<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
Date of Report (Date of earliest event reported): September 23, 1997
INLAND RESOURCES INC.
----------------------------
(Exact name of registrant as specified in its charter)
Washington 0-16487 91-1307042
- -------------------------- --------------------- --------------------------
(State of incorporation) (Commission File No.) (IRS Employer
Identification No.)
475 17TH STREET, SUITE 1500, DENVER, COLORADO 80202
------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(303) 292-0900
-----------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
- ------ ------------------------------------
On September 30, 1997, Inland Resources Inc. (the "Company") acquired the
Utah assets (the "EREC Properties") of Equitable Resources Energy Company
("EREC") for $55.4 million in cash (subject to various post closing
adjustments). The EREC Properties consist of 279 gross (184 net) oil and gas
wells, 23,400 net undeveloped acres, water rights, a water transportation and
distribution system and a gas gathering system. The undeveloped acreage
provides the Company with approximately 585 additional drillsites in the
Monument Butte Field. The acquisition of the EREC Properties also included
operating rights to four approved water flood units (encompassing 142 of the
wells acquired).
Management believes that the EREC Properties have significant development
potential which will enable the Company to increase its cash flow from
operations and reserve base at a cost efficient rate due to the proximity of the
EREC Properties to the Company's existing properties. The EREC Properties are
geographically concentrated in proximity to the Company's properties in the
Monument Butte Field, thereby enabling the Company to operate the properties
without incurring significant incremental general and administrative expenses.
Of the 279 gross wells acquired, the Company already operated 48 of the wells
and EREC operated 227 of the wells so that the Company now operates 275 of the
wells.
The Company financed the acquisition of the EREC Properties with a portion
of the proceeds of a new credit facility with Trust Company of the West and TCW
Asset Management Company, in their capacities as noteholder and agent
(collectively "TCW").
ITEM 5. OTHER EVENTS.
- ------ ------------
On September 30, 1997, the Company and its wholly owned subsidiary, Inland
Production Company ("IPC"), closed a Credit Agreement with TCW pursuant to which
TCW loaned IPC $75,000,000, and IPC used a portion of such proceeds to purchase
the EREC Properties. The loan from TCW is secured by a second lien on all
assets of IPC and is guaranteed by the Company.
The Company and IPC also closed a Credit Agreement on September 30, 1997
with ING (U.S.) Capital Corporation ("ING") providing IPC with a line of credit
equal to an initial borrowing base of $45,000,000. This loan is secured by a
first lien on all assets of IPC and is also guaranteed by the Company. IPC drew
down an initial $17.8 million under the Credit Agreement with ING which, when
combined with excess borrowings from TCW, were used to fund repayment in full of
its existing credit facility with Canadian Imperial Bank of Commerce.
The Credit Agreement with ING constitutes a revolving line of credit until
March 31, 1999, at which time it converts to a term loan payable in quarterly
installments through March 29, 2003, when the final installment is due and
payable in full. The quarterly installments are in the amount of $4,000,000 for
the first three quarters, $3,000,000 for the next four quarters, $2,500,000 for
the next four quarters, $2,250,000 for the next four quarters, and $2,000,000 on
March 29, 2003. The ING
-2-
<PAGE>
loan bears interest, at IPC's option, at either (i) the average prime rates
announced from time to time by The Chase Manhattan Bank, Citibank, N.A. and
Morgan Guaranty Trust Company of New York plus 0.5% per annum; or (ii) at the
LIBOR rate plus 1.75%.
