
Number Description of Exhibits
2.1 Agreement and Plan of Merger between the
Company, IRI Acquisition Corp. and Lomax
Exploration Company ("IPC") (exclusive of all
exhibits) (Filed as exhibit 2.1 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and
incorporated herein by this reference).
3.1 Articles of Incorporation, as amended through
May 5, 1993 (filed as Exhibit 3.1 to the 44<PAGE>
Company's Registration Statement on Form S-18,
Registration No. 33-11870-F, and incorporated
herein by reference).
3.1.1 Articles of Amendment to Articles of
Incorporation dated May 6, 1993 (filed as
Exhibit 3.1.1 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1993, and incorporated herein by
reference).
3.1.2 Articles of Amendment to Articles of
Incorporation dated August 16, 1994
designating a series of stock (filed as
Exhibit 3.1.2 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by
reference).
3.1.3 Articles of Amendment to Articles of
Incorporation filed with Secretary of State of
Washington on August 30, 1994 (filed as
Exhibit 3.1.3 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by
reference).
3.1.4 Articles of Correction to Articles of
Amendment dated August 31, 1994 (filed as
Exhibit 3.1.4 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by
reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2
to the Company's Registration Statement on
Form S-18, Registration No. 33-11870-F, and
incorporated herein by reference).
3.2.1 Amendment to Article IV, Section 1 of the
Bylaws of the Company adopted February 23,
1993 (filed as Exhibit 3.2.1 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated
herein by reference). 45
3.2.2 Amendment to the Bylaws of the Company adopted
April 8, 1994 (filed as Exhibit 3.2.2 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
3.2.3 Amendment to the Bylaws of the Company adopted
April 27, 1994 (filed as Exhibit 3.2.3 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
*4.1 Credit Agreement between the Company, IPC and
Trust Company of the West and various
affiliated entities (collectively, "TCW")
dated November 29, 1995 (exclusive of all
exhibits and schedules).
*4.1.2 Royalty Agreement dated November 29, 1995,
between IPC, TCW DR IV Royalty Partnership,
L.P. and TCW (exclusive of all exhibits and
schedules).
*4.1.3 Conveyance of Adjustable Overriding Royalty
Interest dated November 29, 1995 between IPC
and TCW DR IV Royalty Partnership, L.P.
(exclusive of all exhibits and schedules).
*4.1.4 Deed of Trust, Mortgage, Line of Credit
Mortgage, Assignment, Security Agreement,
Fixture Filing and Financing Statement dated
November 29, 1995 between IPC, First American
Title Company of Utah, Trustee, and TCW Asset
Management Company, Collateral Agent
(exclusive of all exhibits and schedules).
*4.1.5 Guaranty dated November 29, 1995, executed by
Inland Resources Inc. in favor of TCW and
other named parties.
10.1 1988 Option Plan of Inland Gold and Silver
Corp. (filed as Exhibit 10(15) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, and
incorporated herein by reference). 46<PAGE>
10.1.1 Amended 1988 Option Plan of Inland Gold and
Silver Corp. (filed as Exhibit 10.10.1 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.1.2 Amended 1988 Option Plan of the Company, as
amended through August 29, 1994 (including
amendments increasing the number of shares to
2,128,000 and changing "formula award") (filed
as Exhibit 10.1.2 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
10.2 Warrant Agreement and Warrant Certificate
between Kyle R. Miller and the Company dated
February 23, 1993 (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K dated
February 23, 1993, and incorporated herein by
reference).
10.2.1 Warrant Certificate between Kyle R. Miller and
the Company dated October 15, 1993
representing 31,500 shares (filed as Exhibit
10.2.1 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.2.2 Warrant Certificate between Kyle R. Miller and
the Company dated March 22, 1994 representing
57,142 shares (filed as Exhibit 10.2.2 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.2.3 Warrant Certificate between Kyle R. Miller and
the Company dated September 21, 1994
representing 448,108 shares (filed as Exhibit
10.2.3 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.2.4 Warrant Certificate between Kyle R. Miller and
the Company dated September 21, 1994 47<PAGE>
representing 385,225 shares (filed as Exhibit
10.2.4 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.2.5 Warrant Certificate between Kyle R. Miller and
the Company dated September 21, 1994
representing 300,000 shares (filed as Exhibit
10.2.5 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31,
1994, and incorporated herein by reference).
10.2.6 Amendment to Warrant Certificates filed as
Exhibits 10.2, 10.2.1 and 10.2.2 (filed as
Exhibit 10.2.6 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein by
reference).
*10.2.7 Warrant Certificate between Kyle R. Miller and
the Company dated November 16, 1993
representing 15,000 shares.
*10.2.8 Warrant Certificate between Kyle R. Miller and
the Company dated March 15, 1995 representing
12,500 shares.
*10.2.9 Warrant Certificate between Kyle R. Miller and
the Company dated November 6, 1995
representing 300,000 shares.
10.2.10 First Amendment to Warrant Agreement between
the Company and Kyle R. Miller dated October
19, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended September 30, 1995,
and incorporated herein by reference).
10.3 Employment Agreement between Kyle R. Miller
and the Company dated February 23, 1993 (filed
as Exhibit 10.1 to the Company's Current
Report on Form 8-K dated February 23, 1993,
and incorporated herein by reference).
10.4 Lease Agreement - Commercial Premises (short 48<PAGE>
form) dated August 12, 1988 by and between
Broadway Management Company and the Company,
together with Addendums to Lease dated October
2, 1989, November 6, 1991 and March 8, 1993
(filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated
herein by reference.
10.5 Purchase and Sale Agreement between the
Company and Evertson Oil Company, Inc. dated
March 15, 1993 (filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.6.1 Wrap Around Agreement between Petroglyph Gas
Partners, L.P. ("PGP") and the Company dated
January 31, 1994 (filed as Exhibit 10.20.1 to
the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993, and
incorporated herein by reference).
10.6.2 Assignment of Purchase and Sale Agreement from
the Company to PGP (filed as Exhibit 10.20.2
to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
10.6.3 Ratification of Purchase and Sale Agreement
between Evertson Oil Company, Inc. and the
Company dated January 31, 1994 (filed as
Exhibit 10.20.3 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1993, and incorporated herein by
reference).
10.6.4 Letter from PGP to the Company dated January
28, 1994 (filed as Exhibit 10.20.4 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, and
incorporated herein by reference).
10.6.5 Asset Purchase and Sale Agreement dated August
25, 1995, but effective as of July 1, 1995, by 49<PAGE>
and between the Company and PGP (without
exhibits) (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated
September 19, 1995, and incorporated herein by
reference).
10.6.6 Assignment and Assumption Agreement, First
Amendment to Loan Agreement, and Confirmation
of Documents dated September 19, 1995 by and
between the Company, PGP and Joint Energy
Development Investments Limited Partnership
(without exhibits) (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K dated
September 19, 1995, and incorporated herein by
reference).
10.7.1 Operating Agreement dated February 25, 1994
between the Company, PGP and Petroglyph
Operating Company, Inc. related to a portion
of the Duchesne County Fields (filed as
Exhibit 10.21.1 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1993, and incorporated herein by
reference).
10.7.2 Operating Agreement dated February 25, 1994
between the Company, PGP and Petroglyph
Operating Company, Inc. related to the
remainder of the Duchesne County Fields (filed
as Exhibit 10.21.2 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1993, and incorporated
herein by reference).
10.8 Cooperative Agreement between IPC and the U.S.
Department of Energy, and related
correspondence (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.9 Employment Agreement between IPC and Bill I.
Pennington effective May 1, 1993, which was
replaced by Exhibit 10.9.1 (filed as Exhibit
10.23 to the Company's Registration Statement 50<PAGE>
on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.9.1 Employment Agreement between the Company and
Bill I. Pennington dated September 21, 1994
(filed as Exhibit 10.9.1 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and incorporated
herein by reference).
10.10 Employment Agreement between IPC and John D.
Lomax effective May 1, 1992 which was replaced
by Exhibit 10.10.1 (filed as Exhibit 10.24 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.10.1 Employment Agreement between the Company and
John D. Lomax dated September 21, 1994 (filed
as Exhibit 10.10.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
10.10.2 Deferred Compensation Agreement dated
effective July 1, 1995 between the Company and
John D. Lomax (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-QSB for
the fiscal quarter ended June 30, 1995, and
incorporated herein by reference).
*10.10.3 First Amendment to Deferred Compensation
Agreement dated effective December 1, 1995
between the Company, IPC and John D. Lomax.
10.11 Loan Agreement dated July 8, 1993 between IPC
and First Interstate Bank of Utah, N.A.
regarding $250,000 loan (filed as Exhibit
10.25 to the Company's Registration Statement
on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.11.1 Floating Rate Promissory Note dated July 8,
1993 in the amount of $250,000 executed by IPC
and representing the loan described in Exhibit 51<PAGE>
10.11 (filed as Exhibit 10.25.1 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.11.2 Assignment of Monies Due and to Become Due
dated July 8, 1993 executed by IPC and
relating to Exhibit 10.11 (filed as Exhibit
10.25.2 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.11.3 Continuing Guaranty dated July 8, 1993
executed by John D. Lomax and Bill I.
Pennington in favor of First Interstate Bank
of Utah, N.A. (filed as Exhibit 10.25.3 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.11.4 Deed of Trust, Mortgage, Assignment, Security
Agreement, and Financing Statement executed by
IPC dated July 19, 1993 securing the
obligations described in Exhibit 10.11 (filed
as Exhibit 10.25.4 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.12 Loan Agreement dated June 1, 1994 between IPC
and John D. Lomax, Bill I. Pennington, Jack N.
Warren, Allan C. King and T Brooke Farnsworth
relating to $100,000 loan to IPC (filed as
Exhibit 10.26 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by reference).
10.12.1 Promissory Note dated June 1, 1994 payable by
IPC to the persons described in Exhibit 10.12
relating to the loan described in Exhibit
10.12 (filed as Exhibit 10.26.1 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference). 52<PAGE>
10.12.2 Deed of Trust, Mortgage, Assignment, Security
Agreement, and Financing Statement executed by
IPC and securing the loan described in Exhibit
10.12 (filed as Exhibit 10.26.2 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.12.3 Security Agreement executed by IPC and
securing the loan described in Exhibit 10.12
(filed as Exhibit 10.26.3 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.13 Subcontract Agreement between IPC and the
University of Utah dated September 25, 1992
(filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.14 Subcontract Agreement dated October 8, 1992
between IPC and the University of Utah
Research Institute (filed as Exhibit 10.28 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.15 Chevron Crude Oil Purchase Contract No. 531144
dated October 25, 1988, as amended by
Amendment No. 1 dated November 27, 1989,
Amendment No. 2 dated September 12, 1990,
Amendment No. 3 dated July 15, 1991, Amendment
No. 4 dated January 22, 1992, Amendment No. 5
dated January 13, 1993, and the March 4, 1992
letter from Chevron U.S.A. Products Company to
all Chevron Products Company customers (filed
as Exhibit 10.29 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392,
and incorporated herein by reference).
10.16 Lease dated March 30, 1993 between Marshall
Properties, Inc. and IPC (filed as Exhibit
10.30 to the Company's Registration Statement 53<PAGE>
on Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.17 Agreement between IPC and Bill I. Pennington
(filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.18 Subscription Agreement between the Company and
Smith Management Company dated May 12, 1994
(filed as Exhibit 10.34 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.18.1 Amendment to Subscription Agreement filed as
Exhibit 10.32, dated September 16, 1994 (filed
as Exhibit 10.18.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
10.19 Registration Rights Agreement dated September
21, 1994 between the Company and Energy
Management Corporation, a wholly owned
subsidiary of Smith Management Company and the
assignee of Smith Management Company under the
Subscription Agreement filed as Exhibit 10.18
(filed as Exhibit 10.19 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and incorporated
herein by reference).
10.19.1 Correspondence constituting an
amendment/clarification of the Registration
Rights Agreement filed as Exhibit 10.19
(filed as Exhibit 10.19.1 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and incorporated
herein by reference).
10.19.2 Registration Rights Agreement dated March 20,
1995 between the Company and Energy Management 54<PAGE>
Corporation (filed as Exhibit 10.19.2 to the
Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.20 Swap Agreement dated August 4, 1994 between
the Company and Enron Risk Management Services
Corp.(filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-QSB for the fiscal
quarter ended September 30, 1994, and
incorporated herein by reference).
10.21 Swap Agreement dated August 26, 1994 between
the Company and JEDI (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30,
1994, and incorporated herein by reference).
10.22 Swap Agreement dated August 4, 1994 between
IPC and Enron Risk Management Services Corp.
(filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal
quarter ended September 30, 1994, and
incorporated herein by reference).
10.23 Subscription Agreement between the Company and
Pengo Securities Corp. dated October 23, 1995,
without exhibits (filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by
reference).
10.23.1 Registration Rights Agreement between the
Company and Pengo Securities Corp. dated
November 6, 1995 (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by
reference).
10.24 Combined Hydrocarbon Lease between IPC and the
U.S. Department of the Interior, Bureau of
Land Management ("Bureau") dated effective
October 18, 1995 relating to 677.36 acres
(filed as Exhibit 10.3 to the Company's
Current Report on Form 8-K dated November 6, 55<PAGE>
1995, and incorporated herein by reference).
10.25 Combined Hydrocarbon Lease between IPC and the
Bureau dated effective October 18, 1995
relating to 2,879.94 acres (filed as Exhibit
10.4 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.26 Combined Hydrocarbon Lease between IPC and the
Bureau dated effective October 18, 1995
relating to 647.32 acres (filed as Exhibit
10.5 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.27 Combined Hydrocarbon Lease between IPC and the
Bureau dated effective October 18, 1995
relating to 1,968.01 acres (filed as Exhibit
10.6 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.28 Farmout Agreement between IPC, the Company and
Randall D. Smith, dated effective July 1, 1995
(filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1995, and incorporated
herein by reference).
*10.29 Option Agreement dated November 22, 1995
between the Company, IPC and Randall D. Smith.
*10.29.1 Warrant Certificate dated November 22, 1995
granted by the Company to Randall D. Smith,
together with Exhibit "A", a Registration
Rights Agreement.
*10.30 Crude Oil Call/Put Option (Costless Collar)
between IPC and Koch Gas Services Company
dated November 20, 1995.
10.31 Swap Agreement dated November 22, 1994 between
the Company and Joint Energy Investments
Limited Partnership (filed as Exhibit 10.1 to 56<PAGE>
the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 1995,
and incorporated herein by reference).
*10.31.1 Termination Agreement Revised dated January
18, 1996 between the Company and Enron Capital
& Trade Resources Corp. ("ECT") relating to
Exhibit 10.31.
10.32 Swap Agreement dated January 18, 1995 between
the Company and ECT (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 1995,
and incorporated herein by reference).
*10.33 Put Option dated January 18, 1996 between the
Company and ECT.
*10.34 Commodity Option dated January 18, 1996
between IPC and ECT.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Ryder Scott Company Petroleum
Engineers.
*27.1 Financial Data Schedule required by Item 601
of Regulation S-B.
________________________
* Filed herewith.
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated
November 6, 1995 reporting information under the following
Form 8-K Items:
Item 1. Changes in Control of Registrant
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits 57<PAGE>
No financial statements were included in the November 6,
1995 Form 8-K. No other reports on Form 8-K were filed during
the fourth quarter of 1995.
58<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
INLAND RESOURCES INC.
March 22, 1996 By: /s/ Kyle R. Miller
Kyle R. Miller
Director, President
and Chief Executive
Officer (Principal
Executive Officer)
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates
indicated.
March 22, 1996 /s/ John D. Lomax
John D. Lomax
Director (Chairman)
March 22, 1996 /s/ Richard F. Conway
Richard F. Conway
Director
March 22, 1996 /s/ Arthur J. Pasmas
Arthur J. Pasmas
Director
March 22, 1996 /s/ James F. Etter
James F. Etter
Director 59<PAGE>
March 22, 1996 /s/ Bill I. Pennington
Bill I. Pennington
Director, Vice President
and Chief Financial Officer
(Principal Financial
Officer)
March 22, 1996 /s/ T Brooke Farnsworth
T Brooke Farnsworth
Director
March 22, 1996 /s/ Michael J. Stevens
Michael J. Stevens
Secretary, Treasurer and
Controller (Principal
Accounting Officer)
60<PAGE>
INLAND RESOURCES INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets, December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1994 F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 1995 and 1994 F-7
Consolidated Statements of Cash Flows for the years ended F-10
December 31, 1995 and 1994
Notes to Consolidated Financial Statements F-12
F-1<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Inland Resources Inc.
We have audited the accompanying consolidated balance sheets
of Inland Resources Inc. as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1995 and
1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Inland Resources Inc. as of December 31,
1995 and 1994, and the consolidated results of its operations and
its cash flows for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 20, 1996
F-2<PAGE>
<TABLE>
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
December 31, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,970,305 $ 1,691,156
Restricted cash 160,658
Accounts receivable and
accrued sales 671,203 902,959
Inventory 417,665 835,691
Department of Energy contract 30,753 650,147
Other current assets 19,338 379,622
----------- ------------
Total current assets 4,109,264 4,620,233
----------- ------------
Property and equipment, at cost:
Oil and gas properties (successful
efforts method) 17,251,885 11,887,825
Gas and water transportation
facilities 152,395 643,307
Accumulated depletion, depreciation
and amortization (585,590) (489,840)
------------ -----------
16,818,690 12,041,292
Other property and equipment, net 593,106 376,128
Debt issue costs 401,803
------------ ------------
Total assets $ 21,922,863 $17,037,653
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses $ 2,859,775 $ 2,407,179
Current portion of long-term debt 48,021 1,965,157
Property reclamation costs,
short-term 200,000 300,000
F-3
<PAGE>
------------ -----------
Total current
liabilities 3,107,796 4,672,336
------------ -----------
Long-term debt 4,436,225 2,157,842
Property reclamation costs, long-term 399,433 283,670
Commitments (Notes 8, 16 and 17)
Stockholders' equity:
Preferred Class A stock, par value
$.001; 20,000,000 shares authorized,
106,850 shares of Series A issued
and outstanding; liquidation
preference of $5,342,500 107 107
Additional paid-in capital -
preferred stock 4,100,261 3,672,861
Common stock, par value $.001;
100,000,000 shares authorized;
issued and outstanding 40,927,999
and 28,927,999, respectively 40,928 28,928
Additional paid-in capital -
common stock 19,146,284 3,168,591
Accumulated deficit (9,308,171) (6,946,682)
------------- ------------
Total stockholders' equity 13,979,409 9,923,805
------------- ------------
Total liabilities and
stockholders' equity $ 21,922,863 $17,037,653
============= ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-4<PAGE>
<TABLE>
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1995 and 1994
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Revenues:
Sales of oil and gas 1,904,810 $1,063,458
Management fees 326,178
------------ ------------
Total revenues 2,230,988 1,063,458
------------ -----------
Operating expenses:
Lease operating expenses 1,010,050 915,063
Production taxes 132,417 90,222
Exploration and impairment 342,081 306,121
Depletion, depreciation and
amortization 857,570 330,110
General and administrative, net 1,335,263 1,004,891
------------ -----------
Total operating expenses 3,677,381 2,646,407
------------ -----------
Operating loss (1,446,393) (1,582,949)
Interest expense (749,307) (142,666)
Other income, net 127,537 54,581
Gain on sale of Duchesne County Fields 850,000
------------ -----------
Loss from continuing operations
before extraordinary loss (1,218,163) (1,671,034)
Loss on disposal of discontinued
operations (500,000) (100,000)
------------ ------------
Loss before extraordinary loss (1,718,163) (1,771,034)
Extraordinary loss on early
extinguishment of debt (215,926)
------------ ------------
Net loss (1,934,089) $ (1,771,034)
============ =============
Net loss per share:
Continuing operations $ (.04) $ (.09)
Discontinued operations (.01) (.00)
F-5<PAGE>
Extraordinary loss (.01) (.00)
------------ -------------
Total $ (.06) $ (.09)
============ =============
Weighted average common shares
outstanding 30,711,095 18,738,492
============ =============
Dividends per share NONE NONE
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements
F-6<PAGE>
<TABLE>
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1995 and 1994
<CAPTION>
Additional
Preferred Stock Paid-in
Shares Amount Capital
----------- --------- ---------
<S> <C> <C> <C>
Balances, January 1, 1994
Issuance of common stock
Issuance of common stock
Issuance of common stock,
net of issuance costs of
$93,350
Issurance of preferred 107,546 $108 $3,696,785
stock
Conversion of preferred (696) (1) (23,924)
stock
Net loss ------------ --------- ----------
Balances, December 31, 1994 106,850 107 3,672,861
Issuance of common stock,
net of issuance costs of
$10,307
Preferred stock dividend 427,400
Net loss
------------ --------- -----------
Balances, December 31, 106,850 $107 4,100,261
1995
============ ========= ===========
Additional
Preferred Stock Paid-in
Shares Amount Capital
----------- --------- ---------
<S> <C> <C> <C>
Balances, January 1, 1994 14,022,633 $14,023 $7,863,732
Issuance of common stock 1,142,858 1,142 398,858
Issuance of common stock 7,704,508 7,705 2,881,484
Issuance of common stock, 6,000,000 6,000 2,000,650
net of issuance costs of
F-7<PAGE>
$93,350
Issurance of preferred
stock
Conversion of preferred 58,000 58 23,867
stock
Net loss
------------ --------- -----------
Balances, December 31,
1994 28,927,999 28,928 13,168,591
Issuance of common stock, 12,000,000 12,000 5,977,693
net of issuance costs of
$10,307
Preferred stock dividend
Net loss
------------ --------- -----------
Balances, December 31, 40,927,999 $40,928 $19,146,284
1995
============ ========= ===========
Accumulated
Deficit
-------------
<S> <C>
Balances, January 1, 1994 $(5,175,648)
Issuance of common stock
Issuance of common stock
Issuance of common stock,
net of issuance costs of
$93,350
Issurance of preferred
stock
Conversion of preferred
stock
Net loss (1,771,034)
-------------
Balances, December 31, 1994 (6,946,682)
Issuance of common stock,
net of issuance costs of
$10,307
Preferred stock dividend (427,400)
Net loss (1,934,089)
-------------
F-8<PAGE>
Balances, December 31, $9,308,171)
1995
=============
The accompanying notes are an integral part
of the consolidated financial statements
</TABLE>
F-9<PAGE>
<TABLE>
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995 and 1994
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,934,089) $(1,771,034)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Net cash used by discontinued
operations (434,237) (450,484)
Loss on disposal of discontinued
operations 500,000 100,000
Depletion, depreciation and
amortization 857,570 330,110
(Gain) Loss on disposal of assets 3,942 (6,782)
Gain on sale of Duchesne County
Fields (850,000)
Impairment of properties 296,350
Loss on early extinguishment of
debt 215,926
Changes in assets and liabilities:
Accounts receivable and
accrued sales 740,961 (299,601)
Inventory 143,525 (274,337)
Other current assets 66,358 (320,534)
Accounts payable and accrued
expenses 695,437 382,868
------------ -----------
Net cash provided (used) by operating
activities 301,743 (2,309,794)
------------ -----------
Cash flows from investing activities:
F-10<PAGE>
Acquisition of oil and gas
properties (7,449,000) (963,234)
Development expenditures and
equipment purchases (3,435,477) (1,676,190)
Proceeds from sale of Duchesne
County Fields 2,946,765
Proceeds from sale of assets 47,344 10,700
Change in restricted cash 160,658 (160,658)
Net cash acquired in purchase of
Inland Production Company 60,363
Net cash provided by sale of
discontinued operations 222,516
------------ ------------
Net cash used by investing activities (8,030,244) (2,506,503)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 7,600,000 3,936,358
Payments of long-term debt (4,180,240) (38,163)
Debt issue costs (401,803)
Payment of related party note payable (100,000)
Proceeds from issuance of
common stock 5,989,693 2,406,650
------------ ------------
Net cash provided by financing
activities 9,007,650 6,204,845
------------ ------------
Net increase in cash and cash
equivalents 1,279,149 1,388,548
Cash and cash equivalents at
beginning of period 1,691,156 302,608
------------ ------------
Cash and cash equivalents at
end of period $ 2,970,305 $ 1,691,156
============ ===========
The accompanying notes are an integral part
of the consolidated financial statements
</TABLE>
F-11<PAGE>
INLAND RESOURCES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY ORGANIZATIONAND BUSINESS DESCRIPTION:
Inland Resources Inc. (the "Company") was incorporated
on August 12, 1985 in the State of Washington for the
purpose of acquiring, exploring and developing interests
in mining properties. In 1987 the Company developed a
leased property (the "Toiyabe Mine") and began
production of gold and silver. Operations at the Toiyabe
Mine have included open-pit mining, crushing,
agglomerations, heap leaching and gold and silver
recovery processes. Currently, the Company's mining
operations are limited to the final detoxification,
reclamation and closure of the Toiyabe Mine in
compliance with Nevada and federal laws.
Effective March 1, 1993, the Company acquired an
undivided 50% interest in certain oil and gas leases and
other assets located in Duchesne County, Utah (the
"Duchesne County Fields"). Accordingly, the Company's
business emphasis changed from precious metals mining to
oil and gas development and production.
Effective September 21, 1994, the Company acquired all
the outstanding common and preferred stock of Lomax
Exploration Company, now known as Inland Production
Company ("IPC"). IPC is also engaged primarily in oil
and gas development and production activities in the
Uinta Basin area of Northeastern Utah, in the oil and
gas field known as the Monument Butte Field. The
acquisition was accounted for as a purchase, therefore,
the net assets and results of operations of IPC are
included in the Company's consolidated financial
statements from the acquisition date forward. IPC
operates as a wholly-owned subsidiary of the Company.
Effective July 1, 1995, the Company sold its undivided
interest in the Duchesne County Fields. As a result,
the Company is now focused on the development of the
F-12<PAGE>
Monument Butte Field where the Company controls
operations for the majority of its holdings and has a
significant infrastructure in place to conduct water
flood operations. In November 1995, the Company further
increased its position in the Monument Butte Field by
entering into four oil and gas leases (the "Utah
Federal Leases") covering 6,200 gross acres (5,861 net
acres).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The accompanying financial statements include the
accounts of the Company and its wholly-owned
subsidiary. All intercompany activity has been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial
Statements:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand and
amounts due from banks and other investments with
original maturities of less than three months. The
Company regularly has cash in a single financial
institution which exceeds depository insurance limits.
The Company places such deposits with high credit
quality institutions and has not experienced any credit
losses.
Substantially all of the Company's receivables are
F-13<PAGE>
within the oil and gas industry, primarily from the
purchasers of its oil and gas and joint interest
owners. Although diversified within many companies,
collectibility is dependent upon the general economic
conditions of the industry. To date, uncollectible
accounts experienced by the Company have been minimal.
Inventory:
At December 31, 1995 and 1994, inventory consisted
primarily of tubular goods valued at the lower of cost
or market.
Accounting for Oil and Gas Operations:
The Company uses the "successful efforts" method of
accounting for oil and gas operations. The use of this
method results in the capitalization of those costs
associated with the acquisition, exploration, and
development of properties that produce revenue or are
anticipated to produce future revenue. The Company does
not capitalize general and administrative expenses
directly identifiable with acquisition activities or
lease operating expenses associated with secondary
recovery startup projects. Costs of unsuccessful
exploration efforts are expensed in the period in which
it is determined that such costs are not recoverable
through future revenues. Geological and geophysical
costs are expensed as incurred. The cost of development
wells are capitalized whether productive or
nonproductive.
Upon sale of proved properties, the cost thereof and
the accumulated depreciation or depletion are removed
from the accounts and any gain or loss is charged to
income.
The provision for depletion, depreciation and
amortization of developed oil and gas properties is
based on the units of production method, based on
proved oil and gas reserves. Dismantlement,
restoration, and abandonment costs are offset by
residual values of lease and well equipment. As a
result, no accrual for such costs has been recorded.
F-14<PAGE>
Effective for the fourth quarter beginning October 1,
1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Under this Statement, a
calculation of the aggregate before-tax undiscounted
future net revenues (the "Ceiling") is performed for
each distinct property pool the Company owns. If the
net capitalized cost of each property pool exceeds the
applicable Ceiling calculation, the excess is recorded
as a charge to operations. The Company currently has
only one distinct property pool titled the Monument
Butte Field. There was no charge to the Consolidated
Statements of Operations as a result of adopting this
statement.
The Company periodically assesses undeveloped oil and
gas properties for impairment. Impairment represents
management's estimate of the decline in realizable
value experienced during the period.
Property and Equipment:
Property and equipment is recorded at cost.
Replacements and major improvements are capitalized
while maintenance and repairs are charged to expense as
incurred. Upon sale or retirement, the asset cost and
accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in
operations. Depreciation is provided using the
straight-line method over the estimated useful lives of
the related assets.
Income Taxes:
The Company uses the liability method of accounting for
income taxes. Under the liability method, income taxes
are recorded for future events at tax rates in effect
when the balances are expected to be paid.
Revenue Recognition:
Sales of oil and gas are recorded upon delivery to
purchasers.
F-15<PAGE>
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued
Statement No. 123 on the "Accounting for Stock-Based
Compensation". This statement prescribes the
accounting and reporting standards for stock-based
employee compensation plans and is effective for the
Company's 1996 reporting year. The Company has not
decided if it will adopt the recognition criteria
within the standard or simply make pro forma
disclosures as an acceptable alternative provided by
the standard.
Net Loss Per Share:
Net loss per share is calculated based upon the
weighted average number of shares outstanding during
each period. Common stock equivalents have not been
included because their effect is anti-dilutive.
Joint Ventures:
The financial statements include the accounts of the
Company and its proportionate share of the accounts of
the unincorporated joint ventures in which it
participates.
Reclassification:
Certain prior year balances appearing on the
Consolidated Balance Sheet and Consolidated Statement
of Cash Flows have been reclassified to conform with
the current year financial statement presentation.
These reclassifications had no effect on the
accumulated deficit or net loss as previously reported.
3. FINANCIAL INSTRUMENTS:
Periodically, the Company enters into commodity
contracts to hedge or otherwise reduce the impact of
oil price fluctuations and to help insure the repayment
of indebtedness. Changes in the market value of crude
oil commodity contracts are reported as an adjustment
to crude oil revenue in the period in which the related
F-16<PAGE>
oil is sold. The gain or loss on the Company's hedging
transactions is determined as the difference between
the contract floor price or contract ceiling price and
a reference price, generally the average price of NYMEX
Light Sweet Crude Oil Futures Contracts. Hedging
activities do not affect the actual sales price for the
Company's crude oil.
The Company has a hedge in place with Enron Capital and
Trade Resources Corp. (an affiliate of Enron Corp.)
(the "Enron Hedge") to hedge crude oil production over
a five year period beginning January 1, 1996 in monthly
amounts escalating from 8,500 Bbls in January 1996 to
14,000 Bbls in December 2000. The hedge is structured
as a cost free collar whereby if the average monthly
price (based on NYMEX Light Sweet Crude Oil Futures
Contracts) (the "Average Price") is between $18.00 and
$20.55 per barrel, no payment is due under the
contract. If the Average Price is less than $18.00, the
Company is paid the difference between $18.00 and the
Average Price, multiplied by the barrels of crude oil
hedged that month. Similarly, should the Average Price
exceed $20.55 per barrel, the Company is required to
pay the difference between $20.55 and the Average
Price, multiplied by the barrels of crude oil hedged
that month. The Company entered into a similarly
structured contract with Koch Gas Services Company on
November 20, 1995. This contract hedges crude oil
production over a thirteen month period beginning
December 1, 1995 and ending December 31, 1996. This
hedge is also structured as cost free collar with a
floor price of $16.00 and a ceiling of $18.20. Since
hedged quantities are based on expected future
development in the Monument Butte Field and because
hedging activities do not affect the actual sales price
for the Company's crude oil, there exists risk to the
Company's financial position and results of operations
should the Average Price rise significantly above the
ceiling prices of $20.55 and $18.20, respectively, and
development activities not produce the expected results
or progress on a slower than expected timetable. The
Company is aware of and continually evaluates this
financial risk and has the ability to enter into
commodity contracts to mitigate potential financial
F-17<PAGE>
loss should risk factors begin to materialize. At
December 31, 1995, these two contracts had a combined
positive market value of $620,000. The market value
will change during the contract periods and is not
recognized in the accompanying consolidated financial
statements.
In order to further protect the price the Company
receives for crude oil production during 1996, on
January 18, 1996 the Company entered into three
additional contracts with Enron Capital and Trade
Resources Corp. The effect of two of the contracts was
to lower the floor under the Enron Hedge from $18.00 to
$16.50 during the eleven month period from February to
December 1996. The Company received $52,400 as a result
of this restructuring. Under the final contract, the
Company purchased for $149,000 a put option with a
strike price of $16.50, covering the period February
through December 1996, to put to the purchaser an
aggregate of 257,000 barrels of oil in monthly amounts
escalating from 10,000 barrels to 35,000 barrels during
the contract period. The effects of all hedging
contracts resulted in a loss of $15,500 and a gain of
$4,000 during 1995 and 1994, respectively.
F-18<PAGE>
4. DISCONTINUED OPERATIONS:
In February 1993, the Company's Board of Directors
approved the purchase of the Duchesne County Fields
which focused the Company's business emphasis on oil
and gas production and away from precious metals
mining. Since March 1994, the Company's only remaining
mining operation has been the Toiyabe Mine. Since July
1992, activities at the Toiyabe Mine have been limited
to detoxification and reclamation procedures in
compliance with minimum standards established by
various governmental agencies.
During 1995, the Company focused operations on the
detoxification of leach pad #2 (the Toiyabe Mine has
two leach pads) and certain land recontouring
activities, incurring $434,000 of costs. The
detoxification process generally involves lowering the
constituent levels in leachate solution to
concentrations considered acceptable by the Nevada
Department of Environmental Protection (the "NDEP").
The Company applied for a permit and received
preliminary approval to land apply solutions in a
controlled manner with levels of certain constituents
above state drinking water standards. In October 1995,
the NDEP denied the Company's formal Land Application
Discharge Permit citing new concerns over the
hydrogeology of the application area and certain other
test conclusions. As a result, the Company must now
achieve state drinking water standards for all
constituents in the draindown solution. The Company
estimates that after considering the extra labor,
materials and holding costs required to achieve this
level of purification, between $575,000 and $900,000
will be expended over the five years subsequent to
December 31, 1995, and has established a reserve for
mine reclamation of $600,000. Although the ultimate
future reclamation cost is dependent upon certain
events which cannot be precisely predicted, the Company
believes that based on factors presently known or
anticipated, the current reserve of $600,000 will be
adequate to fully reclaim the Toiyabe Mine in
compliance with Nevada and federal laws. However,
F-19<PAGE>
should unforeseen circumstances arise that that cause
the closure timetable to be delayed or additional
labor, material and holding costs to be incurred,
future reclamation exposure could exceed $900,000.
Since the Company's business emphasis is no longer in
gold and silver mining, these operations have been
classified as discontinued operations in the
accompanying consolidated financial statements. Sales
of gold and silver during the years ended December 31,
1995 and 1994 were $0 and $78,400, respectively. The
remaining assets and liabilities attributable to
discontinued operations in the accompanying
consolidated balance sheets consist of:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Accounts payable and accrued
expenses $ (118,861) $(24,996)
Property reclamation costs,
short-term (200,000) (300,000)
----------- -----------
Net current liabilities related to
discontinued operations $ (318,861) $(324,996)
=========== ===========
Mining property and equipment,
net book value $ 0 $52,688
Property reclamation costs,
long-term (399,433) (283,670)
----------- -----------
Net long-term liabilities related
to discontinued operations $ (399,433) $(230,982)
============ ===========
</TABLE>
Big Blackfoot Property:
In October 1989, the Company purchased a 50% interest
in the Big Blackfoot property located near Lincoln,
F-20<PAGE>
Montana. Subsequently, the results of an environmental
impact study and other economic analysis showed that
the existing ore body could not be economically
produced. As a result of these analysis, the Company's
interest in the property was written down to its net
realizable value and held for sale. During the first
quarter of 1994, the Company sold its Big Blackfoot
holdings for approximately $222,500, which was equal to
the net carrying value of the properties sold.
5. RESTRICTED CASH:
Under the terms of certain loan agreements which are no
longer outstanding at December 31, 1995, loan proceeds
and oil and gas revenue were required to be deposited
in segregated bank accounts. The segregated funds could
be used only to pay lease operating expenses,
production taxes, approved capital expenditures,
principal and interest payments and certain other
costs. The total amount in the segregated accounts at
December 31, 1994 is reflected as restricted cash on
the accompanying consolidated balance sheet.
6. DEPARTMENT OF ENERGY COOPERATIVE COST SHARING
AGREEMENT:
On October 21, 1992, IPC and the U.S. Department of
Energy ("DOE") signed a cooperative cost sharing
agreement to further develop oil production and
reserves in the State of Utah using secondary water
flood recovery techniques. Total expenditures under the
three year program were expected to be $4.4 million, of
which the DOE would reimburse approximately $1.8
million to the Company. As of December 31, 1995,
substantially all expenditures under this program were
incurred. The Company expects to receive its final
reimbursement of $30,753 from the DOE during 1996.
7. ACQUISITION OF INLAND PRODUCTION COMPANY:
Effective September 21, 1994, the Company acquired all
the outstanding common and preferred stock of IPC by
issuing 7,704,508 shares of common stock and 107,546
shares of Series A convertible preferred stock (the
F-21<PAGE>
"Purchase Consideration"). IPC is engaged primarily in
the development of the Monument Butte Field located in
the Uinta Basin area of Northeastern Utah. At the
purchase date, IPC owned working interests varying from
4% to 100% in 8,508 net acres of oil and gas leases in
the Monument Butte Field; and also owned oil and gas
properties in the states of Wyoming and Oklahoma. The
acquisition was accounted for as a purchase.
The following unaudited condensed pro forma results of
operations is presented to illustrate the effect of the
merger with IPC on the Company's results of operations
as if the transaction had occurred at January 1, 1994.
<TABLE>
<CAPTION>
1994
-------------
<S> <C>
Revenues $ 1,547,000
=============
Costs and expenses $ 3,408,000
=============
Net loss from continuing
operations $ (2,016,000)
=============
Net loss $ (2,116,000)
=============
Loss per share from continuing
operations $ (.07)
=============
Loss per share $ (.08)
=============
</TABLE>
8. FARMOUT AGREEMENT:
Effective July 1, 1995, the Company entered into a
Farmout Agreement (the "Farmout") with a related party
(the "Farmee") covering the six month period through
December 31, 1995. Twenty-one wells totaling
approximately $6.8 million were drilled (of which 20
were completed and one was a dry hole) under the
Farmout in the Monument Butte Field. Under terms of the
Farmout, the interest in each drill site assigned to
F-22<PAGE>
the Farmee reverts to the Company after Payout. Payout
is defined on a lease basis as the point in time when
the Farmee has recovered through production proceeds,
net of production taxes, 100% of the cost to drill,
complete and operate the well or wells on the affected
lease plus a 22% annual rate of return. The Farmee is
also required to pay the Company a management fee of
$25,000 per well, proportionately reduced to the
Farmee's working interest and net of COPAS drilling
overhead charges, as reimbursement to the Company for
land, geological, engineering and accounting services.
Management fees of $326,178 were recorded for the
twenty-one wells drilled under the Farmout in 1995. At
December 31, 1995, the Farmee owned the Company $43,000
related to the Farmout.
On November 22, 1995, the Company entered into an
Option Agreement with the Farmee which allows the
Company the right to purchase the Farmout interests on
March 10, 1997 by issuing Common Stock of the Company.
The value of the Farmout interests on March 10, 1997
(the "Farmout Value") is computed using the Payout
calculation as defined in the Farmout. The number of
shares of the Company's Common Stock to be issued is
calculated by dividing the Farmout Value by a value of
$0.50 cents per Common Share. In addition, the Company
issued the Farmee a Warrant Certificate dated November
22, 1995 whereby if the Company does not exercise its
rights under the Option Agreement on March 10, 1997,
the Farmee has three days to purchase for cash the
number of shares of the Company's Common Stock equal to
the Farmout Value divided by a value of $0.50 cents per
Common Share. The Company expects to exercise the
Option Agreement since it is a requirement under the
TCW Loan Agreement. Subject to changes in oil price,
operating costs, production rates and other factors,
the Company estimates the Farmout Value on March 10,
1997 to be between $3.75 and $4.25 million, which would
cause the issuance of 7.5 million to 8.5 million new
shares of the Company's Common Stock.
9. OTHER PROPERTY AND EQUIPMENT:
Other property and equipment at December 31, 1995 and
F-23<PAGE>
1994 consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Mining property and equipment $ 0 $ 238,514
Furniture and fixtures 287,773 187,696
Vehicles 179,680 136,598
Land and buildings 290,041 66,683
------------ -----------
757,494 629,491
Less accumulated depreciation (164,388) (253,363)
------------ -----------
$ 593,106 $ 376,128
============ ===========
</TABLE>
10. LONG-TERM DEBT:
On August 24, 1994, the Company entered into a Loan
Agreement with Joint Energy Development Investments
Limited Partnership ("JEDI"), an affiliate of Enron
Corp., to provide nonrecourse financing for the
development of the Duchesne County Fields (the "Inland
Loan Agreement"). The Company had drawn down $2.5
million under the facility through July 1, 1995, the
date the Company sold the Duchesne County Fields to
Petroglyph Gas Partners, L.P. ("PGP"). The purchase
price paid by PGP was (i) $3 million in cash (less
$53,000 in net closing adjustments between the parties)
(ii) the assumption by PGP of the Company's $2.5
million outstanding liability under the Inland Loan
Agreement and (iii) the assignment by PGP to the
Company of PGP's 38.23% working interest in 8,277 gross
acres of oil and gas leases in Duchesne County, Utah.
JEDI consented to the sale and assumption of the Inland
Loan Agreement by PGP, therefore, Inland has no further
liability or obligation under the Inland Loan
Agreement.
On September 21, 1994, the Company entered into a
separate Loan Agreement with JEDI to provide
nonrecourse financing for the development of the
F-24<PAGE>
Monument Butte Field (the "IPC Loan Agreement").
Through November 29, 1995, the Company had drawn down
$4 million under the facility. On November 29, 1995,
the Company entered into a Credit Agreement (the "TCW
Loan Agreement") with Trust Company of the West and
affiliated entities (collectively "TCW"), which
provides a recourse loan facility to the Company of up
to $25 million for the development of the Monument
Butte Field. The Company drew down $5 million initially
and used the proceeds to repay $4,123,500 of principal
and interest in full satisfaction of amounts due under
the IPC Loan Agreement and to pay $400,000 of closing
costs associated with the TCW Loan Agreement, with the
balance of funds increasing working capital. The
remaining $20 million of loan availability will be used
to fund development drilling in the Monument Butte
Field during 1996. The TCW Loan Agreement provides that
the Company may borrow up to the additional $20 million
during the commitment period, which expires on
September 30, 1996, unless earlier terminated pursuant
to certain provisions. The TCW Loan Agreement bears
interest at 10% per annum. Interest is payable
quarterly beginning March 27, 1996 and minimum payments
of principal are required quarterly beginning March
1997. In addition to these payments the Company granted
TCW an equity yield enhancement in the form of an
initial 7% overriding royalty interest, proportionately
reduced to the Company's working interest in the oil
and gas properties, commencing November 29, 1995 and
continuing until the internal annual rate of return to
TCW equals 16%, at which time it reduces to 3% until
TCW's internal rate of return equals 22%. The TCW Loan
Agreement also subjects the Company to penalties if the
loan is prepaid prior to its second anniversary date of
November 29, 1997. The Company paid a $250,000
commitment fee at closing. The Company is also required
to meet certain minimum ratios, is subject to covenants
not to engage in various activities without TCW's
consent, and may not pay any dividends or make any
other distributions to stockholders without TCW's
consent. The TCW Loan Agreement also contains a
provision that if any material adverse change occurs in
the Company's financial condition that is not remedied
within 60 days, TCW has the right to declare the
F-25<PAGE>
Company in default. The TCW Loan Agreement is
collateralized by the Company's interest in
substantially all of its oil and gas and other
properties. Based on the borrowing rates available to
the Company for debt with similar terms and maturities
at December 31, 1995, the fair market value of the TCW
Loan Agreement approximates its carrying value. At
December 31, 1995, the Company had borrowed $5 million
under the TCW Loan Agreement and had established an
$800,000 discount on the note associated with the
initial 7% override.
On May 1, 1995, the Company purchased surface land in
the Monument Butte Field by entering into a loan
agreement (the "Carman Loan Agreement"). The agreement
terms included a payment at closing of $14,493 plus
annual payments of principal and interest of $26,800
due May 1st of each year for the next fourteen years.
Interest accrues at 9.5% per annum and the agreement is
collateralized by the purchased land.
Long-term debt December 31, 1995 and 1994 consists of
the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
TCW Loan Agreement $5,000,000
Less discount on TCW Loan
Agreement (800,000)
------------
4,200,000
Carman Loan Agreement 202,907
Non-recourse notes with Ford
Motor Credit. The notes
bear interest at 8.5% to
10.25% and are due through
1998. The notes require
monthly payments of $4,680
including interest and are
F-26<PAGE>
collateralized by vehicles. 81,339 75,913
Inland Loan Agreement 1,800,000
IPC Loan Agreement 2,100,000
Promissory notes with banks 147,086
---------- -----------
Total 4,484,246 4,122,999
Current portion 48,021 1,965,157
----------- -----------
Long-term portion $4,436,225 $2,157,842
=========== ===========
</TABLE>
As of December 31, 1995, the annual principal payments on
long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 $ 48,021
1997 1,133,000
1998 2,221,000
1999 1,712,000
2000 10,000
Thereafter 160,225
----------
Total $5,284,246
==========
</TABLE>
11. INCOME TAXES:
The Company accounts for income taxes under the
provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS
No. 109"). In 1995 and 1994, no income tax provision
or benefit was recognized due to net operating losses
incurred during the years and the recording of a full
valuation allowance.
Deferred income taxes reflect the impact of temporary
differences between amounts of assets and liabilities
for financial reporting purposes and such amounts as
F-27<PAGE>
measured by tax laws. The tax effect of the temporary
differences and carryforwards giving rise to the
Company's deferred tax assets and liabilities at
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Deferred
December 31, Expense December 31,
1994 (Benefit) 1995
----------- --------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Amortization of
deferred exploration
and mining costs $ 135,700 $ 135,700
Net operating loss
carryforwards 5,554,400 165,600 5,720,000
Other 55,300 55,300
------------- --------- -----------
Total 5,690,100 220,900 5,911,000
Valuation allowance (2,941,000) (191,000) (3,132,000)
------------- --------- ------------
Deferred tax assets 2,749,100 29,900 2,779,000
------------- --------- ------------
Deferred tax liabilities:
Depletion, depreciation
and amortization of
property and
equipment (2,528,100) (240,900) (2,769,000)
Department of Energy
refund (221,000) 211,000 (10,000)
------------ --------- -----------
Deferred tax
liabilities (2,749,100) (29,900) 2,779,000)
------------ --------- -----------
Net deferred tax asset - - -
============ ========= ===========
</TABLE>
F-28<PAGE>
SFAS No. 109 requires that a valuation allowance be
provided if it is more likely than not that some
portion or all of a deferred tax asset will not be
realized. The Company's ability to realize the benefit
of its tax assets will depend on the generation of
future taxable income through profitable operations and
expansion of the Company's oil and gas producing
properties. The market, capital, and environmental
risks associated with that growth requirement are
considerable resulting in the Company's conclusion that
a full valuation allowance be provided, except to the
extent that the benefit of operating loss carryforwards
can be used to offset future reversals of existing
deferred tax liabilities.
At December 31, 1995, the Company had tax basis net
operating loss carryforwards available to offset future
regular and alternative taxable income of $16,820,000
and $16,780,000, respectively, which expire from 1998
to 2010. The Company also has investment tax and new
jobs credit carryforwards of $175,000 and $6,000,
respectively, which expire from 1996 to 2001.
Utilization of the net operating loss carryforwards and
tax credit carryforwards are limited under the change
of ownership tax rules.
12. OVERHEAD FEES AND DIRECT CHARGES:
The Company charges working interest owners various
overhead and management fees on wells drilled and
operated under its supervision. As part of its working
interest, the Company incurs its proportionate share of
such fees as oil and gas lease operating expenses. The
total of overhead fees and other direct charges such as
labor and field charges which have been credited
against general and administrative expenses for the
year ended December 31, 1995 and 1994 are $1,105,000
and $240,880.
13. CAPITAL STOCK:
Common Stock:
In connection with the merger with IPC, the Company
F-29<PAGE>
increased the number of authorized common shares from
30,000,000 to 100,000,000 shares.
On March 22, 1996, the Company's Board of Directors
approved a 1-for-10 reverse stock split of the
Company's common stock. The effect of the stock split
would be to reduce authorized common shares from
100,000,000 to 10,000,000 shares and reduce outstanding
common shares from 40,927,999 to 4,092,800 shares. The
Board further approved an increase in the number of
post-split authorized shares from 10,000,000 shares to
25,000,000 shares. Consummation of the reverse stock
split and increase in post-split authorized common
shares remains subject to adoption by the stockholders
of the Company at the annual meeting of stockholders to
be held on May 22, 1996.
Series A Convertible Preferred Stock:
In connection with the merger with IPC, the Company
issued 107,546 shares of newly created Series A
convertible preferred stock. The Series A preferred
stock has a $50.00 per share liquidation preference
plus accumulated and unpaid dividends. The Series A
preferred stock was initially redeemable by the Company
at $50.00 per share. On August 25, 1995, the
redemption price increased to $54.00 per share and the
Company has recognized a $427,400 preferred stock
dividend on the Consolidated Statements of
Stockholders' Equity. On August 29, 1996, the
redemption price will further increase to $58.32 per
share. Beginning August 29, 1997, each share will
accrue cumulative cash dividends of 8% per annum based
on the redemption price or $4.66 per share. Each
Series A preferred share is currently convertible at
the option of the holder into 93.995 shares of the
Company's common stock. Currently, the Series A
preferred stockholders have the right to elect three of
the seven members of the Company's Board of Directors.
The Series A preferred stockholders also have the right
to vote as a separate class to approve any merger in
which the Company does not survive, the sale of all or
substantially all of the assets of the Company and the
issuance of any class of stock with rights equal or
F-30<PAGE>
senior to the Series A preferred stock.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during 1995 and 1994 was
$586,000 and $133,660, respectively.
The Company purchased land in the Monument Butte Field
by issuing debt for $202,907 in 1995.
The Company acquired all the outstanding capital stock
of IPC in 1994 by issuing the Purchase Consideration.
In conjunction with the acquisition, the following
liabilities were assumed:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 8,197,000
Fair value of Purchase
Consideration (6,840,000)
-----------
Liabilities assumed $ 1,357,000
===========
</TABLE>
15. RELATED PARTY TRANSACTIONS:
The chairman and chief financial officer of the Company
have participated as limited partners and/or working
interest owners of oil and gas properties in which the
Company has an interest. Effective October 1, 1994, as
required by the merger agreement, the Company purchased
these interests for an aggregate purchase price of
$86,870, which represented fair market value.
As of the effective date of the merger, a $100,000 Loan
Agreement existed between the Company and its chairman,
a director, its chief financial officer and others. On
September 30, 1994 the loan was fully repaid.
Prior to their affiliation with the Company and prior
to the Company's purchase of the Duchesne County
F-31<PAGE>
Fields, the Company's President and Chief Operating
Officer were hired as consultants by Evertson Oil
Company ("Evertson") to coordinate geological
evaluations of the Duchesne County Fields and to assist
Evertson in finding a development partner for its oil
and gas properties. These individuals exercised their
options to acquire 25% of the capital stock of Evertson
for an aggregate purchase price of $834. In March 1993,
Evertson sold a 50% interest in the Duchesne County
Fields to the Company. In February 1994, Evertson sold
its remaining 50% interest in the Duchesne County
Fields to PGP. In conjunction with the PGP transaction,
Evertson redeemed all the capital stock of Evertson
held by the Company's President and Chief Operating
Officer for $1,000,000.
16. COMMITMENTS:
The Company leases approximately 9,500 square feet of
office space in Denver. The lease expires in June 2000
and provides for a rental rate of $10,354 per month.
Future minimum rental payments under this lease are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 120,000
1997 124,000
1998 124,000
1999 124,000
2000 62,000
----------
$ 544,000
==========
</TABLE>
Total rent expense during 1995 and 1994 was $52,435 and
$43,564, respectively.
17. INCENTIVE STOCK OPTIONS, WARRANTS AND 401(K) PLAN:
On August 25, 1988, the Company's Board of Directors
adopted an incentive stock option plan (the "Plan") for
F-32<PAGE>
key employees and directors of the Company. During
1994, the number of authorized, but unissued shares of
common stock reserved for issuance under the Plan was
increased from 1,000,000 to 2,128,000. All options
under the Plan are granted at or above fair market
value, are exercisable 90 days after grant and expire
10 years from the date of grant. All options were
exercisable at December 31, 1995.
<TABLE>
<CAPTION>
Number of
Options Option Price
----------------------
<S> <C> <C>
Balance, December 31, 1993 730,500 $.25 - $1.15
Granted 292,000 $.31 - $ .44
Canceled (74,900) $.53 - $1.15
----------
Balance, December 31, 1994 947,600 $.25 - $1.15
Granted 557,000 $ .31 - $ .53
----------
Balance, December 31, 1995 1,504,600 $.25 - $1.15
==========
</TABLE>
Effective February 23, 1993, the Company entered into a
three-year employment agreement with the President and
Chief Executive Officer of the Company for an annual
base salary of $180,000. In addition, the Company
granted the President a five-year warrant to acquire
469,632 shares of the Company's common stock at an
exercise price of $0.4375 per share, and agreed for as
long as he is an executive officer of the Company to
grant him additional five-year warrants equal to 5% of
the number of shares issued by the Company in future
transactions with an exercise price equal to the price
at which such additional shares are issued. The
employment agreement is renewable for successive one
year terms, unless either party gives written notice of
such party's intention not to renew at least ninety
days prior to the termination of the current term;
provided, however, it is also subject to termination at
F-33<PAGE>
any time by either party by giving at least one year
prior written notice. No notice was given by either
party and, consequently, the employment agreement
automatically renewed for a one-year period expiring
February 23, 1997. If the agreement is terminated by
the Company without cause, the President is entitled to
one years' salary and bonus. Pursuant to this
agreement, the President has received the following
warrants:
<TABLE>
<CAPTION>
Exercise
Date Price Warrants
- ------------------------- ---------- ------------
<S> <C> <C>
October 15, 1993 $0.33 31,500
November 16, 1993 $0.50 15,000
March 3, 1994 $0.35 57,143
September 21, 1994 $0.35 300,000
September 21, 1994 $0.31 385,225
September 21, 1994 $0.60 448,108
February 1, 1995 $0.65 12,500
November 6, 1995 $0.50 300,000
</TABLE>
The Chief Financial Officer of the Company ("CFO")
entered into an employment agreement with the Company
at the closing of the merger with IPC providing for a
two year term, at a salary of $137,500. The employment
agreement also provides for medical and disability
benefits and certain other benefits. As part of his
employment agreement with the Company, the CFO was
granted an option for 200,000 shares of common stock
exercisable at $.3125, the closing "bid" price per
share at the closing IPC merger, and which expires 10
years after the date of grant. The CFO's employment
agreement is renewable for successive one year terms,
unless either party gives written notice of such
party's intention not to renew at least 90 days prior
to the termination of the current term; provided,
however, it is also subject to termination at any time
by either party by giving at least one year prior
written notice. If the CFO's agreement is terminated by
the Company without cause, he is entitled to one years'
F-34<PAGE>
salary and bonus.
The Chairman of the Board of the Company (the
"Chairman") entered into an employment agreement with
the Company at the closing of the merger with IPC
providing for a two year term, at a salary of $115,000.
The employment agreement also provided for medical and
disability benefits and certain other benefits. As part
of his employment agreement, the Chairman was entitled
to certain life insurance benefits and received an
overriding royalty interest in any oil, gas and mineral
lease previously acquired by IPC or which in the future
may be acquired by the Company, equal to 1% of the
lease interest acquired if such lease acquired relates
to a project developed by the Chairman. The agreement
provided that if the Chairman was terminated by the
Company without cause, he would be entitled to one
years' salary and bonus. Effective July 1, 1995, the
Company and the Chairman mutually agreed to terminate
his employment agreement and entered into a two year
Deferred Compensation Agreement providing for payment
of $70,000 per year to the Chairman, and which
continued his entitlement to health and life insurance
benefits until July 1, 1996 and his entitlement to the
overriding royalty interests earned prior to July 1,
1995.
On December 15, 1993, the Company entered into an
agreement with a consultant to provide services to the
Company in exchange for a retainer of $1,750 per month
plus the grant of an option to purchase 300,000 shares
of Common Stock at $0.50 per share. The option is
exercisable at the rate of 25,000 shares per quarter
commencing December 31, 1993 and must be fully
exercised before October 31, 1998, although if the
consultant's services are terminated, the portion of
the option not yet exercisable becomes permanently
unexercisable. In addition, if the average monthly
closing price of the Company's Common Stock exceeds
$2.00 per share, then the entire option is exercisable
immediately.
On March 15, 1995, the Company issued a different
consultant a warrant to purchase 250,000 shares of
F-35<PAGE>
common stock at $0.65 per share. The warrant is
exercisable immediately and expires February 1, 1998.
Effective February 1, 1995, the Company adopted a
qualified contributory retirement plan (the "Plan"),
under Section 401(k) of the Internal Revenue Code which
covers all full-time employees who meet certain
eligibility requirements. Voluntary contributions are
made to the Plan by participants. In addition, the
Company matches, at its discretion, a portion of the
participant's voluntary contribution. Matching
contributions of $14,300 were made by the Company in
1995.
18. OIL AND GAS PRODUCING ACTIVITIES:
<TABLE>
Major Customers
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Purchaser A $385,000 $520,000
Purchaser B 1,387,000 221,000
Purchaser C 277,000
</TABLE>
F-36<PAGE>
Costs Incurred in Oil and Gas Producing Activities
Costs incurred in oil and gas producing activities are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Unproved property
acquisition cost $ 7,238,000 $ 428,000
Proved property
acquisition cost 211,000 505,000
Development cost 2,050,000 2,500,000
Exploration cost 1,381,000 306,000
----------- -----------
Total $10,880,000 $ 3,739,000
=========== ===========
</TABLE>
Net Capitalized Costs
Net capitalized costs related to the Company's oil and
gas producing activities are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Unproved properties $ 8,508,421 $ 1,334,490
Proved properties 8,743,464 10,553,335
Gas and water
transportation
facilities 152,395 643,307
------------ ------------
Total 17,404,280 12,531,132
Accumulated depletion,
depreciation and
amortization (585,590) (489,840)
------------ ------------
Total $ 16,818,690 $ 12,041,292
============ ============
F-37<PAGE>
Oil and Gas Reserve Quantities (Unaudited):
The reserve information presented below is based upon
reports prepared by the independent petroleum
engineering firm of Ryder Scott Company. The Company
emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are
more imprecise than those of producing oil and gas
properties. As a result, revisions to previous
estimates are expected to occur as modifications are
made to development drilling criteria, additional
production data becomes available or economic factors
change.
Proved oil and gas reserves are the estimated
quantities of crude oil, natural gas, and natural gas
liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable
in future years from known reservoirs under existing
economic and operating conditions. Proved developed oil
and gas reserves are those expected to be recovered
through existing wells with existing equipment and
operating methods.
Presented below is a summary of the changes in
estimated reserves of the Company, all of which are
located in the United States, for the years ended
December 31, 1995 and 1994.
</TABLE>
<TABLE>
<CAPTION>
1995 1994
-------------------- ---------------------
Oil (Bbl) Gas (Mmcf) Oil (Bbl) Gas (MMcf)
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Proved reserves,
beginning of year 1,502,878 3,726 350,631 2,587
Purchase of reserves
in place 956,046 1,625
Extensions and
discoveries 2,422,129 5,033 100,135 88
Production (104,564) (109) (46,089) (171)
Revisions of previous
F-38<PAGE>
estimates (260,777) (891) 142,155 (403)
Sales of reserves in
place (543,687) (2,096)
---------- --------- --------- ---------
Proved reserves, end
of year 3,015,979 5,663 1,502,878 3,726
========== ========= ========= =========
Proved developed
reserves, beginning of
year 839,978 1,987 226,719 1,789
========== ========= ========= =========
Proved developed
reserves, end of
year 1,226,696 1,223 839,978 1,987
=========== ========= ========= =========
</TABLE>
Standardized Measure of Discounted Future Net Cash
Flows (Unaudited):
Statement of Financial Accounting Standards No. 69
prescribes guidelines for computing a standardized
measure of future net cash flow and changes therein
relating to estimated proved reserves. The Company has
followed these guidelines which are briefly discussed
below.
