<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ________ to ________
Commission file number 0-16487
INLAND RESOURCES INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Washington 91-1307042
- --------------------------------------- ---------------------------------
(State of incorporation or organization) (IRS Employer Identification No.)
475 17th Street, Suite 1500, Denver, Colorado 80202
- --------------------------------------------- ----------
(Address of principal executive offices) (ZIP Code)
Issuer's telephone number, including area code: (303) 292-0900
(Former name, address and fiscal year, if changed, since last report)
Indicate by check mark whether the issuer (1) has filed all reports required
to be filed by Sections 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 xx No
-- --
Number of shares of common stock, par value $.001 per share, outstanding as
of August 1, 1997: 8,296,730
Transitional Small Business Disclosure Format
Yes xx No
-- --
<PAGE>
PART 1. FINANCIAL INFORMATION
INLAND RESOURCES INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June 30, December 31,
1997 1996
----------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,426,550 $10,030,982
Accounts receivable and accrued sales 1,547,948 2,077,661
Inventory 2,197,215 862,229
Other current assets 434,110 242,022
----------- -----------
Total current assets 7,605,823 13,212,894
----------- -----------
Property and equipment, at cost:
Oil and gas properties (successful efforts
method) 62,540,650 46,832,811
Accumulated depletion, depreciation and
amortization (6,125,361) (3,834,517)
----------- -----------
56,415,289 42,998,294
Other property and equipment, net 990,782 779,161
Debt issue costs, net 193,809 338,262
----------- -----------
Total assets $65,205,703 $57,328,611
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,179,297 $ 4,236,734
Current portion of long-term debt 1,148,000
----------- -----------
Total current liabilities 7,179,297 5,384,734
----------- -----------
Long-term debt 26,187,150 19,972,014
Stockholders' equity:
Preferred Class A stock, par value $.001, 20,000,000
shares authorized; 1,000,000 shares of Series B
issued and outstanding, liquidation preference
of $12,400,000 1,000 1,000
Additional paid-in capital - preferred 9,999,000 9,999,000
Common stock, par value $.001; 25,000,000 shares
authorized; issued and outstanding 6,319,059 and
6,312,059, respectively 6,319 6,312
Additional paid-in capital - common 29,151,053 29,129,185
Accrued preferred Series B dividends 1,623,000 670,000
Accumulated deficit (8,941,116) (7,833,634)
----------- -----------
Total stockholders' equity 31,839,256 31,971,863
----------- -----------
Total liabilities and stockholders'
equity $65,205,703 $57,328,611
----------- -----------
----------- -----------
The accompanying notes are an integral part of
the consolidated financial statements
1
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
Three months ended Six months ended
June 30, June 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Sales of oil and gas $2,885,483 $ 2,552,714 $ 6,487,779 $ 3,244,696
---------- ----------- ----------- -----------
Operating expenses:
Lease operating expenses 620,104 290,372 1,220,925 454,708
Production taxes 55,574 91,646 279,247 122,863
Exploration 20,268 3,422 29,926 13,203
Depletion, depreciation and
amortization 1,220,802 690,233 2,414,844 885,262
General and administrative, net 380,918 394,800 841,244 671,544
---------- ----------- ----------- -----------
Total operating expenses 2,297,666 1,470,473 4,786,186 2,147,580
---------- ----------- ----------- -----------
Operating income 587,817 1,082,241 1,701,593 1,097,116
Interest expense (655,945) (320,329) (1,295,966) (507,263)
Other income, net 146,541 58,949 304,244 91,520
---------- ----------- ----------- -----------
Net income before extraordinary loss 78,413 820,861 709,871 681,373
Extraordinary loss on early
extinguishment of debt (864,353) (864,353)
---------- ----------- ----------- -----------
Net income (loss) $ (785,940) $ 820,861 $ (154,482) $ 681,373
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net income (loss) per share -
Primary
Before extraordinary loss $ 0.01 $ 0.18 $ 0.11 $ 0.16
Extraordinary loss $ (0.13) $ (0.13)
---------- ----------- ----------- -----------
Total $ (0.12) $ 0.18 $ (0.02) $ 0.16
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average common and common
Equivalent shares outstanding -
Primary 6,726,563 4,465,595 6,715,515 4,300,504
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net income (loss) per share -
Fully diluted
Before extraordinary loss $ 0.01 $ 0.14 $ 0.08 $ 0.12
Extraordinary loss $ (0.13) $ (0.10)
---------- ----------- ----------- -----------
Total $ (0.12) $ 0.14 $ (0.02) $ 0.12
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding -
Fully diluted 8,342,058 5,681,227 8,315,800 5,516,135
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Dividends per share NONE NONE NONE NONE
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
2
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
----------- ------------
Cash flows from operating activities:
Net income (loss) $ (154,482) $ 681,373
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Net cash used by discontinued operations (15,942)
Depletion, depreciation and amortization 2,414,844 885,262
Amortization of debt issue costs and
debt discount 140,400 42,229
Loss on early extinguishment of debt 864,353
Effect of changes in current assets and
liabilities:
Accounts receivable and accrued sales 529,713 (821,033)
Inventory (1,334,986) (439,152)
Other current assets (192,088) (426,925)
Accounts payable and accrued expenses 2,942,563 369,468
------------ ------------
Net cash provided by operating activities 5,210,317 275,280
------------ ------------
Cash flows from investing activities:
Acquisition of oil and gas properties (3,574,898)
Development expenditures and equipment
purchases (12,468,562) (10,954,655)
------------ ------------
Net cash used by investing activities (16,043,460) (10,954,655)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of employee stock
options 21,875 16,250
Proceeds from issuance of long-term debt 29,500,000 12,578,192
Payments of long-term debt (25,099,355) (38,625)
Debt issue costs (193,809)
------------ ------------
Net cash provided by financing activities 4,228,711 12,555,817
------------ ------------
Net increase (decrease) in cash and cash
equivalents (6,604,432) 1,876,442
Cash and cash equivalents at beginning of period 10,030,982 2,970,305
------------ ------------
Cash and cash equivalents at end of period $ 3,426,550 $ 4,846,747
------------ ------------
------------ ------------
Noncash financing and investing activity:
Purchase of Farmout Inc. for common stock $ 6,542,500
------------
------------
The accompanying notes are an integral part of
the consolidated financial statements
3
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. COMPANY ORGANIZATION:
Inland Resources Inc. (the "Company") is an independent energy company with
substantially all of its property interests located in the Monument Butte
Field within the Uinta Basin of Northeastern Utah.
2. BASIS OF PRESENTATION:
The preceding financial information has been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of the Company, includes all normal
and recurring adjustments necessary for a fair statement of the results of
each period shown. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
SEC rules and regulations. Management believes the disclosures made are
adequate to ensure that the financial information is not misleading, and
suggests that these financial statements be read in conjunction with the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996.
3. DEBT REFINANCING:
On June 30, 1997, the Company entered into a $50 million Credit Agreement
with Canadian Imperial Bank of Commerce (the "CIBC Loan Agreement"). The
borrowing base under the facility is limited to the collateral value of
proved reserves as determined semiannually by the lender. The initial
borrowing base of $26 million was fully funded on June 30, 1997. The loan
proceeds, along with cash on hand, were used to retire the loan obligation
to Trust Company of the West ("TCW") and to purchase an override on the
Company's properties held by TCW. The CIBC Loan Agreement is interest only
until July 1, 1999 when the facility converts to a three year amortizing
term loan. Interest under the agreement is calculated, at the Company's
option, using either a base rate plus a spread of 0% to .875% or the
London interbank eurodollar rate ("LIBOR") plus a spread of 1% to 1.875%.
The spread percentage is determined based on the Company's borrowings
relative to its borrowing base. The CIBC Loan Agreement restricts the
payment of cash dividends, borrowings, sale of assets, loans to others,
investment and merger activity and hedging contracts without the prior
consent of the lender and requires the Company to maintain certain net
worth, interest coverage and working capital ratios. On June 30, 1997, the
Company's outstanding balance was $26 million accruing interest at a rate
of 9.375%. On July 7, 1997, the Company converted the interest method
under the CIBC Loan Agreement to the LIBOR option reducing the interest
rate to 7.5625%.
4. EARNINGS PER SHARE:
The Financial Accounting Standards Board issued Statement No. 128
"Earnings per Share" ("SFAS No. 128") effective for financial reports
issued subsequent to December 15, 1997. SFAS No. 128 replaces the
calculation of Primary EPS with a calculation called Basic EPS and
replaces Fully Diluted EPS with a calculation called Diluted EPS. The
following table shows the impact that adoption of the SFAS No. 128 as of
January 1, 1996 would have had on the Company's reported earnings per
share:
4
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended Six months ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
------- ------ ------- -----
PRIMARY EPS AS REPORTED
Before extraordinary loss $ 0.01 $ 0.18 $ 0.11 $0.16
Extraordinary loss $(0.13) $(0.13)
------- ------ ------- -----
Total $(0.12) $ 0.18 $(0.02) $0.16
------- ------ ------- -----
------- ------ ------- -----
BASIC EPS
Before extraordinary loss $ 0.01 $ 0.19 $ 0.11 $0.16
Extraordinary loss $(0.13) $(0.13)
------- ------ ------- -----
Total $(0.12) $ 0.19 $(0.02) $0.16
------- ------ ------- -----
------- ------ ------- -----
FULLY DILUTED EPS AS REPORTED
Before extraordinary loss $ 0.01 $ 0.14 $ 0.08 $0.12
Extraordinary loss $(0.13) $(0.10)
------- ------ ------- -----
Total $(0.12) $ 0.14 $(0.02) $0.12
------- ------ ------- -----
------- ------ ------- -----
DILUTED EPS
Before extraordinary loss $ 0.01 $ 0.15 $ 0.08 $0.13
Extraordinary loss $(0.13) $(0.10)
------- ------ ------- -----
Total $(0.12) $ 0.15 $(0.02) $0.13
------- ------ ------- -----
------- ------ ------- -----
5. SUBSEQUENT EVENTS:
AGREEMENT TO PURCHASE ENSERCH ASSETS
On July 14, 1997, the Company entered into a Purchase and Sale Agreement
with Enserch Exploration, Inc. ("Enserch") to acquire all of Enserch's
property interests and related assets in the Monument Butte Field within
the Uinta Basin of Northeastern Utah. The purchase includes interest in
147 wells (40 net) including 52 wells operated by Enserch and 43 wells
already operated by the Company. The remaining nonoperated production is
comprised of 52 gross (2 net) wells. Also included in the purchase were
9,600 net undeveloped acres, water rights and a water transportation and
distribution system. A downpayment of 10% of the $10.1 million purchase
price was made on July 14, 1997 from cash on hand. The balance of $9.09
million, as adjusted for a March 31, 1997 effective date, will be made at
closing scheduled for August 15, 1997.
AGREEMENT TO PURCHASE REFINING ASSETS
On July 14, 1997, the Company entered into a Purchase and Sale Agreement
with Crysen Refining, Inc. and Sound Refining, Inc. (collectively
"Crysen") covering the purchase of two oil refineries and related assets;
one located in Salt Lake City, Utah and one located in Tacoma, Washington.
The purchase price of approximately $25 million includes the physical
plant and land, the crude oil and finished products inventory and net
receivable position of both refineries. The closing is scheduled for
September 30, 1997 and is subject to Inland performing extensive
environmental, financial and engineering due diligence and satisfaction of
other closing conditions. The Crysen refinery, located in Salt Lake City,
Utah, has a nominal capacity of 12,500 barrels of oil per day. The Sound
refinery, located in Tacoma, Washington, has a nominal capacity of 6,000
barrels of oil per day and is principally an asphalt processing facility.
The Company may consider assigning its right to acquire the Tacoma
facility to an unrelated purchaser prior to closing.
5
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SALE OF PREFERRED STOCK
On July 21, 1997, the Company closed the sale of 100,000 shares of a newly
designated Series C Cumulative Convertible Preferred Stock (the "Series C
Stock") to an affiliate of Enron Corp. for cash of $10 million. Concurrently
with the issuance of the Series C Stock, the Company called for redemption
its outstanding Series B Convertible Preferred Stock (the "Series B Stock").
The holders of the Series B Stock waived redemption and instead elected to
convert their Series B Stock into 1,977,671 shares of Inland Common Stock.
The Series C Stock is initially convertible at any time by the holder into
8.333 shares of Inland Common Stock, an effective conversion price of $12.00
per share. The Series C Stock bears a dividend of 10% per annum. Accumulated
dividends may also be converted by the holder at the same ratio as the Series
C Stock. Subsequent to July 21, 2000, (the third anniversary), the Company
has the option to redeem for cash at par value ($100 per share) all
outstanding shares of Series C Stock plus accrued dividends. If not converted
by the holder or redeemed for cash by the Company prior to the later of (i)
July 21, 2005 (the eighth anniversary) or (ii) six months following maturity
of any high yield offering or long-term debt financing in the aggregate
amount of at least $25 million obtained after July 21, 1997, the Company must
redeem the Series C Stock and all accrued dividends for (i) cash or, at the
Company's election, (ii) Common Stock issued at 80% of the market price of
the Common Stock on the day of redemption.
The Company must also redeem the Series C Stock if (a) the Company enters
into any new line of business (other than exploration, development and
production of oil and gas) and holders of Series C Stock elect to be redeemed
prior to the Company commencing such new line of business (closing on the
purchase of the Crysen refining assets is considered to be an entry into a
new line of business), or (b) the Company proposes to enter into a merger,
consolidation or share exchange pursuant to which holders of Common Stock
would receive cash or other property (rather than stock in the surviving
company) in a per share amount less than the effective conversion price for
the Series C Stock (which is initially $12 per share). The Series C Stock
votes with common stockholders on all matters based on the number of shares
of Inland Common Stock the Series C Stock is convertible into; except for the
approval of amendments to the Series C Stock, the authorization of any other
series of preferred stock having equal or greater rights, and the approval of
any merger, consolidation or share exchange involving the Company unless the
holder of the Series C Stock receives equivalent stock with equivalent
rights. In these instances, the Series C Stock votes as a separate class. The
Series C Stock also carries anti-dilution protection, rights to demand
registration at the Company's expense and a liquidation preference equal to
par value of all outstanding shares plus accrued dividends.
AGREEMENT TO PURCHASE EREC ASSETS
On July 25, 1997, the Company entered into an Agreement of Sale and Purchase
with Equitable Resources Energy Company ("EREC") to acquire all of EREC's
property interests and related assets in the Monument Butte Field within the
Uinta Basin of Northeastern Utah. The purchase includes interest in 279 wells
(185 net) including 227 wells operated by EREC and 6 wells already operated
by the Company. The remaining nonoperated production is comprised of 52 gross
(4 net) wells. Also included in the purchase were 23,400 net undeveloped
acres, water rights, a water transportation and distribution system and a gas
gathering and processing system. A downpayment of 10% of the approximately
$53 million purchase price was made on July 25, 1997 from cash on hand. The
balance of $48 million, as adjusted for an April 1, 1997 effective date, will
be made at closing which is scheduled for September 30, 1997, subject to
completion of due diligence and satisfaction of various closing conditions.
6
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
RESULTS OF OPERATIONS:
THREE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996:
OIL AND GAS SALES - Oil and gas sales during the second quarter of 1997
exceeded the previous year second quarter by $333,000, or 13%. The increase
was attributable to increased oil and gas sales volumes as the Company
drilled and completed a total of 60 wells during the twelve months ending
June 30, 1997 and acquired 20 producing properties on June 12, 1996 through
the purchase of Farmout Inc. Although production increased 35% on a barrel of
oil equivalent ("BOE") basis, the sales increase was only 13% due primarily
to an 18% decrease in the average price received for crude oil production
from $20.01 during the second quarter of 1996 to $16.47 during the same
period in 1997.
As further discussed in "Liquidity and Capital Resources" below, the Company
has entered into price protection agreements to hedge against 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. Oil and gas sales were decreased by
$37,000 and $168,000 during the second quarters of 1997 and 1996,
respectively, to recognize hedging contract settlement losses and contract
purchase cost amortization.
LEASE OPERATING EXPENSES - Lease operating expense per BOE sold was
$3.09 during the second quarter of 1997, slightly up from the $3.02
experienced during the first quarter of 1997. The Company's operating expense
rate per BOE was $2.31 during the year ended December 31, 1996 and $1.95
during the second quarter of 1996. The Company expects to improve upon its
1997 operating expense rate per BOE sold by continuing its aggressive
development program and performing a smooth operational integration of the
announced acquisitions subsequent to each of their closings. The development
activity and acquisitions should have the effect of increasing sales volumes
and creating more efficient field operations thereby allowing a wider
allocation of operating costs in relation to incremental operating costs
incurred.
PRODUCTION TAXES - Production tax expense consists of estimates of the
companies yearly effective tax rate for Utah state severance tax and
production ad valorem tax. Changes in sales prices, tax rates, tax exemptions
and the timing, location and results of drilling activities can all affect
the Company's actual effective tax rate. During the second quarter, the
Company revised its estimate of its yearly effective production tax rate from
6.0%, as recorded during the first quarter, to 4.2%. The adjustment caused
the second quarter 1997 production tax expense to equal 1.9% of oil and gas
sales. The estimated effective production tax rate recorded during the second
quarter of 1996 was 3.4%.
EXPLORATION - Exploration expense represents the Company's share of
costs to retain unproved acreage.
DEPLETION, DEPRECIATION AND AMORTIZATION - The increase in depletion,
depreciation and amortization resulted from increased sales volumes and an
increased depletion rate. Depletion, which is based on the
units-of-production method, comprises the majority of the total charge. The
depletion rate is a function of capitalized costs and related underlying
reserves in the periods presented. The Company's average depletion rate was
$5.65 per BOE sold during the second quarter of 1997 compared to $4.36 per
BOE sold during the second quarter of 1996.
7
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----
GENERAL AND ADMINISTRATIVE, NET - General and administrative expense
decreased $14,000 on a net basis between quarters. General and administrative
expense is reported net of operator fees and reimbursements which were
$684,000 and $481,000 during the second quarters of 1997 and 1996,
respectively. Gross general and administrative expense was $1,065,000 in 1997
and $876,000 in 1996. The increase in expense and reimbursements is primarily
a function of the level of operated field activity. During the second quarter
of 1997, the Company operated 85 more wells than it did at April 1, 1996. In
addition, the Company now maintains and continues to expand its gas gathering
and water delivery infrastructures.
INTEREST EXPENSE - Borrowings during the second quarters of 1997 and
1996 were recorded at an effective interest rate of 11%. The increase in
expense during the second quarter of 1997 was due to an increase in the
average amount of borrowings outstanding during the period.
OTHER INCOME - Other income represents interest earned on the investment
of surplus cash balances.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT - On June 30, 1997,
the Company refinanced an existing obligation to Trust Company of the West.
Unamortized debt issue costs of $290,862 and an unamortized loan discount of
$573,491 were written off as an extraordinary loss.
INCOME TAXES - During 1997 and 1996, no income tax provision or benefit
was recognized due to net operating losses incurred and the reversal and
recording of a full valuation allowance.
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996:
OIL AND GAS SALES - Oil and gas sales during the first half of 1997
exceeded the previous year initial six months by $3,243,000, or 100%. The
increase was attributable to increased oil and gas sales volumes as the
Company drilled and completed a total of 60 wells during the twelve months
ending June 30, 1997 and acquired 20 producing properties on June 12, 1996
through the purchase of Farmout Inc. Although production increased 108% on a
barrel of oil equivalent ("BOE") basis, the sales increase was 100% due
primarily to an 8% decrease in the average price received for crude oil
production from $19.62 during the first half of 1996 to $17.96 during the
same period in 1997. Oil and gas sales were decreased by $143,000 and
$230,000 during the first half of 1997 and 1996, respectively, to recognize
hedging contract settlement losses and contract purchase cost amortization.
LEASE OPERATING EXPENSES - Lease operating expense per BOE sold was
$3.06 during the first six months of 1997. The Company experienced a rate of
$2.31 per BOE during the year ended December 31, 1996 and $2.38 per BOE
during the initial six months of 1996. The Company expects to improve upon
its 1997 operating expense rate per BOE sold by continuing its aggressive
development program and performing a smooth operational integration of the
announced acquisitions subsequent to each of their closings. The development
activity and acquisitions should have the effect of increasing sales volumes
and creating more efficient field operations thereby allowing a wider
allocation of operating costs in relation to incremental operating costs
incurred.
PRODUCTION TAXES - Production tax expense consists of estimates of the
companies yearly effective tax rate for Utah state severance tax and
production ad valorem tax. Changes in sales prices, tax rates, tax exemptions
and the timing, location and results of drilling activities can all affect
the Company's actual effective tax rate. The Company's estimate of its yearly
effective production tax rate is 4.2% for 1997. The estimated effective
production tax rate recorded during the first half of 1996 was 3.4%.
8
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----
EXPLORATION - Exploration expense represents the Company's share of
costs to retain unproved acreage.
DEPLETION, DEPRECIATION AND AMORTIZATION - The increase in depletion,
depreciation and amortization resulted from increased sales volumes and an
increased depletion rate. Depletion, which is based on the
units-of-production method, comprises the majority of the total charge. The
depletion rate is a function of capitalized costs and related underlying
reserves in the periods presented. The Company's average depletion rate was
$5.65 per BOE sold during the initial six months of 1997 compared to $4.25
per BOE sold during the same period in 1996.
GENERAL AND ADMINISTRATIVE, NET - General and administrative expense
increased $170,000 on a net basis between quarters. General and
administrative expense is reported net of operator fees and reimbursements
which were $1,196,000 and $877,000 during the six month periods ended June
30, 1997 and 1996, respectively. Gross general and administrative expense was
$2,037,000 in 1997 and $1,549,000 in 1996. The increase in expense and
reimbursements is primarily a function of the level of operated field
activity. During the second quarter of 1997, the Company operated 100 more
wells than it did at January 1, 1996. In addition, the Company now maintains
and continues to expand its gas gathering and water delivery infrastructures.
INTEREST EXPENSE - Borrowings during 1997 and 1996 were recorded at an
effective interest rate of 11%. The increase in expense during 1997 was due
to an increase in the average amount of outstanding borrowings.
OTHER INCOME - Other income represents interest earned on the investment
of surplus cash balances.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT - On June 30, 1997,
the Company refinanced an existing obligation to Trust Company of the West.
Unamortized debt issue costs of $290,862 and an unamortized loan discount of
$573,491 were written off as an extraordinary loss.
INCOME TAXES - During 1997 and 1996, no income tax provision or benefit
was recognized due to net operating losses incurred and the reversal and
recording of a full valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
DEBT REFINANCING - On June 30, 1997, the Company entered into a $50
million Credit Agreement with Canadian Imperial Bank of Commerce (the "CIBC
Loan Agreement). The borrowing base under the facility is limited to the
collateral value of proved reserves as determined semiannually by the lender.
The initial borrowing base of $26 million was fully funded on June 30, 1997.
The loan proceeds, along with cash on hand, were used to retire the $24.45
million loan obligation due to Trust Company of the West ("TCW") and to
purchase an override for $3.57 million on the Company's properties held by
TCW. The CIBC Loan Agreement is interest only until July 1, 1999 when the
facility converts to a three year amortizing term loan. Interest under the
agreement is calculated, at the Company's option, using either a base rate
plus a spread of 0% to .875% or the London interbank eurodollar rate
("LIBOR") plus a spread of 1% to 1.875%. The spread percentage is determined
based on the Company's borrowings relative to its borrowing base. The CIBC
Loan Agreement restricts the payment of cash dividends, borrowings, sale of
assets, loans to others, investment and merger activity and hedging contracts
without the prior consent of the lender and requires the Company to maintain
certain net worth, interest coverage and working capital ratios. On June 30,
1997, the Company's outstanding balance was $26 million accruing interest at
a rate of 9.375%. On July 7, 1997, the Company converted the interest method
under the CIBC Loan Agreement to the LIBOR option reducing the interest rate
to 7.5625%.
9
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
WORKING CAPITAL AND CASH HOLDINGS - In addition to the activity noted
above, during the initial six months of 1997, the Company borrowed its
remaining loan availability of $3.5 million under the TCW Loan Agreement,
generated $4.1 million of cash from operations and increased accounts payable
and accrued expenses by $2.9 million. The Company used these cash sources and
cash on hand to finance the drilling and completion of 31 wells, fund the
Company's principal and interest obligation under the TCW Loan Agreement and
purchase an inventory of drilling supplies. The effect of all transactions
and operations performed through June 30, 1997 was a net cash outflow of $6.6
million causing the Company's cash balance to decrease to $3.4 million, and
the Company's net working capital position to decrease to $427,000, at June
30, 1997.
TRANSACTIONS SUBSEQUENT TO JUNE 30, 1997 - On July 14, 1997, the Company
entered into a Purchase and Sale Agreement with Enserch Exploration, Inc.
("Enserch") to acquire all of Enserch's property interests and related assets
in the Monument Butte Field within the Uinta Basin of Northeastern Utah. A
downpayment of 10% of the $10.1 million purchase price was made on July 14,
1997 from cash on hand. The balance of $9.09 million, as adjusted for a March
31, 1997 effective date, will be made at closing scheduled for August 15,
1997.
On July 21, 1997, Inland closed the sale and issuance of 100,000 shares of a
newly designated Series C Cumulative Convertible Preferred Stock (the "Series
C Stock") to an affiliate of Enron Corp. The net proceeds to the Company
after payment of closing fees was $9.6 million. The proceeds were used to
fund the downpayment of the EREC acquisition (discussed below) and for
working capital purposes.
On July 25, 1997, the Company entered into an Agreement of Sale and Purchase
with Equitable Resources Energy Company ("EREC") to acquire all of EREC's
property interests and related assets in the Monument Butte Field within the
Uinta Basin of Northeastern Utah. A downpayment of 10% of the approximately
$53 million purchase price was made on July 14, 1997 from cash on hand. The
balance of $48 million, as adjusted for an April 1, 1997 effective date, will
be made at closing which is scheduled for September 30, 1997.
In addition to the above transactions, the Company also entered into a
Purchase and Sale Agreement with Crysen Refining, Inc. and Sound Refining,
Inc. (collectively "Crysen"). No downpayment was required at the time of
entering into the agreement. The estimated purchase price of $25 million
includes the physical plant and land for two oil refineries, their crude oil
and finished products inventory and their net receivable positions. The
Company is required to perform due diligence procedures by September 10, 1997
and make a nonrefundable earnest money deposit of $250,000. The balance of
the acquisition cost is due at closing scheduled for September 30, 1997.
Depending on the outcome of the due diligence procedures and other factors,
the Company may also require additional capital to upgrade the Salt Lake City
refinery. The estimated cost of the facility upgrade, if performed, is
currently unknown. The Company may consider assigning its right to acquire
the Tacoma facility to an unrelated purchaser prior to closing.
10
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
In summary, using approximate dollar amounts in all cases, the Company
requires $9 million to close the Enserch acquisition on August 15, 1997, $48
million to close the EREC acquisition on September 30, 1997, $25 million to
close the Crysen acquisition on September 30, 1997, $16 million to complete
its 1997 development drilling program in the Monument Butte Field and, if
determined appropriate, additional capital to upgrade the Crysen facility.
The Company anticipates entering into an amendment to the CIBC Loan Agreement
that will (i) increase the borrowing base by $6 million for the Enserch
acquisition at closing scheduled for August 15, 1997 (the "Traunche A Loan")
(ii) establish a $3 million twelve month non-conforming term loan to be
funded at the Enserch closing (the "Traunche B Loan"). The Traunche A Loan is
expected to conform to the terms originally established in the CIBC Loan
Agreement. The Traunche B Loan is expected to carry the exact same terms as
the Traunche A Loan except (i) interest will be calculated at LIBOR plus
3.25% for the initial 90 days after closing; the interest rate would then
increase 0.50% on the 91st day and every 90 days thereafter until maturity
(ii) a 1% fee would be due upon each extension of additional availability
(iii) maturity would be the earlier of August 15, 1998 or the effective date
of any new debt or equity offering in excess of $1 million. The combination
of the Traunche A Loan and Traunche B Loan would provide the Company with
sufficient capital to fund the Enserch acquisition. However, there is no
assurance that the Company will be able to close and fund this amendment to
the CIBC Loan Agreement or raise sufficient capital from other sources. As a
result, the Company may have to forgo the acquisition of the Enserch assets,
and, although unlikely, it is possible the Company could forfeit the
downpayment already made.
In addition, the Company is engaged in discussions and negotiations with
other lending sources to provide loans to be used to fund the acquisitions of
Crysen and EREC, repay the Traunche B Loan (if advanced), provide capital for
the continued development of the Monument Butte Field and, if determined to
be economically feasible, provide capital for any necessary upgrade of the
Crysen refinery. There is no assurance that the Company will be able to raise
sufficient capital through these sources to fund any of the contemplated uses
of proceeds. As a result, the Company may have to forgo the purchase of the
Crysen facility, forgo the purchase of the EREC assets, and, although
unlikely, forfeit the downpayment already made, slow development of the
Monument Butte Field and comply with the terms of the Traunche B Loan for a
period longer than originally anticipated.
CRUDE OIL HEDGING ACTIVITIES - The Company has a hedge in place with
Enron Capital and Trade Resources Corp. (the "Enron Hedge") that hedges 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, 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 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 barrels of crude oil hedged that month. On
January 1, 1997, the Company paid $34,170 to enter into a contract with Koch
Gas Services Company ("Koch") that exactly offsets the effect of the Enron
Hedge during the period January 1998 through December 2000. The combination
of the two contracts limits the Company's remaining exposure under the Enron
Hedge to the settlements during the period January 1997 through December 1997
at 10,900 barrels per month. In an effort to limit its downside exposure, on
July 8, 1996, the Company purchased from Koch 720,000 put options for
$133,200 with a strike price of $15.00. The contract settles in monthly
amounts of 60,000 put options during the period January 1997 to December
1997. The Company has also purchased for $33,000 from Enron 300,000 put
options with a strike price of $16.00 that settle in monthly amounts of
100,000 put options during the period January through March 1998.
11
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
MARKETS - The availability of a ready market and the prices obtained for
the Company's oil and gas depend on many factors beyond the Company's
control, including the extent of domestic production, imports of oil and gas,
the proximity and capacity of oil and 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. Crude oil produced from the Monument Butte Field
is called "Black Wax" and is sold at the posted field price (an industry term
of the fair market value of oil in a particular field) less a deduction of
approximately $0.85 to $1.00 per barrel for oil quality adjustments. As the
quantity of Black Wax produced within the Monument Butte Field grows,
physical limitations within the regional refineries, located in Salt Lake
City, Utah, will limit the amount of Black Wax that can be processed. The
Company has been conducting discussions with each refinery to inform them of
the outlook for Black Wax production in this region and has entered into an
agreement to purchase the assets of Crysen to provide a captured refining
source for its Black Wax crude oil, if determined to be desirable. Until the
Crysen acquisition is completed, or some other arrangement is reached, there
will continue to be short-term downward pressure on Black Wax pricing. If the
Company fails to close on the acquisition of Crysen, the Company expects to
negotiate a long-term marketing arrangement or some other agreement that will
be beneficial to the Company, although there can be no assurance it will be
able to do so.
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 equity or debt of the Company; or (iv) traditional bank
lines of credit.
ENVIRONMENTAL MATTERS - 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. During 1996, the Vernal,
Utah office of the Bureau of Land Management ("BLM") undertook the
preparation of an Environmental Assessment ("EA") relating to certain lands
within the Monument Butte Field. Due to this process, the Company reduced its
activities on these lands during the last six months of 1996 and January 1997
pending issuance of the EA by the BLM. The formal Record of Decision relating
to the EA was issued by the BLM on February 3, 1997. The Company believes it
will be able to comply with the Record of Decision without causing a material
impact on its future drilling plans in the Monument Butte Field.
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.
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 1997 or 1996.
12
<PAGE>
PART 1. FINANCIAL INFORMATION (Continued)
INLAND RESOURCES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------
FORWARD LOOKING STATEMENTS
Certain statements included in this Management's Discussion and Analysis
or Plan of Operation are forward looking statements that predict the future
development of the Company. The realization of these predictions will be
subject to a number of variable contingencies, and there is no assurance that
they will occur in the time frame proposed. The risks associated with the
potential actualization of the Company's plans include: contractor delays,
the availability and cost of financing, the availability of materials, and
regulatory approvals, to name a few.
13
<PAGE>
PART II. OTHER INFORMATION (Continued)
INLAND RESOURCES INC.
-----
Items 1, 3 and 5 are omitted from this report as inapplicable.
ITEM 2. CHANGES IN SECURITIES.
The Company accrued for issuance 47,847 shares of common stock dividends
related to its Series B Stock during each of the first two quarters of the
year. The Company relied on the exemption provided by Section 4 (2) of the
Securities Act of 1933, as amended.
As previously discussed in Items 1 and 2, the Company issued 100,000 shares
of Series C Stock for gross proceeds of $10 million ($9.6 million net of
closing fees) on July 21, 1997, and in connection therewith called its Series
B Stock for redemption, but the holders of Series B Stock waived redemption
and instead elected to convert their Series B Stock into 1,977,671 shares of
Common Stock. The Company relied on the exemption provided by Section 4 (2)
of the Securities Act of 1933, as amended, for the issuance of the Series C
Stock and the issuance of the Common Stock upon conversion of the Series B
Stock.
The general provisions of the Series C Stock, and the effects on the holders
of Common Stock, are discussed in items 1 and 2 and reference is hereby made
to such discussion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On April 30, 1997, the Company held its Annual Meeting of Stockholders.
During this meeting, the stockholders voted on the following items:
(1) The holders of Common Stock and Series B Preferred Stock voted on
the election of five members to the Board of Directors to serve until the
1998 annual meeting of stockholders or until their respective successors are
duly elected and qualified;
Item (1) was approved by an affirmative vote of approximately 71% of the
total outstanding shares of Common Stock and Series B Preferred Stock.
(2) To consider and act upon a proposal (the "Proposal") to approve the
1997 Stock Option Plan under which the Company would reserve 500,000 shares
of Common Stock for issuance to key employees, directors, and consultants of
the Company.
Item (2) was approved with 4,620,534 shares voting For the item, 30,704
shares voting Against, and 9,403 shares Abstaining.
14
<PAGE>
PART II. OTHER INFORMATION
INLAND RESOURCES INC.
-----
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Quarterly Report on
Form 10-QSB.
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 Amended and Restated Articles of Incorporation, as amended through
July 21, 1997. *
3.2 Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement of 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 of 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 of Form S-4,
Registration No. 33-80392, and incorporated herein by reference).
4.1 Credit Agreement between the Company and Canadian Imperial Bank of
Commerce dated June 30, 1997 (exclusive of all exhibits and schedules).*
10.1 Securities Purchase Agreement dated July 21, 1997 between the Company
and Joint Energy Investments Development Limited Partnership. *
10.2 Registration Rights Agreement dated July 21, 1997 between the Company
and Joint Energy Investments Development Limited Partnership.*
27.1 Financial Data Schedule required by Item 601 of Regulation S-B.*
- ----------------------
* Filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
15
<PAGE>
INLAND RESOURCES INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INLAND RESOURCES INC.
(Registrant)
Date: August 14 , 1997 By: /s/ Kyle R. Miller
------------------------------------
Kyle R. Miller
Chief Executive Officer
Date: August 14, 1997 By: /s/ Michael J. Stevens
------------------------------------
Michael J. Stevens
Vice President - Accounting and
Administration
(Principal Accounting Officer)
16
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INLAND RESOURCES INC.
I, the undersigned person of the age of twenty-one (21) years or more,
acting as incorporator of a Corporation under the Washington Business
Corporation Act, adopt the following Articles of Incorporation for such
Corporation:
ARTICLE I - NAME
The name of this Corporation shall be Inland Resources Inc.
ARTICLE II - DURATION
The duration of this Corporation is perpetual.
ARTICLE III - PURPOSES
The purposes for which this Corporation is organized are as follows:
1. To carry on the business of mining, milling, concentrating,
converting, smelting, treating, preparing for market, manufacturing, buying,
selling, exchanging, and otherwise producing and dealing in gold, silver,
copper, lead, zinc, brass, iron, steel and all kinds of ores, metals and
minerals, and the products and by-products thereof every kind and description
and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, exchange, lease,
acquire and deal in lands, mines, and mineral rights and claims, and to
conduct all business appertaining thereto; to purchase, lease or otherwise
acquire, mining rights, timber rights, oil and gas rights, mines, buildings,
dwellings, plants, machinery, tools and other properties whatsoever which
this Corporation may from time to time find to be for its advantage and
purposes; to mine and market any mineral or other product that may be found
in or on such lands, and to explore, work exercise, develop or turn to
account the same; and to conduct all other business appertaining to any of
the aforesaid.
2. To carry on and to engage in any lawful business and related
activity through the powers now or hereafter conferred by the laws of the
State of Washington upon corporations organized pursuant to the laws under
which the Corporation is organized and any and all acts amendatory thereof
and supplemental thereto.
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<PAGE>
ARTICLE IV - CAPITAL STOCK
1. The aggregate number of shares which this Corporation shall have
authority to issue is 25,000,000 shares of common stock having a par value of
$0.001 per share, and 20,000,000 shares of Class A preferred stock having a
par value of $0.001 per share. Fully paid stock of this Corporation shall
not be liable to any further call or assessment.
2. 107,546 shares of Class A preferred stock, par value $0.001 per
share, shall be designated Series A Convertible Preferred Stock ("Series A
Preferred Stock"). The Series A Preferred Stock shall have the following
voting powers, preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions:
(i) DIVIDENDS. Commencing August 29, 1997, the Series A Preferred
Stock shall bear dividends at the rate of 8% per annum on the Redemption
Price thereof, payable semi-annually to the record holders of Series A
Preferred Stock on the Corporation's books on August 29th and February 28th
(the "Record Dates") of each year, with the first Record Date on February 28,
1998, subject to the Board's election hereinafter set forth in this paragraph
(i). At the election of the Corporation's Board of Directors (the "Board"),
(a) such dividends may be paid in cash or (b) such dividends may be
accumulated and shall be payable in cash when and as declared by the Board,
provided, such accumulated dividends shall compound semi-annually at an
annual rate of eight percent (8%) until paid in cash. When paid, such
dividends shall be payable out of funds legally available therefor within
twenty (20) days after the Board's election or declaration. No dividends
shall be paid or declared, and no distribution (of securities of the
Corporation or any other property) shall be made, on any Junior Securities
(as defined below) while any dividends on the Series A Preferred Stock shall
remain accumulated and unpaid (including any compounded portion thereof).
"Junior Securities" means any of the Corporation's equity securities other
than the Series A Preferred Stock.
(ii) LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holder of each
share of Series A Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus or earnings, before
any payment or declaration and setting apart for payment of any amount shall
be made in respect of any Junior Securities, an amount in cash equal to fifty
dollars ($50.00) for each share of such Series A Preferred Stock, together
with any accumulated and compounded dividends thereon (the "Liquidation
Value").
(b) After the payment or distribution to the holders of Series
A Preferred Stock of the full preferential amounts aforesaid, the holders of
Common Stock then outstanding shall together be entitled to receive ratably
all the remaining assets of the Corporation.
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<PAGE>
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation as those terms are
used in this paragraph (ii).
(d) If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Preferred Stock pursuant to subparagraph (a)
shall be insufficient to permit the payment to such stockholders of the full
preferential amounts required by such subparagraph, then all of the assets of
the Corporation to be distributed shall be distributed ratably to the holders
of outstanding Series A Preferred Stock based on the number of shares held by
each holder, and the holders of Junior Securities shall receive no
distribution upon such liquidation, dissolution or winding up of the
Corporation.
(iii) REDEMPTION OF SERIES A PREFERRED STOCK. The Series A
Preferred Stock may be redeemed at the "Redemption Price" (as defined below)
at any time by the Corporation prior to liquidation, dissolution or winding
up of the Corporation upon fifteen (15) days advance written notice by the
Corporation to the record holders of such Series A Preferred Stock on the
books of the Corporation. The holders of Series A Preferred Stock shall be
deemed to have received written notice of such redemption five (5) days after
Company's mailing of the notice of redemption by certified or registered
mail, return receipt requested, postage prepaid, and addressed to each holder
of record at such holder's address appearing on the books of the Corporation.
The "Redemption Price" shall be equal to (i) fifty dollars ($50.00) per
share of Series A Preferred Stock if redeemed prior to August 29, 1995, (ii)
fifty four dollars ($54.00) per share if redeemed on or after August 29, 1995
but prior to August 29, 1996, and (iii) fifty eight and 32/100 dollars
($58.32) per share if redeemed on or after August 29, 1996, provided,
however, that if redeemed after August 29, 1997, the Redemption Price shall
also include any accumulated dividends (including any compounded portion
thereof). Any record holder of Series A Preferred Stock may convert all or a
portion of its, his or her Series A Preferred Stock in accordance with the
provisions of paragraph (iv) prior to such date of redemption by delivering
written notice to the Corporation of such holder's election to convert all or
a portion of such shares of Series A Preferred Stock held of record by such
holder. The Redemption Price payable to the holders of Series A Preferred
Stock who have not elected to convert their shares shall be payable by the
Corporation within ten (10) days after expiration of the aforementioned
fifteen (15) day notice period.