The TCW loan is payable interest only, at a rate of 9.75% per annum,
quarterly until the earlier of December 31, 2003 or the date upon which the ING
loan is paid in full, at which time the TCW loan is payable in quarterly
installments of principal and interest over twelve quarterly installments, with
the principal installments equaling $6,250,000 for the first four quarters,
$8,750,000 for the fifth through eighth quarters and $3,750,000 for the ninth
through twelfth quarters. The Company also granted warrants to TCW in
connection with the TCW Credit Agreement to purchase 100,000 shares of common
stock (subject to anti-dilution adjustments) for an exercise price of $10.00 per
share (subject to anti-dilution adjustments) at any time after September 23,
2000 and before September 23, 2007. The Company also granted registration
rights in connection with such warrants. TCW is also entitled to additional
interest on $65,000,000 of the TCW loan in such amount that will yield to it a
12.5% internal rate of return on such principal amount, such payment to be made
concurrently with the final payment of all principal and interest on the TCW
loan. For purposes of this internal rate of return calculation, IPC is also
given credit for payment of a funding fee in the amount of 3% of the total loan
amount paid to TCW at the closing of the loan transaction. TCW may also elect
to "put" the warrant back to the Company upon payment in full of the TCW loan in
an amount which will cause TCW to achieve a 12.5% internal right of return on
the last $10,000,000 of the TCW loan.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ------- ---------------------------------
INDEX TO FINANCIAL STATEMENTS
(A) STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES FOR CERTAIN OIL
AND GAS PROPERTIES
Report of Independent Public Accountants F-1
Statements of Revenues and Direct Operating Expenses for Certain Oil
and Gas Properties Acquired from Equitable Resources Energy Company
for the Six Months Ended June 30, 1997 and 1996 (Unaudited) and the
Years Ended December 31, 1996 and 1995 F-1
Notes to Statements of Revenues and Direct Operating Expenses for
Certain Oil and Gas Properties Acquired from Equitable Resources
Energy Company F-3
B) UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Pro Forma Financial Information F-6
-3-
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1997 (Unaudited) F-7
Pro Forma Consolidated Statement of Operations for the Six-Month
Period Ended June 30, 1997 (Unaudited) F-8
Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 1996 (Unaudited) F-9
Notes to Unaudited Pro Forma Financial Statements F-10
C) EXHIBITS - The following exhibits are filed herewith:
4.1 Credit Agreement dated September 23, 1997 between IPC, the
Company, ING, as Agent, and Certain Financial Institutions,
as banks.
4.2 Credit Agreement dated September 23, 1997, among IPC, the
Company, Trust Company of the West, and TCW Asset Management
Company, in the capacities described therein.
4.3 Intercreditor Agreement dated September 23, 1997, between IPC,
TCW Asset Management Company, Trust Company of the West and ING.
4.4 Warrant Agreement by and between the Company and TCW Portfolio
No. 1555 DR V Sub-Custody Partnership, L.P. dated September 23,
1997.
4.5 Warrant issued by the Company pursuant to the Warrant Agreement
filed as Exhibit 4.4, dated September 23, 1997, representing
the right to purchase 100,000 shares of the Company's common
stock.
10.1 Agreement of Sale and Purchase dated July 24, 1997 between EREC
and IPC.
23.1 Consent of Arthur Andersen, LLP.
-4-
<PAGE>
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 hereunto duly authorized.
October 13, 1997
INLAND RESOURCES INC.
By: \s\ Kyle R. Miller
---------------------------------------
Kyle R. Miller, President and
Chief Executive Officer
-5-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Inland Resources Inc.:
We have audited the accompanying statements of revenues and direct operating
expenses for certain of the oil and gas properties (the "Properties") of
Equitable Resources Energy Company ("Equitable") acquired by INLAND RESOURCES
INC. for each of the years ended December 31, 1996 and 1995. These financial
statements are the responsibility of Inland Resources Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The statements of revenues and direct operating expenses for the Properties
acquired from Equitable were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission as described in
Note 1, and are not intended to be a complete presentation of the Properties'
financial position, results of operations and cash flows.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the revenues and direct operating expenses for the
Properties acquired from Equitable for each of the years ended December 31, 1996
and 1995, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
August 15, 1997.
F-1
<PAGE>
INLAND RESOURCES INC.
---------------------
STATEMENTS OF REVENUES AND DIRECT
---------------------------------
OPERATING EXPENSES FOR CERTAIN OIL AND GAS PROPERTIES
-----------------------------------------------------
ACQUIRED FROM EQUITABLE RESOURCES ENERGY COMPANY FOR THE
--------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
-------------------------------------------------------
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
---------------- --------------
(Unaudited)
1997 1996 1996 1995
------- ------- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
OIL AND GAS REVENUES $2,965 $4,015 $8,479 $7,245
DIRECT OIL AND GAS OPERATING EXPENSES:
Production taxes 65 89 175 163
Lease operating expense 1,436 926 1,970 1,892
------ ------ ------ ------
1,501 1,015 2,145 2,055
------ ------ ------ ------
REVENUES IN EXCESS OF DIRECT
OPERATING EXPENSES $1,464 $3,000 $6,334 $5,190
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
INLAND RESOURCES INC.