Future cash inflows and future production and
development costs are determined by applying year-end
prices and costs to the estimated quantities of oil and
gas to be produced. Estimated future income taxes are
computed using current statutory income tax rates
including consideration for estimated future statutory
depletion. The resulting future net cash flows are
reduced to present value amounts by applying a 10%
annual discount factor.
The assumptions used to compute the standardized
measure are those prescribed by the Financial
Accounting Standards Board and, as such, do not
necessarily reflect the Company's expectations of
actual revenues to be derived from those reserves nor
their present worth. The limitations inherent in the
F-39<PAGE>
reserve quantity estimation process, as discussed
previously, are equally applicable to the standardized
measure computations since these estimates are the
basis for the valuation process.
The following summary sets forth the Company's future
net cash flows relating to proved oil and gas reserves
based on the standardized measure prescribed in
Statement of Financial Accounting Standards No. 69.
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Future cash inflows $ 60,336,000 $ 31,607,000
Future production
costs (21,292,000) (12,308,000)
Future development
costs (15,819,000) (5,551,000)
Future income tax
provision (4,220,000) (1,006,000)
------------ ------------
Future net cash flows 19,005,000 12,742,000
Less effect of 10%
discount factor (9,574,000) (5,799,000)
------------ ------------
Standardized measure of
discounted future net
cash flows $ 9,431,000 $ 6,943,000
============ ============
</TABLE>
The principal sources of changes in the standardized
measure of discounted future net cash flows are as
follows for the years ended December 31, 1995 and 1994.
1995 1994
------------ ------------
Standardized measure,
beginning of year $ 6,943,000 $ 2,356,000
Purchase of reserves
in place 4,430,000
Sales of reserves in
F-40<PAGE>
place (3,187,000)
Sales of oil and gas
produced, net of
production costs (762,000) (58,000)
Net change in prices
and production costs 2,043,000 (600,000)
Extensions, discoveries
and improved recovery,
net 33,150,000 1,188,000
Revisions of previous
quantity estimates (6,240,000) 1,085,000
Change in future
development costs (13,064,000) (1,648,000)
Net change in income
taxes (3,738,000) 511,000
Accretion of discount (5,714,000) (321,000)
------------- ------------
Standardized measure,
end of year $ 9,431,000 $ 6,943,000
============= ============
F-41<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Exhibits Numbered
Page
2.1 Agreement and Plan of Merger between the
Company, IRI Acquisition Corp. and Lomax
Exploration Company ("IPC") (exclusive of
all exhibits) (Filed as exhibit 2.1 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by this reference).
3.1 Articles of Incorporation, as amended
through May 5, 1993 (filed as Exhibit 3.1 to
the Company's Registration Statement on Form
S-18, Registration No. 33-11870-F, and
incorporated herein by reference).
3.1.1 Articles of Amendment to Articles of
Incorporation dated May 6, 1993 (filed as
Exhibit 3.1.1 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1993, and incorporated herein
by reference).
3.1.2 Articles of Amendment to Articles of
Incorporation dated August 16, 1994
designating a series of stock (filed as
Exhibit 3.1.2 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein
by reference).
3.1.3 Articles of Amendment to Articles of
Incorporation filed with Secretary of State
of Washington on August 30, 1994 (filed as
Exhibit 3.1.3 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein
by reference).
(i)<PAGE>
3.1.4 Articles of Correction to Articles of
Amendment dated August 31, 1994 (filed as
Exhibit 3.1.4 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein
by reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2
to the Company's Registration Statement on
Form S-18, Registration No. 33-11870-F, and
incorporated herein by reference).
3.2.1 Amendment to Article IV, Section 1 of the
Bylaws of the Company adopted February 23,
1993 (filed as Exhibit 3.2.1 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and
incorporated herein by reference).
3.2.2 Amendment to the Bylaws of the Company
adopted April 8, 1994 (filed as Exhibit
3.2.2 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
3.2.3 Amendment to the Bylaws of the Company
adopted April 27, 1994 (filed as Exhibit
3.2.3 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
*4.1 Credit Agreement between the Company, IPC
and Trust Company of the West and various
affiliated entities (collectively, "TCW")
dated November 29, 1995 (exclusive of all
exhibits and schedules).
*4.1.2 Royalty Agreement dated November 29, 1995,
between IPC, TCW DR IV Royalty Partnership,
L.P. and TCW (exclusive of all exhibits and
schedules).
(ii)<PAGE>
*4.1.3 Conveyance of Adjustable Overriding Royalty
Interest dated November 29, 1995 between IPC
and TCW DR IV Royalty Partnership, L.P.
(exclusive of all exhibits and schedules).
*4.1.4 Deed of Trust, Mortgage, Line of Credit
Mortgage, Assignment, Security Agreement,
Fixture Filing and Financing Statement dated
November 29, 1995 between IPC, First
American Title Company of Utah, Trustee, and
TCW Asset Management Company, Collateral
Agent (exclusive of all exhibits and
schedules).
*4.1.5 Guaranty dated November 29, 1995, executed
by Inland Resources Inc. in favor of TCW and
other named parties.
10.1 1988 Option Plan of Inland Gold and Silver
Corp. (filed as Exhibit 10(15) to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988, and
incorporated herein by reference).
10.1.1 Amended 1988 Option Plan of Inland Gold and
Silver Corp. (filed as Exhibit 10.10.1 to
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.1.2 Amended 1988 Option Plan of the Company, as
amended through August 29, 1994 (including
amendments increasing the number of shares
to 2,128,000 and changing "formula award")
(filed as Exhibit 10.1.2 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and
incorporated herein by reference).
10.2 Warrant Agreement and Warrant Certificate
between Kyle R. Miller and the Company dated
February 23, 1993 (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K
dated February 23, 1993, and incorporated
(iii)<PAGE>
herein by reference).
10.2.1 Warrant Certificate between Kyle R. Miller
and the Company dated October 15, 1993
representing 31,500 shares (filed as Exhibit
10.2.1 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein
by reference).
10.2.2 Warrant Certificate between Kyle R. Miller
and the Company dated March 22, 1994
representing 57,142 shares (filed as Exhibit
10.2.2 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein
by reference).
10.2.3 Warrant Certificate between Kyle R. Miller
and the Company dated September 21, 1994
representing 448,108 shares (filed as
Exhibit 10.2.3 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
10.2.4 Warrant Certificate between Kyle R. Miller
and the Company dated September 21, 1994
representing 385,225 shares (filed as
Exhibit 10.2.4 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
10.2.5 Warrant Certificate between Kyle R. Miller
and the Company dated September 21, 1994
representing 300,000 shares (filed as
Exhibit 10.2.5 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
10.2.6 Amendment to Warrant Certificates filed as
Exhibits 10.2, 10.2.1 and 10.2.2 (filed as
(iv)<PAGE>
Exhibit 10.2.6 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1994, and incorporated
herein by reference).
*10.2.7 Warrant Certificate between Kyle R. Miller
and the Company dated November 16, 1993
representing 15,000 shares.
*10.2.8 Warrant Certificate between Kyle R. Miller
and the Company dated March 15, 1995
representing 12,500 shares.
*10.2.9 Warrant Certificate between Kyle R. Miller
and the Company dated November 6, 1995
representing 300,000 shares.
10.2.10 First Amendment to Warrant Agreement between
the Company and Kyle R. Miller dated October
19, 1995 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30,
1995, and incorporated herein by reference).
10.3 Employment Agreement between Kyle R. Miller
and the Company dated February 23, 1993
(filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated February
23, 1993, and incorporated herein by
reference).
10.4 Lease Agreement - Commercial Premises (short
form) dated August 12, 1988 by and between
Broadway Management Company and the Company,
together with Addendums to Lease dated
October 2, 1989, November 6, 1991 and March
8, 1993 (filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.5 Purchase and Sale Agreement between the
Company and Evertson Oil Company, Inc. dated
March 15, 1993 (filed as Exhibit 10.19 to
(v)<PAGE>
the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992, and
incorporated herein by reference).
10.6.1 Wrap Around Agreement between Petroglyph Gas
Partners, L.P. ("PGP") and the Company dated
January 31, 1994 (filed as Exhibit 10.20.1
to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31,
1993, and incorporated herein by reference).
10.6.2 Assignment of Purchase and Sale Agreement
from the Company to PGP (filed as Exhibit
10.20.2 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
December 31, 1993, and incorporated herein
by reference).
10.6.3 Ratification of Purchase and Sale Agreement
between Evertson Oil Company, Inc. and the
Company dated January 31, 1994 (filed as
Exhibit 10.20.3 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1993, and incorporated
herein by reference).
10.6.4 Letter from PGP to the Company dated January
28, 1994 (filed as Exhibit 10.20.4 to the
Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993, and
incorporated herein by reference).
10.6.5 Asset Purchase and Sale Agreement dated
August 25, 1995, but effective as of July 1,
1995, by and between the Company and PGP
(without exhibits) (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K
dated September 19, 1995, and incorporated
herein by reference).
10.6.6 Assignment and Assumption Agreement, First
Amendment to Loan Agreement, and
Confirmation of Documents dated September
19, 1995 by and between the Company, PGP and
(vi)<PAGE>
Joint Energy Development Investments Limited
Partnership (without exhibits) (filed as
Exhibit 10.2 to the Company's Current Report
on Form 8-K dated September 19, 1995, and
incorporated herein by reference).
10.7.1 Operating Agreement dated February 25, 1994
between the Company, PGP and Petroglyph
Operating Company, Inc. related to a portion
of the Duchesne County Fields (filed as
Exhibit 10.21.1 to the Company's Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1993, and incorporated
herein by reference).
10.7.2 Operating Agreement dated February 25, 1994
between the Company, PGP and Petroglyph
Operating Company, Inc. related to the
remainder of the Duchesne County Fields
(filed as Exhibit 10.21.2 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1993, and
incorporated herein by reference).
10.8 Cooperative Agreement between IPC and the
U.S. Department of Energy, and related
correspondence (filed as Exhibit 10.22 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.9 Employment Agreement between IPC and Bill I.
Pennington effective May 1, 1993, which was
replaced by Exhibit 10.9.1 (filed as Exhibit
10.23 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
10.9.1 Employment Agreement between the Company and
Bill I. Pennington dated September 21, 1994
(filed as Exhibit 10.9.1 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and
(vii)<PAGE>
incorporated herein by reference).
10.10 Employment Agreement between IPC and John D.
Lomax effective May 1, 1992 which was
replaced by Exhibit 10.10.1 (filed as
Exhibit 10.24 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
10.10.1 Employment Agreement between the Company and
John D. Lomax dated September 21, 1994
(filed as Exhibit 10.10.1 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and
incorporated herein by reference).
10.10.2 Deferred Compensation Agreement dated
effective July 1, 1995 between the Company
and John D. Lomax (filed as Exhibit 10.4 to
the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended June 30,
1995, and incorporated herein by reference).
*10.10.3 First Amendment to Deferred Compensation
Agreement dated effective December 1, 1995
between the Company, IPC and John D. Lomax.
10.11 Loan Agreement dated July 8, 1993 between
IPC and First Interstate Bank of Utah, N.A.
regarding $250,000 loan (filed as Exhibit
10.25 to the Company's Registration
Statement on Form S-4, Registration No. 33-80392,
and incorporated herein by reference).
10.11.1 Floating Rate Promissory Note dated July 8,
1993 in the amount of $250,000 executed by
IPC and representing the loan described in
Exhibit 10.11 (filed as Exhibit 10.25.1 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.11.2 Assignment of Monies Due and to Become Due
(viii)<PAGE>
dated July 8, 1993 executed by IPC and
relating to Exhibit 10.11 (filed as Exhibit
10.25.2 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
10.11.3 Continuing Guaranty dated July 8, 1993
executed by John D. Lomax and Bill I.
Pennington in favor of First Interstate Bank
of Utah, N.A. (filed as Exhibit 10.25.3 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.11.4 Deed of Trust, Mortgage, Assignment,
Security Agreement, and Financing Statement
executed by IPC dated July 19, 1993 securing
the obligations described in Exhibit 10.11
(filed as Exhibit 10.25.4 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.12 Loan Agreement dated June 1, 1994 between
IPC and John D. Lomax, Bill I. Pennington,
Jack N. Warren, Allan C. King and T Brooke
Farnsworth relating to $100,000 loan to IPC
(filed as Exhibit 10.26 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.12.1 Promissory Note dated June 1, 1994 payable
by IPC to the persons described in Exhibit
10.12 relating to the loan described in
Exhibit 10.12 (filed as Exhibit 10.26.1 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.12.2 Deed of Trust, Mortgage, Assignment,
Security Agreement, and Financing Statement
executed by IPC and securing the loan
(ix)<PAGE>
described in Exhibit 10.12 (filed as Exhibit
10.26.2 to the Company's Registration
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
10.12.3 Security Agreement executed by IPC and
securing the loan described in Exhibit 10.12
(filed as Exhibit 10.26.3 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.13 Subcontract Agreement between IPC and the
University of Utah dated September 25, 1992
(filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.14 Subcontract Agreement dated October 8, 1992
between IPC and the University of Utah
Research Institute (filed as Exhibit 10.28
to the Company's Registration Statement on
Form S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.15 Chevron Crude Oil Purchase Contract No.
531144 dated October 25, 1988, as amended by
Amendment No. 1 dated November 27, 1989,
Amendment No. 2 dated September 12, 1990,
Amendment No. 3 dated July 15, 1991,
Amendment No. 4 dated January 22, 1992,
Amendment No. 5 dated January 13, 1993, and
the March 4, 1992 letter from Chevron U.S.A.
Products Company to all Chevron Products
Company customers (filed as Exhibit 10.29 to
the Company's Registration Statement on Form
S-4, Registration No. 33-80392, and
incorporated herein by reference).
10.16 Lease dated March 30, 1993 between Marshall
Properties, Inc. and IPC (filed as Exhibit
10.30 to the Company's Registration
(x)<PAGE>
Statement on Form S-4, Registration No.
33-80392, and incorporated herein by
reference).
10.17 Agreement between IPC and Bill I. Pennington
(filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-4,
Registration No. 33-80392, and incorporated
herein by reference).
10.18 Subscription Agreement between the Company
and Smith Management Company dated May 12,
1994 (filed as Exhibit 10.34 to the
Company's Registration Statement on Form S-4,
Registration No. 33-80392, and
incorporated herein by reference).
10.18.1 Amendment to Subscription Agreement filed as
Exhibit 10.32, dated September 16, 1994
(filed as Exhibit 10.18.1 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and
incorporated herein by reference).
10.19 Registration Rights Agreement dated
September 21, 1994 between the Company and
Energy Management Corporation, a wholly
owned subsidiary of Smith Management Company
and the assignee of Smith Management Company
under the Subscription Agreement filed as
Exhibit 10.18 (filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and
incorporated herein by reference).
10.19.1 Correspondence constituting an
amendment/clarification of the Registration
Rights Agreement filed as Exhibit 10.19
(filed as Exhibit 10.19.1 to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994, and
incorporated herein by reference).
10.19.2 Registration Rights Agreement dated March
(xi)<PAGE>
20, 1995 between the Company and Energy
Management Corporation (filed as Exhibit
10.19.2 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
December 31, 1994, and incorporated herein
by reference).
10.20 Swap Agreement dated August 4, 1994 between
the Company and Enron Risk Management
Services Corp.(filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended September 30,
1994, and incorporated herein by reference).
10.21 Swap Agreement dated August 26, 1994 between
the Company and JEDI (filed as Exhibit 10.2
to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended
September 30, 1994, and incorporated herein
by reference).
10.22 Swap Agreement dated August 4, 1994 between
IPC and Enron Risk Management Services Corp.
(filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-QSB for the
fiscal quarter ended September 30, 1994, and
incorporated herein by reference).
10.23 Subscription Agreement between the Company
and Pengo Securities Corp. dated October 23,
1995, without exhibits (filed as Exhibit
10.1 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.23.1 Registration Rights Agreement between the
Company and Pengo Securities Corp. dated
November 6, 1995 (filed as Exhibit 10.2 to
the Company's Current Report on Form 8-K
dated November 6, 1995, and incorporated
herein by reference).
10.24 Combined Hydrocarbon Lease between IPC and
the U.S. Department of the Interior, Bureau
(xii)<PAGE>
of Land Management ("Bureau") dated
effective October 18, 1995 relating to
677.36 acres (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K dated
November 6, 1995, and incorporated herein by
reference).
10.25 Combined Hydrocarbon Lease between IPC and
the Bureau dated effective October 18, 1995
relating to 2,879.94 acres (filed as Exhibit
10.4 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.26 Combined Hydrocarbon Lease between IPC and
the Bureau dated effective October 18, 1995
relating to 647.32 acres (filed as Exhibit
10.5 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.27 Combined Hydrocarbon Lease between IPC and
the Bureau dated effective October 18, 1995
relating to 1,968.01 acres (filed as Exhibit
10.6 to the Company's Current Report on Form
8-K dated November 6, 1995, and incorporated
herein by reference).
10.28 Farmout Agreement between IPC, the Company
and Randall D. Smith, dated effective July
1, 1995 (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 1995,
and incorporated herein by reference).
*10.29 Option Agreement dated November 22, 1995
between the Company, IPC and Randall D.
Smith.
*10.29.1 Warrant Certificate dated November 22, 1995
granted by the Company to Randall D. Smith,
together with Exhibit "A", a Registration
Rights Agreement.
(xiii)<PAGE>
*10.30 Crude Oil Call/Put Option (Costless Collar)
between IPC and Koch Gas Services Company
dated November 20, 1995.
10.31 Swap Agreement dated November 22, 1994
between the Company and Joint Energy
Investments Limited Partnership (filed as
Exhibit 10.1 to the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended June 30, 1995, and incorporated herein
by reference).
*10.31.1 Termination Agreement Revised dated January
18, 1996 between the Company and Enron
Capital & Trade Resources Corp. ("ECT")
relating to Exhibit 10.31.
10.32 Swap Agreement dated January 18, 1995
between the Company and ECT (filed as
Exhibit 10.2 to the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended June 30, 1995, and incorporated herein
by reference).
*10.33 Put Option dated January 18, 1996 between
the Company and ECT.
*10.34 Commodity Option dated January 18, 1996
between IPC and ECT.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Ryder Scott Company Petroleum
Engineers.
*27.1 Financial Data Schedule required by Item 601
of Regulation S-B.
________________________
* Filed herewith.
(xiv)
<PAGE>
EXHIBIT 4.1<PAGE>
CREDIT AGREEMENT
AMONG
INLAND PRODUCTION COMPANY and INLAND RESOURCES INC.
TRUST COMPANY OF THE WEST,
as Agent
and
TCW ASSET MANAGEMENT COMPANY,
as Collateral Agent
and
THE TCW DEBT AND ROYALTY FUNDS IV
$25,000,000
November 29, 1995
TABLE OF CONTENTS
Page
ARTICLE I - Definitions and References . . . . . . . . . . . . 1
Section 1.1. Defined Terms . . . . . . . . . . . . . . . 1
Section 1.2. Exhibits and Schedules; Additional
Definitions. . . . . . . . . . . . . . . . . . . . . 14
Section 1.3. Amendment of Defined Instruments. . . . . . 14
Section 1.4. References and Titles . . . . . . . . . . . 14
Section 1.5. Calculations and Determinations . . . . . . 15
ARTICLE II - The Loan. . . . . . . . . . . . . . . . . . . . . 15
Section 2.1. Advances. . . . . . . . . . . . . . . . . . 15
Section 2.2. Advance Amounts . . . . . . . . . . . . . . 17
Section 2.3. Requests for Advances . . . . . . . . . . . 17
Section 2.4. Use of Proceeds . . . . . . . . . . . . . . 17
Section 2.5. Financing Fees. . . . . . . . . . . . . . . 17
Section 2.6. Minimum Principal Payments. . . . . . . . . 18
Section 2.7. Principal Payments from ANCF. . . . . . . . 18
Section 2.8. Optional Prepayments. . . . . . . . . . . . 18
Section 2.9. General Payment Provisions. . . . . . . . . 19
Section 2.10. Royalty. . . . . . . . . . . . . . . . . . 19
ARTICLE III - Conditions Precedent to Lending. . . . . . . . . 20
Section 3.1. Documents to be Delivered . . . . . . . . . 20
Section 3.2. Special Conditions Precedent. . . . . . . . 21
Section 3.3. Development of Properties . . . . . . . . . 22
Section 3.4. Acquisitions. . . . . . . . . . . . . . . . 22
Section 3.5. General Conditions Precedent. . . . . . . . 23
ARTICLE IV - Representations and Warranties. . . . . . . . . . 24
Section 4.1. Borrower's and Parent's Representations
and Warranties . . . . . . . . . . . . . . . . . . . 24
Section 4.2. Representation and Disclosures by TCW . . . 28
ARTICLE V - Covenants of Borrower. . . . . . . . . . . . . . . 28
Section 5.1. Affirmative Covenants . . . . . . . . . . . 28
Section 5.2. Negative Covenants. . . . . . . . . . . . . 37
Section 5.3. Coverage Ratio. . . . . . . . . . . . . . . 41
ARTICLE VI - Security. . . . . . . . . . . . . . . . . . . . . 41
Section 6.1. The Security. . . . . . . . . . . . . . . . 41
Section 6.2. Agreement to Deliver Security Documents . . 41
Section 6.3. Perfection and Protection of Security
Interests and Liens. . . . . . . . . . . . . . . . . 42
Section 6.4. Production Proceeds . . . . . . . . . . . . 42
Section 6.5. Appointment of Agent and Collateral Agent . 43
Section 6.6. Release of Collateral by TCW. . . . . . . . 47
ARTICLE VII - Events of Default and Remedies . . . . . . . . . 47
Section 7.1. Events of Default . . . . . . . . . . . . . 47
Section 7.2. Remedies. . . . . . . . . . . . . . . . . . 50
Section 7.3. Indemnity . . . . . . . . . . . . . . . . . 50
Section 7.4. Substitution of Operator. . . . . . . . . . 51
ARTICLE VIII - Miscellaneous . . . . . . . . . . . . . . . . . 52
Section 8.1. Waivers and Amendments; Acknowledgments . . 52
Section 8.2. Survival of Agreements; Cumulative Nature . 53
Section 8.3. Notices . . . . . . . . . . . . . . . . . . 54
Section 8.4. Parties in Interest . . . . . . . . . . . . 55
Section 8.5. GOVERNING LAW; SUBMISSION TO PROCESS. . . . 55
Section 8.6. Limitation on Interest. . . . . . . . . . . 55
Section 8.7. Termination; Limited Survival . . . . . . . 56
Section 8.8. Severability. . . . . . . . . . . . . . . . 57
Section 8.9. Counterparts. . . . . . . . . . . . . . . . 57
SECTION 8.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES,
ETC. . . . . . . . . . . . . . . . . . . . . . . . . 57
SCHEDULE 1 - Disclosure Schedule
SCHEDULE 2 - Security Schedule
SCHEDULE 3 - Insurance Schedule
SCHEDULE 4 - Hedging Strategy
EXHIBIT A - Note
EXHIBIT B - Request for Advance
EXHIBIT C - Certificate Accompanying Financial Statement
EXHIBIT D - Approval Letter
EXHIBIT E - Opinion of Borrower's and Parent's Counsel
EXHIBIT F - Mortgage
EXHIBIT G - Royalty Agreement
EXHIBIT H - Parent Guaranty
EXHIBIT I - Plan of Development<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of November 29, 1995, by
and among Inland Production Company, a Texas corporation (herein
called "Borrower"), Inland Resources Inc., a Washington
corporation (herein called "Parent"), Trust Company of the West,
as Agent, TCW Asset Management Company, as Collateral Agent, and
TCW (as defined below). In consideration of the mutual covenants
and agreements contained herein the parties hereto agree as
follows:
ARTICLE I - Definitions and
References
Section 1.1. Defined Terms. As used in this Agreement,
each of the following terms has the meaning given it in this
Section 1.1 or in the sections and subsections referred to below:
"Acquisition Proposal" means a proposal to TCW from Borrower
describing a proposed acquisition of properties to be acquired
with the proceeds of an Advance. Each Acquisition Proposal must
be acceptable to TCW in substance, form and detail and must at
least set out:
(a) the properties which are to be acquired with the
proceeds of the Advance, the terms of the proposed
acquisition, and a timetable for the closing of the
acquisition.
(b) a reserve engineering report, prepared by
independent petroleum engineers acceptable to TCW concerning
the properties to be acquired with the Advance.
(c) any such other information that TCW requests.
"Advance" has the meaning given it in Schedule 2.1.
"Affiliate" means, as to any Person, (a) any Person directly
or indirectly owning, controlling or holding with power to vote
10% or more of the outstanding voting securities of such Person,
(b) any Person 10% or more of whose outstanding voting securities
are directly or indirectly owned, controlled or held with power
to vote by such Person, (c) any Person directly or indirectly
controlling, controlled by or under common control with such
Person, and (d) any officer, director, partner or sanguinal or
affinal kin of such Person or any Person described above in
clause (c) of this paragraph.
"Agent" has the meaning given it in Section 6.5.
"Agreement" means this Credit Agreement.
"ANCF" (or "Adjusted Net Cash Flow") means the remainder of:
(i) the sum of all revenues and receipts of Borrower or
Parent from any source or activity (excluding only (a) funds
received by Borrower or Parent from Approved Sales or
Financings or by Borrower from Advances hereunder or from
capital contributions from Parent on or before the date
hereof, and (b) funds belonging to third parties, such as
payments on the Royalties belonging to Royalty Assignee,
which are received by Borrower for transfer to such third
parties) accounted for under GAAP during any Calculation
Quarter, beginning with the Calculation Quarter which starts
December 1, 1995, minus
(ii) the sum of all expenses and expenditures, net to
Borrower's interest, accounted for under GAAP during such
Calculation Quarter (excluding any payments financed by
funds described in clause (a) of subparagraph (i) above)
for:
(a) Direct Taxes on Borrower's Properties or on
the Royalties,
(b) delay rentals payable with respect to
Borrower's Properties,
(c) interest on the Loan,
(d) expenses and other amounts (excluding interest
and principal) then due and owing under Sections 5.1(i)
or 7.3 hereof or under any similar sections of any
other Loan Documents,
(e) ANCF Capital Expenditures,
(f) ANCF LOE,
(g) ANCF Overhead Costs; or
(h) ANCF Transportation Costs.
"ANCF Capital Expenditures" means capital expenditures made
or to be made by Borrower on the Eligible Mortgaged Properties,
to the extent the same either (a) have been approved by TCW,
Agent or Collateral Agent at the time in question by means of an
Approval Letter, or (b) are included in the Plan of Development,
as then in effect.
"ANCF LOE" means leasehold operating expenses and other
field level or lease level charges for operations on the Eligible
Mortgaged Properties, other than capital expenditures, to the
extent the same have been approved by TCW, Agent or Collateral
Agent at the time in question by means of an Approval Letter.
"ANCF Overhead Costs" means general and administrative
costs, costs of implementing the Hedging Strategy, and other
costs of Borrower and Parent, to the extent the same have been
approved by TCW, Agent or Collateral Agent at the time in
question by means of an Approval Letter.
"ANCF Transportation Costs" means (a) the actual costs of
gathering and transporting production from the Eligible Mortgaged
Properties from the wellhead to the point of sale, provided that
all such costs are negotiated with, and paid to, third parties in
arms-length transactions on terms which are reasonable in the
area of operations at the time such prices are agreed to, or (b)
other transportation or marketing costs, to the extent the same
have been approved by TCW, Agent or Collateral Agent at the time
in question by means of an Approval Letter.
"Approval Letter" means a letter given by TCW, Agent or
Collateral Agent in the form of Exhibit D.
"Approved Sales or Financings" means any sale of Properties
or other assets owned by Borrower or any borrowing by Borrower
(either with TCW or a third party) which is from time to time
approved by TCW, Agent or Collateral Agent and which TCW, Agent
or Collateral Agent designates as an "Approved Sale or Financing"
in its approval.
"Borrower" means Inland Production Company, a Texas
corporation.
"Business Day" means a day, other than a Saturday or Sunday,
on which commercial banks are open for business with the public
both in the State of California and in the State of Colorado.
"Calculation Quarter" means the three month period (December
through February, March through May, June through August, or
September through November) immediately prior to each Quarterly
Payment Date.
"Collateral" means all property of any kind which is subject
to a Lien in favor of TCW or Collateral Agent or which, under the
terms of any Security Document, is purported to be subject to
such a Lien.
"Collateral Agent" has the meaning given it in Section 6.5.
"Commitment Period" means the period from and including the
date hereof until and including the earliest to occur of:
(a) September 30, 1996, (b) a Coverage Deficiency which is not
cured within the 30 day period required in Section 5.3, (c) the
election by TCW, made during the continuance of an Event of
Default by notice given to Borrower, to terminate the Commitment
Period, or (d) the day on which any Note first becomes due and
payable in full.
"Consolidated" refers to the consolidation of Parent,
Borrower or any other Related Person, in accordance with GAAP,
with its properly consolidated subsidiaries. References herein
to a Person's Consolidated financial statements, financial
position, financial condition, liabilities, etc. refer to the
consolidated financial statements, financial position, financial
condition, liabilities, etc. of such Person and its properly
consolidated subsidiaries. "Consolidating", when used with
reference to the financial statements of Parent, means the
financial statements of Parent and its properly consolidated
subsidiaries, presented in a manner acceptable to Agent which (a)
shows the net intercompany transactions between each of Parent
and such subsidiaries and (b) presents substantially the same
information with respect to Borrower which would be presented on
individual financial statements of Borrower.
"Coverage Default" has the meaning given it in Section 5.3.
"Coverage Deficiency" has the meaning given it in
Section 5.3.
"Coverage Ratio" has the meaning given it in Section 5.3.
"Debt" means, as to any Person, all indebtedness,
liabilities and obligations of such Person, whether matured or
unmatured, liquidated or unliquidated, primary or secondary,
direct or indirect, absolute, fixed or contingent, and whether or
not required to be considered pursuant to GAAP.
"Dedication Percentage" means ninety percent (90%), provided
that while any Coverage Deficiency, Coverage Default, or Event of
Default exists the Dedication Percentage shall be one hundred
percent (100%); provided that in the event of any Coverage
Deficiency, the Dedication Percentage shall remain 90% so long as
(a) 90% of ANCF is sufficient to pay in full, or Borrower
otherwise pays in full, the minimum principal payment required
for the applicable Quarterly Payment Date and (b) such Coverage
Deficiency is either the first or second Coverage Deficiency.
"Default" means any Coverage Default, any Event of Default,
and any default, event or condition which would, with the giving
of any requisite notices and the passage of any requisite periods
of time, constitute an Event of Default.
"Direct Taxes" means any severance, ad valorem, or other
direct taxes on the Properties or the production therefrom or the
proceeds of such production; provided that federal, state or
local income or franchise taxes shall in no event be considered
to be Direct Taxes.
"Disclosure Materials" means (a) the Plan of Development,
(b) Schedule 1 hereto and (c) any documents listed on Schedule 1
and expressly incorporated therein by reference, so long as
Borrower has heretofore delivered true and correct copies of such
documents to TCW, Agent or Collateral Agent. Insofar as any
representations and warranties made herein are incorporated by
reference or otherwise remade in Loan Documents delivered as of a
date after the date hereof, the term "Disclosure Material" shall
in such representations and warranties be deemed to refer as well
to all other documents which Borrower has at the time in question
delivered to TCW, Agent or Collateral Agent under Section 5.1(b)
or which Borrower has at such time delivered to TCW, Agent or
Collateral Agent and expressly designated as being "Disclosure
Materials" hereunder; provided that the delivery of such
Disclosure Materials after the date hereof shall not be deemed to
cure any prior breach of or inaccuracy in any representation or
warranty.
"Eligible Mortgaged Properties" means, collectively, those
Properties (excluding the Royalties) which (a) are owned by
Borrower and mortgaged to Collateral Agent under a Mortgage, (b)
are subject to a Royalty Conveyance, and (c) for which Collateral
Agent has received title opinions and other title information
concerning such Properties in form, substance and authorship
satisfactory to Collateral Agent.
"Engineering Report" means the Initial Engineering Report
and each engineering report delivered pursuant to Section
5.1(b)(v).
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including ambient air,
surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution use, treatment,
storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title
IV of ERISA maintained by any Related Person or any Affiliate
thereof with respect to which Borrower or Parent has any fixed or
contingent liability.
"Event of Default" has the meaning given it in Section 7.1.
"Fiscal Quarter" means a three-month period ending on
March 31, June 30, September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on
December 31 of any year.
"GAAP" means those generally accepted accounting principles
and practices which are recognized as such by the Financial
Accounting Standards Board (or any generally recognized
successor).
"Hazardous Materials" means any substances regulated under
any Environmental Law, whether as pollutants, contaminants, or
chemicals, or as industrial, toxic or hazardous substances or
wastes, or otherwise.
"Hedging Contract" shall mean (a) any rate swap agreement,
basis swap agreement, forward rate agreement, commodity swap
agreement, interest rate option, forward foreign exchange
agreement, cap agreement, floor agreement, collar agreement,
cross-currency rate swap agreement, or currency option, (b) any
option, futures or forward contract traded on an exchange, (c)
any other derivative agreement or similar agreement or
arrangement, and (d) any sales contract, purchase contract,
exchange contract, or other contract or arrangement which
obligates any Related Person to pay or suffer penalties or
damages for failure to purchase, sell or deliver specified
quantities of Hydrocarbons (excluding only normal imbalance
penalties imposed by pipelines for failure to meet monthly
nominations made in the ordinary course of business).
"Hedging Strategy" means the hedging strategy of Borrower
which is attached hereto as Schedule 4. Part One of the Hedging
Strategy describes certain minimum hedging arrangements and
Hedging Contracts which Borrower has implemented or committed to
implement, and Part Two of the Hedging Strategy describes the
maximum hedging arrangements and Hedging Contracts which Borrower
is permitted to enter into without first obtaining the consent of
TCW, Agent or Collateral Agent hereunder.
"Highest Lawful Rate" means the maximum nonusurious rate of
interest that TCW is permitted under applicable law to contract
for, take, charge, or receive with respect to the Obligation in
question.
"Holders" means the holders of the Notes from time to time.
"Hydrocarbons" means crude oil, natural gas or other liquid
or gaseous hydrocarbons.
"Initial Engineering Report" means the engineering report
concerning oil and gas properties of Borrower as of July 1, 1995,
prepared by Ryder Scott Company.
"Initial Financial Statements" means (i) the audited annual
Consolidated financial statements of Parent dated as of December
31, 1994, and (ii) the unaudited quarterly Consolidating
financial statements of Parent dated as of September 30, 1995.
"Initial Funding Date" means the date on which the first
Advance or Advances are made.
"JEDI" means Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership.
"Late Payment Rate" means, at the time in question, twelve
percent (12.0%) per annum, provided, however, that the Late
Payment Rate shall in no event exceed the Highest Lawful Rate.
"Lien" means, with respect to any property or assets, any
right or interest therein of a creditor to secure Debt owed to
him or any other arrangement with such creditor which provides
for the payment of such Debt out of such property or assets or
which allows him to have such Debt satisfied out of such property
or assets prior to the general creditors of any owner thereof,
including any lien, mortgage, security interest, pledge, deposit,
production payment, rights of a vendor under any title retention
or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other
charge or encumbrance for security purposes, whether arising by
law or agreement or otherwise, but excluding any right of offset
which arises without agreement in the ordinary course of
business. "Lien" also means any filed financing statement, any
registration of a pledge (such as with an issuer of unregistered
securities), or any other arrangement or action which would serve
to perfect a Lien described in the preceding sentence, regardless
of whether such financing statement is filed, such registration
is made, or such arrangement or action is undertaken before or
after such Lien exists.
"Loan" has the meaning given it in Section 2.1.
"Loan Documents" means this Agreement, the Notes, the
Security Documents, and all other agreements, certificates,
documents, instruments and writings at any time delivered in
connection herewith or therewith (exclusive of the Royalty
Documents and all term sheets, commitment letters, correspondence
and similar documents used in the negotiation hereof, except to
the extent the same contain information about Borrower or its
Affiliates, properties, business or prospects).
"Maximum Loan Amount" means $25,000,000.
"Modified NPV" means, at the time in question, based on the
then most recent calculations of NPV, the sum of:
(a) the NPV of 90% to 100% (as chosen at such time by
TCW or Agent in its sole and absolute discretion) of any
Proved Developed Producing Reserves attributable to the
Eligible Mortgaged Properties, plus
(b) the NPV of 75% to 90% (as chosen at such time by
TCW or Agent in its sole and absolute discretion) of any
Proved Developed Nonproducing Reserves attributable to the
Eligible Mortgaged Properties, plus
(c) the NPV of 55% to 90% (as chosen at such time by
TCW or Agent in its sole and absolute discretion) of any
Proved Undeveloped Reserves attributable to the Eligible
Mortgaged Properties, minus
(d) the present value, discounted at 10% per annum, of
the ANCF Overhead Costs, as calculated by TCW or Agent;
provided that:
(i) Modified NPV shall be zero for any such Proved
Developed Nonproducing Reserves or Proved Undeveloped
Reserves (1) which are not estimated to be brought into
production by December 1, 1999, or (2) for which Borrower
does not demonstrate to TCW's satisfaction that capital
funding will be available to bring such reserves into
production;
(ii) the aggregate contribution to Modified NPV from
the sum of the amounts determined under clauses (b) and (c)
above shall not at any time after December 31, 1996 exceed
fifty percent (50%) of Modified NPV; and
(iii) for so long as no Default is continuing, for the
purpose of this definition (but for no other purpose) the
ANCF Overhead Costs for the period prior to January 1, 1997
shall be deemed to be zero and no deductions shall be made
therefor under clause (d) above.
No category of reserves other than Proved Reserves shall be taken
into account in determining Modified NPV.
"Mortgage" means each Deed of Trust, Mortgage, Line of
Credit Mortgage, Assignment, Security Agreement, Fixture Filing
and Financing Statement, substantially in the form of Exhibit F,
which Borrower or Parent executes and delivers to Collateral
Agent in connection herewith.
"Notes" has the meaning given it in Section 2.1.
"NPV" means, with respect to any Proved Reserves expected to
be produced from any Properties, the net present value,
discounted at 10% per annum, of the future net revenues expected
to accrue to Borrower's and Royalty Assignee's collective
interests in such reserves during the remaining expected economic
lives of such reserves. NPV means, with respect to Borrower's or
Royalty Assignee's separate interests in such Proved Reserves,
the net present value, discounted at 10% per annum, of the future
net revenues expected to accrue to such separate interests in
such reserves during the remaining expected economic lives of
such reserves. Each calculation of such expected future net
revenues shall be made in accordance with the then existing
standards of the Society of Petroleum Engineers, provided that in
any event (i) appropriate deductions shall be made for Direct
Taxes, operating, gathering, transportation and marketing costs,
and ANCF Capital Expenditures required for the production and
sale of such reserves (provided that only "Permissible Charges",
as defined in the Royalty Conveyances, shall be deducted in
calculating the NPV of any interest of Royalty Assignee), and
(ii) the pricing assumptions and escalations used in determining
NPV for any particular reserves shall be the TCW Pricing. NPV
shall be calculated hereunder in connection with each Engineering
Report, either by Borrower, TCW or the engineering firm who
prepares such Engineering Report; in the event of any conflict,
TCW's calculation shall be conclusive and final.
"Obligations" means the sum of (a) all Debt from time to
time owing by any of the Related Persons to TCW, Collateral
Agent, the TCW Funds, the Holders, or Royalty Assignee under or
pursuant to any of the Transaction Documents, plus (b) all other
Debt from time to time owing by any of the Related Persons to any
of TCW, Collateral Agent, the TCW Funds, the Holders, or Royalty
Assignee. "Obligation" means any part of the Obligations.
"Parent" means Inland Resources Inc., a Washington
corporation.
"Parent Guaranty" means the Guaranty of even date herewith,
made by Parent for the benefit of TCW in the form of Exhibit H.
"Permitted Investments" means investments:
(a) in open market commercial paper, maturing within
270 days after acquisition thereof, which has the highest or
second highest credit rating given by either Standard &
Poor's Ratings Group, a division of McGraw Hill, Inc. or
Moody's Investors Service, Inc.
(b) in marketable obligations, maturing within 12
months after acquisition thereof, issued or unconditionally
guaranteed by the United States of America or an
instrumentality or agency thereof and entitled to the full
faith and credit of the United States of America.
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the
date of deposit thereof, with any office of a domestic
office of any national or state bank or trust company which
is organized under the laws of the United States of America
or any state therein, which has capital, surplus and
undivided profits of at least $500,000,000, and whose
certificates of deposit have at least the third highest
credit rating given by either Standard & Poor's Ratings
Group, a division of McGraw Hill, Inc. or Moody's Investors
Service, Inc.
"Person" means an individual, corporation, partnership,
association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint
venture, court or governmental unit or any agency or subdivision
thereof, or any other legally recognizable entity.
"Plan of Development" or "POD" means the Plan of Development
attached hereto as Exhibit I, as such is modified or replaced
from time to time by agreement between Borrower and TCW, Agent or
Collateral Agent. Each POD shall be automatically terminated
whenever Borrower has drilled two dry holes after November 29,
1995 in the course of attempting to carry out the POD (provided
that Borrower and TCW, Agent or Collateral Agent may in their
sole and absolute discretion thereafter agree on a substitute
plan to be the POD).
"Probable Reserves" means "Probable Reserves" as defined in
the Definitions for Oil and Gas Reserves promulgated by the
Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question.
"Prohibited Lien" means any Lien not expressly allowed under
Section 5.2(b).
"Properties" means, collectively, those undivided interests
in oil and gas properties and interests which are, at the time in
question (a) owned by Borrower, or (b) owned by Royalty Assignee
under a Royalty Conveyance.
"Proved Reserves" means "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves (in this paragraph, the
"Definitions") promulgated by the Society of Petroleum Engineers
(or any generally recognized successor) as in effect at the time
in question. "Proved Developed Producing Reserves" means Proved
Reserves which are categorized as both "Developed" and
"Producing" in the Definitions, "Proved Developed Nonproducing
Reserves" means Proved Reserves which are categorized as both
"Developed" and "Nonproducing" in the Definitions, and "Proved
Undeveloped Reserves" means Proved Reserves which are categorized
as "Undeveloped" in the Definitions.
"Quarterly Payment Date" means the third to last Business
Day in each Fiscal Quarter, beginning with March 27, 1996.
"Requisite Holders" has the meaning given it in Section
6.5(c).
"Related Person" means any of Parent, Borrower and each
Subsidiary of Parent.
"Request for Advances" means a written request made by
Borrower which meets the requirements of Section 2.3.
"Restricted Debt" of any Person means Debt in any of the
following categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the
deferred purchase price of property or services,
(c) Debt evidenced by a bond, debenture, note or
similar instrument,
(d) Debt which (i) would under GAAP be shown on such
Person's balance sheet as a liability, and (ii) is payable
more than one year from the date of creation thereof (other
than reserves for taxes and contingent obligations),
(e) Debt arising under a Hedging Contract,
(f) Debt constituting principal under leases
capitalized in accordance with GAAP,
(g) Debt arising under conditional sales or other
title retention agreements,
(h) Debt owing under direct or indirect guaranties of
Debt of any other Person or constituting obligations to
purchase or acquire or to otherwise protect or insure a
creditor against loss in respect of Debt of any other Person
(such as obligations under working capital maintenance
agreements, agreements to keep-well, or agreements to
purchase Debt, assets, goods, securities or services), but
excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection,
(i) Debt with respect to letters of credit or
applications or reimbursement agreements therefor,
(j) Debt with respect to payments received in
consideration of oil, gas, or other minerals yet to be
acquired or produced at the time of payment (including
obligations under contracts to deliver gas in return for
payments already received and the undischarged balance of
any production payment created by such Person or for the
creation of which such Person directly or indirectly
received payment), or
(k) Debt with respect to other obligations to deliver
goods or services in consideration of advance payments
therefor;
provided, however, that the term "Restricted Debt" shall not
include Debt which is 90 days or less past due that was incurred
on ordinary trade terms and is owed by the Person incurring the
same to vendors, suppliers, or other Persons providing goods and
services for use by such Person in the ordinary course of its
business.
"Royalty" means a royalty interest or overriding royalty
interest conveyed by Borrower to Royalty Assignee pursuant to a
Royalty Conveyance.
"Royalty Assignee" means TCW DR IV Royalty Partnership, L.P.
"Royalty Agreement" means the Royalty Agreement of even date
herewith between Borrower and Royalty Assignee substantially in
the form of Exhibit G.
"Royalty Conveyance" means each Conveyance of Adjustable
Overriding Royalty Interest pursuant to which Borrower assigns a
Royalty, to Royalty Assignee as contemplated in the Royalty
Agreement.
"Royalty Documents" means the Royalty Agreement and the
Royalty Conveyance.
"Security Documents" means the Mortgages, the Parent
Guaranty, any other instruments listed in the Security Schedule,
and all other security agreements, deeds of trust, mortgages,
chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other
agreements or instruments now, heretofore, or hereafter delivered
by any Related Person to TCW or Collateral Agent in connection
with this Agreement or any transaction contemplated hereby to
secure or guarantee the payment of any part of the Obligations or
the performance of any Related Person's other duties and
obligations under the Loan Documents or the Royalty Documents.
"Security Schedule" means Schedule 2 hereto.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, or other
business or corporate entity, enterprise or organization which is
directly or indirectly (through one or more intermediaries)
controlled by or owned fifty percent or more by such Person,
provided that associations, joint ventures or other relationships
(a) which are established pursuant to a standard form operating
agreement or similar agreement or which are partnerships for
purposes of federal income taxation only, (b) which are not
corporations or partnerships (or subject to the Uniform
Partnership Act) under applicable state law, and (c) whose
businesses are limited to the exploration, development and
operation of oil, gas or mineral properties and interests owned
directly by the parties in such associations, joint ventures or
relationships, shall not be deemed to be "Subsidiaries" of such
Person.
"Tamco" means TCW Asset Management Company, a California
corporation.
"TCW" means, collectively, (a) Trustco, as Trustee of the
TCW Debt and Royalty Fund IVA established pursuant to a
Declaration of Trust executed December 31, 1992 ("Fund IVA"); (b)
Tamco, as Investment Manager pursuant to the Investment
Management and Custody Agreement dated as of June 1, 1993 among
The Trustees of Columbia University in the City of New York,
Tamco and Trustco ("Columbia Fund"); (c) Tamco, as Investment
Manager under the Investment Management Agreement dated as of
March 1, 1993 between The Board of Trustees of The Leland
Stanford Junior University and Tamco ("Leland Stanford Fund");
(d) TCW DEBT and ROYALTY FUND IVB, A CALIFORNIA LIMITED
PARTNERSHIP ("Fund IVB"); (e) Tamco, as Investment Manager under
the Investment Management Agreement dated as of June 8, 1993
between the Searle Trusts Limited Partnership X, a Delaware
limited partnership (the "Searle Partnership X"), Harris Trust
and Savings Bank, as Custodian for the Searle Partnership X, and
Tamco ("Searle Fund"); (f) Tamco, as Investment Manager under the
Investment Management Agreement dated as of June 8, 1993, between
the John G. Searle Charitable Trusts Partnership, a Delaware
limited partnership (the "Searle Charitable Partnership"), Harris
Trust and Savings Bank, as Custodian for the Searle Charitable
Partnership, and Tamco ("Charitable Trust Fund"); (g) TCW DEBT
AND ROYALTY FUND IVC, A CALIFORNIA LIMITED PARTNERSHIP ("Fund
IVC"); (h) Tamco, as Investment Manager under the Investment
Management Agreement dated as of December 31, 1993 between Delta
Air Lines, Inc. and Tamco ("Delta Master Fund"); and (i) Tamco,
as Investment Manager under the Investment Management and Custody
Agreement dated as of April 26, 1994 among The City and County
Employees' Retirement System of San Francisco, Tamco and Trustco
("San Francisco Fund").
"TCW Funds" means Fund IVA, Columbia Fund, Leland Stanford
Fund, Fund IVB, Searle Fund, Charitable Trust Fund, Fund IVC,
Delta Master Fund and San Francisco Fund.
"TCW Pricing" means those prices (a) for anticipated sales
of Hydrocarbons that are hedged by a Hedging Contract with an
investment grade counter party, which Hedging Contract has been
approved by TCW or the Collateral Agent, equal to the fixed price
or prices provided for in such Hedging Contract during the term
thereof, and thereafter the prices provided for in subsection (b)
below; and (b) for anticipated sales of Hydrocarbons, if such
sales are not hedged by a Hedging Contract that has been approved
by TCW or the Collateral Agent, equal to the lowest of (i) the
average price received by Borrower for Hydrocarbons of such kind
during the twelve months preceding the date of calculation, (ii)
the average price received by Borrower for Hydrocarbons of such
kind during the six months preceding the date of calculation, and
(iii) the average of the prices on the New York Mercantile
Exchange (or any successor organization), as reported in the Wall
Street Journal for the date of calculation (or, if such date is
not a Business Day, for the first Business Day thereafter) for
each forward contract for Hydrocarbons of such kind which matures
during the twelve months after the date of calculation, with any
necessary adjustment being made for quality and geographical
differentials.
"Termination Event" means (a) the occurrence with respect to
any ERISA Plan of (i) a reportable event described in Sections
4043(b)(5) or (6) of ERISA or (ii) any other reportable event
described in Section 4043(b) of ERISA other than a reportable
event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such
corporation under Section 4043(a) of ERISA, or (b) the withdrawal
of any Related Person or of any Affiliate of any Related Person
from an ERISA Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
or (c) the filing of a notice of intent to terminate any ERISA
Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution
of proceedings to terminate any ERISA Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (e) any
other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any ERISA Plan.
"Transaction Documents" means the Loan Documents and the
Royalty Documents.
"Trustco" means Trust Company of the West, a California
trust company.
"Unevaluated Property" means any Property owned by Borrower
that, at the time in question (a) is not evaluated in the then
most-recent Engineering Report (or supplemental information)
delivered to TCW as having Proved Reserves attributed thereto,
and (b) is not otherwise included, or reasonably anticipated to
be included, in the proration unit or drilling and spacing unit
allocable to any Property of Borrower that has been so evaluated
as having Proved Reserves attributed thereto; provided that (i)
no Property which offsets a dry hole drilled after the date
hereof, (ii) no Property subject to Liens permitted under Section
5.2(b)(iii), and (iii) no Property released pursuant to Section
6.6 shall be deemed an Unevaluated Property.
"Working Capital" has the meaning given it in Section
5.2(l).
Section 1.2. Exhibits and Schedules; Additional
Definitions. All Exhibits and Schedules attached to this
Agreement are a part hereof for all purposes. Certain additional
terms may be defined in the Security Schedule and used but not
defined in the body of this Agreement; reference is hereby made
to the Security Schedule for the meaning of any such terms.
Section 1.3. Amendment of Defined Instruments. Unless the
context otherwise requires or unless otherwise provided herein
the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments and restatements
of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any
such renewal, extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this
Agreement to Exhibits, Schedules, articles, sections, subsections
and other subdivisions refer to the Exhibits, Schedules,
articles, sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing
at the beginning of any subdivisions are for convenience only and
do not constitute any part of such subdivisions and shall be
disregarded in construing the language contained in such
subdivisions. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases
"this section" and "this subsection" and similar phrases refer
only to the sections or subsections hereof in which such phrases
occur. The word "or" is not exclusive, and the word "including"
(in its various forms) means "including without limitation".
Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular
form shall be construed to include the plural and vice versa,
unless the context otherwise requires.
Section 1.5. Calculations and Determinations. All fees and
interest accruing under the Loan Documents shall be calculated on
the basis of actual days elapsed (including the first day but
excluding the last) and a year of 360 days. Unless otherwise
expressly provided herein or unless TCW otherwise consents all
financial statements and reports furnished to TCW hereunder shall
be prepared and all financial computations and determinations
pursuant hereto shall be made in accordance with GAAP. Each
matter to be determined, consented or agreed to, or accepted by
TCW, Agent or Collateral Agent under the Loan Documents (such as
the determination of Modified NPV or of whether an Acquisition
Proposal is acceptable in substance, form and detail) shall be
made by TCW, Agent or Collateral Agent in its sole and absolute
discretion, unless the applicable provision expressly states that
the determination, consent, agreement or acceptance by TCW, Agent
or Collateral Agent is to be made in compliance with some express
restriction on TCW's, Agent's, or Collateral Agent's discretion
(for example, if TCW's consent to a particular matter is required
"not to be unreasonably withheld").
ARTICLE II - The Loan
Section 2.1. Advances. Subject to the terms and conditions
hereof, TCW agrees to make advances to Borrower (herein called
"Advances") from time to time during the Commitment Period so
long as the aggregate amount of Advances made does not exceed the
Maximum Loan Amount. The obligation of Borrower to repay the
aggregate amount of all Advances made by TCW (herein called the
"Loan"), together with interest accruing in connection therewith,
shall be evidenced by nine (9) promissory notes (herein called
the "Notes") made by Borrower in the form of Exhibit A with
appropriate insertions, payable to each of the Holders listed
below and in the following stated principal amounts:
(a) $2,416,731, payable to the order of "Trust Company of
the West in its capacity as the Trustee of the TCW Debt and
Royalty Fund IVA established pursuant to a Declaration of
Trust executed December 31, 1992",
(b) $2,379,677, payable to the order of "Trust Company of
the West in its capacity as Custodian pursuant to the
Investment Management Agreement dated as of June 1, 1993
among The Trustees of Columbia University in the City of New
York, TCW Asset Management Company and Trust Company of the
West",
(c) $3,558,392, payable to the order of "Chase Manhattan
Bank, N.A., in its capacity as Custodian for the Trustees of
The Leland Stanford Junior University",
(d) $6,456,671, payable to the order of "Trust Company of
the West in its capacity as Custodial Agent for TCW Debt and
Royalty Fund IVB, a California Limited Partnership",
(e) $2,570,954, payable to the order of "Harris Trust and
Savings Bank in its capacity as Custodian pursuant to the
Custody Agreement dated as of June 8, 1993 between Harris
Trust and Savings Bank and the Searle Trusts Limited
Partnership X",
(f) $1,028,353, payable to the order of "Harris Trust and
Savings Bank in its capacity as Custodian pursuant to the
Custody Agreement dated as of June 8, 1993 between Harris
Trust and Savings Bank and the John G. Searle Charitable
Trusts Partnership",
(g) $3,276,423, payable to the order of "Trust Company of
the West, a California trust company, as Custodial Agent for
TCW Debt and Royalty Fund IVC, a California Limited
Partnership",
(h) $2,098,822, payable to the order of "Harris Trust and
Savings Bank, as Trustee of the Delta Master Trust under the
Trust Agreement dated May 27, 1982 between Harris Trust and
Savings Bank and Delta Air Lines, Inc.",
(i) $1,213,977, payable to the order of "Trust Company of
the West, a California trust company, as Custodian pursuant
to the Investment Management and Custody Agreement dated as
of April 26, 1994 among The City and County Employees'
Retirement System of San Francisco, TCW Asset Management
Company and Trust Company of the West".
Each Advance will be made under and be evidenced by the Notes in
proportion to the relative stated principal amounts of the Notes.
The amount of principal owing on each Note at any given time
shall be such proportionate share of the aggregate amount of all
Advances theretofore made minus such proportionate share of all
payments of principal theretofore received on the Notes. Amounts
borrowed and repaid on the Notes may not be reborrowed hereunder.
Subject to the terms hereof and of the Notes, the unpaid
principal of the Notes (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on
each day outstanding at the rate of ten percent (10%) per annum,
payable quarterly on each Quarterly Payment Date, calculated as
of the last day of the Fiscal Quarter then ending. All principal
and interest owed under the Notes and which has not been paid
when due, shall bear interest on each day outstanding at the Late
Payment Rate in effect on such day, and such interest shall be
due and payable daily as it accrues.
Section 2.2. Advance Amounts. Upon Borrower's request in
compliance with Section 2.3 and subject to the other terms and
conditions hereof, TCW will make the initial Advance. Each
subsequent Advance (or each combination of Advances made on the
same day) must be an integral multiple of $500,000 which equals
or exceeds $1,000,000.
Section 2.3. Requests for Advances. Except for the initial
Advance, Borrower must give at least fifteen Business Days' prior
written notice of any requested Advance. Each request for an
Advance must be made in writing in the form and substance of the
"Request for Advance" attached hereto as Exhibit B, duly
completed. If all conditions precedent to such Advance have been
met, TCW will on the date requested make such Advance available
to Borrower in immediately available funds at such account and
bank as Borrower may specify with such Request for Advance.
Section 2.4. Use of Proceeds. Borrower shall use the funds
from the first Advance as follows: (a) up to $4,123,530.51 to
repay in full the outstanding Debt of Borrower to JEDI and (b) up
to $876,469.49 for working capital and other general corporate
purposes approved by TCW. Borrower shall use any remainder of
such $4,123,530.51 not so used to pay JEDI, plus all funds from
each subsequent Advance, only for (i) expenditures included in
the POD (exclusive of those activities in the POD for which funds
lent by TCW may not be used), and (ii) acquisitions of properties
as set forth in any Acquisition Proposal, provided that such
acquisitions have been approved by either TCW, Agent or
Collateral Agent in its sole and absolute discretion. In no
event shall the funds from any Advance be used directly or
indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate,
incidental or ultimate, of purchasing, acquiring or carrying any
"margin stock" or any "margin securities" (as such terms are
defined respectively in Regulation U and Regulation G promulgated
by the Board of Governors of the Federal Reserve System) or to
extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin
securities. Borrower represents and warrants to TCW that
Borrower is not engaged principally, or as one of Borrower's
important activities, in the business of extending credit to
others for the purpose of purchasing or carrying such margin
stock or margin securities.
Section 2.5. Financing Fees. On the Initial Funding Date,
Borrower shall pay to TCW a financing fee in the amount of
$250,000.
Section 2.6. Minimum Principal Payments. On each Quarterly
Payment Date, beginning with the Quarterly Payment Date in March
of 1997 and continuing until the Loan is paid in full, Borrower
will make a fixed mandatory payment of principal on the Loan in
addition to payment of the interest then due. Each such
mandatory payment shall be equal to the amounts set out in the
following table.
Quarterly
Payment Date March June September December
1997 275,000 275,000 275,000 275,000
1998 550,000 550,000 550,000 550,000
1999 1,300,000 1,300,000 1,300,000 1,300,000
2000 1,400,000 1,400,000 1,400,000 1,400,000
2001 1,200,000 1,200,000 1,200,000 1,200,000
2002 750,000 750,000 750,000 750,000
2003 425,000 425,000 425,000 425,000
2004 350,000 350,000 350,000 350,000
To the extent that the total amount of Advances outstanding at
the end of the Commitment Period is less than the Maximum Loan
Amount, the above amounts shall be reduced pro rata.
Section 2.7. Principal Payments from ANCF.
(a) On each Quarterly Payment Date beginning with the
Quarterly Payment Date in March of 1997 and continuing until all
Obligations under the Loan Documents are paid in full, Borrower
shall make payments of principal on the Loan equal to the
Dedication Percentage as then in effect times the ANCF for the
immediately preceding Calculation Quarter. Together with each
payment made pursuant to this Section 2.7, Borrower shall deliver
to TCW a report in detail acceptable to TCW setting out a
detailed calculation of the ANCF for such Calculation Quarter.
Any principal payments made out of ANCF pursuant to this Section
2.7 will be applied toward the minimum principal payments
required under Section 2.6, but the minimum principal payments
required under Section 2.6 will be required regardless of the
amount of the payments based on ANCF which are required under
this Section 2.7.
(b) So long as no Event of Default has occurred and is then
continuing, TCW shall first apply all principal payments made
pursuant to this section to the payment of any minimum principal
payment then required under Section 2.6 and shall then apply any
remaining payments made pursuant to this section to the
prepayment, without premium or penalty, of the principal payments
thereafter required under Section 2.6 in the inverse order of
their maturity.
(c) If any Event of Default has occurred and is continuing,
TCW may in its sole and absolute discretion apply the ANCF as it
elects to the various Obligations which are then due and payable.
Section 2.8. Optional Prepayments. In addition to the
payments required under Sections 2.6 and 2.7, Borrower may, upon
fifteen days' notice to TCW, from time to time and without
premium or penalty prepay the Notes, in whole or in part, so long
as each such partial prepayment of principal on the Notes is
greater than or equal to $300,000 and provided that, for the
purpose of determining "16%IRR" and "22%IRR" as such terms are
defined in the Royalty Agreement, each prepayment of principal
under this section shall be accounted for as provided in Section
1.2 of the Royalty Agreement. Each partial prepayment of
principal made under this section shall be applied to the fixed
mandatory payments of principal due under Section 2.6 in the
inverse order of their maturities. Each prepayment of principal
made under this section shall be accompanied by all interest then
accrued and unpaid on the principal so prepaid. Any principal or
interest prepaid pursuant to this section shall be in addition
to, and not in lieu of, all payments otherwise required to be
paid under the Loan Documents at the time of such prepayment.