(iv) CONVERSION. The holders of Series A Preferred Stock shall
have the following conversion rights (the "Conversion Rights"):
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<PAGE>
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series A Preferred Stock or Common Stock, into the
number of shares of Common Stock which result from dividing the Redemption
Price then in effect by the "Conversion Price" per share (as defined herein)
in effect at the time of such conversion. The initial "Conversion Price" per
share shall be $0.60, and such initial Conversion Price shall be subject to
adjustment from time to time as provided herein.
(b) MECHANICS OF CONVERSION. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Series A Preferred Stock or Common Stock, and shall give written notice
to the Corporation at such office that such holder elects to convert the same
and shall state therein the number of shares of Series A Preferred Stock
being converted. Thereupon the Corporation shall promptly issue and deliver
at such office to such holder of Series A Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Series A Preferred Stock to be converted, and the person or
persons whom the Corporation's records indicate are entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date. The certificate or certificates representing the shares of Common
Stock issued upon such conversion shall contain the same restrictive legends,
if any, included on the certificate or certificates of Series A Preferred
Stock surrendered, unless the shares of Common Stock issuable upon such
conversion have been registered under the Securities Act of 1933, as amended,
and applicable state securities laws, in which case they will not be
legended.
(c) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after August 29, 1994 (the
"Commitment Date") effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before the subdivision shall be
proportionately decreased, and conversely, if the Corporation shall at any
time or from time to time after the Commitment Date combine the outstanding
shares of Common Stock, the Conversion Price then in effect immediately
before the combination shall be proportionately increased. Any adjustment
under this subparagraph (c) shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(d) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event the Corporation at any time, or from time to time, after the
Commitment Date shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in shares of Common Stock, then and in each such
event the Conversion Price then in effect shall be decreased as of the time
of such issuance or in the event such a record date shall have been fixed, as
of the close of business on such record date, by multiplying the Conversion
Price then in effect by a fraction:
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<PAGE>
(i) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date; and
(ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number
of shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefore the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion
Price shall be adjusted pursuant to this subparagraph (d) as of the time of
actual payment of such dividends or distributions.
(e) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Commitment
Date shall make or issue or fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in securities of the Corporation other than shares of Common Stock,
then and in each such event provision shall be made so that the holders of
Series A Preferred Stock shall receive upon conversion thereof in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have received had their Series
A Preferred Stock been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph (iv) with respect to the rights
of the holders of the Series A Preferred Stock.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation or
sale of assets provided for elsewhere in this paragraph (iv)), then and in
each such event the holders of each share of Series A Preferred Stock shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such share of Series A Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification or other change, all subject to further adjustment as
provided herein.
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<PAGE>
(g) REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time or from time to time there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this paragraph (iv)) or a merger
or consolidation of the Corporation with or into another corporation, or the
sale of all or substantially all of the Corporation's properties and assets
to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of Series
A Preferred Stock shall thereafter be entitled to receive, upon conversion of
Series A Preferred Stock, the number of shares of stock or other securities
or property to which a holder of the Common Stock deliverable upon such
conversion would have been entitled in connection with such reorganization,
merger, consolidation or sale. In any such case, appropriate adjustment
shall be made in the application of the provisions of this paragraph (iv)
with respect to the rights of the holders of Series A Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the
provisions of this paragraph (iv) (including provisions for the adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that
event and be as nearly equivalent to the provisions hereof as is practicable.
(h) ADJUSTMENT FOR ISSUANCE OF COMMON STOCK AT LESS THAN CONVERSION
PRICE. If the Corporation at any time after the Commitment Date (i) issues
any shares of Common Stock (other than pursuant to the Subscription Agreement
of Smith Management Company, or its designee, dated May 12, 1994, the
Employment Agreement and Warrant Agreement, both dated February 23, 1993, by
and between the Corporation and Kyle R. Miller, warrants to purchase
2,008,894 shares of Common Stock granted to Petroglyph Gas Partners, L.P.
pursuant to an agreement dated January 31, 1994 and options to purchase
300,000 shares of Common Stock granted to Dwight Moorhead pursuant to an
agreement dated December 15, 1993, for a per share consideration or price
less than the Conversion Price then in effect hereunder, or (ii) issues any
rights, warrants or options to acquire, or securities convertible into,
shares of Common Stock (other than options to purchase no more than 2,128,358
shares of Common Stock pursuant to the Corporation's 1988 Option Plan and
similar benefit plans subsequently adopted by the Corporation for the benefit
of its employees, or warrants granted to Kyle R. Miller pursuant to the
Employment Agreement and Warrant Agreement, both dated February 23, 1993, by
and between the Corporation and Kyle R. Miller, warrants to purchase
2,008,894 shares of Common Stock granted to Petroglyph Gas Partners, L.P.
pursuant to an agreement dated January 31, 1994 and options to purchase
300,000 shares of Common Stock granted to Dwight Moorhead pursuant to an
agreement dated December 15, 1993, that permit exercise or conversion for a
per share consideration less than the Conversion Price then in effect
hereunder, then effective automatically on the date of such issuance the
Conversion Price hereunder shall automatically be adjusted as follows: the
number of shares of the Corporation's Common Stock outstanding (or deemed to
be outstanding as hereinafter provided) immediately prior to such issue shall
be multiplied by the Conversion Price in effect at the time of such issue and
there shall be added to the product so obtained the aggregate consideration,
if any, (a) received by the Corporation upon such issue of additional shares
of Common Stock pursuant to (i) and (b) received by the Corporation, or which
will be received by the Corporation, pursuant to (ii) upon the issue and upon
the subsequent exercise or conversion of any such additional rights,
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warrants, options or convertible securities. The sum so obtained shall be
divided by the number of shares of the Corporation's Common Stock outstanding
(or deemed to be outstanding as hereinafter provided) immediately after such
issue (including, for this purpose, the shares to be subsequently issued
under any rights, warrants, options or convertible securities which triggered
the requirement to apply this adjustment to the Conversion Price), and the
resulting quotient shall be the adjusted Conversion Price. For purposes of
determining outstanding shares of Common Stock for applying the foregoing
formula, all options, rights, warrants and securities convertible into Common
Stock outstanding as of the date hereof shall be deemed to be outstanding
shares of Common Stock, and any options, rights, warrants or convertible
securities issued after the date hereof pursuant to (ii), above, which have
resulted in a previous adjustment of the Conversion Price shall be considered
outstanding shares of Common Stock for all subsequent applications of the
formula to arrive at subsequent adjustments of the Conversion Price.
(i) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of Series A
Preferred Stock, the Corporation, at its expense, shall cause independent
public accountants of recognized standing selected by the Corporation (who
may be the independent public accountants then auditing the books of the
Corporation) (or the chief financial officer of the Corporation at the
Board's option) to compute such adjustment or readjustment in accordance with
the Corporation's Articles of Incorporation and prepare a certificate showing
such adjustment or readjustments and shall mail such certificate, by first
class mail, postage prepaid, to each registered holder of Series A Preferred
Stock at the holder's address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based.
(j) NOTICES OF RECORD DATE. In the event (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any transfer of all or substantially all of the assets of
the Corporation to, or any merger or consolidation with, any other
corporation, or any other entity or person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation
shall mail to each holder of Series A Preferred Stock at least thirty (30)
days prior to the record date specified therein, a notice specifying (A) the
date on which any such record is to be taken for the purpose of such dividend
or distribution and a description of such dividend or distribution, (B) the
date on which any such reorganization, reclassification or recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and a description of such transaction, and (C)
the time, if any, that is to be fixed as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification or recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up.
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(k) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied
by the fair market value of one share of the Corporation's Common Stock on
the date of conversion, as determined by the closing "bid" price on the day
prior to the date of conversion.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. As of the
Commitment Date, the Corporation does not have sufficient authorized shares
of Common Stock to issue shares of Common Stock upon conversion of the Series
A Preferred Stock. The Corporation shall use its best efforts to cause its
Articles of Incorporation to be amended to increase the number of authorized
shares of Common Stock in an amount which will allow for such reservation and
for the Corporation to engage in subsequent capital transactions with its
Common Stock. If the Articles of Incorporation are amended to provide for a
sufficient number of authorized shares of Common Stock for conversion of the
Series A Preferred Stock, the Corporation shall at all times thereafter
reserve and keep available out of such authorized but unissued shares of
Common Stock solely for the purpose of effecting the conversion of shares of
Series A Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A Preferred Stock; and if at any time thereafter the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series A Preferred
Stock, the Corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
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(m) NOTICES. Any notice required by the provisions of this
paragraph (iv) to be given to the holders of shares of Series A Preferred
Stock shall be deemed given five (5) business days after the same has been
deposited in the United States mail, certified or registered mail, return
receipt requested, postage prepaid, and addressed to each holder of record at
such holder's address appearing on the books of the Corporation.
(n) PAYMENT OF TAXES. The Corporation will pay all taxes and
other governmental charges, other than income, estate or gift taxes, that may
be imposed in respect of the issue or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred Stock.
(v) VOTING RIGHTS.
(a) For as a long as at least 25% of the shares of Series A
Preferred Stock remain outstanding, holders of Series A Preferred Stock,
acting as a separate voting group, shall have the limited voting rights
provided in this paragraph (v)(a). For as long as at least 75% of the shares
of Series A Preferred Stock remain outstanding, the Series A Preferred Stock
shall have the right, by majority vote, to elect three of the directors of
the Corporation at any stockholders' meeting at which directors of the
Corporation are to be elected, unless the Corporation has not paid dividends
after August 29, 1997 (whether required to be paid or accumulated) on the
Series A Preferred Stock in cash for more than one year, in which case they
will elect four directors until the Corporation has paid in cash all
dividends required to be paid or accumulated on each share of Series A
Preferred Stock in excess of $4.67 per share. For as long as less than 75%
but more than 50% of shares of Series A Preferred Stock remain outstanding,
the Series A Preferred Stock shall have the right, by majority vote, to elect
two of the directors of the Corporation at any stockholders' meeting at which
directors of the Corporation are to be elected, unless the Corporation has
not paid dividends after August 29, 1997 (whether required to be paid or
accumulated) on the Series A Preferred Stock in cash for more than one year,
in which case they will elect four directors until the Corporation has paid
in cash all dividends required to be paid or accumulated on each share of
Series A Preferred Stock in excess of $4.67 per share. For as long as less
than 50% but more than 25% of the shares of Series A Preferred Stock remain
outstanding, the Series A Preferred Stock shall have the right, by majority
vote, to elect one director of the Corporation at any stockholders' meeting
at which directors of the Corporation are to be elected, unless the
Corporation has not paid dividends after August 29, 1997 (whether required to
be paid or accumulated) on the Series A Preferred Stock in cash for more than
one year, in which case they will elect two directors until the Corporation
has paid in cash all dividends required to be paid or accumulated on each
share of Series A Preferred Stock in excess of $4.67 per share. For as long
as at least 25% of the shares of Series A Preferred Stock remain outstanding,
the number of directors of the Corporation shall continue to be seven unless
an increase is approved by at least five of the members of the Board
including two of the members elected by the holders of Series A Preferred
Stock (unless there is only one member elected by the holders of Series A
Preferred Stock, in which case such an increase shall be approved by that
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one director). Except as expressly set forth herein or expressly mandated
and required by Washington law, any vote by the holders of Series A Preferred
Stock as a separate voting group shall be effective if approved by a majority
of the outstanding shares of Series A Preferred Stock. Each holder of shares
of Series A Preferred Stock shall be entitled to one vote for each share
thereof held.
(b) If at any time the number of outstanding shares of Series A
Preferred Stock falls below 25% of the original shares issued, holders of
Series A Preferred Stock shall, from and after such time, be entitled to one
vote for each share of Series A Preferred Stock held and shall vote as a
single class or voting group with holders of Common Stock held on all matters
presented to the stockholders; and Series A Preferred Stock shall not vote as
a separate voting group or class on any matter whatsoever except as set forth
in paragraph (v)(c), below, and as expressly mandated and required by
Washington law.
(c) In addition to the foregoing voting rights, the Series A
Preferred Stock shall have the right at any time and from time to time, by a
two-thirds (2/3) vote of holders of Series A Preferred Stock voting as a
separate class, (1) to approve any merger, consolidation or liquidation
involving the Corporation in which the Corporation does not survive, (2) to
approve a sale of all or substantially all of the assets of the Corporation,
and (3) to approve the issuance of any class or series of stock with rights
pari passu or senior to the rights of the Series A Preferred Stock.
(d) Except as expressly provided in paragraphs (v)(a), (v)(b)
or (v)(c) or as expressly mandated and required by Washington law, the
holders of shares of Series A Preferred Stock shall not have voting rights.
Cumulative voting by holders of Series A Preferred Stock is expressly denied.
(e) The directors elected by the Series A Preferred Stock can
only be removed by the Series A Preferred Stock. Any vacancy in the office
of a director elected by the holders of the Series A Preferred Stock may be
filled by a vote of such holders voting as a separate class, or, in the
absence of a stockholder vote, such vacancy may be filled by the remaining
director or directors elected by the holders of Series A Preferred Stock.
(vi) PREEMPTIVE RIGHTS. Except as provided in paragraph (iv), no
holder of any shares of Series A Preferred Stock shall be entitled as a
matter of right to subscribe or receive additional shares of any class of
stock of the Corporation, whether now or hereafter authorized, or any bonds,
debentures or other securities convertible into such stock, but such
additional shares of stock or other securities convertible into stock may be
issued or disposed of by the Board to such persons and on such terms as in
the Board's discretion the Board shall deem advisable.
(vii) NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares
of Series
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A Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares
shall be canceled, retired and eliminated from the shares of Series A
Preferred Stock which the Corporation shall be authorized to issue.
(viii) INFORMATION REQUIREMENTS. If the Corporation is not subject to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Corporation shall mail to the
holders of Series A Preferred Stock, (i) within 15 days after it would have
been required to file such information with the Commission, financial
statements, including any notes thereto (and, with respect to annual reports,
an auditors' report by an independent certified public accounting firm of
established national reputation), and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," each comparable to that
which the Corporation would have been required to include in any annual or
quarterly reports, information, documents or other reports if the Corporation
was subject to the requirements of such Section 13 or 15(d) of the Exchange
Act, and to the extent not otherwise included in the annual and quarterly
reports to be delivered to the holders of Series A Preferred Stock pursuant
to this sentence, the Corporation's consolidated balance sheet as of the last
day of each annual and quarterly fiscal period of the Corporation, and the
Corporation's consolidated balance sheet as of the last day of each annual
and quarterly fiscal period of the Corporation, and the Corporation's
consolidated income statement and statement of cash flows, in each case for
each annual and quarterly fiscal period of the Corporation and (ii) promptly
from the time after the occurrence of an event required to be therein
reported, such other reports containing information required to be contained
in Form 8-K promulgated under the Exchange Act, or substantially the same
information required to be contained in any successor form.
(ix) COMMON STOCK. The term "Common Stock", as used herein, means
the Corporation's $.001 par value Common Stock and any capital stock of any
class of the Corporation authorized after the date the Series A Preferred
Stock is established which is not limited to a fixed sum or percentage of par
or stated value in respect of the rights of holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution
or winding up of the Corporation.
(ix) AMENDMENTS. There shall be no amendment, modification or waiver
of the terms hereof without the prior written consent of holders of at least
a majority of the Series A Preferred Stock outstanding at such time,
provided, however, that no amendment, modification or waiver of paragraph
(v)(c) hereof shall be made without the consent of the holders of at least
two-thirds of the Series A Preferred Stock outstanding at such time.
3. 1,000,000 shares of Class A preferred stock, par value $0.001 per
share, shall be designated Series B Convertible Preferred Stock ("Series B
Preferred Stock"). The Series B Preferred Stock shall have the following
voting powers, preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions:
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(i) DIVIDENDS. The Series B Preferred Stock shall bear dividends at
the rate of 12% per annum on the Redemption Price thereof, accumulating
daily, whether or not declared, and payable quarterly in cash or common
stock, at the option of the holder, to the record holders of Series B
Preferred Stock on the Corporation's books on the last day of each calendar
quarter in each calendar year (the "Record Dates"), with the first Record
Date on September 30, 1996, subject to the Board's election hereinafter set
forth in this paragraph (i). At the election of the Corporation's Board of
Directors (the "Board"), (a) such dividends may be paid in cash or (b) such
dividends may be accumulated and shall be payable in cash when and as
declared by the Board, provided, the holders of Series B Preferred Stock may,
by written notice to the Corporation delivered within ten (10) days following
each Record Date, elect to take dividends in the form of Common Stock at the
Conversion Price (defined in paragraph (iv), below). Notwithstanding the
foregoing, in the event that the holder of Series B Preferred Stock does not
elect during such ten day period to receive dividends in the form of Common
Stock, the holder will continue to have the right to take such accumulated
dividends in the form of Common Stock until such time, if any, as the Board
of Directors declares that such accumulated dividends shall be paid in cash
and establishes a dividend payment date therefor. When paid in cash, such
dividends shall be payable out of funds legally available therefor within
twenty (20) days after the Board's election or declaration. No dividends
shall be paid or declared, and no distribution (of securities of the
Corporation or any other property) shall be made, on any Junior Securities
(as defined below) while any dividends on the Series B Preferred Stock shall
remain accumulated and unpaid. "Junior Securities" means any of the
Corporation's equity securities other than the Series B Preferred Stock and
the Corporation's Series A Preferred Stock, which is being called for
redemption (or conversion, at the election of the holders thereof)
concurrently with the filing of these Articles of Amendment designating the
Series B Preferred Stock, it being understood, therefore, that no shares of
Series A Preferred Stock will be issued and outstanding as of the first
Record Date for Series B Preferred Stock, but until said Series A Preferred
Stock is actually redeemed or converted in accordance with such call for
redemption, the Series A Preferred Stock shall have preference over the
Series B Preferred Stock and the Series B Preferred Stock shall be deemed
subordinate to the Series A Preferred Stock.
(ii) LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holder of each
share of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus or earnings, before
any payment or declaration and setting apart for payment of any amount shall
be made in respect of any Junior Securities (but expressly subordinate to the
rights of the holders of Series A Preferred Stock until it is redeemed or
converted as noted in paragraph (i), above), an amount in cash equal to ten
dollars ($10.00) for each share of such Series B Preferred Stock,
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together with any accumulated dividends thereon, provided, if such
liquidation, dissolution or winding up of the Corporation occurs prior to
July 31, 1998, the holders of Series B Preferred Stock shall be entitled to
the full amount of dividends that would have been accumulated through such
date (the "Liquidation Value").
(b) After the payment or distribution to the holders of Series B
Preferred Stock of the full preferential amounts aforesaid, the holders of
Common Stock then outstanding shall together be entitled to receive ratably
all the remaining assets of the Corporation.
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation as those terms are
used in this paragraph (ii).
(d) If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series B Preferred Stock pursuant to subparagraph (a)
shall be insufficient to permit the payment to such stockholders of the full
preferential amounts required by such subparagraph, then all of the assets of
the Corporation to be distributed shall be distributed ratably to the holders
of outstanding Series B Preferred Stock based on the number of shares held by
each holder, and the holders of Junior Securities shall receive no
distribution upon such liquidation, dissolution or winding up of the
Corporation.
(iii) REDEMPTION OF SERIES B PREFERRED STOCK. Subject to the rights
of the holders of Series A Preferred Stock until redeemed or converted as
noted in paragraph (i), above, the Series B Preferred Stock may be redeemed
at any time by the Corporation prior to liquidation, dissolution or winding
up of the Corporation upon fifteen (15) days advance written notice by the
Corporation to the record holders of such Series B Preferred Stock on the
books of the Corporation, by paying to the holders of Series B Preferred
Stock an amount equal to $10.00 per outstanding share (the "Redemption
Price") plus accumulated and unpaid dividends thereon. The holders of Series
B Preferred Stock shall be deemed to have received written notice of such
redemption five (5) days after the Corporation's mailing of the notice of
redemption by certified or registered mail, return receipt requested, postage
prepaid, and addressed to each holder of record at such holder's address
appearing on the books of the Corporation. Upon redemption of the Series B
Preferred Stock, each holder shall be entitled to payment of the Redemption
Price and any accumulated dividends, provided, if such redemption occurs
prior to July 31, 1998, the holders of Series B Preferred Stock shall be
entitled to the full amount of dividends that would have been accumulated
through such date. Any record holder of Series B Preferred Stock may convert
all or a portion of its, his or her Series B Preferred Stock in accordance
with the provisions of paragraph (iv) prior to such date of redemption by
delivering written notice to the Corporation of such holder's election to
convert all or a portion of such shares of Series B Preferred Stock (and
dividends payable thereon) held
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of record by such holder. The Redemption Price (and dividends payable
thereon) payable to the holders of Series B Preferred Stock who have not
elected to convert their shares shall be payable by the Corporation within
ten (10) days after expiration of the aforementioned fifteen (15) day notice
period.
Any designee of Smith Management Company, Inc. ("Smith Management") on
the Corporation's Board, or any replacements thereof or any other subsequent
nominees by Smith Management, shall not be entitled to vote on the redemption
of the Series B Preferred Stock.
The Corporation must exercise its redemption rights granted pursuant to
this paragraph (iii) if a "Corporate Transaction" (as hereinafter defined)
occurs. "Corporate Transaction" means the occurrence of any of the following:
(i) the sale by the Corporation of all or substantially all of its assets
other than in the ordinary course of business, (ii) a merger of the
Corporation with or into another person or a consolidation of the Corporation
with another person, or (iii) any person or "group" (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (other
than Pengo Securities Corp. and its affiliates), acquires voting securities
of the Corporation representing a majority of the total votes that may be
cast in the election of the Corporation's directors.
The Corporation shall be prohibited from redeeming any Junior Securities
unless the Corporation shall also redeem all of the Series B Preferred Stock
in conjunction therewith, or holders of at least a majority of the Series B
Preferred Stock outstanding at such time have voted to allow redemption of
such Junior Securities without redemption of the Series B Preferred Stock.
Notwithstanding the foregoing, the Corporation shall be entitled to redeem
the Series A Preferred Stock without further notice to, or action by, the
holders of Series B Preferred Stock.
(iv) CONVERSION. The holders of Series B Preferred Stock shall have
the following conversion rights (the "Conversion Rights"):
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(a) RIGHT TO CONVERT. Each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series B Preferred Stock or Common Stock, into the
number of shares of Common Stock which result from dividing the Redemption
Price (plus any accumulated dividends) by the "Conversion Price" per share
(as defined herein) in effect at the time of such conversion; provided, if
the conversion is elected by the holder after the Corporation has issued a
notice of redemption, or in connection with a liquidation, dissolution, or
winding up of the Corporation, prior to July 31, 1998, the accumulated
dividends into which the Conversion Price shall be divided shall include the
full amount of dividends that would have been accumulated through July 31,
1998. The initial "Conversion Price" per share shall be $6.27, and such
initial Conversion Price shall be subject to adjustment from time to time as
provided herein.
(b) MECHANICS OF CONVERSION. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Series B Preferred Stock or Common Stock, and shall give written notice
to the Corporation at such office that such holder elects to convert the same
and shall state therein the number of shares of Series B Preferred Stock
being converted. Thereupon the Corporation shall promptly issue and deliver
at such office to such holder of Series B Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Series B Preferred Stock to be converted, and the person or
persons whom the Corporation's records indicate are entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date. The certificate or certificates representing the shares of Common
Stock issued upon such conversion shall contain the same restrictive legends,
if any, included on the certificate or certificates of Series B Preferred
Stock surrendered, unless the shares of Common Stock issuable upon such
conversion have been registered under the Securities Act of 1933, as amended,
and applicable state securities laws, in which case they will not be
legended.
(c) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the issuance of the
Series B Preferred Stock (the "Commitment Date") effect a subdivision of the
outstanding Common Stock, the Conversion Price then in effect immediately
before the subdivision shall be proportionately decreased, and conversely, if
the Corporation shall at any time or from time to time after the Commitment
Date combine the outstanding shares of Common Stock, the Conversion Price
then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this subparagraph (c) shall become effective
at the close of business on the date the subdivision or combination becomes
effective.
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(d) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time, after the Commitment Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
shares of Common Stock, then and in each such event the Conversion Price then
in effect shall be decreased as of the time of such issuance or in the event
such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefore the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion
Price shall be adjusted pursuant to this subparagraph (d) as of the time of
actual payment of such dividends or distributions.
(e) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Commitment Date
shall make or issue or fix a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Series B
Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation which they would have received had their Series
B Preferred Stock been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph (iv) with respect to the rights
of the holders of the Series B Preferred Stock.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series B Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation or
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sale of assets provided for elsewhere in this paragraph (iv)), then and in
each such event the holders of each share of Series B Preferred Stock shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such share of Series B Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification or other change, all subject to further adjustment as
provided herein.
(g) REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS.
Subject to the Corporation's obligation to redeem the Series B Preferred
Stock in connection with the occurrence of a Corporate Transaction as
provided in paragraph (iii), if at any time or from time to time there shall
be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this paragraph (iv)) or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of
such reorganization, merger, consolidation or sale, provision shall be made
so that the holders of Series B Preferred Stock shall thereafter be entitled
to receive, upon conversion of Series B Preferred Stock, the number of shares
of stock or other securities or property to which a holder of the Common
Stock deliverable upon such conversion would have been entitled in connection
with such reorganization, merger, consolidation or sale (provided, however,
if any such reorganization, merger, consolidation or sale of assets occurs
prior to July 31, 1998, the holders of Series B Preferred Stock shall be
entitled to convert the full amount of dividends that would have been
accumulated through such date). In any such case, appropriate adjustment
shall be made in the application of the provisions of this paragraph (iv)
with respect to the rights of the holders of Series B Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the
provisions of this paragraph (iv) (including provisions for the adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock) shall be applicable after that
event and be as nearly equivalent to the provisions hereof as is practicable.
(h) ADJUSTMENT FOR ISSUANCE OF COMMON STOCK AT LESS THAN CONVERSION
PRICE. If the Corporation at any time after the Commitment Date (i) issues
any shares of Common Stock (other than pursuant to the Agreement dated
effective June 12, 1996 between Smith Management Company, Inc., Farmout Inc.,
Randall D. Smith, Jeffrey A. Smith, John W. Adams, Inland Production Company
and the Corporation, or other than pursuant to warrants, options or
convertible securities outstanding as of the Commitment Date, or other than
pursuant to the Corporation's Amended 1988 Option Plan), for a per share
consideration or price less than the Conversion Price then in effect
hereunder, or (ii) issues any rights, warrants or options to acquire, or
securities convertible into, shares of Common Stock (other than options to
purchase Common Stock pursuant to options which may be granted under the
Corporation's Amended 1988 Option Plan and similar benefit plans subsequently
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adopted by the Corporation for the benefit of its employees), that permit
exercise or conversion for a per share consideration less than the Conversion
Price then in effect hereunder, then effective automatically on the date of
such issuance the Conversion Price hereunder shall automatically be adjusted
as follows: the number of shares of the Corporation's Common Stock
outstanding (or deemed to be outstanding as hereinafter provided) immediately
prior to such issue shall be multiplied by the Conversion Price in effect at
the time of such issue and there shall be added to the product so obtained
the aggregate consideration, if any, (a) received by the Corporation upon
such issue of additional shares of Common Stock pursuant to (i) and (b)
received by the Corporation, or which will be received by the Corporation,
pursuant to (ii) upon the issue and upon the subsequent exercise or
conversion of any such additional rights, warrants, options or convertible
securities. The sum so obtained shall be divided by the number of shares of
the Corporation's Common Stock outstanding (or deemed to be outstanding as
hereinafter provided) immediately after such issue (including, for this
purpose, the shares to be subsequently issued under any rights, warrants,
options or convertible securities which triggered the requirement to apply
this adjustment to the Conversion Price), and the resulting quotient shall be
the adjusted Conversion Price. For purposes of determining outstanding
shares of Common Stock for applying the foregoing formula, all options,
rights, warrants and securities convertible into Common Stock outstanding as
of the date hereof shall be deemed to be outstanding shares of Common Stock,
and any options, rights, warrants or convertible securities issued after the
date hereof pursuant to (ii), above, which have resulted in a previous
adjustment of the Conversion Price shall be considered outstanding shares of
Common Stock for all subsequent applications of the formula to arrive at
subsequent adjustments of the Conversion Price.
(i) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of Series B
Preferred Stock, the Corporation, at its expense, shall cause independent
public accountants of recognized standing selected by the Corporation (who
may be the independent public accountants then auditing the books of the
Corporation) (or the chief financial officer of the Corporation at the
Board's option) to compute such adjustment or readjustment in accordance with
the Corporation's Articles of Incorporation and prepare a certificate showing
such adjustment or readjustments and shall mail such certificate, by first
class mail, postage prepaid, to each registered holder of Series B Preferred
Stock at the holder's address as shown in the Corporation's books. The
certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based.
(j) NOTICES OF RECORD DATE. In the event (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any transfer of all or substantially all of the assets of
the
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Corporation to, or any merger or consolidation with, any other corporation,
or any other entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to
each holder of Series B Preferred Stock at least thirty (30) days prior to
the record date specified therein, a notice specifying (A) the date on which
any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date
on which any such reorganization, reclassification or recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective and a description of such transaction, and (C)
the time, if any, that is to be fixed as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification or recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up.
(k) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied
by the fair market value of one share of the Corporation's Common Stock on
the date of conversion, as determined by the closing "bid" price on the day
prior to the date of conversion.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION OR FOR DIVIDENDS.
The Corporation shall at all times reserve and keep available out of the
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of shares of Series B Preferred Stock and to cover
dividends that may be issuable in Common Stock pursuant to paragraph (iii),
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series B
Preferred Stock and to cover dividends that may be issuable in Common Stock
pursuant to paragraph (iii); and if at any time thereafter the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series B Preferred
Stock or payment of such dividends, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(m) NOTICES DEEMED GIVEN. Any notice required by the provisions of
this paragraph (iv) to be given to the holders of shares of Series B
Preferred Stock shall be deemed given five (5) business days after the same
has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the Corporation.
(n) PAYMENT OF TAXES. The Corporation will pay all taxes and other
governmental charges, other than income, estate or gift taxes, that may be
imposed in respect of the issue or delivery of shares of Common Stock upon
conversion of shares of Series B
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Preferred Stock.
(v) VOTING RIGHTS. Each holder of any share of Series B Preferred
Stock shall be entitled to vote on all matters and shall be entitled to one
vote for each share of Series B Preferred Stock held. Each holder of shares
of any of the Common Stock shall be entitled to one vote on all matters and
shall be entitled to one vote for each share of Common Stock held. Except as
otherwise expressly provided herein or as mandated by law, the holders of
shares of Common Stock and Series B Preferred Stock shall vote together and
not as separate voting groups or classes. In the event voting as a separate
voting group by the holders of Series B Preferred Stock is expressly provided
herein or mandated and required by Washington law, any vote by the holders of
Series B Preferred Stock as a separate voting group shall be effective if
approved by a majority of the outstanding shares of Series B Preferred Stock.
Cumulative voting by holders of Series B Preferred Stock and holders of
Common Stock is expressly denied.
(vi) PREEMPTIVE RIGHTS. Except as provided in paragraph (iv), no
holder of any shares of Series B Preferred Stock shall be entitled as a
matter of right to subscribe or receive additional shares of any class of
stock of the Corporation, whether now or hereafter authorized, or any bonds,
debentures or other securities convertible into such stock, but such
additional shares of stock or other securities convertible into stock may be
issued or disposed of by the Board to such persons and on such terms as in
the Board's discretion the Board shall deem advisable.
(vii) NO REISSUANCE OF SERIES B PREFERRED STOCK. No share or
shares of Series B Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares of Series B
Preferred Stock which the Corporation shall be authorized to issue and all
such shares shall be returned to authorized but unissued shares of Class A
preferred stock, par value $0.001 per share, of the Corporation and may be
issued or further designated, as determined by the Board in accordance with
the Articles of Incorporation and applicable law.
(viii) COMMON STOCK. The term "Common Stock", as used herein,
means the Corporation's $.001 par value Common Stock and any capital stock of
any class of the Corporation authorized after the date the Series B Preferred
Stock is established which is not limited to a fixed sum or percentage of par
or stated value in respect of the rights of holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution
or winding up of the Corporation.
(ix) AMENDMENTS. There shall be no amendment, modification or
waiver of the terms hereof without the prior written consent of holders of at
least a majority of the Series B Preferred Stock outstanding at such time.
The
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designation by the Board of one or more additional series of Class A
preferred stock of the Corporation with dividend, liquidation, voting or
conversion rights pari passu with or having priority over or having greater
or more beneficial rights per share than the Series B Preferred Stock shall
be deemed to constitute an amendment to the Articles of Incorporation of the
Corporation for which the holders of shares of Series B Preferred Stock are
entitled to vote hereunder as a separate voting group. Except as otherwise
expressly provided in this paragraph (ix), any changes or amendments to the
Articles of Incorporation of the Corporation may be made in accordance with
applicable law.
4. 100,000 shares of Class A preferred stock, par value $0.001 per share,
shall be designated Series C Cumulative Convertible Preferred Stock ("Series
C Preferred Stock"). The Series C Preferred Stock shall have the following
voting powers, preferences and relative, participating, optional and other
special rights, qualifications, limitations and restrictions:
(i) DIVIDENDS. The Series C Preferred Stock shall bear dividends
at the rate of $10.00 per share per annum, which dividends shall be
cumulative and shall accrue on a daily basis from the date of issuance,
whether or not declared, and shall be payable only (a) in connection with the
liquidation, dissolution or winding up of the Corporation as provided in
paragraph (ii), (b) in connection with the redemption of the Series C
Preferred Stock as provided in paragraph (iii) and (c) at such time as the
Corporation and the holders of a majority of the outstanding shares of Series
C Preferred Stock shall agree. Dividends paid shall only be payable out of
funds legally available therefor, to the record holders of Series C Preferred
Stock as of the record date therefor or, if there is no such record date, as
of the date of payment thereof. Additional dividends shall be deemed to
accrue on the amount of dividends accrued but unpaid, whether or not
declared, compounding quarterly, at the rate of 10% per annum, which
additional dividends shall be payable only as provided in this paragraph (i).
"Unpaid dividends" shall include all accrued dividends, whether or not
declared and whether or not then payable.
No dividends shall be paid or declared, and no distribution (of
securities of the Corporation or any other property) shall be made, on any
Junior Securities (as defined below), and no monies shall be made available
for the purchase or redemption of any Junior Securities while any shares of
Series C Preferred Stock remain outstanding other than the distribution of
Common Stock on shares of Common Stock. "Junior Securities" means any of the
Corporation's capital stock other than the Series C Preferred Stock.
(ii) LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, the holder of each share of Series C
Preferred Stock then outstanding shall be entitled
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to be paid out of the assets of the Corporation available
for distribution to its stockholders, whether such assets
are capital, surplus or earnings, before any payment or
declaration and setting apart for payment of any amount
shall be made in respect of any Junior Securities, an
amount in cash equal to one hundred dollars ($100.00) for
each share of such Series C Preferred Stock, together with
any accrued and unpaid dividends thereon (the "Liquidation
Value").
(b) After the payment or distribution to the holders of
Series C Preferred Stock of the full preferential amounts
aforesaid, the holders of Junior Securities then
outstanding shall together be entitled to receive ratably
all the remaining assets of the Corporation.
(c) A consolidation or merger of the Corporation with or into
any other corporation or corporations shall not be deemed
to be a liquidation, dissolution or winding up of the
Corporation as those terms are used in this paragraph (ii).
(d) If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets
to be distributed among the holders of Series C Preferred
Stock pursuant to subparagraph (a) shall be insufficient
to permit the payment to such stockholders of the full
preferential amounts required by such subparagraph, then
all of the assets of the Corporation to be distributed
shall be distributed ratably to the holders of outstanding
Series C Preferred Stock based on the number of shares
held by each holder, and the holders of Junior Securities
shall receive no distribution upon such liquidation,
dissolution or winding up of the Corporation.
(iii) REDEMPTION OF SERIES C PREFERRED STOCK.
(a) The Series C Preferred Stock may be redeemed at any time
following July 21, 2000 by the Corporation, at its option,
prior to liquidation, dissolution or winding up of the
Corporation, upon fifteen (15) days advance written notice
by the Corporation to the record holders of such Series C
Preferred Stock on the books of the Corporation, by paying
to the record holders of such Series C Preferred Stock an
amount in cash equal to one hundred dollars ($100.00) for
each share of such Series C Preferred Stock (the
"Redemption Price"), together with any accrued and unpaid
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dividends thereon. The holders of Series C Preferred Stock shall
be deemed to have received written notice of such redemption five
(5) days after the Corporation's mailing of the notice of
redemption by certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of record
at such holder's address appearing on the books of the Corporation.
Upon redemption of the Series C Preferred Stock, each holder shall
be entitled to payment of the Redemption Price and any accrued and
unpaid dividends. Any record holder of Series C Preferred Stock
may convert all or a portion of its Series C Preferred Stock in
accordance with the provisions of paragraph (iv) prior to such date
of redemption by delivering written notice to the Corporation of
such holder's election to convert all or a portion of such shares
of Series C Preferred Stock (and dividends payable thereon) held of
record by such holder. The Redemption Price (and dividends payable
thereon) payable to the holders of Series C Preferred Stock who
have not elected to convert their shares shall be payable by the
Corporation within ten (10) days after expiration of the
aforementioned fifteen (15) days notice period.
(b) On the earlier of (i) the later of (a) July 21, 2005 and (b) six
months following the date of maturity of any high yield debt
offering or long-term debt financing which may be obtained by the
Corporation in an aggregate amount of at least $25,000,000 after
the Issuance Date and prior to July 21, 2005, and (ii) January 21,
2008 (such earlier date, the "Mandatory Redemption Date"), the
Corporation shall redeem all of the Series C Preferred Stock at the
Redemption Price, together with any accrued and unpaid dividends,
payable in (i) cash or (ii) if the Company so elects and so
indicates in the written notice provided for in the next succeeding
sentence and if the Common Stock is then traded on a securities
exchange or other national market system or NASDAQ small cap issuer
system, the number of shares of Common Stock, rounded up to the
nearest whole share, equal in value to such cash amount (the "Cash
Equivalent Amount"). The Corporation shall provide at least
fifteen (15) days advance written notice to the record holders of
Series C Preferred Stock on the books of the Corporation of such
redemption. The holders of Series C Preferred Stock shall be
deemed to have received written notice five (5) days after the
Corporation's mailing of such notice by certified or registered
mail, return receipt requested, postage prepaid and addressed to
each holder of record at such holder's address appearing on the
books of the Corporation. For purposes of
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determining the Cash Equivalent Amount, the shares of Common Stock
shall be valued at 80% multiplied by the 5-Day Average Price of
the Common Stock. The Cash Equivalent Amount shall be determined
as of the date immediately prior to the date of issuance of any
such Common Stock. The "5-Day Average Price" per share of Common
Stock shall mean the average closing price (or average of the
closing bid and ask if on the NASDAQ small cap issuer system) of
the Common Stock on the securities exchange or other national
market system or NASDAQ small cap issuer system, as applicable, on
which the Common Stock is then listed or traded over the 5-day
trading period ending immediately prior to such date.
At least thirty (30) days prior to a Mandatory Redemption Date
relating to the redemption of Series C Preferred Stock payable in
shares of Common Stock, the Corporation shall prepare and file with
the Securities and Exchange Commission ("Commission") a "shelf"
registration statement (a "Shelf Registration") on any appropriate
form pursuant to Rule 415 under the Securities Act (or similar rule
that may be adopted by the Commission), and shall use its best
efforts to cause such Shelf Registration to become and continuously
remain effective until the first to occur of two years after the
date of such Shelf Registration or the sale of all shares of Common
Stock covered thereby. The Corporation shall prepare and file with
the Commission amendments and supplements to the Shelf Registration
and the prospectus therewith as may be necessary to keep the Shelf
Registration continuously effective and to comply with the
provisions of the Securities Act of 1933, as amended, with respect
to the transfer of all securities covered by the Shelf Registration.
(c) In the event that the Corporation proposes to engage in any
transaction that results in the Corporation, directly or indirectly
through subsidiaries or controlled affiliates, being engaged in any
line of business other than the exploration, development and
production of oil and gas, the Corporation shall provide at least
forty-five (45) days written notice (prior to the proposed closing
date of such transaction) to the record holders of the Series C
Preferred Stock on the books of the Corporation of such proposed
transaction, setting forth the material terms of the proposed
transaction and the proposed closing date. Holders of the Series C
Preferred Stock may request such additional information as is
reasonably required to review such proposed transaction, and
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following such review may, at their option, require the
Corporation, upon fifteen (15) days written notice (prior to the
proposed closing date of such transaction) to the Corporation, to
redeem for cash all of the Series C Preferred Stock at the
Redemption Price, together with any accrued and unpaid dividends
thereon, subject to the consummation of the proposed transaction.