Section 2.9. General Payment Provisions. Borrower will
make each payment which it owes under the Loan Documents not
later than 11:00 a.m., Los Angeles, California time, on the date
such payment becomes due and payable, in lawful money of the
United States of America, without set-off, deduction or
counterclaim, and in immediately available funds sent by wire
transfer in care of:
Sanwa Bank, Monterrey Park, California
ABA# 122003516
Account 4001030
(TCW Debt & Royalty Funds IV)
(or to such other bank and accounts as TCW may from time to time
specify). Any payment received by TCW after such time will be
deemed to have been made on the next following Business Day.
Should any such payment become due and payable on a day other
than a Business Day, the maturity of such payment shall be
extended to the next succeeding Business Day, and, in the case of
a payment of principal or past due interest, interest shall
accrue and be payable thereon for the period of such extension as
provided in the Loan Document under which such payment is due.
Each payment under a Loan Document shall be due and payable at
the place provided therein and, if no specific place of payment
is provided, shall be due and payable at the place of payment of
the Notes. When TCW collects or receives money on account of the
Obligations which is insufficient to pay all Obligations then due
and payable, TCW may apply such money as it elects to the various
Obligations which are then due and payable.
Section 2.10. Royalty. As consideration for TCW's
commitments to make Advances hereunder, Borrower is entering into
the Royalty Agreement concurrently herewith and agreeing to grant
to Royalty Assignee the gross overriding royalty interests
therein described.
ARTICLE III - Conditions
Precedent to Lending
Section 3.1. Documents to be Delivered. TCW has no
obligation to make the first Advance unless TCW shall have
received all of the following, at TCW's office in Los Angeles,
California or at such other place as may be designated by TCW,
duly executed and delivered and in form, substance and date
satisfactory to TCW:
(a) The Notes.
(b) The Royalty Agreement and the first Royalty Conveyance
required thereunder.
(c) The initial Mortgage and each other Security Document
listed in the Security Schedule.
(d) An "Omnibus Certificate" of the Secretary and of the
Chief Executive Officer and President of Borrower, which shall
contain the names and signatures of the officers of Borrower
authorized to execute Transaction Documents and which shall
certify to the truth, correctness and completeness of the
following exhibits attached thereto: (i) a copy of resolutions
duly adopted by the Board of Directors of Borrower and in full
force and effect at the time this Agreement is entered into,
authorizing the execution of this Agreement and the other
Transaction Documents delivered or to be delivered in connection
herewith and the consummation of the transactions contemplated
herein and therein, (ii) a copy of the charter documents of
Borrower and all amendments thereto, certified by the appropriate
official of Borrower's state of organization, and (iii) a copy of
any bylaws of Borrower.
(e) An "Omnibus Certificate" of the Secretary and of the
Chief Executive Officer and President of Parent, which shall
contain the names and signatures of the officers of Parent
authorized to execute Transaction Documents and which shall
certify to the truth, correctness and completeness of the
following exhibits attached thereto: (i) a copy of resolutions
duly adopted by the Board of Directors of Parent and in full
force and effect at the time this Agreement is entered into,
authorizing the execution of the Transaction Documents to which
Parent is a party delivered or to be delivered in connection
herewith and the consummation of the transactions contemplated
herein and therein, (ii) a copy of the charter documents of
Parent and all amendments thereto, certified by the appropriate
official of Parent's state of organization, and (iii) a copy of
any bylaws of Parent.
(f) A certificate (or certificates) of the due formation,
valid existence and good standing of each of Borrower and Parent
in its state of organization, issued by the appropriate
authorities of such jurisdiction.
(g) A "Compliance Certificate" of the Chief Executive
Officer and President and of the chief financial officer of
Borrower and Parent, in their capacities as such officers, of
even date with such Advance, in which such Persons certify to the
satisfaction of the conditions set out in subsections (a), (b),
(c) and (d) of Section 3.5.
(h) A favorable opinion of Glast, Phillips, & Murray, P.C.,
counsel for Borrower and Parent, substantially in the form set
forth in Exhibit E, together with the certificate provided for in
such certificate, and a favorable opinion, in form satisfactory
to TCW, from its special California counsel, Messrs. Milbank,
Tweed, Hadley and McCloy.
(i) Certificates of Borrower's and Parent's good standing
and due qualification to do business, issued by appropriate
officials in any states in which Borrower or Parent owns property
subject to Security Documents.
(j) A Phase One Environmental Report covering the
Properties mortgaged under the initial Mortgage or subject to the
initial Royalty Conveyance, which has been prepared by a
consultant approved by TCW and which is satisfactory to TCW in
form and substance.
(k) Environmental reports and related permits of the
Toiyabe Mine located in southern Nevada, together with a
certificate from Parent's chief executive officer, in his
capacity as such, as to the status of Parent's environmental
remediation efforts in connection therewith.
(l) The Plan of Development.
(m) A Bill of Sale from Parent to Borrower, assigning all
records, equipment and data pertaining to the Properties.
Section 3.2. Special Conditions Precedent. TCW has no
obligation to make any Advance (including the first) unless the
following conditions precedent have been satisfied after October
13, 1995:
(a) Parent shall have received a capital contribution of at
least $6,000,000 from PENGO Securities Corp., an affiliate of
Smith Management Corporation, and Borrower shall have received a
capital contribution of $6,000,000 from Parent.
(b) Borrower shall have paid (either directly or indirectly
through Ensearch Exploration Inc.) $7,157,646 to the Department
of Interior as payment in full for the purchase of four federal
leases which were purchased by Borrower on September 25, 1995.
(c) Parent shall have entered into an agreement with
Randall D. Smith, which agreement shall be in form and substance
satisfactory to TCW, Agent or Collateral Agent in its sole and
absolute discretion, pursuant to which Parent shall have the
unqualified right to issue to Randall D. Smith shares of the
common stock of Borrower (and no other consideration) and
Borrower shall receive in exchange therefor the wells and leases
farmed out to Randall D. Smith by Parent and Borrower pursuant to
a Farmout Agreement dated July 1, 1995.
Section 3.3. Development of Properties. TCW has no
obligation to make any Advance for the development of Properties
pursuant to the Plan of Development unless TCW shall have
received all of the following, duly executed and delivered and in
form, substance and date satisfactory to TCW:
(a) If not previously given, a Royalty Conveyance covering
the Properties to be developed with such Advance.
(b) If not previously given, a Mortgage covering the
Properties to be developed with such Advance.
(c) If not previously given, title opinions and other title
information concerning the Properties to be developed with such
Advance in form, substance and authorship satisfactory to TCW.
(d) If not previously given, a Phase One Environmental
Report covering the Properties to be developed with such Advance,
which has been prepared by a consultant approved by TCW and which
is satisfactory to TCW in form and substance.
Section 3.4. Acquisitions. TCW does not anticipate making
any Advance for the acquisition of properties unless TCW shall
have received all of the following (in addition to any other
documents or information it may deem appropriate), duly executed
and delivered and in form, substance and date satisfactory to
TCW:
(a) An Acquisition Proposal.
(b) A Royalty Conveyance covering the properties to be
acquired with such Advance.
(c) A Mortgage covering the properties to be acquired with
such Advance.
(d) Title opinions and other title information concerning
the properties to be acquired with such Advance in form,
substance and authorship satisfactory to TCW.
(e) A Phase One Environmental Report covering the
properties to be acquired with such Advance, which has been
prepared by a consultant approved by TCW and which is
satisfactory to TCW in form and substance.
(f) A favorable opinion of Messrs. Glast, Phillips, &
Murray, P.C., counsel for Borrower and Parent.
If TCW is to make Advances for any acquisition of properties,
such Acquisition Proposal must be submitted to and approved by
TCW during the Commitment Period and such Advances must be funded
during the Commitment Period, all in accordance with the terms
and conditions of this Agreement. It is understood and agreed
that TCW has no obligation to make any Advances hereunder for any
such acquisition and that TCW shall approve or disapprove each
Acquisition Proposal in its sole and absolute discretion.
Section 3.5. General Conditions Precedent. TCW has no
obligation to make any Advance (including the first) unless the
following conditions precedent have been satisfied:
(a) All representations and warranties made by any Related
Person in any Transaction Document shall be true in all material
respects on and as of the date of such Advance (except to the
extent that the facts upon which such representations are based
have been changed by the extension of credit hereunder) as if
such representations and warranties had been made as of the date
of such Advance.
(b) No Default or Coverage Deficiency shall exist at the
date of such Advance, either before or after giving effect
thereto.
(c) No material adverse change shall have occurred to
Borrower's individual (or Parent's Consolidated) financial
condition, assets, operations, businesses or prospects since the
date of this Agreement.
(d) Each Related Person shall have performed and complied
with all agreements and conditions required in the Transaction
Documents to be performed or complied with by it on or prior to
the date of such Advance.
(e) The making of such Advance shall not be prohibited by
any law or any regulation or order of any court or governmental
agency or authority and shall not subject TCW to any penalty or
other onerous condition under or pursuant to any such law,
regulation or order.
(f) TCW shall have received all documents and instruments
which TCW has then requested, in addition to those described in
Sections 3.1 through 3.4 (including opinions of legal counsel for
the Related Persons and TCW; corporate documents and records;
documents evidencing governmental authorizations, consents,
approvals, licenses and exemptions; and certificates of public
officials and of officers and representatives of Borrower and
other Persons), as to (i) the accuracy and validity of or
compliance with all representations, warranties and covenants
made by any of the Related Persons in this Agreement and the
other Transaction Documents, (ii) the satisfaction of all
conditions contained herein or therein, and (iii) all other
matters pertaining hereto and thereto. All such additional
documents and instruments shall be satisfactory to TCW in form,
substance and date.
(g) All legal matters relating to the Transaction Documents
and the consummation of the transactions contemplated thereby
shall be satisfactory to TCW's counsel.
ARTICLE IV - Representations and
Warranties
Section 4.1. Borrower's and Parent's Representations and
Warranties. To confirm TCW's understanding concerning Borrower,
Parent and their business, properties and obligations and to
induce TCW to enter into this Agreement and to make the Loan,
Borrower and Parent each represent and warrant to TCW that:
(a) No Default. Neither Borrower nor Parent is in default
in the performance of any of the covenants and agreements
contained herein or in any other Transaction Document. No event
has occurred and is continuing which constitutes a Default.
(b) Organization and Good Standing. Each Related Person
which is a party to any Transaction Document is duly organized,
validly existing and in good standing (if applicable) under the
laws of its state of organization, having all corporate or
partnership powers required to carry on its business and enter
into and carry out the transactions contemplated hereby. Each
Related Person is duly qualified, in good standing, and
authorized to do business in all other jurisdictions within the
United States wherein the character of the properties owned or
held by it or the nature of the business transacted by it makes
such qualification necessary.
(c) Authorization. Each Related Person which is a
corporation or partnership has duly taken all corporate or
partnership action necessary to authorize the execution and
delivery by it of the Transaction Documents to which it is a
party and to authorize the consummation of the transactions
contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds
hereunder.
(d) No Conflicts or Consents. The execution and delivery
by the various Related Persons of the Transaction Documents to
which each is a party, the performance by each of its obligations
under such Transaction Documents, and the consummation of the
transactions contemplated by the various Transaction Documents,
do not and will not (i) conflict with any provision of (1) any
domestic or foreign law, statute, rule or regulation, (2) the
articles or certificate of incorporation, bylaws, charter, or
partnership agreement or certificate of any Related Person, or
(3) any agreement, judgment, license, order or permit applicable
to or binding upon any Related Person, (ii) result in the
acceleration of any Debt owed by any Related Person, or
(iii) result in or require the creation of any Lien upon any
assets or properties of any Related Person except as expressly
contemplated in the Transaction Documents. Except as expressly
contemplated in the Transaction Documents, no consent, approval,
authorization or order of, and no notice to or filing with, any
court or governmental authority or third party is required in
connection with the execution, delivery or performance by any
Related Person of any Transaction Document or to consummate any
transactions contemplated by the Transaction Documents.
(e) Enforceable Obligations. This Agreement is, and the
other Transaction Documents when duly executed and delivered will
be, legal, valid and binding obligations of each Related Person
which is a party hereto or thereto, enforceable in accordance
with their terms except as such enforcement may be limited by
bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights.
(f) Initial Financial Statements. Parent's Consolidated
Initial Financial Statements fairly present Parent's Consolidated
financial position at the date thereof and the Consolidated
results of Parent's operations and Parent's Consolidated cash
flows for the period thereof. Since the date of the audited
annual Initial Financial Statements, no material adverse change
has occurred in Parent's financial condition, assets, operation,
businesses, or prospects (or in Borrower's individual financial
condition, assets, operations, businesses or prospects), except
as reflected in the Disclosure Materials. All Initial Financial
Statements were prepared in accordance with GAAP.
(g) Other Obligations and Restrictions. No Related Person
has any outstanding Debt of any kind (including obligations under
farm-in agreements, other obligations to make capital
expenditures, contingent obligations, tax assessments, and
unusual forward or long-term commitments) which is, in the
aggregate, material to Borrower or material with respect to
Parent's Consolidated financial condition and not disclosed in
the Disclosure Materials. All obligations of any Related Person
to make capital expenditures to drill or otherwise develop any
oil, gas or mineral properties are specified in the Disclosure
Materials (by well or project, describing the dollar amount of
each such obligation). Except as disclosed in the Disclosure
Materials, no Related Person is subject to or restricted by any
franchise, contract, deed, charter restriction, or other
instrument or restriction which is materially likely in the
foreseeable future to materially and adversely affect the
businesses, properties, prospects, operations, or financial
condition of Borrower, Parent or any of its Subsidiaries.
(h) Full Disclosure. No certificate, written statement or
other information delivered herewith or heretofore by any Related
Person to TCW or Tamco in connection with the negotiation of this
Agreement or in connection with any transaction contemplated
hereby contains any untrue statement of a material fact or omits
to state any material fact known to any Related Person (other
than industry-wide risks normally associated with the types of
businesses conducted by the Related Persons) necessary to make
the statements contained herein or therein (taken as a whole) not
misleading as of the date made or deemed made. There is no fact
known to any Related Person (other than industry-wide risks
normally associated with the types of businesses conducted by the
Related Persons) that has not been disclosed to TCW in writing
which could reasonably be expected to materially and adversely
affect Parent's Consolidated (or Borrower's individual) financial
condition, assets, operations, their businesses or prospects.
There are no statements or conclusions in any Engineering Report
which are based upon or include misleading information or fail to
take into account material information regarding the matters
reported therein, it being understood that each Engineering
Report is necessarily based upon professional opinions, estimates
and projections and that Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have
been accurate. Borrower has heretofore delivered to TCW true,
correct and complete copies of the Initial Financial Statements
and the Initial Engineering Report.
(i) Litigation. Except as disclosed in the Disclosure
Materials: (i) there are no actions, suits or legal, equitable,
arbitrative or administrative proceedings pending, or to the
knowledge of any Related Person threatened, against any Related
Person before any federal, state, municipal or other court,
department, commission, body, board, bureau, agency, or
instrumentality, domestic or foreign, which do or may materially
and adversely affect Parent, Borrower or any of its Subsidiaries
or their ownership or use of any of their respective assets or
properties, their respective businesses or financial conditions
or prospects, or the right or ability of any Related Person to
enter into the Transaction Documents to which it is a party or to
consummate the transactions contemplated thereby or to perform
its obligations thereunder and (ii) there are no outstanding
judgments, injunctions, writs, rulings or orders by any such
governmental entity against any Related Person or any Related
Person's stockholders, partners, directors or officers which have
or may have any such effect.
(j) ERISA Liabilities. There are no currently existing
ERISA Plans, except as may be disclosed in the Disclosure
Materials. Except as disclosed in the Initial Financial
Statements or in the Disclosure Materials, no Termination Event
has occurred with respect to any ERISA Plan and the Related
Persons are in compliance with ERISA in all material respects.
No Related Person is required to contribute to, or has any other
absolute or contingent liability in respect of, any
"multiemployer plan" as defined in Section 4001 of ERISA. Except
as set forth in the Disclosure Materials: (i) no "accumulated
funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended) exists with respect to any
ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, and (ii) the current value of each
ERISA Plan's benefits does not exceed the current value of such
ERISA Plan's assets available for the payment of such benefits by
more than $100,000.
(k) Environmental and Other Laws. Except as disclosed in
the Disclosure Materials: (i) the Related Persons are conducting
their businesses in material compliance with all applicable
federal, state or local laws, including Environmental Laws, have
and are in compliance in all material respects with all licenses
and permits required under Environmental Laws, and have and are
in compliance in all material respects with all licenses and
permits required under any such other laws; (ii) none of the
operations or properties of any Related Person is the subject of
federal, state or local investigation evaluating whether any
material remedial action is needed to respond to a release of any
Hazardous Materials into the environment or to the improper
storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (iii) no Related Person
(and to the best knowledge of Borrower, no other Person) has
filed any notice under any federal, state or local law indicating
that any Related Person is responsible for the improper release
into the environment, or the improper storage or disposal, of any
material amount of any Hazardous Materials or that any Hazardous
Materials have been improperly released, or are improperly stored
or disposed of, upon any property of any Related Person; (iv) no
Related Person (to the best of Borrower's knowledge after
reasonable investigation) has transported or arranged for the
transportation of any Hazardous Material to any location which is
(1) listed on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency
in its Comprehensive Environmental Response, Compensation and
Liability Information System List, or listed on any similar state
list or (2) the subject of federal, state or local enforcement
actions or other investigations which may lead to claims against
any Related Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims (whether under
Environmental Laws or otherwise); and (v) no Related Person
otherwise has any known material contingent liability under any
Environmental Laws or in connection with the release into the
environment, or the storage or disposal, of any Hazardous
Materials.
(l) Names and Places of Business. Neither Borrower nor
Parent has, during the preceding five years, had, been known by,
or used any other corporate, trade, or fictitious name, except as
disclosed in Schedule 1. Except as otherwise indicated in the
Disclosure Materials, the chief executive office and principal
place of business of Borrower and Parent are (and have been for
the preceding five years) located at the address of Borrower set
out on the signature pages hereof. Except as indicated in the
Disclosure Materials, no Related Person has any other office or
place of business.
(m) No Subsidiaries. Except as may be disclosed in the
Disclosure Materials, neither Borrower nor Parent presently has
any Subsidiary or owns any stock in any other corporation or
association. Neither Parent nor Borrower is a member of any
general or limited partnership, joint venture or association of
any type whatsoever, except those listed in the Disclosure
Materials. Except as otherwise revealed in the Disclosure
Materials, Parent owns, directly or indirectly, the equity
interest in each of its Subsidiaries which is indicated in the
Disclosure Schedule.
(n) Ownership of Borrower. All of the outstanding shares
of Borrower are owned and shall at all times until the repayment
of the Obligations be owned by Parent.
Section 4.2. Representation and Disclosures by TCW. TCW
hereby represents that each of the entities comprising TCW will
acquire its Notes for its own account in the ordinary course of
its business; however, the disposition of TCW's property shall at
all times be and remain within its control and, in particular and
without limitation, each entity comprising TCW may sell or
otherwise transfer its Notes, any participation interest or other
interest in its Notes, or any of its other rights and obligations
under the Transaction Documents. TCW hereby discloses to
Borrower and Parent that:
(a) Tamco is acting as Investment Manager under each
of the Investment Management Agreements referenced in
clauses (e) and (f) of the definition herein of "TCW", which
Investment Management Agreements are between Tamco and the
Searle Partnership X and the Searle Charitable Partnership,
respectively (in this section each called a "Searle
Partnership"),
(b) all acts by Tamco as such Investment Manager or by
any of Tamco's Affiliates or agents pursuant to each such
Investment Management Agreement are done for and on behalf
of the Searle Partnership which is a party thereto, and
(c) the sole general partner of each Searle
Partnership is another partnership comprised solely of the
Searle Trusts referred to the in the first sentence of
Section 10.2(b) of the respective Investment Management
Agreement, acting through the trustees thereof.
ARTICLE V - Covenants of
Borrower
Section 5.1. Affirmative Covenants. To conform with the
terms and conditions under which TCW is willing to have credit
outstanding to Borrower, and to induce TCW to enter into this
Agreement and make the Loan, Parent and Borrower each warrant,
covenant and agree that until the full and final payment of the
Obligations and the termination of this Agreement, unless TCW has
previously agreed otherwise:
(a) Payment and Performance. Borrower will pay all amounts
due under the Transaction Documents in accordance with the terms
thereof and will observe, perform and comply with every covenant,
term and condition expressed or implied in the Transaction
Documents. Borrower and Parent will cause each other Related
Person to observe, perform and comply with every such term,
covenant and condition which is applicable to such Related
Person.
(b) Books, Financial Statements and Reports. Parent will
at all times maintain full and accurate books of account and
records and a standard system of accounting and will furnish the
following statements and reports to TCW at Parent's expense:
(i) As soon as available, and in any event within
ninety (90) days after the end of each Fiscal Year, complete
Consolidated and Consolidating financial statements of
Parent, together with all notes thereto and prepared in
reasonable detail in accordance with GAAP, together with an
opinion, based on an audit using generally accepted auditing
standards, by Coopers & Lybrand, or other independent
certified public accountants selected by Parent and
reasonably acceptable to TCW or Agent, stating that such
Consolidated financial statements have been so prepared.
These financial statements shall contain a balance sheet as
of the end of such Fiscal Year and statements of earnings,
of cash flows, and of changes in owners' equity for such
Fiscal Year, each setting forth in comparative form the
corresponding figures for the preceding Fiscal Year.
(ii) As soon as available, and in any event within
forty-five (45) days after the end of each Fiscal Quarter,
Parent's Consolidated and Consolidating financial statements
for such Fiscal Quarter, consisting of a balance sheet as of
the end of such Fiscal Quarter and statements of earnings
and cash flows for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter, all
in reasonable detail and prepared in accordance with GAAP
(subject to minor changes resulting from normal year-end and
audit adjustments), plus the following (each prepared as of
the end of such Fiscal Quarter in form reasonably
satisfactory to TCW or Agent) (1) a detailed accounts
payable aging report, (2) a detailed accounts receivable
aging report, (3) a detailed schedule of general and
administrative expenses, and (4) a detailed report
reflecting all components of working capital including the
change in each component during such Fiscal Quarter. In
addition Parent will, together with each such set of
financial statements and each set of financial statements
furnished under subsection (i) of this subsection (b),
furnish a certificate in the form of Exhibit C signed by the
chief financial officer of Parent and Borrower stating that
such financial statements are accurate and complete, stating
that he has reviewed the Loan Documents, containing
calculations showing compliance (or non-compliance) at the
end of such Fiscal Quarter with the requirements of Sections
5.2(a), (e), (l), and (m), and Section 5.3 and stating that
no Default or Coverage Deficiency exists at the end of such
Fiscal Quarter or at the time of such certificate or
specifying the nature and period of existence of any such
Default or Coverage Deficiency.
(iii) Promptly upon their becoming available, copies
of all financial statements, reports, notices and proxy
statements sent by any Related Person to its partners or
stockholders and all registration statements, periodic
reports and other statements and schedules filed by any
Related Person with any securities exchange, the Securities
and Exchange Commission or any similar governmental
authority.
(iv) Within forty-five days after the end of each
Fiscal Quarter, a report in detail acceptable to TCW with
respect to the Properties during the Fiscal Quarter
immediately prior thereto:
(1) describing by well and field the net
quantities of oil, gas, natural gas liquids, and water
produced (and the quantities of water injected) during
such Fiscal Quarter;
(2) describing by well and field the quantities
of oil, gas and natural gas liquids sold during such
Fiscal Quarter out of production from the Properties
and calculating the average sales prices of such oil,
natural gas, and natural gas liquids;
(3) regardless of whether the same are included
in the calculation of ANCF, specifying any leasehold
operating expenses, overhead charges, gathering costs,
transportation costs, and other costs with respect to
the Properties of the kind chargeable as direct charges
or overhead under an Onshore COPAS Accounting Procedure
for Joint Operations (1984 form published by the
Council of Petroleum Accountants Societies);
(4) describing all activities carried out during
such Fiscal Quarter in furtherance of the Plan of
Development, all other capital expenditures during such
Fiscal Quarter, and all projections of capital
expenditures projected to be made on any of the
Eligible Mortgaged Properties; and
(5) describing all workover work and drilling
during such Fiscal Quarter, including the cost and
status of each well drilled or worked over during such
Fiscal Quarter, test reports for each well tested
during such Fiscal Quarter, reports on prices and
volumes received for such Fiscal Quarter, reports for
each well completed during such Fiscal Quarter, and
accompanying authorizations for expenditures.
(v) By March 1 following the end of each Fiscal Year,
an engineering report prepared as of the end of such Fiscal
Year by Ryder Scott Company or other independent petroleum
engineers chosen by Borrower and acceptable to TCW, Agent or
Collateral Agent, concerning the Properties. The report
(1) shall separately report on Proved Producing Reserves,
Proved Developed Nonproducing Reserves, Proved Undeveloped
Reserves and Probable Reserves and separately calculate the
NPV of each such category of Proved Reserves (and the
similar net present value of such Probable Reserves), both
for Borrower's and Royalty Assignee's collective interest
and for their separate interests, (2) shall use TCW Pricing
and a 10% discount factor, (3) shall address the various
factors to be taken into account in calculating ANCF so that
projected ANCF can be readily calculated from the report,
(4) shall take into account Borrower's actual experiences
with leasehold operating expenses and other costs in
determining projected leasehold operating expenses and other
costs, (5) shall identify and take into account any
"over-produced" or "under-produced" status under gas
balancing arrangements, (6) shall contain information and
analysis comparable in scope to that contained in the
Initial Engineering Reports, and (7) shall otherwise be in
form and substance satisfactory to TCW, Agent or Collateral
Agent. The report shall distinguish (or shall be delivered
together with a certificate from an appropriate officer of
Borrower which distinguishes) those Properties treated in
the report which are Eligible Mortgaged Properties (or
Royalties associated therewith) from those properties
treated in the report which are not Eligible Mortgaged
Properties (or Royalties associated therewith). In the
event that Borrower and TCW, Agent or Collateral Agent
disagree over whether or not any workovers or other remedial
capital expenditures should be included in the report for
the purposes of calculating NPV, the engineers preparing
such report shall resolve such disagreement by determining
whether such expenditures are likely to be required in
accordance with prudent industry practice and shall include
or exclude such expenditures based on such determination.
(c) Other Information and Inspections. Each Related Person
will furnish to TCW any information which TCW may from time to
time request concerning any covenant, provision or condition of
the Transaction Documents or any matter in connection with the
Related Persons' businesses and operations. Each Related Person
will permit representatives appointed by TCW (including
independent accountants, agents, attorneys, appraisers and any
other Persons) upon reasonable notice to visit and inspect any of
such Related Person's property (such inspections may be made as
frequently as monthly), including its books of account, other
books and records, and any facilities or other business assets,
and to make extra copies therefrom and photocopies and
photographs thereof, and to write down and record any information
such representatives obtain, and shall further permit TCW or its
representatives to investigate and verify the accuracy of the
information furnished to TCW in connection with the Transaction
Documents and to discuss all such matters with its officers,
employees and representatives. TCW will take all reasonable
steps to keep confidential any confidential or proprietary
information given to it by any Related Person, provided, however,
that this restriction shall not apply to information which (i)
has at the time in question entered the public domain, (ii) is
required to be disclosed by law or by any order, rule or
regulation (whether valid or invalid) of any court or
governmental agency, or any regulatory authority (whether or not
governmental), (iii) is disclosed to the Holders or the TCW Funds
or to the Affiliates, auditors, attorneys, or agents of TCW or
any Holder or TCW Fund (it being understood that any such
disclosees shall be bound by the same confidentiality
requirements as TCW hereunder), (iv) is furnished to any
purchaser or prospective purchaser of participations or other
interests in the Loan or the Notes provided that such Persons
agree to keep any such information confidential to the same
extent as TCW is so required, or (v) is disclosed by TCW in the
course of collecting the Obligations or enforcing its rights
under the Loan Documents following the occurrence of a Default.
Each Related Person will take all reasonable steps to keep
confidential this Agreement, the contents hereof and the identity
of the parties hereto, provided, however, that this restriction
shall not apply to any disclosure that Trustco or Tamco is a
party hereto (provided that the identity of the Holders and the
various TCW Funds is not disclosed) or any disclosure of this
Agreement (i) that is required by law or by any order, rule or
regulation (whether valid or invalid) of any court or
governmental agency, or any regulatory authority (whether or not
governmental) or (ii) to any Affiliates, auditors, attorneys or
agents of any Related Person.
(d) Notice of Material Events and Change of Address.
Borrower and Parent will promptly notify TCW:
(i) of any material adverse change in Parent's
Consolidated financial condition, in Borrower's individual
financial condition, or in the aggregate value of the
Collateral,
(ii) of the occurrence of any Default or Coverage
Deficiency,
(iii) of the acceleration of the maturity of any Debt
owed by any Related Person or any default by any Related
Person under any indenture, mortgage, agreement, contract or
other instrument to which such Related Person is a party or
by which it or any of its properties is bound, if such
acceleration or default or might have a material adverse
effect upon Parent's Consolidated financial condition, upon
Borrower's individual financial condition, or on the value
of any material part of the Collateral,
(iv) of the occurrence of any Termination Event,
(v) of any claim of $50,000 or more, any notice of
potential liability under any Environmental Laws, or any
other material adverse claim asserted against any Related
Person or with respect to any Related Person's properties,
(vi) of the filing of any suit or proceeding against
any Related Person in which an adverse decision could have a
material adverse effect upon Parent's Consolidated financial
condition, upon Borrower's individual financial condition,
or on the value of any material part of the Collateral.
Upon the occurrence of any of the foregoing the Related Persons
will take all necessary or appropriate steps to remedy promptly
any such material adverse change, Default, acceleration, default
or Termination Event, to protect against any such adverse claim,
to defend any such suit or proceeding, and to resolve all
controversies on account of any of the foregoing. Borrower will
also notify TCW and TCW's counsel in writing at least twenty
Business Days prior to the date that any Related Person changes
its name or the location of its chief executive office or
principal place of business or the place where it keeps its books
and records concerning the Collateral, furnishing with such
notice any necessary financing statement amendments or requesting
TCW and its counsel to prepare the same.
(e) Maintenance of Properties. Each Related Person will
maintain, preserve, protect, and keep all Properties, all other
Collateral, and any other property used or useful in the conduct
of its business in good condition (normal wear and tear excepted)
and in compliance with all applicable laws, rules and
regulations, and will from time to time make all repairs,
renewals and replacements needed to enable the business and
operations carried on in connection therewith to be conducted at
all times consistent with prudent industry practices.
(f) Maintenance of Existence and Qualifications. Each
Related Person will maintain and preserve its corporate or
partnership existence and its rights and franchises in full force
and effect and will qualify to do business as a foreign
corporation or partnership in all states or jurisdictions where
required by applicable law, except that it shall not be required
hereunder so to qualify in any jurisdiction where no Collateral
is located if the failure so to qualify will not have any
material adverse effect on Borrower or Parent.
(g) Payment of Trade Debt, Taxes, etc. Each Related Person
will (i) timely file all required tax returns; (ii) timely pay
all taxes, assessments, and other governmental charges or levies
imposed upon it or upon its income, profits or property; (iii)
within ninety (90) days after the same becomes due pay all Debt
owed by it on ordinary trade terms to vendors, suppliers and
other Persons providing goods and services used by it in the
ordinary course of its business; (iv) pay and discharge when due
all other Debt now or hereafter owed by it; and (v) maintain
appropriate accruals and reserves for all of the foregoing taxes
or other Debt in accordance with GAAP. Each Related Person may,
however, delay paying or discharging any such taxes or other Debt
so long as it is in good faith contesting the validity thereof by
appropriate proceedings and has set aside on its books adequate
reserves therefor.
(h) Bonding and Insurance. The Related Persons will
maintain all bonds and letters of credit in lieu of bonds which
they are required to maintain (by law, lease terms, or consistent
with prudent industry practices) in order to carry out
development and production operations on, the Properties. Each
Related Person will keep or cause to be kept adequately insured
by financially sound and reputable insurers its and its
Subsidiaries' vehicles and all other property in accordance with
Schedule 3. Any insurance policies covering Collateral shall be
endorsed (i) to provide for payment of losses to TCW (or to
Collateral Agent for the benefit of TCW) as its interests may
appear, pursuant to a mortgage clause (without contribution) of
standard form made part of the applicable policy, (ii) to provide
that such policies may not be cancelled, reduced or adversely
affected in any manner for any reason without fifteen days prior
notice to Collateral Agent, (iii) to provide for any other
matters specified in any applicable Security Document or which
TCW may reasonably require; and (iv) to provide for insurance
against fire, casualty and any other hazards normally insured
against, in the amount of the full value (less a reasonable
deductible not to exceed amounts customary in the industry for
similarly situated businesses and properties) of the property
insured. (To the extent that any Mortgage contains other
additional requirements for such endorsement, each Related Person
shall also comply with such additional requirements.) Each
Related Person shall at all times maintain adequate insurance
against its liability for injury to persons or property, which
insurance shall be by financially sound and reputable insurers
and shall without limitation provide the following coverages:
comprehensive general liability (including coverage for damage to
underground resources and equipment, damage caused by blowouts or
cratering, damage caused by explosion, damage to underground
minerals or resources caused by saline substances, broad form
property damage coverage, broad form coverage for contractually
assumed liabilities and broad form coverage for acts of
independent contractors), worker's compensation and automobile
liability. Each Related Person shall at all times maintain cost
of control of well insurance with respect to all wells being
drilled or deepened, which shall insure against the following
costs: cost of control of well; fires, blowouts, etc.; redrilling
expense; and seepage and pollution expense.
(i) Payment of Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, Borrower will
promptly (and in any event, within 30 days after any invoice or
other statement or notice) pay all third-party costs and expenses
incurred by or on behalf of TCW, Agent or Collateral Agent
(including reasonable attorneys' fees) in connection with (i) the
negotiation, preparation, execution and delivery of the
Transaction Documents, and any and all consents, waivers or other
documents or instruments relating thereto, (ii) the filing,
recording, refiling and re-recording of any Transaction Documents
and any other documents or instruments or further assurances
required to be filed or recorded or refiled or re-recorded by the
terms of any Transaction Document, (iii) the borrowings hereunder
and other action reasonably required in the course of
administration of the various Loan Documents, (iv) the defense or
enforcement of the Transaction Documents or the defense of TCW's
or Collateral Agent's exercise of their rights thereunder, (v)
the reviews contemplated by Section 5.1(q), and (vi) the audit by
TCW, Agent or Collateral Agent of the Related Persons' books and
records.
(j) Performance on Borrower's Behalf. If any Related
Person fails to pay any taxes, insurance premiums, delay rentals,
lease maintenance costs, attorneys' fees, or other expenses or
amounts it is required to pay under any Loan Document, TCW, Agent
or Collateral Agent may pay the same. Borrower shall immediately
reimburse TCW, Agent or Collateral Agent for any such payments
and each amount paid by TCW, Agent or Collateral Agent shall
constitute an Obligation owed under this Agreement which is due
and payable on the date such amount is paid by TCW, Agent or
Collateral Agent.
(k) Interest. Borrower hereby promises to pay interest at
the Late Payment Rate on all Obligations which Borrower has in
this Agreement promised to pay (including Obligations to pay fees
or to make reimbursements or indemnifications) and which are not
paid when due. Such interest shall accrue from the date such
Obligations become due until they are paid.
(l) Compliance with Agreements and Law. Each Related
Person will perform all material obligations it is required to
perform under the terms of each indenture, mortgage, deed of
trust, security agreement, lease, franchise, agreement, contract
or other instrument or obligation to which it is a party or by
which it or any of its properties is bound. Each will conduct
its business and affairs in compliance in all material respects
with all laws, regulations, and orders applicable thereto,
including Environmental Laws.
(m) Evidence of Compliance. Each Related Person will
furnish to TCW at such Related Person's or Borrower's expense all
evidence which TCW from time to time reasonably requests as to
the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Related
Person in the Transaction Documents, the satisfaction of all
conditions contained therein, and all other matters pertaining
thereto.
(n) Completion of Activities. Borrower will (1) timely
develop the Eligible Mortgaged Properties in accordance with the
Plan of Development, (2) take (unless Agent or Collateral Agent
otherwise agrees) all action required to comply with the Dalen
Farmout Agreements and to earn the maximum acreage and maximum
undivided interests available thereunder, (3) immediately
hereafter convert to injection wells all "Proposed 1996
Conversion Wells", as defined in the POD, and (4) except to the
extent regulatory approval has not yet been obtained, have each
producing and injection well which is hereafter completed put
into normal operation within four weeks after the date of
completion. As used in this subsection, "Dalen Farmout
Agreements" means (a) that certain Farmout Agreement (Five Block
- - Pleasant Valley) dated as of February 28, 1995 (as amended
prior to the date hereof) between Dalen Resources Oil & Gas Co.
and Parent, and (b) that certain Farmout Agreement (Ashley -
Pleasant Valley) dated as of October 7, 1994 (as amended prior to
the date hereof) between Dalen Resources Oil & Gas Co. and
Parent.
(o) Engineering Reports. Borrower will pay all costs and
expenses relating to all Engineering Reports.
(p) Board Visitation Rights. TCW shall have the right to
appoint two (2) representatives, and such representatives shall:
(i) receive all notice of all meetings (both regular and special)
of the respective board of directors of Borrower and Parent and
copies of all unanimous consents presented to the directors or
such board; (ii) be entitled to attend (or, in the case of
telephone meetings, monitor) all such meetings; and (iii) receive
as soon as available (but in any event not later than thirty (30)
days after such meetings) copies of the minutes of all such
meetings. If either such board proposes to take any action by
written consent in lieu of a meeting, Borrower will give written
notice to such representatives, which notice shall describe in
reasonable detail the nature and substance of such proposed
action. Borrower will furnish such representatives with a copy
of each such written consent not later than five (5) days after
execution. Such representatives shall not be members of either
board and shall not be entitled to vote on any matters presented
at such meetings of the boards or to consent to any matters as to
which the consent of such board has been requested.
(q) Monthly Reviews. Borrower will meet with TCW, at
Borrower's expense, from time to time (as frequently as monthly
and in any event at least once per Fiscal Quarter), at the
offices of TCW or at such other location as TCW and Borrower may
agree, to review all operational activities of Borrower with
respect to the Eligible Mortgaged Properties and all financial
reports of the Related Persons since the date of the prior
review. Each review shall be in scope satisfactory to TCW, but
will include at a minimum, an update by Borrower on the
development activities made pursuant to the Plan of Development,
any requests by Borrower that changes be made to the Plan of
Development, any cost or expense overruns or underruns, any
mechanical problems incurred, and any differences in reserves or
production estimates.
(r) Hedging Contracts. Borrower shall at all times enter
into and maintain in effect Hedging Contracts described in and
permitted under Part One of the Hedging Strategy which are
sufficient to implement Part One of the Hedging Strategy.
(s) Smith Option. Borrower will at all times maintain in
effect that certain Option Agreement dated as of November 22,
1995 between Parent, Borrower and Randall D. Smith (in this
subsection called the "Smith Option Agreement"), will not at any
time amend or waive its rights under the Smith Option Agreement,
will timely exercise its option to acquire the "Reacquired
Leases" (as such term is defined in the Smith Option Agreement),
and will thereafter complete such acquisition of all Reacquired
Leases, all in full compliance with the Smith Option Agreement.
Section 5.2. Negative Covenants. To conform with the terms
and conditions under which TCW is willing to have credit
outstanding to Borrower, and to induce TCW to enter into this
Agreement and make the Loan, Parent and Borrower each warrant,
covenant and agree that until the full and final payment of the
Obligations and the termination of this Agreement, unless TCW has
previously agreed otherwise:
(a) Restricted Debt. No Related Person will in any manner
owe or be liable for any Restricted Debt except:
(i) the Obligations.
(ii) Restricted Debt (including the vehicle notes
described in paragraph 8 of Schedule 1) which is secured by
Liens permitted by Section 5.2(b)(iii).
(iii) Hedging Transactions required under Section
5.1(r) or permitted by Section 5.2(c).
(iv) the John D. Lomax deferred compensation agreement
and the Carmen promissory note described in paragraph 8 of
Schedule 1, as each is from time to time extended (but not
increased).
(b) Limitation on Liens. No Related Person will create,
assume or permit to exist any Lien upon any of the properties or
assets which it now owns or hereafter acquires, except, to the
extent not otherwise forbidden by the Security Documents:
(i) Liens which secure Obligations only.
(ii) statutory Liens for taxes, statutory mechanics'
and materialmen's Liens incurred in the ordinary course of
business, and other similar Liens incurred in the ordinary
course of business, provided such Liens do not secure
Restricted Debt and secure only Debt which is not delinquent
or which is being contested as provided in Section 5.1(g).
(iii) any Liens in respect of property acquired by any
Related Person after the date hereof to secure Debt assumed
or incurred to finance all or any part of the purchase
price, provided that:
(1) each such Lien shall at all times apply
solely to the property so acquired and the improvements
thereon,
(2) each such Lien shall attach or be existing at
the time of acquisition,
(3) the principal amount of Debt secured by such
Lien in respect of such property shall not exceed the
market value of such property at the time of
acquisition thereof by such Related Person,
(4) the aggregate outstanding principal amount of
Debt of the Related Persons which is secured by such
Liens and incurred for the purchase of trucks or
automobiles does not at any time exceed $150,000, and
the aggregate principal amount of such Debt which is
incurred in any Fiscal Year does not exceed $50,000,
and
(5) the aggregate outstanding principal amount of
Debt of the Related Persons which is secured by such
Liens and incurred for purposes other than the purchase
of trucks or automobiles does not at any time exceed
$200,000, and the aggregate principal amount of such
Debt which is incurred in any Fiscal Year does not
exceed $50,000.
(c) Hedging Contracts. No Related Person will be a party
to or in any manner be liable on any Hedging Contract other than
those described in and permitted under Part One or Part Two of
the Hedging Strategy.
(d) No Mergers. No Related Person will merge or
consolidate with or into any other business entity. No
Subsidiary of Parent will issue any additional shares of its
capital stock or other securities or any options, warrants or
other rights to acquire such additional shares or other
securities except to Parent or another wholly-owned Subsidiary of
Parent. No Subsidiary of Parent which is a partnership will
allow any diminution of Parent's interest (direct or indirect)
therein. No Related Person shall create or own any Subsidiary
other than those listed in Schedule 1.
(e) Limitation on Dividends and Redemptions. Except as
expressly provided in this section, no Related Person will
declare or pay any dividends on, or make any other distribution
in respect of, any class of its capital stock or any partnership
or other interest in it, nor will any Related Person directly or
indirectly make any capital contribution to or purchase, redeem,
acquire or retire any shares of the capital stock of or
partnership interests in any such Person (whether such interests
are now or hereafter issued, outstanding or credited) or cause or
permit any reduction or retirement of the capital stock of any
Related Person.
(f) Limitation on Sales of Property. No Related Person
will sell, transfer, lease, exchange, discount, assign, abandon,
alienate or dispose of any of its material assets or properties
or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:
(i) equipment which is worthless or obsolete or which
is replaced by equipment of equal suitability and value.
(ii) personal property inventory (including oil and
gas sold as produced and seismic data) which is sold in the
ordinary course of business on ordinary trade terms.
(iii) specific properties not subject to any Mortgage
(or specific portions thereof), provided the same are
abandoned and not otherwise disposed of and further provided
that no well situated on the property to be abandoned, or
located on any unit containing all or any part thereof, is
capable (or is subject to being made capable through
commercially feasible operations) of producing oil, gas or
other hydrocarbons or minerals in paying quantities (with
such determination of paying quantities being made taking
into account the prudent operation of any unit in which such
property is located and further being made on the assumption
that Borrower still owns the interests in such property
which are subject to the Royalty).
(iv) properties described in and subject to the Option
and Sale Agreement or the letter agreement described in
paragraph 9 of Schedule 1, as such agreements are presently
in effect, provided that such properties are sold under and
in accordance with such agreements.
(g) Limitation on Investments and New Businesses. No
Related Person will (i) make any expenditure or commitment or
incur any obligation or enter into or engage in any transaction
except in the ordinary course of business, (ii) engage directly
or indirectly in any business or conduct any operations except in
connection with or incidental to its present businesses and
operations, or (iii) form or acquire any Subsidiary, or make any
other acquisitions of or capital contributions to or investments
in any Person, other than Permitted Investments.
(h) Limitation on Credit Extensions. Except for Permitted
Investments, no Related Person will extend credit, make advances
or make loans, other than normal and prudent employee travel
advances and normal and prudent extensions of credit to customers
buying goods and services in the ordinary course of business,
which extensions shall not be for longer periods than those
extended by similar businesses operated in a normal and prudent
manner.
(i) Transactions with Affiliates. Borrower will not engage
in any material transaction with any of its Affiliates on terms
which are less favorable to it than those which would have been
obtainable at the time in arm's-length dealing with Persons other
than such Affiliates. No other Related Person will engage in any
material transaction with any of its Affiliates (other than
Borrower) on terms which are less favorable to it than those
which would have been obtainable at the time in arm's-length
dealing with Persons other than such Affiliates.
(j) Certain Contracts; Amendments; Multiemployer ERISA
Plans. No Related Person will enter into any "take-or-pay"
contract or other contract or arrangement for the purchase of
goods or services which obligates it to pay for such goods or
service regardless of whether they are delivered or furnished to
it. No Related Person will amend or permit any change to any
contract or lease which releases, qualifies, limits, makes
contingent or otherwise detrimentally affects the rights and
benefits of TCW under or acquired pursuant to any Security
Documents. No Related Person will incur any obligation to
contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
(k) No Subsidiaries. Neither Parent nor Borrower shall
create, acquire or own any Subsidiaries after the date hereof
other than those Subsidiaries listed on Schedule 1.
(l) Working Capital. Working Capital will never be less
than $750,000. As used herein, "Working Capital" means
Borrower's current assets minus Borrower's current liabilities,
provided that for the purposes of determining Working Capital:
(i) current assets will be calculated without including (1) any
accounts receivable or other Debts owed to Borrower by its
Affiliates, employees or shareholders, and (2) any account
receivable unpaid more than 120 days after its original invoice
date, and (ii) for so long as no Event of Default exists, current
liabilities will be calculated without including any payments of
principal on the Notes which are required to be made within one
year from the time of calculation.
(m) Additional Expenditures. Except for:
(i) expenses paid by Parent for the remediation of its
Toiyabe Mine,
(ii) Borrower's and Parent's expenses and expenditures
described in clauses (a) through (h), inclusive, in
subparagraph (ii) of the definition herein of "ANCF",
(iii) scheduled payments of interest and principal on
Restricted Debt permitted hereunder, and
(iv) any additional costs and expenses described in an
Acquisition Proposal and approved by TCW, Agent or
Collateral Agent,
Borrower and Parent will not incur expenses or make capital
expenditures which in the aggregate exceed $50,000 in any Fiscal
Year.
(n) No Public Announcements. No Related Person may make
any public announcement or disclosure of the transactions
contemplated by this Agreement or any other Transaction Document,
except as required by law or approved by TCW, Agent or Collateral
Agent in its sole and absolute discretion prior to the making of
any such public announcement or disclosure.
Section 5.3. Coverage Ratio. As used in this section,
"Coverage Ratio" means at any time in question the quotient
obtained by dividing:
(a) the sum of (i) 100% of the Modified NPV as
determined from the Engineering Report most recently
prepared as of such time in question plus (ii) the Lease
Value Amount plus (iii) Working Capital, by
(b) all Obligations then owing.
For purposes of this Section 5.3, the term "Lease Value Amount"
means (a) until January 1, 1997, the working interest of Borrower
in each Unevaluated Property multiplied by $200 per acre, (b)
during the period beginning January 1, 1997 and ending on
December 31, 1997, the working interest of Borrower in each
Unevaluated Property multiplied by $100 per acre, and (c) at all
times after December 31, 1997, zero. A Coverage Ratio of 125% or
less at any time is herein called a "Coverage Default", and a
Coverage Ratio of more than 125% but less than 150% at any time
is herein called a "Coverage Deficiency". If any Coverage
Default or Coverage Deficiency exists, Borrower must within 30
days after obtaining knowledge thereof cure such Coverage Default
or Coverage Deficiency, either by furnishing and mortgaging
additional engineered producing oil and gas properties
satisfactory to TCW in order to increase Modified NPV or by
making payments in order to reduce the Obligations.
ARTICLE VI - Security
Section 6.1. The Security. The Obligations will be secured
by the Security Documents listed in the Security Schedule and by
any additional Security Documents hereafter delivered by any
Related Person and accepted by TCW.
Section 6.2. Agreement to Deliver Security Documents.
Parent and Borrower agree to deliver to further secure the
Obligations whenever requested by Collateral Agent in its sole
and absolute discretion, deeds of trust, mortgages, chattel
mortgages, security agreements, financing statements and other
Security Documents in form and substance satisfactory to
Collateral Agent for the purpose of granting, confirming, and
perfecting first and prior liens or security interests in any
real or personal property of Borrower or Parent, except for
Property subject to Liens permitted under Section 5.2(b)(iii) or
released pursuant to Section 6.6. Borrower also agrees to
deliver, whenever requested by Collateral Agent in its sole and
absolute discretion, favorable title opinions from legal counsel
acceptable to Collateral Agent with respect to Properties
designated by Collateral Agent, based upon abstract or record
examinations to dates acceptable to Collateral Agent and (a)
stating that Borrower or Parent has good and defensible title
thereto, free and clear of all Prohibited Liens, (b) confirming
that such properties and interests are subject to Security
Documents securing the Obligations that constitute and create
legal, valid and duly perfected first deed of trust or mortgage
liens in such properties and interests and first priority
assignments of and security interests in the oil and gas
attributable thereto and in the proceeds thereof, and (c)
covering such other matters as Collateral Agent may request.
Section 6.3. Perfection and Protection of Security
Interests and Liens. Borrower and Parent will from time to time
deliver to Collateral Agent any financing statements,
continuation statements, extension agreements and other
documents, properly completed and executed (and acknowledged when
required) in form and substance satisfactory to Collateral Agent,
which Collateral Agent requests for the purpose of perfecting,
confirming, or protecting any Liens or other rights in Collateral
securing any Obligations.
Section 6.4. Production Proceeds. Notwithstanding that, by
the terms of the Mortgages, Borrower and Parent are or will be
assigning to Collateral Agent all of the "Production Proceeds"
(as defined therein) accruing to the property covered thereby, so
long as no Default has occurred Borrower and Parent may continue
to receive from the purchasers of production all such Production
Proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified.
Upon the occurrence of a Default, Collateral Agent may exercise
all rights and remedies granted under the Security Documents,
including the right to obtain possession of all Production
Proceeds then held by Borrower or Parent and to receive directly
from the purchasers of production all other Production Proceeds.
In no case shall any failure, whether purposed or inadvertent, by
Collateral Agent to collect directly any such Production Proceeds
constitute in any way a waiver, remission or release of any of
its rights under the Security Documents, nor shall any release of
any Production Proceeds by Collateral Agent to Borrower or Parent
constitute a waiver, remission, or release of any other
Production Proceeds or of any rights of Collateral Agent to
collect other Production Proceeds thereafter.
Section 6.5. Appointment of Agent and Collateral Agent.
(a) Agent. TCW, for itself in each capacity in which it is
acting herein, and for each other Holder, hereby appoints Trustco
as agent (together with its successors in such capacity herein
called "Agent") to act for and on behalf of TCW and each other
Holder under or pursuant to this Agreement and the other Loan
Documents, and Trustco hereby accepts such appointment. Agent is
authorized to act on behalf of TCW and each other Holder in (i)
exercising rights and remedies with respect to Collateral (which
may be delegated to Collateral Agent) or with respect to any
other matter under any of the Loan Documents, (ii) giving notices
or instructions to Borrower, (iii) receiving information from or
notices by Borrower, and (iv) communicating to Borrower
determinations required or permitted to be made under this
Agreement or any other Loan Document. Agent may, on behalf of
TCW and any other Holder, take any other action which TCW or such
Holder is entitled to take hereunder or under any of the Loan
Documents. Borrower and Parent may rely on any action of Agent
as binding upon all of the Holders. Such appointment of Trustco
as Agent shall not, however, impair or modify any rights,
obligations or duties which Trustco or any Affiliate of Trustco
otherwise has with respect to TCW or any other Holder. In its
administration of this Agreement and the other Loan Documents,
except to the extent to which another standard applies to Trustco
by reason of any other document between Trustco and TCW or
another Holder, Agent will exercise the same care that it
exercises in the administration or handling of transactions for
its own account, subject, however, to subsection (h) below.
(b) Collateral Agent. TCW, for itself in each capacity in
which it is acting herein, and for each other Holder, hereby
appoints Tamco as collateral agent (herein, together with its
successors and assigns in such capacity, "Collateral Agent")
under the Loan Documents, to exercise such powers under the Loan
Documents as are delegated to Collateral Agent by the terms
thereof, together with all such powers as are reasonably
incidental thereto, including taking, holding and disposing of
the Collateral. Tamco hereby accepts such appointment.
Collateral Agent shall act for and on behalf of TCW and the
Holders in connection with all Collateral and all Security
Documents, including serving as mortgagee under each Mortgage and
exercising rights and remedies provided thereunder. Borrower and
Parent may rely on any action of Collateral Agent as binding upon
all of the Holders. Each Mortgage contemplates that Collateral
Agent may release Collateral in accordance with the terms thereof
and Collateral Agent is hereby authorized to do so if it has
received the prior consent of TCW, it being understood that TCW
itself need not be a party to any such release. In its
administration of this Agreement and the other Loan Documents,
except to the extent to which another standard applies to Tamco
by reason of any other document between Tamco and TCW or another
Holder, Collateral Agent will exercise the same care that it
exercises in the administration or handling of transactions for
its own account, subject, however, to subsection (h) below.
(c) Requisite Holders. Except with respect to any matters
expressly provided for by this Agreement, the Notes, the Security
Documents, any other Loan Documents or the TCW Governing
Documents (as defined in subsection (d)(iii) below), each Holder
agrees that neither Agent nor Collateral Agent shall be required
to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and each Holder agrees
that Agent and Collateral Agent shall be fully protected in so
acting or refraining from acting) upon the written instructions
of the Requisite Holders. As used herein, the "Requisite
Holders" means, at any time, Holders holding at least sixty-six
and two-thirds percent (66-2/3%) of the outstanding principal
amount of all Notes. The Requisite Holders may, in their
reasonable discretion, remove Trustco or Tamco from its
respective appointment as Agent or Collateral Agent and then
select a new party to fulfill, in accordance with the terms
hereof, such positions. All powers of Agent and Collateral Agent
shall be exercised for the benefit of all Holders and in
accordance with the directions of the Requisite Holders. Agent
and Collateral Agent shall take every reasonable action to
implement the Requisite Holders' directions. If any Note is ever
held by any Person other than the original Holders in accordance
herewith, Agent and Collateral Agent may insist on the execution
of any agency agreement among all holders of Notes, in form
satisfactory to Agent and Collateral Agent and providing for
satisfactory indemnification, before carrying out any further
actions under the Loan Documents. Until any such agency
agreement is executed: (i) Agent and Collateral Agent shall be
fully protected in acting on the instructions of Persons holding
Notes representing sixty-six and two-thirds percent (66-2/3%) or
more of the aggregate principal indebtedness owing under all
Notes in the manner described herein; (ii) each of Trustco and
Tamco shall have the right to withdraw as Agent or Collateral
Agent, respectively, subject, however, to its rights an duties
under any other agreements with TCW or another Holder; and (iii)
any action of Collateral Agent under any Security Document shall
be binding on TCW.
(d) Limitation of Duties and Fiduciary Relationship.
Neither Agent nor Collateral Agent shall have any duties or
responsibilities, except those expressly set forth in:
(i) this Agreement;
(ii) the other Loan Documents; and
(iii) the other documents entered into between Trustco
and Tamco described in the definition of "TCW" and "Holders"
(such other documents are in this Section 6.5 collectively
called the "TCW Governing Documents"),
nor shall Agent or Collateral Agent have any additional fiduciary
relationship with any Holder arising under this section, and no
implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or
the other Loan Documents against Agent or Collateral Agent.
(e) Distribution of Proceeds. The Holders shall share in
the proceeds obtained by Agent and in any other benefit either
arising under the Loan Agreement, the Notes and the Loan
Documents or obtained by Agent or Collateral Agent in connection
therewith, in the relative proportions which the amounts then
owed by Borrower to each of the Holders bear to the total amount
of Obligations then owed to all of the Holders; provided that
Agent and Collateral Agent shall be the first to be reimbursed
for all costs and expenses incurred on behalf of all parties in
their respective capacities as Agent and Collateral Agent to the
extent permitted by the TCW Governing Documents. The duties
undertaken by Agent and Collateral Agent have been undertaken as
an accommodation to the Holders and, accordingly, Agent and
Collateral Agent shall not be compensated for their services
hereunder except as provided in the TCW Governing Documents.
(f) Written Directions. Agent or Collateral Agent may at
any time request written directions from all the Holders with
respect to (i) any interpretation of this Agreement, the Notes
and the other Loan Documents, or (ii) any action to be taken or
not to be taken hereunder or thereunder, and may withhold any
action until such directions have been received from the
Requisite Holders. Agent and Collateral Agent shall in all cases
be fully protected in acting, or in refraining from acting, under
this Agreement in accordance with a direction of the Requisite
Holders under the terms of this Agreement and such request and
any action taken or withheld pursuant to such direction shall be
binding upon all the Holders.
(g) Agents and Attorneys. Each of Agent and Collateral
Agent may execute any of its respective duties under this
Agreement, the Notes and the other Loan Documents by or through
agents or attorneys selected by Agent or Collateral Agent,
respectively, using reasonable care. Neither Agent nor
Collateral Agent shall be responsible to Holders for the
negligence or misconduct of any agents or attorneys so selected.
Agent and Collateral Agent shall be entitled to the advice of
counsel concerning all matters pertaining to their respective
duties hereunder.
(h) Limitation of Liability. Agent, Collateral Agent, and
their respective officers, directors, employees, agents,
attorneys-in-fact and affiliates shall not:
(i) be liable to Holders for any action taken or
omitted to be taken by any of such Persons or for any error
in judgment under or in connection with this Agreement, the
Notes or any other Transaction Documents, except for any
such Person's gross negligence or willful misconduct; or
(ii) be responsible in any manner to any Holder or any
other Person for any failure of any other party to perform
its obligations under this Agreement, the Notes or any other
Transaction Document.
Nothing in this subsection, however, shall be deemed to limit or
restrict any liability, fiduciary duty or responsibility of
Trustco or Tamco in any capacity other than as Agent or
Collateral Agent, respectively, including any liability,
fiduciary duty or responsibility under the TCW Governing
Documents.
(i) Reliance upon Documentation. Each of Agent and
Collateral Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other
document or any telephone conversation believed, respectively, by
Agent or Collateral Agent to be genuine and correct and to have
been signed, sent, made or spoken by the proper person or
persons, and upon the advice and statements of legal counsel,
independent accountants and other experts selected, respectively,
by Agent or Collateral Agent.
(j) Reliance by Borrower and Parent. TCW and each other
Holder agree that, prior to the delivery to Borrower or Parent of
a notice of the removal or termination of Trustco as Agent as set
forth below, Borrower and Parent shall be entitled to rely on
Trustco's or any subsequent Agent's authority to act on behalf of
TCW and each Holder in all dealings with Trustco (or any such
subsequent Agent) with respect to the Loan and the Loan
Documents; Borrower and Parent shall be protected in relying on
actions, communications, notices and terminations relating
thereto or required or permitted thereunder by Agent; and
Borrower and Parent shall discharge their respective obligations
under this Agreement and the Loan Documents by delivering
payments, notices and other information to Agent. In the event
of the removal of Agent and the appointment of a successor Agent
by Holders, Borrower and Parent shall not be required to
recognize any such removal or appointment unless and until
Borrower and Parent shall have received a writing setting forth
such removal and appointment executed by the Requisite Holders,
and Borrower and Parent shall be entitled to rely on such writing
as being genuine and what it purports to be without any necessity
of any investigation whatsoever. TCW and each other Holder
similarly agree that, prior to the delivery to Borrower and
Parent of a notice of the removal or termination of Tamco as
Collateral Agent as set forth below, Borrower and Parent shall be
entitled to rely on Tamco's or any subsequent Collateral Agent's
authority to act on behalf of TCW and each Holder in all dealings
with Tamco (or any such subsequent Collateral Agent) with respect
to the Loan and the Loan Documents; and Borrower and Parent shall
be protected in relying on actions, communications, notices and
terminations relating thereto or required or permitted thereunder
by Collateral Agent. In the event of the removal of Collateral
Agent and the appointment of a successor Collateral Agent by
Holders, Borrower and Parent shall not be required to recognize
any such removal or appointment unless and until Borrower and
Parent shall have received a writing setting forth such removal
and appointment executed by the Requisite Holders, and Borrower
and Parent shall be entitled to rely on such writing as being
genuine and what it purports to be without any necessity of any
investigation whatsoever.