In the event that the holders of Series C Preferred Stock elect such
redemption, the Corporation shall redeem the Series C Preferred
Stock no later than three (3) days following the closing of such
transaction on the terms set forth in the written notice provided to
the holders of the Series C Preferred Stock. The Corporation may
not engage in any line of business other than the exploration,
development and production of oil and gas without complying with
the terms of this subparagraph (c). For purposes of this
subparagraph (c), by way of illustration and not of limitation,
engaging in the business of exploration, development and
production of oil and gas does not include the refinery business.
(d) In the event that the Corporation proposes to enter into any merger,
consolidation or share exchange pursuant to which (i) the holders
of Common Stock preceding such merger, consolidation or share
exchange will receive any consideration in the merger,
consolidation or share exchange other than shares of common stock
of the surviving corporation and (ii) the fair value of the
consideration to be received by a holder of one share of Common
Stock in such merger, consolidation or share exchange is less than
the then Conversion Price, holders of the Series C Preferred Stock
may, at their option, within 15 days of receipt of the notice
provided to such holders under paragraph (iv)(j), require the
Corporation to redeem for cash all of the Series C Preferred Stock,
together with any accrued and unpaid dividends thereon, subject to
and upon the consummation of the proposed transaction.
(iv) CONVERSION. The holders of Series C Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, at any
time after the date of issuance of such share, at the office of the
Corporation or any transfer agent for the Series C Preferred Stock
or Common Stock, into the number of shares of Common Stock
which result from dividing the Redemption Price, together with
any accrued and unpaid dividends to the date of conversion, by the
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"Conversion Price" per share (as defined herein) in effect at the
time of such conversion. The initial Conversion Price per share
shall be $12.00, and such initial Conversion Price shall be subject
to adjustment from time to time as provided herein.
(b) MECHANICS OF CONVERSION. Before any holder of Series C
Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificates
therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series C Preferred Stock or Common Stock,
and shall give written notice to the Corporation at such office that
such holder elects to convert the same and shall state therein the
number of shares of Series C Preferred Stock being converted.
Thereupon the Corporation shall promptly issue and deliver at such
office to such holder of Series C Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series C
Preferred Stock to be converted, and the person or persons whom
the Corporation's records indicate are entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of
Common Stock on such date. The certificate or certificates
representing the shares of Common Stock issued upon such
conversion shall contain the same restrictive legends, if any,
included on the certificate or certificates of Series C Preferred
Stock surrendered, unless the shares of Common Stock issuable
upon such conversion have been registered under the Securities
Act of 1933, as amended, and applicable state securities laws, in
which case they will not be legended.
(c) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the issuance of the
Series C Preferred Stock (the "Issuance Date") effect a subdivision
of the outstanding Common Stock, the Conversion Price then in
effect immediately before the subdivision shall be proportionately
decreased, and conversely, if the Corporation shall at any time or
from time to time after the Commitment Date combine the outstanding
shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately
increased. Any adjustment under this subparagraph (c) shall become
effective at the close of
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business on the date the subdivision or combination becomes
effective.
(d) ADJUSTMENT FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS. In the event the Corporation at any time,
or from time to time, after the Issuance Date shall make
or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or
other distribution payable in shares of Common Stock,
then and in each such event the Conversion Price then in
effect shall be decreased as of the time of such issuance
or in the event such a record date shall have been fixed,
as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a
fraction:
(i) the numerator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the
close of business on such record date; and
(ii) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the
close of business on such record date plus the number
of shares of Common Stock issuable in payment of such
dividend or distribution;
provided, however, that if such record date shall have been
ixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor
the Conversion Price shall be recomputed accordingly as of
the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this
subparagraph (d) as of the time of actual payment of such
dividends or distributions.
(e) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the
Issuance Date shall make or issue or fix a record date for the
determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in
such event provision shall be made so that the holders
of Series C Preferred Stock shall receive upon conversion thereof
in addition to the number of shares of Common Stock receivable
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thereupon, the amount of securities of the Corporation which they
would have received had their Series C Preferred Stock been
converted into Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable
by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph (iv)
with respect to the rights of the holders of the Series C Preferred
Stock.
(f) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series C
Preferred Stock shall be changed into the same or different number
of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation or sale of
assets or compulsory share exchange provided for elsewhere in this
paragraph (iv)), then and in each such event the holders of each
share of Series C Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the
number of shares of Common Stock into which such share of Series C
Preferred Stock might have been converted immediately prior to
such reorganization, reclassification or other change, all subject
to further adjustment as provided herein.
(g) REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. Subject
to the Corporation's obligation to redeem the Series C Preferred
Stock in connection with the occurrence of a transaction as
provided in paragraph (iii)(c), if at any time or from time to time
there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this paragraph (iv)) or a merger
or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, or a
compulsory share exchange, then, as a part of such reorganization,
merger, consolidation, sale or share exchange, provision shall be
made so that the holders of Series C Preferred Stock shall
thereafter be entitled to receive, upon conversion of
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Series C Preferred Stock, the number of shares of stock or other
securities or property receivable upon such reorganization, merger,
consolidation, sale or share exchange by holders of the number of
shares of Common Stock into which such share of Series C Preferred
Stock might have been converted immediately prior to such
reorganization, merger, consolidation, sale or share exchange. In
any such case, appropriate adjustment shall be made in the
application of the provisions of this paragraph (iv) with respect
to the rights of the holders of Series C Preferred Stock after the
reorganization, merger, consolidation, sale or share exchange to
the end that the provisions of this paragraph (iv) (including
provisions for the adjustment of the Conversion Price then in
effect and the number of shares acquirable upon conversion of the
Series C Preferred Stock) shall be applicable after that event and
be as nearly equivalent to the provisions hereof as is practicable.
(h) ADJUSTMENT FOR ISSUANCE OF COMMON STOCK AT LESS THAN CONVERSION
PRICE. If the Corporation at any time after the Issuance Date (i)
issues any shares of Common Stock (other than pursuant to the
Agreement dated effective June 12, 1996 between Smith Management
Company, Inc., Farmout Inc., Randall D. Smith, Jeffrey A. Smith,
John W. Adams, Inland Production Company and the Corporation, or
other than pursuant to warrants, options or convertible securities
outstanding as of the Issuance Date, or other than pursuant to the
Corporation's Amended 1988 Option Plan or 1997 Stock Option Plan),
for a per share consideration less than the Conversion Price then
in effect hereunder, or (ii) issues rights, warrants, or options to
acquire, or securities convertible into, or exchangeable for,
shares of Common Stock (other than options to purchase Common Stock
pursuant to options which may be granted under the Corporation's
Amended 1988 Option Plan, 1997 Stock Option Plan and similar
benefit plans subsequently adopted by the Corporation for the
benefit of its employees), that permit exercise or conversion for a
per share consideration less than the Conversion Price then in
effect hereunder, then effective automatically on the date of such
issuance the Conversion Price hereunder shall automatically be
adjusted as follows: the number of shares of the Corporation's
Common Stock outstanding (or deemed to be outstanding as
hereinafter provided) immediately prior to such issue shall be
multiplied by the Conversion Price in effect at the time of such
issue and there shall be added to the product so obtained the
aggregate consideration, if any, (a) received by the Corporation
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upon such issue of additional shares of Common Stock pursuant
to (i) and (b) received by the Corporation, or which will be received
by the Corporation, pursuant to (ii) upon the issue and upon the
subsequent exercise, conversion or exchange of any such additional
rights, warrants, options or convertible or exchangeable
securities. The sum so obtained shall be divided by the number of
shares of the Corporation's Common Stock outstanding (or deemed to
be outstanding as hereinafter provided) immediately after such
issue (including, for this purpose, the shares to be subsequently
issued under any rights, warrants, options or convertible or
exchangeable securities which triggered the requirement to apply
this adjustment to the Conversion Price), and the resulting
quotient shall be the adjusted Conversion Price (which shall in no
event be higher than the Conversion Price prior to such
adjustment). For purposes of determining outstanding shares of
Common Stock for applying the foregoing formula, all options,
rights, warrants and securities convertible into Common Stock
outstanding as of the Issuance Date shall be deemed to be
outstanding shares of Common Stock, and any options, rights,
warrants or convertible or exchangeable securities issued after the
Issuance Date pursuant to (ii) above, which have resulted in a
previous adjustment of the Conversion Price shall be considered
outstanding shares of Common Stock for all subsequent applications
of the formula to arrive at subsequent adjustments of the
Conversion Price.
(i) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of
an adjustment or readjustment of the Conversion Price or the number
of shares of Common Stock or other securities issuable upon
conversion of Series C Preferred Stock, the Corporation, at its
expense, shall cause independent public accountants of recognized
standing selected by the Corporation (who may be the independent
public accountants then auditing the books of the Corporation) (or
the chief financial officer of the Corporation at the Board's
option) to compute such adjustment or readjustment in accordance
with the Corporation's Articles of Incorporation and prepare a
certificate showing such adjustment or readjustments and shall mail
such certificate, by first class mail, postage prepaid, to each
registered holder of Series C Preferred Stock at the holder's
address as shown in the Corporation's books. The certificates
shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based.
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(j) NOTICES OF RECORD DATE. In the event (i) any taking by
the Corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or (ii)
any capital reorganization of the Corporation, any reclassification
or recapitalization of the capital stock of the Corporation or any
compulsory share exchange or any transfer of all or substantially
all of the assets of the Corporation to, or any merger or
consolidation with, any other any other entity or person, or any
voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation shall mail to each holder of
Series C Preferred stock at least thirty (30) days prior to the
record date specified therein, a notice specifying (A) the date on
which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such reorganization,
reclassification or recapitalization, compulsory share exchange,
transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and a description of
such transaction, and (C) the time, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon
such reorganization, reclassification or recapitalization,
compulsory share exchange, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(k) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series C Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay cash equal to the product of
such fraction multiplied by the fair market value of one share of
the Corporation's Common Stock on the date of conversion, as
determined by the closing price (or closing "bid" price, if
applicable) on the day prior to the date of conversion.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION OR FOR
DIVIDENDS. The Corporation shall at all times reserve and keep
available out of the authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of shares
of Series C Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of
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Series C Preferred Stock; and if at any time thereafter the number
of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares
of Series C Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purpose.
(m) NOTICES DEEMED GIVEN. Any notice required by the
provisions of this paragraph (iv) to be given to the holders of
shares of Series C Preferred Stock shall be deemed given five (5)
business days after the same has been deposited in the United
States mail, certified or registered mail, return receipt
requested, postage prepaid, and addressed to each holder of record
at such holder's address appearing on the books of the Corporation.
(v) VOTING RIGHTS. Each holder of any share of Series C Preferred
Stock shall be entitled to vote on all matters and shall be entitled to
such number of votes per share of Series C Preferred Stock equal to such
number of shares of Common Stock into which such share of Series C
Preferred Stock is then convertible rounded down to the nearest whole
share. Each holder of shares of any of the Common Stock shall be entitled
to one vote on all matters and shall be entitled to one vote for each
share of Common Stock held. Except as otherwise expressly provided
herein or as mandated by law, the holders of shares of Common Stock and
Series C Preferred Stock shall vote together and not as separate voting
groups or classes. In the event voting as a separate voting group by the
holders of Series C Preferred Stock is expressly provided herein or
mandated and required by Washington law, any vote by the holders of
Series C Preferred Stock as a separate voting group shall be effective if
approved by a majority of the outstanding shares of Series C Preferred
Stock.
The approval of the holders of the Series C Preferred Stock,
voting as a separate voting group, is required for the Corporation
to (i) make any amendment, whether directly or by merger or
otherwise, to (x) the terms of the Series C Preferred Stock as
described under paragraph (ix) or (y) to the other terms of the
Articles of Incorporation of the Corporation if such amendment
would adversely affect any right, preference, privilege or voting
right of the Series C Preferred Stock or the holders thereof, (ii)
authorize or issue any class or series of stock ranking pari passu
with or senior to the Series C Preferred Stock as to dividends, as
to the distribution of assets upon liquidation and as to conversion
rights or
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<PAGE>
(iii) consummate any merger, consolidation or share exchange,
unless each holder of shares of Series C Preferred Stock
immediately preceding such merger, consolidation or share exchange
shall receive or continue to hold in the surviving corporation the
equivalent number of shares, with substantially the same rights and
preferences, including priority as to dividends, as to the
distribution of assets upon liquidation, and as to voting and
conversion rights (except as contemplated by paragraph (iv)(g)), as
correspond to the shares of Series C Preferred Stock.
The holders of the Series C Preferred Stock shall have the right,
exercisable at any time and acting separately as a voting group or
class, to elect the greater of one, or a proportionate number rounded
down to the nearest whole number based on the percentage of Common Stock
into which the shares of Series C Preferred Stock may be converted, of
the members of the Board of Directors of the Corporation. Upon the
taking of any such action by the holders of Series C Preferred Stock,
the authorized number of members of the Board of Directors shall
automatically be increased as appropriate. A director elected by the
holders of Series C Preferred Stock pursuant to this paragraph (v) shall
serve until his successor is duly elected and qualified or until his
removal by the holders of Series C Preferred Stock.
Cumulative voting by holders of Series C Preferred Stock and holders
of Common Stock is expressly denied.
(vi) PREEMPTIVE RIGHTS. Except as provided in paragraph (iv), no
holder of any shares of Series C Preferred Stock shall be entitled as a
matter of right to subscribe or receive additional shares of any class
of stock of the Corporation, whether now or hereafter authorized, or any
bonds, debentures or other securities convertible into such stock, but
such additional shares of stock or other securities convertible into
stock may be issued or disposed of by the Board to such persons and on
such terms as in the Board's discretion the Board shall deem advisable.
(vii) NO REISSUANCE OF SERIES C PREFERRED STOCK. No share or
shares of Series C Preferred Stock acquired by the Corporation by reason
of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the
shares of Series C Preferred Stock which the Corporation shall be
authorized to issue and all such shares shall be returned to authorized
but unissued shares of Class A preferred stock, par value $0.001 per
share, of the Corporation and may be issued or further
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<PAGE>
designated, as determined by the Board in accordance with
the Articles of Incorporation and applicable law.
(viii) COMMON STOCK. The term "Common Stock", as used herein, means
the Corporation's $.001 par value Common Stock and any capital stock of
any class of the Corporation authorized after the date the Series C
Preferred Stock is established which is not limited to a fixed sum or
percentage of par or stated value in respect of the rights of holders
thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Corporation.
(ix) AMENDMENTS. There shall be no amendment, modification or
waiver of the terms hereof without the prior written consent of holders
of at least a majority of the Series C Preferred Stock outstanding at
such time. The designation by the Board of one or more additional series
of Class A preferred stock or any other class of stock of the
Corporation with dividend, liquidation or conversion rights pari passu
with or having priority over or having greater or more beneficial rights
per share than the Series C Preferred Stock shall be deemed to
constitute an amendment to the Articles of Incorporation of the
Corporation for which the holders of shares of Series C Preferred Stock
are entitled to vote hereunder as a separate voting group. Except as
otherwise expressly provided in this paragraph (ix) or paragraph (v),
any changes or amendments to the Articles of Incorporation of the
Corporation may be made in accordance with applicable law.
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<PAGE>
ARTICLE V - REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's initial registered office is:
Suite 241
First Interstate Bank Building
North 9 Post Street
Spokane, WA 99201
The name of its initial registered agent at such address is:
Janice E. Duval
ARTICLE VI - DIRECTORS
1. The number of directors of the Corporation shall be fixed as provided
by the Bylaws and may be changed from time to time by amending the Bylaws, as
then provided, but the number of directors shall be not less than three (3).
2. If the office of any director becomes vacant by reason of death,
resignation, removal, disqualification, or otherwise, the directors may, by
the affirmative vote of the majority of the remaining directors, though less
than a quorum, choose a successor or successors who shall hold office for the
unexpired term.
The Board of Directors are authorized to increase the number of persons
to comprise the Board of Directors in any period between annual shareholders'
meetings by the affirmative vote of a majority of the directors; provided,
however, that without the unanimous consent of all directors, the number of
directors who comprise the Board of Directors shall not be increased by more
than two (2) persons within any twelve (12) month period.
If the Board of Directors is divided into classes and in the event of any
increase or decrease in the authorized number of directors, (1) each director
then serving as such shall nevertheless continue as a director of the class
of which he is a member until the expiration of his term, or upon his earlier
resignation, removal from office, or death, (2) the newly created or
eliminated directorships resulting from such increase or decrease shall be
allocated by the Board of Directors among the three classes of directors so
as to maintain equal classes to the extent possible, and (3) in the event
such decrease in the authorized number of directors makes the total number of
directors less than nine (9), then the Board of Directors shall become
declassified and the directors remaining in office shall continue their terms
until the next annual meeting of shareholders, at which time all of said
remaining directors shall be re-elected to one year terms or until their
successors are duly elected and qualified.
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<PAGE>
3. When the Board of Directors shall consist of nine (9) or more
members, in lieu of electing the entire number of directors annually, the
Board of Directors of the Corporation shall be divided into three classes.
The method of classification shall be to assign the longest terms to those
directors with the most seniority as directors. In the event there are more
directors with identical seniority than there are class positions to be
filled, choices shall be made by drawing of lots. The classes shall be as
follows: Class 1, Class 2, and Class 3, which classifications shall be
effective on the 1st day of the month following the shareholders' meeting
during which the number of members of the Board of Directors is increased to
nine (9) or more. In such an event, the term of office of directors in Class
I shall expire at the first annual meeting of shareholders after their
election, that of Class 2 shall expire at the second annual meeting after
their election, and that of Class 3 shall expire at the third annual meeting
after their election. At each annual meeting of shareholders after such
classification, the number of directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting. No classification of
directors shall be effective in the event the number of members of the Board
is reduced to fewer than nine (9).
4. In furtherance of and not in limitation of the powers conferred by
the laws of the State of Washington, the Board of Directors is expressly
authorized to make, alter, and repeal the Bylaws of the Corporation, subject
to the power of the shareholders of the Corporation to change or repeal such
Bylaws.
5. The Corporation may enter into, contract, and otherwise transact
business as vendor, purchaser, or otherwise with its directors, officers, and
shareholders, and with the Corporation's association with firms and entities
of which they are or may become interested as directors, officers,
shareholders, members, or otherwise, as freely as if those such adverse
interests did not exist, even though the vote, action, or presence of such
directors, officers, or shareholders may be necessary to obligate the
Corporation under such contracts or transactions; and in the absence of
fraud, no such contracts or transactions shall be avoided and no such
director, officer, or shareholder shall be held liable to account to the
Corporation, by reason of such adverse interests or by reason of any
fiduciary relationship to the Corporation arising out of such office or stock
ownership, for any profit or benefit realized by him through any such
contract or transaction; provided that in the case of directors and officers
of the Corporation (but not in the case of shareholders who are not directors
or officers), the nature of the interest of such directors or officers be
disclosed or known to the Board of Directors of the Corporation at the
meeting thereof at which such contract or transaction was authorized or
confirmed. A general notice that a director or officer of the Corporation is
interested in any Corporation, association, firm, or entity, shall be
sufficient disclosure as to such director or officer with respect to all
contracts and transactions with the Corporation, association, firm, or
entity.
6. Except as otherwise expressly set forth in these Articles, any
contract, transaction, or act of the Corporation or of the directors or of
any officers of the Corporation which shall be ratified by a quorum of the
shareholders of the Corporation at any annual meeting or any special
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<PAGE>
meeting called for such purpose, shall be as valid and binding as though
ratified by every shareholder of the Corporation.
7. A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages arising from any conduct
as a director, except this limitation on liability shall not apply to (i)
acts or omissions involving intentional misconduct by the director or a
knowing violation of law by the director, (ii) conduct violating Section
23A.08.450 of the Washington Business Corporation Act, or (iii) any
transaction from which the director will personally receive a benefit in
money, property, or services to which the director is not legally entitled.
If the Washington Business Corporation Act is amended to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Washington Business
Corporation Act, as so amended. Any repeal or modification of the foregoing
paragraph by the shareholders of the corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time
of such repeal or modification.
The Corporation has the power to indemnify, and to purchase and maintain
insurance for, its directors, officers, trustees, employees, and other
persons and agents. Without limiting the generality of the foregoing, the
Corporation shall indemnify its directors against all liability, damages, and
costs or expenses (including attorney's fees) arising from or in connection
with service for employment by, or other affiliation with this Corporation to
the maximum extent and under all circumstances permitted by law.
8. The number of directors constituting the initial Board of Directors
of this Corporation is three (3). The names and addresses of persons who are
to serve as directors until the first annual meeting of stockholders, or
until their successors are elected and qualified are:
Name Address
---- -------
Hobart Tenet East 214 High Drive
Spokane, Washington 99203
John C. Crabb P.O. Box 207
Gonzales Road
Maderia Park British Columbia VON 2HO
James F. Etter South 2811 Needham Drive
Veradale, Washington 99037
9. The Board of Directors shall have authority to divide any or all
classes of shares into series and to fix and determine the relative rights
and preferences of the shares of any series
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<PAGE>
so established or established hereby. All shares of the same class shall be
identical except as to the following relative rights and preferences as to
which there may be variations between different series:
a. The rate of dividend.
b. Whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption.
c. The amount payable upon shares in event of voluntary and
involuntary liquidation.
d. Sinking fund provision, if any, for the redemption or purchase
of shares.
e. The terms and conditions, if any, on which shares may be
converted.
f. Voting rights, if any.
The name and address of the Incorporator is:
Name Address
---- -------
Janice E. Duval Suite 241
North 9 Post Street
Spokane, Washington 99201
ARTICLES VII - PREEMPTIVE RIGHTS
The shareholders of the Corporation shall be denied preemptive rights.
ARTICLE VIII - CUMULATIVE VOTING
Shareholders of the Corporation shall be denied the right to cumulate
their votes at the election of directors of the Corporation.
ARTICLE IX
The provisions of Section 6 of Substitute Senate Bill 3580 as enacted by
the 49th Legislature of the State of Washington in the 1985 regular session
shall not apply to this Corporation.
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<PAGE>
IN WITNESS WHEREOF, these Articles of Incorporation have been executed in
duplicate.
Janice E. Duvall
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<PAGE>
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
among
INLAND PRODUCTION COMPANY
THE BANKS NAMED HEREIN
and
CANADIAN IMPERIAL BANK OF COMMERCE
As Agent
Dated as of June 30, 1997
$50,000,000.00
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION ........................ 1
Section 1.1 Definitions .............................. 1
Section 1.2 Rules of Construction .................... 18
SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES ........................ 19
Section 2.1 Loans .................................... 19
Section 2.3 Determination of the Borrowing Base ...... 20
Section 2.3.1 Annual Redetermination of Borrowing Base.. 21
Section 2.3.2 Semi-Annual Scheduled Determination of
the Borrowing Base ...................... 22
Section 2.3.3 Discretionary Determination of the
Borrowing Base .......................... 22
Section 2.3.4 Redetermination of Borrowing Base upon
Sale of Oil and Gas Properties .......... 23
Section 2.4 Notice of Borrowing ...................... 24
Section 2.5 Disbursement of Funds .................... 25
Section 2.6 Notes .................................... 26
Section 2.7 Interest ................................. 26
Section 2.8 Interest Periods ......................... 27
Section 2.9 Minimum Amount of LIBO Rate Loans ........ 29
Section 2.10 Conversion or Continuation ............... 29
Section 2.11 Changes of Commitments ................... 30
Section 2.12 Voluntary Prepayments .................... 30
Section 2.13 Mandatory Prepayments .................... 31
Section 2.14 Mandatory Prepayments and Other Actions
When the Loan Exceeds the Borrowing
Base .................................... 31
Section 2.15 Application of Prepayments ............... 33
Section 2.16 Method and Place of Payment .............. 33
Section 2.17 Fees ..................................... 34
Section 2.18 Interest Rate Unascertainable, Increased
Costs, Illegality ....................... 35
Section 2.19 Funding Losses ........................... 37
Section 2.20 Increased Capital ........................ 38
Section 2.21 Taxes..................................... 39
Section 2.22 Assumption of Risks ...................... 40
Section 2.23 Obligation to Reimburse and to Prepay .... 41
Section 2.24 Additional Costs in Respect of Letters
of Credit ............................... 44
Section 2.25 Use of Proceeds .......................... 44
SECTION 3. CONDITIONS PRECEDENT ......................................... 45
Section 3.1 Conditions Precedent to Initial Loans .... 45
Section 3.2 Conditions Precedent to All Loans and
Letters of Credit ....................... 49
Section 3.3 Conditions Relating to Letters of Credit.. 50
Section 3.4 Acquisitions.............................. 50
2
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES ............................... 51
Section 4.1 Corporate Status ......................... 51
Section 4.2 Corporate Power and Authority ............ 52
Section 4.3 No Violation ............................. 52
Section 4.4 Litigation ............................... 52
Section 4.5 Financial Statements; Financial
Condition; etc........................... 52
Section 4.6 Material Adverse Change .................. 53
Section 4.7 Use of Proceeds; Margin Regulations ...... 53
Section 4.8 Governmental Approvals ................... 53
Section 4.9 Security Interests and Liens ............. 53
Section 4.10 Tax Returns and Payments ................. 54
Section 4.11 ERISA .................................... 54
Section 4.12 Investment Company Act; Public Utility
Holding Company Act ..................... 55
Section 4.13 True and Complete Disclosure ............. 55
Section 4.14 Corporate Structure; Capitalization ...... 55
Section 4.15 Environmental Matters .................... 56
Section 4.16 Patents, Trademarks, etc. ................ 57
Section 4.17 Ownership of Property .................... 57
Section 4.18 No Default ............................... 57
Section 4.19 Licenses, etc. ........................... 57
Section 4.20 Compliance With Law ...................... 58
Section 4.21 No Burdensome Restrictions ............... 58
Section 4.22 Labor Matters ............................ 58
Section 4.23 Subsidiaries and Partnerships ............ 58
Section 4.24 Location of Business and Offices ......... 58
SECTION 5. AFFIRMATIVE COVENANTS ........................................ 58
Section 5.1 Information Covenants .................... 58
Section 5.2 Books, Records and Inspections ........... 63
Section 5.3 Maintenance of Insurance ................. 63
Section 5.4 Taxes .................................... 64
Section 5.5 Corporate Franchises ..................... 64
Section 5.6 Compliance with Law ...................... 64
Section 5.7 Performance of Obligations ............... 65
Section 5.8 Maintenance of Properties ................ 65
Section 5.9 Further Assurances ....................... 66
Section 5.10 Additional Collateral .................... 66
Section 5.11 Hedging Agreements ....................... 67
Section 5.12 List of Purchasers ....................... 67
SECTION 6. NEGATIVE COVENANTS ........................................... 67
Section 6.1 Financial Covenants ...................... 67
Section 6.2 Indebtedness ............................. 68
Section 6.3 Liens .................................... 69
Section 6.4 Restriction on Fundamental Changes ....... 70
3
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Section 6.5 Sale of Oil and Gas Properties ........... 70
Section 6.6 Contingent Liability ..................... 71
Section 6.7 Dividends ................................ 71
Section 6.8 Advances, Investments and Loans .......... 71
Section 6.9 Transactions with Affiliates ............. 72
Section 6.10 Limitation on Voluntary Payments ......... 72
Section 6.11 Changes in Business ...................... 72
Section 6.12 Certain Restrictions ..................... 72
Section 6.13 Lease Payments ........................... 73
Section 6.14 Sales and Leasebacks ..................... 73
Section 6.15 Plans .................................... 73
Section 6.16 Fiscal Year; Fiscal Quarter .............. 73
SECTION 7. EVENTS OF DEFAULT ............................................ 74
Section 7.1 Events of Default ........................ 74
Section 7.2 Rights and Remedies ...................... 78
SECTION 8. THE AGENT .................................................... 79
Section 8.1 Appointment .............................. 79
Section 8.2 Delegation of Duties ..................... 80
Section 8.3 Exculpatory Provisions ................... 80
Section 8.4 Reliance by Agent ........................ 80
Section 8.5 Notice of Default ........................ 81
Section 8.6 Non-Reliance on Agent and Other Banks .... 81
Section 8.7 Indemnification .......................... 82
Section 8.8 Agent in its Individual Capacity ......... 83
Section 8.9 Successor Agent .......................... 83
SECTION 9. MISCELLANEOUS ................................................ 83
Section 9.1 Payment of Expenses, Indemnity, etc. ..... 83
Section 9.2 Right of Setoff .......................... 85
Section 9.3 Notices .................................. 85
Section 9.4 Successors and Assigns; Participation;
Assignments ............................. 86
Section 9.5 Amendments and Waivers ................... 89
Section 9.6 No Waiver; Remedies Cumulative ........... 89
Section 9.7 Sharing of Payments ...................... 90
Section 9.8 Governing Law; Submission to
Jurisdiction ............................ 90
Section 9.9 Maximum Interest ......................... 91
Section 9.10 Counterparts ............................. 92
Section 9.11 Effectiveness ............................ 93
Section 9.12 Headings Descriptive ..................... 93
Section 9.13 Marshalling; Recapture ................... 93
Section 9.14 Severability ............................. 93
Section 9.15 Survival ................................. 93
Section 9.16 Domicile of Loans ........................ 94
Section 9.17 Limitation of Liability .................. 94
Section 9.18 Calculations; Computations ............... 94
4
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<TABLE>
<S> <C> <C> <C>
Section 9.19 Waiver of Trial by Jury, Punitive
Damages ................................. 94
Section 9.20 No Oral Agreements ....................... 94
Section 9.21 Exculpation Provisions ................... 95
</TABLE>
Schedule 1 -- Banks and Commitments
Schedule 3.1(h) -- Outstanding Obligations
Schedule 4.8 -- Government Approvals
Schedule 4.9 -- Security Interest and Liens
Schedule 4.11 -- ERISA
Schedule 4.14 -- Subsidiaries; Capital Stock
Schedule 4.15 -- Environmental Matters
Schedule 4.17 -- Real Property
Schedule 4.22 -- Labor Matters
Schedule 4.23 -- Subsidiaries and Partnerships
Schedule 5.11 -- Hedging Agreements
Schedule 6.2 -- Existing Indebtedness
Schedule 6.3 -- Existing Liens
Schedule 6.6 -- Existing Contingent Liability
Schedule 6.8 -- Investments
Exhibit A -- Form of Note
Exhibit B -- Form of Pledge Agreement
Exhibit C -- Form of Mortgage
Exhibit D -- Form of Guaranty Agreement
Exhibit E -- Form of Legal Opinion of Glast, Phillips & Murray, P.C.
Exhibit F -- Form of Legal Opinion of Ray, Quinney & Nebeker
Exhibit G -- Form of Legal Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit H -- Form of Subordination Provisions
Exhibit I -- Form of Transfer Supplement
5
<PAGE>
CREDIT AGREEMENT, dated effective as of June 30, 1997, among Inland
Production Company, a Texas corporation (the "Borrower"), the Banks (as
hereinafter defined) and Canadian Imperial Bank of Commerce, acting in its
capacity as agent (the "Agent") for the Banks.
RECITALS
A. The Borrower has requested that the Banks provide certain loans
to an extensions of credit on behalf of the Borrower; and
B. The Banks have agreed to make such loans and extensions
of credit subject to the terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements
herein contained and of the Banks, extensions of credit and commitments
hereinafter referred to, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND RULES OF CONSTRUCTION.
Section 1.1 DEFINITIONS. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise
requires.
"Acquisition Proposal" means a proposal to the Agent from Borrower
describing a proposed acquisition of properties to be acquired with the
proceeds of a Loan. Each Acquisition Proposal must be acceptable to the
Agent in substance, form and detail and must at least set out:
(a) the properties which are to be acquired with the proceeds of
the Loan, 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 the Agent concerning the properties to
be acquired with the Loan; and
(c) any such other information that the Agent requests.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly control-
<PAGE>
ling (including but not limited to all directors and officers of such
Person), controlled by, or under direct or indirect common control with
such Person. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to (i) vote 5% or
more of the securities having ordinary voting power for the election of
directors of such corporation or (ii) direct or cause the direction of
the management and policies of such corporation, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" shall mean CIBC acting in its capacity as agent for the
Banks and any successor agent appointed in accordance with Section 8.9.
"Agent's Office" shall mean the office of the Agent located at 425
Lexington Avenue, New York, New York 10017, or such other office as the
Agent may hereafter designate in writing as such to the other parties
hereto.
"Agreement" shall mean this Credit Agreement as the same may from
time to time hereafter be modified, supplemented or amended.
"Applicable Margin" shall mean, on any day with respect to any
Loan, the applicable per annum percentage set forth at the appropriate
intersection in the table below, based on the amount of Cash Advances as
a percentage of the Borrowing Base:
<TABLE>
--------------------------------------------------------------------------------------
Cash Advances
as % of Base Rate Loan LIBO Rate Loan
Borrowing Base Margin Percentage Margin Percentage
--------------------------------------------------------------------------------------
<S> <C> <C>
less than or equal to 25% 0% 1%
--------------------------------------------------------------------------------------
greater than 25% less than or equal to 45% 0.375% 1.375%
--------------------------------------------------------------------------------------
greater than 45% less than or equal to 67% 0.625% 1.625%
--------------------------------------------------------------------------------------
greater than 67% 0.875% 1.875%
--------------------------------------------------------------------------------------
</TABLE>
"Arranger" shall mean CIBC Wood Gundy Securities Corp.
"Assignee" shall have the meaning provided in Section 9.4(c).
2
<PAGE>
"Average Daily Unused Commitment" shall mean at any time, an amount
equal to the excess, if any, of (a) the amount of the Maximum Commitment
at such time OVER (b) the sum of (i) the aggregate unpaid principal
amount at such time of all Loans outstanding, and (ii) an amount equal
to the LC Exposure.
"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as amended from time to time, and any successor
statute or statutes.
"Banks" shall mean the Persons listed on Schedule 1 hereto and the
Persons which from time to time become a party hereto in accordance with
Section 9.4(d).
"Base Rate" shall mean, at any particular date and with respect to
all Base Rate Loans, a fluctuating rate of interest PER ANNUM equal to
the highest of:
(a) the rate of interest most recently established by CIBC at its
New York office as its base rate for Dollar loans in the United States;
and
(b) the Federal Funds Rate most recently determined by the Agent
plus 1%.
Neither the Base Rate nor the base rate described in CLAUSE (a)
above is necessarily intended to be the lowest rate of interest
determined by the Agent in connection with extensions of credit.
"Base Rate Loans" shall mean Loans made and/or being maintained at
a rate of interest based upon the Base Rate.
"Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"Borrowing" shall mean the incurrence of one Type of Loan from all
the Banks on a given date (or resulting from conversions or
continuations on a given date), having in the case of LIBO Rate Loans
the same Interest Period.
"Borrowing Base" shall have the meaning provided in Section 2.3.1.
3
<PAGE>
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any
day which shall be a legal holiday in New York City, New York, Atlanta,
Georgia, or Houston, Texas, or a day on which banking institutions are
authorized or required by law or other government actions to close and
(ii) with respect to all notices and determinations in connection with,
and payments of principal and interest on, LIBO Rate Loans, any day
which is a Business Day described in clause (i) and which is also a day
for trading by and between banks for U.S. dollar deposits in the
relevant interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, the sum of (i)
expenditures (whether paid in cash or accrued as a liability, including
the portion of Capitalized Leases originally incurred during such period
that is capitalized on the consolidated balance sheet of the Borrower
and its Subsidiaries) by the Borrower and its Subsidiaries during such
period that, in conformity with GAAP, are included in "capital
expenditures", "additions to property, plant or equipment" or
comparable items in the consolidated financial statements of the
Borrower and its Subsidiaries, and (ii) to the extent not included in
clause (i), the aggregate of all net noncurrent assets of businesses
acquired by the Borrower and its Subsidiaries during that period,
including all purchase price adjustments.
"Capitalized Lease" shall mean (i) any lease of property, real or
personal, the obligations under which are capitalized on the
consolidated balance sheet of the Borrower and its Subsidiaries, and
(ii) any other such lease to the extent that the then present value of
the minimum rental commitment thereunder should, in accordance with
GAAP, be capitalized on a balance sheet of the lessee.
"Capitalized Lease Obligations" shall mean all obligations of the
Borrower and its Subsidiaries under or in respect of Capitalized Leases.
"Cash Advances" shall mean the amount of Loans outstanding plus the
LC Exposure.
4
<PAGE>
"Cash Equivalents" shall mean at any time:
(a) any evidence of indebtedness, maturing not more than one year after
such time, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than nine months from the date
of issue, which is issued by:
(i) a corporation (other than an affiliate of any Loan Party)
organized under the laws of any state of the United States or of the
District of Columbia and rated A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service, Inc., or
(ii) the Agent (or its holding company);
(c) any certificate of deposit or bankers acceptance, maturing not more
than one year after such time, which is issued by either:
(i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000, or
(ii) the Agent or any bank affiliate thereof; or
(d) any repurchase agreement entered into with the Agent or any Bank or
a bank affiliate thereof (or other commercial banking institution of the
stature referred to in CLAUSE (c)(i)) which:
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of CLAUSES (a) through (c); and
(ii) has a market value at the time such repurchase agreement is
entered into of not less than 100% of the repurchase obligation of the
Agent or any Bank or such bank affiliate thereof (or other commercial
banking institution) thereunder.
"CIBC" shall mean Canadian Imperial Bank of Commerce, in its individual
capacity.
5
<PAGE>
"Closing Date" shall mean the date on which the initial Loans are
advanced hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.
"Collateral" shall mean all property and interests in property now
owned or hereafter acquired in or upon which a Lien has been or is purported
or intended to have been granted to the Agent or any Bank under any of the
Security Documents.
"Commitment" shall mean at any time, for any Bank, the amount set forth
opposite such Bank's name on Annex I hereto under the heading "Loan
Commitment," as such amount may be reduced from time to time pursuant to
Sections 2.11(b) or 9.4(d).
"Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or
is contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the
indebtedness, obligation or any other liability of any other Person (other
than by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the shares of
any other Person. The amount of any Person's obligation under any Contingent
Liability shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum principal amount, if larger) of
the debt, obligation or other liability guaranteed thereby.
"Conversion Date" shall mean July 1, 1999, unless extended upon mutual
agreement of the Borrower and the Banks.
"Credit Exposure" shall have the meaning provided in Section 9.4(b).
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
6
<PAGE>
"Default Rate" shall have the meaning provided in Section 2.7(c).
"Dollar" and "$" shall mean the lawful money of the United States of
America.
"Dividends" shall have the meaning provided in Section 6.7.
"Domestic Lending Office" shall mean, as to any Bank, the office of such
Bank designated as such on Annex I, or such other office designated by such
Bank from time to time by written notice to the Agent and the Borrower.
"EBITDA" shall mean, for any period for which a determination thereof
is to be made, without duplication, the sum of the amounts for such period of
(i) Net Income, (ii) Interest Expense, (iii) depreciation expense and
depletion expense, (iv) amortization expense, and (v) federal and state taxes
(excluding any production tax), and (vi) any losses arising outside of the
ordinary course of business (including net loss carryforwards) which have
been included in the determination of Net Income; MINUS (vii) any gains
arising outside of the ordinary course of business which have been included
in the determination of Net Income; in each case, of the Borrower and its
Subsidiaries.
"Environmental Affiliate" shall mean, with respect to any Person, any
other Person whose liability for any Environmental Claim such Person has or
may have retained, assumed or otherwise become liable for (contingently or
otherwise), either contractually or by operation of law.
"Environmental Approvals" shall mean any permit, license, approval,
ruling, variance, exemption or other authorization required under applicable
Environmental Laws.
"Environmental Claim" shall mean, with respect to any Person, any
notice, claim, demand or similar communication (written or oral) by any other
Person alleging potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries,
7
<PAGE>
fines or penalties arising out of, based on or resulting from (i) the
presence, or release into the environment, of any Materials of Environmental
Concern at any location, whether or not owned by such Person or (ii)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
"Environmental Laws" shall mean all federal, state and local laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including without
limitation, laws and regulations relating to emissions, discharges, releases
or threatened releases of Materials of Environmental Concern, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environmental
Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA, as
in effect at the date of this Agreement and any subsequent provisions of
ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Controlled Group" means a group consisting of any ERISA Person
and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control with such
Person that, together with such Person, are treated as a single employer
under regulations of the PBGC.
"ERISA Person" shall have the meaning set forth in Section 3(9) of ERISA
for the term "person."
"ERISA Plan" means (i) any Plan that (x) is not a Multiemployer Plan and
(y) has Unfunded Benefit Liabilities in excess of $500,000 and (ii) any Plan
that is a Multiemployer Plan.
"Event of Default" shall have the meaning provided in Section 7.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System as constituted from time to time.
8
<PAGE>
"Fee Letter" shall mean that certain letter agreement between the
Borrower and CIBC dated of even date with this Agreement concerning certain
fees in connection with this Agreement and any agreements or instruments
executed in connection therewith, as the same may be amended or replaced from
time to time.
"Fees" shall mean all amounts payable pursuant to Section 2.17.
"Final Maturity Date" shall mean July 1, 2002, unless extended by mutual
agreement of the Borrower and the Banks but in no event shall the Final
Maturity Date occur more than three (3) years after the Conversion Date.
"GAAP" shall mean United States generally accepted accounting principles
as in effect on the date hereof and consistent with those utilized in the
preparation of the financial statements referred to in Section 4.5.