Section 6.6. Release of Collateral by TCW. After the end
of the Commitment Period, Collateral Agent will upon Borrower's
request release specified undeveloped Properties (i.e.,
Properties to which no Proved Developed Producing Reserves or
Proved Developed Nonproducing Reserves are properly attributed)
from the liens and security interests of the Security Documents
(but not from the Royalties, which shall continue to burden such
Properties), provided that (a) no Default or Coverage Deficiency
exists at the time of such request or after giving effect to such
release, (b) the release of such undeveloped Properties is
required to allow Borrower to obtain financing for the
development of such Properties, and (c) at the time of such
release TCW or Agent reasonably believes that TCW and Royalty
Assignee will achieve 16% IRR (as such term is defined in the
Royalty Agreement).
ARTICLE VII - Events of Default
and Remedies
Section 7.1. Events of Default. Each of the following
events constitutes an Event of Default under this Agreement:
(a) Any Related Person fails to pay any Obligation when due
and payable, whether at a date for the payment of a fixed
installment or as a contingent or other payment becomes due and
payable or as a result of acceleration or otherwise, and such
failure is not remedied in full within (i) one Business Day
thereafter, in the case of an Obligation to pay principal or
interest on any Note or to make a payment on a Royalty under
Section 4.2 of any Royalty Conveyance, or (ii) fifteen days
thereafter, in the case of any other Obligation;
(b) Any "default" or "event of default" occurs under any
Loan Document which defines either such term, and the same is not
remedied within the applicable period of grace (if any) provided
in such Loan Document;
(c) Any Related Person fails to duly observe, perform or
comply with any covenant, agreement or provision of Section
5.1(d), Section 5.2, or Section 5.3;
(d) Any Related Person fails (other than as referred to in
subsections (a), (b) and (c) above) to duly observe, perform or
comply with any covenant, agreement, condition or provision of
any Transaction Document, and such failure is not remedied within
30 days after TCW, Agent or Collateral Agent gives notice thereof
to Borrower;
(e) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person
in connection with any Transaction Document shall prove to have
been false or incorrect in any material respect on any date on or
as of which made, or any Transaction Document at any time ceases
to be valid, binding and enforceable as warranted in Section
4.1(e) for any reason other than its release or subordination by
TCW, Agent or Collateral Agent;
(f) Any Related Person fails to duly observe, perform or
comply with any agreement with any Person or with any term or
condition of any instrument, if such agreement or instrument is
materially significant to Borrower, and such failure is not
remedied within the applicable period of grace (if any) provided
in such agreement or instrument;
(g) Any Related Person (i) fails to pay any portion, when
such portion is due, of any of its Debt (other than Debt
described in Section 5.1(g) which is not required to be paid so
long as the Related Person is in good faith contesting the
validity thereof by appropriate proceedings), or (ii) breaches or
defaults in the performance of any agreement or instrument by
which any such Debt is issued, evidenced, governed, or secured,
and any such failure, breach or default continues beyond any
applicable period of grace provided therefor;
(h) Any Related Person:
(i) suffers the entry against it of a judgment, decree
or order for relief by a court of competent jurisdiction in
an involuntary proceeding commenced under any applicable
bankruptcy, insolvency or other similar law of any
jurisdiction now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended, or
has any such proceeding commenced against it which remains
undismissed for a period of sixty days; or
(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in
effect, including the federal Bankruptcy Code, as from time
to time amended; or applies for or consents to the entry of
an order for relief in an involuntary case under any such
law; or makes a general assignment for the benefit of
creditors; or fails generally to pay (or admits in writing
its or his inability to pay) its debts as such debts become
due; or takes corporate or other action to authorize any of
the foregoing; or
(iii) suffers the appointment of or taking possession
by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of all or a substantial
part of its assets or of any part of the Collateral in a
proceeding brought against or initiated by it, and such
appointment or taking possession is neither made ineffective
nor discharged within thirty days after the making thereof,
or such appointment or taking possession is at any time
consented to, requested by, or acquiesced to by it;
(iv) suffers the entry against it of a final judgment
for the payment of money in excess of $100,000, unless the
same is discharged within thirty days after the date of
entry thereof or an appeal or appropriate proceeding for
review thereof is taken within such period and a stay of
execution pending such appeal is obtained prior to the first
date on which such execution is allowed; or
(v) suffers a writ or warrant of attachment or any
similar process to be issued by any court against all or any
substantial part of its assets or any part of the
Collateral, and such writ or warrant of attachment or any
similar process is not stayed or released within thirty days
after the entry or levy thereof or after any stay is vacated
or set aside;
(i) Either (i) any "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986,
as amended) in excess of $100,000 exists with respect to any
ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such
ERISA Plan's benefit liabilities exceeds the then current value
of such ERISA Plan's assets available for the payment of such
benefit liabilities by more than $100,000 (or in the case of a
Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such
excess exceeds such amount);
(j) Any material adverse change occurs in Borrower's
individual (or Parent's Consolidated) financial condition, assets
businesses or operations and such adverse change is not remedied
within 60 days thereafter.
Upon the occurrence of an Event of Default described in
subsection (h)(i), (h)(ii) or (h)(iii) of this section with
respect to Borrower, all of the Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice
of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice
of acceleration, or any other notice or declaration of any kind,
all of which are hereby expressly waived by Borrower and each
Related Person who at any time ratifies or approves this
Agreement. During the continuance of any other Event of Default,
TCW at any time and from time to time may without notice to
Borrower or any other Related Person declare any or all of the
Obligations immediately due and payable, and all such Obligations
shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment,
protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived
by Borrower and each Related Person who at any time ratifies or
approves this Agreement. After any such acceleration (whether
automatic or due to declaration by TCW), any obligation of TCW to
make any further Advances or loans of any kind under any
agreement with Borrower shall be permanently terminated.
Section 7.2. Remedies. If any Default shall occur and be
continuing, TCW may protect and enforce its rights under the
Transaction Documents by any appropriate proceedings, including
proceedings for specific performance of any covenant or agreement
contained in any Transaction Document, and TCW may enforce the
payment of any Obligations due or enforce any other legal or
equitable right. All rights, remedies and powers conferred upon
TCW, Agent or Collateral Agent under the Transaction Documents
shall be deemed cumulative and not exclusive of any other rights,
remedies or powers available under the Transaction Documents or
at law or in equity.
Section 7.3. Indemnity. Borrower and Parent jointly and
severally agree to indemnify each TCW Entity, upon demand, from
and against any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including
reasonable fees of attorneys, accountants, experts and advisors)
of any kind or nature whatsoever (in this section collectively
called "liabilities and costs") which to any extent (in whole or
in part) may be imposed on, incurred by, or asserted against such
TCW Entity growing out of, resulting from or in any other way
associated with any of the Collateral, the Transaction Documents,
or the transactions and events (including the enforcement or
defense thereof) at any time associated therewith or contemplated
therein (including any violation or noncompliance with any
Environmental Laws by any Related Person or any liabilities or
duties of any Related Person or of any TCW Entity with respect to
Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY
EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF
STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN WHOLE OR IN
PART,
BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY TCW ENTITY,
provided only that no TCW Entity shall be entitled under this
section to receive indemnification for that portion, if any, of
any liabilities and costs which (a) is proximately caused by its
own individual gross negligence or willful misconduct, as
determined in a final judgment, or by its own individual actions
with respect to Collateral in its possession, or (b) is owed by
it to TCW or any Holder as a result of such TCW Entity's breach
of a duty owed by it to such Holder, but only to the extent
proximately caused by such breach. As used in this section the
term "TCW Entity" refers to each of the Persons named in the
definition of "TCW" in Section 1.1 and also to each of Agent,
Collateral Agent, Royalty Assignee, the Holders, the TCW Funds,
Trustco, Tamco, and each director, officer, agent, trustee,
manager, attorney, employee, representative and Affiliate of any
such Person or of any Holder or TCW Fund.
Section 7.4. Substitution of Operator. During the
continuance of any Event of Default, Collateral Agent shall (in
addition to all of its other remedies) have the right,
exercisable in its sole and absolute discretion, to demand in
writing that Borrower resign as the operator (whether under an
applicable joint operating agreement, in the records of any
applicable regulatory authority, or otherwise) of all or any of
the Properties. Upon receiving such written demand (in this
section called a "Resignation Demand") from Collateral Agent,
Borrower shall immediately take whatever actions are legally
available to it in order to facilitate the succession of a
reputable third party, chosen by Collateral Agent in its sole and
absolute discretion, to the position as operator of any property
or group of properties included in the Properties (except for
Property released pursuant to Section 6.6) and covered by the
subject Resignation Demand. Without limitation of the generality
of the foregoing:
(a) In the event Borrower owns 100% of the working interest
in a Property or group of properties covered by a
Resignation Demand, Borrower shall immediately turn
over operation of such Property or group of Properties
to the successor operator chosen by Collateral Agent,
and shall further execute or cause to be executed and
filed with the appropriate regulatory authorities any
such instruments as may be requested by Collateral
Agent in order to document or effect such succession.
(b) In the event Borrower owns less than 100% of the
working interest in a Property or group of Properties
covered by a Resignation Demand, Borrower shall:
(i) notify any nonoperators of its resignation, such
notification to be made in writing and otherwise
made in accordance with the provisions of any
applicable joint operating agreement or similar
agreement;
(ii) take whatever action is legally available to it in
order to expedite the effective time that a
successor operator shall assume Borrower's duties
as operator (by way of example and not by way of
limitation, Borrower shall facilitate the election
and succession of a new operator without waiting
for any applicable grace period to expire under
the operative joint operating agreement or similar
agreement); and
(iii) cast its vote under the applicable joint operating
agreement or similar agreement successor operator
chosen by Collateral Agent, and such vote shall be
cast by Borrower for the successor chosen by
Collateral Agent both on an interim basis (if
called for under the applicable joint operating
agreement or similar agreement) and on a permanent
basis.
ARTICLE VIII - Miscellaneous
Section 8.1. Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether
by course of conduct or otherwise) by TCW, Agent or Collateral
Agent in exercising any right, power or remedy which either may
have under any of the Transaction Documents shall operate as a
waiver thereof or of any other right, power or remedy, nor shall
any single or partial exercise by TCW, Agent or Collateral Agent
of any such right, power or remedy preclude any other or further
exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Transaction Document and no
consent to any departure therefrom shall ever be effective unless
it is in writing and signed by TCW, Agent or Collateral Agent,
and then such waiver or consent shall be effective only in the
specific instances and for the purposes for which given and to
the extent specified in such writing. No notice to or demand on
any Related Person shall in any case of itself entitle any
Related Person to any other or further notice or demand in
similar or other circumstances. This Agreement and the other
Transaction Documents set forth the entire understanding and
agreement of the parties hereto and thereto with respect to the
transactions contemplated herein and therein and supersede all
prior discussions and understandings with respect to the subject
matter hereof and thereof, and no modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be
valid or effective unless the same is in writing and signed by
the party against whom it is sought to be enforced.
(b) Acknowledgements and Admissions. Borrower and Parent
each hereby represent, warrant, acknowledge and admit that (i) it
has been advised by counsel in the negotiation, execution and
delivery of the Transaction Documents to which it is a party,
(ii) it has made an independent decision to enter into this
Agreement and the other Transaction Documents to which it is a
party, without reliance on any representation, warranty, covenant
or undertaking by TCW, Agent, Collateral Agent, or Royalty
Assignee whether written, oral or implicit, other than as
expressly set out in this Agreement or in another Transaction
Document delivered on or after the date hereof, (iii) there are
no representations, warranties, covenants, undertakings or
agreements by TCW, Agent, Collateral Agent or Royalty Assignee as
to the Transaction Documents except as expressly set out in this
Agreement or in another Transaction Document delivered on or
after the date hereof, (iv) neither TCW nor Agent nor Collateral
Agent nor Royalty Assignee owes any fiduciary duty to Borrower or
Parent with respect to any Transaction Document or the
transactions contemplated thereby, (v) the relationship pursuant
to the Loan Documents between Borrower, on one hand, and TCW,
Agent and Collateral Agent, on the other hand, is and shall be
solely that of debtor and creditor, respectively, (vi) no
partnership or joint venture exists with respect to the
Transaction Documents between either of Borrower or Parent and
any of TCW, Agent, Collateral Agent or Royalty Assignee,
(vii) should an Event of Default or Default occur or exist each
of TCW, Agent and Collateral Agent will determine in its sole and
absolute discretion and for its own reasons what remedies and
actions it will or will not exercise or take at that time,
(viii) without limiting any of the foregoing, neither Borrower
nor Parent is relying upon any representation or covenant by TCW,
Agent, Collateral Agent, or Royalty Assignee, or any
representative thereof, and no such representation or covenant
has been made, that TCW, Agent, Collateral Agent or Royalty
Assignee, will, at the time of an Event of Default or Default, or
at any other time, waive, negotiate, discuss, or take or refrain
from taking any action permitted under the Transaction Documents
with respect to any such Event of Default or Default or any other
provision of the Transaction Documents, and (ix) TCW has relied
upon the truthfulness of the acknowledgements in this section in
deciding to execute and deliver this Agreement and to make the
Loan.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT 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.
Section 8.2. Survival of Agreements; Cumulative Nature.
All of the various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and
delivery of this Agreement and the other Transaction Documents
and the performance hereof and thereof, including the making or
granting of the Loan and the delivery of the Notes and the other
Transaction Documents, and shall further survive until all of the
Obligations are paid in full to TCW, Agent and Collateral Agent
and all of TCW's obligations to Borrower are terminated. All
statements and agreements contained in any certificate or other
instrument delivered by any Related Person to TCW, Agent or
Collateral Agent under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and
covenants of Borrower under this Agreement. The representations,
warranties, and covenants made by the Related Persons in the
Transaction Documents, and the rights, powers, and privileges
granted to TCW, Collateral Agent and Royalty Assignee in the
Transaction Documents, are cumulative, and, except for expressly
specified waivers and consents, no Transaction Document shall be
construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to TCW, Collateral Agent and Royalty
Assignee of any such representation, warranty, covenant, right,
power or privilege. In particular and without limitation, no
exception set out in this Agreement to any representation,
warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other
Transaction Document, and each such similar representation,
warranty or covenant shall be subject only to those exceptions
which are expressly made applicable to it by the terms of the
various Transaction Documents.
Section 8.3. Notices. All notices, requests, consents,
demands and other communications required or permitted under any
Loan Document shall be in writing, unless otherwise specifically
provided in such Loan Document, and shall be deemed sufficiently
given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery, or by
registered or certified United States mail, postage prepaid, to
Borrower and the Related Persons at the address of Borrower
specified on the signature pages hereto and to TCW at both of the
addresses specified below (unless changed by similar notice in
writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to
have been given (a) in the case of personal delivery or delivery
service, as of the date of first attempted delivery at the
address and in the manner provided herein, (b) in the case of
telecopy, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the
mail; provided, however, that no Request for Advance shall become
effective until actually received by TCW in Los Angeles. Any
such notice or communication to Collateral Agent shall be given
to TCW and shall be deemed received by Collateral Agent when
received by TCW. TCW's addresses are:
Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Telecopy: (213) 244-0604
TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: William K. White
Telephone: (713) 615-7416
Telecopy: (713) 615-7460
with a copy to:
Thompson & Knight, P.C.
1700 Pacific Avenue
3300 First City Center
Dallas, Texas 75201
Attention: John Rain, Esq.
Telephone: (214) 969-1644
Telecopy: (214) 969-1751
Section 8.4. Parties in Interest. All grants, covenants
and agreements contained in the Loan Documents shall bind and
inure to the benefit of the parties thereto and their respective
successors and assigns; provided, however, that no Related Person
may assign or transfer any of its rights or delegate any of its
duties or obligations under any Loan Document without the prior
consent of TCW, Agent or Collateral Agent.
Section 8.5. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT
TO
THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY
ELECTED IN A LOAN DOCUMENT, THE LOAN DOCUMENTS SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES OF
AMERICA (WITHOUT REGARD TO CALIFORNIA PRINCIPLES OF CONFLICTS
OF LAW). EACH OF BORROWER AND PARENT HEREBY IRREVOCABLY
SUBMITS ITSELF AND EACH OTHER RELATED PERSON TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE STATE OF CALIFORNIA AND THE COUNTY OF LOS ANGELES
AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE
UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL PROCEEDING
RELATING TO THE LOAN DOCUMENTS OR THE OBLIGATIONS BY ANY
MEANS ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. EACH OF
BORROWER AND PARENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
Section 8.6. Limitation on Interest. TCW, Agent,
Collateral Agent, the Related Persons and any other parties to
the Transaction Documents intend to contract in strict compliance
with applicable usury law from time to time in effect. In
furtherance thereof such Persons stipulate and agree that none of
the terms and provisions contained in the Transaction Documents
shall ever be construed to create a contract to pay, for the use,
forbearance or detention of money, interest in excess of the
maximum amount of interest permitted to be charged by applicable
law from time to time in effect. Neither any Related Person nor
any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any Obligation shall
ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount
that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. TCW, Agent and
Collateral Agent expressly disavow any intention to charge or
collect excessive unearned interest or finance charges in the
event the maturity of any Obligation is accelerated. If (a) the
maturity of any Obligation is accelerated for any reason, (b) any
Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal
maximum, or (c) TCW or any other holder of any or all of the
Obligations shall otherwise collect moneys which are determined
to constitute interest which would otherwise increase the
interest on any or all of the Obligations to an amount in excess
of that permitted to be charged by applicable law then in effect,
then all such sums determined to constitute interest in excess of
such legal limit shall, without penalty, be promptly applied to
reduce the then outstanding principal of the related Obligations
or, at TCW's or such holder's option, promptly returned to
Borrower or the other payor thereof upon such determination. In
determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted
under applicable law, Agent, TCW, Collateral Agent and the
Related Persons (and any other payors thereof) shall to the
greatest extent permitted under applicable law, (i) characterize
any non-principal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations
in accordance with the amounts outstanding from time to time
thereunder and the maximum legal rate of interest from time to
time in effect under applicable law in order to lawfully charge
the maximum amount of interest permitted under applicable law.
TCW, Borrower and Parent specifically acknowledge that the
Loan has been made or arranged by Trustco acting in its fiduciary
capacity for the Holders and the TCW Funds. As such, it is the
intention of the parties hereto and the parties hereto expressly
agree that under Section 1504 of the California Financial Code
the Loan is exempt from the usury laws of the State of
California.
Section 8.7. Termination; Limited Survival. In its sole
and absolute discretion Borrower may at any time that no
Obligations are owing under the Loan Documents elect in a notice
delivered to TCW to terminate this Agreement and the other Loan
Documents (but not the Royalty Agreement or any Royalty
Conveyance). Upon receipt by TCW of such a notice, if no such
Obligations are then owing then this Agreement and all other Loan
Documents shall thereupon be terminated, the Liens thereunder
released, and the parties thereto released from all prospective
obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made
by any Related Person in any Loan Documents, the obligations of
Parent and Borrower under Section 7.3, and any other obligations
which any Person may have to indemnify or compensate TCW or any
of TCW's Affiliates shall survive any termination of this
Agreement or any other Loan Document. At the request and expense
of Borrower, TCW shall prepare and execute all necessary
instruments to reflect and effect such termination of the Loan
Documents. The Royalty Agreement and the Royalty Conveyances
shall all survive any termination of the Loan Documents under
this section.
Section 8.8. Severability. If any term or provision of any
Loan Document shall be determined to be illegal or unenforceable
all other terms and provisions of the Loan Documents shall
nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
Section 8.9. Counterparts. This Agreement may be
separately executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed shall be deemed to constitute one and the same
Agreement.
SECTION 8.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
EACH OF BORROWER, PARENT, AGENT, COLLATERAL AGENT AND TCW
HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THE TRANSACTION
DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR
ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c)
CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT
OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(d) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER TRANSACTION DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION.
IN WITNESS WHEREOF, this Agreement is executed as of the
date first written above.
INLAND PRODUCTION COMPANY
By:
Kyle R. Miller, President and
Chief Executive Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
INLAND RESOURCES INC.
By:
Kyle R. Miller, President and
Chief Executive Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
TRUST COMPANY OF THE WEST, a California
trust company, as Trustee of TCW Debt &
Royalty Fund IVA
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager pursuant to the Investment
Management and Custody Agreement dated
as of June 1, 1993, with The Trustees of
Columbia University in the City of New
York and Trust Company of the West
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under the Investment Management
Agreement dated as of March 1, 1993 with
The Board of Trustees of The Leland
Stanford Junior University
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, as
Investment Manager under the Investment
Management Agreement dated as of June 8,
1993 between the Searle Trusts Limited
Partnership X, Harris Trust and Savings
Bank, and TCW Asset Management Company
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager pursuant to the Investment
Management and Custody Agreement dated
April 26, 1994, with The City and County
Employees' Retirement System of San
Francisco, TCW Asset Management Company
and Trust Company of the West
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW DEBT AND ROYALTY FUND IVB, a
California limited partnership
By: TCW Asset Management Company, a
California corporation, as General
Partner
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, as
Investment Manager under the Investment
Management Agreement dated as of June 8,
1993 between the John G. Searle
Charitable Trusts Partnership, Harris
Trust and Savings Bank, and TCW Asset
Management Company
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, as
Investment Manager under the Investment
Management Agreement dated as of
December 31, 1993 with Delta Air Lines,
Inc.
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW DEBT AND ROYALTY FUND IVC, a
California limited partnership
By: TCW Asset Management Company, a
California corporation, as General
Partner
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
AGENT:
TRUST COMPANY OF THE
WEST, a
California trust
company, as
Agent
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
COLLATERAL AGENT:
TCW ASSET MANAGEMENT
COMPANY,
a California
corporation, as
Collateral Agent
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
S:\CLIENT-I\09004\380\EXHIBITS\ASC\100366.ASC
<PAGE>
EXHIBIT 4.1.2<PAGE>
ROYALTY AGREEMENT
This Royalty Agreement (this "Agreement") is made as of
November 29, 1995, by and among Inland Production Company, a
Texas corporation (herein called "Grantor"), TCW DR IV Royalty
Partnership, L.P. (herein called "Grantee"), and TCW (as defined
below).
RECITALS
1. Grantor, TCW, Trust Company of the West, as Agent, and
TCW Asset Management Company, as Collateral Agent have entered
into that certain Credit Agreement of even date herewith,
pursuant to which the parties contemplate that Advances shall be
made by TCW to Grantor.
2. In consideration of TCW's commitments to make Advances
under the Credit Agreement and in order to satisfy one of the
conditions precedent to the making of such Advances, Grantor is
entering into this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor, Grantee
and TCW hereby agree as follows:
ARTICLE I
Section 1.1. Defined Terms and References. As used herein
and
in Schedules 1 and 2 hereto, the terms "Agreement," "Grantee,"
and "Grantor" have the meanings given them above. Reference is
hereby made to the Credit Agreement (as defined below) for all
purposes, and terms which are defined therein shall (unless
otherwise defined herein) have the same meanings when used herein
and in Schedule 1 and Schedule 2 hereto. For the purposes of
this Agreement, the following additional terms shall have the
following meanings:
"16% IRR" has the meaning given such term in Schedule 1
hereto. Schedule 1 hereto also defines when a 16% IRR has been
"achieved."
"22% IRR" has the meaning given such term in Schedule 2
hereto. Schedule 2 hereto also defines when a 22% IRR has been
"achieved."
"Burdened Interest" has the meaning given such term in the
Conveyance.
"Credit Agreement" means that certain Credit Agreement dated
of even date herewith, as from time to time amended, supplemented
or restated, among Grantor, TCW, Agent and Collateral Agent.
After termination of such Credit Agreement, "Credit Agreement"
shall mean such Credit Agreement as last in effect prior to its
termination.
"Conveyance" means any instrument, substantially in the form
of Exhibit A, pursuant to which Grantor hereafter conveys to
Grantee a seven percent (7%) gross overriding royalty interest
(subject to adjustment as provided herein and therein).
"Cumulative Disbursements" means all Advances and all other
amounts advanced or expended by Grantee or TCW which Grantor is
obligated to repay or reimburse under the Credit Agreement or any
Transaction Document.
"Final Date" means 7:00 a.m., local time, at the respective
location of each of the properties covered by a Conveyance, on
the first day of the first calendar month following the earliest
calendar month during which a 22% IRR (calculated as provided in
Schedule 2 hereto) has been achieved.
"Loan Payout Date" means 7:00 a.m., local time, at the
respective location of each of the properties subject to the
Conveyance, on the first day of the first calendar month
following the payment of all principal and interest owing on the
Notes.
"Payout Revenues" means all revenues and other payments
received by Grantee or TCW pursuant to any Transaction Documents,
including (a) the financing fee payable under Section 2.5 of the
Credit Agreement and (b) any amount received by Grantee in
connection with a sale or other disposition of any Royalty or any
interest therein; provided, however, that, (i) except for amounts
to be included in Payout Revenues pursuant to Section 3.6 hereof,
Payout Revenues shall not include any purchase price or other
compensation received in connection with any sale or other
disposition of the Notes or any interest therein, and (ii) Payout
Revenues shall not include any Permissible Charges.
"Recalculation Date" means 7:00 a.m., local time, at the
respective location of each of the properties subject to a
Conveyance, on the first day of the first calendar month
following the earliest calendar month during which a 16% IRR
(calculated as provided in Schedule 1 hereto) has been achieved.
"Royalty" means any gross overriding royalty interest granted
(or purported to be granted) under any Conveyance.
"Smith" means Randall D. Smith or any of his successors or
assigns to the ownership of the Smith Properties or to the
ownership of the Smith Warrants.
"Smith Properties" means the wells and leases farmed out to
Randall D. Smith by Parent and Grantor pursuant to that certain
Farmout Agreement dated July 1, 1995.
"Smith Transaction" means either the occurrence of all of the
transactions and events described in the following subparagraph
(a) or the occurrence of all of the transactions and events
described in the following subparagraph (b):
(a) the acquisition, effective on or before the date such
acquisition is consummated, of all of the Smith Properties by
Grantor (either directly from Randall D. Smith or by capital
contribution to Grantor from Parent) in consideration of the
issuance by Parent of shares of Parent's common stock (and
for no other consideration), and the delivery by Grantor to
Grantee of a Conveyance burdening all such Smith Properties.
(b) the exercise by Smith of all Smith Warrants, the
receipt by Parent of all cash proceeds payable under the
Smith Warrants upon such exercise, the contribution of all
such cash by Parent to Grantor, and the application of all
such cash by Grantor to the payment or prepayment of the
Loan.
"Smith Warrants" means the "Warrants" (as defined therein)
held by Smith under that certain Warrant Certificate dated as of
November 22, 1995, issued by Parent to Randall D. Smith.
"Tamco" means TCW Asset Management Company, a California
corporation.
"TCW" means, collectively, (a) Trustco, as Trustee of the TCW
Debt and Royalty Fund IVA established pursuant to a Declaration
of Trust executed December 31, 1992 ("Fund IVA"); (b) Tamco, as
Investment Manager pursuant to the Investment Management and
Custody Agreement dated as of June 1, 1993 among The Trustees of
Columbia University in the City of New York, Tamco and Trustco
("Columbia Fund"); (c) Tamco, as Investment Manager under the
Investment Management Agreement dated as of March 1, 1993 between
The Board of Trustees of The Leland Stanford Junior University
and Tamco ("Leland Stanford Fund"); (d) TCW DEBT and ROYALTY FUND
IVB, A CALIFORNIA LIMITED PARTNERSHIP ("Fund IVB"); (e) Tamco, as
Investment Manager under the Investment Management Agreement
dated as of June 8, 1993 between the Searle Trusts Limited
Partnership X, a Delaware limited partnership (the "Searle
Partnership X"), Harris Trust and Savings Bank, as Custodian for
the Searle Partnership X, and Tamco ("Searle Fund"); (f) Tamco,
as Investment Manager under the Investment Management Agreement
dated as of June 8, 1993, between the John G. Searle Charitable
Trusts Partnership, a Delaware limited partnership (the "Searle
Charitable Partnership"), Harris Trust and Savings Bank, as
Custodian for the Searle Charitable Partnership, and Tamco
("Charitable Trust Fund"); (g) TCW DEBT AND ROYALTY FUND IVC, A
CALIFORNIA LIMITED PARTNERSHIP ("Fund IVC"); (h) Tamco, as
Investment Manager under the Investment Management Agreement
dated as of December 31, 1993 between Delta Air Lines, Inc. and
Tamco ("Delta Master Fund"); and (i) Tamco, as Investment Manager
under the Investment Management and Custody Agreement dated as of
April 26, 1994 among The City and County Employees' Retirement
System of San Francisco, Tamco and Trustco ("San Francisco
Fund").
"TCW Funds" means Fund IVA, Columbia Fund, Leland Stanford
Fund, Fund IVB, Searle Fund, Charitable Trust Fund, Fund IVC,
Delta Master Fund and San Francisco Fund.
"Trustco" means Trust Company of the West, a California trust
company.
Section 1.2. Adjustment for Certain Prepayments. For the
purpose of determining when the Recalculation Date and then the
Final Date occurs, Payout Revenues shall be treated as received
when the same are actually received, except that if any optional
prepayment of principal of the Notes (i.e., any payment other
than (i) payments required under Sections 2.6, 2.7 or 7.1 of the
Credit Agreement or (ii) payments made from the proceeds of the
Smith Warrants as contemplated herein in the definition of "Smith
Transaction") is made before November 30, 1997, then for the
purpose of such determination such payment shall be deemed made
on November 30, 1997.
ARTICLE II
Section 2.1. Conveyances. With respect to any oil or gas
properties or interests (not to include the Smith Properties
until such time, if ever, as Grantor acquires the Smith
Properties, either directly from Randall D. Smith or by capital
contribution to Grantor from Parent) now owned or hereafter
acquired by Grantor at any time during the period prior to
termination of the Credit Agreement (and whether or not any
Advance is then being made under the Credit Agreement), Grantor
shall promptly execute and deliver to Grantee a Conveyance
burdening all such properties and interests, with any necessary
or appropriate modification to take into account requirements of
applicable state or other law.
Section 2.2. Initial Adjustment. Effective as of the
Recalculation Date, the "ORRI Percentage" (as defined in the
Conveyance) shall be reduced from seven percent (7%) to three
percent (3%) if (and only if) both of the following conditions
are satisfied on the Recalculation Date:
(a) a Smith Transaction has been completed on or before
March 20, 1997, and
(b) no Event of Default has occurred at any time on or
prior to the Loan Payout Date.
If either of such conditions has not been met on the
Recalculation Date, then the ORRI Percentage shall not be reduced
as of the Recalculation Date but instead shall remain at seven
percent (7%) until the Final Date. In the event the ORRI
Percentage is adjusted downward to 3% as of the Recalculation
Date, Grantee agrees to execute, within sixty (60) days after
Grantor and Grantee mutually determine that the Recalculation
Date has been reached, an instrument, in recordable form, that
properly evidences that, effective as of the Recalculation Date,
the Royalties have been so reduced.
Section 2.3. Final Adjustment. Effective as of the Final
Date, the ORRI Percentage shall be reduced to zero, and all of
the Royalties then owned by Grantee under the Conveyance(s) shall
likewise be reduced to zero, being thus effectively and
automatically extinguished. Within sixty (60) days after Grantor
and Grantee mutually determine that the Final Date has been
reached, Grantee shall execute an instrument, in recordable form,
that properly evidences that the Royalties have been
extinguished, effective as of the Final Date.
ARTICLE III
Section 3.1. Representations and Warranties. Grantor hereby
remakes, for the benefit of Grantee, all representations and
warranties made by Grantor to TCW in the Credit Agreement.
Section 3.2. Payments. For so long as less than four
Persons make up the "Grantee" under any Conveyance, Grantor will
pay each amount owing to Grantee under such Conveyance by wire
transfer of immediately available funds to such bank account as
Grantee shall from time to time specify in writing at least five
business days prior to the effective date for any such change of
accounts. Grantee hereby specifies the following account as the
initial account to which such wire transfers shall be made:
Sanwa Bank, Monterrey Park, California
ABA# 122003516
Account 4001030
TCW DR IV Royalty Partnership, L.P.
If the interest of Grantee under any Conveyance shall ever be
owned by more than four Persons, such Persons shall designate one
Person as their representative to distribute payments or to
deliver and receive all communications on their behalf. Grantor
shall never be obligated to distribute payments or to deliver or
receive communications under any Conveyance to or from more than
four Persons.
Section 3.3. Covenants Until Loan Payout. To induce Grantee
to enter into this Agreement and TCW to enter into the Credit
Agreement, Grantor warrants, covenants and agrees that, during
the period from the date hereof until the Loan Payout Date
(unless Grantee has previously agreed otherwise), Grantor will
perform for the benefit of Grantee all of Grantor's covenants and
obligations under the Loan Documents, all as fully as if they
were expressly set out herein for the benefit of Grantee. For so
long as the Credit Agreement and Mortgages are in effect and
applicable to any property or interest subject to a Conveyance,
compliance by Grantor with its obligations under the Credit
Agreement and under such Mortgage shall be deemed to constitute
compliance by Grantor under Article V of such Conveyance.
Section 3.4. Covenants Until 22% IRR. To induce Grantee to
enter into this Agreement and TCW to enter into the Credit
Agreement, Grantor warrants, covenants and agrees that during the
period from the Loan Payout Date until a 22% IRR has been
achieved (unless Grantee has previously agreed otherwise):
(a) If any Person ever challenges or attacks (i) the
validity or priority of this Agreement or any Conveyance or of
any rights, titles, or interests created or evidenced hereby or
thereby or (ii) the title of Grantor to any property or interest
subject to any Conveyance or of Grantee to all or any part of any
Royalty, then upon learning thereof Grantor will give prompt
written notice thereof to Grantee and at Grantor's own cost and
expense will diligently endeavor to defeat such challenge or
attack and to cure any defect that may be developed or claimed,
and Grantor will take all necessary and proper steps for the
defense of any legal proceedings with respect thereto, including
the employment of counsel to represent Grantor, the prosecution
or defense of litigation, and the release or discharge of all
adverse claims. Grantee (whether or not named as a party to
legal proceedings with respect thereto) is hereby authorized and
empowered to take such additional steps as in its judgment and
discretion may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority
of this Agreement and the Conveyances and the rights, titles, and
interests created or evidenced hereby or thereby, including the
employment of independent counsel to represent Grantee, the
prosecution or defense of litigation, the compromise or discharge
of any adverse claims made with respect to any Royalty, the
purchase of any tax title and the removal of prior liens or
security interests, and all expenditures so made of every kind
and character shall be paid on demand by Grantor to Grantee and
shall bear interest from the date demanded until paid at the Late
Payment Rate.
(b) Grantor will, on request of Grantee, (i) promptly
correct any defect, error or omission which may be discovered in
the contents, execution or acknowledgment hereof or of any
Conveyance, (ii) execute, acknowledge, deliver and record or file
such further instruments and do such further acts as may be
necessary, desirable or proper to carry out more effectively the
purposes hereof and of the Conveyances and to more fully identify
and make subject to the Conveyances any property intended to be
covered thereby, including any renewals, additions,
substitutions, or replacements of the properties and interests
subject (or intended to be subject) thereto; and (iii) execute,
acknowledge, deliver, and file or record any document or
instrument reasonably requested by Grantee to protect its rights,
title and interests hereunder and under the Conveyances against
the rights or interests of third Persons. Grantor shall
reimburse Grantee within thirty (30) days after written demand
all costs connected with any of the foregoing to the extent paid
or incurred by Grantee, and such costs shall bear interest after
expiration of such thirty (30) days until paid at the Late
Payment Rate.
(c) Grantor will at all times maintain full and accurate
books of account and records and a standard system of accounting
and will furnish the following statements and reports to Grantee
at Grantor's expense:
(i) As soon as available, and in any event within ninety
days after the end of each Fiscal Year, complete Consolidated
and Consolidating financial statements of Grantor (or of
Parent, if Grantor is then a Subsidiary of Parent), together
with all notes thereto and prepared in reasonable detail in
accordance with GAAP, together with an opinion, based on an
audit using generally accepted auditing standards, by
independent certified public accountants selected by Grantor
(or Parent), stating that such financial statements have been
so prepared. These financial statements shall contain a
balance sheet as of the end of such Fiscal Year and
statements of earnings, of cash flows, and of changes in
owners' equity for such Fiscal Year, each setting forth in
comparative form the corresponding figures for the preceding
Fiscal Year.
(ii) As soon as available, and in any event within
forty-five days after the end of each Fiscal Quarter, complete
Consolidated and Consolidating financial statements of
Grantor (or of Parent, if Grantor is then a Subsidiary of
Parent), consisting of a balance sheet as of the end of such
Fiscal Quarter and statements of earnings and cash flows for
the period from the beginning of the then current Fiscal Year
to the end of such Fiscal Quarter, all in reasonable detail
and prepared in accordance with GAAP (subject to minor
changes resulting from normal year-end and audit
adjustments).
(iii) Promptly upon their becoming available, copies of
all financial statements, reports, notices and proxy
statements sent by any Related Person to its partners or
stockholders and all registration statements, periodic
reports and other statements and schedules filed by any
Related Person with any securities exchange, the Securities
and Exchange Commission or any similar governmental
authority.
(iv) By March 1 following the end of each Fiscal Year, an
engineering report prepared as of the end of such Fiscal Year
by Ryder Scott Company, or other independent petroleum
engineers chosen by Grantor and acceptable to Grantee,
concerning the properties and interests subject to any
Conveyance. The report (1) shall separately report on Proved
Producing Reserves, Proved Developed Nonproducing Reserves,
Proved Undeveloped Reserves and Probable Reserves and
separately calculate the NPV of each such category of Proved
Reserves (and the similar net present value of such Probable
Reserves) both for Borrower's and Royalty Assignee's
collective interests and for their separate interests,
(2) shall use TCW Pricing and a 10% discount factor,
(3) shall take into account Grantor's actual experiences with
leasehold operating expenses and other costs in determining
projected leasehold operating expenses and other costs,
(4) shall identify and take into account any "over-produced"
or "under-produced" status under gas balancing arrangements,
and (5) shall otherwise be in form and substance satisfactory
to Grantee. If the report also covers properties and
interests which are not subject to any Conveyance, it shall
distinguish those properties and interests treated in the
report which are subject to the Conveyances.
(d) Grantor will furnish to Grantee any information which
Grantee may from time to time request concerning any covenant,
provision or condition of this Agreement or the Conveyances or
any matter or records in connection herewith or therewith or in
connection with the operation of, reserve engineering for,
production from, or accounting for the properties and interests
subject to any Conveyance. Grantor will permit representatives
appointed by Grantee (including independent accountants, agents,
attorneys, appraisers and any other Persons) upon reasonable
notice to visit and inspect any of such properties and interests
and Grantor's books and records pertaining thereto, and to make
extra copies therefrom and photocopies and photographs thereof,
and to write down and record any information such representatives
obtain, and shall further permit Grantee or its representatives
to investigate and verify the accuracy of the information
furnished to Grantee in connection with this Agreement and the
Conveyances and to discuss all such matters with its officers,
employees and representatives. Grantee agrees that it will take
all reasonable steps to keep confidential any confidential or
proprietary information given to it by Grantor, provided,
however, that this restriction shall not apply to information
which (i) has at the time in question entered the public domain,
(ii) is required to be disclosed by law or by any order, rule or
regulation (whether valid or invalid) of any court or
governmental agency, or any regulatory authority (whether or not
governmental), (iii) is disclosed to TCW or to the Affiliates,
auditors, attorneys, or agents of Grantee or TCW (it being
understood that any such disclosees shall be bound by the same
confidentiality requirements as Grantee), (iv) is furnished to
any purchaser or prospective purchaser of the Royalties provided
that such Persons agree to keep any such information confidential
to the same extent as Grantee is so required, or (v) is disclosed
by Grantee in the course of collecting the Royalties or enforcing
its rights under the Transaction Documents following any default
or breach thereunder by Grantor or any Affiliate of Grantor.
(e) Grantor will promptly notify Grantee of:
(i) any material adverse change in the value of the
Royalties or in the ability of Grantor to fulfill its
obligations hereunder or under any Conveyance;
(ii) any claim of $100,000 or more, any notice of
potential liability under any Environmental Laws, or any
other material adverse claim, which may be asserted with
respect to any properties and interests subject to any
Conveyance; and
(iii) the filing of any suit or proceeding against Grantor
in which an adverse decision could have an adverse effect
upon the value of any Royalty.
(f) Whether or not the transactions contemplated by this
Agreement are consummated, Grantor will promptly (and in any
event, within 30 days after any invoice or other statement or
notice) pay all third party costs and expenses incurred by or on
behalf of Grantee (including reasonable attorneys' fees) in
connection with (i) the negotiation, preparation, execution and
delivery of this Agreement or any Conveyance and any and all
consents, waivers or other documents or instruments relating
hereto or thereto, (ii) the filing, recording, refiling and
re-recording of any Conveyance or any other documents or
instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms hereof or of any
Conveyance, (iii) any other action reasonably required in the
course of administration of this Agreement or any Conveyance, and
(iv) the defense or enforcement of this Agreement or any
Conveyance or the defense of Grantee's exercise of its rights
hereunder or thereunder.
(g) If Grantor fails to pay any taxes, insurance premiums,
delay rentals, lease maintenance costs, attorneys' fees or other
expenses or amounts it is required to pay hereunder or under any
Conveyance, Grantee may pay the same after giving prior notice
thereof to Grantor. Grantor shall immediately reimburse Grantee
for any such payments and each amount paid by Grantee shall
constitute an obligation owed under this Agreement which is due
and payable on the date such amount is paid by Grantee.
(h) Grantor hereby promises to pay interest to Grantee at
the Late Payment Rate on all obligations which Grantor has in
this Agreement promised to pay (including obligations to pay fees
or to reimburse or indemnify Grantee) and which are not paid when
due. Such interest shall accrue from the date such obligations
become due until they are paid.
Section 3.5. Indemnity. Grantor hereby ratifies and
confirms to Grantee the indemnification obligations undertaken by
Grantor under Section 7.3 of the Credit Agreement (which
obligations are for the benefit of, among others, Grantee and its
directors, officers, agents, trustees, managers, attorneys,
employees, representatives and affiliates). Grantor expressly
acknowledges that all of its obligations under Section 7.3 of the
Credit Agreement will, as provided in Section 8.7 of the Credit
Agreement, survive the termination of the Credit Agreement and
will also survive the termination of this Agreement and of all
Conveyances.
Section 3.6. Royalty Right to Join in Sales. Grantor
acknowledges and agrees that, during the term of any Mortgage,
the properties subject thereto cannot be sold without TCW's or
Collateral Agent's consent, which they may give or withhold in
their sole and absolute discretion. Whenever such consent is
given (or the Mortgages have been terminated) and Grantor has,
and intends to take, the opportunity to sell any part of its
interest (in this section called a "Sold Working Interest") in
any properties and interests subject to any Conveyance, Grantor
shall take all necessary action to insure that Grantee has the
opportunity to sell that portion of Grantee's Royalty under such
Conveyance which burdens the properties and interests to be sold
(in this section called a "Sold Royalty") as a part of such
transaction and at a price which is as favorable as that
available to Grantor (taking into consideration that such Sold
Royalty is a cost free interest). Grantor shall give Grantee at
least thirty (30) days notice of any such potential sale (or of
any material modification in the terms of any sale of which such
a notice was previously given). Grantee has no obligation to
participate in or consent to any such transaction or otherwise to
sell all or any part of any Royalty, but if Grantee does
participate in any such transaction:
(a) Regardless of any purchase price allocations made by the
purchaser in such sale to the Sold Working Interest and the Sold
Royalty, Grantor and Grantee shall divide between themselves the
aggregate purchase price received by both, net of costs of sale
and any taxes (other than income taxes, which shall be the
separate obligations of Grantor and Grantee), with Grantor
receiving A/C and Grantee receiving B/C, where:
A equals the NPV (reduced by application of the risk
factors and methodology described in clauses (a), (b) and (c)
in the definition of Modified NPV in the Credit Agreement)
attributable to the Sold Working Interest, as reasonably
derived by Grantee from the then most recent independent
engineering report furnished under Section 5.1(b) of the
Credit Agreement or under Section 3.4(d) of this Agreement,
B equals the NPV (reduced by application of the risk
factors and methodology described in clauses (a), (b) and (c)
in the definition of Modified NPV in the Credit Agreement)
attributable to the Sold Royalty, as reasonably derived by
Grantee from the then most recent independent engineering
report furnished under Section 5.1(b) of the Credit Agreement
or under Section 3.4(d) of this Agreement, taking into
account that the Sold Royalty shall not be reduced by any
costs and expenses burdening the Sold Working Interest other
than the "Permissible Charges" allowed under the Conveyances,
and
C equals the sum of A plus B.
(b) The amount which Grantee receives from such division of
the Purchase Price shall be included in Payout Revenues.
ARTICLE IV
Section 4.1. Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by
course of conduct or otherwise) by Grantee in exercising any
right, power or remedy which it may have under any of the
Transaction Documents shall operate as a waiver thereof or of any
other right, power or remedy, nor shall any single or partial
exercise by Grantee of any such right, power or remedy preclude
any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Transaction
Document and no consent to any departure therefrom shall ever be
effective against Grantee unless it is in writing and signed by
Grantee (or in the case of a Loan Document, by TCW or by
Collateral Agent), and then such waiver or consent shall be
effective only in the specific instances and for the purposes for
which given and to the extent specified in such writing. No
notice to or demand on any Related Person shall in any case of
itself entitle any Related Person to any other or further notice
or demand in similar or other circumstances. This Agreement and
the other Transaction Documents set forth the entire
understanding and agreement of the parties hereto and thereto
with respect to the transactions contemplated herein and therein
and supersede all prior discussions and understandings with
respect to the subject matter hereof and thereof, and no
modification or amendment of or supplement to this Agreement or
the other Transaction Documents shall be valid or effective
unless the same is in writing and signed by Grantor (or in the
case of a Loan Document, by TCW or by Collateral Agent).
(b) Acknowledgements and Admissions. Grantor hereby
represents, warrants, acknowledges and admits that (i) it has
been advised by counsel in the negotiation, execution and
delivery of the Transaction Documents to which it is a party,
(ii) it has made an independent decision to enter into this
Agreement and the other Transaction Documents to which it is a
party, without reliance on any representation, warranty, covenant
or undertaking by Grantee, TCW or Collateral Agent, whether
written, oral or implicit, other than as expressly set out in
this Agreement or in another Transaction Document delivered on or
after the date hereof, (iii) there are no representations,
warranties, covenants, undertakings or agreements by Grantee, TCW
or Collateral Agent as to the Transaction Documents except as
expressly set out in this Agreement or in another Transaction
Document delivered on or after the date hereof, (iv) neither
Grantee nor TCW nor Collateral Agent owes any fiduciary duty to
Grantor with respect to any Transaction Document or the
transactions contemplated thereby, (v) the relationship pursuant
to the Transaction Documents between Grantor, on one hand, and
Grantee, on the other hand, is and shall be solely that of a
grantor and grantee, respectively, of overriding royalty
interests, (vi) no partnership or joint venture exists with
respect to the Transaction Documents between Grantor and Grantee,
(vii) Grantee will determine in its sole and absolute discretion
and for its own reasons how to exercise its rights and remedies
under the Transaction Documents, (viii) without limiting any of
the foregoing, Grantor is not relying upon any representation or
covenant by Grantee, TCW, or Collateral Agent, or any
representative thereof, and no such representation or covenant
has been made, that Grantee, TCW or Collateral Agent will, at any
time, waive, negotiate, discuss, or take or refrain from taking
any action permitted under the Transaction Documents with respect
to any breach or default thereunder or any other provision of the
Transaction Documents, and (ix) Grantee has relied upon the
truthfulness of the acknowledgements in this section in deciding
to execute and deliver this Agreement and to accept the
Conveyances.
Section 4.2. Survival of Agreements; Cumulative Nature. All
of the various representations, warranties, covenants and
agreements of Grantor and Grantee in this Agreement and the
Conveyances shall survive the execution and delivery of this
Agreement and the various Conveyances and the performance hereof
and thereof. The representations, warranties, and covenants made
by the Related Persons or by Grantee in the Transaction
Documents, and the rights, powers, and privileges granted to the
Related Persons or to Grantee, TCW and Collateral Agent in the
Transaction Documents, are cumulative, and, except for expressly
specified waivers and consents, no Transaction Document shall be
construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to the Related Persons, Grantee, TCW
or Collateral Agent of any such representation, warranty,
covenant, right, power or privilege.
Section 4.3. Notices. All notices, requests, consents,
demands and other communications required or permitted under this
Agreement or any Conveyance shall be in writing and shall be
deemed sufficiently given or furnished if delivered by Personal
delivery, by telecopy, by delivery service with proof of
delivery, or by registered or certified United States mail,
postage prepaid, to Grantor at the address of Grantor specified
on the signature pages hereto and to Grantee at both of the
addresses specified below (unless changed by similar notice in
writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to
have been given (a) in the case of Personal delivery or delivery
service, as of the date of first attempted delivery at the
address and in the manner provided herein, (b) in the case of
telecopy, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the
mail. Grantee's addresses are:
TCW DR IV Royalty Partnership, L.P.
c/o Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Telecopy: (213) 244-0604
TCW DR IV Royalty Partnership, L.P.
c/o TCW Asset Management Company
2175 First Interstate Bank Plaza
1000 Louisiana
Houston, Texas 77002
Attention: William K. White
Telephone: (713) 615-7416
Telecopy: (713) 615-7460
With a copy to:
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: John Rain
Telephone: (214) 969-1700
Telecopy: (214) 969-1751
Section 4.4. Parties in Interest. All grants, covenants and
agreements contained herein and in the Conveyances shall bind and
inure to the benefit of the parties hereto and thereto and their
respective successors and assigns. Notwithstanding the
foregoing, until the Final Date, Grantor shall not convey,
mortgage, assign, exchange, transfer or otherwise dispose of all
or any portion of its interest in the Burdened Interest without
first obtaining the written consent of Grantee, which consent may
be granted or withheld in the sole and absolute discretion of
Grantee at any time prior to the Recalculation Date, but which
consent may not unreasonably be withheld at any time between the
Recalculation Date and the Final Date.
Section 4.5. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT
TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY
ELECTED IN A CONVEYANCE, THIS AGREEMENT AND THE CONVEYANCES SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES OF
AMERICA (WITHOUT REGARD TO CALIFORNIA PRINCIPLES OF CONFLICTS OF
LAW).
GRANTOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE
OF CALIFORNIA AND THE COUNTY OF LOS ANGELES AND AGREES AND
CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL
PROCEEDING RELATING TO THIS AGREEMENT OR ANY CONVEYANCE BY ANY
MEANS ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. GRANTOR
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 4.6. Severability. If any term or provision of this
Agreement or any Conveyance shall be determined to be illegal or
unenforceable all other terms and provisions hereof and thereof
shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
Section 4.7. Counterparts. This Agreement may be separately
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to constitute one and the same Agreement.
SECTION 4.8. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
EACH OF GRANTOR AND GRANTEE HEREBY (a) KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY
AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE
TRANSACTION DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR
ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED
THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (d) ACKNOWLEDGES THAT IT HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER TRANSACTION
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION. GRANTOR HEREBY REPRESENTS AND
ACKNOWLEDGES THAT IT IS A "BUSINESS CONSUMER" FOR THE PURPOSES OF
THE TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT,
THAT IT HAS ASSETS OF $5,000,000 OR MORE ACCORDING TO ITS MOST
RECENT FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, THAT IT HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO
EVALUATE THE MERITS AND RISKS OF CREDIT TRANSACTIONS GENERALLY
AND OF THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS
IN PARTICULAR, AND THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE
BARGAINING POSITION WITH RESPECT TO THE PARTIES TO AND THE
TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS; GRANTOR
HEREBY WAIVES THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT (OTHER THAN SECTION 17.555
THEREOF), AS FROM TIME TO TIME AMENDED.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first written above.
GRANTOR: INLAND PRODUCTION COMPANY
By:
Kyle R. Miller
President
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
GRANTEE: TCW DR IV ROYALTY PARTNERSHIP, L.P.
By: TCW ROYALTY COMPANY IV,
Managing Partner
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW: TRUST COMPANY OF THE WEST, a California
trust company, as Trustee of TCW Debt &
Royalty Fund IVA
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager pursuant to the Investment
Management and Custody Agreement dated
as of June 1, 1993, with The Trustees of
Columbia University in the City of New
York and Trust Company of the West
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager under the Investment Management
Agreement dated as of March 1, 1993 with
The Board of Trustees of The Leland
Stanford Junior University
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, as
Investment Manager under the Investment
Management Agreement dated as of June 8,
1993 between the Searle Trusts Limited
Partnership X, Harris Trust and Savings
Bank, and TCW Asset Management Company
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a
California corporation, as Investment
Manager pursuant to the Investment
Management and Custody Agreement dated
April 26, 1994, with The City and County
Employees' Retirement System of San
Francisco, TCW Asset Management Company
and Trust Company of the West
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW DEBT AND ROYALTY FUND IVB, a
California limited partnership
By: TCW Asset Management Company, a
California corporation, as General
Partner
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, as
Investment Manager under the Investment
Management Agreement dated as of June 8,
1993 between the John G. Searle
Charitable Trusts Partnership, Harris
Trust and Savings Bank, and TCW Asset
Management Company
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, as
Investment Manager under the Investment
Management Agreement dated as of
December 31, 1993 with Delta Air Lines,
Inc.
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
TCW DEBT AND ROYALTY FUND IVC, a
California limited partnership
By: TCW Asset Management Company, a
California corporation, as General
Partner
By:
Arthur R. Carlson
Managing Director
By:
William K. White
Senior Vice President
Common Address for Grantee and TCW:
c/o Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
<PAGE>
EXHIBIT 4.1.3<PAGE>
CONVEYANCE OF ADJUSTABLE
OVERRIDING ROYALTY INTEREST
Recitals:
A. Inland Production Company, a Texas corporation
(herein called "Grantor") owns certain oil, gas and/or
mineral properties more particularly described herein as the
"Subject Interests."
B. Grantor desires to convey to TCW DR IV Royalty
Partnership, L.P. (herein called "Grantee") an overriding
royalty interest (hereinafter more particularly described as
the "Overriding Royalty") that may be adjusted downward as
of the "Recalculation Date" (below defined), depending upon
certain circumstances and factors more particularly
described below.
ARTICLE I
Defined Terms
"Affiliate" shall mean any Person directly or indirectly
owning or holding with power to vote 10% or more of the
outstanding voting securities of Grantor, any person with
10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power
to vote by Grantor, any person directly or indirectly
controlling, controlled by or under common control with
Grantor, and any officer, director, partner or sanguinal or
affinal kin of Grantor or any person otherwise described in
this definition.
"Applicable Environmental Laws" shall have the meaning
assigned to it in Section 5.4.
"Applicable Percentage" shall mean, with respect to each
portion of Subject Lands identified in Part One of Exhibit
A, the percentage set forth in connection therewith opposite
the words "Working Interest."
"Burdened Interest" shall mean the Subject Interests
less the Overriding Royalty.
"Credit Agreement" shall have the meaning assigned to it
in the Royalty Agreement.
"Effective Date" shall mean 7:00 a.m. local time at the
locations of the Subject Interests, respectively, on
November 29, 1995.
"Final Date" shall have the meaning assigned to it in
the Royalty Agreement.
"Loan Payout Date" shall have the meaning assigned to it
in the Royalty Agreement.
"Mortgage" shall mean that certain Deed of Trust,
Mortgage, Line of Credit Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement of even
date herewith from Grantor in favor of First American Title
Company of Utah, as trustee, and TCW Asset Management
Company, as Collateral Agent.
"October 19 Interline Contract" shall mean that certain
Gas Purchase Agreement dated as of October 19, 1988, by and
between Lomax Exploration Company et al, as sellers, and
Interline, as buyer.
"October 24 Interline Contract" shall mean that certain
Gas Purchase Agreement dated as of October 24, 1988, by and
between Lomax Exploration Company et al, as sellers, and
Interline, as buyer.
"ORRI Percentage" shall be defined as follows:
(a) Until the Recalculation Date, the ORRI
Percentage shall be seven percent (7%).
(b) From and after the Recalculation Date and
until the Final Date, the ORRI Percentage
shall be adjusted downward to three percent
(3%), in the event that both of the following
conditions are satisfied on the Recalculation
Date: (i) the Smith Transaction has been
completed on or before March 20, 1997, and
(ii) no Event of Default, as defined in the
Credit Agreement, has occurred at any time on
or before the Loan Payout Date; provided that,
the ORRI percentage shall not be adjusted
downward as of the Recalculation Date, but
instead shall remain at seven percent (7%)
until the Final Date if either of such
conditions is not satisfied on the
Recalculation Date.
(c) From and after the Final Date, the ORRI
Percentage shall be adjusted downward to 0%,
effectively terminating the Overriding
Royalty.
"Overproduced Position" shall mean a position that
arises as a result of a party (and/or its predecessors in
title) taking more production from a property than its
ownership interest in such property would, but for a gas
balancing or similar agreement, entitle it to take.
"Overriding Royalty" shall have the meaning assigned to
it in Section 2.1.
"Parent" shall have the meaning assigned to it in the
Credit Agreement.
"Part One Properties" shall mean the oil, gas and/or
other minerals in, under and/or that may be produced from or
otherwise allocable to the Subject Lands, together with all
unitization, communitization and/or pooling agreements,
declarations and/or orders (and the rights, titles and
interests created thereby) related thereto.
"Part Two Properties" shall mean all of Grantor's right,
title and interest, net of all valid and existing burdens,
in and to the oil, gas and/or other minerals in, under
and/or that may be produced from, or otherwise allocable to,
the properties, rights and interests described in Part Two
of Exhibit A hereto, together with all of Grantor's right,
title and interest in and to any unitization,
communitization and/or pooling agreements, declarations
and/or orders (and the rights, titles and interests created
thereby) related thereto.
"Permissible Charges" shall mean all taxes assessed
against or measured by production and severance of ORRI
Hydrocarbons or the value thereof, including severance
taxes.
"Person" shall include an individual, an estate, a
corporation, a partnership, an association, a joint stock
company, a trust, a trustee, an estate, an executor or
administrator, an organization, a governmental unit or
agency or any other legally recognizable entity.
"Recalculation Date" shall have the meaning assigned to
it in the Royalty Agreement.
"Royalty Agreement" means that certain Royalty Agreement
of even date herewith between Grantor, Grantee and TCW.
"Smith" means Randall D. Smith or any of his successors
or assigns to the ownership of the Smith Properties or to
the ownership of the Smith Warrants.
"Smith Properties" means the wells and leases farmed out
to Randall D. Smith by Parent and Grantor pursuant to that
certain Farmout Agreement dated July 1, 1995.
"Smith Transaction" means either the occurrence of all
of the transactions and events described in the following
subparagraph (a) or the occurrence of all of the
transactions and events described in the following
subparagraph (b):
(a) the acquisition, effective on or before the
date
such acquisition is consummated, of all of the Smith
Properties by Grantor (either directly from Randall D.
Smith or by capital contribution to Grantor from Parent)
in consideration of the issuance by Parent of shares of
Parent's common stock (and for no other consideration),
and the delivery by Grantor to Grantee of a Conveyance
burdening all such Smith Properties.
(b) the exercise by Smith of all Smith Warrants,
the
receipt by Parent of all cash proceeds payable under the
Smith Warrants upon such exercise, the contribution of
all such cash by Parent to Grantor, and the application
of all such cash by Grantor to the payment or prepayment
of the Loan.
"Smith Warrants" means the "Warrants" (as defined
therein) held by Smith under that certain Warrant
Certificate dated as of November 22, 1995, issued by Parent
to Randall D. Smith.
"Subject Interests" shall mean (a) the undivided
interests set forth in Part One of Exhibit A hereto in and
to the Part One Properties, and (b) the Part Two Properties,
collectively.
"Subject Lands" shall mean those lands described in Part
One of Exhibit A, attached hereto and made a part hereof.
"TCW" shall have the meaning assigned to it in the
Royalty Agreement.
"Underproduced Position" shall mean a position that
arises as a result of a party (and/or its predecessors in
title) taking less production from a property than its
ownership interest in such property would, but for a gas
balancing or similar agreement, entitle it to take.