"Guarantor" shall collectively mean Inland Resources and the
Subsidiaries of Borrower listed on Schedule 4.23 and any other Person who
executes a Guaranty.
"Guaranty" shall have the meaning provided in Section 3.1(a)(v).
"Hedging Agreement" shall mean (i) any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
agreement designed to protect the Borrower against fluctuations in interest
rates or (ii) any commodity hedge, commodity swap, exchange, forward,
future, collar or cap agreements, fixed price agreements and all other
agreements or arrangements designed to protect the Borrower against
fluctuations in commodity prices.
"Highest Lawful Rate" shall mean, with respect to each Bank, the maximum
nonusurious interest rate, if any, that at any time or from time to time may
be contracted for, taken, reserved, charged or received on the Notes or on
other Indebtedness under laws applicable to such Bank which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
9
<PAGE>
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.
"Hydrocarbon Interests" shall mean all of the Borrower's rights, titles,
interests and estates in and to oil and gas leases, oil, gas and mineral
leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests,
overriding royalty and royalty interests, net profit interest and production
payment interests, including any reserve for residual interest of whatever
nature, in each case located in the United States of America.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate, liquid hydrocarbons and all
products refined or separated therefrom.
"Indebtedness" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than trade payables on terms of 90 days
or less incurred in the ordinary course of business of such Person), (ii) all
indebtedness of such Person evidenced by a note, bond, debenture or similar
instrument, (iii) the principal component of all Capitalized Lease
Obligations of such Person, (iv) the face amount of all letters of credit
issued for the account of such Person and, without duplication, all
unreimbursed amounts drawn thereunder, (v) all indebtedness of any other
Person secured by any Lien on any property owned by such Person, whether or
not such indebtedness has been assumed, (vi) all Contingent Liability of such
Person, (vii) all obligations of such Person under any synthetic lease
transaction or any other structured finance transaction in connection with
the construction of any refinery, and (viii) all payment obligations of such
Person under Hedging Agreements.
"Initial Borrowing Base" shall have the meaning provided in Section 2.3.
"Inland Resources" shall mean Inland Resources Inc.
"Interest Expense" shall mean, for any period for which a determination
thereof is to be made, the aggregate amount of all interest of the Borrower
and its
10
<PAGE>
Subsidiaries on a consolidated basis, whether paid or accrued during such
period and whether capitalized or recognized as an expense, including all
commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing.
"Interest Period" shall have the meaning provided in Section 2.8.
"Investment" shall mean, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in any other
Person.
The amount of any Investment shall be the original principal or capital
amount thereof less all returns of principal or equity thereon (and without
adjustment by reason of the financial condition of such other Person) and
shall, if made by the transfer or exchange of property other than cash, be
deemed to have been made in an original principal or capital amount equal to
the fair market value of such property.
"LC Commitment" at any time shall mean $2,000,000.
"LC Exposure" at any time shall mean the difference between (i)
aggregate face amount of all undrawn and uncancelled Letters of Credit and
the aggregate of all amounts drawn under all Letters of Credit and not yet
reimbursed, minus (ii) the aggregate amount of all cash securing outstanding
Letters of Credit pursuant to Section 2.23(b).
"Letter of Credit Agreements" shall mean the written agreements with the
Agent, as issuing lender for any Letter of Credit, executed or hereafter
executed in connection with the issuance by the Agent of the Letters
11
<PAGE>
of Credit, such agreements to be on the Agent's customary form for letters of
credit of comparable amount and purpose as from time to time in effect or as
otherwise agreed to by the Borrower and the Agent.
"Letters of Credit" shall mean the letters of credit issued pursuant to
Section 2.2 and all reimbursement obligations pertaining to any such letters
of credit, and "Letter of Credit" shall mean any one of the Letters of
Credit and the reimbursement obligations pertaining thereto.
"LIBO Base Rate" shall mean, with respect to each day during an Interest
Period for LIBO Rate Loans, the rate of interest per annum (rounded upwards
to the nearest whole multiple of one-sixteenth of one percent) at which
deposits in United Stats dollars are offered to the Agent in New York, New
York, by prime banks in the New York City interbank eurodollar market by
11:00 A.M.(New York City time) two (2) Business Days before the first day of
such Interest Period for delivery on the first day of such Interest Period
for a period equal to such Interest Period and in an amount approximately
equal to the LIBO Rate Loan.
"LIBO Lending Office" shall mean, as to any Bank, the office of such Bank
designated as such on Annex I, or such other office designated by such Bank
from time to time by written notice to the Agent and the Borrower.
"LIBO Rate" shall mean with respect to each day during an Interest Period
for LIBO Rate Loans, a rate per annum determined for such day in accordance
with the following formula (rounded upwards to the nearest whole multiple of
1/100th of one percent):
LIBO Base Rate
------------------------------------
1.00 - LIBO Rate Reserve Percentage
"LIBO Rate Loans" shall mean Loans made and/or being maintained at a rate
of interest based upon the LIBO Rate.
"LIBO Rate Reserve Percentage" shall mean, with respect to each day
during an Interest Period for any LIBO Rate Loan is the reserve percentage,
if any, applicable during such Interest Period under regulations
12
<PAGE>
issued from time to time by the Board of Governors of the Federal Reserve
System (or if more than one such percentage is so applicable, the daily
average of such percentages for those days in such Interest Period during
which any such percentage shall be so applicable) for determining the maximum
reserve requirement (including any emergency, supplemental, special or other
marginal reserve requirement) specified from time to time under regulations
issued by the Board of Governors of the Federal Reserve System (or any
successor thereto) and applicable to liabilities or assets consisting of or
including "Eurocurrency Liabilities" (as defined in Regulation D) having a
term approximately equal or comparable to such Interest Period.
"Lien" shall mean any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
charge against or interest in property to secure payment of a debt or
performance of any obligation, or preference, priority or other security
agreement of any kind or nature whatsoever, including, without limitation,
any conditional sale or other title retention agreement, any financing lease
having substantially the same effect as any of the foregoing and the filing
of any financing statement or similar instrument under the Uniform Commercial
Code or comparable law of any jurisdiction, domestic or foreign.
"Loans" shall have the meaning provided in Section 2.1.
"Loan Documents" shall mean this Agreement, the Notes, the Guaranty, and
the Security Documents.
"Loan Party" shall mean and include the Borrower and the Guarantor.
"Margin Stock" shall have the meaning provided such term in Regulation U
and Regulation G of the Federal Reserve Board.
"Material Adverse Effect" shall mean a material adverse effect upon (i)
the business, operations, properties, assets, prospects or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a
whole, or (ii) the ability of any Loan Party to perform,
13
<PAGE>
or of the Agent or any of the Banks to enforce, any of the Obligations.
"Materials of Environmental Concern" shall mean and include chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum and petroleum
products.
"Maximum Commitment" shall have the meaning provided in Section 2.11(a).
"Mortgage" shall mean the Mortgage, Deed of Trust, Assignment, Security
Agreement and Financing Statement, by and between the Borrower and the Agent
covering the interest described therein, as amended, supplemented, restated
or otherwise modified and in effect from time to time, together with any
other mortgage, deed of trust, assignment, security agreement and financing
statements, in form and substance satisfactory to the Agent in its sole and
absolute discretion, as the Borrower or any Loan Party shall execute and
deliver in order to grant additional collateral acceptable to the Agent for
the payment of the Loans and all other obligations of the Loan Parties under
the Loan Documents.
"Mortgaged Properties" shall mean those properties and interests subject
to a Lien in favor of the Agent pursuant to any Mortgage, including personal
property as more specifically described in the Mortgage, and any other
properties or interests acceptable to the Agent which from time to time are
subject to a valid perfected and first priority Lien in favor of the Agent
pursuant to any additional or supplemental Mortgage.
"Multiemployer Plan" shall mean a Plan which is a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any period for which a determination
thereof is to be made, the net income or (loss) of the Borrower and its
Subsidiaries on a consolidated basis for such period taken as a single
accounting period.
"Net Sale Proceeds" shall mean all cash proceeds of each sale or other
disposition of assets by the Loan Parties (other than sales of Hydrocarbon in
the ordinary course of business), if such proceeds exceed
14
<PAGE>
$100,000 in respect of any transaction or series of related transactions, in
each case net of (i) reasonable expenses incurred or reasonably expected to
be incurred in connection with such sale or disposition, (ii) any income,
franchise, transfer or other tax payable by any Loan Party in connection with
such sale or disposition and (iii) any Indebtedness secured by a Lien on such
property or assets and required to be repaid as a result of such sale or
other disposition.
"Notes" shall have the meaning provided in Section 2.6(a), together with
any and all renewals, extensions for any period, increases, rearrangements,
substitutions or modifications thereof.
"Notice of Borrowing" shall have the meaning provided in Section 2.4.
"Notice of Conversion or Continuation" shall have the meaning provided
in Section 2.10.
"Obligations" shall mean all obligations, liabilities and indebtedness
of every nature of the Borrower and the Guarantor from time to time owing to
the Agent or any Bank under or in connection with this Agreement and any
Hedging Agreement now or hereafter arising between the Borrower and any
Subsidiary and any Bank or any other Loan Document and all renewals,
extensions and/or rearrangements of any of the above.
"Oil and Gas Properties" shall mean Hydrocarbon Interests; any
properties now or hereafter pooled or unitized with Hydrocarbon Interests;
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
governmental body or agency having jurisdiction) which may affect all or any
portion of the Hydrocarbon Interests; all operating agreements, joint venture
agreements, contracts and other agreements which relate to any of the
Hydrocarbon Interest or the production, sale, purchase, exchange or
processing of hydrocarbons from or attributable to such Hydrocarbon
Interests; all hydrocarbons in and under and which may be produced and saved
or attributable to the Hydrocarbon Interests, the lands covered thereby and
all oil in tanks and all rents, issues, profits, proceeds,
15
<PAGE>
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; all tenements, profits a prendre, hereditaments, appurtenances and
properties in anywise appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests, properties, rights, titles, interests and estates
described or referred to above, including any and all property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any
of such Hydrocarbon Interests or property (excluding drilling rigs,
automotive equipment or other personal property which may be on such premises
for the purpose of drilling a well or for other similar temporary uses) and
including, without limitation, any and all oil wells, gas wells, water wells,
injection wells or other wells, buildings, structures, fuel separators,
liquid extraction plants, plant compressors, pumps, pumping units, field
gathering systems, tanks and tank batteries, fixtures, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and
rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.
"Participant" shall have the meaning provided in Section 9.4(b).
"Payment Date" shall mean the last day of each March, June, September,
and December, in each year; provided, however, that if any such day is not a
Business Day, such Payment Date shall be the next succeeding Business Day.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.
"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or instrumentality
thereof.
"Plan" means any employee benefit plan covered by Title IV of ERISA, the
funding requirements of which:
16
<PAGE>
(i) were the responsibility of the Borrower or a member of its ERISA
Controlled Group at any time within the five years immediately preceding
the date hereof,
(ii) are currently the responsibility of the Borrower or a member of
its ERISA Controlled Group, or
(iii) hereafter become the responsibility of the Borrower or a member
of its ERISA Controlled Group,
including any such plans as may have been, or may hereafter be, terminated
for whatever reason.
"Pledge Agreement" shall have the meaning provided in Section 3.1(a)(iii).
"Pro Rata Share" as to any Bank shall mean a fraction (expressed as a
percentage), the numerator of which shall be the aggregate amount of such
Bank's Commitments and the denominator of which shall be the Total Commitment.
"Purchasing Banks" shall have the meaning provided in Section 9.4(d).
"Regulation D" shall mean Regulation D of the Federal Reserve Board as
from time to time in effect and any successor to all or any portion thereof.
"Reportable Event" has the meaning set forth in Section 4043(b) of ERISA
(other than a Reportable Event as to which the provision of 30 days notice to
the PBGC is waived under applicable regulations), or is the occurrence of any
of the events described in Section 4068(f) or 4063(a) of ERISA.
"Required Banks" shall mean Banks holding more than 66 2/3% of the
principal amount of Loans outstanding or, if no Loans are outstanding, more
than 66 2/3% of the Total Commitments.
"Revolving Credit Period" shall mean the period from the Closing Date to
but not including the Conversion
17
<PAGE>
Date.
"Security Documents" shall mean and include the Guaranty, the Letters of
Credit, the Letter of Credit Agreements, the Pledge Agreement, and the
Mortgage.
"Subsidiary" of any Person shall mean and include (i) any corporation 50%
or more of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such Person
directly or indirectly through Subsidiaries and (ii) any partnership,
association, joint venture or other entity in which such Person, directly or
indirectly through Subsidiaries, is either a general partner or has a 50% or
more equity interest at the time.
"TCW Credit Agreement" shall mean that certain Credit Agreement dated
November 29, 1995, among Inland Production Company, Inland Resources Inc.,
Trust Company of the West, TCW Asset Management Company and The TCW Debt and
Royalty Funds IV.
"Term Loan Period" shall mean the period commencing on the Conversion
Date and ending on the Final Maturity Date.
"Termination Event" shall mean (i) a Reportable Event, or (ii) the
initiation of any action by the Borrower, any member of the Borrower's ERISA
Controlled Group or any ERISA Plan fiduciary to terminate an ERISA Plan or
the treatment of an amendment to an ERISA Plan as a termination under ERISA,
or (iii) the institution of proceedings by the PBGC under Section 4042 of
ERISA to terminate an ERISA Plan or to appoint a trustee to administer any
ERISA Plan.
"Total Commitment" shall mean, at any time, the sum of the Commitments of
all of the Banks at such time.
"Transferee" shall have the meaning provided in Section 9.4(e).
"Transfer Supplement" shall have the meaning
18
<PAGE>
provided in Section 9.4(d).
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, I.E., a Base Rate Loan or a LIBO Rate
Loan.
"Unfunded Benefit Liabilities" means with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefit
liabilities under such Plan as defined in Section 4001(a)(16) of ERISA,
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan (on the basis of assumptions prescribed by the PBGC for the purpose of
Section 4044 of ERISA).
Section 0.1 RULES OF CONSTRUCTION. When used in this Agreement:
(a) the singular includes the plural and the plural includes the
singular;
(b) "or" is not exclusive;
(c) a reference to any law, statute, regulation, order or ruling
includes the same as amended, supplemented or otherwise modified and in
effect from time to time and any replacement thereof;
(d) a reference to a Person includes its permitted successors and
permitted assigns and, in the case of any governmental entity or body, any
Person succeeding to its functions and capacities;
(e) a reference to an agreement, instrument or document shall include
such agreement, instrument or document as the same may be amended, modified,
supplemented, replaced or superseded from time to time in accordance with its
terms and as permitted by the Loan Documents;
(f) the words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall, unless otherwise expressly
specified, refer to this Agreement as a whole and not to any particular
provision of this Agreement and all references to Sections, Articles,
Schedules and Exhibits shall be ref-
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erences to Sections, Articles, Schedules and Exhibits of this Agreement
unless otherwise expressly specified; and
(g) Except as otherwise expressly provided in this Agreement, references
to documents or certificates "substantially in the form" of Exhibits to
another document shall mean that such documents or certificates are duly
completed in the form of the related Exhibits with substantive changes
subject to the provisions of Section 9.5.
SECTION 1. AMOUNT AND TERMS OF CREDIT FACILITIES.
Section 1.1 LOANS.
(a) Subject to and upon the terms and conditions herein set forth, each
Bank severally and not jointly agrees, at any time and from time to time on
and after the Closing Date and prior to the Conversion Date, to make loans
(collectively, "Loans") to the Borrower, in an aggregate principal amount at
any time outstanding up to but not exceeding the amount of such Bank's
Commitment as then in effect; PROVIDED, HOWEVER, that the aggregate principal
amount of all such Loans by all Banks hereunder at any one time outstanding
together with the LC Commitment shall not exceed the Maximum Commitment. The
sum of the Commitments of all of the Banks (the "Total Commitment") on the
Closing Date shall be Fifty Million Dollars ($50,000,000). The Loans of each
Bank made on the Closing Date shall be initially made as a Base Rate Loan and
may thereafter be maintained at the option of the Borrower as a Base Rate
Loan or a LIBO Rate Loan, in accordance with the provisions hereof. During
the Revolving Credit Period, Loans may be voluntarily prepaid pursuant to
Section 2.12, and, subject to the other provisions of this Agreement, any
amounts so prepaid may be reborrowed.
(b) All Loans outstanding on the Conversion Date shall be converted to
a single loan to the Borrower of a sum equal to the amount of all Loans
outstanding on the Conversion Date. Commencing on the Payment Date
immediately following the Conversion Date and on each Payment Date
thereafter, the aggregate principal amount of the Loans outstanding on the
Conversion Date shall be payable in twelve (12) equal consecutive quarterly
installments, sufficient to amortize the outstanding principal amount over
the Term Loan Period with final payment
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of the remaining principal balance of the Loans dues on the Final Maturity
Date.
(c) During the Revolving Credit Period, each Borrowing of Loans shall be
in the aggregate minimum amount of $100,000 or any integral multiple of
$50,000 in excess thereof.
Section 1.2 LETTERS OF CREDIT. During the period from and including the
Closing Date up to but excluding two (2) days prior to the Final Maturity
Date, the Agent, as issuing bank for the Banks, agrees to extend credit for
the account of the Borrower or any Subsidiary at any time and from time to
time by issuing, renewing, extending or reissuing Letters of Credit; provided
however, the full amount of all Letters of Credit at any one time outstanding
shall not exceed the lesser of (i) the LC Commitment or (ii) the Maximum
Commitment, as then in effect, minus the aggregate principal amount of all
Loans then outstanding. Upon issuance of any Letters of Credit hereunder,
the Banks shall be irrevocably and automatically deemed to have purchased a
participation in such Letters of Credit according to their respective Pro
Rata Share.
Section 1.3 DETERMINATION OF THE BORROWING BASE. During the period from
the date hereof to the date of the first determination of the Borrowing Base
pursuant to the further provisions of this SECTION 2.3, the amount of the
Borrowing Base shall be Twenty-Six Million Dollars ($26,000,000.00) (the
"Initial Borrowing Base"). The Borrowing Base may be reduced or increased
from time to time pursuant to a redetermination thereof as set forth in this
Section 2.3.
Section 1.3.1 ANNUAL REDETERMINATION OF BORROWING BASE. Promptly after
January 1 of each calendar year, commencing January 1, 1998, and in any event
prior to March 15th of such calendar year, the Borrower shall furnish to the
sAgent a report in form and substance satisfactory to the Agent, audited by an
independent engineer satisfactory to the Agent, which report shall be dated
as of January 1 of such calendar year and shall set forth the proven and
producing oil and gas reserves attributable to Hydrocarbon Interests of the
Borrower, including the Mortgaged Properties and any new Hydrocarbon
Interests of the Borrower acceptable to the Agent,
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such report to include a projection of the rate of production and net
operating income with respect thereto, as of such date. Within thirty (30)
days after receipt of such report, the Agent shall make a determination of
the principal amount of the Loans to remain available to the Borrower
hereunder (herein as determined and redetermined from time to time and in
effect on any date called the "Borrowing Base") on account of such reserves
as of such January 1; PROVIDED THAT in computing the Borrowing Base, at least
eighty percent (80%) of the net present value of oil and gas reserves
included in the Borrowing Base (such net present value being, determined by
the Agent in its sole discretion) must be attributable to Mortgaged
Properties. Following such determination the Agent shall promptly propose to
the Banks a new Borrowing Base in a timely and complete manner. After having
received notice of such proposal by the Agent, the Required Banks shall have
ten (10) Business Days to agree or disagree with such proposal. If at the
end of the ten (10) Business Days, the Required Banks have not communicated
their approval or disapproval, such silence shall be deemed to be an approval
and the Agent's proposal shall be the new Borrowing Base. If however, the
Required Banks notify Agent within ten (10) Business Days of their
disapproval, the Agent shall, within a reasonable period of time, redetermine
the Borrowing Base. The Agent shall promptly notify the Borrower and the
Banks in writing of the amount of Borrowing Base then in effect, PROVIDED
THAT failure to so notify the Borrower shall not affect the Borrower's
obligations hereunder or subject the Agent to liability. The determination
of the Borrowing Base made by the Agent shall be so made by the Agent in the
exercise of its sole discretion in accordance with the Agent's customary
practices and standards for oil and gas loans.
Section 1.3.2 SEMI-ANNUAL SCHEDULED DETERMINATION OF THE BORROWING BASE.
In addition, within forty-five (45) days after each July 1, commencing July
1, 1998, the Borrower will make available for review by the Agent monthly
production data for each lease or other interest included within the
Hydrocarbon Interests of the Borrower for the six (6) month period preceding
such date (PROVIDED THAT, to the extent such data may not be available,
monthly production data for June of such period may be based on reasonable
estimates of the Borrower) together with the Borrower's projection of the
rate of produc-
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tion and net operating income for such properties (in the aggregate) during
the next succeeding six (6) month period. Also to be made available are the
reserves, projected rate of income and net operating income on any
Hydrocarbon Interests which were developed by the Borrower subsequent to the
preceding January 1 and which are to be included in the Borrowing Base
subject to the Agent's consent (in its sole discretion) and with respect to
which the Agent shall have received title opinions in form and substance
satisfactory to the Agent. The Agent shall have thirty (30) days after
receipt of this information from the Borrower to propose a new Borrowing Base
as of the preceding July 1 to the Banks. The determination of the Borrowing
Base shall be made in the same manner and be subject to the same approvals as
prescribed in Section 2.3.1.
Section 1.3.3 DISCRETIONARY DETERMINATION OF THE BORROWING BASE.
(a) In addition to the foregoing scheduled annual and semi-annual
determinations of the Borrowing Base, the Agent shall have the right to
redetermine the Borrowing Base at its sole discretion at any time and from
time to time but not more often than once every six calendar months, based on
the latest reports delivered pursuant to Sections 2.3.1 or 2.3.2 and/or upon
such other information as the Agent may request. Each such discretionary
redetermination of the Borrowing Base shall be made in the same manner and in
accordance with the procedures and standards set forth above by adjusting the
Borrowing Base then in effect. If the Agent shall elect to make a
discretionary redetermination of the Borrowing Base pursuant to the
provisions of this Section 2.3.3(a), the Borrower shall within thirty (30)
days of receipt of a request therefor from the Agent deliver to the Agent
such updated engineering, production and operating data as the Agent shall
request, including monthly production data for each lease or interest
included within the Hydrocarbon Interests of the Borrower and the Borrower's
projections of the rate of production and net income for such properties.
The Agent shall have thirty days (30) following receipt of such requested
information to propose a new Borrowing Base as of such date of determination
to the Banks. The determination of the Borrowing Base shall be made in the
same manner and be subject to the same approvals as prescribed in Section
2.3.1.
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(b) In addition, the Borrower shall also have the right to request a
redetermination of the Borrowing Base at any time and from time to time but
not more often than once every six calendar months, based on the latest
reports delivered pursuant to Sections 2.3.1 or 2.3.2 and/or upon such other
information as provided by the Borrower. Each such discretionary
redetermination of the Borrowing Base shall be made in the same manner and in
accordance with the procedures and standards set forth above by adjusting the
Borrowing Base then in effect. If the Borrower shall elect to request a
discretionary redetermination of the Borrowing Base pursuant to the
provisions of this Section 2.3.3 (b), the Borrower shall within thirty (30)
days of such request therefor deliver to the Agent updated engineering,
production and operating data, including monthly production data for each
lease or interest included within the Hydrocarbon Interests of the Borrower
and the Borrower's projections of the rate of production and net income for
such properties. The Agent shall have thirty days (30) following receipt of
such information to propose a new Borrowing Base as of such date of
determination to the Banks. The determination of the Borrowing Base shall be
made in the same manner and be subject to the same approvals as prescribed in
Section 2.3.1.
Section 1.3.4 REDETERMINATION OF BORROWING BASE UPON SALE OF OIL AND
GAS PROPERTIES. The Agent will redetermine the Borrowing Base upon any
proposed sale, transfer or conveyance of any Oil and Gas Property of the
Borrower as permitted by Section 6.5 hereof by adjusting the Borrowing Base
then in effect by an amount equal to the value attributed to the Oil and Gas
Properties to be conveyed, as determined by the Agent in its sole discretion
in accordance with its customary practices and standards. Nothing herein
shall be construed to permit the sale, transfer or other conveyance (i) of
any Oil and Gas Properties of the Borrower except in compliance with Section
6.5 or (ii) of any Mortgaged Property.
Section 1.4 NOTICE OF BORROWING.
(a) Whenever the Borrower desires to borrow Loans hereunder, it shall
give the Agent at the Agent's Office prior to 10:00 A.M., New York City time,
on the day of such Borrowing, telex, telecopy or telephonic no-
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tice (promptly confirmed in writing) of each Base Rate Loan, and at least
three (3) Business Days' prior telex, telecopy or telephonic notice (promptly
confirmed in writing) of each LIBO Rate Loan to be made hereunder. Each such
notice (a "Notice of Borrowing") shall be irrevocable and shall specify (i)
the aggregate principal amount of the requested Loans, (ii) the date of
Borrowing (which shall be a Business Day), and (iii) whether such Loans shall
consist of Base Rate Loans or LIBO Rate Loans and, if LIBO Rate Loans, the
initial Interest Period to be applicable thereto (provided, that no LIBO Rate
Loans may be requested or made when any Default or Event of Default has
occurred and is continuing).
(b) The Borrower shall give the Agent at the Agent's Office prior to
10:00 A.M., New York City time, at least three (3) Business Days prior telex,
telecopy or telephonic notice (promptly confirmed in writing) of each request
for the issuance and at least ten (10) Business Days prior telex, telecopy or
telephonic notice (promptly confirmed in writing) of the renewal or extension
of a Letter of Credit hereunder which request shall specify the amount of
such Letter of Credit, the date (which shall be a Business Day) such Letter
of Credit is to be issued, renewed or extended, the duration thereof, the
name and address of the beneficiary thereof, the form of the Letter of
Credit, the number of the Letter of Credit if such Letter of Credit is to be
renewed or extended, and such other information as the Agent may reasonably
request all of which shall be reasonably satisfactory to the Agent. Subject
to the terms and conditions of this Agreement, on the date specified for the
issuance, renewal or extension of a Letter of Credit, the Agent shall issue
such Letter of Credit to the beneficiary thereof. No stated expiration date
of any Letter of Credit shall extend beyond the date that is the earlier of
(i) one (1) year after the date of issuance of the Letter of Credit or (ii)
two (2) days before the Final Maturity Date.
In conjunction with the issuance of each Letter of Credit, the Borrower
and the Subsidiary, if the account party, shall execute a Letter of Credit
Agreement. In the event of any conflict between any provision of a Letter of
Credit Agreement and this Agreement, the Borrower, the Agent and the Banks
hereby agree that the provisions of this Agreement shall govern.
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The Agent will send to the Borrower, immediately upon issuance of any
Letter of Credit, or an amendment thereto, a true and complete copy of such
Letter of Credit, or such amendment thereto.
(c) Promptly after receipt of a Notice of Borrowing, the Agent shall
inform each Bank as to its Pro Rata Share of the Loans or the Letter of
Credit requested thereunder.
Section 1.5 DISBURSEMENT OF FUNDS.
(a) No later than 1:00 P.M., New York City time, on the date specified
in each Notice of Borrowing, each Bank will make available its Pro Rata Share
of the Loans requested to be made on such date, in U.S. dollars and
immediately available funds, at the Agent's Office. After the Agent's
receipt of the proceeds of such Loans, the Agent will make available to the
Borrower by depositing in the Borrower's account at the Agent's Office the
aggregate of the amounts so made available in the type of funds actually
received.
(b) Unless the Agent shall have been notified by any Bank prior to the
date of a Borrowing that such Bank does not intend to make available to the
Agent its portion of the Loans to be made on such date, the Agent may assume
that such Bank has made such amount available to the Agent on such date and
the Agent in its sole discretion may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Agent by such Bank and the Agent
has made such amount available to the Borrower, the Agent shall be entitled
to recover such corresponding amount on demand from such Bank. If such Bank
does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the Borrower and the Borrower
shall immediately repay such corresponding amount to the Agent. The Agent
shall also be entitled to recover from such Bank or the Borrower, as the case
may be, interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Agent to the
Borrower to the date such corresponding amount is recovered by the Agent, at
a rate per annum equal to the then applicable rate of interest, calculated in
accordance with Section 2.7, for the re-
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spective Loans. Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any rights
which the Borrower may have against any Bank as a result of any default by
such Bank hereunder. Notwithstanding anything contained herein or in any
other Loan Document to the contrary, the Agent may apply all funds and
proceeds of Collateral available for the payment of any Obligations first to
repay any amount owing by any Bank to the Agent as a result of such Bank's
failure to fund its Loans hereunder.
Section 1.6 NOTES.
(a) The Borrower's obligation to pay the principal of, and interest on,
each Bank's Loans shall be evidenced by in the case of such Bank's Loans, a
promissory note (a "Note") duly executed and delivered by the Borrower
substantially in the form of Exhibit A hereto in a principal amount equal to
such Bank's Commitment, with blanks appropriately completed in conformity
herewith. Each Note issued to a Bank shall (x) be payable to the order of
such Bank, (y) be dated the Closing Date, and (z) mature on the Final
Maturity Date.
(b) Each Bank is hereby authorized, at its option, either (i) to
endorse on the schedule attached to its Note (or on a continuation of such
schedule attached to such Note and made a part thereof) an appropriate
notation evidencing the date and amount of each Loan evidenced thereby and
the date and amount of each principal and interest payment in respect
thereof, or (ii) to record such Loans and such payments in its books and
records. Such schedule or such books and records, as the case may be, shall
constitute prima facie evidence of the accuracy of the information contained
therein.
Section 1.7 INTEREST.
(a) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Base Rate Loan from the date of the making of such
Loan until such Loan shall be paid in full at a rate per annum which shall be
equal to the Base Rate in effect from time to time plus the Applicable
Margin, but in no event to exceed the Highest Lawful Rate, such rate to
change as and when the Base Rate changes, such interest to be
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computed on the basis of a 365 or 366 day year.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each LIBO Rate Loan from the date of the making of such
Loan until such Loan shall be paid in full at a rate per annum which shall be
equal to the sum of the relevant LIBO Rate plus the Applicable Margin, but in
no event to exceed the Highest Lawful Rate, such interest to be computed on
the basis of a 360-day year.
(c) In the event that, and for so long as, any Event of Default shall
have occurred and be continuing, the outstanding principal amount of all
Loans and, to the extent permitted by law, overdue interest in respect of all
Loans, shall bear interest at a rate per annum (the "Default Rate") equal to
the sum of two percent (2%) plus the interest rate otherwise applicable
hereunder to such principal amount in effect from time to time.
(d) Interest on each Loan shall accrue from and including the date of
the Borrowing thereof to but excluding the date of any repayment thereof
(provided that any Loan borrowed and repaid on the same day shall accrue one
day's interest) and shall be payable (i) in respect of each Base Rate Loan,
quarterly in arrears on each Payment Date, (ii) in respect of each LIBO Rate
Loan, on the last day of each Interest Period applicable to such Loan and, if
such Interest Period is longer than three months, at three-month intervals
following the first day of such Interest Period, and (iii) in the case of all
Loans, on any prepayment or conversion (on the amount prepaid or converted),
at maturity (whether by acceleration or otherwise) and, after such maturity,
on demand.
(e) The Agent shall, upon determining the LIBO Rate for any Interest
Period, promptly notify the Borrower and the Banks thereof.
Section 1.8 INTEREST PERIODS.
(a) The Borrower shall, in each Notice of Borrowing or Notice of
Conversion or Continuation in respect of the making of, conversion into or
continuation of a LIBO Rate Loan, select the amount and the interest period
(each an "Interest Period") applicable to such
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LIBO Rate Loan, which Interest Period shall, at the option of the Borrower,
be either a one-month, two-month, three-month, six-month period, nine-month
period or (if available to all of the banks) twelve-month period provided
that:
(i) the initial Interest Period for any LIBO Rate Loan shall
commence on the date of the making of such Loan (including the date of
any con-version from a Base Rate Loan) and each Interest Period
occurring thereafter in respect of such Loan shall commence on the date
on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, PROVIDED, HOWEVER, that if any Interest
Period would otherwise expire on a day which is not a Business Day but
is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(iii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iv) no Interest Period in respect of any Loan shall extend
beyond the Final Maturity Date, as the case may be; and
(v) no Interest Period in respect of a Loan during the Term Loan
Period shall extend beyond any date upon which a repayment of the Loans
is required to be made pursuant to Section 2.1 unless the aggregate
principal amount of Loans which are Base Rate Loans or which have
Interest Periods which will expire on or before such date is equal to
or in excess of the amount of the Loan repayment required to be made on
such date.
(b) If by the time specified in Section 2.10(b), upon the expiration
of any Interest Period, the Borrower has failed to elect a new Interest
Period to be
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applicable to the respective LIBO Rate Loan as provided above, the Borrower
shall be deemed to have elected to convert such LIBO Rate Loans into Base
Rate Loans effective as of the expiration date of such current Interest
Period.
Section 1.9 MINIMUM AMOUNT OF LIBO RATE LOANS. All borrowings,
conversions, continuations, payments, prepayments and selection of Interest
Periods hereunder shall be made or selected so that, after giving effect
thereto, (i) the aggregate principal amount of any Borrowing comprised of
LIBO Rate Loans shall not be less than $100,000 or an integral multiple of
$50,000 in excess thereof, and (ii) there shall be no more than five (5)
Borrowings comprised of LIBO Rate Loans outstanding at any time.
Section 1.10 CONVERSION OR CONTINUATION.
(a) Subject to the other provisions hereof, the Borrower shall have the
option (i) to convert at any time all or any part of outstanding Base Rate
Loans which comprise part of the same Borrowing to LIBO Rate Loans, (ii) to
convert all or any part of outstanding LIBO Rate Loans which comprise part of
the same Borrowing to Base Rate Loans, on the expiration date of the Interest
Period applicable thereto, or (iii) to continue all or any part of
outstanding LIBO Rate Loans which comprise part of the same Borrowing as LIBO
Rate Loans for an additional Interest Period, on the expiration of the
Interest Period applicable thereto; PROVIDED that (A) no Base Rate Loan may
be converted into a LIBO Rate Loan at any time during the first two days
after the Closing Date and (B) no Loan may be continued as, or converted
into, a LIBO Rate Loan when any Default or Event of Default has occurred and
is continuing.
(b) In order to elect to convert or continue a Loan under this Section
2.10, the Borrower shall deliver an irrevocable notice thereof (a "Notice of
Conversion or Continuation") to the Agent no later than 10:00 A.M., New York
City time, (i) at least three (3) Business Days in advance of the proposed
conversion date in the case of a conversion to a Base Rate Loan and (ii) at
least three (3) Business Days in advance of the proposed conversion or
continuation date in the case of a conversion to, or a continuation of, a
LIBO Rate Loan. A Notice of Conver-
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sion or Continuation shall specify (w) the requested conversion or
continuation date (which shall be a Business Day), (x) the amount and the
Loan to be converted or continued, (y) whether a conversion or continuation
is requested, and (z) in the case of a conversion to, or a continuation of, a
LIBO Rate Loan, the requested Interest Period. Promptly after receipt of a
Notice of Conversion or Continuation under this Section 2.10(b), the Agent
shall provide each Bank notice thereof.
Section 1.11 CHANGES OF COMMITMENTS.
(a) The Maximum Commitment shall at all times be equal to the lesser of
(i) the Total Commitment after adjustments resulting from reductions pursuant
to Section 2.11(b) hereof or (ii) the Borrowing Base as determined from time
to time.
(b) Upon at least three Business Day's prior irrevocable written notice
(or telephonic notice promptly confirmed in writing) to the Agent (which
notice the Agent shall promptly transmit to each of the Banks), the Borrower
shall have the right, without premium or penalty, to permanently reduce each
Bank's Pro Rata Share of all or part of the Total Commitment, provided that
(i) any such partial reduction shall be in the minimum aggregate amount of
$100,000 or any integral multiple of $50,000 in excess thereof, and (ii) the
Borrower shall not have the right to reduce the Total Commitment below any
amount equal to the LC Exposure unless the Borrower provides cash collateral
in an amount equal to the LC Exposure.
Section 1.12 VOLUNTARY PREPAYMENTS. The Borrower shall have the right
to prepay the Loans in whole or in part from time to time on the following
terms and conditions: (i) the Borrower shall give the Agent written notice
(or telephonic notice promptly confirmed in writing), which notice shall be
irrevocable, of its intent to prepay the Loans, at least three (3) Business
Days prior to a prepayment of LIBO Rate Loans and on the same day of a
prepayment of Base Rate Loans, which notice shall specify the amount of such
prepayment and what Types of Loans and which Facilities are to be prepaid
and, in the case of LIBO Rate Loans, the specific Borrowing(s) pursuant to
which made, and which notice the Agent shall promptly transmit to each of the
Banks, (ii) each
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prepayment shall be in an aggregate principal amount of $100,000 or any
integral multiple of $50,000 in excess thereof, (iii) prepayments of LIBO
Rate Loans made pursuant to this Section shall be in an amount no less than
(A) $1,000,000 and in integral multiples of $100,000 in excess thereof, or
(B) the remaining aggregate principal balance of such LIBO Rate Loan, and
shall be subject to the terms of Section 2.19, and (iv) partial prepayments
of the Loans during the Term Loan Period shall be applied to the scheduled
installments of principal thereof in the inverse order of maturity.
Section 1.13 MANDATORY PREPAYMENTS.
(a) On each date after the Closing Date on which the Borrower or any of
its Subsidiaries receives any Net Sale Proceeds, the Borrower shall prepay
the outstanding Loans in an amount equal to 100% of the amount of such Net
Sale Proceeds, in accordance with the provisions of Section 2.15.
(b) On each date after the Closing Date on which the Borrower or any of
its Subsidiaries receives proceeds of any insurance payment or condemnation
award in respect of any of its assets, if all such proceeds relating to such
awards or payments exceed $50,000 individually or $100,000 in the aggregate,
the Borrower shall prepay the outstanding Loans in an amount equal to 100% of
such proceeds, in accordance with the provisions of Section 2.15.
(c) On each day on which the Total Commitment is reduced pursuant to
Section 2.11(b), the Borrower shall prepay the Loans to the extent, if any,
that the outstanding aggregate principal amount of the Loans plus the LC
Commitment exceeds such reduced Total Commitment.
Section 1.14 MANDATORY PREPAYMENTS AND OTHER ACTIONS WHEN THE LOAN
EXCEEDS THE BORROWING BASE. In the event the unpaid principal amount of the
Loans plus the LC Exposure shall, at the time of any determination of the
Borrowing Base pursuant to the terms of SECTION 2.3 hereof, be in excess of
the Borrowing Base at such time, the Agent shall so notify the Borrower in
the report of the Agent's determination delivered to the Borrower and the
Borrower shall, within fifteen (15) days after notice of any such
determination, notify the Agent that it
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intends either (i) to subject to a perfected, first priority lien in favor of
the Agent pursuant to a Mortgage, within 30 days of any such determination,
by instruments in form and substance satisfactory to the Agent, additional
Collateral not previously included in the Borrowing Base of a type and with
value in amounts satisfactory to the Agent in order to increase the Borrowing
Base and the Mortgaged Properties by an amount at least equal to such excess,
or (ii) to accelerate the Conversion Date if such event occurs during the
Revolving Credit Period, or (iii) to make mandatory prepayments of principal
on account of the Notes together with accrued interest thereon and/or provide
cash collateral for the Letters of Credit, within 30 days of such
determination in amounts necessary to eliminate the excess of principal
amount of the Loans plus the LC Exposure over the Borrowing Base; PROVIDED
THAT the existence of any excess of principal amount of the Loans plus the LC
Exposure over the Borrowing Base then in effect on the 31st day after such
determination shall constitute an Event of Default pursuant to Section 7.1(a)
or (iv) with the consent of the Agent in its sole and absolute discretion, to
make mandatory payments of principal on account of the Notes together with
accrued interest thereon on a schedule agreed to in writing by the Bank and
satisfactory to the Agent in its sole discretion; provided, however, such
repayment period shall not exceed a six (6) month period commencing on the
day Borrower notifies Agent of his election under this Section 2.14, which
mandatory prepayments of principal shall be in addition to and not in lieu
of any scheduled repayments of principal; and failure by the Borrower to
make any such mandatory prepayments when due shall constitute an Event of
Default hereunder; PROVIDED, HOWEVER, if a Borrowing Base deficiency remains
after prepaying all of the Loans because of outstanding LC Exposure, the
Borrower shall pay to the Agent on behalf of the Banks an amount equal to
such Borrowing Base deficiency to be held as cash collateral as provided in
Section 2.23(b) hereof.