ARTICLE II
Granting Provisions
Section 2.1. Granting Clause. For a good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, Grantor does hereby GRANT, BARGAIN,
SELL, TRANSFER, ASSIGN, CONVEY, WARRANT and DELIVER to
Grantee overriding royalty interests (collectively, the
"Overriding Royalty") equal to and measured by the sum of
(a) the ORRI Percentage of the Applicable Percentage of each
of the Part One Properties, and (b) the ORRI Percentage
of each of the Part Two Properties.
Section 2.2. Adjustment of the Overriding Royalty;
Further Assurances. Grantor and Grantee agree to execute
(or cause to be executed) any such instruments as may be
necessary or appropriate in order to evidence of record in
the appropriate filing jurisdictions that the ORRI
Percentage has been adjusted (assuming it has been) as of
the Recalculation Date and/or the Final Date.
Section 2.3. No Proportionate Reduction -- the Part One
Properties. It is understood and agreed that, though the
Overriding Royalty may be conveyed by Grantor to Grantee out
of Grantor's interest in the oil and gas leases, unit
agreements or other agreements (the "Part One Leases")
identified in Part One of Exhibit A, insofar as said Part
One Leases cover Subject Lands, the Overriding Royalty shall
nonetheless be equal to the full ORRI Percentage of the
Applicable Percentage of the oil, gas and/or other minerals
in, under and/or that may be produced from the Subject
Lands, and shall not be reduced for any reason. Without
limitation of the generality of the foregoing, the
Overriding Royalty relating to the Part One Properties shall
not be reduced if (a) the undivided interest of Grantor in a
Part One Lease is less than a 100% interest in such Part One
Lease (or is less than the interest, if any, stated on
Exhibit A with respect to such Part One Lease), (b) the
interest in oil, gas and/or other minerals in, under and/or
that may be produced from any portion of the Subject Lands
which is covered by a particular Part One Lease (or group of
Part One Leases) is less than the entire interest in the
oil, gas and/or other minerals in, under and/or that may be
produced from such portion of the Subject Lands, or (c) if
the share of production from any portion of Subject Lands to
which Grantor is entitled by virtue of its ownership
interest in the Part One Leases is less than the Applicable
Percentage set forth on Exhibit A for such portion of the
Subject Lands.
Section 2.4. Permissible Charges. The Overriding
Royalty shall be free of all pre-production, production and
post-production charges, costs, expenses (including, without
limitation operating expenses and marketing expenses) and
taxes (including without limitation ad valorem or property
taxes), other than the Permissible Charges. Notwithstanding
any provision hereof to the contrary, the Overriding Royalty
shall not apply to (a) any oil, gas and/or other minerals as
are (i) unavoidably lost in operations on or relating to the
Subject Interests or in marketing of oil, gas and/or other
minerals from or attributable to the Subject Interests, or
(ii) consumed or utilized (e.g., as part of a re-injection
program) in prudent operations conducted on the Subject
Lands with a reasonable expectation of increasing ultimate
recovery of oil, gas and/or other minerals from the Subject
Interests; provided that, to the extent any oil, gas and/or
other minerals utilized in operations conducted on the
Subject Lands are subsequently re-produced, the Overriding
Royalty shall apply to such re-produced volumes. Further
notwithstanding any provision hereof to the contrary, (a)
until the earlier to occur of October 31, 1997 or
termination of the October 19 Interline Contract, any fees
or other amounts deducted by Interline Natural Gas, Inc.
("Interline") under the terms of the October 19 Interline
Contract prior to making payment to Grantor for gas sold to
Interline pursuant to such contract shall be considered a
Permissible Charge, and (b) until the earlier to occur of
October 31, 1997 or termination of the October 24 Interline
Contract, any fees or other amounts deducted by Interline
Natural Gas, Inc. ("Interline") under the terms of the
October 24 Interline Contract prior to making payment to
Grantor for gas sold to Interline pursuant to such contract
shall be considered a Permissible Charge.
Section 2.5. Pooling Issues. Prior to the date hereof,
certain of the Subject Interests may have been pooled or
unitized for the production of oil, gas and/or minerals.
Without the joinder of Grantee with respect to the
Overriding Royalty, Grantor shall not, from and after the
date hereof, have the right and power to unitize,
communitize or pool any portion or portions of the
Overriding Royalty. If pursuant to any law, rule,
regulation or order of any governmental body or official,
any portion of the Subject Interests is automatically or
involuntarily pooled, communitized or unitized in any
manner, or if Grantee has joined in or agreed to any
pooling, communitization or unitization, the Overriding
Royalty, insofar as it affects such Subject Interests, shall
also be pooled, communitized and unitized. With respect to
each existing pool or unit, and with respect to each pool or
unit in which the Overriding Royalty is hereafter included
in accordance with the foregoing, the Overriding Royalty in
each portion of Subject Interests included in such pool or
unit shall apply to the portion of production from such pool
or unit which is attributable to such portion of Subject
Interests under and by virtue of the applicable pooling,
communitization and unitization agreements, designations
and/or orders.
Section 2.6. Renewals and Extensions. The Overriding
Royalty shall apply to all renewals, extensions and other
similar arrangements of any oil, gas and/or mineral lease,
deed or any other interest included, in part or in whole, in
the Subject Interests. A new lease or other instrument or
agreement taken before the expiration of the existing lease
or other instrument or agreement which it replaced or within
one year after expiration of such lease or other instrument
or agreement, and covering the same interest (or any part
thereof) which was covered by the existing lease or other
instrument or agreement, shall be considered a renewal or
extension for the purposes hereof.
Section 2.7. Gas Imbalances. It is hereby recognized
that certain of the Subject Interests are or may be subject
to Underproduced Positions. It is hereby further recognized
and stipulated that the Overriding Royalty does and shall
apply to the volumes of oil, gas or other hydrocarbons taken
by Grantor in reducing or making up an Underproduced
Position (which volumes and any make-up rights relating
thereto shall for all purposes hereof be included within the
Subject Interests), whether the subject Underproduced
Position arose before, or arises after, the Effective Date
hereof.
Section 2.8. Fee, Royalty and Similar Interests. It is
hereby recognized that certain of the Subject Interests may
constitute or include (a) unleased mineral fee interests and
unleased mineral rights or servitudes (the "Unleased Mineral
Interests"), (b) mineral fee interests and mineral rights or
servitudes that are owned by Grantor but subject to an
existing oil, gas and/or mineral lease or similar agreement
in favor of a third party or parties, which oil, gas and/or
mineral lease or similar agreement entitles Grantor to be
paid a royalty, either in kind or in money (the "Leased
Mineral Interests"), and (c) perpetual or term royalty or
overriding royalty interests carved out of and burdening a
mineral fee, right, servitude or lease owned by a third
party or third parties (the "Royalty Interests") (the
Unleased Mineral Interests, the Leased Mineral Interests and
the Royalty Interests are herein collectively called the
"Non-Working Interest Properties"). It is hereby recognized
and stipulated that the Overriding Royalty is payable out of
and shall burden the Non-Working Interest Properties, just
as it is payable out of and burdens the balance of the
Subject Interests. By way of example (and not by way of
limitation):
(i) If Grantor owns an Unleased Mineral Interest
that
constitutes a 50% undivided mineral fee interest in a
particular tract of land, the Overriding Royalty payable
relative to such tract of land would, until the
Recalculation Date, be equal to and measured by an
undivided 7% of 50% of the oil, gas and/or other
minerals in, under and/or that may be produced from the
subject tract of land;
(ii) If Grantor owns a Leased Mineral Interest that
constitutes an undivided 50% mineral fee interest in a
particular tract of land that is subject to a lease
entitling Grantor to a 20% royalty interest,
proportionately reduced, the Overriding Royalty payable
relative to such tract of land would, until the
Recalculation Date, be equal to and measured by an
undivided 7% of 10% of the oil, gas and/or other
minerals in, under and/or that may be produced from the
subject tract of land; and
(iii) If Grantor owns a Royalty Interest that
constitutes a 1/32nd nonparticipating royalty interest
in a particular tract of land, the Overriding Royalty
payable relative to such tract of land would, until the
Recalculation Date, be equal to and measured by an
undivided 7% of 1/32nd of the oil, gas and/or other
minerals in, under and/or that may be produced from the
subject tract of land.
Grantee recognizes that, from and after the date hereof,
Grantor may desire to execute oil, gas and/or mineral leases
covering certain of the Unleased Mineral Interests. In this
connection, Grantee recognizes and stipulates that Grantor
may, and is hereby authorized to, execute any such future
oil, gas and/or mineral lease covering an Unleased Mineral
Interest or group of Unleased Mineral Interests (a "Future
Lease"), upon and subject to the following terms, conditions
and limitations:
(a) Any Future Lease shall entitle Grantor to a
royalty share of all oil, gas and/or other
minerals produced under and allocable to such
Future Lease that shall in no event be less than
1/8 of 8/8, it being recognized that the royalty
share of Grantor (be it 1/8 or some greater
fraction) may have to bear, in some or all of the
Undeveloped Properties, all or some portion of
the Overriding Royalty.
(b) Any Future Lease must contain a clause expressly
recognizing the burden of the Overriding Royalty.
(c) Any Future Lease must have a primary term that
does not exceed five (5) years, and a secondary
term that can be extended only by production in
paying or commercial quantities or by some other
lease savings provision (such as a shut-in gas
royalty provision or a continuous operations
clause) commonly found in oil and gas leases
executed by lessors that are sophisticated in oil
and gas leasing transactions.
(d) No Future Lease may cover in excess of 500 acres
unless it contains such severance provisions
(i.e., provisions that terminate an oil and gas
lease as to lands and depths covered thereby that
are not developed by the lessee with the
diligence and dispatch) as would be included by a
lessor that is sophisticated in oil and gas
transactions.
(e) Grantor may execute an agreement containing an
option or similar arrangement (an "Option")
exercisable by a third party to take a Future
Lease covering an Unleased Mineral Interest,
provided that any such Future Lease as may be
executed as a result of the exercise by a third
party of its Option must conform to the criteria
set forth in items (a), (b), (c) and (d), above.
To the extent Grantor executes any particular Future Lease
in compliance with the foregoing, the Overriding Royalty
Interest of Grantee in the oil, gas and/or other minerals
in, under and/or that may be produced from the lands and
depths covered by said Future Lease shall be covered by and
subject to such Future Lease, the same as if Grantee had
joined in the execution thereof, it being recognized that
Grantor has retained, and does hereby retain, the executive
rights (or the right to lease) with respect to the
Overriding Royalty. By way of example (and not by way of
limitation):
If Grantor owns an Unleased Mineral Interest that
constitutes an undivided 50% mineral fee interest in
a particular tract of land, and Grantor hereafter
executes a Future Lease covering such 50% mineral
fee
interest and such Future Lease provides for payment
to Grantor of a 20% proportionately reduced royalty
interest, the Overriding Royalty payable relative to
such tract of land shall, until the Recalculation
Date, be equal to and measured by an undivided 7% of
the 20% royalty interest, to be proportionately
reduced to take into account that the subject Future
Lease covers only a 50% mineral fee interest, such
7%
of the 20% royalty interest to be payable upon and
subject to the terms of such Future Lease, leaving
Grantor with the balance of the 20% royalty interest
(i.e., 20% less 7%, or 14%), likewise to be
proportionately reduced and otherwise to be payable
to Grantor upon and subject to the terms of the
Future Lease.
Section 2.8. Habendum Clause and Subrogation. TO HAVE
AND TO HOLD the Overriding Royalty unto Grantee, its
successors and assigns, forever. This Conveyance is made
with full substitution and subrogation of Grantee in and to
all covenants and warranties by others heretofore given or
made.
ARTICLE III
Assignments and Transfers
Section 3.1. Assignment and Transfer by Grantee.
Nothing herein contained shall in any way limit or restrict
the right of Grantee to sell, convey, assign, mortgage or
otherwise dispose of the Overriding Royalty (including its
rights, titles, interests, estates, remedies, powers and
privileges appurtenant or incident to the Overriding Royalty
under this Conveyance), in whole or in part. No change of
ownership of the Overriding Royalty shall be binding upon
Grantor until Grantor is furnished with copies of the
original documents evidencing such change. Upon receipt by
Grantor of copies of the original documents evidencing a
sale, conveyance, assignment, mortgage or other disposition
of the Overriding Royalty, Grantor shall deal with the
purchaser or assignee in place of Grantee and references
herein to the Grantee shall thereafter be deemed to be
references to such purchaser or assignee.
Section 3.2. Assignment and Transfer by Grantor. Any
sale, conveyance, assignment, mortgage or other disposition
of the Burdened Interest, or any part thereof or interest
therein, by Grantee shall be null and void and of no legal
force and effect unless (a) Grantor shall have first
obtained the written consent of Grantee, and (b) in the
instrument effecting such transfer or other disposition, the
transferee or other disposition recipient expressly
recognizes and assumes all obligations, covenants and
agreements of Grantor hereunder.
Section 3.3. Covenants Running With the Burdened
Interest. All covenants and agreements of Grantor herein
contained shall be deemed to be covenants running with the
Burdened Interest. All of the provisions hereof shall inure
to the benefit of Grantee and its successors and assigns.
ARTICLE IV
Marketing of ORRI Hydrocarbons and Distribution of Proceeds
Section 4.1. Nature of Marketing Arrangements.
Grantor shall have the obligation to prudently market, or
cause to be prudently marketed, the oil, gas and other
minerals attributable to the Overriding Royalty (the "ORRI
Hydrocarbons") on behalf of and for the account of Grantee
in arm's-length transactions with reputable purchasers who
are not Affiliates, with each such marketing arrangement,
including without limitation arrangements relating to sales,
treating, transportation, compression and processing, to be
hereafter made upon terms and conditions (the "Marketing
Terms and Conditions") which (a) are the best and most
favorable reasonably obtainable in the general field or
area, (b) are at least as favorable as Grantor or any
Affiliate of Grantor obtains for the share of oil, gas
and/or other minerals attributable to the Burdened Interest
or attributable to any other properties in the same field or
general area, (c) take into account and give due regard to
the best interests of Grantee, and (d) terminate (or are
terminable without penalty or detriment) after a primary
term not to exceed six months. Grantor hereby represents
and warrants that, except to the extent disclosed in Exhibit
A hereto, all marketing arrangements in effect as of and/or
at any time after the Effective Date comply with the
Marketing Terms and Conditions. No ORRI Hydrocarbons are or
will become subject to any sales arrangement whereby (i)
payment for ORRI Hydrocarbons is or can be deferred for a
substantial period after the month in which the ORRI
Hydrocarbons are delivered (i.e., in the case of oil, in
excess of 30 days, and in the case of gas in excess of 90
days), or (ii) payments may be made other than by checks,
drafts, wire transfer or similar communications for the
immediate payment of money. Grantor shall duly and
prudently perform all obligations performable by it under
any arrangements by which ORRI Hydrocarbons are sold or
otherwise marketed, and shall take all appropriate measures
to enforce the performance under each such arrangement of
the obligations of the other parties thereto. As to any
third parties, all acts of Grantor in marketing the ORRI
Hydrocarbons and all sales or other marketing agreements
executed by Grantor in accordance herewith shall be binding
on Grantee and the Overriding Royalty; it being understood
that the right and obligation to market the ORRI
Hydrocarbons is at all times vested in Grantor, and Grantee
does not have any such right or obligation or any possessory
interest in all or part of the ORRI Hydrocarbons.
Accordingly, it shall not be necessary for Grantee to join
in any production sales or marketing agreements or any
amendments to existing production sales or marketing
agreements. Notwithstanding any provision hereof to the
contrary, any acts of Grantor in marketing the ORRI
Hydrocarbons or in entering production sales or marketing
agreements which are not in compliance with the provisions
of this Conveyance shall be void, effective from and after
the date Grantee notifies Grantor of such noncompliance, as
to the ORRI Hydrocarbons.
Section 4.2. Distribution of Funds. Until notified by
Grantee to the contrary, Grantor shall receive all payments
for (or on account of) ORRI Hydrocarbons and shall, on or
before the last day of each calendar month, distribute any
such payments received during the previous calendar month,
net only of Permissible Charges, to Grantee by wire transfer
to such account(s) or location(s) as Grantee may direct in
the Royalty Agreement, or otherwise as Grantee may direct
from time to time in writing. Any monies received by
Grantee for or on account of ORRI Hydrocarbons shall
constitute trust funds in Grantee's hands. Grantee shall
have the right at all times, upon written notice sent to
Grantor, to begin receiving payment for (or on account of)
all ORRI Hydrocarbons directly from the purchasers thereof
or from any other parties obligated to make payment
therefor. In the event Grantee exercises its right to
receive payment for (or on account of) ORRI Hydrocarbons
directly, Grantor shall immediately cause to be prepared and
executed such division orders, transfer orders, or
instructions in lieu thereof, as Grantee (or any third
party) may require from time to time to cause payments to be
made directly to Grantee; in the event that, for any reason,
Grantee cannot (or does not) receive such payments directly,
the same shall be collected by Grantor and shall constitute
trust funds in Grantor's hands, to be immediately paid over
to Grantee by wire transfer to such account or location as
Grantee may direct from time to time in writing (or by such
other form of transfer reasonably specified by Grantee).
Section 4.3. Production Records, Statements and
Payments. Grantor shall keep full, true, and correct
records of the oil, gas, and other hydrocarbons produced
from or attributable to the Subject Interests, and the
portion attributable to the Overriding Royalty. Such
records may be inspected by Grantee or its authorized
representatives and copies made thereof at all reasonable
times. Grantor shall, on or before the last day of each
"Calculation Quarter" (as hereinafter defined) send to
Grantee a statement setting forth (i) the production from
the Subject Interests for the preceding Calculation Quarter,
(ii) the portion of such production attributable to the
Overriding Royalty, (iii) to the extent Grantee does not
receive direct payment of proceeds from sale of ORRI
Hydrocarbons pursuant to Section 4.2 above, the gross
proceeds attributable to the sale of ORRI Hydrocarbons and
the Permitted Charges allocable thereto, and (iv) such other
data as Grantee may reasonably request, in such form as
Grantee may reasonably request. "Calculation Quarter" shall
have the meaning given such term in the Credit Agreement; at
such time as the term Calculation Quarter shall cease to
have any on-going relevance under the Credit Agreement, the
term Calculation Quarter as used herein shall be deemed to
mean a calendar quarter.
Section 4.4. Notification to Production Purchasers.
ANY AND ALL PURCHASERS OF ORRI HYDROCARBONS (AND/OR ANY OIL,
GAS AND/OR OTHER HYDROCARBONS ATTRIBUTABLE TO THE BURDENED
INTEREST) SHALL HAVE THE RIGHT TO ASSUME THAT THE OVERRIDING
ROYALTY IS STILL VALID AND EXISTING -- CALCULATED UTILIZING
AN ORRI PERCENTAGE OF 7% -- UNTIL SUCH TIME AS SUCH
PURCHASER IS NOTIFIED IN WRITING BY GRANTEE TO BEGIN MAKING
PAYMENTS ON SOME OTHER BASIS. UNTIL RECEIVING SUCH WRITTEN
NOTIFICATION, ALL PURCHASERS OF PRODUCTION SHALL CONTINUE
MAKING PAYMENTS IN ACCORDANCE WITH THE FOREGOING ASSUMPTIONS
(AND OTHERWISE IN ACCORDANCE WITH THE DIRECTIVES SET OUT IN
SECTION 4.2 HEREOF), AND SHALL NOT PLACE THE FUNDS IN
SUSPENSE.
ARTICLE V
Representations, Warranties and Covenants
Grantor hereby represents, warrants and covenants for
the benefit of Grantee as follows:
Section 5.1. Operations. The Subject Interests and
properties unitized therewith are being (and, to the extent
the same could adversely affect the ownership or operation
of the Subject Interests after the date hereof, have during
Grantor's tenure of ownership been) maintained, operated and
developed in a good and workmanlike manner, in accordance
with prudent industry standards and in conformity with all
applicable laws, rules, regulations and orders of all duly
constituted authorities having jurisdiction and in
conformity with all oil, gas or their mineral leases, deeds
and other contracts and agreements forming a part of the
Subject Interests. Grantor has all governmental licenses
and permits necessary or appropriate to own and operate the
Subject Interests, and Grantor has not received notice of
any violations in respect of any such licenses or permits.
Grantor shall be obligated to develop, operate and maintain
the Burdened Interest as would a prudent operator.
Decisions with regard to the conduct of operations are to be
made by Grantor without considering the effect of the
Overriding Royalty as a burden on the Subject Interests. As
to any portions of the Burdened Interest as to which Grantor
is not the operator, Grantor shall take all such action and
exercise all such rights and remedies as are legally
available to it to cause the operator to so develop,
maintain and operate such portions of the Burdened Interest.
Section 5.2. Title. Grantor has good and defensible
title to the Subject Interests, free and clear of all liens,
security interests, and encumbrances except for (i) the
contracts, agreements, burdens, encumbrances and other
matters set forth in the descriptions of certain of the
Subject Interests on Exhibit A hereto, (ii) the liens and
security interests evidenced by the Mortgage, (iii) liens
imposed by mandatory provisions of law for taxes and
governmental charges, levies or assessments which are not
yet delinquent or (A) which are being contested in good
faith by appropriate action promptly and diligently
conducted, (B) for which adequate cash reserves (segregated
to the extent required by generally accepted accounting
principles) have been set aside, (C) with respect to which
levy and execution thereon have been stayed and continue to
be stayed, and (D) do not, individually or in the aggregate,
materially detract from the value of the Subject Interests
in question or materially impair the use of such Subject
Interests in Grantor's business, (iv) liens under operating
agreements, pooling orders and unitization agreements, and
mechanics' and materialmen's liens, with respect to
obligations which are not yet due, and (v) minor defects and
irregularities in title to any Subject Interests, so long as
such defects and irregularities neither (A) are liens which
secure third party indebtedness or obligations nor (B)
materially impair the value of Subject Interests or the use
thereof for the purposes for which such Subject Interests
are held. Grantor will warrant and defend title to the
Subject Interest, subject as aforesaid, against the claims
and demands of all persons claiming or to claim the same or
any part thereof; provided that, from and after the Final
Date, Grantor shall be obligated to warrant and defend title
to the Subject Interests against only claims and demands
arising by, through or under Grantor, but not otherwise.
Without limitation of the foregoing, with respect to each
Subject Interest, the ownership of Grantor in such Subject
Interest does and will, (a) with respect to each tract of
Subject Lands described in Part One of Exhibit A in
connection with such Subject Interest, entitle Grantor to
receive (subject to the terms and provisions of this
Conveyance) a decimal or percentage share of the oil, gas
and other hydrocarbons produced from, or allocated to, such
tract equal to not less than the decimal or percentage share
set forth in Part One of Exhibit A in connection with such
tract under the word "Net Revenue Interest" and (b) if such
Subject Interest is shown on Part One of Exhibit A to be
subject to a unit or units, with respect to each such unit,
entitle Grantor to receive (subject to the terms and
provisions of this Conveyance) a decimal or percentage share
of all substances covered by such unit which are produced
from, or allocated to, such unit equal to not less than the
decimal or percentage share set forth in Part One of Exhibit
A in connection with such Subject Interest under the word
"Net Revenue Interest" (and if such Subject Interest is
subject to more than one unit, words identifying such
interest with such unit). Further, without limitation of
the foregoing, the ownership by Grantor of the Subject
Interests does and will, with respect to each well or unit
identified on Schedule I, attached hereto and made a part
hereof, entitle Grantor to receive (subject to the terms and
provisions of this Conveyance) a decimal or percentage share
of the oil, gas and other hydrocarbons produced from, or
allocated to, such well or unit equal to not less than the
decimal or percentage share set forth, for such well or
unit, in the column headed "Net Revenue Interest" on
Schedule I. The above-described shares of production which
Grantor is entitled to receive and shares of expenses which
Grantor is obligated to bear are not and will not be subject
to change other than changes which (i) arise pursuant to
non-consent provisions of operating agreements in connection
with operations hereafter proposed, or (ii) are reflected in
Exhibit A and/or Schedule I, as the case may be.
Section 5.3. Leases, Deeds and Contracts; Performance
of Obligations. The oil, gas and/or mineral leases,
contracts, servitudes, fees, deeds, and other agreements
forming a part of the Subject Interests, to the extent the
same cover or otherwise relate to the Subject Interests, are
in full force and effect, and Grantor agrees to so maintain
them in full force and effect to the extent a prudent
operator, without giving effect to the Overriding Royalty or
this Conveyance, would do so.
Section 5.4. Environmental Matters. The Subject
Interests are not in violation of or subject to any
existing, pending or, to the best knowledge of Grantor,
threatened investigation or inquiry by any governmental
authority or to any remedial obligations under any
applicable laws, orders, rules, or regulations pertaining to
health, pollution or the environment (such laws, orders,
rules or regulations, as they now exist or may hereafter be
enacted and/or amended, are hereinafter sometimes
collectively called "Applicable Environmental Laws"),
including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (as amended, hereinafter called
"CERCLA"), the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984 (as amended,
hereinafter called "RCRA") and applicable federal, state,
and local law, and this representation would continue to be
true and correct following disclosure to the applicable
governmental authorities of all relevant facts, conditions
and circumstances, if any, pertaining to the Subject
Interests and Grantor. No hazardous substances or solid
wastes have been disposed of or otherwise released on or to
the Subject Interests or the "Associated Property" (as such
term is hereinafter defined). The use which Grantor makes
and intends to make of the Subject Interests will not result
in the disposal or other release of any hazardous substance
or solid waste on or to the Subject Interests or the
Associated Property. The terms "hazardous substance" and
"release" as used in this Conveyance shall have the meanings
specified in CERCLA, and the terms "solid waste" and
"disposal" (or "disposed") shall have the meanings specified
in RCRA; provided, in the event either CERCLA or RCRA is
amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the
effective date of such amendment, and provided further that
to the extent that the laws of the states in which the
Subject Interests are located establish a meaning for
"hazardous substance," "release," "solid waste," or
"disposal" which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply. To the
best knowledge of Grantor after due inquiry, the Associated
Property is not in violation of any Applicable Environmental
Laws for which Grantor or its predecessors in ownership or
operation of any Subject Interest would be responsible. The
term "Associated Property" as used in this Conveyance shall
mean any and all interests in and to (and or carved out of)
the lands which are described or referred to in Exhibit A
hereto, or which are otherwise described in any of the oil,
gas and/or mineral leases, deeds or other instruments
described or referred to in Exhibit A, whether or not such
property interests are owned by Grantor. Grantor will not
cause or permit the Subject Interests or, to the extent
Grantor has legal means and capacity, the Associated
Property to be in violation of any Applicable Environmental
Laws; Grantor will further not do anything or permit
anything to be done which will subject the Subject Interests
or the Associated Property to any remedial obligations under
any Applicable Environmental Laws, assuming disclosure to
the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to
the Subject Interests or the Associated Property and Grantor
will promptly notify Grantee in writing of any existing,
pending or, to the best knowledge of Grantor, threatened
investigation or inquiry by any governmental authority in
connection with any Applicable Environmental Laws. Grantor
will take all steps necessary (and legally available to it)
to determine that no hazardous substances or solid wastes
are or have been disposed of or otherwise released or being
released on or to the Subject Interests or the Associated
Property. Grantor will not cause or permit the disposal or
other release of any hazardous substance or solid waste on
or to the Subject Interests or, to the extent Grantor has
legal means and capacity, the Associated Property, and
covenants and agrees to keep or cause the Subject Interests
and, to the extent Grantor has legal means and capacity, the
Associated Property to be kept free of any hazardous
substance or solid waste and to remove or remediate any
hazardous substance or solid waste on the Subject Interests
or, to the extent Grantor has legal means and capacity, the
Associated Property (or, if removal and/or remediation is
prohibited by law, to take whatever action is required by
law) promptly upon discovery at its sole expense.
Section 5.5. Overproduced Positions. Except as
disclosed in the Royalty Agreement, there are no
Overproduced Positions relating to the Grantor's interest in
the Part One Properties; to the best of Grantor's knowledge,
except as disclosed in the Royalty Agreement, there are no
Overproduced Positions relating to the Part Two Properties.
ARTICLE VI
Miscellaneous Provisions
Section 6.1. Further Assurances. Grantor agrees to
execute and deliver to Grantee, and, to the extent it is
within Grantor's power to do so, to cause any third parties
to execute and deliver to Grantee, all such other and
additional instruments and to do all such further acts and
things as may be necessary or appropriate to more fully vest
in and assure to Grantee all of the rights, titles,
interests, remedies, powers and privileges herein granted or
intended so to be. Grantee agrees to execute and deliver to
Grantor all such other and additional instruments and to do
all such further acts and things as may be necessary or
appropriate to more fully vest in and assure to Grantor all
of the rights, titles, interests, remedies, powers and
privileges herein granted or intended so to be.
Section 6.2. No Waiver. The failure of any party to
insist upon strict performance of a covenant hereunder or of
any obligation hereunder, irrespective of the length of time
for which such failure continues, shall not be a waiver of
such party-s right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of
any breach or default in the performance of any obligation
hereunder shall constitute a consent or waiver to or of any
other breach or default in the performance of the same or
any other obligation hereunder.
Section 6.3. Applicable Law. THE INTERNAL LAWS OF THE
STATE IN WHICH A SPECIFIED PART ONE PROPERTY OR PART TWO
PROPERTY IS LOCATED, WITHOUT REFERENCE TO THE CHOICE OF LAWS
RULES OF SUCH STATE, SHALL GOVERN WITH RESPECT TO PROCEDURAL
AND SUBSTANTIVE ISSUES RELATING TO THE RIGHTS AND INTERESTS
OF THE PARTIES IN SUCH SPECIFIED PROPERTY CREATED BY THIS
INSTRUMENT. EXCEPT AS SET FORTH IN THE FOREGOING SENTENCE,
THIS INSTRUMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN CALIFORNIA, WITHOUT REFERENCE TO THE CHOICE
OF LAWS RULES OF CALIFORNIA.
Section 6.4. Severability. Every provision in this
Conveyance is intended to be severable. If any term or
provision hereof is determined to be invalid, illegal or
unenforceable for any reason whatsoever, such invalidity,
illegality or unenforceability shall not affect the
validity, legality and enforceability of the remainder of
this Conveyance.
Section 6.5. No Personal Liability of
Grantee/Indemnities. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS CONVEYANCE, GRANTEE SHALL NEVER
PERSONALLY BE RESPONSIBLE FOR PAYMENT OF ANY PART OF THE
COSTS, EXPENSES OR LIABILITIES INCURRED IN CONNECTION WITH
THE EXPLORING, DEVELOPING, OPERATING, OWNING AND/OR
MAINTAINING OF THE SUBJECT INTERESTS. GRANTOR AGREES TO
INDEMNIFY AND HOLD GRANTEE AND ITS DIRECTORS, OFFICERS,
EMPLOYEES, REPRESENTATIVES, AGENTS AND AFFILIATES, HARMLESS
FROM AND AGAINST ALL SUCH COSTS, EXPENSES AND LIABILITIES
(WITH SUCH INDEMNITY TO ALSO COVER ALL COSTS AND EXPENSES OF
GRANTEE, INCLUDING REASONABLE LEGAL FEES AND EXPENSES, WHICH
ARE INCURRED INCIDENT TO THE MATTERS INDEMNIFIED AGAINST);
provided, however, that Permissible Charges shall, to the
extent the same relate to periods after the Effective Date,
nevertheless be chargeable against the Overriding Royalty as
and to the extent herein permitted. EXPRESSLY WITHOUT
LIMITATION OF THE GENERALITY OF THE FOREGOING, GRANTOR
HEREBY AGREES TO INDEMNIFY AND HOLD GRANTEE AND ITS
DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES, AGENTS AND
AFFILIATES, HARMLESS FROM AND AGAINST ALL CLAIMS, DEMANDS,
LIABILITIES, LOSSES, DAMAGES, COSTS AND EXPENSES (A) ARISING
FROM ANY FAILURE OF GRANTOR TO PERFORM OR COMPLY WITH ANY OF
THE PROVISIONS OF THIS CONVEYANCE, (B) ARISING OUT OF THE
CONDITION OF THE SUBJECT INTERESTS (WHETHER KNOWN OR
UNKNOWN, LATENT OR PATENT) ON, BEFORE OR AFTER THE DATE
HEREOF, AND/OR (C) ARISING UNDER ANY APPLICABLE
ENVIRONMENTAL LAWS, WHETHER NOW IN EXISTENCE OR HEREINAFTER
ENACTED. THE INDEMNITIES AND HOLD HARMLESS PROVISIONS
CONTAINED IN THIS SECTION 6.5 SHALL APPLY WHETHER OR NOT THE
INDEMNIFIED PARTY WAS WHOLLY OR PARTIALLY NEGLIGENT (OTHER
THAN GROSSLY NEGLIGENT).
Section 6.6. Counterparts. This Conveyance is being
executed in several counterparts, all of which are
identical, except that, (a) to facilitate recordation, in
certain counterparts hereof only that portion of Exhibit A
which contains specific descriptions of the Subject
Interests located in the recording jurisdiction in which the
counterpart is to be recorded shall be included, and all
other portions of Exhibit A shall be included by reference
only, (b) only those counterparts hereof being retained by
Grantor and Grantee include Schedule I, and (c) only those
counterparts hereof being retained by Grantor or Grantor are
necessarily executed by Grantee. All of such counterparts
together shall constitute one and the same instrument.
Complete copies of this Conveyance containing the entire
Exhibit A and Schedule I have been retained by Grantor and
Grantee.
THIS CONVEYANCE IS EXECUTED this 29th day of November,
1995, effective as of the Effective Date.
WITNESSES TO SIGNATURE OF GRANTOR: INLAND PRODUCTION COMPANY
By:
Kyle R. Miller
President
TCW DR IV Royalty
Partnership, L.P.
By: TCW Royalty Company IV,
Managing Partner
By:
Arthur R. Carlson
Managing
Director
By:
William K. White
Senior Vice
President
ADDRESS OF GRANTOR:
475 17th Street, Suite 1500
Denver, Colorado 80202
ADDRESS OF GRANTEE:
c/o Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
This instrument
prepared by:
Karen E. Lynch
Thompson & Knight, A Professional Corporation
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
(214) 969-1316<PAGE>
ACKNOWLEDGMENTS
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
BE IT REMEMBERED THAT I, the undersigned authority, a
notary public duly qualified, commissioned, sworn and acting
in and for the county and state aforesaid, and being
authorized in such county and state to take acknowledgments,
hereby certify that, on this 29th day of November, 1995,
there personally appeared before me Kyle R. Miller, the
President of Inland Production Company, a Texas corporation,
known to me to be such officer, such corporation being a
party to the foregoing instrument, and I hereby further
certify as follows:
WYOMING
On this 29th day of November, 1995, before me, the
undersigned authority, personally came and appeared Kyle R.
Miller, to me personally known and known by me to be the
person whose genuine signature is affixed to the foregoing
document as the President of Inland Production Company, a
Texas corporation, who signed said document before me in the
presence of the two witnesses, whose names are thereto
subscribed as such, being competent witnesses, and who
acknowledged, in my presence and in the presence of said
witnesses, that he signed the above and foregoing document
as his own free act and deed on behalf of such corporation
by authority of its board of directors and as the free act
and deed of such corporation and for the uses and purposes
therein set forth and apparent.
UTAH
This instrument was acknowledged before me on this 29th day
of November, 1995, by Kyle R. Miller as President of Inland
Production Company, a Texas corporation, on behalf of said
corporation. He is known to me.
IN TESTIMONY AND WITNESS WHEREOF, the said appearer has
signed these presents, together with the said witnesses, and
I have hereunto set and subscribed my hand and affixed my
official seal on the day and year above written, in the City
of Los Angeles, County of Los Angeles, State of California.
NOTARY PUBLIC, State of
California
My commission expires:
[SEAL]
<PAGE>
EXHIBIT 4.1.4<PAGE>
DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE,
ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
From
INLAND PRODUCTION COMPANY
(Taxpayer I.D. No. 741939669)
To
FIRST AMERICAN TITLE COMPANY OF UTAH, TRUSTEE
And
TCW ASSET MANAGEMENT COMPANY, COLLATERAL AGENT
Dated November 29, 1995
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF
THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS,
SECURES PAYMENT OF FUTURE ADVANCES, AND COVERS PROCEEDS OF
COLLATERAL.
THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF
VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING
WITHOUT LIMITATION OIL AND GAS), AND THE ACCOUNTS RELATED
THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OR
MINEHEADS OF THE WELLS OR MINES LOCATED ON THE PROPERTIES
DESCRIBED IN SECTION 1.1 OF THIS INSTRUMENT. THIS
INSTRUMENT, WHICH COVERS GOODS WHICH ARE OR ARE TO BECOME
FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN, IS TO BE
FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR
COMPARABLE RECORDS OF THE COUNTIES AND/OR PARISHES
REFERENCED IN EXHIBIT A HERETO AND SUCH FILING SHALL SERVE,
AMONG OTHER PURPOSES, AS A FIXTURE FILING. THE MORTGAGOR
HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE
PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION
1.1 OF THIS INSTRUMENT.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER
OF SALE MAY ALLOW COLLATERAL AGENT (AS HEREINAFTER DEFINED)
OR THE TRUSTEE (AS HEREINAFTER DEFINED) TO TAKE THE
MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN
A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR (AS
HEREINAFTER DEFINED) UNDER THIS MORTGAGE.
UTAH NOTE: This is not a purchase money mortgage.
WHEN RECORDED OR FILED RETURN TO: THIS DOCUMENT PREPARED
BY:
Thompson & Knight, P.C. Karen E. Lynch
1700 Pacific Avenue Thompson & Knight,
P.C.
Suite 3300 1700 Pacific Avenue
Dallas, Texas 75201 Suite 3300
Attention: Patricia B. Sone Dallas, Texas
75201
(214) 969-1316
DEED OF TRUST, MORTGAGE, LINE OF CREDIT MORTGAGE,
ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
(this "Mortgage")
ARTICLE I.
Granting Clauses; Secured Indebtedness
Section 1.1. Grant and Mortgage. Inland Production
Company, a Texas corporation (herein called "Mortgagor"),
for and in consideration of the sum of Ten Dollars ($10.00)
to Mortgagor in hand paid, and in order to secure the
payment of the secured indebtedness hereinafter referred to
and the performance of the obligations, covenants,
agreements, warranties and undertakings of Mortgagor
hereinafter described, does hereby (a) GRANT, BARGAIN, SELL,
CONVEY, TRANSFER, ASSIGN and SET OVER to First American
Title Company of Utah, Trustee (the "Trustee"), and grant to
Trustee a POWER OF SALE (pursuant to this Mortgage and
applicable law) with respect to, those of following
described properties, rights and interests which are located
in (or cover properties located in) the state of Utah (the
"Deed of Trust Mortgaged Properties"), and (b) MORTGAGE,
GRANT, BARGAIN, CONVEY, ASSIGN, WARRANT, PLEDGE AND
HYPOTHECATE to "Collateral Agent" (as hereinafter defined),
and grant to Collateral Agent a POWER OF SALE (pursuant to
this Mortgage and applicable law) with respect to, (i) those
of the following described properties, rights and interests
which are located in (or cover properties located in) the
state of Wyoming, and (ii) any other of the following
described rights, interests and properties which were not
described in clause (b)(i) or otherwise granted to Trustee
in clause (a) above (the "Other Mortgaged Properties"):
A. The oil, gas and/or other mineral properties
and/or mineral rights which are described in Exhibit A,
attached hereto and made a part hereof;
B. Without limitation of the foregoing, all other
right, title and interest of Mortgagor of whatever kind
or character (whether now owned or hereafter acquired by
operation of law or otherwise) in and to (i) the oil,
gas and/or mineral leases or other agreements described
in Exhibit A hereto, (ii) the lands described or
referred to in Exhibit A (or described in any of the
instruments described or referred to in Exhibit A),
without regard to any limitations as to specific lands,
depths or undivided interests that may be set forth in
Exhibit A hereto or in any of the leases or other
agreements described in Exhibit A hereto, and (iii) any
other lands (including submerged lands) located anywhere
in the United States of America or located offshore the
United States of America but within the offshore area
over which the United States of America or any State
thereof asserts jurisdiction;
C. All of Mortgagor's interest (whether now owned or
hereafter acquired by operation of law or otherwise) in
and to all presently existing and hereafter created oil,
gas and/or mineral unitization, pooling and/or
communitization agreements, declarations and/or orders,
and in and to the properties, rights and interests
covered and the units created thereby (including,
without limitation, units formed under orders, rules,
regulations or other official acts of any federal, state
or other authority having jurisdiction), which cover,
affect or otherwise relate to the properties, rights and
interests described in clause A or B above;
D. All of Mortgagor's interest in and rights under
(whether now owned or hereafter acquired by operation of
law or otherwise) all presently existing and hereafter
created operating agreements, equipment leases,
production sales contracts, processing agreements,
transportation agreements, gas balancing agreements,
farmout and/or farm-in agreements, salt water disposal
agreements, area of mutual interest agreements, and
other contracts and/or agreements which cover, affect,
or otherwise relate to the properties, rights and
interests described in clause A, B or C above or to the
operation of such properties, rights and interests or to
the treating, handling, storing, processing,
transporting or marketing of oil, gas, other
hydrocarbons, or other minerals produced from (or
allocated to) such properties, rights and interests
(including, but not limited to, those contracts listed
in Exhibit A hereto), as same may be amended or
supplemented from time to time; and
E. All of Mortgagor's interest (whether now owned or
hereafter acquired by operation of law or otherwise) in
and to all improvements, fixtures, movable or immovable
property and other real and/or personal property
(including, without limitation, all wells, pumping
units, wellhead equipment, tanks, pipelines, flow lines,
gathering lines, compressors, dehydration units,
separators, meters, buildings, injection facilities,
salt water disposal facilities, and power, telephone and
telegraph lines), and all easements, servitudes,
rights-of-way, surface leases, licenses, permits and
other surface rights, which are now or hereafter used,
or held for use, in connection with the properties,
rights and interests described in clause A, B or C
above, or in connection with the operation of such
properties, rights and interests, or in connection with
the treating, handling, storing, processing,
transporting or marketing of oil, gas, other
hydrocarbons, or other minerals produced from (or
allocated to) such properties, rights and interests; and
F. All rights, estates, powers and privileges
appurtenant to the foregoing rights, interests and
properties.
TO HAVE AND TO HOLD (a) the Deed of Trust Mortgaged
Properties unto the Trustee, and its successors or
substitutes in this trust, and to its or their successors
and assigns, in trust, however, upon the terms, provisions
and conditions herein set forth, and (b) the Other Mortgaged
Properties unto Collateral Agent, and Collateral Agent's
successors, substitutes and assigns, upon the terms,
provisions and conditions herein set forth (the Deed of
Trust Mortgaged Properties and the Other Mortgaged
Properties are herein sometimes collectively called the
"Mortgaged Properties"). Notwithstanding any provision
hereof to the contrary, the Mortgaged Properties do not
include, and there is hereby excepted from this Mortgage,
the "Overriding Royalty," as such term is hereinafter
defined.
Section 1.2. Grant of Security Interest. In order to
further secure the payment of the secured indebtedness
hereinafter referred to and the performance of the
obligations, covenants, agreements, warranties, and
undertakings of Mortgagor hereinafter described, Mortgagor
hereby grants to Collateral Agent a security interest in the
entire interest of Mortgagor (whether now owned or hereafter
acquired by operation of law or otherwise) in and to:
(a) the Mortgaged Properties;
(b) all oil, gas, other hydrocarbons, and other
minerals produced from or allocated to the Mortgaged
Properties, and any products processed or obtained
therefrom (herein collectively called the "Production"),
together with all proceeds of Production (regardless of
whether Production to which such proceeds relate
occurred on or before or after the date hereof), and
together with all liens and security interests securing
payment of the proceeds of the Production, including,
but not limited to, those liens and security interests
provided for under (i) statutes enacted in the
jurisdictions in which the Mortgaged Properties are
located, or (ii) statutes made applicable to the
Mortgaged Properties under federal law (or some
combination of federal and state law);
(c) without limitation of any other provisions of
this Section 1.2, all payments received in lieu of
production from the Mortgaged Properties (regardless of
whether such payments accrued, and/or the events which
gave rise to such payments occurred, on or before or
after the date hereof), including, without limitation,
"take or pay" payments and similar payments, payments
received in settlement of or pursuant to a judgment
rendered with respect to take or pay or similar
obligations or other obligations under a production
sales contract, payments received in buyout or buydown
or other settlement of a production sales contract, and
payments received under a gas balancing or similar
agreement as a result of (or received otherwise in
settlement of or pursuant to judgment rendered with
respect to) rights held by Mortgagor as a result of
Mortgagor (and/or its predecessors in title) taking or
having taken less gas from lands covered by a Mortgaged
Property (or lands pooled or unitized therewith) than
their ownership of such Mortgaged Property would entitle
them to receive (the payments described in this
subsection (c) being herein called "Payments in Lieu of
Production");
(d) all equipment, inventory, improvements,
fixtures, accessions, goods and other personal property
or movable property of whatever nature now or hereafter
located on or used or held for use in connection with
the Mortgaged Properties (or in connection with the
operation thereof or the treating, handling, storing,
processing, transporting, or marketing of Production),
and all licenses and permits of whatever nature now or
hereafter used or held for use in connection with the
Mortgaged Properties (or in connection with the
operation thereof or the treating, handling, storing,
processing, transporting, or marketing of Production),
and all renewals or replacements of the foregoing or
substitutions for the foregoing;
(e) all contract rights, choses in action (i.e.,
rights to enforce contracts or to bring claims
thereunder) and other general intangibles (regardless of
whether the same arose, and/or the events which gave
rise to the same occurred, on or before or after the
date hereof) related to the Mortgaged Properties, the
operation thereof (whether Mortgagor is operator or
non-operator), or the treating, handling, storing,
processing, transporting, or marketing of Production
(including, without limitation, any of the same relating
to payment of proceeds of Production or to payment of
amounts which could constitute Payments in Lieu of
Production);
(f) without limitation of the generality of the
foregoing, any rights and interests of Mortgagor under
any present or future hedge or swap agreements, cap,
floor, collar, exchange, forward or other hedge or
protection agreements or transactions relating to crude
oil, natural gas or other hydrocarbons, or any option
with respect to any such agreement or transaction now
existing or hereafter entered into by or on behalf of
Mortgagor;
(g) all geological, geophysical, engineering,
accounting, title, legal, and other technical or
business data concerning the Mortgaged Properties, the
Production or any other item of Property (as hereinafter
defined) which are now or hereafter in the possession of
Mortgagor or in which Mortgagor can otherwise grant a
security interest, and all books, files, records,
magnetic media, and other forms of recording or
obtaining access to such data;
(h) all money, documents, instruments, chattel
paper, securities, accounts or general intangibles
arising from or by virtue of any transaction (regardless
of whether such transaction occurred on or before or
after the date hereof) related to the Mortgaged
Properties, the Production or any other item of Property
(all of the properties, rights and interests described
in subsections (a), (b), (c), (d), (e) and (g) above and
this subsection (h) being herein sometimes collectively
called the "Collateral"); and
(i) all proceeds of the Collateral, whether such
proceeds or payments are goods, money, documents,
instruments, chattel paper, securities, accounts,
general intangibles, fixtures, real/immovable property,
personal/movable property or other assets (the Mortgaged
Properties, the Collateral and the proceeds of the
Collateral being herein sometimes collectively called
the "Property").
Notwithstanding any provision hereof to the contrary, the
Properties do not include, and there is hereby excepted from
this Mortgage, the Overriding Royalty.
Section 1.3. Note, Loan Documents, Other Obligations.
This Mortgage is made to secure and enforce the payment and
performance of the following promissory notes, obligations,
indebtedness and liabilities:
(a) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to the provisions
of that certain Credit Agreement of even date herewith
between Mortgagor, Inland Resources, Inc., a Washington
corporation ("Parent"), and Trust Company of the West, a
California Trust Company ("Trustco"), as Agent, the TCW
Commingled Debt and Royalty Funds IV ("Funds IV") and
TCW Asset Management Company ("Tamco"), in its capacity
under the terms of the Credit Agreement as Collateral
Agent on behalf of "TCW," as such term is defined in
Schedule II hereto (Tamco, in such capacity as
Collateral Agent on behalf of TCW, is herein called
"Collateral Agent"), and all supplements thereto and
amendments or modifications thereof, and all agreements
given in substitution therefor or in restatement,
renewal or extension thereof, in whole or in part (such
Credit Agreement, as the same may from time to time be
supplemented, amended or modified, and all other
agreements given in substitution therefor or in
restatement, renewal or extension thereof, in whole or
in part, being herein called the "Credit Agreement");
(b) All indebtedness and other obligations now or
hereafter incurred or arising under the promissory notes
described in Schedule II hereto (such notes, as each may
from time to time be supplemented, amended, or modified,
and all other notes given in substitution therefor, or
in modification, renewal or extension thereof, in whole
or in part, being herein collectively called the
"Note");
(c) Until all amounts due and owing, or to become
due and owing, under the Note have been paid in full,
all obligations, liabilities and undertakings of
Mortgagor under (i) that certain Conveyance of
Adjustable Overriding Royalty Interest (the "Initial
Conveyance") of even date herewith, but executed and
made effective prior to the execution of this Mortgage,
executed by Mortgagor in favor of TCW DR IV Royalty
Partnership, L.P. ("DR IV"), under which Conveyance an
adjustable overriding royalty interest was created in
favor of DR IV (the "Initial Overriding Royalty"), and
(ii) any other "Conveyance" executed hereafter pursuant
to the terms of that certain Royalty Agreement of even
date herewith by and between Mortgagor, DR IV and TCW
(the "Subsequent Conveyances"; the Initial Conveyance
and the Subsequent Conveyances are herein collectively
called the "Conveyance"), under which Subsequent
Conveyances an adjustable overriding royalty interest is
to be created in favor of DR IV (the "Subsequent
Overriding Royalties"; the Initial Overriding Royalty
and the Subsequent Overriding Royalties are herein
collectively called the "Overriding Royalty");
(d) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to or permitted
by the provisions of the Note, the Credit Agreement,
this Mortgage or any other instrument now or hereafter
evidencing, governing, guaranteeing or securing the
"secured indebtedness" (as hereinafter defined), or any
part thereof, or otherwise executed in connection with
any advance or loan evidenced or governed by the Note or
the Credit Agreement (the Note, the Credit Agreement,
this Mortgage, the Conveyance, and such other
instruments being herein sometimes collectively called
the "Loan Documents");
(e) Any other loans and future advances made
pursuant to the Credit Agreement by one or more of the
parties constituting TCW to Mortgagor and all other
debts, obligations and liabilities of Mortgagor of every
kind and character now or hereafter existing pursuant to
the Credit Agreement in favor of one or more parties
constituting TCW, whether direct or indirect, primary or
secondary, joint or several, fixed or contingent, and
whether originally payable to one or more of the parties
constituting TCW or to a third party and subsequently
acquired by one or more of the parties constituting TCW,
it being contemplated that Mortgagor may hereafter
become indebted to one or more of the parties
constituting TCW for such further debts, obligations and
liabilities;
(f) Without limiting the generality of the
foregoing, all post-petition interest, expenses, and
other duties and liabilities with respect to
indebtedness or other obligations described above in
this Section 1.3, which would be owed but for the fact
that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization, or similar
proceeding.
(g) Payment of and performance of any and all
present or future obligations of Mortgagor according to
the terms of any present or future interest or currency
rate swap, rate cap, rate floor, rate collar, exchange
transaction, forward rate agreement, or other exchange
or rate protection agreements or any option with respect
to any such transaction now existing or hereafter
entered into between Mortgagor, on the one hand, and one
or more parties constituting TCW (or any affiliate of
any party constituting TCW), on the other;
(h) Payment of and performance of any and all
present or future obligations of Mortgagor according to
the terms of any present or future swap agreements, cap,
floor, collar, exchange transaction, forward agreement
or other exchange or protection agreements relating to
crude oil, natural gas or other hydrocarbons, or any
option with respect to any such transaction now existing
or hereafter entered into between Mortgagor, on the one
hand, and one or more parties constituting TCW (or any
affiliate of any party constituting TCW), on the other;
Section 1.4. Secured Indebtedness. The indebtedness
referred to in Section 1.3, and all renewals, extensions and
modifications thereof, and all substitutions therefor, in
whole or in part, are herein sometimes referred to as the
"secured indebtedness" or the "indebtedness secured hereby."
It is contemplated and acknowledged that the secured
indebtedness may include revolving credit loans and advances
from time to time, and that this Mortgage shall have effect,
as of the date hereof, to secure all secured indebtedness,
regardless of whether any amounts are advanced on the date
hereof or on a later date or, whether having been advanced,
are later repaid in part or in whole and further advances
made at a later date.
ARTICLE II.
Representations, Warranties and Covenants
Section 2.1. Mortgagor represents, warrants, and
covenants as follows:
(a) Title and Permitted Encumbrances. Mortgagor
has, and Mortgagor covenants to maintain, good and
defensible title to the Property, free and clear of all
liens, security interests, and encumbrances except for
(i) the contracts, agreements, burdens, encumbrances and
other matters set forth in the descriptions of certain
of the Mortgaged Properties on Exhibit A hereto, (ii)
the liens and security interests evidenced by this
Mortgage, (iii) statutory liens for taxes which are not
yet delinquent, (iv) liens under operating agreements,
pooling orders and unitization agreements, and
mechanics' and materialmen's liens, with respect to
obligations which are not yet due, (v) other liens and
security interests (if any) in favor of Collateral
Agent, (vi) the Conveyance and the "Overriding Royalty"
created thereunder, and (vii) minor defects and
irregularities in title to any Property, so long as such
defects and irregularities neither (A) are liens which
secure other indebtedness or obligations nor (B)
materially impair the value of such Property or the use
thereof for the purposes for which such Property is held
(the matters described in the foregoing clauses (i),
(ii), (iii), (iv), (v), (vi) and (vii) being herein
called the "Permitted Encumbrances"); Mortgagor will
warrant and defend title to the Property, subject as
aforesaid, against the claims and demands (including
claims which would be a Permitted Encumbrance under item
(vii) above) of all persons claiming or to claim the
same or any part thereof. With respect to each
Mortgaged Property, the ownership of Mortgagor in such
Mortgaged Property does and will, (i) with respect to
each tract of land described in Exhibit A hereto
(whether described directly in such Exhibit A or
described by reference to another instrument) in
connection with such Mortgaged Property, (A) entitle
Mortgagor to receive (subject to the terms and
provisions of this Mortgage and the Conveyance) a
decimal or percentage share of the oil, gas and other
hydrocarbons produced from, or allocated to, such tract
equal to not less than the decimal or percentage share
set forth in Exhibit A in connection with such tract
opposite the words "Net Revenue Interest" (or words of
similar import), (B) cause Mortgagor to be obligated to
bear a decimal or percentage share of the cost of
exploration, development and operation of such tract of
land not greater than the decimal or percentage share
set forth in Exhibit A in connection with such tract
opposite the words "Working Interest" (or words of
similar import) and (ii) if such Mortgaged Property is
shown on Exhibit A to be subject to a unit or units,
with respect to each such unit, (A) entitle Mortgagor to
receive (subject to the terms and provisions of this
Mortgage and the Conveyance) a decimal or percentage
share of all substances covered by such unit which are
produced from, or allocated to, such unit equal to not
less than the decimal or percentage share set forth in
Exhibit A in connection with such Mortgaged Property
opposite the words "Unit Net Revenue Interest" or words
of similar import (and if such Mortgaged Property is
subject to more than one unit, words identifying such
interest with such unit), and (B) obligate Mortgagor to
bear a decimal or percentage share of the cost of
exploration, development and operation of such unit not
greater than the decimal or percentage share set forth
in Exhibit A in connection with such Mortgaged Property
opposite the words "Unit Working Interest" or words of
similar import (and if such Mortgaged Property is
subject to more than one unit, words identifying such
interest with such unit). Without limitation of the
foregoing, the ownership by Mortgagor of the Mortgaged
Properties does and will, with respect to each well or
unit identified on Schedule I, attached hereto and made
a part hereof, entitle Mortgagor to receive (subject to
the terms and provisions of this Mortgage and the
Conveyance) a decimal or percentage share of the oil,
gas and other hydrocarbons produced from, or allocated
to, such well or unit equal to not less than the decimal
or percentage share set forth, for such well or unit, in
the column headed "Net Revenue Interest" on Schedule I,
and cause Mortgagor to be obligated to bear a decimal or
percentage share of the cost of operation of such well
or unit equal to not more than the decimal or percentage
share set forth, for such well or unit, in the column
headed "Working Interest" on Schedule I. The
above-described shares of production which Mortgagor is
entitled to receive and shares of expenses which
Mortgagor is obligated to bear are not and will not be
subject to change other than changes which arise
pursuant to non-consent provisions of operating
agreements described in Exhibit A in connection with
operations hereafter proposed), except, and only to the
extent that, such changes are reflected in Exhibit A
and/or Schedule I, as the case may be. There is not and
will not be any unexpired financing statement covering
any part of the Property on file in any public office
naming any party other than Collateral Agent as secured
party. Upon request by Collateral Agent, Mortgagor will
deliver to Collateral Agent schedules of all internal
and third party information identifying the Mortgaged
Properties (such as, for example, lease names and
numbers assigned by Mortgagor or the operator of any
Mortgaged Property, well and/or unit and/or property
names and numbers assigned by purchasers of Production,
and internal identification names and numbers used by
Mortgagor in accounting for revenues, costs, and joint
interest transactions attributable to the Mortgaged
Properties).
(b) Leases and Contracts; Performance of
Obligations. The oil, gas and/or mineral leases,
contracts, servitudes and other agreements forming a
part of the Property, to the extent the same cover or
otherwise relate to the Property, are in full force and
effect, and Mortgagor agrees to so maintain them in full
force and effect. All rents, royalties and other
payments due and payable under such leases, contracts,
servitudes and other agreements, or under the Permitted
Encumbrances, or otherwise attendant to the ownership or
operation of the Property, have been, and will continue
to be, properly and timely paid. Mortgagor is not in
default with respect to Mortgagor's obligations (and
Mortgagor is not aware of any default by any third party
with respect to such third party's obligations) under
such leases, contracts, servitudes and other agreements,
or under the Permitted Encumbrances, or otherwise
attendant to the ownership or operation of any part of
the Property, where such default could adversely affect
the ownership or operation of the Property; Mortgagor
will fulfill all such obligations coming due in the
future. Mortgagor is not currently accounting (and will
not hereafter agree to account) for any royalties, or
overriding royalties or other payments out of
production, on a basis (other than delivery in kind)
other than proceeds received by Mortgagor from sale of
production, and there are no situations where a
contingent liability to account on another basis may
exist.
(c) Sale of Production. No Mortgaged Property is
or will become subject to any contractual or other
arrangement (i) whereby payment for production is or can
be deferred for a substantial period after the month in
which such production is delivered (i.e., in the case of
oil, not in excess of 30 days, and in the case of gas,
not in excess of 90 days) or (ii) whereby payments are
made to Mortgagor other than by checks, drafts, wire
transfer advises or other similar writings, instruments
or communications for the immediate payment of money.
Except for that certain Gas Purchase Agreement dated as
of October 19, 1988, by and between Lomax Exploration
Company et al, as sellers, and Interline, as buyer, and
that a certain Gas Purchase Agreement dated as of
October 24, 1988, by and between Lomax Exploration
Company et al, as sellers, and Interline, as buyer
(herein collectively called the "Interline Contract")
and any other production sales contracts, processing
agreements or transportation agreements (or other
agreements relating to the marketing of Production)
listed on Exhibit A (in connection with the Mortgaged
Properties to where they relate), (i) no Mortgaged
Property is, and no Mortgaged Property will hereafter
become subject to any contractual or other arrangement
for the sale, processing or transportation of Production
(or otherwise related to the marketing of Production)
which cannot be cancelled on 120 days' (or less) notice
and (ii) all contractual or other arrangements for the
sale, processing or transportation of Production (or
otherwise related to the marketing of Production) shall
be bona fide arm's length transactions with third
parties not affiliated with Mortgagor and shall be at
the best price (and on the best terms) available (such
price shall, in the case of Production sales which are
subject to price controls, be determined giving
consideration to such fact). Except as provided in the
Interline Contract, Mortgagor is presently receiving a
price for all production from (or attributable to) each
Mortgaged Property covered by a production sales
contract as computed in accordance with the terms of
such contract, and is not having deliveries of
production from such Mortgaged Property curtailed
substantially below such property's delivery capacity.
Neither Mortgagor, nor any of its predecessors in title,
has received prepayments (including, but not limited to,
payments for gas not taken pursuant to "take or pay" or
other similar arrangements) for any oil, gas or other
hydrocarbons produced or to be produced from the
Mortgaged Properties after the date hereof, and
Mortgagor hereby covenants not to enter into any such
advance or prepayment arrangements whereby it accepts
consideration for oil, gas or other hydrocarbons not yet
produced. No Mortgaged Property is or will become
subject to any "take or pay" or other similar
arrangement (i) which can be satisfied in whole or in
part by the production or transportation of gas from
other properties or (ii) as a result of which production
from the Mortgaged Properties may be required to be
delivered to one or more third parties without payment
(or without full payment) therefor as a result of
payments made, or other actions taken, with respect to
other properties. Except as set forth in a certificate
of even date herewith delivered by Mortgagor to
Collateral Agent, there is no Mortgaged Property with
respect to which Mortgagor, or its predecessors in
title, has, prior to the date hereof, taken more
("overproduced"), or less ("underproduced"), gas from
the lands covered thereby (or pooled or unitized
therewith) than its ownership interest in such Mortgaged
Property would entitle it to take. Mortgagor will not
after the date hereof become "overproduced" (as above
defined) with respect to any well on the Mortgaged
Properties (or on any unit in which the Mortgaged
Properties participate), in an amount in excess of
Mortgagor's share of gas produced from such well during
the preceding four calendar months. No Mortgaged
Property is or will become subject to a gas balancing
arrangement under which one or more third parties may
take a portion of the production attributable to such
Mortgaged Property without payment (or without full
payment) therefor as a result of production having been
taken from, or as a result of other actions or inactions
with respect to, other properties. No Mortgaged
Property is subject at the present time to any
regulatory refund obligation and, to the best of
Mortgagor's knowledge, no facts exist which might cause
the same to be imposed.
(d) Condition of Personal or Movable Property.
The equipment, inventory, improvements, fixtures, goods
and other tangible personal/movable property forming a
part of the Property are and will remain in good repair
and condition and are and will be adequate for the
normal operation of the Property in accordance with
prudent industry standards; all of such Property is, and
will remain, located on the Mortgaged Properties, except
for that portion thereof which is or shall be located
elsewhere (including that usually located on the
Mortgaged Properties but temporarily located elsewhere)
in the course of the normal operation of the Property.
(e) Operation of Mortgaged Properties. The
Mortgaged Properties (and properties unitized therewith)
are being (and, to the extent the same could adversely
affect the ownership or operation of the Mortgaged
Properties after the date hereof, have in the past
been), and hereafter will be, maintained, operated and
developed in a good and workmanlike manner, in
accordance with prudent industry standards and in
conformity with all applicable laws and all rules,
regulations and orders of all duly constituted
authorities having jurisdiction and in conformity with
all oil, gas and/or other mineral leases and other
contracts and agreements forming a part of the Property
and in conformity with the Permitted Encumbrances;
specifically in this connection, (i) no Mortgaged
Property is subject to having allowable production after
the date hereof reduced below the full and regular
allowable (including the maximum permissible tolerance)
because of any overproduction (whether or not the same
was permissible at the time) prior to the date hereof
and (ii) none of the wells located on the Mortgaged
Properties (or properties unitized therewith) are or
will be deviated from the vertical more than the maximum
permitted by applicable laws, regulations, rules and
orders, and such wells are, and will remain, bottomed
under and producing from, with the well bores wholly
within, the Mortgaged Properties (or, in the case of
wells located on properties unitized therewith, such
unitized properties). Except as disclosed in writing to
TCW or as otherwise evaluated in any "Engineering
Report" (as such term is defined in the Credit
Agreement), there are no wells being drilled, deepened,
plugged back or reworked, and no other operations are
being conducted for which consent is required under the
applicable operating agreement (or which are other than
normal operation of existing wells on the Mortgaged
Properties); except as disclosed in writing to TCW or as
otherwise evaluated in any "Engineering Report" (as such
term is defined in the Credit Agreement), there are no
proposals currently outstanding (whether made by
Mortgagor or by any other party) to drill, deepen, plug
back, or rework wells, or to conduct any such other
operations, or to abandon any wells on the Mortgaged
Properties (nor are there any such proposals which have
been approved either by Mortgagor or any other party,
with respect to which the operations covered thereby
have not been commenced). There are no dry holes, or
otherwise inactive wells, located on the Mortgaged
Properties or on lands pooled or unitized therewith
(including, without limitation, any wells which would,
if located in Texas, require compliance with Railroad
Commission Rule 14(b)(2)), except for wells that have
been properly plugged and abandoned. Mortgagor has, and
will have in the future, all governmental licenses and
permits necessary or appropriate to own and operate the
Property; Mortgagor has not received notice of any
violations in respect of any such licenses or permits.
(f) Sale or Disposal. Mortgagor will not, without
the prior written consent of Collateral Agent, sell,
exchange, lease, transfer, or otherwise dispose of any
part of, or interest in, the Property other than
(i) sales, transfers and other dispositions of
machinery, equipment and other personal/movable property
and fixtures made in connection with a release,
surrender or abandonment (to which Collateral Agent has
given its prior written consent) of a lease, (ii) sales,
transfers and other dispositions of machinery, equipment
and other personal/movable property and fixtures in
connection with the abandonment (to which Collateral
Agent has given its prior written consent) of a well,
(iii) sales, transfers and other dispositions of
machinery, equipment and other personal/movable property
and fixtures which are (A) obsolete for their intended
purpose and disposed of in the ordinary course of
business or (B) replaced by articles of at least equal
suitability and value owned by Mortgagor free and clear
of all liens except this Mortgage and the Permitted
Encumbrances, and (iv) sales of Production which are
made in the ordinary course of business and in
compliance with Section 2.1(c) hereof; provided that
nothing in clause (iv) shall be construed as limiting
Collateral Agent's rights under Article III of this
Mortgage. Collateral Agent agrees to use reasonable
efforts to promptly decide whether to grant or deny any
consent provided for in this subsection (f). Mortgagor
shall account fully and faithfully for and, if
Collateral Agent so elects, shall promptly pay or turn
over to Collateral Agent the proceeds in whatever form
received from disposition in any manner of any of the
Property. Mortgagor shall at all times keep the
Property and its proceeds separate and distinct from
other property of Mortgagor and shall keep accurate and
complete records of the Property and its proceeds.
(g) Ad Valorem and Severance Taxes. Mortgagor has
paid and discharged, and will continue to pay and
discharge, all ad valorem taxes assessed against the
Property or any part thereof and all production,
severance and other taxes assessed against, or measured
by, the Production or the value, or proceeds, of the
Production.
(h) Suits and Claims. There are no suits,
actions, claims, investigations, inquiries, proceedings
or demands pending (or, to Mortgagor's knowledge,
threatened) which affect the Property (including,
without limitation, any which challenge or otherwise
pertain to Mortgagor's title to the Property) and no
judicial or administrative actions, suits or proceedings
pending (or, to Mortgagor's knowledge, threatened)
against Mortgagor.
(i) Environmental.
(A) Current Status. The Property is not in
violation of or subject to any existing, pending or,
to the best knowledge of Mortgagor, threatened
investigation or inquiry by any governmental
authority or to any remedial obligations under any
applicable laws, orders, rules, or regulations
pertaining to health or the environment (such laws,
orders, rules or regulations as they now exist or
are hereafter enacted and/or amended hereinafter
sometimes collectively called "Applicable
Environmental Laws"), including without limitation
the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act
of 1986 (as amended, hereinafter called "CERCLA"),
the Resource Conservation and Recovery Act of 1976,
as amended by the Used Oil Recycling Act of 1980,
the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984 (as
amended, hereinafter called "RCRA") and applicable
state law, and this representation will continue to
be true and correct following disclosure to the
applicable governmental authorities of all relevant
facts, conditions and circumstances, if any,
pertaining to the Property and Mortgagor. Mortgagor
undertook, at the time of acquisition of the
Property, all appropriate inquiry into the previous
ownership and uses of the Property consistent with
good commercial or customary practice. Mortgagor
has taken all steps necessary to determine and has
determined that no hazardous substances or solid
wastes have been disposed of or otherwise released
on or to the Property. The use which Mortgagor makes
and intends to make of the Property will not result
in the disposal or other release of any hazardous
substance or solid waste on or to the Property. The
terms "hazardous substance" and "release" as used in
this Mortgage shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal"
(or "disposed") shall have the meanings specified in
RCRA; provided, in the event either CERCLA or RCRA
is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment
and provided further, to the extent that the laws of
the states in which the Mortgaged Properties are
located establish a meaning for "hazardous
substance," "release," "solid waste," or "disposal"
which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply. The
"Associated Property" (as such term is hereinafter
defined) is not in violation of any Applicable
Environmental Laws for which Mortgagor or its
predecessors in the Property would be responsible.
The term "Associated Property" as used in this
Mortgage shall mean any and all interests in and to
(and or carved out of) the lands which are described
or referred to in Exhibit A hereto, or which are
otherwise described in any of the oil, gas and/or
mineral leases or other instruments described in or
referred to in such Exhibit A, whether or not such
property interests are owned by Mortgagor.
(B) Future Performance. Mortgagor will not
cause or permit the Property, the Associated
Property or Mortgagor to be in violation of, or
do anything or permit anything to be done
which will subject the Property or the
Associated Property to, any remedial
obligations under any Applicable Environmental Laws,
assuming disclosure to the applicable governmental
authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Property or
the Associated Property and Mortgagor will promptly
notify Collateral Agent in writing of any existing,
pending or, to the best knowledge of Mortgagor,
threatened investigation or inquiry by any
governmental authority in connection with any
Applicable Environmental Laws. Mortgagor will take
all steps necessary to determine that no hazardous
substances or solid wastes have been disposed of or
otherwise released on or to the Property or the
Associated Property. Mortgagor will not cause or
permit the disposal or other release of any
hazardous substance or solid waste on or to the Property or
the Associated Property and covenants and agrees to keep
or cause the Property and/or the Associated Property
to be kept free of any hazardous substance or solid
waste and to remove the same (or if removal is
prohibited by law, to take whatever action is
required by law) promptly upon discovery at its sole
expense. Upon Collateral Agent's reasonable
request, at any time and from time to time during the
existence of this Mortgage, Mortgagor will provide
at Mortgagor's sole expense an inspection or audit of
the Property and the Associated Property from an
engineering or consulting firm approved by
Collateral Agent, indicating the presence or absence of
hazardous substances and solid waste on the Property
and/or the Associated Property.
(j) Not Abandon Wells; Participate in Operations.
Mortgagor will not, without prior written consent of
Collateral Agent, abandon, or consent to the abandonment
of, any well producing from the Mortgaged Properties (or
properties unitized therewith) so long as such well is
capable (or is subject to being made capable through
drilling, reworking or other operations which it would
be commercially feasible to conduct) of producing oil,
gas, or other hydrocarbons or other minerals in
commercial quantities (as determined without considering
the effect of this Mortgage). Mortgagor will not,
without prior written consent of Collateral Agent, elect
not to participate in a proposed operation on the
Mortgaged Properties where the effect of such election
would be the forfeiture either temporarily (i.e. until a
certain sum of money is received out of the forfeited
interest) or permanently of any interest in the
Mortgaged Properties. Collateral Agent agrees to use
reasonable efforts to promptly decide whether to grant
or deny any consent provided for in this subsection (j).
(k) Defense of Mortgage. If the validity or
priority of this Mortgage or of any rights, titles,
liens or security interests created or evidenced hereby
with respect to the Property or any part thereof or the
title of Mortgagor to the Property shall be endangered
or questioned or shall be attacked directly or
indirectly or if any legal proceedings are instituted
against Mortgagor with respect thereto, Mortgagor will
give prompt written notice thereof to Collateral Agent
and at Mortgagor's own cost and expense will diligently
endeavor to cure any defect that may be developed or
claimed, and will take all necessary and proper steps
for the defense of such legal proceedings, including,
but not limited to, the employment of counsel, the
prosecution or defense of litigation and the release or
discharge of all adverse claims, and Trustee and
Collateral Agent, or either of them (whether or not
named as parties to legal proceedings with respect
thereto), are hereby authorized and empowered to take
such additional steps as in their judgment and
discretion may be necessary or proper for the defense of
any such legal proceedings or the protection of the
validity or priority of this Mortgage and the rights,
titles, liens and security interests created or
evidenced hereby, including but not limited to the
employment of independent counsel, the prosecution or
defense of litigation, the compromise or discharge of
any adverse claims made with respect to the Property,
the purchase of any tax title and the removal of prior
liens or security interests, and all expenditures so
made of every kind and character shall be a demand
obligation (which obligation Mortgagor hereby expressly
promises to pay) owing by Mortgagor to any party
constituting TCW, Collateral Agent or Trustee (as the
case may be) and shall bear interest from the date
expended until paid at the rate described in Section 2.3
hereof, and the party incurring such expenses shall be
subrogated to all rights of the person receiving such
payment.
(l) Fees and Expenses; Indemnity. Mortgagor will
reimburse Trustee, Collateral Agent and any party
constituting TCW, (for purposes of this paragraph, the
terms "Trustee," "Collateral Agent" and "TCW" shall
include the directors, officers, partners, employees and
agents of Trustee, Collateral Agent or any party
constituting TCW, respectively, and any persons or
entities owned or controlled by or affiliated with
Trustee, Collateral Agent or any party constituting TCW,
respectively) for all expenditures, including reasonable
attorneys' fees and expenses, incurred or expended in
connection with (i) the breach by Mortgagor of any
covenant, agreement or condition contained herein or in
any other Loan Document, (ii) the exercise by Collateral
Agent, any party constituting TCW and/or Trustee of any
of their rights and remedies hereunder or under any
other Loan Document, and (iii) the protection of the
Property and/or Collateral Agent's and/or Trustee's
liens and security interests therein. Mortgagor will
indemnify and hold harmless Trustee, Collateral Agent
and TCW from and against (and will reimburse Trustee,
Collateral Agent and TCW for) all expenditures,
including reasonable attorneys' fees and expenses,
incurred or expended in connection with all claims,
demands, liabilities, losses, damages (including without
limitation consequential damages), causes of action,
judgments, penalties, costs and expenses (including
without limitation reasonable attorneys' fees and
expenses) which may be imposed upon, asserted against or
incurred or paid by either of them on account of, in
connection with, or arising out of (A) any bodily injury
or death or property damage occurring in or upon or in
the vicinity of the Property through any cause
whatsoever, (B) any act performed or omitted to be
performed hereunder or the breach of any representation
or warranty herein, (C) the exercise of any rights and
remedies hereunder or under any other Loan Document,
(D) any transaction, act, omission, event or
circumstance arising out of or in any way connected with
the Property or with this Mortgage, (E) any violation on
or prior to the Release Date (as hereinafter defined) of
any Applicable Environmental Law, (F) any act, omission,
event or circumstance existing or occurring on or prior
to the Release Date (including without limitation the
presence on the Property or the Associated Property or
release from the Property or the Associated Property of
hazardous substances or solid wastes disposed of or
otherwise released) resulting from or in connection with
the ownership, construction, occupancy, operation, use
and/or maintenance of the Property or the Associated
Property, regardless of whether the act, omission, event
or circumstance constituted a violation of any
Applicable Environmental Law at the time of its
existence or occurrence, and (G) any and all claims or
proceedings (whether brought by private party or
governmental agencies) for bodily injury, property
damage, abatement or remediation, environmental damage
or impairment or any other injury or damage resulting
from or relating to any hazardous or toxic substance,
solid waste or contaminated material located upon or
migrating into, from or through the Property or the
Associated Property (whether or not the release of such
materials was caused by Mortgagor, a tenant or subtenant
or a prior owner or tenant or subtenant on the Property
or the Associated Property and whether or not the
alleged liability is attributable to the handling,
storage, generation, transportation, removal or disposal
of such substance, waste or material or the mere
presence of such substance, waste or material on the
Property or the Associated Property), which the
Collateral Agent, any party constituting TCW and/or the
Trustee may have liability with respect to due to the
making of the loan or loans evidenced by the Note, the
granting of this Mortgage, the exercise of any of their
rights under the Loan Documents, or otherwise.
Collateral Agent shall have the right to compromise and
adjust any such claims, actions and judgments, and in
addition to the rights to be indemnified as herein
provided, all amounts paid by Collateral Agent in
compromise, satisfaction or discharge of any such claim,
action or judgment, and all court costs, attorneys' fees
and other expenses of every character expended by any
party constituting TCW pursuant to the provisions of
this section shall be a demand obligation (which
obligation Mortgagor hereby expressly promises to pay)
owing by Mortgagor to Collateral Agent or TCW. The
"Release Date" as used herein shall mean the earlier of
the following two dates: (i) the date on which the
indebtedness and obligations secured hereby have been
paid and performed in full and this Mortgage has been
released of record, or (ii) the date on which the lien
of this Mortgage is foreclosed or a deed in lieu of such
foreclosure is fully effective and recorded. WITHOUT
LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND
MORTGAGOR AGREES THAT THE FOREGOING INDEMNITIES SHALL
APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS,
DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING
WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES) WHICH IN
WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY.
However, such indemnities shall not apply to any
particular indemnified party (but shall apply to the
other indemnified parties) to the extent the subject of
the indemnification is caused by or arises out of the
gross negligence or willful misconduct of such
particular indemnified party. The foregoing indemnities
shall not terminate upon the Release Date or upon the
release, foreclosure or other termination of this
Mortgage but will survive the Release Date, foreclosure
of this Mortgage or conveyance in lieu of foreclosure,
and the repayment of the secured indebtedness and the
discharge and release of this Mortgage and the other
documents evidencing and/or securing the secured
indebtedness. Any amount to be paid hereunder by
Mortgagor to Collateral Agent, any party constituting
TCW and/or Trustee shall be a demand obligation owing by
Mortgagor to Collateral Agent, TCW and/or Trustee and
shall be subject to and covered by the provisions of
paragraph 2.3 hereof.
(m) Insurance. Mortgagor will carry insurance as
provided in the Credit Agreement. In the event of any
loss under any insurance policies so carried by
Mortgagor, Collateral Agent shall have the right (but
not the obligation) to make proof of loss and collect
the same, and all amounts so received shall be applied
toward costs, charges and expenses (including reasonable
attorneys' fees), if any, incurred in the collection
thereof, then to the payment, in the order determined by
Collateral Agent in its own discretion, of the secured
indebtedness, and any balance remaining shall be subject
to the order of Mortgagor. Collateral Agent is hereby
authorized but not obligated to enforce in its name or
in the name of TCW and/or Mortgagor payment of any or
all of said policies or settle or compromise any claim
in respect thereof, and to collect and make receipts for
the proceeds thereof and Collateral Agent is hereby
appointed Mortgagor's agent and attorney-in-fact to
endorse any check or draft payable to Mortgagor in order
to collect the proceeds of insurance. In the event of
foreclosure of this Mortgage, or other transfer of title
to the Property in extinguishment in whole or in part of
the secured indebtedness, all right, title and interest
of Mortgagor in and to such policies then in force
concerning the Property and all proceeds payable
thereunder shall thereupon vest in the purchaser at such
foreclosure or Collateral Agent or other transferee in
the event of such other transfer of title.
(n) Further Assurances. Mortgagor will, on
request of Collateral Agent, (i) promptly correct any
defect, error or omission which may be discovered in the
contents of this Mortgage, or in any other Loan
Document, or in the execution or acknowledgment of this
Mortgage or any other Loan Document; (ii) execute,
acknowledge, deliver and record and/or file such further
instruments (including, without limitation, further
deeds of trust, mortgages, security agreements,
financing statements, continuation statements, and
assignments of production, accounts, funds, contract
rights, general intangibles, and proceeds) and do such
further acts as may be necessary, desirable or proper to
carry out more effectively the purposes of this Mortgage
and the other Loan Documents and to more fully identify
and subject to the liens and security interests hereof
any property intended to be covered hereby, including
specifically, but without limitation, any renewals,
additions, substitutions, replacements, or appurtenances
to the Property; and (iii) execute, acknowledge,
deliver, and file and/or record any document or
instrument (including specifically any financing
statement) desired by Collateral Agent to protect the
lien or the security interest hereunder against the
rights or interests of third persons. Mortgagor shall
pay all costs connected with any of the foregoing.
(o) Name and Place of Business. Except as disclosed
in the Credit Agreement, Mortgagor has not, during the
past five years, been known by or used any other
corporate or partnership, trade or fictitious name.
Mortgagor will not cause or permit any change to be made
in its name, identity, or corporate or partnership
structure, or its federal employer identification number
unless Mortgagor shall have notified Collateral Agent of
such change at least thirty (30) days prior to the
effective date of such change, and shall have first
taken all action required by Collateral Agent for the
purpose of further perfecting or protecting the lien and
security interest of Collateral Agent (or of Trustee, on
behalf of Collateral Agent) in the Property.
Mortgagor's principal place of business and chief
executive office, and the place where Mortgagor keeps
its books and records concerning the Property
(including, particularly, the records with respect to
"Production Proceeds," as defined in Section 3.1 hereof,
from the Mortgaged Properties) has for the preceding
four months been, and will continue to be (unless
Mortgagor notifies Collateral Agent of any change in
writing at least thirty (30) days prior to the date of
such change), the address set forth opposite the
signature of Mortgagor to this Mortgage.
(p) Not a Foreign Person. Mortgagor is not a
"foreign person" within the meaning of the Internal
Revenue Code of 1986, as amended, (hereinafter called
the "Code"), Sections 1445 and 7701 (i.e. Mortgagor is
not a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate as those
terms are defined in the Code and any regulations
promulgated thereunder).
Section 2.2. Compliance by Operator. As to any part of
the Mortgaged Properties which is not a working interest,
Mortgagor agrees to take all such action and to exercise all
rights and remedies as are available to Mortgagor to cause
the owner or owners of the working interest in such
properties to comply with the covenants and agreements
contained herein; and as to any part of the Mortgaged
Properties which is a working interest but which is operated
by a party other than Mortgagor, Mortgagor agrees to take
all such action and to exercise all rights and remedies as
are available to Mortgagor (including, but not limited to,
all rights under any operating agreement) to cause the party
who is the operator of such property to comply with the
covenants and agreements contained herein.
Section 2.3. Performance by Collateral Agent on
Mortgagor's Behalf. Mortgagor agrees that, if Mortgagor
fails to perform any act or to take any action which
hereunder Mortgagor is required to perform or take, or to
pay any money which hereunder Mortgagor is required to pay,
Collateral Agent, in Mortgagor's name or its own name, may,
but shall not be obligated to, perform or cause to be
performed such act or take such action or pay such money,
and any expenses so incurred by Collateral Agent and any
money so paid by Collateral Agent or TCW shall be a demand
obligation owing by Mortgagor to Collateral Agent or TCW, as
the case may be (which obligation Mortgagor hereby expressly
promises to pay), and Collateral Agent, upon making such
payment, shall be subrogated to all of the rights of the
person, corporation or body politic receiving such payment.
Each amount due and owing by Mortgagor to Trustee, TCW,
and/or Collateral Agent pursuant to this Mortgage shall bear
interest each day, from the date of such expenditure or
payment until paid, at a rate equal to the rate as provided
for past due principal under the Note (provided that, should
applicable law provide for a maximum permissible rate of
interest on such amounts, such rate shall not be greater
than such maximum permissible rate); all such amounts,
together with such interest thereon, shall be a part of the
secured indebtedness and shall be secured by this Mortgage.
ARTICLE III.
Assignment of Production, Accounts, and Proceeds
Section 3.1. Assignment of Production. Mortgagor does
hereby absolutely and unconditionally assign, transfer and
set over to Collateral Agent all Production which accrues to
Mortgagor's interest in the Mortgaged Properties, all
proceeds of such Production and all Payments in Lieu of
Production (herein collectively referred to as the
"Production Proceeds"), together with the immediate and
continuing right to collect and receive such Production
Proceeds. Mortgagor directs and instructs any and all
purchasers of any Production to pay to Collateral Agent all
of the Production Proceeds accruing to Mortgagor's interest
until such time as such purchasers have been furnished with
evidence that all secured indebtedness has been paid and
that this Mortgage has been released. Mortgagor agrees that
no purchasers of the Production shall have any
responsibility for the application of any funds paid to
Collateral Agent. Notwithstanding any provision of this
Article III to the contrary, unless and until any third
party purchaser of Production receives notice from
Collateral Agent to begin making payments directly to
Collateral Agent, Mortgagor may continue to receive such
payments.
Section 3.2. Effectuating Payment of Production
Proceeds to Collateral Agent. Independent of the foregoing
provisions and authorities herein granted, Mortgagor agrees
to execute and deliver any and all transfer orders, division
orders and other instruments that may be requested by
Collateral Agent or that may be required by any purchaser of
any Production for the purpose of effectuating payment of
the Production Proceeds to Collateral Agent. If under any
existing sales agreements, other than division orders or
transfer orders, any Production Proceeds are required to be
paid by the purchaser to Mortgagor so that under such
existing agreements payment cannot be made of such
Production Proceeds to Collateral Agent, Mortgagor's
interest in all Production Proceeds under such sales
agreements and in all other Production Proceeds which for
any reason may be paid to Mortgagor shall, when received by
Mortgagor, constitute trust funds in Mortgagor's hands and
shall be immediately paid over to Collateral Agent. Without
limitation upon any of the foregoing, Mortgagor hereby
constitutes and appoints Collateral Agent as Mortgagor's
special attorney-in-fact (with full power of substitution,
either generally or for such periods or purposes as
Collateral Agent may from time to time prescribe) in the
name, place and stead of Mortgagor to do any and every act
and exercise any and every power that Mortgagor might or
could do or exercise personally with respect to all
Production and Production Proceeds (the same having been
assigned by Mortgagor to Collateral Agent pursuant to
Section 3.1 hereof), expressly inclusive, but not limited
to, the right, power and authority to:
(a) Execute and deliver in the name of Mortgagor
any and all transfer orders, division orders, letters in
lieu of transfer orders, indemnifications, certificates
and other instruments of every nature that may be
requested or required by any purchaser of Production
from any of the Mortgaged Properties for the purposes of
effectuating payment of the Production Proceeds to
Collateral Agent or which Collateral Agent may otherwise
deem necessary or appropriate to effect the intent and
purposes of the assignment contained in Section 3.1; and
(b) If under any product sales agreements other
than division orders or transfer orders, any Production
Proceeds are required to be paid by the purchaser to
Mortgagor so that under such existing agreements payment
cannot be made of such Production Proceeds to Collateral
Agent, to make, execute and enter into such sales
agreements or other agreements as are necessary to
direct Production Proceeds to be payable to Collateral
Agent;
giving and granting unto said attorney-in-fact full power
and authority to do and perform any and every act and thing
whatsoever necessary and requisite to be done as fully and
to all intents and purposes, as Mortgagor might or could do
if personally present; and Mortgagor shall be bound thereby
as fully and effectively as if Mortgagor had personally
executed, acknowledged and delivered any of the foregoing
certificates or documents. The powers and authorities
herein conferred upon Collateral Agent may be exercised by
Collateral Agent through any person who, at the time of the
execution of the particular instrument, is an officer of
Collateral Agent. The power of attorney herein conferred is
granted for valuable consideration and hence is coupled with
an interest and is irrevocable so long as the secured
indebtedness, or any part thereof, shall remain unpaid. All
persons dealing with Collateral Agent or any substitute
shall be fully protected in treating the powers and
authorities conferred by this paragraph as continuing in
full force and effect until advised by Collateral Agent that
all the secured indebtedness is fully and finally paid.
Collateral Agent may, but shall not be obligated to, take
such action as it deems appropriate in an effort to collect
the Production Proceeds and any reasonable expenses
(including reasonable attorney's fees) so incurred by
Collateral Agent shall be a demand obligation of Mortgagor
and shall be part of the secured indebtedness, and shall
bear interest each day, from the date of such expenditure or
payment until paid, at the rate described in Section 2.3
hereof.
Section 3.3. Change of Purchaser. To the extent a
default has occurred hereunder and is continuing, should any
person now or hereafter purchasing or taking Production fail
to make payment promptly to Collateral Agent of the
Production Proceeds, Collateral Agent shall, subject to then
existing contractual prohibitions, have the right to make,
or to require Mortgagor to make, a change of purchaser, and
the right to designate or approve the new purchaser, and
Collateral Agent shall have no liability or responsibility
in connection therewith so long as ordinary care is used in
making such designation.
Section 3.4. Application of Production Proceeds. So
long as no default has occurred hereunder, the Production
Proceeds received by Collateral Agent during each calendar
month shall on the first business day of the next succeeding
calendar month (or, at the option of Collateral Agent, on
any earlier date) be applied by Collateral Agent as follows:
FIRST, to the payment of all secured indebtedness
then due and payable, in such manner and order as
Collateral Agent deems advisable;
SECOND, to the prepayment of the remainder of the
secured indebtedness in such manner and order and to
such extent as Collateral Agent deems advisable; and
THIRD, the remainder, if any, of the Production
Proceeds shall be paid over to Mortgagor or to
Mortgagor's order or to such other parties as may be
entitled thereto by law.
After a default hereunder has occurred, all Production
Proceeds from time to time in the hands of Collateral Agent
shall be applied by it toward the payment of all secured
indebtedness (principal, interest, attorneys' fees and other
fees and expenses) at such times and in such manner and
order and to such extent as Collateral Agent deems
advisable.
Section 3.5. Release From Liability; Indemnification.
Collateral Agent and its successors and assigns are hereby
released and absolved from all liability for failure to
enforce collection of the Production Proceeds and from all
other responsibility in connection therewith, except the
responsibility of each to account to Mortgagor for funds
actually received by each. Mortgagor agrees to indemnify
and hold harmless Collateral Agent (for purposes of this
paragraph, the term "Collateral Agent" shall include the
directors, officers, partners, employees and agents of
Collateral Agent and any persons or entities owned or
controlled by or affiliated with Collateral Agent) from and
against all claims, demands, liabilities, losses, damages
(including without limitation consequential damages), causes
of action, judgments, penalties, costs and expenses
(including without limitation reasonable attorneys' fees and
expenses) imposed upon, asserted against or incurred or paid
by Collateral Agent by reason of the assertion that
Collateral Agent received, either before or after payment in
full of the secured indebtedness, funds from the production
of oil, gas, other hydrocarbons or other minerals claimed by
third persons (and/or funds attributable to sales of
production which (i) were made at prices in excess of the
maximum price permitted by applicable law or (ii) were
otherwise made in violation of laws, rules, regulations
and/or orders governing such sales), and Collateral Agent
shall have the right to defend against any such claims or
actions, employing attorneys of its own selection, and if
not furnished with indemnity satisfactory to it, Collateral
Agent shall have the right to compromise and adjust any such
claims, actions and judgments, and in addition to the rights
to be indemnified as herein provided, all amounts paid by
Collateral Agent in compromise, satisfaction or discharge of
any such claim, action or judgment, and all court costs,
attorneys' fees and other expenses of every character
expended by Collateral Agent pursuant to the provisions of
this section shall be a demand obligation (which obligation
Mortgagor hereby expressly promises to pay) owing by
Mortgagor to Collateral Agent and TCW and shall bear
interest, from the date expended until paid, at the rate
described in Section 2.3 hereof. The foregoing indemnities
shall not terminate upon the Release Date or upon the
release, foreclosure or other termination of this Mortgage
but will survive the Release Date, foreclosure of this
Mortgage or conveyance in lieu of foreclosure, and the
repayment of the secured indebtedness and the discharge and
release of this Mortgage and the other documents evidencing
and/or securing the secured indebtedness. WITHOUT
LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR
AGREES THAT THE FOREGOING RELEASES AND INDEMNITIES SHALL
APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO ALL CLAIMS,
DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT
LIMITATION CONSEQUENTIAL DAMAGES, CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT
LIMITATION REASONABLE ATTORNEYS' FEES AND EXPENSES) WHICH IN
WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY.
However, such indemnities shall not apply to any particular
indemnified party (but shall apply to the other indemnified
parties) to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful
misconduct of such particular indemnified party.
Section 3.6. Mortgagor's Absolute Obligation to Pay
Note. Nothing herein contained shall detract from or limit
the obligations of Mortgagor to make prompt payment of the
Note, and any and all other secured indebtedness, at the
time and in the manner provided herein and in the Loan
Documents, regardless of whether the Production and
Production Proceeds herein assigned are sufficient to pay
same, and the rights under this Article III shall be
cumulative of all other rights of Collateral Agent and TCW
under the Loan Documents.
Section 3.7. Rights Under Wyoming Statutes. Mortgagor
hereby appoints Collateral Agent as its attorney-in-fact to
pursue any and all lien rights of the Mortgagor to liens and
security interests in the Properties securing payment of the
Production Proceeds attributable to the Properties,
including, but not limited to, those liens and security
interests provided for by Section 34.1-319, Wyoming Statutes
Annotated, 1988 Republished Edition (1991 Supp.). Mortgagor
further hereby assigns to Collateral Agent any and all such
liens, security interests, financing statements, or similar
interests of Mortgagor attributable to its interests in the
Properties and Production Proceeds therefrom arising under
or created by statutory provision, judicial decision, or
otherwise.
ARTICLE IV.
Remedies Upon Default
Section 4.1. Default. The term "default" as used in
this Mortgage shall mean the occurrence of any of the
following events:
(a) the occurrence of an "Event of Default," as
defined in the Credit Agreement; or
(b) the occurrence of a "Coverage Default," as
defined in the Credit Agreement, to the extent same
is not cured within the applicable grace period
allowed under the Credit Agreement.
Section 4.2. Acceleration of Secured Indebtedness.
Upon the occurrence of a default, Collateral Agent may, on
behalf of TCW, at any time and from time to time, without
notice to Mortgagor or any other person, declare any or all
of the secured indebtedness immediately due and payable and
all such secured indebtedness shall thereupon be immediately
due and payable, without presentment, demand, protest,
notice of protest, notice of acceleration or of intention to
accelerate, putting the Mortgagor in default, dishonor,
notice of dishonor or any other notice or declaration of any
kind, all of which are hereby expressly waived by Mortgagor,
and the liens evidenced hereby shall be subject to
foreclosure in any manner provided for herein or provided
for by law as Collateral Agent may elect.
Section 4.3. Pre-Foreclosure Remedies. Upon the
occurrence of a default, or any event or circumstance which,
with the lapse of time or the giving of notice, or both,
would constitute a default hereunder, Collateral Agent is
authorized, prior or subsequent to the institution of any
foreclosure proceedings, to enter upon the Property, or any
part thereof, and to take possession of the Property and all
books and records relating thereto, and to exercise without
interference from Mortgagor any and all rights which
Mortgagor has with respect to the management, possession,
operation, protection or preservation of the Property. If
necessary to obtain the possession provided for above,
Collateral Agent may invoke any and all remedies to
dispossess Mortgagor. All costs, expenses and liabilities
of every character incurred by Collateral Agent in managing,
operating, maintaining, protecting or preserving the
Property shall constitute a demand obligation (which
obligation Mortgagor hereby expressly promises to pay) owing
by Mortgagor to Collateral Agent and shall bear interest
from date of expenditure until paid at the rate described in
Section 2.3 hereof, all of which shall constitute a portion
of the secured indebtedness and shall be secured by this
Mortgage and by any other instrument securing the secured
indebtedness. In connection with any action taken by
Collateral Agent pursuant to this Section 4.3, COLLATERAL
AGENT SHALL NOT BE LIABLE FOR ANY LOSS SUSTAINED BY
MORTGAGOR RESULTING FROM ANY ACT OR OMISSION OF COLLATERAL
AGENT (INCLUDING COLLATERAL AGENT'S OWN NEGLIGENCE) IN
MANAGING THE PROPERTY UNLESS SUCH LOSS IS CAUSED BY THE
WILLFUL MISCONDUCT AND BAD FAITH OF COLLATERAL AGENT, nor
shall Collateral Agent be obligated to perform or discharge
any obligation, duty or liability of Mortgagor arising under
any agreement forming a part of the Property or arising
under any Permitted Encumbrance or otherwise arising.
Mortgagor hereby assents to, ratifies and confirms any and
all actions of Collateral Agent with respect to the Property
taken under this Section 4.3.
Section 4.4. Foreclosure.
(a) Upon the occurrence of a default, Trustee is
authorized and empowered and it shall be Trustee's special
duty at the request of Collateral Agent to sell the Deed of
Trust Mortgaged Properties, or any part thereof, as an
entirety or in parcels as Collateral Agent may elect, at
such place or places and otherwise in the manner and upon
such notice as may be required by law or, in the absence of
any such requirement, as Trustee may deem appropriate. If
Trustee shall have given notice of sale hereunder, any
successor or substitute Trustee thereafter appointed may
complete the sale and the conveyance of the property
pursuant thereto as if such notice had been given by the
successor or substitute Trustee conducting the sale.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER
OF SALE MAY ALLOW TRUSTEE TO TAKE THE MORTGAGED PROPERTIES
AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION
UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE.
(b) Upon the occurrence of a default, this Mortgage
may be foreclosed as to the Other Mortgaged Properties, or
any part thereof, in any manner permitted by applicable law.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER
OF SALE MAY ALLOW COLLATERAL AGENT TO TAKE THE MORTGAGED
PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS
MORTGAGE.
(c) Upon the occurrence of a default, Collateral
Agent may exercise its rights of enforcement with respect to
the Collateral under the Texas Business and Commerce Code,
as amended, the Uniform Commercial Code or any other code,
law or statute in force in any state to the extent the same
is applicable law. Cumulative of the foregoing and the
other provisions of this Section 4.4:
(i) Collateral Agent may enter upon the
Mortgaged Properties or otherwise upon Mortgagor's
premises to take possession of, assemble and collect
the Collateral or to render it unusable; and
(ii) Collateral Agent may require Mortgagor
to assemble the Collateral and make it available at a place
Collateral Agent designates which is mutually convenient
to allow Collateral Agent to take possession or dispose
of the Collateral; and
(iii) written notice mailed to Mortgagor as
provided herein at least five (5) days prior to the date of
public sale of the Collateral or prior to the date after
which private sale of the Collateral will be made shall
constitute reasonable notice; and
(iv) in the event of a foreclosure of the
liens and/or security interests evidenced hereby,
the Collateral, or any part thereof, and the
Mortgaged Properties, or any part thereof may, at
the option of Collateral Agent, be sold, as a whole
or in parts, together or separately (including,
without limitation, where a portion of the Mortgaged
Properties is sold, the Collateral related
thereto may be sold in connection therewith); and
(v) the expenses of sale provided for in
clause FIRST of Section 4.7 shall include the
reasonable expenses of retaking the Collateral,
or any part thereof, holding the same and preparing
the same for sale or other disposition; and
(vi) should, under this subsection, the
Collateral be disposed of other than by sale, any proceeds
of such disposition shall be treated under Section 4.7 as
if the same were sales proceeds.
(d) To the extent permitted by applicable law, the
sale by Trustee or Collateral Agent hereunder of less than
the whole of the Property shall not exhaust the powers of
sale herein granted or the right to judicial foreclosure,
and successive sale or sales may be made until the whole of
the Property shall be sold, and, if the proceeds of such
sale of less than the whole of the Property shall be less
than the aggregate of the indebtedness secured hereby and
the expense of conducting such sale, this Mortgage and the
liens and security interests hereof shall remain in full
force and effect as to the unsold portion of the Property
just as though no sale had been made; provided, however,
that Mortgagor shall never have any right to require the
sale of less than the whole of the Property. In the event
any sale hereunder is not completed or is defective in the
opinion of Collateral Agent, such sale shall not exhaust the
powers of sale hereunder or the right to judicial
foreclosure, and Collateral Agent shall have the right to
cause a subsequent sale or sales to be made. Any sale may
be adjourned by announcement at the time and place appointed
for such sale without further notice except as may be
required by law. The Trustee or his successor or
substitute, and the Collateral Agent acting under power of
sale, may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to
any sale held by it (including, without limitation, the
posting of notices and the conduct of sale), and such
appointment need not be in writing or recorded. Any and all
statements of fact or other recitals made in any deed or
deeds, or other instruments of transfer, given in connection
with a sale as to nonpayment of the secured indebtedness or
as to the occurrence of any default, or as to TCW's or
Collateral Agent's (on behalf of TCW) having declared all of
indebtedness to be due and payable, or as to the request to
sell, or as to notice of time, place and terms of sale and
the properties to be sold having been duly given, or, with
respect to any sale by the Trustee, or any successor or
substitute trustee, as to the refusal, failure or inability
to act of Trustee or any substitute or successor trustee or
the appointment of any substitute or successor trustee, or
as to any other act or thing having been duly done, shall be
taken as prima facie evidence of the truth of the facts so
stated and recited. Notwithstanding any reference herein to
the Note or the Credit Agreement or any other Loan Document,
all persons dealing with the Mortgaged Properties shall be
entitled to rely on any document, or certificate, of the
Mortgagee as to the occurrence of an event, such a default,
and shall not be charged with or forced to review any
provision of any other document to determine the accuracy
thereof. With respect to any sale held in foreclosure of
the liens and/or security interests covered hereby, it shall
not be necessary for the Trustee, Collateral Agent, any
public officer acting under execution or order of the court
or any other party to have physically present or
constructively in his/her or its possession, either at the
time of or prior to such sale, the Property or any part
thereof.
Section 4.5. Effective as Mortgage. As to the Deed of
Trust Mortgaged Properties, this instrument shall be
effective as a mortgage, as well as a deed of trust, and
upon the occurrence of a default may, in the sole and
absolute discretion of Collateral Agent, be foreclosed as to
the Deed of Trust Mortgaged Properties, or any portion
thereof, in any manner permitted by applicable law, and any
foreclosure suit may be brought by Trustee or by Collateral
Agent. To the extent, if any, required to cause this
instrument to be so effective as a mortgage as well as a
deed of trust, Mortgagor hereby mortgages the Deed of Trust
Mortgaged Properties to Collateral Agent. In the event a
foreclosure hereunder as to the Deed of Trust Mortgaged
Properties, or any part thereof, shall be commenced by
Trustee, or his substitute or successor, Collateral Agent
may at any time before the sale of such properties direct
Trustee to abandon the sale, and may then institute suit for
the foreclosure of this Mortgage as to such properties. It
is agreed that if Collateral Agent should institute a suit
for the foreclosure of this Mortgage, Collateral Agent may
at any time before the entry of a final judgment in said
suit dismiss the same, and require Trustee, substitute or
successor, to sell the Deed of Trust Mortgaged Properties,
or any part thereof, in accordance with the provisions of
this Mortgage. NOTHING CONTAINED IN THIS SECTION 4.5 (OR
ELSEWHERE IN THIS MORTGAGE) SHALL BE CONSTRUED TO PREJUDICE
OR OTHERWISE IMPAIR THE RIGHTS OF TRUSTEE, COLLATERAL AGENT
AND TCW TO TREAT THIS INSTRUMENT AS A DEED OF TRUST AS TO
THOSE PROPERTIES LOCATED IN THE STATE OF UTAH.
NOTWITHSTANDING ANY PROVISION OF THIS MORTGAGE TO THE
CONTRARY, AS TO PROPERTIES LOCATED IN THE STATE OF UTAH,
THERE IS NOT TO BE CREATED IN FAVOR OF ANY THIRD PARTY ANY
RIGHT OF REDEMPTION.
Section 4.6. Receiver. In addition to all other
remedies herein provided for, Mortgagor agrees that, upon
the occurrence of a default or any event or circumstance
which, with the lapse of time or the giving or notice, or
both, would constitute a default hereunder, Collateral Agent
shall as a matter of right be entitled to the appointment of
a receiver or receivers for all or any part of the Property,
whether such receivership be incident to a proposed sale (or
sales) of such property or otherwise, and without regard to
the value of the Property or the solvency of any person or
persons liable for the payment of the indebtedness secured
hereby, and Mortgagor does hereby consent to the appointment
of such receiver or receivers, waives any and all defenses
to such appointment, and agrees not to oppose any
application therefor by Collateral Agent, and agrees that
such appointment shall in no manner impair, prejudice or
otherwise affect the rights of Collateral Agent under
Article III hereof. Mortgagor expressly waives notice of a
hearing for appointment of a receiver and the necessity for
bond or an accounting by the receiver. Nothing herein is to
be construed to deprive TCW or Collateral Agent of any other
right, remedy or privilege it may now or hereafter have
under the law to have a receiver appointed. Any reasonable
amount of money advanced by Collateral Agent in connection
with any such receivership shall be a demand obligation
(which obligation Mortgagor hereby expressly promises to
pay) owing by Mortgagor to Collateral Agent and TCW and
shall bear interest, from the date of making such
advancement by Collateral Agent or TCW until paid, at the
rate described in Section 2.3 hereof.
Section 4.7. Proceeds of Foreclosure. The proceeds of
any sale held in foreclosure of the liens and/or security
interests evidenced hereby shall be applied:
FIRST, to the payment of all necessary costs and
expenses incident to such foreclosure sale, including
but not limited to all court costs and charges of every
character in the event foreclosed by suit and including
but not limited to a reasonable fee to the Trustee if
such sale was made by the Trustee acting under the
provisions of Section 4.4(a); and
SECOND, to the payment of the secured indebtedness
(including specifically without limitation the
principal, interest and attorneys' fees due and unpaid
on the Note and the amounts due and unpaid and owed to
Collateral Agent and/or any party constituting TCW under
this Mortgage) in such manner and order as Collateral
Agent may elect; and
THIRD, the remainder, if any there shall be, shall
be
paid to Mortgagor, or to Mortgagor's heirs, devisees,
representatives, successors or assigns, or such other
persons as may be entitled thereto by law.
Section 4.8. Collateral Agent and/or TCW as Purchaser.
Collateral Agent and any party constituting TCW shall have
the right to become the purchaser at any sale held in
foreclosure of the liens and/or security interests evidenced
hereby, and any such party constituting TCW purchasing at
any such sale shall have the right to credit upon the amount
of the bid made therefor, to the extent necessary to satisfy
such bid, the secured indebtedness owing to such party, or
if such party holds less than all of such indebtedness, the
pro rata part thereof owing to such party, accounting to all
other parties not joining in such bid in cash for the
portion of such bid or bids apportionable to such non-bidding
parties.
Section 4.9. Foreclosure as to Matured Debt. Upon the
occurrence of a default, Collateral Agent shall have the
right to proceed with foreclosure of the liens and/or
security interests evidenced hereby without declaring the
entire secured indebtedness due, and in such event, any such
foreclosure sale may be made subject to the unmatured part
of the secured indebtedness and shall not in any manner
affect the unmatured part of the secured indebtedness, but
as to such unmatured part, this Mortgage shall remain in
full force and effect just as though no sale had been made.
The proceeds of such sale shall be applied as provided in
Section 4.7 except that the amount paid under clause SECOND
thereof shall be only the matured portion of the secured
indebtedness and any proceeds of such sale in excess of
those provided for in clauses FIRST and SECOND (modified as
provided above) shall be applied as provided in clause
SECOND and THIRD of Section 3.4 hereof. Several sales may
be made hereunder without exhausting the right of sale for
any unmatured part of the secured indebtedness.
Section 4.10. Remedies Cumulative. All remedies herein
provided for are cumulative of each other and of all other
remedies existing at law or in equity and are cumulative of
any and all other remedies provided for in any other Loan
Document, and Trustee, Collateral Agent and TCW shall, in
addition to the remedies herein provided, be entitled to
avail themselves of all such other remedies as may now or
hereafter exist at law or in equity for the collection of
the secured indebtedness and the enforcement of the
covenants herein and the foreclosure of the liens and/or
security interests evidenced hereby, and the resort to any
remedy provided for hereunder or under any such other Loan
Document or provided for by law shall not prevent the
concurrent or subsequent employment of any other appropriate
remedy or remedies.
Section 4.11. Collateral Agent's Discretion as to
Security. Collateral Agent may resort to any security given
by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the secured
indebtedness, in whole or in part, and in such portions and
in such order as may seem best to Collateral Agent in its
sole and uncontrolled discretion, and any such action shall
not in any way be considered as a waiver of any of the
rights, benefits, liens or security interests evidenced by
this Mortgage.
Section 4.12. Mortgagor's Waiver of Certain Rights. To
the full extent Mortgagor may do so, Mortgagor agrees that
Mortgagor will not at any time insist upon, plead, claim or
take the benefit or advantage of any law now or hereafter in
force providing for any appraisement, valuation, stay,
extension or redemption, and Mortgagor, for Mortgagor,
Mortgagor's heirs, devisees, representatives, successors and
assigns, and for any and all persons ever claiming any
interest in the Property, to the extent permitted by
applicable law, hereby waives and releases all rights of
appraisement, valuation, stay of execution, redemption,
notice of intention to mature or declare due the whole of
the secured indebtedness, notice of election to mature or
declare due the whole of the secured indebtedness and all
rights to a marshaling of assets of Mortgagor, including the
Property, or to a sale in inverse order of alienation in the
event of foreclosure of the liens and/or security interests
hereby created. Mortgagor shall not have or assert any
right under any statute or rule of law pertaining to the
marshaling of assets, sale in inverse order of alienation,
the exemption of homestead, the administration of estates of
decedents, or other matters whatever to defeat, reduce or
affect the right of Trustee and/or Collateral Agent under
the terms of this Mortgage to a sale of the Property for the
collection of the secured indebtedness without any prior or
different resort for collection, or the right of any party
constituting TCW under the terms of this Mortgage to the
payment of the secured indebtedness out of the proceeds of
sale of the Property in preference to every other claimant
whatever. If any law referred to in this section and now in
force, of which Mortgagor or Mortgagor's heirs, devisees,
representatives, successors or assigns or any other persons
claiming any interest in the Mortgaged Properties or the
Collateral might take advantage despite this section, shall
hereafter be repealed or cease to be in force, such law
shall not thereafter be deemed to preclude the application
of this section.
Section 4.13. Mortgagor as Tenant Post-Foreclosure. In
the event there is a foreclosure sale hereunder and at the
time of such sale Mortgagor or Mortgagor's heirs, devisees,
representatives, successors or assigns or any other persons
claiming any interest in the Property by, through or under
Mortgagor are occupying or using the Property, or any part
thereof, each and all shall immediately become the tenant of
the purchaser at such sale, which tenancy shall be a tenancy
from day to day, terminable at the will of either landlord
or tenant, at a reasonable rental per day based upon the
value of the property occupied, such rental to be due daily
to the purchaser. To the extent permitted by applicable
law, the purchaser at such sale shall, notwithstanding any
language herein apparently to the contrary, have the sole
option to demand immediate possession following the sale or
to permit the occupants to remain as tenants at will. In
the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to
institute and maintain a summary action for possession of
the property (such as an action for forcible entry and
detainer) in any court having jurisdiction.
ARTICLE V.
Miscellaneous
Section 5.1. Scope of Mortgage. This Mortgage is a
deed of trust and mortgage of both real/immovable and
personal/movable property, a security agreement, a financing
statement and an assignment, and also covers proceeds and
fixtures.
Section 5.2. Effective as a Financing Statement. This
Mortgage covers goods which are or are to become fixtures on
the real property described herein, and this Mortgage shall
be effective as a financing statement filed as a fixture
filing with respect to all fixtures included within the
Property. This Mortgage shall also be effective as a
financing statement, filed as a fixture filing, covering
minerals and other substances of value which may be
extracted from the earth (including without limitation oil
and gas), and accounts related thereto, which will be
financed at the wellhead or minehead of the wells or mines
located on the Mortgaged Properties. This Mortgage is to be
filed for record in the real/immovable property records of
each county or parish where any part of the Mortgaged
Properties is situated or which lies shoreward of any
Mortgaged Property (i.e., to the extent a Mortgaged Property
lies offshore within the projected seaward extension of the
relevant county or parish boundaries), and may also be filed
in the offices of the Bureau of Land Management or the
Minerals Management Service or any relevant state agency (or
any successor agencies). This Mortgage shall also be
effective as a financing statement covering any other
Property and may be filed in any other appropriate filing or
recording office. The mailing address of Mortgagor is the
address of Mortgagor set forth at the end of this Mortgage
and the address of Collateral Agent from which information
concerning the security interests hereunder may be obtained
is the address of Collateral Agent set forth at the end of
this Mortgage.
Section 5.3. Reproduction of Mortgage as Financing
Statement. A carbon, photographic, facsimile or other
reproduction of this Mortgage or of any financing statement
relating to this Mortgage shall be sufficient as a financing
statement for any of the purposes referred to in Section
5.2.
Section 5.4. Notice to Account Debtors. In addition
to, but without limitation of, the rights granted in Article
III hereof, Collateral Agent may, at any time after a
default has occurred that is continuing, notify the account
debtors or obligors of any accounts, chattel paper,
negotiable instruments or other evidences of indebtedness
included in the Collateral to pay Collateral Agent directly.
Section 5.5. Waiver by Collateral Agent. Collateral
Agent may at any time and from time to time in writing waive
compliance by Mortgagor with any covenant herein made by
Mortgagor to the extent and in the manner specified in such
writing, or consent to Mortgagor's doing any act which
hereunder Mortgagor is prohibited from doing, or to
Mortgagor's failing to do any act which hereunder Mortgagor
is required to do, to the extent and in the manner specified
in such writing, or release any part of the Property or any
interest therein or any Production Proceeds from the lien
and security interest of this Mortgage, without the joinder
of Trustee or TCW, or release any party liable, either
directly or indirectly, for the secured indebtedness or for
any covenant herein or in any other Loan Document, without
impairing or releasing the liability of any other party. No
such act shall in any way impair the rights or powers of
Collateral Agent, Trustee and/or TCW hereunder except to the
extent specifically agreed to by Collateral Agent in such
writing.
Section 5.6. No Impairment of Security. The lien,
security interest and other security rights of Trustee
and/or Collateral Agent hereunder shall not be impaired by
any indulgence, moratorium or release granted by Trustee
and/or Collateral Agent including, but not limited to, any
renewal, extension or modification which Collateral Agent
may grant with respect to any secured indebtedness, or any
surrender, compromise, release, renewal, extension, exchange
or substitution which Trustee and/or Collateral Agent may
grant in respect of the Property (including without
limitation Production Proceeds), or any part thereof or any
interest therein, or any release or indulgence granted to
any endorser, guarantor or surety of any secured
indebtedness.
Section 5.7. Acts Not Constituting Waiver by Collateral
Agent. Collateral Agent may waive any default without
waiving any other prior or subsequent default. Collateral
Agent may remedy any default without waiving the default
remedied. Neither failure by Trustee or Collateral Agent to
exercise, nor delay by Trustee or Collateral Agent in
exercising, any right, power or remedy upon any default
shall be construed as a waiver of such default or as a
waiver of the right to exercise any such right, power or
remedy at a later date. No single or partial exercise by
Trustee or Collateral Agent of any right, power or remedy
hereunder shall exhaust the same or shall preclude any other
or further exercise thereof, and every such right, power or
remedy hereunder may be exercised at any time and from time
to time. No modification or waiver of any provision hereof
nor consent to any departure by Mortgagor therefrom shall in
any event be effective unless the same shall be in writing
and signed by Collateral Agent and then such waiver or
consent shall be effective only in the specific instances,
for the purpose for which given and to the extent therein
specified. No notice to nor demand on Mortgagor in any case
shall of itself entitle Mortgagor to any other or further
notice or demand in similar or other circumstances.
Acceptance by Collateral Agent or TCW of any payment in an
amount less than the amount then due on any secured
indebtedness shall be deemed an acceptance on account only
and shall not in any way excuse the existence of a default
hereunder.
Section 5.8. Mortgagor's Successors. In the event the
ownership of the Property or any part thereof becomes vested
in a person other than Mortgagor, Collateral Agent and
Trustee may, without notice to Mortgagor, deal with such
successor or successors in interest with reference to this
Mortgage and to the indebtedness secured hereby in the same
manner as with Mortgagor, without in any way vitiating or
discharging Mortgagor's liability hereunder or for the
payment of the indebtedness or performance of the
obligations secured hereby. No transfer of the Property, no
forbearance on the part of Collateral Agent or TCW, and no
extension of the time for the payment of the indebtedness
secured hereby given by Collateral Agent or TCW shall
operate to release, discharge, modify, change or affect, in
whole or in part, the liability of Mortgagor hereunder or
for the payment of the indebtedness or performance of the
obligations secured hereby or the liability of any other
person hereunder or for the payment of the indebtedness
secured hereby.
Section 5.9. Place of Payment. All secured
indebtedness which may be owing hereunder at any time by
Mortgagor shall be payable at the place designated in the
Note (or if no such designation is made, at the address of
Collateral Agent indicated at the end of this Mortgage), or
at such other place as Collateral Agent may designate in
writing.
Section 5.10. Subrogation to Existing Liens. To the
extent that proceeds of the Note are used to pay
indebtedness secured by any outstanding lien, security
interest, charge or prior encumbrance against the Property,
such proceeds have been advanced by TCW at Mortgagor's
request, and Collateral Agent, for the benefit of TCW, shall
be subrogated to any and all rights, security interests and
liens owned by any owner or holder of such outstanding
liens, security interests, charges or encumbrances,
irrespective of whether said liens, security interests,
charges or encumbrances are released, and it is expressly
understood that, in consideration of the payment of such
indebtedness by TCW, Mortgagor hereby waives and releases
all demands and causes of action for offsets and payments
to, upon and in connection with the said indebtedness.
Section 5.11. Application of Payments to Certain
Indebtedness. If any part of the secured indebtedness
cannot be lawfully secured by this Mortgage or if any part
of the Property cannot be lawfully subject to the lien and
security interest hereof to the full extent of such
indebtedness, then all payments made shall be applied on
said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.
Section 5.12. Compliance With Usury Laws. It is the
intent of Mortgagor, Collateral Agent, TCW and all other
parties to the Loan Documents to contract in strict
compliance with applicable usury law from time to time in
effect. In furtherance thereof, it is stipulated and agreed
that none of the terms and provisions contained herein or in
the other Loan Documents shall ever be construed to create a
contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest
permitted to be charged by applicable law from time to time
in effect.
Section 5.13. Substitute Trustee. The Trustee may
resign by an instrument in writing addressed to Collateral
Agent, or Trustee may be removed at any time with or without
cause by an instrument in writing executed by Collateral
Agent. In case of the death, resignation, removal, or
disqualification of Trustee, or if for any reason Collateral
Agent shall deem it desirable to appoint a substitute or
successor trustee to act instead of the herein named trustee
or any substitute or successor trustee, then Collateral
Agent shall have the right and is hereby authorized and
empowered to appoint a successor trustee, or a substitute
trustee, without other formality than appointment and
designation in writing executed by Collateral Agent and the
authority hereby conferred shall extend to the appointment
of other successor and substitute trustees successively
until the indebtedness secured hereby has been paid in full,
or until the Property is sold hereunder. Such appointment
and designation by Collateral Agent shall be full evidence
of the right and authority to make the same and of all facts
therein recited. If Collateral Agent is a corporation or
association and such appointment is executed in its behalf
by an officer of such corporation or association, such
appointment shall be conclusively presumed to be executed
with authority and shall be valid and sufficient without
proof of any action by the board of directors or any
superior officer of the corporation or association.
Collateral Agent may act through an agent or attorney-in-fact in
substituting trustees. Upon the making of any such
appointment and designation, all of the estate and title of
Trustee in the Deed of Trust Mortgaged Properties shall vest
in the named successor or substitute Trustee and it shall
thereupon succeed to, and shall hold, possess and execute,
all the rights, powers, privileges, immunities and duties
herein conferred upon Trustee; but nevertheless, upon the
written request of Collateral Agent or of the successor or
substitute Trustee, the Trustee ceasing to act shall execute
and deliver an instrument transferring to such successor or
substitute Trustee all of the estate and title in the Deed
of Trust Mortgaged Properties of the Trustee so ceasing to
act, together with all the rights, powers, privileges,
immunities and duties herein conferred upon the Trustee, and
shall duly assign, transfer and deliver any of the
properties and moneys held by said Trustee hereunder to said
successor or substitute Trustee. All references herein to
Trustee shall be deemed to refer to Trustee (including any
successor or substitute appointed and designated as herein
provided) from time to time acting hereunder.
Section 5.14. No Liability for Trustee. THE TRUSTEE
SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY
TRUSTEE IN GOOD FAITH, OR BE OTHERWISE RESPONSIBLE OR
ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER (INCLUDING,
WITHOUT LIMITATION, THE TRUSTEE'S NEGLIGENCE), EXCEPT FOR
TRUSTEE'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. The
Trustee shall have the right to rely on any instrument,
document or signature authorizing or supporting any action
taken or proposed to be taken by it hereunder, believed by
it in good faith to be genuine. All moneys received by
Trustee shall, until used or applied as herein provided, be
held in trust for the purposes for which they were received,
but need not be segregated in any manner from any other
moneys (except to the extent required by law), and Trustee
shall be under no liability for interest on any moneys
received by him hereunder. Mortgagor hereby ratifies and
confirms any and all acts which the herein named Trustee or
its successor or successors, substitute or substitutes,
shall do lawfully by virtue hereof. Mortgagor will
reimburse Trustee for, and indemnify and save it harmless
against, any and all liability and expenses (including
attorneys fees) which may be incurred by it in the
performance of his duties. The foregoing indemnities shall
not terminate upon the Release Date or upon the release,
foreclosure or other termination of this Mortgage but will
survive the Release Date, foreclosure of this Mortgage or
conveyance in lieu of foreclosure, and the repayment of the
secured indebtedness and the discharge and release of this
Mortgage and the other documents evidencing and/or securing
the secured indebtedness. Any amount to be paid hereunder
by Mortgagor to Trustee shall be a demand obligation owing
by Mortgagor to Trustee and shall be subject to and covered
by the provisions of Section 2.3 hereof.