In addition to the above, if the unpaid principal amount of the Loans
plus the LC Exposure shall at any time exceed the Borrowing Base or any Event
of Default or any event or condition which, with the passage of time or
giving of notice or both, would constitute an Event of Default has occurred
and is continuing, the Agent may, in the exercise of its sole and absolute
discretion, from
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time to time request the Borrower to grant to the Agent a Lien with respect
to any or all Oil and Gas Properties included in the calculation of the
Borrowing Base but not included in the Mortgaged Properties and the Borrower
shall, within thirty (30) days of the date of any such request, grant to the
Agent as security for the obligations of the Borrower pursuant to the Loan
Documents, a Lien pursuant to collateral documents and other instruments in
form and substance satisfactory to the Agent in and to additional Oil and Gas
Properties which together with the Mortgaged Properties theretofore subject
to a Lien in favor of the Agent, constitute Liens on Oil and Gas Properties
having a net present value at least equal to 100% of the then net present
value of the oil and gas reserves included in the Borrowing Base then in
effect (such net present value being determined by the Agent in the exercise
of its sole and absolute discretion in accordance with the Agent's customary
practices for oil and gas loans). Concurrently therewith and with any
Mortgage delivered pursuant to CLAUSE (i) of the preceding paragraph, the
Borrower shall execute and deliver or cause to be executed and delivered any
board resolutions, legal opinions, title opinions, or insurance or other
evidence or guaranty of title and other instruments and documents (including
environmental assessments and appraisals) as the Agent shall require in its
sole and absolute discretion and in form and substance satisfactory to the
Agent.
Section 1.15 APPLICATION OF PREPAYMENTS. All prepayments of the Loans
required by Sections 2.13 and 2.14 shall be applied FIRST, to prepay the Base
Rate Loans until such Base Rate Loans shall have been repaid in full,
together with accrued and unpaid interest thereon, SECOND, to prepay the
LIBO Rate Loans until such LIBO Rate Loans shall have been repaid in full,
together with accrued and unpaid interest thereon, and THIRD, to all other
outstanding Obligations. Simultaneously with any prepayment of the principal
amount of the Loans pursuant to Section 2.13, each Bank's Commitment shall be
permanently reduced by such Bank's Pro Rata Share of such prepayment;
PROVIDED, that no Bank's Commitment shall be reduced to an amount that is
less than such Bank's LC Exposure unless the Borrower provides cash
collateral in an amount equal to such LC Exposure. All prepayments of the
Loans during the Term Loan Period shall be applied to the scheduled
installments of principal thereof in the
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inverse order of maturity.
Section 1.16 METHOD AND PLACE OF PAYMENT.
(a) Except as otherwise specifically provided herein, all payments and
prepayments under this Agreement, the Notes and the Letters of Credit shall
be made to the Agent for the account of the Banks entitled thereto not later
than 2:00 P.M., New York City time, on the date when due and shall be made in
lawful money of the United States of America in immediately available funds
at the Agent's Office, and any funds received by the Agent after such time
shall, for all purposes hereof (including the following sentence), be deemed
to have been paid on the next succeeding Business Day. Except as otherwise
specifically provided herein, the Agent shall thereafter cause to be
distributed on the date of receipt thereof to each Bank in like funds its Pro
Rata Share of payments so received.
(b) Whenever any payment to be made hereunder or under any Note shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate
during such extension.
(c) All payments made by the Borrower hereunder and under the other
Loan Document shall be made irrespective of, and without any reduction for,
any setoff or counterclaims.
Section 1.17 FEES.
(a) The Borrower agrees to pay the fees in the amounts and on the dates
specified in the Fee Letter.
(b) The Borrower agrees to pay to the Agent for the account of each Bank
a commitment fee, computed at the per annum rate of .375% on the Average
Daily Unused Portion of the Maximum Commitment on the basis of a 365 or 366
day year, from and including the Closing Date to the Conversion Date, payable
quarterly in arrears on each Payment Date and on the Conversion Date or such
earlier date, if any, on which the Commitment shall terminate in accordance
with the terms hereof.
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(c) The Borrower agrees to pay the Agent $5,000 for any unscheduled
determinations of the Borrowing Base requested by the Borrower.
(d) The Borrower agrees to pay the Agent, for the account of each Bank,
commissions for issuing the Letters of Credit on the daily average
outstanding of the maximum liability of the Bank existing from time to time
under such Letter of Credit (calculated separately for each Letter of Credit)
at a rate equal to the Applicable Margin for LIBO Rate Loans per annum on the
basis of a 365 or 366 day year, provided that each Letter of Credit shall
bear a minimum commission of $500 and that each Letter of Credit shall be
deemed to be outstanding up to the full face amount of the Letter of Credit
until the Agent has received the cancelled Letter of Credit or a written
cancellation of the Letter of Credit from the beneficiary of such Letter of
Credit in form and substance acceptable to the Agent, or for any reductions
in the amount of the Letter of Credit (other than from a drawing), written
notification from the Borrower. Such commissions are payable quarterly in
arrears on each Payment Date.
(e) The Borrower agrees to pay to the Agent, for its own account, an
issuing fee of % of the face value of the Letter of Credit payable quarterly
in arrears on each Payment Date for the actual number of days elapsed on a
basis of a 365 or 366 day year.
Section 1.18 INTEREST RATE UNASCERTAINABLE, INCREASED COSTS, ILLEGALITY.
(a) In the event that the Agent, in the case of clause (i) below, or any
Bank, in the case of clauses (ii) and (iii) below, shall have determined
(which determination shall, absent manifest error, be final and conclusive
and binding upon all parties hereto):
(i) on any date for determining the LIBO Rate for any Interest
Period, that by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of the LIBO Rate; or
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(ii) at any time, that the relevant LIBO Rate applicable to any of
its Loans shall not represent the effective pricing to such Bank for
funding or maintaining a LIBO Rate Loan, or such Bank shall incur
increased costs or reductions in the amounts received or receivable
hereunder in respect of any LIBO Rate Loan, in any such case because of
(x) any change since the date of this Agreement in any applicable law or
governmental rule, regulation, guideline or order or any interpretation
thereof and including the introduction of any new law or governmental
rule, regulation, guideline or order (such as for example but not
limited to a change in official reserve requirements, but, in all
events, excluding reserves required under Regulation D of the Federal
Reserve Board to the extent included in the computation of the LIBO
Rate), whether or not having the force of law and whether or not failure
to comply therewith would be unlawful, and/or (y) other circumstances
affecting such Bank or the interbank Eurodollar market or the position
of such Bank in such market; or
(iii) at any time, that the making or continuance by it of any LIBO
Rate Loan has become unlawful by compliance by such Bank in good faith
with any law or governmental rule, regulation, guideline or order
(whether or not having the force of law and whether or not failure to
comply therewith would be unlawful) or has become impracticable as a
result of a contingency occurring after the date of this Agreement which
materially and adversely affects the interbank Eurodollar market;
then, and in any such event, the Agent or such Bank shall, promptly after
making such determination, give notice (by telephone promptly confirmed in
writing) to the Borrower and (if applicable) the Agent of such determination
(which notice the Agent shall promptly transmit to each of the other Banks).
Thereafter (x) in the case of clause (i) above, the Borrower's right to
request LIBO Rate Loans shall be suspended, and any Notice of Borrowing or
Notice of Conversion or Continuation given by the Borrower with respect to
any Borrowing of LIBO Rate Loans which has not yet been made shall be deemed
cancelled and rescinded by the Borrower, (y) in the case of clause (ii)
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above, the Borrower shall pay to such Bank, upon such Bank's delivery,
written demand therefor to the Borrower with a copy to the Agent, such
additional amounts (in the form of an increased rate of interest, or a
different method of calculating interest, or otherwise, as such Bank in its
sole discretion shall determine) as shall be required to compensate such Bank
for such increased costs or reduction in amounts received or receivable
hereunder and (z) in the case of clause (iii) above, the Borrower shall take
one of the actions specified in clause (b) below as promptly as possible and,
in any event, within the time period required by law. The written demand
provided for in clause (y) shall demonstrate in reasonable detail the
calculation of the amounts demanded and shall, absent manifest error, be
final and conclusive and binding upon all of the parties hereto.
(b) In the case of any LIBO Rate Loan or requested LIBO Rate Loan
affected by the circumstances described in clause (a)(ii) above, the Borrower
may, and in the case of any LIBO Rate Loan affected by the circumstances
described in clause (a)(iii) above the Borrower shall, either (i) if any such
LIBO Rate Loan has not yet been made but is then the subject of a Notice of
Borrowing or a Notice of Conversion or Continuation, be deemed to have
cancelled and rescinded such notice, or (ii) if any such LIBO Rate Loan is
then outstanding, require the affected Bank to convert each such LIBO Rate
Loan into a Base Rate Loan at the end of the applicable Interest Period or
such earlier time as may be required by law, in each case by giving the Agent
notice (by telephone promptly confirmed in writing) thereof on the Business
Day that the Borrower was notified by the Bank pursuant to clause (a) above;
PROVIDED, HOWEVER, that all Banks whose LIBO Rate Loans are affected by the
circumstances described in clause (a) above shall be treated in the same
manner under this clause (b).
(c) In the event that the Agent determines at any time following its
giving of notice based on the conditions described in clause (a)(i) above
that none of such conditions exist, the Agent shall promptly give notice
thereof to the Borrower and the Banks, whereupon the Borrower's right to
request LIBO Rate Loans from the Banks and the Banks' obligation to make LIBO
Rate Loans shall be restored.
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(d) In the event that a Bank determines at any time following its giving
of a notice based on the conditions described in clause (a)(iii) above that
none of such conditions exist, such Bank shall promptly give notice thereof
to the Borrower and the Agent, whereupon the Borrower's right to request LIBO
Rate Loans from such Bank and such Bank's obligation to make LIBO Rate Loans
shall be restored.
Section 1.19 FUNDING LOSSES. The Borrower shall compensate each Bank,
upon such Bank's delivery of a written demand therefor to the Borrower, with
a copy to the Agent (which demand shall set forth the basis for requesting
such amounts and shall, absent manifest error, be final and conclusive and
binding upon all of the parties hereto), for all reasonable losses, expenses
and liabilities (including, without limitation, any loss, expense or
liability incurred by such Bank in connection with the liquidation or
reemployment of deposits or funds required by it to make or carry its LIBO
Rate Loans), that such Bank sustains:
(i) if for any reason (other than a default by such Bank) a
Borrowing of, or conversion from or into, or a continuation of, LIBO
Rate Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion or Continuation (whether or not
rescinded, cancelled or withdrawn or deemed rescinded, cancelled or
withdrawn, pursuant to Section 2.18(a) or 2.18(b) or otherwise);
(ii) if any repayment (including, without limitation, payment after
acceleration) or conversion of any of its LIBO Rate Loans occurs on a
date which is not the last day of the Interest Period applicable thereto;
(iii) if any prepayment of any of its LIBO Rate Loans is not made
on any date specified in a notice of prepayment given by the Borrower;
or
(iv) as a consequence of any default by the Borrower in repaying
its LIBO Rate Loans or any other amounts owing hereunder in respect of
its LIBO Rate Loans when required by the terms of this Agreement.
Calculation of all amounts payable to a Bank
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under this Section 2.19 shall be made on the assumption that such Bank
has funded its relevant LIBO Rate Loan through the purchase of a
Eurodollar deposit bearing interest at the LIBO Rate in an amount equal
to the amount of such LIBO Rate Loan with a maturity equivalent to the
Interest Period applicable to such LIBO Rate Loan, and through the
transfer of such Eurodollar deposit from an offshore office of such Bank
to a domestic office of such Bank in the United States of America,
provided that each Bank may fund its LIBO Rate Loans in any manner that
it in its sole discretion chooses and the foregoing assumption shall
only be made in order to calculate amounts payable under this Section
2.19.
Section 1.20 INCREASED CAPITAL. If any Bank shall have determined that
compliance with any applicable law, rule, regulation, guideline, request or
directive (whether or not having the force of law) of any governmental
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the capital or assets of such Bank or any
Person controlling such Bank as a consequence of its Commitments or
obligations hereunder, then from time to time, upon such Bank's delivering a
written demand therefor to the Agent and the Borrower (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amount or amounts
as will compensate such Bank or Person for such reduction.
Section 1.21 TAXES.
(a) All payments made by the Borrower under this Agreement shall be made
free and clear of, and without reduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any governmental authority excluding, in
the case of the Agent and each Bank, net income and franchise taxes imposed
on the Agent or such Bank by the jurisdiction under the laws of which the
Agent or such Bank is organized or any political subdivision or taxing
authority thereof or therein, or by any jurisdiction in which such Bank's
Domestic Lending Office or LIBO Lending Office, as the case may be, is
located or any political subdivision or taxing authority thereof or
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therein (all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"). If any Taxes are required to
be withheld from any amounts payable to the Agent or any Bank hereunder or
under the Notes, the amounts so payable to the Agent or such Bank shall be
increased to the extent necessary to yield to the Agent or such Bank (after
payment of all Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the Notes.
Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter, the Borrower shall send to the Agent for its own account or for
the account of such Bank, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent and the Banks
for any incremental taxes, interest or penalties that may become payable by
the Agent or any Bank as a result of any such failure. The agreements in
this Section 2.21 shall survive the termination of this Agreement and the
payment of the Notes and all other Obligations.
(b) Each Bank that is not incorporated under the laws of the United
States of America or a state thereof (including each Purchasing Bank that
becomes a party to this Agreement pursuant to Section 9.4) agrees that, prior
to the first date on which any payment is due to it hereunder, it will
deliver to the Borrower and the Agent (i) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224 or successor applicable
form, as the case may be, certifying in each case that such Bank is entitled
to receive payments under this Agreement and the Notes payable to it, without
deduction or withholding of any United States federal income taxes, and (ii)
an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as
the case may be, to establish an exemption from United States backup
withholding tax. Each Bank which delivers to the Borrower and the Agent a
Form 1001 or 4224 and Form W-8 or W-9 pursuant to the preceding sentence
further undertakes to deliver to the Borrower and the Agent two further
copies of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms, or other manner of certification, as the case may
be, on or before the date
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that any such letter or form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent letter and form
previously delivered by it to the Borrower, and such extensions or renewals
thereof as may reasonably be requested by the Borrower, certifying in the
case of a Form 1001 or 4224 that such Bank is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required which renders
all such forms inapplicable or which would prevent such Bank from duly
completing and delivering any such letter or form with respect to it and such
Bank advises the Borrower that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax, and
in the case of a Form W-8 or W-9, establishing an exemption from United
States backup withholding tax.
Section 1.22 ASSUMPTION OF RISKS. The Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit or any
transferee thereof with respect to its use of such Letter of Credit. Neither
the Agent (except in the case of willful misconduct or bad faith on the part
of the Agent or any of its employees), its correspondents nor any Bank shall
be responsible for the validity, sufficiency or genuineness of certificates
or other documents or any endorsements thereon, even if such certificates or
other documents should in fact prove to be invalid, insufficient, fraudulent
or forged; for errors, omissions, interruptions or delays in transmissions or
delivery of any messages by mail, telex, or otherwise, whether or not they be
in code; for errors in translation or for errors in interpretation of
technical terms; the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; the failure of any
beneficiary or any transferee of any Letter of Credit to comply fully with
conditions required in order to draw upon any Letter of Credit; or for any
other consequences arising from causes beyond the Agent's control or the
control of the Agent's correspondents. In addition, neither the Agent nor
any
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Bank shall be responsible for any error, neglect, or default of any of the
Agent's correspondents; and none of the above shall affect, impair or prevent
the vesting of any of the Agent's or any Bank's rights or powers hereunder or
under the Letter of Credit Agreements, all of which rights shall be
cumulative. The Agent and its correspondents may accept certificates or
other documents that appear on their face to be in order, without
responsibility for further investigation of any matter contained therein
regardless of any notice or information to the contrary. In furtherance and
not in limitation of the foregoing provisions, the Borrower agrees that any
action, inaction or omission taken or not taken by the Agent or by any
correspondent for the Agent in good faith in connection with any Letter of
Credit, or any related drafts, certificates, documents or instruments, shall
be binding on the Borrower and shall not put the Agent or its correspondents
under any resulting liability to the Borrower.
Section 1.23 OBLIGATION TO REIMBURSE AND TO PREPAY.
(a) If a disbursement by the Agent is made under any Letter of Credit,
the Borrower shall pay to the Agent within two (2) Business Days after notice
of any such disbursement is received by the Borrower, the amount of each such
disbursement made by the Agent under the Letter of Credit (if such payment is
not sooner effected as may be required under this Section 2.23 or under other
provisions of the Letter of Credit), together with interest on the amount
disbursed from and including the date of disbursement until payment in full
of such disbursed amount at a varying rate per annum equal to (i) the then
applicable interest rate for Base Rate Loans to but not including the second
Business Day after notice of such disbursement is received by the Borrower
and (ii) thereafter, the Default Rate for Base Rate Loans (but in no event
to exceed the Highest Lawful Rate) for the period from and including the
second Business Day following the date of such disbursement to and including
the date of repayment in full of such disbursed amount. The obligations of
the Borrower under this Agreement with respect to each Letter of Credit shall
be absolute, unconditional and irrevocable and shall be paid or performed
strictly in accordance with the terms of this Agreement under all
circumstances whatsoever, including, without limitation,
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but only to the fullest extent permitted by applicable law, the following
circumstances: (i) any lack of validity or enforceability of this Agreement,
any Letter of Credit or any of the Security Documents; (ii) any amendment or
waiver of (including any default), or any consent to departure from this
Agreement (except to the extent permitted by any amendment or waiver), any
Letter of Credit or any of the Security Documents; (iii) the existence of
any claim, setoff, defense or other rights which the Borrower may have at any
time against the beneficiary of any Letter of Credit or any transferee of any
Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Agent, any Bank or any other Person, whether
in connection with this Agreement, any Letter of Credit, the Security
Documents, the transactions contemplated hereby or any unrelated
transaction; (iv) any statement, certificate, draft, notice or any other
document presented under any Letter of Credit proves to have been forged,
fraudulent, insufficient or invalid in any respect or any statement therein
proves to have been untrue or inaccurate in any respect whatsoever; (v)
payment by the Agent under any Letter of Credit against presentation of a
draft or certificate which appears on its face to comply, but does not
comply, with the terms of such Letter of Credit; and (vi) any other
circumstance or happening whatsoever, whether or not similar to any of the
foregoing.
Notwithstanding anything in this Agreement to the contrary, the Borrower
will not be liable for payment or performance that results from the gross
negligence or willful misconduct of the Agent, except (i) where the Borrower
or any Subsidiary actually recovers the proceeds for itself or the Agent of
any payment made by the Agent in connection with such gross negligence or
willful misconduct or (ii) in cases where the Agent makes payment to the
named beneficiary of a Letter of Credit.
(b) In the event of the occurrence of any Event of Default, a payment or
prepayment pursuant to Sections 2.12, 2.13 and 2.14 hereof or the maturity of
the Notes, whether by acceleration or otherwise, an amount equal to the LC
Exposure (or the excess in the case of Sections 2.13 and 2.14) shall be
deemed to be forthwith due and owing by the Borrower to the Agent and the
Banks as of the date of any such occurrence; and the Borrower's obligation to
pay such amount shall be abso-
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lute and unconditional, without regard to whether any beneficiary of any such
Letter of Credit has attempted to draw down all or a portion of such amount
under the terms of a Letter of Credit, and, to the fullest extent permitted
by applicable law, shall not be subject to any defense or be affected by a
right of set-off, counterclaim or recoupment which the Borrower may now or
hereafter have against any such beneficiary, the Agent, the Banks or any
other Person for any reason whatsoever. Such payments shall be held by the
Agent on behalf of the Banks as cash collateral securing the LC Exposure in
an account or accounts at the Agent's Office; and the Borrower hereby grants
to and by its deposit with the Agent grants to the Agent a security interest
in such cash collateral. In the event of any such payment by the Borrower
of amounts contingently owing under outstanding Letters of Credit and in the
event that thereafter drafts or other demands for payment complying with the
terms of such Letters of Credit are not made prior to the respective
expiration dates thereof, the Agent agrees, if no Event of Default has
occurred and is continuing or if no other amounts are outstanding under this
Agreement, the Notes or the Security Documents, to remit to the Borrower
amounts for which the contingent obligations evidenced by the Letters of
Credit have ceased.
(c) Each Bank severally and unconditionally agrees that upon the
issuance of any Letter of Credit it shall irrevocably be deemed to have
acquired a participation interest in such Letter of Credit in any amount
equal to such Bank's Pro Rata Share of the face amount of such Letter of
Credit, and it shall promptly reimburse the Agent an amount equal to such
Bank's Pro Rata Share of any disbursement made by the Agent under any Letter
of Credit that is not reimbursed according to this Section 2.23.
Section 1.24 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without
limiting the obligations of the Borrower under any other Section contained
herein (but without duplication), if as a result of any change since the
Closing Date in any applicable law dealing with any risk-based capital
guideline or other requirement heretofore or hereafter issued by any
government authority implementing at the national level the "Basle Accord"
there shall be imposed, modified or deemed applicable any tax, reserve,
special deposit, capital adequacy or simi-
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lar requirement against or with respect to or measured by reference to
Letters of Credit issued or to be issued hereunder and the result shall be to
increase the cost to any Bank of issuing (or acquiring participations in) or
maintaining its obligation hereunder to issue (or acquire participations in)
any Letter of Credit hereunder or reduce any amount receivable by any Bank
hereunder in respect of any Letter of Credit (which increases in cost, or
reductions in amount receivable, shall be the result of such Bank's
reasonable allocation of the aggregate of such increases or reductions
resulting from such event), then, upon demand by such Bank (through the
Agent), the Borrower shall pay immediately to such Bank, from time to time as
specified by such Bank (through the Agent), such additional amounts as shall
be sufficient to compensate such Bank (through the Agent) for such increased
costs or reductions in amount. A statement as to such increased costs or
reductions in amount incurred by any such Bank, submitted by such Bank to the
Borrower, shall be conclusive in the absence of manifest error as to the
amount thereof.
Section 1.25 USE OF PROCEEDS. The proceeds of the Loans made on the
Closing Date shall be used solely to refinance certain obligations of the
Borrower to Trust Company of the West outstanding under the TCW Credit
Agreement on the Closing Date, to fund the repurchase of the overriding
royalty interest granted in connection with the TCW Credit Agreement, and to
pay certain costs relating to execution of this Agreement approved by the
Agent, and the remainder will be working capital for Borrower. The proceeds
of the Loans made after the Closing Date shall be used solely for the
Borrower's working capital, for the purchase of proven Oil and Gas
Properties, and for general corporate purposes. Letters of Credit shall be
used for general corporate purposes.
SECTION 2. CONDITIONS PRECEDENT.
Section 2.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of
each Bank to make its initial Loans and to issue, renew, extend or reissue
Letters of Credit for the accounts of Borrower is subject to the satisfaction
on the Closing Date of the following conditions precedent:
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(a) LOAN DOCUMENTS.
(i) CREDIT AGREEMENT. The Borrower and the Agent shall have
executed and delivered this Agreement to the Agent.
(ii) NOTES. The Borrower shall have executed and delivered to
each of the Banks the appropriate Notes in the amount, maturity and as
otherwise provided herein.
(iii) PLEDGE AGREEMENT. Inland Resources and the Agent shall
have executed and delivered to the Agent a pledge agreement substantially
in the form set forth as Exhibit B hereto (as amended, modified or
supplemented from time to time, the "Pledge Agreement").
(iv) MORTGAGE. The Borrower and the Agent shall have executed
and delivered to the Agent the Mortgages, substantially in the form set
forth as Exhibit C hereto and upon the filing thereof the Agent shall
have, for the benefit of the Banks, a Lien on at least 80% of the value
of the Oil and Gas Properties.
(v) GUARANTY. The Guarantor and the Agent shall have executed
and delivered to the Agent a guaranty substantially in the form set forth
as Exhibit D hereto (as amended, modified or supplemented from time to
time, the "Guaranty").
(b) OPINIONS OF COUNSEL.
(i) The Agent shall have received a legal opinion, dated the
Closing Date, from Glast, Phillips & Murray, P.C., counsel to the Loan
Parties, substantially in the form set forth as Exhibit E hereto.
(ii) The Agent shall have received a legal opinion, dated the
Closing Date, from Ray, Quinney & Nebeker, special Utah Counsel to the
Loan Parties, substantially in the form set forth as Exhibit F hereto.
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(iii) The Agent shall have received a legal opinion, dated the
Closing Date, from Skadden, Arps, Slate, Meagher & Flom LLP,
substantially in the form set forth as Exhibit G hereto.
(c) CORPORATE DOCUMENTS. The Agent shall have received the Certificate
of Incorporation of each of the Loan Parties as amended, modified or
supplemented to the Closing Date, certified to be true, correct and complete
by the appropriate Secretary of State as of a date not more than ten days
prior to the Closing Date, together with a certificate from such Secretary of
State as to good standing and charter documents filed by such Loan Party (or
the equivalent thereof) of each other State in which each of them is required
to be qualified to transact business, each to be dated a date not more than
ten days prior to the Closing Date.
(d) CERTIFIED RESOLUTIONS, ETC. The Agent shall have received a
certificate of the Secretary or Assistant Secretary of each of the Loan
Parties and dated the Closing Date certifying (i) the names and true
signatures of the incumbent officers of such Person authorized to sign the
applicable Loan Documents, (ii) the By-Laws of such Person as in effect on
the Closing Date, (iii) the resolutions of such Person's Board of Directors
approving and authorizing the execution, delivery and performance of all Loan
Documents executed by such Person, and (iv) that there have been no changes
in the Certificate of Incorporation of such Person since the date of the most
recent certification thereof by the appropriate Secretary of State and such
resolutions remain in full force and effect and no other resolutions have
been approved by such Board of Directors relating to the transactions
contemplated in the Loan Documents.
(e) INSURANCE. The Agent shall have received a certificate of insurance
demonstrating insurance coverage in respect of each of the Loan Parties of
types, in amounts, with insurers and with other terms satisfactory to the
Banks, which certificate shall indicate that the Agent and the Banks are
named additional insureds as their interests may appear and shall contain a
lenders loss payee endorsement in favor of the Agent in form and substance
satisfactory to the Agent.
(f) LIEN SEARCH REPORTS. The Agent shall have
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received satisfactory reports of UCC, tax lien, judgment and litigation
searches conducted by a search firm acceptable to the Agent and the Banks
with respect to the Borrower, the Guarantor and the Subsidiaries in each of
the locations requested by the Agent.
(g) UCC-1 FINANCING STATEMENTS. Uniform Commercial Code financing
statements (Form UCC-1), duly executed by the Borrower or the Guarantor, as
the case may be, naming the Borrower as the debtor and the Agent as the
secured party, prepared for filing under the Uniform Commercial Code of all
jurisdictions as may be necessary or, in the opinion of the Agent, desirable
to perfect the security interest of the Agent pursuant to the Mortgage and
the Pledge Agreement.
(h) RELEASES. The Agent shall have received executed copies of proper
Uniform Commercial Code Form UCC-3 termination statements and other releases
of liens, if any, necessary to release all Liens and other rights of any
Person in any collateral described in the Pledge Agreement or Mortgage
previously granted by any Person, including but not limited to a release and
termination of all obligations (except for those obligations listed on
Schedule 3.1(h)) under the TCW Credit Agreement and all related documents,
together with such other Uniform Commercial Code Form UCC-3 termination
statements and releases of liens as the Agent may reasonably request from
any Loan Party.
(i) PLEDGED STOCK. The Agent shall have received the original stock
certificates evidencing the stock pledged pursuant to the Pledge Agreement,
together with undated stock powers duly executed in blank in connection
therewith.
(j) TITLE OPINIONS. The Agent shall have received favorable title
opinions from counsel acceptable to the Agent setting forth the status of
title to at least 80% of the value of the Oil and Gas Properties included in
the reserve report received by the Agent.
(k) LETTERS IN LIEU. Letters in lieu executed by the Borrower or any
Subsidiary, as applicable to each of the purchasers of the Hydrocarbons of
the Borrower or any Subsidiary produced from the Borrower's and any of its
Subsidiaries' Oil and Gas Properties.
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(l) FINANCIAL STATEMENTS. The Agent shall have received the audited
financial statements of the Company for the fiscal year ending December 31,
1996, and the unaudited financial statements of the Company for the fiscal
period ending on March 31, 1997.
(m) ENVIRONMENTAL MATTERS. The Agent shall (i) be satisfied that
neither the Company, any of its Subsidiaries nor any Loan Party is subject to
any present or contingent environmental liability which could have a Material
Adverse Effect and (ii) have received a copy of an environmental report in
form and substance satisfactory to the Agent and the Banks with respect to
the properties and business of the Company, each of its Subsidiaries, the
Loan Parties (if applicable) and each of their Environmental Affiliates.
(n) FEES AND EXPENSES. The Agent shall have received, for its account
and for the account of each Bank, as applicable, all Fees and other fees and
expenses due and payable hereunder on or before the Closing Date, including,
without limitation, the fees and expenses accrued through the Closing Date,
of Skadden, Arps, Slate, Meagher & Flom LLP and any other counsel retained by
the Agent.
(o) PROCESS AGENT. Each Loan Party shall have appointed an agent
satisfactory to the Banks for service of process in connection with any
action or proceeding arising under or relating to the Loan Documents, and
such agent shall have accepted such appointment in writing.
(p) ENGINEERING REPORTS. The Agent shall have received annual and
interim engineering reports covering Borrower's Oil and Gas Properties
prepared or reviewed by an independent consultant acceptable to the Agent.
(q) RECONVEYANCES. Reconveyances of overriding royalty interest
granted in connection with the TCW Credit Agreement duly executed by TCW DR
IV Royalty Partnership, L.P., prepared for filing in all jurisdictions as
may be necessary or, in the opinion of the Agent desirable.
(r) PURCHASERS. The Agent shall have received a current list of
purchasers of Hydrocarbons, together
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with the addresses of such purchasers.
(s) ADDITIONAL MATTERS. The Agent shall have received such other
certificates, opinions, documents and instruments as the Agent or any Bank
may reasonably request.
Section 2.2 CONDITIONS PRECEDENT TO ALL LOANS AND LETTERS OF CREDIT.
The obligation of each Bank to make any Loan and to issue, renew, extend or
reissue Letters of Credit for the account of Borrower (including the initial
Loans made on the Closing Date) is subject to the satisfaction on the date
such Loan is made of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained herein and in the other Loan Documents (other than representations
and warranties which expressly speak only as of a different date) shall be
true and correct in all material respects on such date both before and after
giving effect to the making of such Loans or issuance, renewal, extension, or
reissuance of a Letter of Credit.
(b) NO DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing on such date either before or after
giving effect to the making of such Loans or issuance, renewal, extension, or
reissuance of a Letter of Credit.
(c) NO INJUNCTION. No law or regulation shall have been adopted, no
order, judgment or decree of any governmental authority shall have been
issued, and no litigation shall be pending or threatened, which in the
judgment of the Banks would enjoin, prohibit or restrain, or impose or result
in the imposition of any material adverse condition upon, the making or
repayment of the Loans or issuance, renewal, extension, or reissuance of a
Letter of Credit.
(d) NO MATERIAL ADVERSE CHANGE. No event, act or condition shall have
occurred after March 31, 1997, which, in the judgment of the Required Banks,
has had or could have a Material Adverse Effect.
(e) NOTICE OF BORROWING. The Agent shall have received a fully executed
Notice of Borrowing in respect
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of the Loans to be made on such date.
Section 2.3 CONDITIONS RELATING TO LETTERS OF CREDIT. In addition to the
satisfaction of all other conditions precedent set forth in this Section 3,
the issuance, renewal, extension or reissuance of the Letters of Credit
referred to in Section 2.3 hereof is subject to the following conditions
precedent:
(a) At least three (3) Business Days prior to the date of the issuance
and at least ten (10) Business Days prior to the date of the renewal,
extension or reissuance of each Letter of Credit, the Agent shall have
received a written request for a Letter of Credit.
(b) Each of the Letters of Credit shall (i) be issued by the Agent, (ii)
contain such terms and provisions as are reasonably required by the Agent,
(iii) be for the account of the Borrower or a Subsidiary and (iv) expire not
later than two (2) days before the Final Maturity Date.
(c) The Borrower shall have duly and validly executed and delivered to
the Agent a Letter of Credit Agreement pertaining to the Letter of Credit.
Section 2.4 ACQUISITIONS. The Agent does not anticipate making any Loan
for the acquisition of properties unless the Agent 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 the Agent:
(a) An Acquisition Proposal.
(b) A Mortgage covering the properties to be acquired with such Loan.
(c) Title opinions and other title information concerning the properties
to be acquired with such Loan in form, substance and authorship satisfactory
to the Agent.
(d) A favorable legal opinion, satisfactory to the Agent, if any
property to be acquired in such acquisition is located outside the State of
Utah.
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If the Agent is to make Loans for any acquisition of properties, such
Acquisition Proposal must be submitted to and approved by the Agent during
the Revolving Credit Period and such Loans must be funded during the
Revolving Credit Period, all in accordance with the terms and conditions of
this Agreement. It is understood and agreed that the Agent has no obligation
to make any Loans hereunder for any such acquisition and that the Agent shall
approve or disapprove each Acquisition Proposal in its sole and absolute
discretion.
The acceptance of the proceeds of each Loan or the issuance of any
Letters of Credit shall constitute a representation and warranty by the
Borrower to each of the Banks that all of the conditions required to be
satisfied under this Section 3 in connection with the making of such Loan or
the issuance of such Letter of Credit have been satisfied.
All of the Notes, certificates, agreements, legal opinions and other
documents and papers referred to in this Section 3, unless otherwise
specified, shall be delivered to the Agent for the account of each of the
Banks and, except for the Notes, in sufficient counterparts for each of the
Banks, and, unless otherwise specified, shall be satisfactory in form and
substance to each Bank in its sole discretion.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
In order to induce the Banks to enter into this Agreement, to make the
Loans and to issue, renew, extend or reissue a Letter of Credit, the Borrower
makes the following representations and warranties, which shall survive the
execution and delivery of this Agreement and the Notes and Letters of Credit
and the making of the Loans and the issuance, renewal, extension or
reissuance of a Letter of Credit:
Section 3.1 CORPORATE STATUS. Each Loan Party (i) is a duly organized
and validly existing corporation in good standing under the laws of the
jurisdiction of its incorporation, (ii) has the corporate power and
authority to own its property and assets and to transact the business in
which it is engaged or presently proposes to engage and (iii) has duly
qualified and is
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authorized to do business and is in good standing as a foreign corporation in
every jurisdiction in which it owns or leases real property or in which the
nature of its business requires it to be so qualified, except where the
failure to so qualify, individually or in the aggregate, could not have a
Material Adverse Effect.
Section 3.2 CORPORATE POWER AND AUTHORITY. Each Loan Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents to which it is a party and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of such Loan Documents. Each Loan Party has duly executed
and delivered each such Loan Document, and each such Loan Document
constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms.
Section 3.3 NO VIOLATION. Neither the execution, delivery or
performance by any Loan Party of the Loan Documents to which it is a party,
nor compliance by it with the terms and provisions thereof nor the
consummation of the transactions contemplated in those documents, (i) will
contravene any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or governmental
instrumentality or (ii) will conflict or be inconsistent with or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose) any Lien (except pursuant to the Security
Documents) upon any of the property or assets of any Loan Party pursuant to
the terms of any indenture, mortgage, deed of trust, agreement or other
instrument to which such Loan Party is a party or by which it or any of its
property or assets is bound or to which it may be subject, or (iii) will
violate any provision of the Certificate of Incorporation or By-Laws of any
Loan Party.
Section 3.4 LITIGATION. There are no actions, suits or proceedings
pending or threatened (i) with respect to any of the Loan Documents or (ii)
that could, individually or in the aggregate, result in a Material Adverse
Effect.
Section 3.5 FINANCIAL STATEMENTS; FINANCIAL
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CONDITION; ETC. Each of the financial statements delivered pursuant to
Section 3.1(l) were prepared in accordance with GAAP consistently applied
and fairly present the financial condition and the results of operations of
the entities covered thereby on the dates and for the periods covered
thereby, except as disclosed in the notes thereto and, with respect to
interim financial statements, subject to normally recurring year-end
adjustments. No Loan Party has any material liability (contingent or
otherwise) not reflected in such financial statements or in the notes
thereto.
Section 3.6 MATERIAL ADVERSE CHANGE. Since March 31, 1997, there has
occurred no event, act or condition which has had, or could have, a Material
Adverse Effect.
Section 3.7 USE OF PROCEEDS; MARGIN REGULATIONS. All proceeds of each
Loan will be used by the Borrower only in accordance with the provisions of
Section 2.25. No part of the proceeds of any Loan will be used by the
Borrower to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock. Neither the
making of any Loan nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulations G, T, U or X of the Federal
Reserve Board.
Section 3.8 GOVERNMENTAL APPROVALS. No order, consent, approval,
license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is
required in connection with (i) the execution, delivery and performance of
any Loan Document or the consummation of any of the transactions
contemplated in those documents or (ii) the legality, validity, binding
effect or enforceability of any Loan Document, except those listed on
Schedule 4.8 that have already been duly made or obtained and remain in full
force and effect.
Section 3.9 SECURITY INTERESTS AND LIENS. The Security Documents
create, as security for the Obligations, valid and enforceable security
interests in and Liens on all of the Collateral, in favor of the Agent for
the ratable benefit of the Banks, and subject to no other
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Liens. Upon the satisfaction of the conditions precedent described in
Sections 3.1(g) and 3.1(i), such security interests in and Liens on the
Collateral shall be superior to and prior to the rights of all third parties
(except as disclosed on Schedule 4.9), and no further recordings or filings
are or will be required in connection with the creation, perfection or
enforcement of such security interests and Liens, other than the filing of
continuation statements in accordance with applicable law.
Section 3.10 TAX RETURNS AND PAYMENTS. Each Loan Party has filed all tax
returns required to be filed by it and has paid all taxes and assessments
payable by it which have become due, other than those not yet delinquent or
those that are reserved against in accordance with GAAP which are being
diligently contested in good faith by appropriate proceedings.
Section 3.11 ERISA. The Borrower has no Plans other than those listed
on Schedule 4.11. No accumulated funding deficiency (as defined in Section
412 of the Code or Section 302 of ERISA) or Reportable Event has occurred
with respect to any Plan. There are no Unfunded Benefit Liabilities under
any Plan. The Borrower and each member of its ERISA Controlled Group have
complied with the requirements of Section 515 of ERISA with respect to each
Multiemployer Plan and is not in "default" (as defined in Section 4219(c)(5)
of ERISA) with respect to payments to a Multiemployer Plan. The aggregate
potential total withdrawal liability, and the aggregate potential annual
withdrawal liability payments of the Borrower and the members of its ERISA
Controlled Group as determined in accordance with Title IV of ERISA as if the
Borrower and the members of its ERISA Controlled Group had completely
withdrawn from all Multiemployer Plans is not greater than $500,000 and
$100,000, respectively. To the best knowledge of the Borrower and each
member of its ERISA Controlled Group, no Multiemployer Plan is or is likely
to be in reorganization (as defined in Section 4241 of ERISA or Section 418
of the Code) or is insolvent (as defined in Section 4245 of ERISA). No
material liability to the PBGC (other than required premium payments), the
Internal Revenue Service, any Plan or any trust established under Title IV of
ERISA has been, or is expected by the Borrower or any member of its ERISA
Controlled Group to be, incurred by the Borrower or any
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member of its ERISA Controlled Group. Except as otherwise disclosed on
Schedule 4.11 hereto, neither the Borrower nor any member of its ERISA
Controlled Group has any contingent liability with respect to any
post-retirement benefit under any "welfare plan" (as defined in Section 3(1)
of ERISA), other than liability for continuation coverage under Part 6 of
Title I of ERISA. No lien under Section 412(n) of the Code or 302(f) of
ERISA or requirement to provide security under Section 401(a)(29) of the Code
or Section 307 of ERISA has been or is reasonably expected by the Borrower or
any member of its ERISA Controlled Group to be imposed on the assets of the
Borrower or any member of its ERISA Controlled Group.
Section 3.12 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
No Loan Party is (x) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended, (y) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of either a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (z) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow money.
Section 3.13 TRUE AND COMPLETE DISCLOSURE. All factual information
(taken as a whole) furnished by or on behalf of any Loan Party in writing to
the Agent or any Bank on or prior to the Closing Date, for purposes of or in
connection with this Agreement or any of the transactions contemplated in
the Agreement is, and all other such factual information (taken as a whole)
hereafter furnished by or on behalf of any Loan Party in writing to the Agent
or any Bank will be, true and accurate in all material respects on the date
as of which such information is dated or furnished and not incomplete by
omitting to state any material fact necessary to make such information
(taken as a whole) not misleading at such time. As of the Closing Date,
there are no facts, events or conditions known to the Borrower which,
individually or in the aggregate, have or could be expected to have a
Material Adverse Effect.
Section 3.14 CORPORATE STRUCTURE; CAPITALIZA-
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TION. Schedule 4.14 hereto sets forth the number of authorized and issued
shares of capital stock of the Borrower and each of its Subsidiaries and of
each Loan Party and each Subsidiary of each Loan Party, the par value thereof
and the registered owner(s) thereof, except with regard to Guarantor, which
Schedule 4.14 shall reflect only the registered owners of 5% or more of any
class of stock of Guarantor. All of such stock has been duly and validly
issued and is fully paid and non-assessable. Except as set forth on Schedule
4.14, neither any Loan Party nor any such Subsidiary has outstanding any
securities convertible into or exchangeable for its capital stock nor does
any Loan Party or any such Subsidiary have outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
Section 3.15 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 4.15, (i) each of the Loan Parties
and their Environmental Affiliates are in material compliance with all
applicable Environmental Laws, (ii) each of the Loan Parties and their
Environmental Affiliates have all Environmental Approvals required to operate
their businesses as presently conducted or as reasonably anticipated to be
conducted, (iii) none of the Loan Parties nor any of their Environmental
Affiliates has received any communication (written or oral), whether from a
governmental authority, citizens group, employee or otherwise, that alleges
that such Loan Party or Environmental Affiliate is not in full compliance
with all Environmental Laws, and (iv) to the Borrower's best knowledge after
due inquiry, there are no circumstances that may prevent or interfere with
such full compliance in the future.
(b) Except as set forth in Schedule 4.15, there is no Environmental
Claim pending or threatened against any Loan Party or its Environmental
Affiliate.
(c) Except as set forth in Schedule 4.15, there are no past or present
actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge or disposal
of any Material of Environmental Concern, that
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could form the basis of any Environmental Claims against any of the Loan
Parties or any of their Environmental Affiliates.
(d) Without in any way limiting the generality of the foregoing, except
as disclosed in Schedule 4.15, (i) there are no on-site or off-site locations
in which any Loan Party or its Environmental Affiliate has stored, disposed
or arranged for the disposal of Materials of Environmental Concern, (ii)
there are no underground storage tanks located on property owned or leased by
any Loan Party or its Environmental Affiliate, (iii) there is no asbestos
contained in or forming part of any building, building component, structure
or office space owned or, to the knowledge of any Loan Party, leased by any
Loan Party or its Environmental Affiliate, and (iv) no polychlorinated
biphenyls (PCB's) are used or stored at any property owned or, to the
knowledge of any Loan Party, leased by any Loan Party or its Environmental
Affiliate.
Section 3.16 PATENTS, TRADEMARKS, ETC. Each of the Loan Parties have
obtained and hold in full force and effect all patents, trademarks,
servicemarks, trade names, copyrights and other such rights, free from
burdensome restrictions, which are necessary for the operation of its
business as presently conducted. No material product, process, method,
substance, part or other material presently sold by or employed by any Loan
Party in connection with such business infringes any patent, trademark,
service mark, trade name, copyright, license or other right owned by any
other Person. There is not pending or overtly threatened any claim or
litigation against or affecting any Loan Party contesting its right to sell
or use any such product, process, method, substance, part or other material.
Section 3.17 OWNERSHIP OF PROPERTY. Schedule 4.17 sets forth all the
real property owned or leased by the Loan Parties and identifies the current
owner (and current record owner, if different) and whether such property is
leased or owned. The Loan Parties have good and marketable fee simple title
to or valid leasehold interests in all of such real property and good title
to all of their personal property subject to no Lien of any kind except Liens
permitted hereby. The Loan Parties enjoy peaceful and undisturbed possession
under all of
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their respective leases.
Section 3.18 NO DEFAULT. No Loan Party is in default under or with
respect to any Loan Document or any other agreement, instrument or
undertaking to which it is a party or by which it or any of its property is
bound in any respect which could result in a Material Adverse Effect. No
Default or Event of Default exists.
Section 3.19 LICENSES, ETC. The Loan Parties have obtained and hold in
full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way and
other rights, consents and approvals which are necessary for the operation of
their respective businesses as presently conducted.
Section 3.20 COMPLIANCE WITH LAW. Each Loan Party is in material
compliance with all laws, rules, regulations, orders, judgments, writs and
decrees.
Section 3.21 NO BURDENSOME RESTRICTIONS. No Loan Party is a party to
any agreement or instrument or subject to any other obligation or any charter
or corporate restriction or any provision of any applicable law, rule or
regulation which, individually or in the aggregate, could have a Material
Adverse Effect.
Section 3.22 LABOR MATTERS. Except as set forth on Schedule 4.22,
there are no collective bargaining agreements or Multiemployer Plans
covering the employees of the Company, any of its Subsidiaries or any of the
Loan Parties, and none of such Persons has suffered any strikes, walkouts,
work stoppages or other material labor difficulty within the last five years.
Section 3.23 SUBSIDIARIES AND PARTNERSHIPS. Except as set forth on
Schedule 4.23, the Borrower has no Subsidiaries and no interest in any
Partnerships.
Section 3.24 LOCATION OF BUSINESS AND OFFICES. The Borrower's principal
place of business and chief executive offices are located at the address
stated on the signature page of this Agreement. The principal place of
business and chief executive office of each Subsidiary are located at the
addresses stated on Schedule 4.23.
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SECTION 4. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that on and after the Closing Date and
until the Total Commitment has terminated, the Obligations are paid in full
and the Letters of Credit have been cancelled or terminated:
Section 4.1 INFORMATION COVENANTS. The Borrower will furnish to each
Bank:
(a) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the close of
each quarterly accounting period in each fiscal year of the Borrower, the
consolidated and consolidating balance sheet of the Loan Parties and their
Subsidiaries as at the end of such quarterly period and the related
consolidated and consolidating statements of income, cash flow and retained
earnings for such quarterly period and for the elapsed portion of the fiscal
year ended with the last day of such quarterly period, and in each case
setting forth comparative figures for the related periods in the prior fiscal
year.
(b) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close of each
fiscal year of the Borrower, the consolidated and consolidating balance sheet
of the Loan Parties and their Subsidiaries as at the end of such fiscal year
and the related consolidated and consolidating statements of income, cash
flow and retained earnings for such fiscal year, setting forth comparative
figures for the preceding fiscal year and, with respect to the consolidated
financial statements of the Guarantor and the Borrower, certified without
qualification by Arthur Anderson LLP or other independent certified public
accountants of recognized national standing reasonably acceptable to the
Required Banks, in each case together with a report of such accounting firm
stating that in the course of its regular audit of the consolidated financial
statements of the Guarantor and the Borrower, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm
has obtained no knowledge of any Default or Event of Default, or if in the
opinion of such accounting firm such a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof.
(c) MANAGEMENT LETTERS. Promptly after any
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Loan Party's receipt thereof, a copy of any "management letter" or other
material report received by the Borrower from its certified public
accountants.
(d) BUDGETS. Within 60 days after the first day of each fiscal year of
the Borrower, a budget and financial forecast of results of operations and
sources and uses of cash (in form satisfactory to the Required Banks)
prepared by the Borrower for such fiscal year, accompanied by a written
statement of the assumptions used in connection therewith, together with a
certificate of the chief financial officer of the Borrower to the effect that
such budget and financial forecast and assumptions are reasonable and
represent the Borrower's good faith estimate of its future financial
requirements and performance. The financial statements required to be
delivered pursuant to clauses (a) and (b) above, shall be accompanied by a
comparison of the actual financial results set forth in such financial
statements to those contained in the forecasts delivered pursuant to this
clause (d) together with an explanation of any material variations from the
results anticipated in such forecasts.
(e) OFFICER'S CERTIFICATES. At the time of the delivery of the financial
statements under clauses (a) and (b) above, a certificate of the chief
financial officer of the Borrower which certifies (x) that such financial
statements fairly present the financial condition and the results of
operations of the Borrower and its Subsidiaries on the dates and for the
periods indicated, subject, in the case of interim financial statements, to
normally recurring year-end adjustments and (y) that such officer has
reviewed the terms of the Loan Documents and has made, or caused to be made
under his or her supervision, a review in reasonable detail of the business
and condition of the Borrower and its Subsidiaries during the accounting
period covered by such financial statements, and that as a result of such
review such officer has concluded that no Default or Event of Default has
occurred during the period commencing at the beginning of the accounting
period covered by the financial statements accompanied by such certificate
and ending on the date of such certificate or, if any Default or Event of
Default has occurred, specifying the nature and extent thereof and, if
continuing, the action the Borrower proposes to take in respect thereof.
Such certificate
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shall set forth the calculations required to establish whether the Borrower
was in compliance with the provisions of Section 6.1 during and as at the
end of the accounting period covered by the financial statements accompanied
by such certificate.
(f) NOTICE OF DEFAULT OR LITIGATION. Promptly and in any event within
three (3) Business Day after any Loan Party obtains knowledge thereof, notice
of (i) the occurrence of any Default or Event of Default, (ii) any litigation
or governmental proceeding pending or threatened against any Loan Party
which could result in a Material Adverse Effect and (iii) any other event,
act or condition which could result in a Material Adverse Effect.
(g) ERISA.
(i) As soon as possible and in any event within 10 days after the
Borrower or any member of its ERISA Controlled Group knows, or has reason
to know, that:
(A) any Termination Event with respect to a Plan has occurred or
will occur, or
(B) any condition exists with respect to a Plan which
presents a material risk of termination of the Plan or imposition
of an excise tax or other liability on the Borrower or any member
of its ERISA Controlled Group, or
(C) the Borrower or any member of its ERISA Controlled Group has
applied for a waiver of the minimum funding standard under
Section 412 of the Code or Section 302 of ERISA, or
(D) the Borrower or any member of its ERISA Controlled Group
has engaged in a "prohibited transaction," as defined in Section
4975 of the Code or as described in Section 406 of ERISA, that is
not exempt under Section 4975 of the Code and Section 408 of
ERISA, or
(E) the aggregate present value of the Unfunded Benefit
Liabilities under all
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Plans has in any year increased by $100,000 or to an amount in
excess of $500,000, or
(F) any condition exists with respect to a Multiemployer
Plan which presents a material risk of a partial or complete
withdrawal (as described in Section 4203 or 4205 of ERISA) by
the Borrower or any member of its ERISA Controlled Group from a
Multiemployer Plan, or
(G) the Borrower or any member of its ERISA Controlled Group
is in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan, or
(H) a Multiemployer Plan is in "reorganization" (as
defined in Section 418 of the Code or Section 4241 of ERISA) or
is "insolvent" (as defined in Section 4245 of ERISA), or
(I) the potential withdrawal liability (as determined in
accordance with Title IV of ERISA) of the Borrower and the
members of its ERISA Controlled Group with respect to all
Multiemployer Plans has in any year increased by $100,000 or to
an amount in excess of $500,000, or
(J) there is an action brought against the Borrower or any
member of its ERISA Controlled Group under Section 502 of ERISA
with respect to its failure to comply with Section 515 of ERISA,
a certificate of the president or chief financial officer of the Borrower
setting forth the details of each of the events described in clauses (A)
through (J) above as applicable and the action which the Borrower or the
applicable member of its ERISA Controlled Group proposes to take with respect
thereto, together with a copy of any notice or filing from the PBGC or which
may be required by the PBGC or other agency of the United States government
with respect to each of the events described in clauses (A) through (J)
above, as applicable.
(ii) As soon as possible and in any event
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within two Business Days after the receipt by the Borrower or any member of
its ERISA Controlled Group of a demand letter from the PBGC notifying the
Borrower or such member of its ERISA Controlled Group of its final decision
finding liability and the date by which such liability must be paid, a copy
of such letter, together with a certificate of the president or chief
financial officer of the Borrower setting forth the action which the
Borrower or such member of its ERISA Controlled Group proposes to take
with respect thereto.
(h) SEC FILINGS. Promptly upon transmission thereof, copies of all
regular and periodic financial information, proxy materials and other
information and reports, if any, which any Loan Party shall file with the
Securities and Exchange Commission or any governmental agencies substituted
therefore or which any Loan Party shall send to its stockholders.
(i) ENVIRONMENTAL. Promptly and in any event within two (2) Business
Days after the existence of any of the following conditions, a certificate of
the chief executive officer or chief financial officer of the Borrower
specifying in detail the nature of such condition and the applicable Loan
Party's or, upon any Loan Party's knowledge thereof, its Environmental
Affiliate's proposed response thereto: (i) the receipt by any Loan Party or,
upon any Loan Party's knowledge thereof, any of its Environmental Affiliates
of any communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that alleges that such Loan
Party or, upon any Loan Party's knowledge thereof, an Environmental Affiliate
is not in compliance with applicable Environmental Laws, (ii) any Loan Party
or any of its Environmental Affiliates shall obtain actual knowledge that
there exists any Environmental Claim pending or threatened against such Loan
Party or an Environmental Affiliate, or (iii) any release, emission,
discharge or disposal of any Material of Environmental Concern that could
form the basis of any Environmental Claim against any Loan Party or any of
their Environmental Affiliates.
(j) OTHER INFORMATION. From time to time, such other information or
documents (financial or otherwise) as any Bank may reasonably request.
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Section 4.2 BOOKS, RECORDS AND INSPECTIONS. The Borrower shall, and
shall cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and
all requirements of law shall be made of all dealings and transactions in
relation to its business and activities. The Borrower shall, and shall cause
each of its Subsidiaries to, permit officers and designated representatives
of any Bank to visit and inspect any of the properties of the Borrower or any
of its Subsidiaries, and to examine the books of record and account of the
Borrower or any of its Subsidiaries, and discuss the affairs, finances and
accounts of the Borrower or any of its Subsidiaries with, and be advised as
to the same by, its and their officers and independent accountants, all upon
reasonable notice and at such reasonable times as such Bank may desire.
Section 4.3 MAINTENANCE OF INSURANCE. The Borrower shall, and shall
cause each of its Subsidiaries to, (a) maintain with financially sound and
reputable insurance companies insurance on itself and its properties in at
least such amounts and against at least such risks as are customarily insured
against in the same general area by companies engaged in the same or a
similar business, which insurance shall in any event not provide for
materially less coverage than the insurance in effect on the Closing Date,
(b) maintain the Agent and the Banks as named additional insureds and loss
payees in respect of such insurance at least to the extent the Agent and the
Banks are so named on the Closing Date, and (c) furnish to the Agent annually
upon renewal of the policies under which such insurance is issued,
certificates of insurance and such other information relating to such
insurance as the Agent may request.
Section 4.4 TAXES.
(a) The Borrower shall pay or cause to be paid, and shall cause each of
its Subsidiaries to pay or cause to be paid, when due, all taxes, charges and
assessments and all other lawful claims required to be paid by the Borrower
or such Subsidiaries, except as contested in good faith and by appropriate
proceedings diligently conducted, if adequate reserves have been established
with respect thereto in accordance with GAAP.
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(b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, file or consent to the filing of any consolidated tax return
with any Person (other than the Guarantor, Borrower and their Subsidiaries).
Section 4.5 CORPORATE FRANCHISES. The Borrower shall, and shall cause
each of its Subsidiaries to, do or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its patents,
trademarks, servicemarks, tradenames, copyrights, franchises, licenses,
permits, certificates, authorizations, qualifications, accreditations,
easements, rights of way and other rights, consents and approvals.
Section 4.6 COMPLIANCE WITH LAW. The Borrower shall, and shall cause
each of its Subsidiaries to, comply with all applicable laws, rules,
statutes, regulations, decrees and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of their business and the ownership of their property,
including, without limitation, all Environmental Laws.
Section 4.7 PERFORMANCE OF OBLIGATIONS. The Borrower shall, and shall
cause each of its Subsidiaries to, perform all of its obligations under the
terms of each mortgage, indenture, security agreement, debt instrument,
lease, undertaking and contract by which it or any of its properties is bound
or to which it is a party.
Section 4.8 MAINTENANCE OF PROPERTIES.
(a) The Borrower shall, and shall cause each of its Subsidiaries to,
ensure that its properties used or useful in its business are kept in good
repair, working order and condition, normal wear and tear excepted.
(b) The Borrower shall, and shall cause each of its Subsidiaries to do
or cause to be done all things reasonably necessary to preserve and keep in
good repair, working order and efficiency all of its Oil and Gas Properties
and other material properties including, without limitation, all equipment,
machinery and facilities, and from time to time will make all the reasonably
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necessary repairs, renewals and replacements so that at all times the state
and condition of its Oil and Gas Properties and other material properties
will be fully preserved and maintained, except to the extent a portion of
such properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts. The Borrower will and will cause each
Subsidiary to promptly: (i) pay and discharge, or make reasonable and
customary efforts to cause to be paid and discharged, all delay rentals,
royalties, expenses and indebtedness accruing under the leases or other
agreements affecting or pertaining to its Oil and Gas Properties, (ii)
perform or make reasonable and customary efforts to cause to be performed, in
accordance with industry standards, the obligations required by each and all
of the assignments, deeds, leases, subleases, contracts and agreements
affecting its interests in its Oil and Gas Properties and other material
properties, (iii) will and will cause each Subsidiary to do all other things
necessary to keep unimpaired, except for Liens described in Section 6.3, its
rights with respect thereto and prevent any forfeiture thereof or a default
thereunder, except to the extent a portion of such properties is no longer
capable of producing Hydrocarbons in economically reasonable amounts and
except for dispositions permitted by Section 6.5 hereof. The Borrower will
and will cause each Subsidiary to operate its Oil and Gas Properties and
other material properties or cause or make reasonable and customary efforts
to cause such Oil and Gas Properties and other material properties to be
operated in a careful and efficient manner in accordance with the practices
of the industry and in compliance with all applicable contracts and
agreements and in compliance in all material respects with all governmental
requirements.
Section 4.9 FURTHER ASSURANCES. The Borrower shall, and shall cause
each of its Subsidiaries to cure promptly any defects in the creation and
issuance of the Notes and the execution and delivery of the Security
Documents and this Agreement. The Borrower at its expense shall, and shall
cause each Subsidiary to promptly execute and deliver to the Agent upon
request all such other documents, agreements and instruments to comply with
or accomplish the covenants and agreements of the Borrower or any Subsidiary,
as the case may be, in the Security Documents and this Agreement, or to
further evidence and more fully describe the collateral intended
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as security for the Notes, or to correct any omissions in the Security
Documents, or to state more fully the security obligations set out herein or
in any of the Security Documents, or to create perfect, protect or preserve
any Liens as first priority Liens created pursuant to any of the Security
Documents, or to make any recordings, to file any notices or obtain any
consents, all as may be necessary or appropriate in connection therewith.
Section 4.10 ADDITIONAL COLLATERAL.
(a) Should the Borrower acquire any additional Oil and Gas Properties,
the Borrower will grant to the Agent as security for the Indebtedness a
first-priority Lien interest (subject only to Excepted Liens) on the
Borrower's interest in any Oil and Gas Properties not already subject to a
Lien of the Security Documents, which Lien will be created and perfected by
and in accordance with the provisions of deeds of trust, security agreements
and financing statements, or other Security Documents, all in form and
substance satisfactory to the Agent in its sole discretion and in sufficient
executed (and acknowledged where necessary or appropriate) counterparts for
recording purposes.
(b) Concurrently with the granting of the Lien or other action referred
to in Section 5.10(a) above, the Borrower will provide to the Agent title
information in form and substance satisfactory to the Agent in its sole
discretion with respect to the Borrower's interests in such Oil and Gas
Properties.
(c) Also, promptly after the filing of any new Security Document in any
state, upon the reasonable request of the Agent, the Borrower will provide to
the Agent an opinion addressed to the Agent for the benefit of the Banks in
form and substance satisfactory to the Agent in its sole discretion from
counsel acceptable to Agent, stating that the Security Document is valid,
binding and enforceable in accordance with its terms and in legally
sufficient form for such jurisdiction.
Section 4.11 HEDGING AGREEMENTS. On the Closing Date, Borrower will
enter into and maintain one or more oil and natural gas Hedging Agreements on
terms and conditions acceptable to the Agent with one or more Banks as a
counterparty or with such other Persons as
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approved by the Required Banks. Banks hereby approve the Hedging Agreements
listed on Schedule 5.11.
Section 4.12 LIST OF PURCHASERS. Within thirty (30) days after the
close of each fiscal year of the Borrower, Borrower will furnish to the Agent
a list of current Purchasers of Hydrocarbons together with the address of
such purchasers.
SECTION 5. NEGATIVE COVENANTS.
The Borrower covenants and agrees that on and after the Closing Date
until the Total Commitment has terminated, and the Obligations are paid in
full:
Section 5.1 FINANCIAL COVENANTS.
(a) WORKING CAPITAL RATIO. The Borrower shall not permit the ratio of
consolidated current assets to consolidated current liabilities to be less
than 1:00 to 1:00.
The term "consolidated" shall include the current assets or current
liabilities, as applicable, of the Guarantor. Consolidated current
liabilities shall include the portion of the indebtedness evidenced by the
Note due and payable on the next Payment Date and the current portion of any
other indebtedness maturing more than one year after the date of its creation.
(b) NET WORTH. The Borrower shall not permit the excess of
consolidated total assets over consolidated total liabilities to be less than
$30,000,000 (as such amount shall be deemed increased from time to time by
any amount equal to 50% of the Borrower's Net Income (only if positive) for
each fiscal quarter of the Borrower beginning with the fiscal quarter ending
on June 30, 1997, plus 100% of the net proceeds of any new issuance of
capital stock or other equity securities of the Borrower or Guarantor).
The term "consolidated" shall include the total assets or total liabilities,
as applicable, of the Guarantor.
(c) INTEREST COVERAGE RATIO. The Borrower shall not permit the ratio of
EBITDA to Interest Expense determined for any fiscal quarter as of the last
day
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thereof to be less than 3.0 to 1.0.
Section 5.2 INDEBTEDNESS. The Borrower shall not, and shall not permit
any of its Subsidiaries to, create, incur, assume, suffer to exist or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, other than:
(a) Indebtedness hereunder and under the other Loan Documents;
(b) Indebtedness outstanding on the Closing Date and set forth on
Schedule 6.2 hereto;
(c) Indebtedness permitted under Section 6.6;
(d) Subordinated Indebtedness of the Borrower in an amount not to
exceed $20,000,000 in the aggregate pursuant to documentation and otherwise
on terms and conditions acceptable to the Agent and the Required Banks (which
may include second and subordinated liens on the Collateral) and containing
subordination provisions in the form of Exhibit H;
(e) Indebtedness with respect to Capital Leases and other purchase
money Indebtedness, not in excess of $500,000 in the aggregate at any one
time outstanding; provided that any such Indebtedness shall not exceed 90% of
the lesser of the purchase price or the fair market value of the asset so
financed; and
(f) Other Indebtedness created, incurred or assumed after the date
hereof not enumerated in clauses (a) through (e) above, provided that the
aggregate outstanding principal amount of such Indebtedness shall not exceed
$500,000 at any one time outstanding.
Section 5.3 LIENS. The Borrower shall not, and shall not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist, directly or
indirectly, any Lien on any of its property now owned or hereafter acquired,
other than:
(a) Liens existing on the Closing Date and set forth on Schedule 6.3
hereto;
(b) Liens for taxes not yet due or which are
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being contested in good faith by appropriate proceedings diligently conducted
and with respect to which adequate reserves are being maintained in
accordance with GAAP;
(c) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by Law (other than any Lien
imposed by ERISA or pursuant to any Environmental Law) created in the
ordinary course of business for amounts not yet due or which are being
contested in good faith by appropriate proceedings diligently conducted and
with respect to which adequate bonds have been posted;
(d) Liens (other than any Lien imposed by ERISA or pursuant to any
Environmental Law) incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(e) Easements, rights-of-way, zoning and similar restrictions and other
similar charges or encumbrances not interfering with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries and which do not
detract materially from the value of the property to which they attach or
impair materially the use thereof by the Borrower or any of its Subsidiaries
or materially adversely affect the security interests of the Agent or the
Banks therein;
(f) Liens granted to the Agent for the benefit of the Banks pursuant to
the Security Documents securing the Obligations; and
(g) Liens created pursuant to Capital Leases and to secure other
purchase-money Indebtedness permitted pursuant to Section 6.2(e), provided
that such Liens are only in respect of the property or assets subject to, and
secure only, the respective Capital Lease or other purchase-money
Indebtedness.
Section 5.4 RESTRICTION ON FUNDAMENTAL CHANGES.
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(a) The Borrower shall not, and shall not permit any of its Subsidiaries
to, enter into any merger or consolidation, or liquidate, wind-up or dissolve
(or suffer any liquidation or dissolution), discontinue its business or
convey, lease, sell, transfer or otherwise dispose of, in one transaction or
series of transactions, all or any substantial part of its business or
property, whether now or hereafter acquired, except (i) as otherwise
permitted under Section 6.5 and (ii) any wholly-owned Subsidiary of the
Borrower may merge into or convey, sell, lease or transfer all or
substantially all of its assets to, the Borrower or any other wholly-owned
Subsidiary of the Borrower.
(b) The Borrower shall not, and shall not permit any of its Subsidiaries
to, (i) acquire by purchase or otherwise any property or assets of, or stock
or other evidence of beneficial ownership of, any Person, except purchases of
inventory, equipment, materials and supplies in the ordinary course of
Borrower's or such Subsidiary's business, (ii) create any Subsidiary, or
(iii) enter into any partnership or joint venture.
(c) Borrower shall not and shall not permit any of its Subsidiaries to,
amend its certificate of incorporation or by-laws.
Section 5.5 SALE OF OIL AND GAS PROPERTIES. The Borrower shall not, and
shall not permit any of its Subsidiaries to, sell, assign, lease, farmout,
convey or otherwise transfer any Oil and Gas Property or any interest in any
Oil and Gas Property except for (i) the sale of Hydrocarbons in the ordinary
course of business; (ii) farmouts of undeveloped acreage and assignments in
connection with such farmouts; (iii) the sale or transfer of equipment that
is no longer necessary for the business of the Borrower or such Subsidiary or
is replaced by equipment of at least comparable value and use and (iv)
during any consecutive 12 month period, sales in the ordinary course of
business of Oil and Gas Properties which shall not exceed $500,000 in the
aggregate in any fiscal year.
Section 5.6 CONTINGENT LIABILITY. The Borrower shall not, and shall
not permit any of its Subsidiaries to, create or become or be liable with
respect to any Contingent Liability, except:
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(a) pursuant to the Guaranty or the Security Documents; and
(b) Contingent Liability which are in existence on the Closing Date and
which are set forth on Schedule 6.6.
Section 5.7 DIVIDENDS. The Borrower shall not, and shall not permit any
of its Subsidiaries to, declare or pay any dividends (other than dividends
payable solely in common stock), or return any capital to, its stockholders
or authorize or make any other distribution, payment or delivery of property
or cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, any shares of any class of its capital stock
now or hereafter outstanding (or any options or warrants issued with respect
to its capital stock), or set aside any funds for any of the foregoing
purposes (all the foregoing "Dividends"); provided, however so long as (i) no
Event of Default has occurred and is continuing hereunder or would as a
consequence thereof, (ii) no Borrowing Base deficiency has occurred, and
(iii) the Borrower is in compliance with the terms of Section 6.1 hereof, the
Borrower may declare and pay dividends on its stock.
Section 5.8 ADVANCES, INVESTMENTS AND LOANS. The Borrower shall not,
and shall not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or directly or indirectly purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to any Person, except that the following shall be
permitted:
(a) accounts receivable owned by the Borrower and its Subsidiaries, if
created in the ordinary course of the business of the Borrower and its
Subsidiaries and payable or dischargeable in accordance with customary trade
terms;
(b) loans and advances to the Borrower by any of its Subsidiaries not to
exceed $500,000 in the aggregate in any fiscal year;
(c) loans and advances by the Borrower and its Subsidiaries to their
employees in the ordinary course of
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its business not exceeding $250,000 in the aggregate at any one time
outstanding;
(d) Investments existing on the Closing Date and identified on Schedule
6.8; and
(e) the Borrower and its Subsidiaries may acquire and hold Cash
Equivalents.
Section 5.9 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate, other than on terms and conditions
substantially as favorable to the Borrower or such Subsidiary as would be
obtainable at the time in a comparable arm's-length transaction with a Person
other than an Affiliate.
Section 5.10 LIMITATION ON VOLUNTARY PAYMENTS. The Borrower shall not,
and shall not permit any of its Subsidiaries to make any sinking fund payment
or voluntary or optional payment or prepayment on or redemption or
acquisition for value of (including, without limitation, by way of depositing
with the trustee with respect thereto money or securities before due for the
purpose of paying when due) or exchange of any Indebtedness other than the
Indebtedness hereunder and under the other Loan Documents.
Section 5.11 CHANGES IN BUSINESS. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any business which is
substantially different from that conducted by the Borrower or such Loan
Party, as the case may be, on the Closing Date.
Section 5.12 CERTAIN RESTRICTIONS. The Borrower shall not, and shall
not permit any of its Subsidiaries or any Person controlling the Borrower
to, enter into any agreement which restricts the ability of the Borrower or
any of its Subsidiaries to (a) enter into amendments, modifications or
waivers of the Loan Documents, (b) sell, transfer or otherwise dispose of
its assets, (c) create, incur, assume or suffer to exist any Lien upon any of
its property, (d) create, incur, assume, suffer to exist or otherwise become
liable with respect to any Indebtedness, or (e) pay any Dividend, provided
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that Capital Leases or agreements governing purchase money Indebtedness which
contain restrictions of the types referred to in clauses (b) or (c) with
respect to the property covered thereby shall be permitted.
Section 5.13 LEASE PAYMENTS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, incur, assume or suffer to exist, any
obligation for payments under Capital Leases and operating leases (other than
leases which compromise Hydrocarbon Interests) whether for real or personal
or mixed property (including, without limitation, rental payments and
payments of taxes thereunder), except that the Borrower and its Subsidiaries
may incur rental payment obligations not to exceed $500,000 in the aggregate
during each fiscal year.
Section 5.14 SALES AND LEASEBACKS. The Borrower shall not, and shall
not permit any of its Subsidiaries to, become liable, directly or
indirectly, with respect to any lease, whether an operating lease or a
Capital Lease, of any property (whether real or personal or mixed) whether
now owned or hereafter acquired, (i) which the Borrower or such Subsidiary
has sold or transferred or is to sell or transfer to any other Person, or
(ii) which the Borrower or such Subsidiary intends to use for substantially
the same purposes as any other property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to any other Person in
connection with such Lease.
Section 5.15 PLANS. The Borrower shall not, nor shall it permit any
member of its ERISA Controlled Group to, take any action which would increase
the aggregate present value of the Unfunded Benefit Liabilities under all
Plans to an amount in excess of $500,000.
Section 5.16 FISCAL YEAR; FISCAL QUARTER. The Borrower shall not, and
shall not permit any of its Subsidiaries to, change its fiscal year or any of
its fiscal quarters.
Section 5.17 HEDGING CONTRACT. No Loan Party will be a party to or in
any manner be liable on any Hedging Contract unless approved by the Agent.
Section 5.18 CERTAIN CONTRACTS; AMENDMENTS. No Loan Party will enter
into any "take-or-pay" contract
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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 Loan Party 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 the Agents and
the Banks under or acquired pursuant to any Security Document.
SECTION 6. EVENTS OF DEFAULT
Section 6.1 EVENTS OF DEFAULT. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to
or as a result of compliance by any Person with any judgment, decree, order,
rule or regulation of any court or administrative or governmental body:
(a) FAILURE TO MAKE PAYMENTS. The Borrower shall (i) default in the
payment when due of any principal of the Loans or any reimbursement
obligation for a disbursement made under any Letter of Credit or (ii)
default, and such default shall continue unremedied for five (5) or more
Business Days, in the payment when due of any interest on the Loans or in the
payment when due of any Fees or any other amounts owing hereunder.
(b) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty made by any Loan Party herein or in any other Loan Document or in
any certificate or statement delivered pursuant hereto or thereto shall prove
to be false or misleading in any material respect on the date as of which
made or deemed made.
(c) BREACH OF COVENANTS.
(i) The Borrower shall fail to perform or observe any agreement,
covenant or obligation arising under Sections 6 or any other Section of
this Agreement other than Section 5.
(ii) The Borrower shall fail to perform or observe any agreement,
covenant or obligation aris-
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ing under Section 5 of this Agreement (except those described in
subsections (a), (b) and (c)(i) above), and such failure shall continue
for thirty (30) days after the earlier to occur of (i) notice thereof to
the Borrower by the Agent or any Bank (through the Agent), or (ii) the
Borrower otherwise becoming aware of such default.
(iii) Any Loan Party shall fail to perform or observe any
agreement, covenant or obligation arising under any provision of the
Loan Documents other than this Agreement, which failure shall continue
after the end of the applicable grace period, if any, provided therein.
(d) DEFAULT UNDER OTHER AGREEMENTS. Any Loan Party shall default in the
payment when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) of any amount owing in respect of any
Indebtedness (other than the Obligations) in the aggregate principal amount
of $500,000 or more; or any Loan Party shall default in the performance or
observance of any obligation or condition with respect to any such
Indebtedness or any other event shall occur or condition exist, if the effect
of such default, event or condition is to accelerate the maturity of any such
Indebtedness or to permit (without regard to any required notice or lapse of
time) the holder or holders thereof, or any trustee or agent for such
holders, to accelerate the maturity of any such Indebtedness, or any such
Indebtedness shall become or be declared to be due and payable prior to its
stated maturity other than as a result of a regularly scheduled payment.
(e) BANKRUPTCY, ETC. (i) Any Loan Party shall commence a voluntary case
concerning itself under the Bankruptcy Code; or (ii) an involuntary case is
commenced against any Loan Party and the petition is not controverted within
10 days, or is not dismissed within 30 days, after commencement of the case;
or (iii) a custodian (as defined in the Bankruptcy Code) is appointed for,
or takes charge of, all or substantially all of the property of any Loan
Party or any Loan Party commences any other proceedings under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to any
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Loan Party or there is commenced against any Loan Party any such proceeding
which remains undismissed for a period of 30 days; or (iv) any order of
relief or other order approving any such case or proceeding is entered; or
(v) any Loan Party is adjudicated insolvent or bankrupt; or (vi) any Loan
Party suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 30 days; or (vii) any Loan Party makes a general assignment for the
benefit of creditors; or (viii) any Loan Party shall fail to pay, or shall
state that it is unable to pay, or shall be unable to pay, its debts
generally as they become due; or (ix) any Loan Party shall call a meeting of
its creditors with a view to arranging a composition or adjustment of its
debts; or (x) any Loan Party shall by any act or failure to act consent to,
approve of or acquiesce in any of the foregoing; or (xi) any corporate
action is taken by any Loan Party for the purpose of effecting any of the
foregoing.
(f) ERISA. (i) Any Termination Event shall occur, or (ii) any Plan
shall incur an "accumulated funding deficiency" (as defined in Section 412 of
the Code or Section 302 of ERISA), whether or not waived or (iii) the
Borrower or a member of its ERISA Controlled Group shall have engaged in a
transaction which is prohibited under Section 4975 of the Code or Section 406
of ERISA which could result in the imposition of liability in excess of
$100,000 on the Borrower or any member of its ERISA Controlled Group, or (iv)
the Borrower or any member of its ERISA Controlled Group shall fail to pay
when due an amount which it shall have become liable to pay to the PBGC, any
Plan or a trust established under Title IV of ERISA, or (v) a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that an ERISA Plan must be terminated or have a trustee
appointed to administer any ERISA Plan, or (vi) the Borrower or a member of
its ERISA Controlled Group suffers a partial or complete withdrawal from a
Multiemployer Plan or is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan, or (vii) a
proceeding shall be instituted against the Borrower or any member of its
ERISA Controlled Group to enforce Section 515 of ERISA, or (viii) any other
event or condition shall occur or exist with respect to any Plan which could
subject the Borrower or any member of its ERISA Controlled Group to
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any tax, penalty or other liability in excess of $100,000.
(g) SECURITY DOCUMENTS. Any of the Security Documents shall for any
reason cease to be in full force and effect, or shall cease to give the Agent
the Liens, rights, powers and privileges purported to be created thereby
including, without limitation, a perfected first priority security interest
in, and Lien on, all of the Collateral in accordance with the terms thereof.
(h) GUARANTY. The Guaranty or any provision thereof shall cease to be
in full force and effect, or the Guarantor or any Person acting by or on
behalf of the Guarantor shall deny or disaffirm all or any portion of the
Guarantor's obligations under such Guaranty.
(i) CHANGE OF CONTROL. Inland Resources shall cease to beneficially own
and control at least 66_% of the issued and outstanding shares of each class
of capital stock of the Borrower entitled (without regard to the occurrence
of any contingency) to vote for the election of members of the board of
directors of the Borrower.
(j) JUDGMENTS. One or more judgments or decrees in an aggregate amount
of $500,000 or more shall be entered by a court or courts of competent
jurisdiction against the Loan Parties (other than any judgment as to which,
and only to the extent, a reputable insurance company has acknowledged
coverage of such claim in writing) and (i) any such judgments or decrees
shall not be stayed, discharged, paid, bonded or vacated within 30 days or
(ii) enforcement proceedings shall be commenced by any creditor on any such
judgments or decrees.
(k) ENVIRONMENTAL MATTERS. (i) Any Environmental Claim shall have
been asserted against any Loan Party or any Environmental Affiliate thereof
which, if determined adversely, could have a Material Adverse Effect, (ii)
any release, emission, discharge or disposal of any Material of Environmental
Concern shall have occurred, and such event could form the basis of an
Environmental Claim against any Loan Party or any Environmental Affiliate
thereof which, if determined adversely, could have a Material Adverse
Effect, or (iii) any Loan Party or its Environmental Affiliate shall have
failed to obtain any Environmental Approval Necessary for
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the management, use, control, ownership, or operation of its business,
property or assets or any such Environmental Approval shall be revoked,
terminated, or otherwise cease to be in full force and effect, in each case,
if the existence of such condition could have a Material Adverse Effect.
(l) LETTERS OF CREDIT. Any Letter of Credit becomes the subject matter
of any order, judgment, injunction or any other such determination, or if
the Borrower or any other Person shall petition or apply for or obtain any
order restricting payment by the Agent under any Letter of Credit or
extending the Banks' liability under any Letter of Credit beyond the
expiration date stated therein or otherwise agreed to by the Agent.
(m) INLAND RESOURCES. Inland Resources takes, suffers or permits to
exist any of the events or conditions referred to in paragraphs (e) or (j)
hereof.
(n) SUBSIDIARY. Any Subsidiary takes, suffers or permits to exist any
of the events or conditions referred to in paragraphs (e) or (j) hereof.
(o) MATERIAL ADVERSE EFFECT. An event or events shall occur having a
Material Adverse Effect.
Section 6.2 RIGHTS AND REMEDIES.
(a) Upon the occurrence of any Event of Default described Section
7.1(e), the Commitments shall automatically and immediately terminate and the
unpaid principal amount of and any and all accrued interest on the Loans and
any and all accrued Fees and other Obligations (including without limitation
the payment of cash collateral to secure the LC Exposure as provided in
Section 2.23 hereof) shall automatically become immediately due and payable,
with all additional interest from time to time accrued thereon and without
presentation, demand, or protest or other requirements of any kind
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by Borrower, and the
obligation of each Bank to make any Loan hereunder shall thereupon
terminate; and upon the occurrence and during the continuance of any other
Event of Default, the Agent
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shall at the request, or may with the consent, of the Required Banks, by
written notice to Borrower, (i) declare that the Commitments are terminated,
whereupon the Commitments and the obligation of each Bank to make any Loan
hereunder shall immediately terminate, and (ii) declare the unpaid principal
amount of and any and all accrued and unpaid interest on the Loans and any
and all accrued Fees and other Obligations (including without limitation the
payment of cash collateral to secure the LC Exposure as provided in Section
2.23 hereof) to be, and the same shall thereupon be, immediately due and
payable with all additional interest from time to time accrued thereon and
without presentation, demand, or protest or other requirements of any kind
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by Borrower.
(b) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of expenses
and indemnities provided for in this Agreement; second to accrued interest
on the Notes; third to fees; fourth pro rata to principal outstanding on the
Notes and other Obligations; fifth to serve as cash collateral to be held by
the Agent to secure the LC Exposure; and any excess shall be paid to Borrower
or as otherwise required by any governmental requirement.
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SECTION 7. THE AGENT
Section 7.1 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints CIBC as the Agent of such Bank under this Agreement and each other
Loan Document, and each such Bank irrevocably authorizes CIBC as the Agent
for such Bank, to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and each other Loan Document, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities on the part of the
Agent shall be read into this Agreement or otherwise exist against the Agent.
The provisions of this Section 8 are solely for the benefit of the Agent and
the Banks and no Loan Party shall have any rights as a third party
beneficiary or otherwise under any of the provisions hereof. In performing
its functions and duties hereunder and under the other Loan Documents, the
Agent shall act solely as the agent of the Banks and does not assume nor
shall be deemed to have assumed any obligation or relationship of trust or
agency with or for any Loan Party or any of their respective successors and
assigns.
Section 7.2 DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Agreement or the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning
all matters pertaining to such duties. The Agent shall not be responsible
for the negligence or misconduct or any agents or attorneys-in-fact selected
by it with reasonable care.
Section 7.3 EXCULPATORY PROVISIONS. The Agent shall not be (i) liable
for any action lawfully taken or omitted to be taken by it or any Person
described in Section 8.2 under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful miscon-
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duct), or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by any Loan Party
contained in this Agreement or any other Loan Document or in any certificate,
report, statement or other document referred to or provided for in, or
received under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or any other Loan Document
or for any failure of any Loan Party to perform their obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
This Section is intended solely to govern the relationship between the Agent,
on the one hand, and the Banks, on the other.