Section 5.15. Release of Mortgage. If all of the
secured indebtedness be paid as the same becomes due and
payable, all other requirements of the Credit Agreement are
satisfied and all of the covenants, warranties, undertakings
and agreements made in this Mortgage are kept and performed,
and if neither the Mortgagor nor TCW is bound to the other
or to any third person to permit any secured indebtedness to
be incurred then or thereafter, then, upon sixty (60) days
prior written notice (or such lesser number of days as may
be mandated by applicable law), the Mortgagor may request
the Trustee and Collateral Agent to terminate this Mortgage
and reconvey to Mortgagor the interests created hereunder.
Upon such termination the Mortgagor may further request the
Trustee and Collateral Agent to provide a written act of
release of this Mortgage (except to the extent expressly
provided herein with respect to indemnification and other
rights which are to continue following the release hereof),
the execution of which release by Collateral Agent shall
terminate the powers and rights as attorney-in-fact afforded
Collateral Agent under Article III hereof. Collateral Agent
agrees to deliver such an act of release (subject to the
foregoing limitation), all at the cost and expense of the
Mortgagor, within sixty (60) days (or such lesser number of
days as may be mandated by applicable law) of receiving such
request unless Collateral Agent in good faith, has cause to
believe that Mortgagor is not entitled to a termination of
this Mortgage. Notwithstanding the foregoing, it is
understood and agreed that certain indemnifications, and
other rights, which are provided herein to continue
following the release hereof, shall continue in effect
notwithstanding such release.
Section 5.16. Notices. All notices, requests,
consents, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed
sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service with proof of
delivery, or by registered or certified United States mail,
postage prepaid, at the addresses specified at the end of
this Mortgage (unless changed by similar notice in writing
given by the particular party whose address is to be
changed). Any such notice or communication shall be deemed
to have been given (a) in the case of personal delivery or
delivery service, as of the date of first attempted delivery
at the address and in the manner provided herein, (b) in the
case of telecopy, upon receipt, and (c) in the case of
registered or certified United States mail, three days after
deposit in the mail. Notwithstanding the foregoing, or
anything else in the Loan Documents which may appear to the
contrary, any notice given in connection with a foreclosure
of the liens and/or security interests created hereunder, or
otherwise in connection with the exercise by TCW, Collateral
Agent or Trustee of their respective rights hereunder or
under any other Loan Document, which is given in a manner
permitted by applicable law shall constitute proper notice;
without limitation of the foregoing, notice given in a form
required or permitted by statute shall (as to the portion of
the Property to which such statute is applicable) constitute
proper notice.
Section 5.17. Invalidity of Certain Provisions. A
determination that any provision of this Mortgage is
unenforceable or invalid shall not affect the enforceability
or validity of any other provision and the determination
that the application of any provision of this Mortgage to
any person or circumstance is illegal or unenforceable shall
not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
Section 5.18. Gender; Titles. Within this Mortgage,
words of any gender shall be held and construed to include
any other gender, and words in the singular number shall be
held and construed to include the plural, unless the context
otherwise requires. Titles appearing at the beginning of
any subdivisions hereof are for convenience only, do not
constitute any part of such subdivisions, and shall be
disregarded in construing the language contained in such
subdivisions.
Section 5.19. Recording. Mortgagor will cause this
Mortgage and all amendments and supplements thereto and
substitutions therefor and all financing statements and
continuation statements relating thereto to be recorded,
filed, re-recorded and refiled in such manner and in such
places as Trustee or Collateral Agent shall reasonably
request and will pay all such recording, filing,
re-recording and refiling taxes, fees and other charges.
Section 5.20. Reporting Compliance. Mortgagor agrees
to comply with any and all reporting requirements applicable
to the transaction evidenced by the Note and secured by this
Mortgage which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental
authority, and further agrees upon request of Collateral
Agent to furnish Collateral Agent with evidence of such
compliance.
Section 5.21. Collateral Agent's Consent. Except where
otherwise expressly provided herein, in any instance
hereunder where the approval, consent or the exercise of
judgment of Collateral Agent is required, the granting or
denial of such approval or consent and the exercise of such
judgment shall be within the sole discretion of Collateral
Agent, and Collateral Agent shall not, for any reason or to
any extent, be required to grant such approval or consent or
exercise such judgment in any particular manner, regardless
of the reasonableness of either the request or Collateral
Agent's judgment.
Section 5.22. Certain Obligations of Mortgagor.
Without limiting Mortgagor's obligations hereunder,
Mortgagor liability hereunder shall extend to and include
all post petition interest, expenses, and other duties and
liabilities with respect to Mortgagor's obligations
hereunder which would be owed but for the fact that the same
may be unenforceable due to the existence of a bankruptcy,
reorganization or similar proceeding.
Section 5.23. Counterparts. This Mortgage may be
executed in several counterparts, all of which are
identical, except that, (a) to facilitate recordation,
certain counterparts hereof may include only that portion of
Exhibit A which contains descriptions of the properties
located in (or otherwise subject to the requirements and/or
protections of the recording or filing acts or regulations
of) the recording jurisdiction in which the particular
counterpart is to be recorded, and other portions of Exhibit
A shall be included in such counterparts by reference only,
(b) Schedule I is attached only to the master counterparts
hereof being retained by Mortgagor and Collateral Agent,
(c) the execution of this Mortgage by Mortgagor may not be
witnessed on those counterparts hereof containing
descriptions of Mortgaged Properties located in states where
witnesses are not required and/or encouraged by applicable
law, and (d) the execution of this Mortgage by Mortgagor may
not be attested on those counterparts hereof containing
descriptions of Mortgaged Properties located in states where
attestation is not required and/or encouraged by applicable
law. All of such counterparts together shall constitute one
and the same instrument. Complete copies of this Mortgage
containing the entire Exhibit A and Schedule I, and being
fully executed by Collateral Agent, attested and sealed by a
representative of Mortgagor, and witnessed by two
individuals, have been retained by Mortgagor and Collateral
Agent.
Section 5.24. Successors and Assigns. The terms,
provisions, covenants, representations, indemnifications and
conditions hereof shall be binding upon Mortgagor, and the
substitutes, successors and assigns of Mortgagor, and shall
inure to the benefit of Trustee, Collateral Agent and the
parties constituting TCW, and their respective substitutes,
successors and assigns, and shall constitute covenants
running with the Mortgaged Properties. All references in
this Mortgage to Mortgagor, Trustee, Collateral Agent or TCW
or any party constituting TCW shall be deemed to include all
such substitutes, successors and assigns.
Section 5.25. FINAL AGREEMENT OF THE PARTIES. THE
WRITTEN LOAN DOCUMENTS REPRESENT 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.
Section 5.26. CHOICE OF LAW. THE INTERNAL LAWS OF THE
STATE IN WHICH A PARTICULAR PORTION OF THE PROPERTY IS
LOCATED, WITHOUT REFERENCE TO THE CHOICE OF LAW RULES OF
SUCH STATE, SHALL GOVERN WITH RESPECT TO PROCEDURAL AND
SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER
RIGHTS AND REMEDIES OF THE TRUSTEE, TCW OR THE COLLATERAL
AGENT IN SUCH PORTION OF THE PROPERTY. EXCEPT AS SET FORTH
IN THE PRECEDING SENTENCE, THIS MORTGAGE SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF CALIFORNIA, APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN CALIFORNIA, WITHOUT REFERENCE
TO THE CALIFORNIA CHOICE OF LAW RULES.
EXECUTED on this 29th day of November, 1995.
WITNESSES: INLAND PRODUCTION
COMPANY
Name: By:
Name: Kyle R. Miller
Title: President
Name:
The address and taxpayer I.D. No. of Mortgagor are:
475 Seventeenth Street
Suite 1500
Denver, Colorado 80202
Taxpayer I.D. No.: 741939669
The address of Collateral Agent is:
c/o Trust Company of the West
865 Figueroa
Los Angeles, California 90017
The address of Trustee is:
3300 East 400 South
Salt Lake City, Utah 84111
This instrument prepared by:
Karen E. Lynch
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, TX 75201
(214) 969-1316 - Phone
(214) 969-1751 - Fax
ACKNOWLEDGMENTS
STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
BE IT REMEMBERED THAT I, the undersigned authority, a
notary public duly qualified, commissioned, sworn and acting
in and for the county and state aforesaid, and being
authorized in such county and state to take acknowledgments,
hereby certify that, on this 29th day of November, 1995,
there personally appeared before me Kyle R. Miller, the
President of INLAND PRODUCTION COMPANY, a Texas corporation,
known to me to be such officer, such corporation being a
party to the foregoing instrument, and I hereby further
certify as follows:
WYOMING
On this 29th day of November, 1995, before me, the
undersigned authority, personally came and appeared Kyle R.
Miller, to me personally known and known by me to be the
person whose genuine signature is affixed to the foregoing
document as the President of INLAND PRODUCTION COMPANY, a
Texas corporation, who signed said document before me in the
presence of the two witnesses, whose names are thereto
subscribed as such, being competent witnesses, and who
acknowledged, in my presence and in the presence of said
witnesses, that he signed the above and foregoing document
as his own free act and deed on behalf of such corporation
by authority of its board of directors and as the free act
and deed of such corporation and for the uses and purposes
therein set forth and apparent.
UTAH
This instrument was acknowledged before me on this 29th day
of November, 1995, by Kyle R. Miller as President of INLAND
PRODUCTION COMPANY, a Texas corporation, on behalf of said
corporation. He is known to me.
IN TESTIMONY AND WITNESS WHEREOF, the said appearer has
signed these presents, together with the said witnesses, and
I have hereunto set and subscribed my hand and affixed my
official seal on the day and year above written, in the City
of Los Angeles, County of Los Angeles, State of California.
NOTARY PUBLIC, State of
California
My commission expires:
[SEAL]
<PAGE>
EXHIBIT 4.1.5<PAGE>
GUARANTY
THIS GUARANTY is made as of November 29, 1995, by Inland
Resources Inc., a Washington corporation ("Guarantor") in favor
of TCW, Agent, Collateral Agent and Royalty Assignee (as "TCW",
"Agent", "Collateral Agent" and "Royalty Assignee" are defined
below).
RECITALS:
1. Inland Production Company, a Texas corporation
("Borrower") has executed in favor of TCW those certain
promissory notes of even date herewith, payable to the order of
TCW in the aggregate principal amount of $25,000,000 (such
promissory notes, as from time to time amended, and all
promissory notes given in substitution, renewal or extension
therefor or thereof, in whole or in part, being herein
collectively called the "Note").
2. The Note was executed pursuant to a Credit Agreement of
even date herewith (herein, as from time to time amended,
supplemented or restated, called the "Credit Agreement"), by and
among Borrower, Guarantor, Agent, Collateral Agent and TCW,
pursuant to which TCW has agreed to advance funds to Borrower
under the Note.
3. It is a condition precedent to TCW's obligation to
advance funds pursuant to the Credit Agreement that Guarantor
shall execute and deliver to TCW a satisfactory guaranty of
Borrower's obligations under the Note, the Credit Agreement and
the other Transaction Documents (as defined in the Credit
Agreement).
4. Guarantor owns directly, or indirectly through one or
more subsidiaries, 100 percent of the outstanding shares of
common stock of Borrower.
5. Borrower, Guarantor, and the other direct and indirect
subsidiaries of Guarantor are mutually dependent on each other in
the conduct of their respective businesses under a holding
company structure, with the credit needed from time to time by
each often being provided by another or by means of financing
obtained by one such affiliate with the support of the others for
their mutual benefit and the ability of each to obtain such
financing being dependent on the successful operations of the
others.
6. The board of directors of Guarantor has determined that
Guarantor's execution, delivery and performance of this Guaranty
may reasonably be expected to benefit Guarantor, directly or
indirectly, and are in the best interests of Guarantor.
NOW, THEREFORE, in consideration of the premises, of the
benefits which will inure to Guarantor from TCW's advances of
funds to Borrower under the Credit Agreement, and of Ten Dollars
and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, and in order
to induce TCW to advance funds under the Credit Agreement,
Guarantor hereby agrees for the benefit of TCW, Collateral Agent
and Royalty Assignee as follows:
AGREEMENTS
Section 1. Definitions. Reference is hereby made to the
Credit Agreement for all purposes. All terms used in this
Guaranty which are defined in the Credit Agreement and not
otherwise defined herein shall have the same meanings when used
herein. All references herein to any Obligation Document,
Transaction Document, or other document or instrument refer to
the same as from time to time amended, supplemented or restated.
As used herein the following terms shall have the following
meanings:
"Agent" means Trust Company of the West, a California trust
company, in its capacity as "Agent" under the Credit Agreement,
together with its successors and assigns in such capacity.
"Beneficiaries" means TCW, Agent, Collateral Agent and
Royalty Assignee collectively (each a "Beneficiary"
individually).
"Collateral Agent" means TCW Asset Management Company, in
its capacity as "Collateral Agent" under the Credit Agreement,
together with its successors and assigns in such capacity.
"Obligations" means collectively all of the indebtedness,
obligations, and undertakings which are guaranteed by Guarantor
and described in subsections (a) and (b) of Section 2.
"Obligation Documents" means this Guaranty, the Note, the
Credit Agreement, the Transaction Documents, all other documents
and instruments under, by reason of which, or pursuant to which
any or all of the Obligations are evidenced, governed, secured,
or otherwise dealt with, and all other documents, instruments,
agreements, certificates, legal opinions and other writings
heretofore or hereafter delivered in connection herewith or
therewith.
"Obligors" means Borrower, Guarantor and any other
endorsers, guarantors or obligors, primary or secondary, of any
or all of the Obligations.
"Royalty Assignee" means TCW DR IV Royalty Partnership L.P.
"Security" means any rights, properties, or interests of any
Beneficiary, under the Obligation Documents or otherwise, which
provide recourse or other benefits to such Beneficiary in
connection with the Obligations or the non-payment or
non-performance thereof, including collateral (whether real or
personal, tangible or intangible) in which any Beneficiary has
rights under or pursuant to any Obligation Documents, guaranties
of the payment or performance of any Obligation, bonds, surety
agreements, keep-well agreements, letters of credit, rights of
subrogation, rights of offset, and rights pursuant to which other
claims are subordinated to the Obligations.
"TCW" means, collectively, (a) Trustco, as Trustee of the
TCW Debt and Royalty Fund IVA established pursuant to a
Declaration of Trust executed December 31, 1992; (b) Tamco, as
Investment Manager pursuant to the Investment Management and
Custody Agreement dated as of June 1, 1993 among The Trustees of
Columbia University in the City of New York, Tamco and Trustco;
(c) Tamco, as Investment Manager under the Investment Management
Agreement dated as of March 1, 1993 between The Board of Trustees
of The Leland Stanford Junior University and Tamco; (d) TCW DEBT
and ROYALTY FUND IVB, A CALIFORNIA LIMITED PARTNERSHIP; (e)
Tamco, as Investment Manager under the Investment Management
Agreement dated as of June 8, 1993 between the Searle Trusts
Limited Partnership X, a Delaware limited partnership, Harris
Trust and Savings Bank, as Custodian for the Searle Partnership
X, and Tamco; (f) Tamco, as Investment Manager under the
Investment Management Agreement dated as of June 8, 1993, between
the John G. Searle Charitable Trusts Partnership, a Delaware
limited partnership, Harris Trust and Savings Bank, as Custodian
for the Searle Charitable Partnership, and Tamco; (g) TCW DEBT
AND ROYALTY FUND IVC, A CALIFORNIA LIMITED PARTNERSHIP; (h)
Tamco, as Investment Manager under the Investment Management
Agreement dated as of December 31, 1993 between Delta Air Lines,
Inc. and Tamco; and (i) Tamco, as Investment Manager under the
Investment Management and Custody Agreement dated as of April 26,
1994 among The City and County Employees' Retirement System of
San Francisco, Tamco and Trustco.
Section 2. Guaranty.
(a) Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees to each Beneficiary the prompt,
complete, and full payment when due, and no matter how the same
shall become due, of:
(i) All sums payable to such Beneficiary under any
Obligation Document, whether for principal, interest, fees
or otherwise; and
(ii) Any and all other indebtedness or liabilities
which Borrower may at any time owe to such Beneficiary,
whether incurred heretofore or hereafter or concurrently
herewith, voluntarily or involuntarily, whether owed alone
or with others, whether fixed, contingent, absolute,
inchoate, liquidated or unliquidated, whether such
indebtedness or liability arises by notes, discounts,
overdrafts, open account indebtedness or in any other manner
whatsoever, and including interest, attorneys' fees and
collection costs as may be provided by law or in any
instrument evidencing any such indebtedness or liability.
Without limiting the generality of the foregoing, Guarantor's
liability hereunder shall extend to and include all post-petition
interest, expenses, and other duties and liabilities of Borrower
described above in this subsection (a), or below in the following
subsection (b), which would be owed by Borrower but for the fact
that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization, or similar proceeding involving
Borrower.
(b) Guarantor hereby irrevocably, absolutely, and
unconditionally guarantees to each Beneficiary the prompt,
complete and full performance, when due, and no matter how the
same shall become due, of all obligations and undertakings of
Borrower to such Beneficiary under, by reason of, or pursuant to
any of the Obligation Documents.
(c) If Borrower shall for any reason fail to pay any
Obligation, as and when such Obligation shall become due and
payable, whether at its stated maturity, as a result of the
exercise of any power to accelerate, or otherwise, Guarantor
will, forthwith upon demand by a Beneficiary, pay such Obligation
in full to such Beneficiary. If Borrower shall for any reason
fail to perform promptly any Obligation, Guarantor will,
forthwith upon demand by a Beneficiary, cause such Obligation to
be performed or, if specified by a Beneficiary, provide
sufficient funds, in such amount and manner as such Beneficiary
shall in good faith determine, for the prompt, full and faithful
performance of such Obligation by such Beneficiary or such other
Person as such Beneficiary shall designate.
(d) If either Borrower or Guarantor fails to pay or perform
any Obligation as described in the immediately preceding
subsections (a), (b), or (c) Guarantor will incur the additional
obligation to pay to Beneficiaries, and Guarantor will forthwith
upon demand by a Beneficiary pay to such Beneficiary, the amount
of any and all expenses, including fees and disbursements of such
Beneficiary's counsel and of any experts or agents retained by
such Beneficiary, which such Beneficiary may incur as a result of
such failure.
(e) As between Guarantor and Beneficiaries, this Guaranty
shall be considered a primary and liquidated liability of
Guarantor.
Section 3. Unconditional Guaranty.
(a) No action which any Beneficiary may take or omit to
take in connection with any of the Obligation Documents, any of
the Obligations (or any other indebtedness owing by Borrower to
any Beneficiary), or any Security, and no course of dealing of
any Beneficiary with any Obligor or any other Person, shall
release or diminish Guarantor's obligations, liabilities,
agreements or duties hereunder, affect this Guaranty in any way,
or afford Guarantor any recourse against any Beneficiary,
regardless of whether any such action or inaction may increase
any risks to or liabilities of any Beneficiary or any Obligor or
increase any risk to or diminish any safeguard of any Security.
Without limiting the foregoing, Guarantor hereby expressly agrees
that Beneficiaries may, from time to time, without notice to or
the consent of Guarantor, do any or all of the following:
(i) Amend, change or modify, in whole or in part, any
one or more of the Obligation Documents and give or refuse
to give any waivers or other indulgences with respect
thereto.
(ii) Neglect, delay, fail, or refuse to take or
prosecute any action for the collection or enforcement of
any of the Obligations, to foreclose or take or prosecute
any action in connection with any Security or Obligation
Document, to bring suit against any Obligor or any other
Person, or to take any other action concerning the
Obligations or the Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew
the time, rate, terms, or manner for payment or performance
of any one or more of the Obligations (whether for
principal, interest, fees, expenses, indemnifications,
affirmative or negative covenants, or otherwise).
(iv) Compromise or settle any unpaid or unperformed
Obligation or any other obligation or amount due or owing,
or claimed to be due or owing, under any one or more of the
Obligation Documents.
(v) Take, exchange, amend, eliminate, surrender,
release, or subordinate any or all Security for any or all
of the Obligations, accept additional or substituted
Security therefor, and perfect or fail to perfect a
Beneficiary's rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or
others, or from any Security for any of the Obligations, as
Beneficiaries may determine to be in their best interest,
without in any way being required to marshall Security or
assets or to apply all or any part of such monies upon any
particular Obligations.
(b) No action or inaction of any Obligor or any other
Person, and no change of law or circumstances, shall release or
diminish Guarantor's obligations, liabilities, agreements, or
duties hereunder, affect this Guaranty in any way, or afford
Guarantor any recourse against any Beneficiary. Without limiting
the foregoing, the obligations, liabilities, agreements, and
duties of Guarantor under this Guaranty shall not be released,
diminished, impaired, reduced, or affected by the occurrence of
any or all of the following from time to time, even if occurring
without notice to or without the consent of Guarantor:
(i) Any voluntary or involuntary liquidation,
dissolution, sale of all or substantially all assets,
marshalling of assets or liabilities, receivership,
conservatorship, assignment for the benefit of creditors,
insolvency, bankruptcy, reorganization, arrangement, or
composition of any Obligor or any other proceedings
involving any Obligor or any of the assets of any Obligor
under laws for the protection of debtors, or any discharge,
impairment, modification, release, or limitation of the
liability of, or stay of actions or lien enforcement
proceedings against, any Obligor, any properties of any
Obligor, or the estate in bankruptcy of any Obligor in the
course of or resulting from any such proceedings.
(ii) The failure by any Beneficiary to file or enforce
a claim in any proceeding described in the immediately
preceding subsection (i) or to take any other action in any
proceeding to which any Obligor is a party.
(iii) The release by operation of law of any Obligor
from any of the Obligations or any other obligations to any
Beneficiary.
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation
Documents, in whole or in part, any bar by any statute of
limitations or other law of recovery on any of the
Obligations, or any defense or excuse for failure to perform
on account of force majeure, act of God, casualty,
impossibility, impracticability, or other defense or excuse
whatsoever.
(v) The failure of any Obligor or any other Person to
sign any guaranty or other instrument or agreement within
the contemplation of any Obligor or any Beneficiary.
(vi) The fact that Guarantor may have incurred
directly part of the Obligations or is otherwise primarily
liable therefor.
(vii) Without limiting any of the foregoing, any fact
or event (whether or not similar to any of the foregoing)
which in the absence of this provision would or might
constitute or afford a legal or equitable discharge or
release of or defense to a guarantor or surety other than
the actual payment and performance by Guarantor under this
Guaranty.
(c) Each Beneficiary may invoke the benefits of this
Guaranty before pursuing any remedies against any Obligor or any
other Person and before proceeding against any Security now or
hereafter existing for the payment or performance of any of the
Obligations. Each Beneficiary may maintain an action against
Guarantor on this Guaranty without joining any other Obligor
therein and without bringing a separate action against any other
Obligor.
(d) If any payment to any Beneficiary by any Obligor is
held to constitute a preference or a voidable transfer under
applicable state or federal laws, or if for any other reason any
Beneficiary is required to refund such payment to the payor
thereof or to pay the amount thereof to any other Person, such
payment to such Beneficiary shall not constitute a release of
Guarantor from any liability hereunder, and Guarantor agrees to
pay such amount to such Beneficiary on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or
shall be reinstated, as the case may be, to the extent of any
such payment or payments. Any transfer by subrogation which is
made as contemplated in Section 6 prior to any such payment or
payments shall (regardless of the terms of such transfer) be
automatically voided upon the making of any such payment or
payments, and all rights so transferred shall thereupon revert to
and be vested in Beneficiaries.
(e) This is a continuing guaranty and shall apply to and
cover all Obligations and renewals and extensions thereof and
substitutions therefor from time to time.
Section 4. Waiver. Guarantor hereby waives, with respect
to the Obligations, this Guaranty, and the other Obligation
Documents:
(a) notice of the incurrence of any Obligation by Borrower,
and notice of any kind concerning the assets, liabilities,
financial condition, creditworthiness, businesses, prospects, or
other affairs of Borrower (it being understood and agreed that:
(i) Guarantor shall take full responsibility for informing itself
of such matters, (ii) no Beneficiary shall have responsibility of
any kind to inform Guarantor of such matters, and (iii) each
Beneficiary is hereby authorized to assume that Guarantor, by
virtue of its relationships with Borrower which are independent
of this Guaranty, has full and complete knowledge of such matters
at each time when any Beneficiary extends credit to Borrower or
takes any other action which may change or increase Guarantor's
liabilities or losses hereunder).
(b) notice that any Beneficiary, any Obligor, or any other
Person has taken or omitted to take any action under any
Obligation Document or any other agreement or instrument relating
thereto or relating to any Obligation.
(c) any benefits Borrower, Guarantor or any other Obligor
may otherwise derive from Union Bank v. Gradsky or subsequent
cases or Sections 580a, 580b, 580d or 726 of the California Code
of Civil Procedure or any comparable provisions of the laws of
any other jurisdiction.
(d) demand, presentment for payment, and notice of demand,
dishonor, nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of
acceleration, protest, notice of protest, notice of any exercise
of remedies (as described in the following Section 5 or
otherwise), and all other notices of any kind whatsoever.
(f) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety
or guarantor, including by reason of Sections 2809, 2810, 2819,
2839, 2845, 2850, 2899, 3275 and 3433 of the California Civil
Code, any future judicial decisions or of any comparable
provisions of the laws of any other jurisdiction.
(g) all rights and defenses arising out of an election of
remedies by a Beneficiary, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for an
Obligation, has destroyed Guarantor's right of subrogation and
reimbursement against the principal by the operation of Section
580d of the California Code of Civil Procedure or otherwise.
Section 5. Exercise of Remedies. Each Beneficiary shall
have the right to enforce, from time to time, in any order and at
such Beneficiary's sole discretion, any rights, powers and
remedies which such Beneficiary may have under the Obligation
Documents or otherwise, including judicial foreclosure, the
exercise of rights of power of sale, the taking of a deed or
assignment in lieu of foreclosure, the appointment of a receiver
to collect rents, issues and profits, the exercise of remedies
against personal property, or the enforcement of any assignment
of leases, rentals, oil or gas production, or other properties or
rights, whether real or personal, tangible or intangible; and
Guarantor shall be liable to such Beneficiary hereunder for any
deficiency resulting from the exercise by such Beneficiary of any
such right or remedy even though any rights which Guarantor may
have against Borrower or others may be destroyed or diminished by
exercise of any such right or remedy. No failure on the part of
any Beneficiary to exercise, and no delay in exercising, any
right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial
exercise of any right preclude any other or further exercise
thereof or the exercise of any other right. The rights, powers
and remedies of each Beneficiary provided herein and in the other
Obligation Documents are cumulative and are in addition to, and
not exclusive of, any other rights, powers or remedies provided
by law or in equity. The rights of each Beneficiary hereunder
are not conditional or contingent on any attempt by any
Beneficiary to exercise any of its rights under any other
Obligation Document against any Obligor or any other Person.
Section 6. Limited Subrogation. Until all of the
Obligations have been paid and performed in full Guarantor shall
have no right to exercise any right of subrogation,
reimbursement, indemnity, exoneration, contribution or any other
claim which it may now or hereafter have against or to any
Obligor or any Security in connection with this Guaranty, and
Guarantor hereby waives any rights to enforce any remedy which
Guarantor may have against Borrower and any right to participate
in any Security until such time. If any amount shall be paid to
Guarantor on account of any such subrogation or other rights, any
such other remedy, or any Security at any time when all of the
Obligations and all other expenses guaranteed pursuant hereto
shall not have been paid in full, such amount shall be held in
trust for the benefit of Beneficiaries, shall be segregated from
the other funds of Guarantor and shall forthwith be paid over to
Beneficiaries to be held by Beneficiaries as collateral for, or
then or at any time thereafter applied in whole or in part by
Beneficiaries against, all or any portion of the Obligations,
whether matured or unmatured, in such order as Beneficiaries
shall elect. If Guarantor shall make payment to any Beneficiary
of all or any portion of the Obligations and if all of the
Obligations shall be finally paid in full, such Beneficiary will,
at Guarantor's request and expense, execute and deliver to
Guarantor (without recourse, representation or warranty)
appropriate documents necessary to evidence the transfer by
subrogation to Guarantor of an interest in the Obligations
resulting from such payment by Guarantor; provided that such
transfer shall be subject to Section 3(d) above and that without
the consent of Beneficiaries (which Beneficiaries may withhold in
their discretion) Guarantor shall not have the right to be
subrogated to any claim or right against any Obligor which has
become owned by any Beneficiary, whose ownership has otherwise
changed in the course of enforcement of the Obligation Documents,
or which any Beneficiary otherwise has released or wishes to
release from its Obligations.
Section 7. Successors and Assigns. Guarantor's rights or
obligations hereunder may not be assigned or delegated, but this
Guaranty and such obligations shall pass to and be fully binding
upon the successors of Guarantor, as well as Guarantor. This
Guaranty shall apply to and inure to the benefit of each
Beneficiary and its successors or assigns. Without limiting the
generality of the immediately preceding sentence, each
Beneficiary may assign, grant a participation in, or otherwise
transfer any Obligation held by it or any portion thereof, and
each Beneficiary may assign or otherwise transfer its rights or
any portion thereof under any Obligation Document, to any other
Person, and such other Person shall thereupon become vested with
all of the benefits in respect thereof granted to such
Beneficiary hereunder unless otherwise expressly provided by such
Beneficiary in connection with such assignment or transfer.
Section 8. Subordination. Guarantor hereby subordinates
and makes inferior to the Obligations any and all indebtedness
now or at any time hereafter owed by Borrower to Guarantor.
Guarantor agrees that after the occurrence of any Default or
Event of Default it will neither permit Borrower to repay such
indebtedness or any part thereof nor accept payment from Borrower
of such indebtedness or any part thereof without the prior
written consent of Beneficiaries. If Guarantor receives any such
payment without the prior written consent of Beneficiaries, the
amount so paid shall be held in trust for the benefit of
Beneficiaries, shall be segregated from the other funds of
Guarantor, and shall forthwith be paid over to Beneficiaries to
be held by Beneficiaries as collateral for, or then or at any
time thereafter applied in whole or in part by Beneficiaries
against, all or any portions of the Obligations, whether matured
or unmatured, in such order as Beneficiaries shall elect.
Section 9. Representations and Warranties. Guarantor
hereby represents and warrants to each Beneficiary as follows:
(a) The Recitals at the beginning of this Guaranty are true
and correct in all respects.
(b) The direct or indirect value of the consideration
received and to be received by Guarantor in connection herewith
is reasonably worth at least as much as the liability and
obligations of Guarantor hereunder, and the incurrence of such
liability and obligations in return for such consideration may
reasonably be expected to benefit Guarantor, directly or
indirectly.
(c) Guarantor is not "insolvent" on the date hereof (that
is, the sum of Guarantor's absolute and contingent liabilities,
including the Obligations, does not exceed the fair market value
of Guarantor's assets). Guarantor's capital is adequate for the
businesses in which Guarantor is engaged and intends to be
engaged. Guarantor has not incurred (whether hereby or
otherwise), nor does Guarantor intend to incur or believe that it
will incur, debts which will be beyond its ability to pay as such
debts mature.
(d) All balance sheets, earning statements, financial data
and other information concerning Guarantor which have been
furnished to Beneficiaries to induce them to accept this Guaranty
(or otherwise furnished to Beneficiaries in connection with the
transactions contemplated hereby or associated herewith) fairly
represent the financial condition of Guarantor as of the dates
and the results of Guarantor's operations for the periods for
which the same are furnished. None of such balance sheets,
earnings and cash flow statements, financial data and other
information contains any untrue statement of a material fact or
omits to state any material fact which is necessary to make any
statements contained therein not misleading.
Section 10. No Oral Change. No amendment of any provision
of this Guaranty shall be effective unless it is in writing and
signed by Guarantor and each Beneficiary, and no waiver of any
provision of this Guaranty, and no consent to any departure by
Guarantor therefrom, shall be effective unless it is in writing
and signed by each Beneficiary, and then such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which given.
Section 11. Invalidity of Particular Provisions. If any
term or provision of this Guaranty shall be determined to be
illegal or unenforceable all other terms and provisions hereof
shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.
Section 12. Headings and References. The headings used
herein are for purposes of convenience only and shall not be used
in construing the provisions hereof. The words "this Guaranty,"
"this instrument," "herein," "hereof," "hereby" and words of
similar import refer to this Guaranty as a whole and not to any
particular subdivision unless expressly so limited. The phrases
"this section" and "this subsection" and similar phrases refer
only to the subdivisions hereof in which such phrases occur. The
word "or" is not exclusive, and the word "including" (in its
various forms) means "including without limitation". Pronouns in
masculine, feminine and neuter genders shall be construed to
include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the
context otherwise requires.
Section 13. Term. This Guaranty shall be irrevocable until
all of the Obligations have been completely and finally paid and
performed, TCW has no obligation to make any loans or other
advances to Borrower, and all obligations and undertakings of
Borrower under, by reason of, or pursuant to the Obligation
Documents have been completely performed, and this Guaranty is
thereafter subject to reinstatement as provided in Section 3(d).
All extensions of credit and financial accommodations heretofore
or hereafter made by any Beneficiary to Borrower shall be
conclusively presumed to have been made in acceptance hereof and
in reliance hereon.
Section 14. Notices. Any notice or communication required
or permitted hereunder shall be given as provided in the Credit
Agreement.
Section 15. Loan Document. This Guaranty is a Transaction
Document, as defined in the Credit Agreement, and is subject to
the provisions of the Credit Agreement governing Transaction
Documents.
Section 16. Counterparts. This Guaranty may be executed in
any number of counterparts, each of which when so executed shall
be deemed to constitute one and the same Guaranty.
SECTION 17. GOVERNING LAW. THIS GUARANTY IS TO BE
PERFORMED IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF SUCH STATE
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, Guarantor has executed and delivered
this Guaranty as of the date first written above.
INLAND RESOURCES INC.
By: _______________________________
Kyle Miller
President
S:\CLIENT-I\09004\380\EXHIBITS\100069
<PAGE>
EXHIBIT 10.2.7<PAGE>
WARRANT CERTIFICATE
To Purchase Shares of Common Stock of
Inland Resources Inc. Incorporated Under the laws
of the State of Washington
Certificate Evidencing the Number of Warrants
Set Forth in Section 1
1. Basic Terms. This certifies that, for good and
valuable consideration, Kyle R. Miller (the "Holder"), is
entitled, subject to the terms and conditions of this Warrant
Certificate (the "Certificate"), to purchase fifteen thousand
(15,000) shares of the common stock, $.001 par value (the "Common
Stock"), of Inland Resources Inc. (the "Company"), subject to
adjustment as provided in this Certificate, from the Company at
the Exercise Price (as defined below), on delivery of this
Certificate to the Company with the exercise form duly executed
and payment of the Exercise Price payable to the Company by
cashier's check or other immediately available funds, for all
shares purchased. One Warrant (herein so called) is required for
the purchase of one share of Common Stock, subject to adjustment
as provided herein. This Certificate is issued pursuant to the
terms and conditions of that certain Warrant Agreement
("Agreement") between Holder and Company dated effective February
23, 1993.
2. Expiration Date. The right to exercise the Warrants
evidenced by this Certificate shall expire at 12:00 a.m. PST on
the fifth anniversary of the effective date of this Certificate,
provided, however, that if Holder's employment by the Company as
an executive officer is terminated for any reason other than
death or disability then the Warrants evidenced by this
Certificate shall expire ninety (90) days after such termination,
but if termination is as a result of death or disability then the
Warrants may be exercised at any time within one year after the
termination of employment for such reason (the "Expiration
Date").
3. Exercise Price. The purchase price per share of the
Common Stock upon exercise of the Warrants (the "Exercise Price")
shall be equal to $0.50 per share, which is the exercise price of
an option for 300,000 shares of the Company's Common Stock
granted to Dwight Moorhead of even date herewith. Under the
Agreement, Holder is automatically granted a warrant equal to 5%
of the shares covered by the option granted to Dwight Moorhead
and this Certificate represents such 5%. The Exercise Price may
be adjusted from time to time pursuant to the terms of this
Certificate.
4. Company's Warranties, Representations and Covenants.
The Company warrants, represents and covenants to the Holder
that:
(a) The Company has been duly incorporated and
organized and is validly existing as a corporation in
good standing under the laws of its state of
organization.
(b) The Warrants have been duly authorized and
are the validly issued, fully paid and binding
obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise
Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of
the Warrants shall, at delivery, be fully paid and
nonassessable, free from all taxes, liens, and charges
with respect to the purchase.
(d) The Company shall take any necessary steps to
assure that the par value per share of the Common Stock
is at all times equal to or less than the then current
Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and
hold available sufficient shares of its Common Stock to
satisfy the Common Stock issuable upon exercise of this
Warrant.
(f) The Company shall maintain its books and
records in accordance with generally accepted
accounting principles applied on a consistent basis.
(g) The Company shall permit the Holder through
his designated representatives to visit and inspect any
of the properties of the Company, to examine its books
and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the
officers of the Company at reasonable times and
intervals, on the same basis as any other shareholder.
The provisions of this Section shall continue for so long as
the Holder owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise.
Exercise may be made of all or any part of the Warrants evidenced
by this Certificate by surrendering it, with the exercise form
provided for herein duly executed by or on behalf of the Holder,
at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants
being exercised. The Warrants are exercisable at the option of
the Holder in whole or in part at any time prior to the
Expiration Date. If less than all of the Warrants evidenced by
this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate
(dated the date hereof) evidencing the Warrants not so exercised.
Unless the Common Stock issuable upon exercise of the Warrants
has been registered under the Securities Act of 1933, as amended
(the "1933 Act"), the certificates evidencing the Common Stock
issuable on exercise of the Warrants will bear the following
legend:
"The shares of stock of Inland Resources Inc. (the
"Company") represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or under the securities laws
of any state, and the Holder hereof cannot make any
sale, assignment, or other transfer of any shares of
such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the
Holder hereof, does not require registration under the
1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule
144 promulgated under the 1933 Act and may be subject
to the limitations upon resale set forth therein or in
other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the
shares of Common Stock issuable upon exercise or conversion of
this Warrant shall have been beneficially held for three (3)
years within the meaning of Rule 144(k) of the 1933 Act or any
successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is
not an affiliate of the Company within the meaning of Rule 144,
if required by Rule 144 or such successor rule or statute, then
the Company shall remove all restrictive legends and stop
transfer restrictions at the written request of the owner of the
shares of Common Stock issuable on exercise or conversion of this
Warrant.
6. Investment Representation of Holder. Holder represents
and warrants that the Warrants evidenced by this Certificate, and
any Warrant Shares (herein so called) purchased upon exercise of
the Warrants, have been, or will be, acquired or purchased as an
investment for Holder's own account and not with a view toward
further distribution thereof. It is expressly understood that
the Warrants cannot be transferred except pursuant to Section 9
hereof, and that the Warrant Shares cannot be sold or transferred
except pursuant to an effective registration statement or an
exemption from applicable securities laws.
7. Adjustment of Shares Purchasable. The number of shares
of Common Stock purchasable hereunder and the Exercise Price per
share are subject to adjustment from time to time as specified in
this Certificate.
8. Exchange for Other Denominations. This Certificate is
exchangeable, on its surrender by the Holder to the Company, for
new Certificates of like tenor and date representing in the
aggregate the number of Warrants and the right to purchase the
number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
9. Restrictions on Transfer. During the lifetime of
Holder, this Certificate shall be exercisable only by the Holder
in person, by attorney or by mail, on surrender of this
Certificate, properly endorsed. Neither this Certificate nor the
Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of
Holder while employed by the Company or a subsidiary, the
Warrants may be exercised at any time within one year after such
death or disability by the duly appointed personal representative
of Holder, or by any person or persons who shall acquire the
Warrants directly from Holder by bequest or inheritance.
10. Adjustment of Shares. Wherever this Certificate
specifies a number of shares of Common Stock or an Exercise Price
per share, the specified number of shares of Common Stock to be
received on exercise and the Exercise Price per share shall be
changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required
by this section, as follows:
(a) If a stock or property dividend is declared
to the holders of shares of the same class of
securities of the Company as is issuable upon exercise
of Warrants, there shall be added with respect to each
share of Common Stock issuable upon exercise of
Warrants the amount of the dividend, stock or property,
which would have been issued to the Holder had the
Holder been the holder of record of such issuable share
at the dividend record date. Such additional stock or
property resulting from such dividend shall be
delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common
Stock of the Company of any kind, other than a
distribution of cash as a dividend out of profits of
the Company for the current year of the dividend, shall
be treated as a stock or property dividend for purposes
of this Subsection 10(a). If the Holder is entitled to
receive cash upon exercise of Warrants under this
Subsection 10(a), the Holder may, at the Holder's
option, elect to reduce the Exercise Price by all or
part of the cash to be received by the Holder upon
exercise under this Subsection 10(a).
(b) If an increase has been effected in the
number of outstanding shares of the same class of
securities of the Company as is issuable upon exercise
of Warrants by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased
upon exercise of Warrants shall be increased with
respect to each share issuable upon exercise of
Warrants by the number of shares which could have been
received by the Holder at the time of such subdivision
had it been the holder of record of such issuable
shares at the record and/or effective date of the
subdivision. In such event, the Exercise Price per
share of Warrants shall be proportionately reduced.
(c) If a decrease has been effected in the number
of outstanding shares of the same class of securities
of the Company as is issuable upon exercise of Warrants
by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise
of Warrants shall be changed with respect to each share
issuable upon exercise of Warrants to the number of
shares which would have been held by the Holder at the
time of said reverse stock split had the Holder been
the holder of such issuable share at the record and/or
effective date of the reverse stock split. In such
event, the Exercise Price per share shall be
proportionately increased.
(d) If there is a capital reorganization,
reclassification of the capital stock of the Company,
or any consolidation or merger of the Company with any
other corporation or corporations, or if there is a
sale or distribution of all or substantially all of the
Company's property and assets, the Company shall make
adequate provision so that there shall remain and be
substituted under this Certificate with respect to each
share issuable upon exercise of Warrants the stock,
securities and/or assets which would have been issuable
or payable in respect of or in exchange for such
issuable shares if the Holder had been the owner of
such share on the applicable record date. All other
provisions of this Certificate shall remain in full
force and effect.
11. Notice of Adjustment. On the happening of any event
requiring an adjustment of the Exercise Price or the shares
purchasable hereunder, the Company shall immediately give written
notice to the Holder stating the adjusted Exercise Price and the
adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth
in reasonable detail the method of calculation and the facts upon
which the calculation is based.
12. Notice Requirement. If at any time the Company
proposes or is aware of any of the following transactions, the
Company shall give written notice to the Holder at least 30 days
prior to the proposed transaction: an anticipated voluntary or
involuntary dissolution, liquidation or winding up of the
Company; a merger or consolidation of the Company; the payment or
declaration of a dividend or distribution to shareholders of the
Company; or the vote of shareholders of the Company to amend the
certificate or articles of incorporation of the Company. Such
notice shall contain: (a) the date on which the proposed
transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed
transaction; (c) a brief description of the proposed transaction;
(d) a brief description of any dividends or other distributions
to be made to holders of Common Stock as a result of the proposed
transaction; (e) a brief description of any other effect of the
proposed transaction on holders of Common Stock or this
Certificate; and (f) an estimate of the fair value of any
dividends or other distributions to be made to shareholders.
13. Fractional Shares. The Company shall not be required
upon the exercise of any of the Warrants evidenced hereby to
issue any fractional shares, but shall make an adjustment
therefore in cash on the basis of the mean between the low bid
and high asked prices on the over-the-counter market as reported
by the NASD Automated Quotation System or the closing market
price on a national securities exchange on the trading day
immediately prior to exercise, whichever is applicable, or if
neither is applicable, then on the basis of the market value of
any such fractional interest as shall be reasonably determined by
the Company.
14. Registration Rights. The Holder shall have the right
at any time to immediately cause the shares issuable upon
exercise of this Certificate to be registered with the Securities
and Exchange Commission ("SEC") by delivering written demand for
such registration to the Company, provided Form S-3 is available
for the registration thereof. The Company agrees that if it
receives such written demand for registration of the Common Stock
from the Holder, the Company shall promptly use its diligent best
efforts (time being of the essence) to file a registration
statement pursuant to the 1933 Act on Form S-3 and the securities
laws of Colorado and the securities laws of up to four other
states as may be requested by the Holder, to effect the
registration of the Warrant and/or shares of Common Stock
received or receivable upon the exercise of this Certificate and
upon such registration shall keep such registration statement
current for as long as it can do so through incorporation by
reference of subsequent documents filed by the Company under the
Securities Exchange Act of 1934 (the "1934 Act") and/or through
the use of "supplements" under Rule 424(b) of the 1933 Act. All
expenses of such registration, including but not limited to
legal, accounting and printing fees, will be split equally
between the Company and the Holder, except that Holder shall pay
all brokers' fees or commissions. In the event of the filing of
any registration statement or notification pursuant to this
Certificate which includes the Holder's shares, the Company shall
indemnify the Holder and each of his agents, successors and
assigns, each person, if any who controls the Holder within the
meaning of the 1933 Act, each underwriter for the Holder, and any
person who controls such underwriter within the meaning of the
1933 Act, from any loss, claim, damage, liability or action
arising out of or based upon any untrue statement or any omission
to state therein a material fact required to be stated therein in
such registration statement, except for any written statement
prepared by the Holder expressly for use in such registration
statement required to be furnished by the Holder, and Holder
shall similarly indemnify the Company and its officers,
directors, shareholders and controlling persons for any such
liabilities arising from the use of such written information in
the registration statement furnished by the Holder. The Company
shall fully cooperate with any underwriter selected by the
Holder, and upon request of the Holder shall sign an underwriting
agreement requested by the underwriter including standard
indemnification provisions. The provisions of this Section shall
continue for so long as the Holder owns this Certificate or for a
period of three years after the exercise of this Certificate.
The Company agrees to use its best efforts to make available Form
S-3 for the registration of such shares. Holder shall only have
the right to file one registration statement on Form S-3 under
this Section and any similar section under any similar Warrant
Certificate issued by the Company to the Holder pursuant to the
Agreement. Alternatively, if Form S-8 would be available for the
registration of any shares issuable upon exercise of the
Warrants, the Company shall, at Holder's request, register such
shares on Form S-8 at the Company's expense.
15. Notice. Any notice required or permitted by any party
to this Certificate shall be in writing and may be delivered
personally to the party being given notice or to the person in
charge of the office of the party being given notice or by
facsimile, national overnight courier service or by mail, at the
party's address indicated below, and any notice will be effective
only upon actual receipt by the party. The addresses of the
parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in
this Section may be changed by notice given in accordance with
this Section.
16. Parties. This Certificate shall bind the respective
successors and assigns of the parties.
17. Entire Agreement. This Certificate represents the
entire agreement of the parties with respect to the subject
matter hereof and supersedes any prior or contemporaneous oral or
written agreements or understandings. The terms of this
Certificate may be amended only by a written instrument executed
by the Company and the Holder.
WITNESS the signature of the Company's authorized
representative and the acceptance of the terms hereof by the
signature of the Holder dated effective November 16, 1993.
COMPANY:
INLAND RESOURCES INC.
By: _________________________
John E. Dyer,
Vice President
HOLDER:
______________________________
Kyle R. Miller
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase
______ shares of the Company's Common Stock issuable upon the
exercise of the within Warrants, and encloses payment of
$________________ therefor; (2) requests that a certificate for
the shares be issued in the name of the undersigned and delivered
to the undersigned at the address below; and (3) if such number
of shares is not all of the shares purchasable hereunder, that a
new Certificate of like tenor for the balance of the remaining
Warrants be issued in the name of the undersigned and delivered
to the undersigned at the address below.
Date:_____________________ ______________________________
(Please sign exactly as name
appears on Warrant
Certificate)
Address
<PAGE>
EXHIBIT 10.2.8<PAGE>
WARRANT CERTIFICATE
To Purchase Shares of Common Stock of
Inland Resources Inc. Incorporated Under the
laws of the State of Washington
Certificate Evidencing the Number of Warrants
Set Forth in Section 1
1. Basic Terms. This certifies that, for good and
valuable consideration, Kyle R. Miller (the "Holder"), is
entitled, subject to the terms and conditions of this Warrant
Certificate (the "Certificate"), to purchase twelve thousand five
hundred (12,500) shares of the common stock, $.001 par value (the
"Common Stock"), of Inland Resources Inc. (the "Company"),
subject to adjustment as provided in this Certificate, from the
Company at the Exercise Price (as defined below), on delivery of
this Certificate to the Company with the exercise form duly
executed and payment of the Exercise Price payable to the Company
by cashier's check or other immediately available funds, for all
shares purchased. One Warrant (herein so called) is required for
the purchase of one share of Common Stock, subject to adjustment
as provided herein. This Certificate is issued pursuant to the
terms and conditions of that certain Warrant Agreement
("Agreement") between Holder and Company dated effective February
23, 1993.
2. Expiration Date. The right to exercise the Warrants
evidenced by this Certificate shall expire at 12:00 a.m. PST on
the fifth anniversary of the effective date of this Certificate,
provided, however, that if Holder's employment by the Company as
an executive officer is terminated for any reason other than
death or disability then the Warrants evidenced by this
Certificate shall expire ninety (90) days after such termination,
but if termination is as a result of death or disability then the
Warrants may be exercised at any time within one year after the
termination of employment for such reason (the "Expiration
Date").
3. Exercise Price. The purchase price per share of the
Common Stock upon exercise of the Warrants (the "Exercise Price")
shall be equal to $0.65 per share, which is the exercise price of
an option for 250,000 shares of the Company's Common Stock
granted to Mike Kennedy of even date herewith. Under the
Agreement, Holder is automatically granted a warrant equal to 5%
of the shares covered by the option granted to Mike Kennedy and
this Certificate represents such 5%. The Exercise Price may be
adjusted from time to time pursuant to the terms of this
Certificate.
4. Company's Warranties, Representations and Covenants.
The Company warrants, represents and covenants to the Holder
that:
(a) The Company has been duly incorporated and
organized and is validly existing as a corporation in
good standing under the laws of its state of
organization.
(b) The Warrants have been duly authorized and
are the validly issued, fully paid and binding
obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise
Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of
the Warrants shall, at delivery, be fully paid and
nonassessable, free from all taxes, liens, and charges
with respect to the purchase.
(d) The Company shall take any necessary steps to
assure that the par value per share of the Common Stock
is at all times equal to or less than the then current
Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and
hold available sufficient shares of its Common Stock to
satisfy the Common Stock issuable upon exercise of this
Warrant.
(f) The Company shall maintain its books and
records in accordance with generally accepted
accounting principles applied on a consistent basis.
(g) The Company shall permit the Holder through
his designated representatives to visit and inspect any
of the properties of the Company, to examine its books
and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the
officers of the Company at reasonable times and
intervals, on the same basis as any other shareholder.
The provisions of this Section shall continue for so long as
the Holder owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise.
Exercise may be made of all or any part of the Warrants evidenced
by this Certificate by surrendering it, with the exercise form
provided for herein duly executed by or on behalf of the Holder,
at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants
being exercised. The Warrants are exercisable at the option of
the Holder in whole or in part at any time prior to the
Expiration Date. If less than all of the Warrants evidenced by
this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate
(dated the date hereof) evidencing the Warrants not so exercised.
Unless the Common Stock issuable upon exercise of the Warrants
has been registered under the Securities Act of 1933, as amended
(the "1933 Act"), the certificates evidencing the Common Stock
issuable on exercise of the Warrants will bear the following
legend:
"The shares of stock of Inland Resources Inc. (the
"Company") represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or under the securities laws
of any state, and the Holder hereof cannot make any
sale, assignment, or other transfer of any shares of
such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the
Holder hereof, does not require registration under the
1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule
144 promulgated under the 1933 Act and may be subject
to the limitations upon resale set forth therein or in
other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the
shares of Common Stock issuable upon exercise or conversion of
this Warrant shall have been beneficially held for three (3)
years within the meaning of Rule 144(k) of the 1933 Act or any
successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is
not an affiliate of the Company within the meaning of Rule 144,
if required by Rule 144 or such successor rule or statute, then
the Company shall remove all restrictive legends and stop
transfer restrictions at the written request of the owner of the
shares of Common Stock issuable on exercise or conversion of this
Warrant.
6. Investment Representation of Holder. Holder represents
and warrants that the Warrants evidenced by this Certificate, and
any Warrant Shares (herein so called) purchased upon exercise of
the Warrants, have been, or will be, acquired or purchased as an
investment for Holder's own account and not with a view toward
further distribution thereof. It is expressly understood that
the Warrants cannot be transferred except pursuant to Section 9
hereof, and that the Warrant Shares cannot be sold or transferred
except pursuant to an effective registration statement or an
exemption from applicable securities laws.
7. Adjustment of Shares Purchasable. The number of shares
of Common Stock purchasable hereunder and the Exercise Price per
share are subject to adjustment from time to time as specified in
this Certificate.
8. Exchange for Other Denominations. This Certificate is
exchangeable, on its surrender by the Holder to the Company, for
new Certificates of like tenor and date representing in the
aggregate the number of Warrants and the right to purchase the
number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
9. Restrictions on Transfer. During the lifetime of
Holder, this Certificate shall be exercisable only by the Holder
in person, by attorney or by mail, on surrender of this
Certificate, properly endorsed. Neither this Certificate nor the
Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of
Holder while employed by the Company or a subsidiary, the
Warrants may be exercised at any time within one year after such
death or disability by the duly appointed personal representative
of Holder, or by any person or persons who shall acquire the
Warrants directly from Holder by bequest or inheritance.
10. Adjustment of Shares. Wherever this Certificate
specifies a number of shares of Common Stock or an Exercise Price
per share, the specified number of shares of Common Stock to be
received on exercise and the Exercise Price per share shall be
changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required
by this section, as follows:
(a) If a stock or property dividend is declared
to the holders of shares of the same class of
securities of the Company as is issuable upon exercise
of Warrants, there shall be added with respect to each
share of Common Stock issuable upon exercise of
Warrants the amount of the dividend, stock or property,
which would have been issued to the Holder had the
Holder been the holder of record of such issuable share
at the dividend record date. Such additional stock or
property resulting from such dividend shall be
delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common
Stock of the Company of any kind, other than a
distribution of cash as a dividend out of profits of
the Company for the current year of the dividend, shall
be treated as a stock or property dividend for purposes
of this Subsection 10(a). If the Holder is entitled to
receive cash upon exercise of Warrants under this
Subsection 10(a), the Holder may, at the Holder's
option, elect to reduce the Exercise Price by all or
part of the cash to be received by the Holder upon
exercise under this Subsection 10(a).
(b) If an increase has been effected in the
number of outstanding shares of the same class of
securities of the Company as is issuable upon exercise
of Warrants by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased
upon exercise of Warrants shall be increased with
respect to each share issuable upon exercise of
Warrants by the number of shares which could have been
received by the Holder at the time of such subdivision
had it been the holder of record of such issuable
shares at the record and/or effective date of the
subdivision. In such event, the Exercise Price per
share of Warrants shall be proportionately reduced.
(c) If a decrease has been effected in the number
of outstanding shares of the same class of securities
of the Company as is issuable upon exercise of Warrants
by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise
of Warrants shall be changed with respect to each share
issuable upon exercise of Warrants to the number of
shares which would have been held by the Holder at the
time of said reverse stock split had the Holder been
the holder of such issuable share at the record and/or
effective date of the reverse stock split. In such
event, the Exercise Price per share shall be
proportionately increased.
(d) If there is a capital reorganization,
reclassification of the capital stock of the Company,
or any consolidation or merger of the Company with any
other corporation or corporations, or if there is a
sale or distribution of all or substantially all of the
Company's property and assets, the Company shall make
adequate provision so that there shall remain and be
substituted under this Certificate with respect to each
share issuable upon exercise of Warrants the stock,
securities and/or assets which would have been issuable
or payable in respect of or in exchange for such
issuable shares if the Holder had been the owner of
such share on the applicable record date. All other
provisions of this Certificate shall remain in full
force and effect.
11. Notice of Adjustment. On the happening of any event
requiring an adjustment of the Exercise Price or the shares
purchasable hereunder, the Company shall immediately give written
notice to the Holder stating the adjusted Exercise Price and the
adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth
in reasonable detail the method of calculation and the facts upon
which the calculation is based.
12. Notice Requirement. If at any time the Company
proposes or is aware of any of the following transactions, the
Company shall give written notice to the Holder at least 30 days
prior to the proposed transaction: an anticipated voluntary or
involuntary dissolution, liquidation or winding up of the
Company; a merger or consolidation of the Company; the payment or
declaration of a dividend or distribution to shareholders of the
Company; or the vote of shareholders of the Company to amend the
certificate or articles of incorporation of the Company. Such
notice shall contain: (a) the date on which the proposed
transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed
transaction; (c) a brief description of the proposed transaction;
(d) a brief description of any dividends or other distributions
to be made to holders of Common Stock as a result of the proposed
transaction; (e) a brief description of any other effect of the
proposed transaction on holders of Common Stock or this
Certificate; and (f) an estimate of the fair value of any
dividends or other distributions to be made to shareholders.
13. Fractional Shares. The Company shall not be required
upon the exercise of any of the Warrants evidenced hereby to
issue any fractional shares, but shall make an adjustment
therefore in cash on the basis of the mean between the low bid
and high asked prices on the over-the-counter market as reported
by the NASD Automated Quotation System or the closing market
price on a national securities exchange on the trading day
immediately prior to exercise, whichever is applicable, or if
neither is applicable, then on the basis of the market value of
any such fractional interest as shall be reasonably determined by
the Company.
14. Registration Rights. The Holder shall have the right
at any time to immediately cause the shares issuable upon
exercise of this Certificate to be registered with the Securities
and Exchange Commission ("SEC") by delivering written demand for
such registration to the Company, provided Form S-3 is available
for the registration thereof. The Company agrees that if it
receives such written demand for registration of the Common Stock
from the Holder, the Company shall promptly use its diligent best
efforts (time being of the essence) to file a registration
statement pursuant to the 1933 Act on Form S-3 and the securities
laws of Colorado and the securities laws of up to four other
states as may be requested by the Holder, to effect the
registration of the Warrant and/or shares of Common Stock
received or receivable upon the exercise of this Certificate and
upon such registration shall keep such registration statement
current for as long as it can do so through incorporation by
reference of subsequent documents filed by the Company under the
Securities Exchange Act of 1934 (the "1934 Act") and/or through
the use of "supplements" under Rule 424(b) of the 1933 Act. All
expenses of such registration, including but not limited to
legal, accounting and printing fees, will be split equally
between the Company and the Holder, except that Holder shall pay
all brokers' fees or commissions. In the event of the filing of
any registration statement or notification pursuant to this
Certificate which includes the Holder's shares, the Company shall
indemnify the Holder and each of his agents, successors and
assigns, each person, if any who controls the Holder within the
meaning of the 1933 Act, each underwriter for the Holder, and any
person who controls such underwriter within the meaning of the
1933 Act, from any loss, claim, damage, liability or action
arising out of or based upon any untrue statement or any omission
to state therein a material fact required to be stated therein in
such registration statement, except for any written statement
prepared by the Holder expressly for use in such registration
statement required to be furnished by the Holder, and Holder
shall similarly indemnify the Company and its officers,
directors, shareholders and controlling persons for any such
liabilities arising from the use of such written information in
the registration statement furnished by the Holder. The Company
shall fully cooperate with any underwriter selected by the
Holder, and upon request of the Holder shall sign an underwriting
agreement requested by the underwriter including standard
indemnification provisions. The provisions of this Section shall
continue for so long as the Holder owns this Certificate or for a
period of three years after the exercise of this Certificate.
The Company agrees to use its best efforts to make available Form
S-3 for the registration of such shares. Holder shall only have
the right to file one registration statement on Form S-3 under
this Section and any similar section under any similar Warrant
Certificate issued by the Company to the Holder pursuant to the
Agreement. Alternatively, if Form S-8 would be available for the
registration of any shares issuable upon exercise of the
Warrants, the Company shall, at Holder's request, register such
shares on Form S-8 at the Company's expense.
15. Notice. Any notice required or permitted by any party
to this Certificate shall be in writing and may be delivered
personally to the party being given notice or to the person in
charge of the office of the party being given notice or by
facsimile, national overnight courier service or by mail, at the
party's address indicated below, and any notice will be effective
only upon actual receipt by the party. The addresses of the
parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in
this Section may be changed by notice given in accordance with
this Section.