Section 7.4 RELIANCE BY AGENT. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to any
Loan Party), independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner thereof for
all purposes unless the Agent shall have received an executed Transfer
Supplement in respect thereof. The Agent shall be fully justified in failing
or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate or it shall first be indemnified to
its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Banks, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Banks and all
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future holders of the Notes.
Section 7.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
unless the Agent has received notice from a Bank or the Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives
such a notice, the Agent shall promptly give notice thereof to the Banks.
The Agent shall take such action with respect to such Default or Event of
Default as shall be directed by the Required Banks; PROVIDED that unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as the Agent shall deem
advisable and in the best interests of the Banks.
Section 7.6 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank expressly
acknowledges that neither the Agent, nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of any Loan
Party, shall be deemed to constitute any representation or warranty by the
Agent. Each Bank represents and warrants to the Agent that it has,
independently and without reliance upon the Agent or any other Bank and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Loan
Parties and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit analysis, appraisals and decisions in taking or not
taking action under this Agreement, and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
prospects, financial and other condition and creditworthiness of the Loan
Parties. Except for notices, reports and other documents expressly required
under the Loan Documents to be furnished to the Banks by
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the Agent, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business,
operations, property, prospects, financial and other condition or
creditworthiness of the Loan Parties which may come into the possession of
the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
Section 7.7 INDEMNIFICATION. The Banks agree to indemnify the Agent
and its officers, directors, employees, representatives and agents (to the
extent not reimbursed by the Loan Parties and without limiting the obligation
of the Loan Parties to do so), ratably according to their Pro Rata Shares,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind or nature whatsoever (including, without limitation, the fees and
disbursements of counsel for the Agent or such Person in connection with any
investigative, administrative or judicial proceeding commenced or
threatened, whether or not the Agent or such Person shall be designated a
party thereto) that may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against the Agent or such Person as a result of, or arising out of,
or in any way related to or by reason of, the execution, delivery or
performance of any Loan Document (but excluding any such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the gross negligence or
willful misconduct of the Agent or such Person as finally determined by a
court of competent jurisdiction).
Section 7.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its
affiliates may make loans to, accept deposits from and generally engage in
any kind of business with the Loan Parties as though the Agent were not the
Agent hereunder. With respect to Loans made or renewed by it and any Note
issued to it, the Agent shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not the
Agent, and the terms "Bank" and "Banks" shall include the Agent in its
individual capacity.
Section 7.9 SUCCESSOR AGENT. The Agent may
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resign as Agent upon 30 days' notice to the Borrower and the Banks. If the
Agent shall resign as Agent under this Agreement, then the Required Banks
during such 30-day period shall appoint from among the Banks a successor
agent, whereupon such successor agent shall succeed to the rights, powers and
duties of the Agent and the term "Agent" shall mean such successor agent,
effective upon its appointment, and the former Agent's rights, powers and
duties as Agent shall be terminated, without any other or further act or deed
on the part of such former Agent or any of the parties to this Agreement or
any holders of the Notes. After any retiring Agent's resignation hereunder
as Agent, the provisions of this Section 8 and Section 9.1 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
SECTION 8. MISCELLANEOUS
Section 8.1 PAYMENT OF EXPENSES, INDEMNITY, ETC. The Borrower shall:
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the Agent
and the Arranger in connection with the negotiation, preparation, execution
and delivery of the Loan Documents and the documents and instruments referred
to therein, the creation, perfection or protection of the Agent's Liens in
the Collateral (including, without limitation, fees and expenses for title
and lien searches and filing and recording fees), and any amendment, waiver
or consent relating to any of the Loan Documents (including, without
limitation, as to each of the foregoing, the reasonable fees and
disbursements of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to
the Agent and any other attorneys retained by the Agent and allocated costs
of internal counsel) and of the Agent and each Bank in connection with the
preservation of rights under, and enforcement of, the Loan Documents and the
documents and instruments referred to therein or in connection with any
restructuring or rescheduling of the Obligations (including, without
limitation, the reasonable fees and disbursements of counsel for the Agent
and for each of the Banks);
(b) pay, and hold the Arranger, the Agent and
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each of the Banks harmless from and against, any and all present and future
stamp, excise and other similar taxes with respect to the foregoing matters
and hold the Agent and each Bank harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Bank) to pay such taxes; and
(c) indemnify the Arranger, the Agent and each Bank, its officers,
directors, employees, representatives and agents (each an "Indemnitee") from,
and hold each of them harmless against, any and all losses, liabilities,
claims, damages, expenses, obligations, penalties, actions, judgments,
suits, costs or disbursements of any kind or nature whatsoever (including,
without limitation, the fees and disbursements of counsel for such Indemnitee
in connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, asserted
against or incurred by any Indemnitee as a result of, or arising out of, or
in any way related to or by reason of, (i) the execution, delivery or
performance of any Loan Document or any transaction contemplated in those
documents, (ii) any violation by any Loan Party or its Environmental
Affiliate of any applicable Environmental Law, (iii) any Environmental Claim
arising out of the management, use, control, ownership or operation of
property or assets by any of the Loan Parties or any of their Environmental
Affiliates, including, without limitation, all on-site and off-site
activities involving Materials of Environmental Concern, (iv) the breach of
any environmental representation or warranty set forth in Section 4.15, (v)
the grant to the Agent and the Banks of any Lien in any property or assets of
any of the Loan Parties or any stock or other equity interest in any of the
Loan Parties, and (vi) the exercise by the Agent and the Banks of their
rights and remedies (including, without limitation, foreclosure) under any
agreements creating any such Lien (but excluding, as to any Indemnitee, any
such losses, liabilities, claims, damages, expenses, obligations, penalties,
actions, judgments, suits, costs or disbursements incurred solely by reason
of the gross negligence or willful misconduct of such Indemnitee as finally
determined by a court of competent jurisdiction). The Borrower's obligations
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under this Section shall survive the termination of this Agreement and the
payment of the Obligations.
Section 8.2 RIGHT OF SETOFF. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of any Event of Default, each Bank is hereby authorized at any time or from
time to time, without presentment, demand, protest or other notice of any
kind to any Loan Party or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all
deposits (general or special, time or demand, provisional or final) and any
other indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located)
to or for the credit or the account of any Loan Party against and on account
of the Obligations of the Loan Parties to such Bank under this Agreement or
under any of the other Loan Documents, including, without limitation, all
interests in Obligations purchased by such Bank pursuant to Section 9.7, and
all other claims of any nature or description arising out of or connected
with this Agreement or any other Loan Document, irrespective of whether or
not such Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
Section 8.3 NOTICES. Except as otherwise expressly provided herein,
all notices, requests and demands to or upon the respective parties hereto to
be effective shall be in writing (including by telecopy, telex, or cable
communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States
mail, postage prepaid, or, in the case of telex notice, when sent, answerback
received, or, in the case of telecopy notice, when sent, or, in the case of a
nationally recognized overnight courier service, one Business Day after
delivery to such courier service, addressed, in the case of each party
hereto, at its address specified opposite its signature below or on the
appropriate Transfer Supplement, or to such other address as may be
designated by any party in a written notice to the other parties hereto,
provided that notices and communications to the Agent shall not be effective
until received by the
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Agent.
Section 8.4 SUCCESSORS AND ASSIGNS; PARTICIPATION; ASSIGNMENTS.
(a) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Banks, the Agent, all future
holders of the Notes and the Letters of Credit and their respective
successors and assigns, except that the Borrower may not assign or transfer
any of its rights or obligations under this Agreement without the prior
written consent of each Bank. No Bank may participate, assign or sell any of
its Credit Exposure (as defined in clause (b) below) except as required by
operation of law, in connection with the merger, consolidation or dissolution
of any Bank or as provided in this Section 9.4.
(b) PARTICIPATION. Any Bank may at any time sell to one or more
Persons (each a "Participant") participating interests in any Loan owing to
such Bank, any Note held by such Bank, any Letter of Credit in which such
Bank is participating, any Commitment of such Bank and or any other interest
of such Bank hereunder (in respect of any such Bank, its "Credit Exposure").
Notwithstanding any such sale by a Bank of participating interests to a
Participant, such Bank's rights and obligations under this Agreement shall
remain unchanged, such Bank shall remain solely responsible for the
performance thereof, such Bank shall remain the holder of any such Note for
all purposes under this Agreement (except as expressly provided below), and
the Borrower and the Agent shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement. The Borrower agrees that if any Obligations are due and unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence and during the continuance of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note or
Letter of Credit to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement or any Note
or Letter of Credit, provided that such right of setoff shall be subject to
the obligations of such Participant to share with the Banks, and the Banks
agree to share with such Partici-
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pant, as provided in subsection 9.6. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.18, 2.19 and
2.20, PROVIDED that no Participant shall be entitled to receive any greater
amount pursuant to such sections than the transferor Bank would have been
entitled to receive in respect of the amount of the participating interest
transferred by such transferor Bank to such Participant had no such transfer
occurred. Each Bank agrees that any agreement between such Bank and any such
Participant in respect of such participating interest shall not restrict such
Bank's right to agree to any amendment, supplement, waiver or modification to
this Agreement or any other Loan Document, except where the result of any of
the foregoing would be to extend the final maturity of any Obligation or any
regularly scheduled installment thereof or reduce the rate or extend the time
of payment of interest thereon or reduce the principal amount thereof or
release all or substantially all of the Collateral (except as expressly
provided in the Loan Documents).
(c) ASSIGNMENTS. Any Bank may, in the ordinary course of its business
and in accordance with applicable law, at any time assign to any Bank or any
affiliate thereof or, with the consent of the Borrower and the Agent which
consent shall not be unreasonably withheld, to any other Person (each an
"Assignee") all or any part of its Credit Exposure. The Borrower, the Agent
and the Banks agree that to the extent of any assignment the Assignee shall
be deemed to have the same rights and benefits under the Loan Documents and
the same rights of setoff and obligation to share pursuant to Section 9.7 as
it would have had if it were a Bank hereunder; provided that the Borrower,
the Collateral Agent and the Agent shall be entitled to continue to deal
solely and directly with the assignor Bank in connection with the interests
so assigned to the Assignee unless and until such Assignee becomes a
Purchasing Bank pursuant to clause (d) below.
(d) ASSIGNMENTS TO PURCHASING BANKS. Any Bank may at any time and from
time to time assign, with the consent of the Borrower and the Agent which
consent shall not be unreasonably withheld, to one or more Persons
("Purchasing Banks") all or any part of its Credit Exposure pursuant to a
supplement to this Agreement, substantially in the form of Exhibit I hereto
(a "Transfer Sup-
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plement"), executed by such Purchasing Bank, such transferor Bank and the
Agent; provided, however, that (i) any such assignment shall be in an amount
of at least $5,000,000 and (ii) the assignee or assignor shall pay to the
Agent a processing and recordation fee of $3,000 for each assignment. Any
such partial assignment shall be an assignment of an identical percentage of
the transferor Bank's Loans, Letters of Credit and Commitments. Upon (i)
such execution of such Transfer Supplement, (ii) delivery of an executed copy
thereof to the Borrower and the Agent and (iii) payment by such Purchasing
Bank to such transferor Bank of an amount equal to the purchase price agreed
between such transferor Bank and such Purchasing Bank, such transferor Bank
shall be released from its obligations hereunder to the extent of such
assignment and such Purchasing Bank shall for all purposes be a Bank party
to this Agreement and shall have all the rights and obligations of a Bank
under this Agreement to the same extent as if it were an original party
hereto, and no further consent or action by the Borrower, the Banks or the
Agent shall be required. Such Transfer Supplement shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to reflect
the addition of such Purchasing Bank as a Bank and the resulting adjustment
of the Commitments, if any, arising from the purchase by such Purchasing Bank
of all or a portion of the Credit Exposure of such transferor Bank. Promptly
after the consummation of any transfer to a Purchasing Bank pursuant hereto,
the transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that a replacement Note is issued to such transferor Bank
and a new Note is issued to such Purchasing Bank, in each case in principal
amounts reflecting such transfer.
(e) DISCLOSURE OF INFORMATION. The Borrower authorizes each Bank to
disclose to any Participant, Assignee or Purchasing Bank (each, a
"Transferee") and any prospective Transferee any and all financial and other
information in such Bank's possession concerning the Borrower which has been
delivered to such Bank by the Borrower pursuant to this Agreement or which
has been delivered to such Bank by the Borrower in connection with such
Bank's credit evaluation of the Borrower prior to entering into this
Agreement.
Section 8.5 AMENDMENTS AND WAIVERS. Neither
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this Agreement, any Note, any other Loan Document to which the Borrower is a
party nor any terms hereof or thereof may be amended, supplemented, modified
or waived except in accordance with the provisions of this Section 9.5. The
Required Banks and the Borrower may, from time to time, enter into written
amendments, supplements, modifications or waivers for the purpose of adding,
deleting, changing or waiving any provisions to this Agreement, the Notes, or
the other Loan Documents to which the Borrower is a party, PROVIDED, that no
such amendment, supplement, modification or waiver shall (a) extend either
the Final Maturity Date or any installment or required prepayment of any
Obligations or reduce the rate or extend the time of payment of interest on
any Obligations, or reduce the principal amount of any Obligations or reduce
any fee payable to the Banks hereunder, or release all or substantially all
of the Collateral (except as expressly contemplated by the Loan Documents) or
change the amount of any Commitment of any Bank, or amend, modify or waive
any provision of this Section 9.5 or the definition of Required Banks, or
consent to or permit the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement or any other Loan Document, in
each case without the written consent of all the Banks, or (b) amend, modify
or waive any provision of Section 8 or any other provision of any Loan
Document if the effect thereof is to affect the rights or duties of the
Agent, without the written consent of the then Agent. Any such amendment,
supplement, modification or waiver shall apply to each of the Banks equally
and shall be binding upon the Borrower, the Banks, the Agent and all future
holders of the Notes. In the case of any waiver, the Borrower, the Banks and
the Agent shall be restored to their former position and rights hereunder and
under the outstanding Notes, and any Default or Event of Default waived shall
be deemed to be cured and not continuing, but no such waiver shall extend to
any subsequent or other Default or Event of Default, or impair any right
consequent thereon.
Section 8.6 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Agent or any Bank or any holder of a Note in exercising any
right, power or privilege hereunder or under any other Loan Document and no
course of dealing between any Loan Party and the Agent or any Bank or the
holder of any Note shall operate as a waiver thereof; nor shall any single or
partial exercise
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of any right, power or privilege hereunder or under any other Loan Document
preclude any other or further exercise thereof of the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Agent or any Bank or the holder of any Note would
otherwise have. No notice to or demand on any Loan Party in any case shall
entitle any Loan Party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agent, the
Banks or the holder of any Note to any other or further action in any
circumstances without notice or demand.
Section 8.7 SHARING OF PAYMENTS. Each of the Banks agrees that if it
should receive any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of setoff or banker's
lien, by counterclaim or cross action, by the enforcement of any right under
the Loan Documents, or otherwise) which is applicable to the payment of any
Obligations, of a sum which with respect to the related sum or sums received
by other Banks is in a greater proportion than the total of such Obligation
then owed and due to such Bank bears to the total of such Obligation then
owed and due to all of the Banks immediately prior to such receipt, then such
Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in such Obligations owing to
such Banks in such amount as shall result in a proportional participation by
all of the Banks in such amount; provided that if all or any portion of such
excess amount is thereafter recovered from such Bank, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
Section 8.8 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).
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(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM
ANY THEREOF. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW. THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT,
ANY BANK OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
Section 8.9 MAXIMUM INTEREST. It is the intention of the parties hereto
that each Bank shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to
any Bank under laws applicable to it (including the laws of the United States
of America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Bank notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the
contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows: (i)
the aggregate of all consideration which constitutes interest under law
applicable to any Bank that is contracted for, taken, reserved, charged or
received by such Bank under any of the Loan Documents or agreements or
otherwise in connection with the Notes shall under no circumstances exceed
the maximum amount allowed by such applicable law, and any excess shall be
cancelled automatically and if theretofore paid shall be credited by such
Bank on the principal amount of the Obligations (or, to the extent that the
principal amount of the Obligations shall have been or would thereby be paid
in full, refunded by such Bank to the Borrower); and
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(ii) in the event that the maturity of the Notes is accelerated by reason of
an election of the holder thereof resulting from any Event of Default under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to any Bank may never include more than the maximum amount allowed
by such applicable law, and excess interest, if any, provided for in this
Agreement or otherwise shall be cancelled automatically by such Bank as of
the date of such acceleration or prepayment and, if theretofore paid, shall
be credited by such Bank on the principal amount of the Obligations (or, to
the extent that the principal amount of the Obligations shall have been or
would thereby be paid in full, refunded by such Bank to the Borrower). All
sums paid or agreed to be paid to any Bank for the use, forbearance or
detention of sums due hereunder shall, to the extent permitted by law
applicable to such Bank, be amortized, prorated, allocated and spread
throughout the full term of the Loans evidenced by the Notes until payment in
full so that the rate or amount of interest on account of any Loans hereunder
does not exceed the maximum amount allowed by such applicable law. If at any
time and from time to time (i) the amount of interest payable to any Bank on
any date shall be computed at the Highest Lawful Rate applicable to such
Bank pursuant to this Section 9.9 and (ii) in respect of any subsequent
interest computation period the amount of interest otherwise payable to such
Bank would be less than the amount of interest payable to such Bank computed
at the Highest Lawful Rate applicable to such Bank, then the amount of
interest payable to such Bank in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Bank until the total amount of interest payable to such
Bank shall equal the total amount of interest which would have been payable
to such Bank if the total amount of interest had been computed without giving
effect to this Section 9.9. To the extent that Article 5069-1.04 of the
Texas Revised Civil Statutes is relevant for the purpose of determining the
Highest Lawful Rate, such Bank elects to determine the applicable rate
ceiling under such Article by the indicated weekly rate ceiling from time to
time in effect.
Section 8.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the
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different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
Section 8.11 EFFECTIVENESS. This Agreement shall become effective on
the date on which all of the parties hereto shall have signed a counterpart
hereof and shall have delivered the same to the Agent which delivery, in the
case of the Banks, may be given to the Agent by telecopy (with the originals
delivered promptly to the Agent via overnight courier service).
Section 8.12 HEADINGS DESCRIPTIVE. The headings of the several
Sections and subsections of this Agreement are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision
of this Agreement.
Section 8.13 MARSHALLING; RECAPTURE. Neither the Agent nor any Bank
shall be under any obligation to marshall any assets in favor of any Loan
Party or any other party or against or in payment of any or all of the
Obligations. To the extent any Bank receives any payment by or on behalf of
any Loan Party, which payment or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to such Loan Party or its estate, trustee, receiver, custodian
or any other party under any bankruptcy law, state or federal law, common law
or equitable cause, then to the extent of such payment or repayment, the
obligation or part thereof which has been paid, reduced or satisfied by the
amount so repaid shall be reinstated by the amount so repaid and shall be
included within the liabilities of such Loan Party to such Bank as of the
date such initial payment, reduction or satisfaction occurred.
Section 8.14 SEVERABILITY. In case any provision in or obligation under
this Agreement or the Notes or the other Loan Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
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Section 8.15 SURVIVAL. All indemnities set forth herein including,
without limitation, in Sections 2.18, 2.19, 2.20, 2.21, 8.7 and 9.1 shall
survive the execution and delivery of this Agreement and the Notes and the
making and repayment of the Loans hereunder.
Section 8.16 DOMICILE OF LOANS. Each Bank may transfer and carry its
Loans at, to or for the account of any branch office, subsidiary or
affiliate of such Bank.
Section 8.17 LIMITATION OF LIABILITY. No claim may be made by any Loan
Party or any other Person against the Agent or any Bank or the Affiliates,
directors, officers, employees, attorneys or agent of any of them for any
special, indirect, consequential or punitive damages in respect of any claim
for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement, or any act,
omission or event occurring in connection therewith; and each Loan Party
hereby waives, releases and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to
exist in its favor.
Section 8.18 CALCULATIONS; COMPUTATIONS. The financial statements to be
furnished to the Agent and the Banks pursuant hereto shall be made and
prepared in accordance with GAAP consistently applied throughout the periods
involved and consistent with GAAP as used in the preparation of the financial
statements referred to in Section 4.5, and, except as otherwise specifically
provided herein, all computations determining compliance with Section 6.1
hereof shall utilize GAAP.
Section 8.19 WAIVER OF TRIAL BY JURY, PUNITIVE DAMAGES. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, EACH OF THE BORROWER, THE ARRANGER, THE AGENT
AND THE BANKS HEREBY (A) IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING HEREUNDER OR
THEREUNDER; (B) IRREVOCABLY WAIVES 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.
Section 8.20 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND
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SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE 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 8.21 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE
SECURITY DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF
THE TERMS OF THIS AGREEMENT AND THE SECURITY DOCUMENTS; THAT IT HAS IN FACT
READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE
OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN
REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY
DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS
AGREEMENT AND THE SECURITY DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF
THE TERMS OF THIS AGREEMENT AND THE SECURITY DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND
RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH
PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR
ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE
SECURITY DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF
SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.
INLAND PRODUCTION COMPANY
By: /s/ Bill I. Pennington
-------------------------------
Bill I. Pennington
Chief Financial Officer
Notice Address:
475 Seventeenth Street
Suite 1500
Denver, Colorado 80202
Telecopier No.: (303) 296-4070
Attention: President or Chief
Financial Officer
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CANADIAN IMPERIAL BANK OF COM-
MERCE, as Agent
By: /s/ Marybeth Ross
-----------------------------------
Marybeth Ross
Authorized Signatory
Notice Address:
425 Lexington Avenue
New York, New York 10017
Telecopier No.: (212) 856-3763
Attention: Agency Services
with copies to:
CIBC Wood Gundy Securities Corp.
909 Fannin Street
Suite 1200
Houston, Texas 77010
Telecopier No.: (713) 650-3727
Attention: Paul Jordan
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CIBC, Inc., as a Bank
By:
Marybeth Ross
--------------------
Authorized Signatory
Notice Address:
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30329
Telecopier No.: (770) 319-4950
Attention: Corporate Services
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SECURITIES PURCHASE AGREEMENT
Dated as of July 21, 1997
By and Between
INLAND RESOURCES INC.
and
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
- -------------------------------------------------------------------------------
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TABLE OF CONTENTS
Page
----
Section 1. Definitions ................................................. 1
Section 2. Issuance and Purchase of Series C Preferred Stock ........... 2
(a) Issuance and Purchase of Series C Preferred Stock ........... 2
(b) The Closing ................................................. 2
Section 3. Representations and Warranties of the Company ............... 3
(a) Corporate Status ............................................ 3
(b) Authority ................................................... 3
(c) Consents and Approval; No Violation ......................... 4
(d) Offering of the Shares ...................................... 4
(e) Broker's or Finder's Commissions ............................ 5
(f) Capitalization .............................................. 5
(g) Publicly Filed Documents .................................... 5
(h) No Restrictions on Affiliates ............................... 6
(i) Litigation .................................................. 6
(j) Financial Statements; Financial Condition; etc. ............. 6
(k) Material Adverse Change ..................................... 6
(l) Use of Proceeds; Margin Regulations ......................... 6
(m) Tax Returns and Payments .................................... 6
(n) ERISA ....................................................... 7
(o) Investment Company Act; Public Utility Holding Company Act .. 7
(p) True and Complete Disclosure ................................ 8
(q) Environmental Matters ....................................... 8
(r) Ownership of Property ....................................... 9
(s) No Default .................................................. 9
(t) Licenses, etc. .............................................. 9
(u) Compliance With Law ......................................... 9
(v) No Burdensome Restrictions .................................. 9
(w) Labor Matters ............................................... 9
(x) Insurance ................................................... 9
Section 4. Representations and Warranties of the Purchaser ............. 10
(a) Authority ................................................... 10
(b) Consents and Approval; No Violation ......................... 10
(c) Securities Laws ............................................. 10
Section 5. Covenants ................................................... 11
(a) Use of Proceeds ............................................. 11
(b) Compliance with Laws ........................................ 11
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(c) Access to Information ....................................... 11
(d) Public Announcements ........................................ 11
(e) No Restrictions on Affiliates ............................... 11
(f) Certain Public Utility Matters .............................. 11
Section 6. Purchaser's Conditions ...................................... 11
(a) Representations and Covenants ............................... 12
(b) Registration Rights Agreement ............................... 12
(c) Tagalong Agreement .......................................... 12
(d) Certificate of Designation .................................. 12
(e) Due Diligence ............................................... 12
(f) Material Adverse Effect ..................................... 12
(g) Conversion of Series B Preferred Shares ..................... 12
(h) Payment of Expenses and Fees ................................ 12
(i) Opinion of Counsel .......................................... 12
Section 7. Company's Conditions ........................................ 12
(a) Representations and Covenants ............................... 12
Section 8. Termination, Amendment and Waiver ........................... 13
(a) Termination ................................................. 13
(b) Effect of Termination ....................................... 13
Section 9. Maintenance Rights .......................................... 13
Section 10. Miscellaneous ............................................... 14
(a) Entire Agreement ............................................ 14
(b) Notices ..................................................... 14
(c) Governing Law ............................................... 15
(d) Counterparts ................................................ 16
(e) Expenses .................................................... 16
(f) Assignment .................................................. 16
(g) Dispute Resolution .......................................... 16
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made and entered
into as of the 21st of July, 1997, by and between Inland Resources Inc. (the
"Company") and Joint Energy Development Investments Limited Partnership (the
"Purchaser").
Section 1. DEFINITIONS. As used in this Agreement, the following terms
have the meanings indicated:
"AAA" has the meaning ascribed to such term in Section 10(g).
"AFFILIATE" shall have the meaning given to such term in Rule 405
under the Securities Act.
"CLOSING" has the meaning ascribed to such term in Section 2(b).
"CLOSING DATE" has the meaning ascribed to such term in Section 2(b).
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company.
"CREDIT AGREEMENT" means the Credit Agreement, among Inland
Production Company, the banks named therein and Canadian Imperial Bank of
Commerce, as agent, dated as of June 30, 1997.
"DISPUTE" has the meaning ascribed to such term in Section 10(g).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GOVERNMENTAL AUTHORITY" means the United States, any foreign
country, state, county, city or other political subdivision, agency or
instrumentality thereof.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the
financial condition, prospects, assets, business or operations of the Company
and its Subsidiaries taken as a whole.
"MEDIATOR" has the meaning ascribed to such term in Section 10(g).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form attached hereto as Exhibit A.
<PAGE>
"SEC REPORTS" has the meaning ascribed to such term in Section 3(g).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES C PREFERRED STOCK" means the Series C Cumulative Convertible
Preferred Stock, par value $.001 per share, of the Company.
"SUBSIDIARY" means, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are
owned directly or indirectly by such entity. Such term shall also refer to
any other partnership, limited partnership, joint venture, trust, or other
business entity in which such entity has a material interest.
"SHARES" has the meaning ascribed to such term in Section 2(a).
"TAGALONG AGREEMENT" means the Tagalong Agreement in the form
attached hereto as Exhibit B.
"TRANSACTIONS" means the issuance and sale of the Shares to the
Purchaser and the other transactions contemplated by this Agreement, the
Registration Rights Agreement and the Tagalong Agreement.
All capitalized terms not defined and used herein shall have the
meaning set forth in the Credit Agreement.
Section 2. ISSUANCE AND PURCHASE OF SERIES C PREFERRED STOCK.
(a) ISSUANCE AND PURCHASE OF SERIES C PREFERRED STOCK. Subject
to the terms and conditions of this Agreement, the Company agrees to
issue and sell to the Purchaser, and the Purchaser (or the Purchaser's
designee) agrees to subscribe for and purchase from the Company,
100,000 shares (the "Shares") having the relative rights, preferences,
privileges and limitations set forth on the "Articles of Amendment to
the Articles of Incorporation of Inland Resources Inc." ("Certificate
of Designation") attached hereto as Exhibit C and incorporated herein
for all purposes by this reference (the "Series C Preferred Stock"),
for an aggregate purchase price of $10,000,000 ($100.00 per share of
Series C Preferred Stock) (the "Purchase Price").
(b) THE CLOSING. Subject to the terms and conditions of this
Agreement, the issuance and purchase of the Shares shall take place at
a closing (the "Closing") to be held at the offices of the Purchaser or
such other location as may be agreed by the parties at 10:00 a.m.
(Denver time) on July 21, 1997, or such later date as may be agreed by
the parties. The
<PAGE>
date on which the Closing occurs is referred to herein as the
"Closing Date." On the Closing Date, the Company will deliver
the Shares registered in the name of the Purchaser and/or the
Purchaser's nominees or designees upon receipt of the Purchase Price
therefor by wire transfer of immediately available funds to an account
designated by the Company, or by such other method as is mutually
agreed to by the Purchaser and the Company. Such certificates shall
bear appropriate restrictive legends deemed necessary by the Company to
comply with applicable securities laws. Prior to the Closing, the
Company shall have filed with the Secretary of State of Washington the
Certificate of Designation.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Purchaser as of the date hereof
as follows:
(a) CORPORATE STATUS. Each of the Company and its
Subsidiaries (i) is a duly organized and validly existing corporation
or partnership in good standing under the laws of the jurisdiction of
its incorporation or formation, (ii) has the corporate or partnership
power and authority to own its property and assets and to transact the
business in which it is engaged or presently proposed to engage and
(iii) has duly qualified and is authorized to do business and is in
good standing as a foreign corporation or partnership in every
jurisdiction in which it owns or leases real property or in which the
nature of its business requires it to be so qualified, except where the
failure to so quality, individually or in the aggregate, could not have
a Material Adverse Effect. The copy of the Amended and Restated
Articles of Incorporation of Inland Resources Inc. filed as exhibit 3.1
to the Company's Form 10-QSB for the quarter ended June 30, 1996 is a
true, correct and complete copy of the Company's Articles of
Incorporation, except for the amendments set forth in the Certificate
of Designation. Except for the Certificate of Designation, no other
amendment to the Company's Articles of Incorporation has been approved
by the Board of Directors or stockholders of the Corporation or filed
with the Washington Secretary of State.
(b) AUTHORITY. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and the
Registration Rights Agreement and to consummate the Transactions to be
performed by the Company. The execution and delivery of this Agreement
and the Registration Rights Agreement and the consummation of the
Transactions to be performed by the Company have been duly and validly
authorized by all necessary action on the part of the Board of
Directors of the Company, and no other corporate proceedings are
necessary to authorize the execution and delivery of this Agreement and
the Registration Rights Agreement by the Company or to consummate the
Transactions to be performed by the Company, other than filing the
Certificate of Designation with the Secretary of State of Washington on
the Closing Date, and as a result of the prior approval by at least a
majority of the Company's Board of Directors of the Purchaser's
purchase of Shares the provisions of RCW23B.19.040 of the Washington
Business Corporation Act are inapplicable to the Purchaser. This
Agreement and the
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Registration Rights Agreement have been duly and validly executed and
delivered by the Company and, assuming each of this Agreement and the
Registration Rights Agreement constitutes a valid and binding
obligation of the Purchaser, each of this Agreement and the
Registration Rights Agreement constitutes, a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms. Upon receipt by the Company of the Purchase Price, the
Shares shall be duly authorized, validly issued, fully paid and
non-assessable and free of any preemptive rights. The shares of Common
Stock underlying the Shares have been reserved for issuance, and such
shares of Common Stock upon conversion of the Shares will be validly
issued, fully paid and non-assessable and free of any preemptive
rights.
(c) CONSENTS AND APPROVAL; NO VIOLATION. Neither the execution,
delivery or performance of this Agreement or the Registration Rights
Agreement by the Company, the consummation of the Transactions to be
performed by the Company nor compliance by the Company with any of the
provisions hereof or of the Registration Rights Agreement will (i)
conflict with or result in any breach of any provisions of the Articles
of Incorporation or by-laws of the Company or any of its Subsidiaries,
assuming, for this purpose, the Certificate of Designation has been
filed with the Secretary of State of Washington; (ii) require any
consent, approval, authorization or permit of, or filing with or
notification to, any governmental authority, including those of the
United States, any foreign country, state, county, city or other
political subdivision, agency or instrumentality thereof (herein
referred to as a "Governmental Authority"), except for consents,
approvals, authorizations, permits, filings or notifications which have
been obtained or made; (iii) result in a default (with or without due
notice or lapse of time or both) or give rise to any right of
termination, cancellation or acceleration under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
contract, license, agreement or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any of their respective assets
may be bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or consents
have been obtained; (iv) result in the creation or imposition of any
lien, charge or other encumbrance on the assets of the Company or any
of its Subsidiaries; or (v) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company, any of
its Subsidiaries or any of their respective assets.
(d) OFFERING OF THE SHARES. The offer, sale and issuance of the
Shares pursuant to this Agreement do not require registration of the
Shares under the Securities Act of 1933, as amended (the "Securities
Act"), or registration or qualification under any applicable state
"blue sky" or securities laws, based on available non-public offering
exemptions which are based, in part, on the representations of the
Purchaser in Section 4(c). The Company has not taken, directly or
indirectly, nor will it take any action which will subject the issuance
or sale
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of any of the Shares to be in violation of the provision of Section 5
of the Securities Act or the provisions of any securities, blue sky law
or similar law of any applicable jurisdiction.
(e) BROKER'S OR FINDER'S COMMISSIONS. Except as referred to
herein, no broker's or finder's fees or commissions will be payable by
the Company in connection with the issuance and sale of the Shares or
the Transactions.
(f) CAPITALIZATION. (i) As of the date hereof, the authorized
capital stock of the Company consists of 25,000,000 shares of Common
Stock, and 20,000,000 shares of Class A preferred stock, par value
$.001 per share ("Preferred Shares"). As of the date hereof, 6,319,059
shares of Common Stock and no Series A Preferred Shares or Series B
Preferred Shares (other than the 1,000,000 shares of Series B Preferred
Shares being converted concurrently with the purchase and sale of
Shares at the Closing) were issued and outstanding. All Series A
Preferred Shares and Series B Preferred Shares will have been canceled
and will have been returned to authorized but unissued Preferred Shares
as of the Closing. Except with the consent of the Purchaser, the
Company will not, prior to the Closing, authorize or issue any Common
Stock or Preferred Stock (other than upon exercise of outstanding
options or warrants), and will not repurchase or redeem any Common
Stock or Preferred Stock. All such issued and outstanding shares of
capital stock of the Company are validly issued, fully paid,
non-assessable and free of any preemptive rights. Other than the
Shares issuable pursuant to this Agreement or the shares of Common
Stock underlying the Shares, neither the Company nor any Subsidiary has
any shares of its capital stock reserved for issuance, except for
697,300 shares of Common Stock issuable pursuant to the Company's
employee stock option plans, of which options for 221,300 shares are
outstanding, and 656,911 shares issuable pursuant to other outstanding
subscriptions, options and warrants. There are no other (x)
outstanding options, warrants or securities convertible into Common
Stock or (y) contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company is a party relating to
the issuance of any capital stock of the Company, other than this
Agreement. Except as set forth on SCHEDULE 3(f), the Company is not a
party to or bound by any agreement with respect to any of its
securities which grants registration rights to any person.
(ii) As of the Closing Date, the authorized capital stock of
the Company shall consist of 25,000,000 shares of Common Stock, and
20,000,000 Preferred Shares, of which 100,000 shares shall have been
designated as Series C Cumulative Convertible Preferred Stock pursuant
to the Certificate of Designation. Upon issuance at the Closing Date,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable and shall have been issued free of any preemptive right
and free from all liens.
(g) PUBLICLY FILED DOCUMENTS. Each of the Company's Annual
Report on Form 10-KSB for the period ended December 31, 1996, and its
Quarterly Report on Form 10-QSB for the period ended March 31, 1997
(the "SEC Reports"), as of its filing date, complied in
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all material respects, both as to form and content, with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder and did not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading. The Company has made all filings
required to be made by it with the Commission pursuant to Sections 12,
13, 14 and 15 of the Exchange Act. All of such filings, and all
filings made by the Company with the Commission pursuant to such
sections, rules and regulations although not required to be made,
complied in all material respects, as to both form and content, with
all applicable requirements of the Exchange Act and the rules and
regulations thereunder, and, at the time of filing, did not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.
(h) NO RESTRICTIONS ON AFFILIATES. Neither the Company nor
any of its Subsidiaries is a party to any agreement that would purport
to impose restrictions or limitations on any affiliate of the Company
(other than its controlled affiliates).
(i) LITIGATION. There are no actions, suits or proceedings
pending or threatened (i) with respect to any of the Transactions or
(ii) that could, individually or in the aggregate, result in a Material
Adverse Effect.
(j) FINANCIAL STATEMENTS; FINANCIAL CONDITION; ETC. Each of
the financial statements included in the SEC Reports were prepared in
accordance with generally accepted accounting principles consistently
applied and fairly present the financial condition and the results of
operations of the entities covered thereby on the dates and for the
periods covered thereby, except as disclosed in the notes thereto and,
with respect to interim financial statements, subject to normally
recurring year-end adjustments. Neither the Company nor any of its
Subsidiaries has any material liability (contingent or otherwise) not
reflected in such financial statements or in the notes thereto.
(k) MATERIAL ADVERSE CHANGE. Since March 31, 1997, there has
occurred no event, act or condition which has had, or could have, a
Material Adverse Effect.
(l) USE OF PROCEEDS; MARGIN REGULATIONS. All proceeds from
the issuance of Shares will be used by the Company only in accordance
with the provisions of Section 5(a). No part of the proceeds from the
issuance of Shares will be used by the Company to purchase or carry any
Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock. Neither the purchase of the
Shares nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of Regulations G, T, U or X of the
Federal Reserve Board.
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<PAGE>
(m) TAX RETURNS AND PAYMENTS. Each of the Company and its
Subsidiaries has filed all tax returns required to be filed by it and
has paid all taxes and assessments payable by it which have become due,
other than those not yet delinquent or those that are reserved against
in accordance with generally accepted accounting principles which are
being diligently contested in good faith by appropriate proceedings.
(n) ERISA. Neither the Company nor any of its Subsidiaries
has any Plans other than those listed on Schedule 4.11 to the Credit
Agreement. No accumulated funding deficiency (as defined in Section
412 of the Code or Section 302 of ERISA) or Reportable Event has
occurred with respect to any Plan. There are no unfunded benefit
liabilities under any Plan. The Company and each member of its ERISA
Controlled Group have complied with the requirements of Section 515 of
ERISA with respect to each Multiemployer Plan and is not in "default"
(as defined in Section 4219(c)(5) of ERISA) with respect to payments to
a Multiemployer Plan. The aggregate potential total withdrawal
liability, and the aggregate potential annual withdrawal liability
payments of the Company and the members of its ERISA Controlled Group
as determined in accordance with Title IV of ERISA as if the Company
and the members of its ERISA Controlled Group had completely withdrawn
from all Multiemployer Plans is not greater than $500,000 and $100,000,
respectively. To the best knowledge of the Company and each member of
its ERISA Controlled Group, no Multiemployer Plan is or is likely to be
in reorganization (as defined in Section 4241 of ERISA or Section 418
of the Code) or is insolvent (as defined in Section 4245 of ERISA). No
material liability to the PBGC (other than required premium payments),
the Internal Revenue Service, any Plan or any trust established under
Title IV of ERISA has been, or is expected by the Company or any member
of its ERISA Controlled Group to be, incurred by the Company or any
member of its ERISA Controlled Group. Except as otherwise disclosed on
Schedule 4.11 to the Credit Agreement, neither the Company nor any
member of its ERISA Controlled Group has any contingent liability with
respect to any post-retirement benefit under any "welfare plan" (as
defined in Section 3(1) of ERISA), other than liability for
continuation coverage under Part 6 of Title I of ERISA. No lien under
Section 412(n) of the Code or 302(f) of ERISA or requirement to provide
security under Section 401(a)(29) of the Code or Section 307 of ERISA
has been or is reasonably expected by the Company or any member of its
ERISA Controlled Group to be imposed on the assets of the Company or
any member of its ERISA Controlled Group.
(o) INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended. The Company does not own
or operate any facility used for the generation, transmission or
distribution for sale of electric energy or any facility used for the
retail distribution of natural or manufactured gas, each within the
meaning of the Public Utility Holding Company Act of 1935, as amended
(the "1935 Act"). The Company is not an "electric utility company"
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<PAGE>
or a "gas utility company" within the meaning of the 1935 Act. The
Company is not (i) a "holding company," (ii) a "subsidiary company," an
"affiliate" or "associate company" of a "holding company" or (iii) an
"affiliate" of a "subsidiary company" of a "holding company," each
within the meaning of the 1935 Act. The Company is not subject to
regulation as a public utility or public service company (or similar
designation) by any state in the United States, by the United States,
by any foreign country or by any agency or instrumentality of any of
the foregoing.
(p) TRUE AND COMPLETE DISCLOSURE. All factual information
(taken as a whole) furnished by or on behalf of the Company in writing
to the Purchaser on or prior to the Closing Date, for purposes of or in
connection with this Agreement or any of the Transactions is true and
accurate in all material respects on the date as of which such
information is dated or furnished and not incomplete by omitting to
state any material fact necessary to make such information (taken as a
whole) not misleading at such time. As of the date hereof, there are
no facts, events or conditions known to the Company which, individually
or in the aggregate, have or could be expected to have a Material
Adverse Effect.