16. Parties. This Certificate shall bind the respective
successors and assigns of the parties.
17. Entire Agreement. This Certificate represents the
entire agreement of the parties with respect to the subject
matter hereof and supersedes any prior or contemporaneous oral or
written agreements or understandings. The terms of this
Certificate may be amended only by a written instrument executed
by the Company and the Holder.
WITNESS the signature of the Company's authorized
representative and the acceptance of the terms hereof by the
signature of the Holder dated effective March 15, 1995.
COMPANY:
INLAND RESOURCES INC.
By: _________________________
John E. Dyer,
Vice President
HOLDER:
______________________________
Kyle R. Miller
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase
______ shares of the Company's Common Stock issuable upon the
exercise of the within Warrants, and encloses payment of
$________________ therefor; (2) requests that a certificate for
the shares be issued in the name of the undersigned and delivered
to the undersigned at the address below; and (3) if such number
of shares is not all of the shares purchasable hereunder, that a
new Certificate of like tenor for the balance of the remaining
Warrants be issued in the name of the undersigned and delivered
to the undersigned at the address below.
Date:_____________________ __________________________
(Please sign exactly as name
appears on Warrant
Certificate)
Address
<PAGE>
EXHIBIT 10.2.9<PAGE>
WARRANT CERTIFICATE
To Purchase Shares of Common Stock of
Inland Resources Inc. Incorporated Under the laws
of the State of Washington
Certificate Evidencing the Number of Warrants
Set Forth in Section 1
1. Basic Terms. This certifies that, for good and
valuable consideration, Kyle R. Miller (the "Holder"), is
entitled, subject to the terms and conditions of this Warrant
Certificate (the "Certificate"), to purchase three hundred
thousand (300,000) shares of the common stock, $.001 par value
(the "Common Stock"), of Inland Resources Inc. (the "Company"),
subject to adjustment as provided in this Certificate, from the
Company at the Exercise Price (as defined below), on delivery of
this Certificate to the Company with the exercise form duly
executed and payment of the Exercise Price payable to the Company
by cashier's check or other immediately available funds, for all
shares purchased. One Warrant (herein so called) is required for
the purchase of one share of Common Stock, subject to adjustment
as provided herein. This Certificate is issued pursuant to the
terms and conditions of that certain Warrant Agreement
("Agreement") between Holder and Company dated effective February
23, 1993.
2. Expiration Date. The right to exercise the Warrants
evidenced by this Certificate shall expire at 12:00 a.m. PST on
the fifth anniversary of the effective date of this Certificate,
provided, however, that if Holder's employment by the Company as
an executive officer is terminated for any reason other than
death or disability then the Warrants evidenced by this
Certificate shall expire ninety (90) days after such termination,
but if termination is as a result of death or disability then the
Warrants may be exercised at any time within one year after the
termination of employment for such reason (the "Expiration
Date").
3. Exercise Price. The purchase price per share of the
Common Stock upon exercise of the Warrants (the "Exercise Price")
shall be equal to $0.50 per share, which is the sales price of
12,000,000 shares of the Company's Common Stock issued to Pengo
Securities Corp. of even date herewith. Under the Agreement,
Holder is automatically granted a warrant equal to 5% of the
shares issued to Pengo Securities Corp. and this Certificate
represents such 5%. The Exercise Price may be adjusted from time
to time pursuant to the terms of this Certificate.
4. Company's Warranties, Representations and Covenants.
The Company warrants, represents and covenants to the Holder
that:
(a) The Company has been duly incorporated and
organized and is validly existing as a corporation in
good standing under the laws of its state of
organization.
(b) The Warrants have been duly authorized and
are the validly issued, fully paid and binding
obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise
Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of
the Warrants shall, at delivery, be fully paid and
nonassessable, free from all taxes, liens, and charges
with respect to the purchase.
(d) The Company shall take any necessary steps to
assure that the par value per share of the Common Stock
is at all times equal to or less than the then current
Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and
hold available sufficient shares of its Common Stock to
satisfy the Common Stock issuable upon exercise of this
Warrant.
(f) The Company shall maintain its books and
records in accordance with generally accepted
accounting principles applied on a consistent basis.
(g) The Company shall permit the Holder through
his designated representatives to visit and inspect any
of the properties of the Company, to examine its books
and records, and to discuss its affairs, finances and
accounts with and be advised as to the same by the
officers of the Company at reasonable times and
intervals, on the same basis as any other shareholder.
The provisions of this Section shall continue for so long as
the Holder owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise.
Exercise may be made of all or any part of the Warrants evidenced
by this Certificate by surrendering it, with the exercise form
provided for herein duly executed by or on behalf of the Holder,
at the executive office of the Company, accompanied by payment in
full of the Exercise Price payable in respect of the Warrants
being exercised. The Warrants are exercisable at the option of
the Holder in whole or in part at any time prior to the
Expiration Date. If less than all of the Warrants evidenced by
this Certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Holder a new certificate
(dated the date hereof) evidencing the Warrants not so exercised.
Unless the Common Stock issuable upon exercise of the Warrants
has been registered under the Securities Act of 1933, as amended
(the "1933 Act"), the certificates evidencing the Common Stock
issuable on exercise of the Warrants will bear the following
legend:
"The shares of stock of Inland Resources Inc. (the
"Company") represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or under the securities laws
of any state, and the Holder hereof cannot make any
sale, assignment, or other transfer of any shares of
such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the
Holder hereof, does not require registration under the
1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule
144 promulgated under the 1933 Act and may be subject
to the limitations upon resale set forth therein or in
other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the
shares of Common Stock issuable upon exercise or conversion of
this Warrant shall have been beneficially held for three (3)
years within the meaning of Rule 144(k) of the 1933 Act or any
successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is
not an affiliate of the Company within the meaning of Rule 144,
if required by Rule 144 or such successor rule or statute, then
the Company shall remove all restrictive legends and stop
transfer restrictions at the written request of the owner of the
shares of Common Stock issuable on exercise or conversion of this
Warrant.
6. Investment Representation of Holder. Holder represents
and warrants that the Warrants evidenced by this Certificate, and
any Warrant Shares (herein so called) purchased upon exercise of
the Warrants, have been, or will be, acquired or purchased as an
investment for Holder's own account and not with a view toward
further distribution thereof. It is expressly understood that
the Warrants cannot be transferred except pursuant to Section 9
hereof, and that the Warrant Shares cannot be sold or transferred
except pursuant to an effective registration statement or an
exemption from applicable securities laws.
7. Adjustment of Shares Purchasable. The number of shares
of Common Stock purchasable hereunder and the Exercise Price per
share are subject to adjustment from time to time as specified in
this Certificate.
8. Exchange for Other Denominations. This Certificate is
exchangeable, on its surrender by the Holder to the Company, for
new Certificates of like tenor and date representing in the
aggregate the number of Warrants and the right to purchase the
number of shares of Common Stock purchasable hereunder in
denominations designated by the Holder at the time of surrender.
9. Restrictions on Transfer. During the lifetime of
Holder, this Certificate shall be exercisable only by the Holder
in person, by attorney or by mail, on surrender of this
Certificate, properly endorsed. Neither this Certificate nor the
Warrants are transferable by Holder by operation of law or
otherwise, except that in the event of death or disability of
Holder while employed by the Company or a subsidiary, the
Warrants may be exercised at any time within one year after such
death or disability by the duly appointed personal representative
of Holder, or by any person or persons who shall acquire the
Warrants directly from Holder by bequest or inheritance.
10. Adjustment of Shares. Wherever this Certificate
specifies a number of shares of Common Stock or an Exercise Price
per share, the specified number of shares of Common Stock to be
received on exercise and the Exercise Price per share shall be
changed to reflect adjustments (which may require that additional
securities or other property be delivered on exercise) required
by this section, as follows:
(a) If a stock or property dividend is declared
to the holders of shares of the same class of
securities of the Company as is issuable upon exercise
of Warrants, there shall be added with respect to each
share of Common Stock issuable upon exercise of
Warrants the amount of the dividend, stock or property,
which would have been issued to the Holder had the
Holder been the holder of record of such issuable share
at the dividend record date. Such additional stock or
property resulting from such dividend shall be
delivered without additional cost upon the exercise of
Warrants. Any distribution to the holders of Common
Stock of the Company of any kind, other than a
distribution of cash as a dividend out of profits of
the Company for the current year of the dividend, shall
be treated as a stock or property dividend for purposes
of this Subsection 10(a). If the Holder is entitled to
receive cash upon exercise of Warrants under this
Subsection 10(a), the Holder may, at the Holder's
option, elect to reduce the Exercise Price by all or
part of the cash to be received by the Holder upon
exercise under this Subsection 10(a).
(b) If an increase has been effected in the
number of outstanding shares of the same class of
securities of the Company as is issuable upon exercise
of Warrants by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased
upon exercise of Warrants shall be increased with
respect to each share issuable upon exercise of
Warrants by the number of shares which could have been
received by the Holder at the time of such subdivision
had it been the holder of record of such issuable
shares at the record and/or effective date of the
subdivision. In such event, the Exercise Price per
share of Warrants shall be proportionately reduced.
(c) If a decrease has been effected in the number
of outstanding shares of the same class of securities
of the Company as is issuable upon exercise of Warrants
by reason of a reverse stock split, the number of
shares which may thereafter be purchased upon exercise
of Warrants shall be changed with respect to each share
issuable upon exercise of Warrants to the number of
shares which would have been held by the Holder at the
time of said reverse stock split had the Holder been
the holder of such issuable share at the record and/or
effective date of the reverse stock split. In such
event, the Exercise Price per share shall be
proportionately increased.
(d) If there is a capital reorganization,
reclassification of the capital stock of the Company,
or any consolidation or merger of the Company with any
other corporation or corporations, or if there is a
sale or distribution of all or substantially all of the
Company's property and assets, the Company shall make
adequate provision so that there shall remain and be
substituted under this Certificate with respect to each
share issuable upon exercise of Warrants the stock,
securities and/or assets which would have been issuable
or payable in respect of or in exchange for such
issuable shares if the Holder had been the owner of
such share on the applicable record date. All other
provisions of this Certificate shall remain in full
force and effect.
11. Notice of Adjustment. On the happening of any event
requiring an adjustment of the Exercise Price or the shares
purchasable hereunder, the Company shall immediately give written
notice to the Holder stating the adjusted Exercise Price and the
adjusted number and kind of securities or other property
purchasable hereunder resulting from the event and setting forth
in reasonable detail the method of calculation and the facts upon
which the calculation is based.
12. Notice Requirement. If at any time the Company
proposes or is aware of any of the following transactions, the
Company shall give written notice to the Holder at least 30 days
prior to the proposed transaction: an anticipated voluntary or
involuntary dissolution, liquidation or winding up of the
Company; a merger or consolidation of the Company; the payment or
declaration of a dividend or distribution to shareholders of the
Company; or the vote of shareholders of the Company to amend the
certificate or articles of incorporation of the Company. Such
notice shall contain: (a) the date on which the proposed
transaction is to take place; (b) the record date (which shall be
at least 30 days after the giving of the notice) of the proposed
transaction; (c) a brief description of the proposed transaction;
(d) a brief description of any dividends or other distributions
to be made to holders of Common Stock as a result of the proposed
transaction; (e) a brief description of any other effect of the
proposed transaction on holders of Common Stock or this
Certificate; and (f) an estimate of the fair value of any
dividends or other distributions to be made to shareholders.
13. Fractional Shares. The Company shall not be required
upon the exercise of any of the Warrants evidenced hereby to
issue any fractional shares, but shall make an adjustment
therefore in cash on the basis of the mean between the low bid
and high asked prices on the over-the-counter market as reported
by the NASD Automated Quotation System or the closing market
price on a national securities exchange on the trading day
immediately prior to exercise, whichever is applicable, or if
neither is applicable, then on the basis of the market value of
any such fractional interest as shall be reasonably determined by
the Company.
14. Registration Rights. The Holder shall have the right
at any time to immediately cause the shares issuable upon
exercise of this Certificate to be registered with the Securities
and Exchange Commission ("SEC") by delivering written demand for
such registration to the Company, provided Form S-3 is available
for the registration thereof. The Company agrees that if it
receives such written demand for registration of the Common Stock
from the Holder, the Company shall promptly use its diligent best
efforts (time being of the essence) to file a registration
statement pursuant to the 1933 Act on Form S-3 and the securities
laws of Colorado and the securities laws of up to four other
states as may be requested by the Holder, to effect the
registration of the Warrant and/or shares of Common Stock
received or receivable upon the exercise of this Certificate and
upon such registration shall keep such registration statement
current for as long as it can do so through incorporation by
reference of subsequent documents filed by the Company under the
Securities Exchange Act of 1934 (the "1934 Act") and/or through
the use of "supplements" under Rule 424(b) of the 1933 Act. All
expenses of such registration, including but not limited to
legal, accounting and printing fees, will be split equally
between the Company and the Holder, except that Holder shall pay
all brokers' fees or commissions. In the event of the filing of
any registration statement or notification pursuant to this
Certificate which includes the Holder's shares, the Company shall
indemnify the Holder and each of his agents, successors and
assigns, each person, if any who controls the Holder within the
meaning of the 1933 Act, each underwriter for the Holder, and any
person who controls such underwriter within the meaning of the
1933 Act, from any loss, claim, damage, liability or action
arising out of or based upon any untrue statement or any omission
to state therein a material fact required to be stated therein in
such registration statement, except for any written statement
prepared by the Holder expressly for use in such registration
statement required to be furnished by the Holder, and Holder
shall similarly indemnify the Company and its officers,
directors, shareholders and controlling persons for any such
liabilities arising from the use of such written information in
the registration statement furnished by the Holder. The Company
shall fully cooperate with any underwriter selected by the
Holder, and upon request of the Holder shall sign an underwriting
agreement requested by the underwriter including standard
indemnification provisions. The provisions of this Section shall
continue for so long as the Holder owns this Certificate or for a
period of three years after the exercise of this Certificate.
The Company agrees to use its best efforts to make available Form
S-3 for the registration of such shares. Holder shall only have
the right to file one registration statement on Form S-3 under
this Section and any similar section under any similar Warrant
Certificate issued by the Company to the Holder pursuant to the
Agreement. Alternatively, if Form S-8 would be available for the
registration of any shares issuable upon exercise of the
Warrants, the Company shall, at Holder's request, register such
shares on Form S-8 at the Company's expense.
15. Notice. Any notice required or permitted by any party
to this Certificate shall be in writing and may be delivered
personally to the party being given notice or to the person in
charge of the office of the party being given notice or by
facsimile, national overnight courier service or by mail, at the
party's address indicated below, and any notice will be effective
only upon actual receipt by the party. The addresses of the
parties are as follows:
Holder: 475 17th Street, Suite 1500
Denver, Colorado 80202
Company: 475 17th Street, Suite 1500
Denver, Colorado 80202
The names and addresses of persons to receive notice as stated in
this Section may be changed by notice given in accordance with
this Section.
16. Parties. This Certificate shall bind the respective
successors and assigns of the parties.
17. Entire Agreement. This Certificate represents the
entire agreement of the parties with respect to the subject
matter hereof and supersedes any prior or contemporaneous oral or
written agreements or understandings. The terms of this
Certificate may be amended only by a written instrument executed
by the Company and the Holder.
WITNESS the signature of the Company's authorized
representative and the acceptance of the terms hereof by the
signature of the Holder dated effective November 6, 1995.
COMPANY:
INLAND RESOURCES INC.
By: _________________________
John E. Dyer,
Vice President
HOLDER:
______________________________
Kyle R. Miller
<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase
______ shares of the Company's Common Stock issuable upon the
exercise of the within Warrants, and encloses payment of
$________________ therefor; (2) requests that a certificate for
the shares be issued in the name of the undersigned and delivered
to the undersigned at the address below; and (3) if such number
of shares is not all of the shares purchasable hereunder, that a
new Certificate of like tenor for the balance of the remaining
Warrants be issued in the name of the undersigned and delivered
to the undersigned at the address below.
Date:_____________________ ______________________________
(Please sign exactly as name
appears on Warrant
Certificate)
Address
<PAGE>
EXHIBIT 10.10.3<PAGE>
FIRST AMENDMENT TO
DEFERRED COMPENSATION AGREEMENT
This First Amendment to the Deferred Compensation
Agreement is entered effective December 1, 1995.
WHEREAS, effective July 1, 1995 Inland Resources Inc.
and John D. Lomax entered into a Deferred Compensation
Agreement (the "Agreement").
WHEREAS, Inland Resources Inc. desires to assign such
Agreement to Inland Production Company and Inland Production
Company desires to assume such Agreement and all of the
obligations of Inland Resources Inc. thereunder.
NOW, THEREFORE, in consideration of the foregoing
recital, the parties hereto agree as follows:
1. Effective December 1, 1995, Inland Resources Inc.
hereby assigns its rights and obligations under the
Agreement to Inland Production Company and Inland Production
Company hereby assumes all of the obligations, and shall be
entitled to all the rights and benefits of Inland Resources
Inc. under the Agreement.
2. John D. Lomax hereby consents to such assignment
of the Agreement and releases Inland Resources Inc. from its
duties and obligations thereunder.
3. Except as hereby amended, the original Agreement
is ratified and confirmed to be in full force and effect in
accordance with its original terms.
IN WITNESS WHEREOF, this First Amendment to the
Agreement is executed by the parties hereto on the dates set
forth under their names to be effective December 1, 1995.
INLAND RESOURCES INC.
DATE: By: ____________________
Kyle R. Miller
INLAND PRODUCTION COMPANY
DATE: By: ____________________
Kyle R. Miller
JOHN D. LOMAX
DATE:
<PAGE>
EXHIBIT 10.29
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT ("Agreement") is made and entered into
as of the 22nd day of November, 1995 by and among INLAND
RESOURCES INC. ("Inland") and INLAND PRODUCTION COMPANY, a
wholly-owned subsidiary of Inland (Inland and Inland Production
Company are sometimes referred to herein individually and
collectively as "Inland"), and RANDALL D. SMITH ("Smith").
WHEREAS, Smith and Inland are parties to that certain
Farmout Agreement dated effective July 1, 1995 (the "Farmout
Agreement"); and
WHEREAS, Smith desires to grant an option (the "Option") to
Inland to allow Inland to purchase from Smith all of Smith's
right, title and interest in and to the Earned Drillsites (as
defined in the Farmout Agreement) and the leases related to such
Earned Drillsites (the Earned Drillsites and such related leases
are hereinafter referred to collectively as the "Reacquired
Leases"), upon the terms and conditions hereinafter set forth;
and
WHEREAS, Inland desires to acquire the Option from Smith
upon the terms and conditions hereinafter set forth; and
WHEREAS, Inland agrees to grant to Smith, as consideration
for the receipt of the Option, a warrant in the form of the
Warrant Certificate attached hereto as Exhibit "A" and
incorporated herein by this reference, pursuant to which Smith
may acquire shares of the common stock, $0.001 par value (the
"Common Stock"), of Inland on the terms and conditions
hereinafter set forth, in the event Inland does not exercise the
Option pursuant to this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals
and the mutual covenants and agreements contained herein,
together with other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged by Smith and
Inland, the parties hereto agree as follows:
1. Option Exercise Date. For the period commencing at
12:01 a.m. and ending at 6:00 p.m. Denver time on March 10, 1997
(the "Option Exercise Date"), Inland shall have the right to
purchase the Reacquired Leases from Smith for the "Purchase
Price" defined below by delivering written notice (by facsimile
transmission, hand delivery or certified mail, return receipt
requested) to Smith of Inland's intention to exercise the Option.
The Option shall not be exercisable in part and shall be
exercised for all of the Reacquired Leases.
2. Purchase Price. The Purchase Price for the Reacquired
Leases shall be that number of shares of Inland's Common Stock,
valued at a price of $0.50 per share, which shall, based upon
such valuation, equal the amount that would cause Smith to
achieve "Payout" (as defined in the Farmout Agreement) with
respect to the Reacquired Leases as of the Option Exercise Date.
3. Closing of Purchase of Reacquired Leases and Delivery
of Shares. Upon delivery of the notice of Option exercise by
Inland to Smith, the Closing (herein so called) of the purchase
of the Reacquired Leases shall occur at the offices of Inland
within three (3) business days, at which Closing Smith shall
execute such documents and instruments necessary to reconvey to
Inland all of Smith's right, title and interest in the Reacquired
Leases, being the same interest acquired from Inland under the
terms of the Farmout Agreement, free and clear of all liens and
encumbrances and without reservation of overriding royalty, and
Inland shall deliver to Smith the number of shares of its Common
Stock required to be delivered as the Purchase Price.
4. Smith's Option to Exercise Warrants Upon Failure of
Inland to Exercise Option. If Inland has failed to timely
exercise its Option, then at any time prior to 6:00 p.m. Denver
time on the third (3rd) business day following the Option
Exercise Date, Smith may deliver written notice (by facsimile,
hand delivery or certified mail, return receipt requested) to
Inland notifying Inland that Smith elects to exercise all or any
portion of Smith's warrants granted under the Warrant
Certificate. Smith shall only have the right to exercise such
warrants if Inland fails to timely exercise the Option pursuant
to this Agreement. Smith shall be entitled to exercise the
Warrant Certificate with respect to all or any portion of the
warrants. In the event Inland does not timely exercise the
Option pursuant to this Agreement and Smith has timely delivered
written notice to Inland of his exercise of the Warrant
Certificate, Smith shall be required to deliver the full amount
of the exercise price for the full amount of the warrants
exercised under the Warrant Certificate in good funds to Inland
by the close of business on the fourth (4th) business day
following the Option Exercise Date, whereupon Inland shall cause
to be issued and delivered to Smith a certificate representing
the full amount of the shares of Common Stock purchased by Smith
upon exercise of the Warrant Certificate.
5. Securities Laws. Smith acknowledges and agrees that
the stock certificates representing the shares of Common Stock to
be issued by Inland to Smith under Section 3 or Section 4, as
applicable, shall have a legend printed thereon, satisfactory to
Inland , reflecting that the shares represented by such
certificate may not be transferred except pursuant to an
effective registration statement under the Securities Act of 1933
(the "Securities Act") and applicable state securities laws, or
pursuant to an exemption from the registration requirements of
the Securities Act and applicable state securities laws.
Further, Smith represents to Inland that Smith has such knowledge
and experience in financial and business matters as enables Smith
to evaluate the merits and risks of an investment in the shares
of Common Stock of Inland which may be acquired hereunder, that
Smith is an "accredited investor" as such term is defined in Rule
501 under the Securities Act, and that Smith is acquiring such
shares for Smith's own account and not with the view to resell or
redistribution thereof in violation of the Securities Act or
applicable state securities laws.
6. Miscellaneous Provisions.
(a) All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given if delivered by facsimile transmission or
hand delivery or, upon receipt, if mailed by certified mail,
return receipt requested:
(i) If to Smith:
Randall D. Smith
c/o Smith Management Company
885 Third Avenue, 34th Floor
New York, New York 10022
Fax: (212) 751-9502
(ii) If to Inland:
Inland Resources Inc.
Inland Production Company
475 17th Street
Suite 1500
Denver, Colorado 80202
Fax: (303) 296-4070
Attn: Kyle R. Miller
Or to such other address or addresses or fax number or
numbers as each of the parties may communicate in writing to the
other.
(b) This Agreement may be executed in any number of
counterparts, each and all of which shall be deemed for all
purposes to be one agreement.
(c) This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective
successors and assigns. This Agreement may not be assigned by
either party without the prior written consent of the other
party.
(d) This Agreement and the referenced exhibit contain
the entire agreement between the parties hereto with respect to
the transactions contemplated herein, and cannot be amended
without the written consent of the parties hereto.
(e) This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado.
(f) The headings in this Agreement are intended solely
for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
This Agreement is entered into effective as of the date
first above written.
Randall D. Smith
INLAND RESOURCES INC.
By: _________________________
Kyle R. Miller, President
INLAND PRODUCTION COMPANY
By: _________________________
Kyle R. Miller, President
S:\CLIENT-I\09004\380\EXHIBITS\ASC\OPTIONAG.ASC
<PAGE>
EXHIBIT 10.29.1<PAGE>
WARRANT CERTIFICATE
To Purchase Shares of Common Stock of
Inland Resources Inc.
Incorporated Under the laws of the State of Washington
1. Basic Terms. This certifies that, for good and
valuable consideration, Randall D. Smith (the "Holder"), is
entitled, subject to the terms and conditions of this Warrant
Certificate (the "Certificate"), to purchase, at any time after
6:00 p.m. Denver, Colorado time on the Option Exercise Date (as
defined below) and prior to 6:00 p.m. Denver time on the third
(3rd) business day following the Option Exercise Date, that
number of shares of the common stock, $.001 par value (the
"Common Stock"), of Inland Resources Inc. (the "Company") which
shall, based on a value of the Common Stock at $0.50 per share,
equal the amount that would cause Holder to achieve "Payout" (as
defined under that certain Farmout Agreement between the Company,
Holder and Inland Production Company dated effective July 1,
1995) as of the Option Exercise Date. Holder shall not have the
right under this Certificate to purchase such shares of Common
Stock unless the Company and Inland Production Company
("Production") have failed to timely exercise their rights under
that certain Option Agreement dated effective November 22, 1995
between Inland, Inland Production Company and Holder (the "Option
Agreement") to purchase from Holder the Reacquired Leases (as
defined in the Option Agreement). Upon timely and valid and
exercise of its rights to purchase the shares of Common Stock
hereunder, Holder shall, by the close of business, Denver time,
on the fourth (4th) business day following the Option Exercise
Date, deliver this Certificate to the Company with the exercise
form duly executed and payment of the Exercise Price (as defined
below) payable to the Company by cashier's check or other
immediately available funds, for all shares purchased. One
Warrant (herein so called) is required for the purchase of one
share of Common Stock.
2. Option Exercise Date. The right to exercise the
Warrants evidenced by this Certificate shall commence at 6:00
p.m. Denver time on March 10, 1997 (the "Option Exercise Date")
and expire at 6:00 p.m. Denver time on the third (3rd) business
day following the Option Exercise Date (the "Option Period").
3. Exercise Price. The purchase price per share of the
Common Stock upon exercise of the Warrants (the "Exercise Price")
shall be equal to $0.50 per share.
4. Company's Warranties, Representations and Covenants.
The Company warrants, represents and covenants to the Holder
that:
(a) The Company has been duly incorporated and
organized and is validly existing as a corporation in
good standing under the laws of its state of
organization.
(b) The Warrants have been duly authorized and
are the validly issued, fully paid and binding
obligation of the Company. The Common Stock of the
Company issuable upon exercise of the Warrants are
validly authorized and upon payment of the Exercise
Price shall be validly issued, fully paid and
nonassessable Common Stock of the Company.
(c) Common Stock deliverable on the exercise of
the Warrants shall, at delivery, be fully paid and
nonassessable, free from all taxes, liens, and charges
with respect to the purchase.
(d) The Company shall take any necessary steps to
assure that the par value per share of the Common Stock
is at all times equal to or less than the then current
Exercise Price of the Common Stock issuable pursuant to
this Certificate.
(e) The Company shall at all times reserve and
hold available sufficient shares of its Common Stock to
satisfy the Common Stock issuable upon exercise of this
Warrant.
(f) The Company shall maintain its books and
records in accordance with generally accepted
accounting principles applied on a consistent basis.
(g) The Company shall permit the Holder through
Holder's designated representatives to visit and
inspect any of the properties of the Company, to
examine its books and records, and to discuss its
affairs, finances and accounts with and be advised as
to the same by the officers of the Company at
reasonable times and intervals, on the same basis as
any other shareholder.
The provisions of this Section shall continue for so long as
the Holder owns this Certificate.
5. Method of Exercise; Shares Issued Upon Exercise.
Exercise may be made for all or any portion of the Warrants
evidenced by this Certificate by surrendering it, with the
exercise form provided for herein duly executed by or on behalf
of the Holder, at the executive office of the Company,
accompanied by payment in full of the Exercise Price payable in
respect of the Warrants being exercised. The Warrants are
exercisable at the option of the Holder in whole, or in part, but
only during the Option Period. Any Warrants not exercised during
the Option Period shall expire at the expiration of the Option
Period. Unless the Common Stock issuable upon exercise of the
Warrants has been registered under the Securities Act of 1933, as
amended (the "1933 Act"), the certificates evidencing the Common
Stock issuable on exercise of the Warrants will bear the
following legend (or a similar legend provided by the Company):
"The shares of stock of Inland Resources Inc. (the
"Company") represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or under the securities laws
of any state, and the Holder hereof cannot make any
sale, assignment, or other transfer of any shares of
such stock except pursuant to an offering of such
shares duly registered under the 1933 Act and the
applicable state securities laws, or under such other
circumstances that, in the opinion of counsel of the
Holder hereof, does not require registration under the
1933 Act and any state securities laws. Said shares
are restricted securities within the meaning of Rule
144 promulgated under the 1933 Act and may be subject
to the limitations upon resale set forth therein or in
other rules and regulations under the 1933 Act;"
provided, however, that the Company agrees that whenever the
shares of Common Stock issuable upon exercise or conversion of
this Warrant shall have been beneficially held for three (3)
years within the meaning of Rule 144(k) of the 1933 Act or any
successor rule or statute or any shorter period of time allowed
by such successor rule or statute, and so long as the Holder is
not an affiliate of the Company within the meaning of Rule 144,
if required by Rule 144 or such successor rule or statute, then
the Company shall remove all restrictive legends and stop
transfer restrictions at the written request of the owner of the
shares of Common Stock issuable on exercise or conversion of this
Warrant.
6. Investment Representation of Holder. Holder represents
and warrants that the Warrants evidenced by this Certificate, and
any Warrant Shares (herein so called) purchased upon exercise of
the Warrants, have been, or will be, acquired or purchased as an
investment for Holder's own account and not with a view toward
further distribution thereof. It is expressly understood that
the Warrants cannot be sold or transferred, and that the Warrant
Shares cannot be sold or transferred, except pursuant to an
effective registration statement or an exemption from applicable
securities laws.
7. Fractional Shares. The Company shall not be required
upon the exercise of any of the Warrants evidenced hereby to
issue any fractional shares, but shall make an adjustment
therefore in cash on the basis of the mean between the low bid
and high asked prices on the over-the-counter market as reported
by the NASD Automated Quotation System or the closing market
price on a national securities exchange on the trading day
immediately prior to exercise, whichever is applicable, or if
neither is applicable, then on the basis of the market value of
any such fractional interest as shall be reasonably determined by
the Company.
8. Registration of Warrant Shares. Upon exercise of the
Warrants, the Company agrees to enter into a Registration Rights
Agreement with Holder in the form of the Registration Rights
Agreement attached hereto as Exhibit "A" and incorporated herein
for all purposes by this reference.
9. Notice. Any notice required or permitted by any party
to this Certificate shall be in writing and may be delivered
personally to the party being given notice or to the person in
charge of the office of the party being given notice or by
facsimile, hand delivery, national overnight courier service or
by mail, at the party's address indicated below, and any notice
will be effective only upon actual receipt by the party. The
addresses and fax numbers of the parties are as follows:
Holder: Randall D. Smith
c/o Smith Management Company
885 Third Avenue, 34th Floor
New York, New York 10022
Fax: (212) 751-9502
Company: Inland Resources Inc.
Inland Production Company
475 17th Street
Suite 1500
Denver, Colorado 80202
Fax: (303) 296-4070
Attn: Kyle R. Miller
The names and addresses and fax numbers of persons to receive
notice as stated in this Section may be changed by notice given
in accordance with this Section.
10. Parties. This Certificate shall bind the respective
successors and assigns of the parties. However, this Certificate
shall not be assigned by Holder without the prior written consent
of the Company.
11. Entire Agreement. This Certificate represents the
entire agreement of the parties with respect to the subject
matter hereof and supersedes any prior or contemporaneous oral or
written agreements or understandings. The terms of this
Certificate may be amended only by a written instrument executed
by the Company and the Holder.
WITNESS the signature of the Company's authorized
representative and the acceptance of the terms hereof by the
signature of the Holder dated effective November 22, 1995.
COMPANY:
INLAND RESOURCES INC.
By:
Kyle R. Miller, President
HOLDER:
_________________________
Randall D. Smith<PAGE>
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the within Warrants)
_______________________________
_______________________________
_______________________________
The undersigned hereby: (1) irrevocably elects to purchase
______ shares of the Company's Common Stock issuable upon the
exercise of the within Warrants, and encloses payment of
$________________ therefor; and (2) requests that a certificate
for
the shares be issued in the name of the undersigned and delivered
to the undersigned at the address below.
Date:_____________________
(Please sign exactly as name
appears on Warrant
Certificate)
Address
S:\CLIENT-I\09004\380\EXHIBITS\WARRDS.1<PAGE>
EXHIBIT "A" TO WARRANT CERTIFICATE
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
and entered into as of the ____ day of ________________, 1997 by
and between INLAND RESOURCES INC., a Washington corporation (the
"Issuer"), and RANDALL D. SMITH (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Issuer and Purchaser are parties to a Warrant
Certificate dated as of November 22, 1995 (the "Certificate")
pursuant to which the Issuer sold to the Purchaser _____________
shares of common stock, par value $.001 per share ("Common
Stock"), of the Issuer (the "Shares"); and
WHEREAS, Issuer and Purchaser agreed to enter into this
Registration Rights Agreement upon the acquisition of the Shares
by Purchaser pursuant to Purchaser's exercise of the warrants
represented by the Certificate.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter set forth, the Issuer and the Purchaser
agree as follows:
1. Shelf Registration Rights.
The Issuer will, as soon as possible following a written
request by Purchaser, file a shelf registration statement (the
"Shelf Registration Statement") on Form S-3 covering the Shares
and thereafter shall use its best efforts to cause the Shelf
Registration Statement to be declared effective as soon as
practicable following such filing and to take any and all
reasonable action within the Issuer's control (provided that such
Registration Statement may be unusable during periods (which
shall not exceed one hundred twenty (120) consecutive days or an
aggregate of one hundred eighty days within any three hundred
sixty five day period) of pending acquisitions or other material
events which would require a post-effective amendment or
supplement to the Shelf Registration Statement, it being agreed
that the Issuer shall use its best efforts to file a
post-effective amendment at the earliest practicable date so that
the
Shelf Registration Statement will be useable), as may be
necessary or appropriate to maintain such effectiveness until
such time as neither the Purchaser nor any of its assignees own
any Registerable Securities (as defined in Section 4) . Purchaser
will cooperate fully with Issuer by filing comments or other
documents with the SEC which may be required by the SEC, or by
providing such documents as may be reasonably required by the
Issuer. If the Purchaser proposes to dispose of any of the
Registerable Securities pursuant to an underwritten offering the
Purchaser shall have the right to select the underwriter.
2. Indemnification. In connection with the registration
of any of the Registerable Securities under the Securities Act of
1933, as amended (the "Act"):
(a) Issuer's Indemnification. The Issuer will
indemnify and hold harmless the Purchaser, each person
who controls the Purchaser within the meaning of the
Act and the Securities Exchange Act cf 1934, as amended
(the "Exchange Act") , and the Purchaser' s officers
and directors, as amended against any losses, claims,
expenses, damages or liabilities (including reasonable
attorney's fees) , joint or several, to which the
Purchaser, its controlling persons or such officers and
directors become subject under the Act, insofar as such
losses, claims, expenses, damages or liabilities (or
actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement
of any material fact contained in the Shelf
Registration Statement, in any prospectus forming a
part of the Shelf Registration Statement (the
"Prospectus") or any amendment or supplement thereof,
or arise out of or are based upon the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse
the Purchaser, each such controlling person or such
officers and directors for any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim,
expense, damage, liability or action; provided,
however, that the Issuer will not be liable in any such
case if but only to the extent that any such loss,
claim, expense, damage or liability arises out of our
is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with information furnished in writing to the
Issuer by the Purchaser or Purchaser's underwriter
expressly for inclusion in the Registration Statement.
(b) Purchaser's Indemnification. The Purchaser
will indemnify and hold harmless the Issuer and each
underwriter of the Registerable Securities and each
person who controls the Issuer or any such underwriter
within the meaning of the Act and the Exchange Act,
each officer of the Issuer who signs the Shelf
Registration Statement and each director of the Issuer,
against all losses, claims, expenses, damages or
liabilities (including reasonable attorneys, fees),
joint or several, to which the Issuer, any such
underwriter or such officer or director or controlling
person become subject under the Act, but only insofar
as such losses, claims, expenses, damages or
liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged
untrue statement of any material fact made in reliance
on and in conformity with information relating to the
Purchaser furnished in writing to the Issuer expressly
for inclusion in the Shelf Registration Statement.
(c) Notification. Promptly after receipt by an
indemnified party hereunder of notice of the
commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the
indemnifying party in writing thereof; provided,
however, that any failure to give such notice will not
waive any rights of the indemnified party except to the
extent the rights of the indemnifying party are
materially prejudiced. In case any such action shall
be brought against any indemnified party and it shall
notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to
participate in the defense thereof.
(d) If the indemnification provided for in this
Section 2 is unavailable or insufficient to hold
harmless an indemnified party in respect of any losses,
claims, expenses, damages or liabilities or actions in
respect thereof, then each indemnifying party shall in
lieu of indemnifying such indemnified party contribute
to the amount paid or payable by such indemnified party
as a result of such losses, claims, expenses, damages,
liabilities or actions in such proportion as is
appropriate to reflect the relative fault of the
Issuer, on the one hand, and the Purchaser, on the
other, in connection with the statements or omissions
which resulted in such losses, claims, expenses,
damages, liabilities or actions as well as any other
relevant equitable considerations, including the
failure to give any required notice. The relative
fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission
to state a material fact relates to information
supplied by the Issuer, on the one hand, or the
Purchaser, on the other, and the parties, relative
intent, knowledge, access to information and
opportunity to correct or present such statement or
omission. The Issuer and the Purchaser agree that it
would not be just and equitable if contribution
pursuant to this Section 2 (d) were determined by pro
rata allocation or by any other method of allocation
which does not take account of the equitable
considerations referred to above in this Section 2 (d)
. The amount paid or payable to an indemnified party as
a result of the losses, claims, expenses, damages,
liabilities or actions in respect thereof referred to
above in this Section 2(d) shall be deemed to include
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or
defending any such action or claim. No person guilty
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. Expenses. In connection with the Shelf Registration
Statement, Issuer shall pay all expenses incident to the Issuer's
performance of or compliance with its obligations hereunder,
including, without limitation, all registration, filing and
National Association of Securities Dealers, Inc. fees, all fees
and expenses of complying with securities or blue sky laws, all
word processing, duplicating and printing expenses, messenger and
delivery expenses, and the reasonable fees and disbursements of
the Issuer's counsel and of its independent public accountants.
Purchaser will be responsible for any expenses incurred by it,
including for its own counsel, accountants, underwriters and
representatives.
4. Registerable Securities. For purposes of this
Agreement, the term "Registerable Securities" shall mean (i) the
Shares and any Shares sold by Purchaser to a permitted assignee
pursuant to Section 8 and (ii) any shares of Common Stock issued
or issuable with respect to the shares of Common Stock described
in (i) above, by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization,
merger, consolidation or other reorganizations. Registerable
Securities shall cease to be Registerable Securities when they
have been disposed of pursuant to the Shelf Registration
Statement or pursuant to Rule 144 under the Act.
5. Rule 144 Covenants. The Company agrees that for so
long as the Purchaser owns any Registerable Securities to (i)
file with the SEC, in a timely manner, all reports required to be
filed by the Company under the Exchange Act and (ii) to provide
the Purchaser, upon request, information regarding the number of
shares of Common Stock outstanding as shown by the most recent
report or statement published by the Company.
6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of
the State of New York, without regard to the conflict of law
principles thereof.
7. Binding Effect. The obligations of this Agreement
shall be binding upon the parties, their heirs, successors and
legal representatives.
8. Assignment. This Agreement may not be assigned by any
party without the prior written consent of the other party
hereto, except that the Purchaser may assign all or any portion
of its rights under this Agreement to a party to which it sells
or transfers Registerable Securities in a private transaction
exempt from the registration and prospectus delivery requirements
of the Act, provided, at such time, Purchaser furnishes an
opinion of counsel to such effect reasonably acceptable to the
Issuer.
9. Amendment. Amendments to this Agreement may only be
made in writing signed by each of the parties.
10. Entire Agreement. This Agreement contains the entire
understanding of the parties and there are no other agreements,
written or oral, regarding the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INLAND RESOURCES INC.
By: _________________________
Name: ________________
Title: ________________
______________________________
Randall D. Smith
S:\CLIENT-I\09004\380\EXHIBITS\WARRDS.1
<PAGE>
EXHIBIT 10.30 KOCH
KOCH GAS SERVICES COMPANY
600 Travis Street 14th Floor
Houston, Texas T7002
713-229-62.22
Inland Production Company
475 17th Street, Suite 1500
Denver, Colorado 80202
Phone: 303-292-0900
Fax: 303-296-4070
Attn: Bill Pennington
CRUDE OIL CALL/PUT OPTION AGREEMENT
(COSTLESS COLLAR)
This Option Agreement ("Agreement") is a complete and
binding agreement between you and us as to the terms and
conditions of the transaction to which this Agreement
relates. Upon execution by you and us of a Master Swap
Agreement, this Agreement will supplement, form a part of,
and be subject to, the Master Swap Agreement. You and we
agree to use our best efforts to promptly negotiate,
execute, and deliver a Master Swap Agreement with such
modifications as you and we shall agree in good faith.
1. TRANSACTION TERMS:
(a) CALL SELLER / PUT BUYER: Inland Production
Company (Counterparty)
(b) CALL BUYER / PUT SELLER: Koch Gas Services
Company (KGS)
(c) PREMIUM: USD 0.00 (USD 0.00 per BBLS)
(d) COMMODITY TYPE: Crude Oil
(e) STRIKE-PRICE: Call USD 18.20 per BBLS
Put USD 16.00 per BBLS
(f) FLOATING PRICE: The average of the trading day
settlements during the Determination Period for the current
prompt Crude Oil Futures Contract on the New York
Merchantile Exchange. For the December 1995 Determination
Period this will be the average of the following NYMEX
trading day settlements: use the January 1996 Contract for
December 1, 4 - 8, 11 -15, and 18 -19; then use the February
1996 Contract for December 20 - 22, and 26 - 29.
(g) QUANTITY MEASUREMENT: "BBL" (One Barrel)
(h) QUANTITY PER DETERMINATION PERIOD: 12,000
BBLS
(i) PAYMENT OF PREMIUM: N/A
(j) DETERMINATION PERIOD: Each calendar month
beginning with December 1, 1995 and ending on January 1,
1997. The "Period End Date" shall be the last day of each
such calendar month.
(k) FLOATING AMOUNT: The Floating Amount with
respect
to a Determination Period shall be the product of (i) the
Quantity per Determination Period and (ii) the Floating
Price per Quantity measurement with respect to such
Determination Period.
(l) PUT STRIKE PRICE AMOUNTS: For the Put the Strike
Price Amount with respect to a Determination Period shall be
the product of (i) the Quantity per Determination Period and
(ii) the Put Strike Price per Quantity Measurement with
respect to such Determination Period.
(m) CALL STRIKE PRICE AMOUNTS: For the Call the
Strike
Price Amount with respect to a Determination Period shall be
the product of (i) the Quantity per DeterminationPeriod and
(ii) the Call Strike Price per Quantity Measurement with
respect to such Determination Period.
(n) EXERCISE: Asian
2.(a) PUT PAYMENT: If for any Determination Period
the Floating Amount is less than the Put Strike Price
Amount, KGS shall pay to the Counterparty the amount by
which the Floating Amount is less than the Put Strike Price
Amount. If for any Determination Period the Floating Amount
is equal to or greater than the Put Strike Price Amount,
then no payment shall be due under this provision with
respect to such Determination Period. Any such amount
payable shall be paid by wire transfer of immediately
available funds to a bank account designated by the
Counterparty. Payment shall be made without deduction for
taxes based on the representations made in Section 6(viii)
and (ix) of this Agreement.
(b) CALL PAYMENT: If for any Determination
Period the Floating Amount is greater than the Call Strike
Price Amount, the Counterparty shall pay to KGS the amount
by which the Floating Amount is greater than the Call Strike
Price Amount. If for any Determination Period the Floating
Amount is equal to or less than the Call Strike Price
Amount, then no payment shall be due under this provision
with respect to such Determination Period. Any such amount
payable shall be paid by wire transfer of immediately
available funds to a bank account designated by KGS.
Payment shall be made without deduction for taxes based on
the representations made in Section 6(viii) and (ix) of this
Agreement.
3. SET-OFF: If the Payment Dates for two or
more swap or option agreements between the parties fall on
the same day, if each party is required to pay an amount to
the other on such Payment Date, then such amounts with
respect to each party shall be aggregated, and the parties
shall discharge their obligations to pay through offset in
which case the party, if any, owing the greater aggregate
amount shall pay to the other the difference between the
amounts owed.
4. PAYMENT DATE: Amounts owed pursuant to
Section 2 with respect to each Determination Period shall
be due and payable on or before 12:00 noon (Central Time) on
the twentieth (20th) of the month following the
Determination Period month (settlement month).
5. ASSIGNMENT: This Agreement shall be
binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns-
Neither party shall have the power to assign or otherwise
transfer any of its rights or obligations under this
Agreement (whether by security, pledge or otherwise) or any
interest in this Agreement without the prior written consent
of the other party, and any purported assignment or transfer
in violation of this provision shall be void and of no force
and effect. Any assignment or purported assignment in
violation hereof, even though void, shall constitute a
failure to perform a covenant under this Agreement.
6. (a) ADDRESS FOR NOTICES:
Koch Gas Services Company
600 Travis Street, 14th Floor
Houston, Texas 77002
Attn: Bill Bourque
Telephone: 713-229-4680
Fax No.: 713-229-5959
(b) ADDRESS FOR NOTICES TO COUNTERPARTY:
Inland Production Company
475 17th Street, Suite 1500
Denver, Colorado 80202
Attn: Bill Pennington
Telephone: 303-292-0900
Fax No.: 303-296-4070
We are pleased to have concluded this transaction with you.
Please
provide your confirmation that the foregoing accurately reflects
our transaction by signing in the space below and delivering a
duly
executed counterpart hereof to our offices in Houston, Texas. If
KGS has not been notified of a bona fide error or received a
fully
executed confirmation by 5:00 p-m. Central Time on the third
(3rd)
Business Day after receipt of this confirmation, this Agreement
shall be deemed binding on Counterparty and KGS as sent.
Yours very truly,
COUNTERPARTY KOCH GAS SERVICES COMPANY
By: By: ____________________________
Title: Fred T. Muck
V.P. Koch Gas Services Company
CONFIRMED AS OF:
____day of _____________, 1995
<PAGE>
EXHIBIT 10.31.1<PAGE>
TERMINATION AGREEMENT
REVISED
This TERMINATION AGREEMENT, dated as of January 18, 1996
(the "Termination Agreement") is entered into between Inland
Resources Inc. ("Counterparty") and Enron Capital & Trade
Resources Corp. ("ECT").
W I T N E S S E T H
WHEREAS, Joint Energy Development Investments Limited
Partnership ("JEDI") and Counterparty entered into that certain
Swap Agreement (Collar) dated November 22, 1994, Contract No.
C00940.0, attached hereto as Exhibit A (the "Transaction");
WHEREAS, JEDI assigned all of its interest to ECT in that
certain Transaction by Assignment Agreement dated November 30,
1995; and
WHEREAS, Counterparty and ECT now desire to terminate the
Put Option portion of this Transaction beginning with
Determination Periods February 1, 1996 and ending with December
31, 1996.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements herein contained, the parties hereto agree as
follows:
1. Termination and Release. As of and from January 18,
1996 (the "Termination Date"), the Put Option portion of this
Transaction beginning with Determination Periods February 1, 1996
through December 31, 1996 are terminated and, subject to the
Termination Fee being made pursuant to Paragraph 2 below,
Counterparty and ECT shall each be fully released from all
rights, duties and obligations under the Transaction with respect
to the terminated Determination Periods.
2. Termination Payment. In consideration for terminating
the Put Option portion of this Transaction beginning with
Determination Periods February 1, 1996 and ending with December
31, 1996, ECT agrees to pay Counterparty $96,305.00 (the
"Termination Fee") on January 22, 1996.
3. Representation. Each party hereby represents and
warrants to the others that the execution, delivery and
performance hereof by it are within its corporate powers, and
have been duly authorized by all necessary corporate or other
action and that this Termination Agreement constitutes its legal,
valid and binding obligation.
4. Governing Law. This Termination Agreement shall be
governed by and construed in accordance with the laws of the
State of Texas.
5. Counterparts. This Termination Agreement may be
executed in any number of counterparts, each of which shall be
deemed an original
IN WITNESS WHEREOF, the parties hereto have executed this
Termination Agreement as of the date first above written.
ENRON CAPITAL & TRADE
RESOURCES INC.
By:
Agent and Attorney-in-
Fact
Enron Capital & Trade
Resources Corp.
INLAND RESOURCES INC.
By:
Chief Financial Officer
<PAGE>
EXHIBIT 10.33<PAGE>
ENRON CAPITAL & TRADE
RESOURCES CORP.
Worldwide Energy Solutions
P.O. Box 4428 Houston, Texas 77210-4428 (713) 853-5200 Fax (713)
646-4816
Inland Resources Inc.
Attn: Bill Pennington
CONFIRMATION
Date: January 18, 1996
To: Inland Resources Inc. ("Party B")
From: Enron Capital & Trade Resources Corp. ("ECT") ("Party
A")
Re: Put Option (Contract No. E12399.2)
The purpose of this letter is to conform the terms and conditions
of the Transaction entered into between us on the Trade Date
specified below (the "Transaction"). This letter constitutes a
"Confirmation" as referred to in the ISDA Master Agreement
specified below.
1. This Confirmation supplements, forms part of, and is subject
to, the ISDA Master Agreement dated as of August 24, 1994, as
amended and supplemented from time to time (the "Agreement"),
between you and us. All provisions contained in the Agreement
govern this Confirmation except as expressly modified below.
2. The terms of the particular Transaction to which this
Confirmation relates are as follows:
General Terms:
Option Style: European
Option Type: Put
Notional Quantity per 8,500.00 Barrels per month
Calculation Period:
Commodity: West Texas Intermediate
Commodity Unit: "Barrel" (42 U.S. Gallons)
Trade Date: January 18, 1996
Calculation Period(s): Monthly periods, with the first
Calculation Period commencing on
February 1, 1996 and the final
Calculation Period ending December 31,
1996.
Payment Date(s): The date five (5) Business Days
following the last Pricing Date for the
applicable Calculation period, subject
to adjustment in accordance with
Following Business Day Convention.
Premium Payment Details: On or before January 22, 1996, Party B
shall pay Party A U.S. $43,945.00
Option Holder: Party B
Option Grantor: Party A
Strike Price: U.S. Dollars $16.5000 per Barrel
Floating Price and
Pricing Dates: The average of the daily settlement
prices for the prompt month of the NYMEX
Light Sweet Crude Oil Futures Contract
for each NYMEX Trading Day of the
Calculation Period
Delivery Date: The Delivery Date for each Calculation
Period shall be the month in which such
Calculation Period occurs.
With respect to this Transaction, for any Calculation Period if
the Strike Price exceeds the Floating Amount, the Premium Payee
shall pay to the Premium Payer the amount by which the Strike
Price Amount is greater than the Floating Amount. If for any
Calculation Period the Strike Price Amount is equal to or less
than the Floating Amount, then no payment shall be due under this
Agreement with respect to such Calculation Period.
Please confirm that the foregoing correctly sets forth the terms
of our agreement by executing the copy of this Confirmation
enclosed for that purpose and returning it to us or by sending to
us a letter substantially similar to this letter within three
Local Business Days after the date first above written, which
letter sets forth the material terms of the Transaction to which
this Confirmation relates and indicates agreement to those terms.
Yours sincerely,
Enron Capital & Trade
Resources Corp.
By:
Fred D. Lagrasta,
Vice President
Confirmed as of the date first above written:
Inland Resources Inc.
By: _____________________________
Name: _______________________
Title: _______________________
<PAGE>
<PAGE>
EXHIBIT 10.34<PAGE>
ENRON CAPITAL & TRADE
RESOURCES CORP.
Worldwide Energy Solutions
P.O. Box 4428 Houston, Texas 77210-4428 (713) 853-5200 Fax
(713) 646-4816
CONFIRMATION OF AN OPTION
(Put)
Date: January 18, 1996
To: Inland Resources Inc. ("Counterparty")
Attention: Bill Pennington
From: Enron Capital & Trade Resources Corp. ("ECT")
Re: Commodity Option
Contract No.: ECT Contract No. E12399.3
The purpose of this letter agreement (together with the
General Terms and Conditions of Confirmation as set forth in
Annex A and any other attachments hereto, collectively the
"Confirmation") is to confirm the terms and conditions of the
transaction entered into between us on the Trade Date specified
below (the "Transaction") pursuant to a telephone conversation
between Bill Pennington and Fred Lagrasta whereby we accepted
your offer to enter into the Transaction. The terms of the
particular Transaction to which this Confirmation relates are as
follows:
General Terms for Put:
Trade Date: January 18, 1996
Commodity: Crude Oil
Commodity Unit: Barrels (BBL) (42 U.S. Gallons)
Option Type: Put Option
Seller: ECT
Buyer: Counterparty
Total Premium: US Dollars $149,060.00 due ECT
Premium Payment Date(s): January 22, 1996
Automatic Exercise: Applicable
Exercise Period: Inapplicable
Written Confirmation: Inapplicable
Transaction Terms:
Notarial Quantity per
Determination Period: See Attachment
Effective Date: February 01, 1996
Termination Date: December 31, 1996
Determination Period(s): Each calendar month beginning with
February 01, 1996 and ending on
December 31, 1996. The end date
for each Determination Period shall
be the last day of each such
calendar month.
Strike Price: US Dollars $16.5000 per Barrel
Floating Period: The average of the daily settlement
prices for the prompt month of the
NYMEX Light Sweet Crude Oil Futures
Contract for each NYMEX Trading Day
of the Determination Period
Strike Price Differential: A price per Commodity Unit
equal to the excess (if a
positive number) of (i) the
Strike Price over (ii) the
Floating Price
Cash Settlement Amount: For each relevant Determination
Period, an amount (if any) equal to
the product of (i) the Notional
Quantity per Determination Period
multiplied by (ii) the Strike Price
Differential, which amount shall be
due and payable on the applicable
Payment Date for such Determination
Period (if for any Determination
Period the Strike Price is equal to
or less than the Floating Price,
then no payment shall be due with
respect to such Determination
Period)
Payment Date(s): The fifth Business Day after the
Floating Price is determinable
Contractual Currency: US Dollars
Governing Law: Texas
General Terms and Conditions
of Confirmation: The general terms and conditions
contained in Annex A attached
hereto and made a part hereof apply
and are incorporated herein by
reference
Credit or Other Special Provisions: Inapplicable
This Confirmation is a complete and binding agreement
between you and us as to the Transaction. Until a Master
Agreement is executed by you and us, all currently existing swap,
option or other financially-settled derivative transactions
between the parties shall be governed by the terms and conditions
set forth in any Annex attached hereto. All such swap, option or
other financially-settled derivative transactions, shall
constitute a single integrated agreement between you and us, it
being acknowledged that the parties are relying upon the fact
that all such swap, option or other financially-settled
derivative transactions will form a single agreement and that the
parties would not otherwise enter into any transactions. The
terms and conditions contained in any Annex attached hereto are
incorporated into this Confirmation, and in the event of any
inconsistency between any Annex and this letter agreement, this
letter agreement shall govern. Upon execution by you and us of a
Master Agreement, this Confirmation will supplement, form a part
of, and be subject to the Master Agreement. In the event of any
inconsistency between this Confirmation and the Master Agreement,
the Master Agreement shall govern except as expressly set forth
therein.
If this Confirmation correctly sets forth the terms of the
Transaction that we have entered into, please promptly confirm in
a reply to us by signing below and sending this Confirmation (or
a copy hereof) to us (or notifying us of any bona fide error that
would require revision in order to accurately reflect our
agreement on the Transaction) by facsimile transmission within
two Business Days after your receipt of this Confirmation. If
you fail to so reply within such time period, the terms hereof
will constitute binding and conclusive evidence of the
Transaction. We look forward to receiving your prompt reply.
Sincerely,
Enron Capital & Trade Resources Corp. Inland Production
Company
By: ___________________________ By:
___________________________
Name: _____________________ Name:
_____________________
Title: _____________________ Title:
_____________________
Date: _____________________ Date:
_____________________
COUNTERPARTY: AFTER YOU HAVE CONFIRMED TRANSACTIONS, PLEASE
RETURN TO ECT, ATTENTION: DIRECTOR OF DOCUMENTATION AT FAX NO.
(713) 646-4816
Address for Notices to ECT: Payment Account
Information for ECT:
1400 Smith Street Wire Transfer to:
NationsBank of Texas, N.A.
Houston, Texas 77002 Acct. No. 3750494727
Attention: Director, Documentation Department (ABA Routing
No. 111000012)
Fax: (713) 646-4816
Phone: (713) 853-7500
With a copy of any notice given pursuant to Section 3 or 4 of
Annex A or Annex B, if any, to:
1400 Smith Street
Houston, Texas 77002
Attn: Assistant General Counsel, Trading Group
Fax: (713) 646-4818
Address for Notices to Counter party: Payment Account
Information for Counterparty:
475 18th Street, Suite 1500 Wire Transfer To:
First Interstate Bank of
Denver, Colorado 80202 Denver, N.A.
Acct No. 7006149
ABA No. 102000018
Attention: Bill Pennington
Fax: (303) 296-4070
Phone: (303) 292-0900
COUNTERPARTY: PLEASE PROVIDE ABOVE REQUESTED INFORMATION
<PAGE>
ATTACHMENT
Contract No. E12399.3
Quantity Measurement: Barrels
Quantity Per Month
Calculation Per Calculation Fixed Price
Period Period (per Barrels)
February, 1996 10,000 $16.50000
March, 1996 10,000 $16.50000
April, 1996 10,000 $16.50000
May, 1996 20,000 $16.50000
June, 1996 27,500 $16.50000
July, 1996 25,000 $16.50000
August, 1996 27,500 $16.50000
September, 1996 32,500 $16.50000
October, 1996 32,500 $16.50000
November, 1996 35,000 $16.50000
December, 1996 27,000 $16.50000
257,000
End of Attachment
<PAGE>
EXHIBIT 21.1<PAGE>
SUBSIDIARIES OF
INLAND RESOURCES INC.
Name Percentage Ownership
Inland Production Company 100%
<PAGE>
EXHIBIT 23.1<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Inland Resources Inc. on Form S-8
(File No. 33-41662), Form S-8 (File No. 33-84640), Form S-3 (File
No. 33-84766) and Form S-3 (File No. 33-80392) of our report
dated March 20, 1996, on our audits of the financial statements
of Inland Resource Inc. as of December 31, 1995 and 1994 and for
the years then ended, which report is included in this Annual
Report on Form 10-KSB.
Coopers & Lybrand, L.L.P.
Denver, Colorado
March 27, 1996
<PAGE>
EXHIBIT 23.2<PAGE>
CONSENT OF INDEPENDENT CONSULTANT PETROLEUM ENGINEERS
We consent to the incorporation by reference in the
registration statements of Inland Resources Inc. on Form S-8
(File No. 33-41662), Form S-8 (File No. 33-84640), Form S-3 (File
No. 33-84766) and Form S-3 (File No. 33-80392) of our reserve
appraisal, dated February 23, 1996, estimating the remaining oil
and gas reserves and future net income attributable to certain
oil and gas interests of Inland Resources Inc. as of January 1,
1996, which reserve appraisal is included in this Annual Report
on Form 10-KSB.
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Denver, Colorado
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1995 and the consolidated statements
of operations and cash flows for the year ended December 31, 1995, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,970,305
<SECURITIES> 0
<RECEIVABLES> 671,203
<ALLOWANCES> 0
<INVENTORY> 417,665
<CURRENT-ASSETS> 4,109,264
<PP&E> 18,161,774
<DEPRECIATION> 749,978
<TOTAL-ASSETS> 21,922,863
<CURRENT-LIABILITIES> 3,107,796
<BONDS> 4,436,225
0
4,100,368
<COMMON> 19,187,212
<OTHER-SE> (9,308,171)
<TOTAL-LIABILITY-AND-EQUITY> 21,922,863
<SALES> 1,904,810
<TOTAL-REVENUES> 2,230,988
<CGS> 1,142,467
<TOTAL-COSTS> 3,677,381
<OTHER-EXPENSES> (977,537)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749,307
<INCOME-PRETAX> (1,218,163)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,218,163)
<DISCONTINUED> (500,000)
<EXTRAORDINARY> (215,926)
<CHANGES> 0
<NET-INCOME> (1,934,089)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