(q) ENVIRONMENTAL MATTERS.
(i) Each of the Company and its Subsidiaries and
their Environmental Affiliates are in material compliance with all
applicable Environmental Laws, (y) each of the Company and its
Subsidiaries and their Environmental Affiliates have all
Environmental Approvals required to operate their businesses as
presently conducted or as reasonably anticipated to be conducted,
none of the Company nor its Subsidiaries nor any of their
Environmental Affiliates has received any communications (written
or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or its
Subsidiaries or Environmental Affiliate is not in full compliance
with all Environmental Laws, and to the Company's best knowledge
after due inquiry, there are no circumstances that may prevent or
interfere with such full compliance in the future.
(ii) There is no Environmental Claim pending or
threatened against the Company or its Subsidiaries or its
Environmental Affiliate.
(iii) There are no past or present actions,
activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge or
disposal of any Material of Environmental Concern, that could form
the basis of any Environmental Claims against any of the Company or
its Subsidiaries or any of their Environmental Affiliates.
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<PAGE>
(iv) Without in any way limiting the generality of
the foregoing, (x) there are no on-site or off-site locations in
which any of the Company or its Subsidiaries or its Environmental
Affiliate has stored, disposed or arranged for the disposal of
Materials of Environmental Concern, (y) there are no underground
storage tanks located on property owned or leased by any of the
Company or its Subsidiaries or its Environmental Affiliate, (z)
there is no asbestos contained in or forming part of any building,
building component, structure or office space owned or, to the
knowledge of the Company or its Subsidiaries, leased by the Company
or its Subsidiaries or its Environmental Affiliate, and (w) no
polychlorinated biphenyls (PCB's) are used or stored at any
property owned or, to the knowledge of the Company or its
Subsidiaries leased by the Company or its Subsidiaries or its
Environmental Affiliate.
(r) OWNERSHIP OF PROPERTY. The Company and its Subsidiaries
have good and marketable fee simple title to or valid leasehold
interests in all of their real property and good title to all of their
personal property subject to no lien of any kind, except the liens
granted pursuant to the Credit Agreement and related documents. The
Company and its Subsidiaries enjoy peaceful and undisturbed possession
under all of their respective leases.
(s) NO DEFAULT. Neither the Company nor any of its
Subsidiaries is in default under or with respect to any other
agreement, instrument or undertaking to which it is a party or by which
it or any of its property is bound in any respect which could result in
a Material Adverse Effect.
(t) LICENSES, ETC. The Company and its Subsidiaries have
obtained and hold in full force and effect, all franchises, licenses,
permits, certificates, authorizations, qualifications, accreditations,
easements, rights of way and other rights, consents and approvals which
are necessary for the operation of their respective businesses as
presently conducted.
(u) COMPLIANCE WITH LAW. Each of the Company and its Subsidiaries
is in material compliance with all laws, rules, regulations, orders,
judgments, writs and decrees.
(v) NO BURDENSOME RESTRICTIONS. Neither the Company nor
its Subsidiaries is a party to any agreement or instrument or subject
to any other obligation or any charter or corporate restriction or any
provision of any applicable law, rule or regulation which, individually
or in the aggregate, could have a Material Adverse Effect.
(w) LABOR MATTERS. There are no collective bargaining
agreements or Multiemployer Plans covering the employees of the Company
or any of its Subsidiaries, and none of such Persons has suffered any
strikes, walkouts, work stoppages or other material labor difficulty
within the last five years.
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<PAGE>
(x) INSURANCE. The Company and its Subsidiaries maintain property,
casualty, general liability and other insurance policies with coverage limits
in amounts and with carriers as in each case are customary in accordance with
sound business practices and which the Company believes are adequate under
the circumstances.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser hereby represents and warrants to the Company as of the date hereof
as follows:
(a) AUTHORITY. The Purchaser has all requisite partnership power and
authority to execute and deliver this Agreement and to consummate the
Transactions to be performed by the Purchaser. The execution and delivery of
this Agreement and the consummation of the Transactions to be performed by
the Purchaser have been duly and validly authorized by all necessary action
on the part of the Purchaser, and no other proceedings are necessary to
authorize the execution and delivery of this Agreement by the Purchaser or to
consummate the Transactions to be performed by the Purchaser. This Agreement
has been duly and validly executed and delivered by the Purchaser and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, this Agreement constitutes a valid and binding agreement of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
(b) CONSENTS AND APPROVAL; NO VIOLATION. Neither the execution and
delivery of this Agreement by the Purchaser, the consummation of the
Transactions to be performed by the Purchaser, nor compliance by the
Purchaser, with any of the provisions hereof will (i) conflict with or result
in any breach of any provisions of the organizational documents of the
Purchaser or any of its Subsidiaries, (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Authority, except for consents, approvals, authorizations,
permits, filings or notifications which have been obtained or made, (iii)
result in a default (with or without due notice or lapse of time or both) or
give rise to any right of termination, cancellation or acceleration under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, contract, license, agreement or other instrument or obligation to
which the Purchaser, or any of its Subsidiaries is a party or by which the
Purchaser or any of its Subsidiaries, or any of their respective assets may
be bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained,
or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Purchaser, any of its Subsidiaries or any of
their respective assets.
(c) SECURITIES LAWS. The Purchaser has such knowledge and experience
in financial and business matters as enables it or him to evaluate the merits
and risks of an investment in the Shares. The Purchaser is an "accredited
investor" as such term is defined
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<PAGE>
in Rule 501 under the Securities Act. The Purchaser is acquiring the Shares
for its own account and not with the view to resale or redistribution thereof
in violation of the Securities Act. The Purchaser acknowledges that it may
not transfer the Shares except pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, and that a legend to such
effect shall be included on the certificate representing the Shares.
Section 5. COVENANTS.
(a) USE OF PROCEEDS. The entire amount of the cash proceeds from the
issuance of the Securities shall be used by the Company on the Closing Date
for working capital or the acquisition of oil and gas properties.
(b) COMPLIANCE WITH LAWS. The Company shall, and shall cause each of
its Subsidiaries to, comply with all applicable federal, state and local
laws, rules and regulations, including, without limitation, Environmental
Laws, except where failure to comply will not have a Material Adverse Effect
on the Company and its Subsidiaries, taken as a whole.
(c) ACCESS TO INFORMATION. The Purchaser shall have the right (x) to
receive prior notice of any proposed action by the Company's Board of
Directors, and to receive reasonable notice of and to attend any meeting of
the Company's Board of Directors, (y) to receive, promptly after they are
produced, all management reports and management accounts relating to the
Company and (z) upon reasonable notice, to have reasonable access to the
books and records of the Company.
(d) PUBLIC ANNOUNCEMENTS. The Company and the Purchaser will consult
with each other before issuing any press release or otherwise making any
public statements with respect to the existence of this Agreement or the
Transactions and shall not issue any press release or make any public
statement prior to such consultation, except as may be required by law or by
obligations pursuant to any listing agreements between the Company and NASDAQ.
(e) NO RESTRICTIONS ON AFFILIATES. Neither the Company nor any of its
Subsidiaries will enter into any agreement that would purport to impose
restrictions or limitations on any affiliate of the Company (other than its
controlled affiliates).
(f) CERTAIN PUBLIC UTILITY MATTERS. Except as contemplated herein, the
Company will not take any action that would be inconsistent with the
representations contained in paragraph 3(o) hereof so long as the Purchaser
holds any Shares or Common Stock underlying the Shares.
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<PAGE>
Section 6. PURCHASER'S CONDITIONS. The obligations of the Purchaser to
effect the closing of the Shares on the Closing Date are subject to the
satisfaction of the following conditions any one or more of which may be
waived by the Purchaser.
(a) REPRESENTATIONS AND COVENANTS. The representations and
warranties contained in Section 3 hereof shall be true in all material
respects on and as of the Closing Date as if made on and as of the
Closing Date. The Company shall have complied with all of its
obligations contained herein performance of which is required on or
prior to the Closing Date. The Purchaser shall have received a
certificate to the foregoing effect executed by an officer of the
Company.
(b) REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered the Registration Rights Agreement.
(c) TAGALONG AGREEMENT. All the parties to the Tagalong Agreement
(other than the Purchaser) shall have executed and delivered the
Tagalong Agreement.
(d) CERTIFICATE OF DESIGNATION. The Certificate of Designation in
the form of Exhibit C shall have been filed with the Secretary of State
of Washington on or before the Closing Date.
(e) DUE DILIGENCE. The Purchaser shall, prior to the Closing
Date, be satisfied, in its sole discretion, with the results of its
legal and business due diligence of the Company.
(f) MATERIAL ADVERSE EFFECT. Since March 31, 1997, there has
occurred no event, act, or condition which has had, or could have, a
Material Adverse Effect.
(g) CONVERSION OF SERIES B PREFERRED SHARES. All of the Series B
Preferred Shares shall have been converted into an aggregate of
1,977,671 shares of Common Stock.
(h) PAYMENT OF EXPENSES AND FEES. The Company shall have paid to
or on behalf of the Purchaser all amounts payable pursuant to Section
10(e) and shall have paid to ECT Securities Corp. a structuring fee in
the amount of $400,000.
(i) OPINION OF COUNSEL. The Purchaser shall have received an
opinion of the Company's counsel at the Closing, in the form reasonably
requested by the Purchaser.
Section 7. COMPANY'S CONDITIONS. The obligations of the Company
to issue and sell the Shares are subject to the satisfaction of the
following conditions any one or more of which may be waived by the
Company:
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(a) REPRESENTATIONS AND COVENANTS. The representations and warranties
contained in Section 4 hereof shall be true in all material respects on and
as of the Closing Date as if made on and as of the Closing Date. The
Purchaser shall have complied with all of its obligations contained herein
performance of which is required on or prior to the Closing Date. The
Company shall have received a certificate to the foregoing effect executed by
an officer of the Purchaser, as applicable.
Section 8. TERMINATION, AMENDMENT AND WAIVER.
(a) TERMINATION. The transactions contemplated hereby may be abandoned
at any time prior to the Closing, as follows:
(i) By the mutual written consent of the Company and the
Purchaser; or
(ii) by the Company, on one hand, or the Purchaser, on the other
hand, if there shall have been a breach by the other party of any of the
covenants contained herein or if any representation or warranty made by
any other party is untrue in any material respect.
(b) EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 8(a)(i) or (ii), this
Agreement shall forthwith become void and have no effect with respect to the
Transactions, without any liability in respect to the Transactions on the
part of any party other than Section 10(e).
Section 9. MAINTENANCE RIGHTS.
(a) The Company hereby grants to the Purchaser the right to purchase a
pro rata share of New Securities (as defined in this Section 9) which the
Company may, from time to time, propose to sell and issue. The Purchaser's
pro rata share, for purposes of this right, is the ratio of the number of
shares of Common Stock owned by the Purchaser immediately prior to the
issuance of New Securities, assuming full conversion of the Shares, to the
total number of shares of Common Stock outstanding immediately prior to the
issuance of New Securities, assuming full conversion of the Shares and
exercise of all outstanding rights, options and warrants to acquire Common
Stock of the Company. "New Securities" shall mean any capital stock
(including Common Stock and/or Preferred Shares) of the Company whether now
authorized or not, and rights, options or warrants to purchase such capital
stock, and securities of any type whatsoever that are, or may become,
convertible into or exchangeable for capital stock; provided that the term
"New Securities" does not include (i) securities issued upon conversion of
the Shares; (ii) securities issued pursuant to the acquisition of another
business entity or business segment of an entity or property (other than
cash) of an entity or person; (iii) securities issued to employees,
consultants, officers or
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directors of the Company pursuant to any stock option, stock purchase or
stock bonus plan, agreement or arrangement approved by the Board of
Directors; (iv) securities issued in a public offering pursuant to a
registration under the Securities Act; and (v) securities issued in
connection with any stock split, stock dividend or recapitalization of the
Company.
(b) In the event the Company proposes to undertake any issuance of New
Securities, it shall give the Purchaser written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. The Purchaser shall have
ten (10) days after any such notice is mailed or delivered to agree to
purchase the Purchaser's pro rata share of such New Securities for the price
and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased,
which purchase the Purchaser may condition upon the Company selling the
remainder of the New Securities proposed to be sold.
(c) In the event the Purchaser fails to exercise fully the right within
said ten (10) day period, the Company shall have one hundred twenty (120)
days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within one
hundred twenty (120) days from the date of said agreement) to sell the New
Securities respecting which the Purchaser's right set forth in this Section 9
was not exercised, at a price and upon terms no more favorable to the
purchasers thereof than specified in the Company's notice to the Purchaser
pursuant to Section 9(b). In the event the Company has not sold within said
120-day period or entered into an agreement to sell the New Securities in
accordance with the foregoing within one hundred twenty (120) days from the
date of said agreement, the Company shall not thereafter issue or sell any
New Securities, without first again offering such securities to the Purchaser
in the manner provided in Section 9(b) above.
(d) The right set forth in this Section 9 may not be assigned or
transferred, except that such right is assignable by the Purchaser to any
subsidiary or parent of, or to any Affiliate of the Purchaser.
(e) The Purchaser shall be given a reasonable opportunity to co-manage
any high-yield debt offering or long-term debt offering by the Company.
(f) The provisions of this Section 9 shall terminate upon the redemption
or conversion of all the Series C Preferred Stock.
Section 10. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement and
the agreements attached hereto as Exhibits A and B (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings,
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<PAGE>
both written and oral, between the parties with respect to the subject matter
hereof and (b) shall not be assigned by operation of law or otherwise.
(b) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by facsimile, or by registered
or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to the Company:
Inland Resources Inc.
475 17th Street
Suite 1500
Denver, Colorado 80202
Fax: 303-296-4070
Attn: Kyle R. Miller
With a copy to:
Glast, Phillips and Murray, P.C.
2200 One Galleria Tower
13355 Noel Road, L.B. 48
Dallas, Texas 75240-6657
Fax: 214-419-8329
Attn: Mike Parsons
If to the Purchaser:
Joint Energy Development Investments Limited Partnership
c/o Enron Corp.
1400 Smith
Houston, Texas 77002
Fax: (713) 646-3602
Attn: Donna Lowry - Director, 28th Floor
Enron Capital & Trade Resources Corp.
1200 17th Street, Suite 2750
Denver, Colorado 80202
Fax: (303) 534-2205
Attn: Phil Walton
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<PAGE>
(c) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws in the State of Texas applicable
to agreements made and wholly performed in the State of Texas.
(d) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement.
(e) EXPENSES. Except as otherwise provided herein or in the
Registration Rights Agreement, each party shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with
transactions contemplated hereby, including fees and expenses of its
representatives, provided, however, that the Company shall pay all of
the Purchaser's legal fees, professional fees and other transaction
costs up to $25,000 incurred in connection with the evaluation and
negotiation of the transactions contemplated hereby.
(f) ASSIGNMENT. Except as provided in this Agreement, neither the
Purchaser nor the Company may assign its or his rights or obligations
hereunder; provided, however, the Purchaser may assign its rights to
acquire the Shares to an affiliate, provided such assignment shall not
relieve the Purchaser of its obligations hereunder.
(g) DISPUTE RESOLUTION. (i) Any controversy, dispute or claim
arising out of or relating to this Agreement or the Registration Rights
Agreement or the Transactions (a "Dispute") shall be submitted to
non-binding mediation upon the request of the Company or the Purchaser
on the following terms. Upon the request of either party, a neutral
mediator acceptable to both parties (the "Mediator") shall be appointed
within fifteen (15) days. The Mediator shall attempt, through
negotiations in any manner deemed reasonably appropriate by the
Mediator, in which the parties shall participate, to resolve the
Dispute. The Mediator shall be compensated at a rate agreeable to the
Company, the Purchaser and the Mediator, and each of the Company and the
Purchaser shall pay its pro rata share of such compensation and other
expenses of the mediation.
(ii) In the event that the Dispute has not been resolved within 30
days after the appointment of the Mediator, the Dispute shall be
resolved by arbitration administered by the American Arbitration
Association (the "AAA") in accordance with the terms of this Section
10(g), the Commercial Arbitration Rules of the AAA, and, to the maximum
extent applicable, the United States Arbitration Act. Judgment on any
matter rendered by arbitrators may be entered in any court having
jurisdiction. Any arbitration shall be conducted before three
arbitrators. The arbitrators shall be individuals knowledgeable in the
subject matter of the Dispute. Each party shall select one arbitrator
and the two arbitrators so selected shall select the third arbitrator.
If the third arbitrator is not selected within thirty (30) days after
the request for an arbitration, then any party may request the
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AAA to select the third arbitrator. The arbitrators may engage
engineers, accountants or other consultants they deem necessary to
render a conclusion in the arbitration proceeding. To the maximum
extent practicable, an arbitration proceeding hereunder shall be
concluded within 180 days of the filing of the Dispute with the AAA.
Arbitration proceedings shall be conducted in Houston, Texas.
Arbitrators shall be empowered to impose sanctions and to take such
other actions as the arbitrators deem necessary to the same extent a
judge could impose sanctions or take such other actions pursuant to the
Federal Rules of Civil Procedure and applicable law. At the conclusion
of any arbitration proceeding, the arbitrators shall make specific
written findings of fact and conclusions of law. The arbitrators shall
have the power to award recovery of all costs and fees to the prevailing
party. All fees of the arbitrators and any engineer, accountant or
other consultant engaged by the arbitrators, shall be shared equally
unless otherwise awarded by the arbitrators.
(iii) Nothing in this Section 10(g) shall limit or delay the right
of the Purchaser to exercise the remedies available to it under the
Certificate of Designation.
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IN WITNESS WHEREOF, the parties have executed this Securities Purchase
Agreement as of the date first written above.
INLAND RESOURCES INC.
By: /s/ Kyle R. Miller
----------------------------
Name: Kyle R. Miller
----------------------------
Title: President
----------------------------
JOINTENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Clifford Hickey
----------------------------
Name: Clifford Hickey
----------------------------
Title: Vice President
----------------------------
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REGISTRATION RIGHTS AGREEMENT
Dated as of July 21, 1997
By and Between
INLAND RESOURCES INC.
and
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
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<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Definitions ................................................. 1
Section 2. Demand Registration Rights .................................. 2
Section 3. Shelf Registration .......................................... 3
Section 4. Piggy-back Registration ..................................... 3
Section 5. Restrictions on Dispositions and Demand Registrations ....... 4
Section 6. Registration Procedures ..................................... 4
Section 7. Registration Expenses ....................................... 8
Section 8. Indemnification; Contribution ............................... 8
Section 9. Rule 144 .................................................... 11
Section 10. Remedies .................................................... 11
Section 11. Binding Effect; Transferees; Termination .................... 11
Section 12. Amendments and Waivers ...................................... 11
Section 13. Notices ..................................................... 12
Section 14. Counterparts ................................................ 12
Section 15. Headings .................................................... 12
Section 16. Governing Law ............................................... 12
Section 17. Severability ................................................ 12
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of the 21st day of July, 1997, by and between Inland Resources Inc.
(the "Company"), and Joint Energy Development Investments Limited Partnership
(the "Purchaser").
This Agreement is made pursuant to the Securities Purchase Agreement
dated as of July __, 1997 (the "Purchase Agreement"), between the Company and
the Purchaser. In order to induce the Purchaser to enter into the Purchase
Agreement, the Company has agreed to provide the registration and other
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following terms
have the meanings indicated:
"COMMISSION" means the Securities and Exchange Commission or any similar
agency thus having jurisdiction to enforce the Securities Act.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"DEMAND REGISTRATION" has the meaning ascribed to such term in Section
2(a).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
governmental or political subdivision, agency or instrumentality thereof or
other entity or organization of any kind.
"PIGGY-BACK REGISTRATION" has the meaning ascribed to such term in
Section 4.
"REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act and the declaration or ordering of effectiveness of such
registration statement.
"REGISTRABLE COMMON STOCK" means, collectively, the shares of Common
Stock acquirable upon the conversion or issuable upon redemption of the
Series C Preferred Stock issued to the Purchaser pursuant to the Purchase
Agreement, and any shares of Common Stock or other
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securities issued with respect to such Common Stock by way of stock dividend
or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation, share exchange, reorganization or
otherwise; provided, however, such Common Stock or other securities shall
cease to be Registrable Common Stock when (i) a registration statement with
respect to the disposition of such Common Stock or other securities shall
have become effective under the Securities Act and such securities shall have
been disposed of in accordance with the plan of distribution set forth in
such registration statement, (ii) such Common Stock or other securities shall
have been sold pursuant to Rule 144 (or any successor provision) under the
Securities Act, or (iii) such Common Stock or other securities shall have
ceased to be outstanding.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES C PREFERRED STOCK" means the Series C Cumulative Convertible
Preferred Stock of the Company.
"SHELF REGISTRATION STATEMENT" has the meaning ascribed to such term in
Section 2(a).
Section 2. DEMAND REGISTRATION RIGHTS.
(a) RIGHT TO DEMAND. Subject to Section 2(b) and Section 5 hereof, any
holder of Registrable Common Stock may make a written request to the Company
for registration with the Commission under and in accordance with the
provisions of the Securities Act of the disposition of all or part of the
Registrable Common Stock (a "Demand Registration"). All requests made
pursuant to this Section 2(a) will specify the aggregate amount of
Registrable Common Stock to be registered, will specify the intended methods
of disposition thereof and will specify whether the registration statement to
be filed is a "shelf" registration statement ("Shelf Registration Statement")
pursuant to Rule 415 under the Securities Act (or any similar rule that may
be adopted by the Commission). If any holder intends to dispose of any of
the Registrable Common Stock pursuant to an underwritten offering, the holder
will have the right to select the underwriter. No securities other than
Registrable Common Stock may be registered in connection with a Demand
Registration without the consent of the holders of a majority of the
outstanding Registrable Common Stock.
(b) NUMBER OF DEMAND REGISTRATIONS; EFFECTIVE REGISTRATION; EXPENSES.
The holders of Registrable Common Stock, in the aggregate, shall be entitled
to initiate and have effected two Demand Registrations, and the Company shall
pay all Registration Expenses of such Demand Registrations in accordance with
Section 7 hereof. The Company shall not be deemed to have effected a Demand
Registration unless and until (i) the Company has filed a registration
statement with the Commission and (ii) the registration statement has been
declared effective by the Commission.
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(c) ISSUANCE OF NEW DEMAND REGISTRATION RIGHTS. From and after the date
of this Agreement and until no Registrable Common Stock remains outstanding,
the Company shall not issue any registration rights to any person that could
adversely affect the rights of the Purchaser hereunder or are inconsistent
with the rights of the Purchaser hereunder without the prior written consent
of the Purchaser.
Section 3. SHELF REGISTRATION. The Company will, as soon as possible
following a written request pursuant to Section 2(a) for the registration of
Registrable Common Stock by means of a Shelf Registration Statement, file a
shelf registration statement on Form S-3 covering the Registrable Common
Stock 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
Company's control, subject to and in accordance with Section 5, as may be
necessary or appropriate to maintain such effectiveness until such time as
neither any holder nor any of their assignees own any Registrable Common
Stock, not to exceed two years from the effective date of such registration
statement.
Section 4. PIGGY-BACK REGISTRATION. If the Company proposes to file a
registration statement under the Securities Act with respect to an offering
by the Company for its own account or for the account of others of any class
of security (other than pursuant to a registration statement on Forms S-4 or
S-8 (or successor forms) or in connection with an exchange offer or an
offering of securities solely to the Company's existing stockholders), then
the Company shall in each case give written notice of such proposed filing to
the holders of Registrable Common Stock (which notice shall indicate, to the
extent then known, the proposed managing underwriter or underwriters, if such
offering is to be underwritten, and such other terms of the proposed offering
that the Company reasonably believes to be material to the holders of
Registrable Common Stock) and shall include in such registration statement
all or a portion of the Registrable Common Stock owned by such holders which
such holders shall request to be so included by written notice given by such
holders to the Company within 10 business days after such holder's receipt of
such notice from the Company (a "Piggy-back Registration"). The Company
shall use reasonable diligence to effect the registration of all Registrable
Common Stock requested to be so registered in such offering on the same terms
and conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering advise the Company that the number of shares of Common Stock or
other securities sought to be included in such underwritten offering would
create a substantial risk that the sale of some or all of such Common Stock
or other securities will interfere with the successful marketing of the
securities offered by the Company or substantially reduce the proceeds or
price per unit that could be derived from such underwritten offering, then
the number of shares of Common Stock or other securities to be sold by
holders of Registrable Common Stock shall be reduced to the greatest number
of shares of Common Stock or other securities, if any, that, together with
any shares of Common Stock or other securities to be included in such
offering by the Company and other persons, would, in the opinion of such
managing underwriter or underwriters, not create such a risk or interference,
and such reduced
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<PAGE>
number of shares of Common Stock or other securities, if any, to be sold by
such holders shall be allocated among such holders and other persons in
proportion to the number of shares of Common Stock then owned by such
holders. The holders of Registrable Common Stock to be distributed by such
underwriters shall be parties to the underwriting agreement between the
Company and such underwriters and the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such holders
and the conditions precedent to the obligations of such holders of
Registrable Common Stock under such underwriting agreement shall be
reasonably satisfactory to such holders. Such holders shall not be required
to make any representations or warranties to the Company or its underwriters
other than representations or warranties regarding such holder and such
holder's intended method of distribution. The Company shall have the right
to discontinue any registration under this Section 4 at any time prior to the
effective date of such registration if the registration of the securities
giving rise to such registration under this Section 4 is discontinued, but no
such discontinuation shall preclude an immediate or subsequent request by the
holders of Registrable Common Stock for registration pursuant to Section 2
hereof if otherwise permitted.
Section 5. RESTRICTIONS ON DISPOSITIONS AND DEMAND REGISTRATIONS.
Notwithstanding anything to the contrary contained herein, the Company shall
not be obligated to prepare and file any registration statement pursuant to a
Demand Registration or prepare or file any amendment or supplement thereto
and may suspend, by giving written notice to the holders of Registrable
Common Stock, such holders' rights to make dispositions of Registrable Common
Stock pursuant to a Shelf Registration Statement, at any time when the
Company, in the good faith judgment of its Board of Directors, reasonably
believes that the filing thereof at the time requested, or the offering or
sale of securities pursuant thereto, would materially adversely affect a
pending or proposed public offering of the Company's securities, or an
acquisition, merger, recapitalization, consolidation, reorganization or
similar transaction or negotiations, discussions or pending proposals with
respect thereto. The rights of holders of Registrable Common Stock to make
dispositions thereof pursuant to a Shelf Registration Statement may similarly
be suspended by the Company upon written notice to the holders of Registrable
Common Stock that the Shelf Registration Statement is unusable as a result of
an event requiring a post-effective amendment or supplement, which has not
yet been filed, and will remain unusable until the supplement is filed or
post-effective amendment is filed and declared effective. The filing of a
registration statement, or any amendment or supplement thereto, by the
Company cannot be deferred, and the holders' rights to dispose of Registrable
Common Stock pursuant to the Shelf Registration Statement cannot be
suspended, pursuant to the provisions of the preceding two sentences for more
than 90 days after the date of the Board's judgment referred to in the
preceding sentence, and may not be so deferred or suspended more than 180
days during any twelve month period unless such deferral or suspension is
agreed to in writing by the holders of Registrable Common Stock.
Section 6. REGISTRATION PROCEDURES.
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<PAGE>
(a) CERTAIN COMPANY OBLIGATIONS. Whenever Registrable Common Stock is
to be registered pursuant to Sections 2 or 3 of this Agreement, the Company
will use reasonable diligence to effect the registration of such Registrable
Common Stock in accordance with the intended method of disposition thereof as
quickly as practicable, and in connection with any such request and with the
Piggy-back Registration or Demand Registration, the Company will as
expeditiously as possible:
(i) prepare and file with the Commission a registration statement
which includes the Registrable Common Stock and use reasonable diligence
to cause such registration statement to become effective (which
registration statement, in the case of a Demand Registration, shall in
all events be filed with the Commission within 45 days after the
Company's receipt of the Demand Registration); provided that before
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the holders of the
Registrable Common Stock covered by such registration statement and the
underwriters, if any, draft copies of all such documents proposed to be
filed at least three business days prior thereto, which documents will
be subject to the reasonable review of such holders and underwriters,
and provided further that if such registration statement refers to any
holder of Registrable Common Stock by name or otherwise as the holder of
any securities of the Company, then such holder shall have the right to
require (i) the insertion therein of language, in form and substance
satisfactory to such holder, to the effect that the holding by such
holder of such securities does not necessarily make such holder a
"controlling person" of the Company within the meaning of the Securities
Act and is not to be construed as a recommendation by such holder of the
investment quality of the Company's securities covered thereby and that
such holding does not imply that such holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that
such reference to such holder by name or otherwise is not required by
the Securities Act or any rules and regulations promulgated thereunder,
the deletion of the reference to such holder;
(ii) prepare and file as soon as reasonably practicable with the
Commission such amendments and post-effective amendments to the
registration statement as may be necessary to keep the registration
statement effective for the period of time specified in Section 3 with
respect to the Shelf Registration Statement and otherwise for 90 days
(or such shorter period which will terminate when all Registrable Common
Stock covered by such registration statement has been sold or
withdrawn); cause the prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
securities covered by such registration statement during the applicable
period in accordance with the intended methods of disposition
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<PAGE>
by the holders thereof set forth in such registration statement or
supplement to the prospectus;
(iii) furnish to any holder of Registrable Common Stock included in
such registration statement and the managing underwriter or
underwriters, if any, without charge, at least one signed copy of the
registration statement and any post-effective amendment thereto, upon
request, and such number of conformed copies thereof and such number of
copies of the prospectus (including each preliminary prospectus) and any
amendments or supplements thereto, and any documents incorporated by
reference therein, as such holder or underwriter may reasonably request
in order to facilitate the disposition of the Registrable Common Stock
being sold by such holder;
(iv) notify each holder of Registrable Common Stock included in
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, when the
Company becomes aware of the happening of any event as a result of which
the prospectus included in such registration statement (as then in
effect) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein (in the
case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading and, as
promptly as practicable thereafter, prepare and file with the Commission
and furnish a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Common Stock,
such prospectus will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(v) use reasonable diligence to cause all Registrable Common Stock
included in such registration statement to be listed, by the date of the
first sale of Registrable Common Stock pursuant to such registration
statement, on each securities exchange on which the common stock of the
Company is then listed or proposed to be listed, if any, and use
reasonable diligence to cause all Registrable Common Stock included in
such Registration Statement to be quoted on the NASDAQ National Market
System (or other national market), if the common stock of the Company is
then quoted thereon or is proposed to be quoted thereon;
(vi) make generally available to its security holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act as soon as practicable, which earnings statement shall cover said
12-month period, which requirements will be deemed to be satisfied if
the Company timely files complete and accurate
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information on Forms 10-Q, 10-K and 8-K under the Exchange Act and
otherwise complies with Rule 158 under the Act as soon as feasible;
(vii) if requested by the managing underwriter or underwriters or
any holder of Registrable Common Stock covered by the registration
statement, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or
underwriters or such holder reasonably requests to be included therein,
including, without limitation, with respect to the Registrable Common
Stock being sold by such holder to such underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters
and with respect to any other terms of the underwritten offering of the
Registrable Common Stock to be sold in such offering, and promptly make
all required filings of such prospectus supplement or post-effective
amendment;
(viii) on or prior to the date on which the registration statement
is declared effective, use reasonable diligence to register or qualify,
and cooperate with the holders of Registrable Common Stock included in
such registration statement, the underwriter or underwriters, if any,
and their counsel, in connection with the registration or qualification
of the Registrable Common Stock covered by the registration statement
for offer and sale under the securities or blue sky laws of each state
and other jurisdiction of the United States as any such holder or
underwriter reasonably requests in writing, to use reasonable diligence
to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
registration statement is required to be kept effective and to do any
and all other acts or things necessary or advisable to enable the
disposition in all such jurisdictions of the Registrable Common Stock
covered by the applicable registration statement; provided that the
Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(ix) cooperate with the holders of Registrable Common Stock covered
by the registration statement and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing
securities to be sold under the registration statement, and enable such
securities to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or such holders may
request;
(x) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the
holders of a majority of the Registrable Common Stock being sold or the
underwriters retained
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by holders participating in an underwritten public offering, if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Common Stock;
(xi) make available for inspection by the holders, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other
agent retained by the holders or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and
properties of the Company, and cause all of the Company's officers,
directors and employees to supply all information, reasonably requested
by the holders or any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement. In that
connection, the Company may require the holders, such underwriter and
such other persons to conduct their investigation in a manner which does
not disrupt the operations of the Company and to execute such
confidentiality agreements as the Company may reasonably determine to be
advisable; and
(xii) notify each holder of Registrable Common Stock of any stop
order issued or threatened by the Commission in connection with any
registration statement covering Registrable Common Stock and take all
reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(b) CERTAIN OBLIGATIONS OF HOLDERS OF REGISTRABLE COMMON STOCK. Each
holder of Registrable Common Stock shall provide the Company in writing such
information as the Company reasonably requests in order to effectuate the
registration and disposition of such holder's Registrable Common Stock
pursuant to this Agreement and such holder shall execute all consents, powers
of attorney, registration statements and other documents reasonably required
to be signed by such holder in order to effectuate the registration or
disposition of Registrable Common Stock by such holder.
Section 7. REGISTRATION EXPENSES. The Company shall pay all expenses
incident to the Company'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 Company's counsel and of its
independent public accountants. Holders of Registrable Common Stock will be
responsible for any expenses incurred by them, including for their own
counsel, accountants, underwriters and representatives.
Section 8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless each holder of Registrable Common Stock, its officers,
directors and partners and each
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person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, or liabilities arising out of or based
upon any untrue or alleged untrue statement of material fact contained in any
registration statement, any amendment or supplement thereto, any prospectus
or preliminary prospectus or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same arise out
of or are based upon, any such untrue statement or omission based upon
information with respect to such indemnified person furnished in writing to
the Company by such indemnified person expressly for use therein and will
reimburse, as incurred, such holder, officer, director, partner or
controlling person for any legal or other expenses incurred by such holder,
officer, director, partner or controlling person in connection with
investigating, defending or appearing as a third party witness in connection
with any such loss, claim, damage, or liability. In connection with an
underwritten offering, the Company will indemnify, and reimburse for
expenses, the underwriters thereof, their officers and directors and each
person who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to holders of
Registrable Common Stock.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON STOCK. In
connection with any registration statement in which a holder of Registrable
Common Stock is participating, such holder will furnish to the Company in
writing such information with respect to the name and address of such holder
and the amount of Registrable Common Stock held by such holder and such other
information as the Company shall reasonably request, for use in connection
with any such registration statement or prospectus and agrees to indemnify,
the Company, its directors and officers, any underwriter (within the meaning
of the Securities Act) for the Company or other persons selling securities
pursuant to such registration statement, such other persons selling
securities, and each person who controls the Company, such underwriters or
other persons (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue statement
of a material fact or any omission of a material fact required to be stated
in the registration statement or prospectus or any amendment thereof or
supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement
or omission is contained in any information with respect to such holder so
furnished in writing by such holder expressly for inclusion in any prospectus
or registration statement. In no event shall the liability of any selling
holder of Registrable Common Stock hereunder be greater in amount than the
dollar amount of the proceeds received by such holder upon the sale of the
Registrable Common Stock giving rise to such indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of
the commencement of any action, suit, proceeding or investigation or threat
thereof made in writing as to which such person will claim indemnification or
contribution pursuant to this Agreement and, unless in the reasonable
judgment of such indemnified party a conflict of interest may exist between
such indemnified party and the
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indemnifying party with respect to such claim, permit the indemnifying party
to assume the defense of such claim with counsel reasonably satisfactory to
such indemnified party. The failure to notify the indemnifying party
promptly of such commencement or threat shall not relieve the indemnifying
party of its obligation to indemnify the indemnified party, except to the
extent that the indemnifying party is actually prejudiced by such failure.
Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably
withheld). No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of
a release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of more
than one counsel with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If the indemnification provided for in this Section 8
from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and indemnified parties in connection with the
actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact, has been made by, or related to information supplied by, such
indemnifying party or indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in Section 8(b), any legal
or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(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 in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 8(d), no
underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Registrable
Common Stock purchased by it and distributed to the public exceeds the amount
of any damages which such underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no selling holder shall be required to
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contribute any amount in excess of the amount by which the total price at
which the Registrable Common Stock of such selling holder was offered to the
public exceeds the amount of any damages which such selling holder has
otherwise been required to pay by reason of such untrue statement or
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 8, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 8(a) and (b) without regard to the relative fault of said
indemnifying party of indemnified party or any other equitable consideration
provided for in this Section 8(d).
The obligations of the Company pursuant to this Section 8 shall be
further subject to such additional express agreements of the Company as may
be required to facilitate an underwritten offering, provided that no such
agreement shall in any way limit the rights of the holders of Registrable
Common Stock under this Agreement, or create additional obligations of such
holders not set forth herein, except as otherwise expressly agreed in writing
by any such holders. The obligations of the Company pursuant to this Section
8 shall be in addition to any liability or obligation the Company may have at
common law or otherwise.
Section 9. RULE 144. The Company covenants that for so long as any
Holder owns any Registrable Common Stock that it will file, in a timely
manner, the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the Commission
thereunder, and it will take such further action as any holder of Registrable
Common Stock may reasonably request, all to the extent required from time to
time to enable such holder to sell Registrable Common Stock without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Common Stock, the Company will deliver to such holder a written statement as
to whether it has complied with such requirements.
Section 10. REMEDIES. Each holder of Registrable Common Stock in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
Section 11. BINDING EFFECT; TRANSFEREES; TERMINATION. Except to the
extent otherwise provided herein, the provisions of this Agreement shall be
binding upon and accrue to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. A
transferee of Registrable Common Stock, which acquires such securities from a
holder of Registrable
-11-
<PAGE>
Common Stock in a transfer, whether in a public distribution or otherwise,
which results in such transferred securities not being Registrable Common
Stock in the hands of such transferee, shall not be a holder of Registrable
Common Stock hereunder and shall not have any rights or obligations hereunder
as a result of such transfer of Registrable Common Stock. Except as provided
in the preceding sentence, a transferee of a holder of Registrable Common
Stock, whether becoming such by sale, transfer, assignment, operation of law
or otherwise, shall be deemed to be a holder of Registrable Common Stock
hereunder and such transferee shall be entitled to the rights, and subject to
the obligations, of such a holder hereunder.
Section 12. AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented without the written agreement of each of the parties.
Section 13. NOTICES. All notices and other communications provided for
or permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by telex or telecopier, registered
or certified mail (return receipt requested), postage prepaid or courier to
the parties at the following addresses (or at such other address for any
party as shall be specified by like notice, provided that notices of a change
of address shall be effective only upon receipt thereof). Notices sent by
mail shall be effective two days after mailing; notices sent by telex shall
be effective when answered back, notices sent by telecopier shall be
effective when receipt is acknowledged, and notices sent by courier
guaranteeing next day delivery shall be effective on the next business day
after timely delivery to the courier:
(i) if to a holder of Registrable Common Stock at the most current
address given by such holder to the Company in writing;
(ii) if to the Company at its address set forth in the Purchase
Agreement.
Section 14. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
Section 15. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
Section 16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
contracts made and to be performed wholly within that State.
Section 17. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in
-12-
<PAGE>
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions
contained herein shall not be in any way impaired thereby, it being intended
that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
INLAND RESOURCES INC.,
a Washington corporation
By: /s/ Kyle R. Miller
--------------
Name: Kyle R. Miller
Title: President
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General Partner
By: /s/ Clifford Hickey
Name: Clifford Hickey
Title: Vice President
-14-
<PAGE>
The undersigned parties to registration rights
agreements with the Company hereby agree
such agreements are hereby amended to the
extent required so that such agreements are
not inconsistent with this Registration Rights
Agreement:
ENERGY MANAGEMENT CORPORATION
By:
Name:
Title:
PENGO SECURITIES CORP.
By:
Name:
Title:
SMITH MANAGEMENT COMPANY, INC.
By:
Name:
Title:
Randall D. Smith
Jeffrey A. Smith
John W. Adams
Arthur J. Pasmas
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,426,550
<SECURITIES> 0
<RECEIVABLES> 1,547,948
<ALLOWANCES> 0
<INVENTORY> 2,197,215
<CURRENT-ASSETS> 7,605,823
<PP&E> 63,531,432
<DEPRECIATION> 6,125,361
<TOTAL-ASSETS> 65,205,703
<CURRENT-LIABILITIES> 7,179,297
<BONDS> 26,187,150
0
10,000,000
<COMMON> 29,157,372
<OTHER-SE> (7,318,116)
<TOTAL-LIABILITY-AND-EQUITY> 65,205,703
<SALES> 6,487,779
<TOTAL-REVENUES> 6,487,779
<CGS> 1,500,172
<TOTAL-COSTS> 4,786,186
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,295,966
<INCOME-PRETAX> 709,871
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<DISCONTINUED> 0
<EXTRAORDINARY> 864,353
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<NET-INCOME> (154,482)
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