---------------------
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING
----------------------------------------------------
EXPENSES FOR CERTAIN OIL AND GAS PROPERTIES
-------------------------------------------
ACQUIRED FROM EQUITABLE RESOURCES ENERGY COMPANY FOR THE
---------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
-------------------------------------------------------
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
------------------------------------------
(1) BASIS OF PRESENTATION
---------------------
On September 30, 1997, Inland Resources Inc. (the "Company") acquired all
rights, title and interest in certain oil and gas properties (the "Properties")
as described in the Agreement of Sale and Purchase between the Company and
Equitable Resources Energy Company ("Equitable"). The acquisition had an
effective date of April 1, 1997. The Properties acquired by the Company consist
of oil and gas interests in approximately 300 properties and the associated
facilities located in the Uinta Basin of North-eastern Utah.
The accompanying Statements of Revenues and Direct Operating Expenses were
derived from the historical accounting records maintained by Equitable. The
statements have been prepared on the accrual basis of accounting. The
statements do not include depreciation, depletion and amortization, general and
administrative, income tax or interest expense as these costs may not be
comparable to the expenses expected to be incurred in the future. The revenues
and direct operating expenses for the periods presented are also not necessarily
indicative of results to be expected in the future.
(2) UNAUDITED INTERIM FINANCIAL INFORMATION
---------------------------------------
The accompanying financial information for the six-month periods ended June 30,
1997 and 1996 is unaudited but reflects, in the opinion of the Company's
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the oil and gas revenues and direct oil and gas
operating expenses of the Properties for such periods. The oil and gas revenues
and direct oil and gas operating expenses for such interim periods are not
necessarily indicative of results to be expected for the full year.
F-3
<PAGE>
-2-
(3) SUMMARY OIL AND GAS RESERVE INFORMATION (UNAUDITED)
---------------------------------------------------
Supplemental oil and gas reserve information related to the Properties is
presented in accordance with Statement of Financial Accounting Standards No. 69,
"Disclosures about Oil and Gas Producing Activities." Net proved oil and gas
reserves of the Properties as of December 31, 1996 and 1995 were estimated by
Netherland, Sewell & Associates, independent petroleum engineering consultants.
The following tables set forth information for the years ended December 31, 1996
and 1995, with respect to changes in the Properties' proved reserves.
Quantities of natural gas are expressed in terms of thousand cubic feet (mcf)
and oil in barrels (bbls).
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1995
------------- -------------
(In thousands)
Oil Gas Oil Gas
BBLS MCF BBLS MCF
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total proved reserves:
Beginning of year 5,588 2,890 4,049 2,840
Production (412) (387) (389) (275)
Revisions of previous
estimates (240) 80 110 (733)
Extensions, discoveries
and other additions 1,224 - 1,818 1,058
Purchase of reserves
in place 25 79 - -
----- ----- ----- -----
End of year 6,185 2,662 5,588 2,890
===== ===== ===== =====
Proved developed reserves:
Beginning of year 4,330 2,541 4,049 2,840
===== ===== ===== =====
End of year 6,185 2,662 4,330 2,541
===== ===== ===== =====
</TABLE>
No proved undeveloped reserves have been shown as of December 31, 1996, as the
Company's future drilling plans are not necessarily indicative of Equitable's.
F-4
<PAGE>
-3-
Information with respect to the Properties' estimated discounted future net cash
flows for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Future cash flows $124,040 $105,893
Future production costs (47,639) (41,088)
Future development costs (525) (3,948)
Future income tax expense (25,853) (20,732)
-------- --------
Future net cash flows 50,023 40,125
10% annual discount (20,050) (15,747)
-------- --------
Discounted future net cash flows $ 29,973 $ 24,378
======== ========
</TABLE>
As of December 31, 1996 and 1995, the oil and gas prices used in determination
of future cash flows were $18.58 and $3.34, and $18.24 and $1.46 per barrel and
mcf, respectively. Subsequent to December 31, 1996, actual prices for oil and
gas have declined due to market conditions.
Principal changes in the Properties' estimated discounted future net cash flows
for the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Beginning of year $24,378 $21,843
Oil and gas sales, net of production costs (6,334) (5,190)
Net change in prices and production costs 5,075 786
Extensions and discoveries, less related costs 6,473 10,866
Purchases of reserves in place, net 251 -
Change in estimated development costs (170) (3,718)
Current year exploration and development costs 3,600 -
Revision of previous quantity estimates (1,383) (92)
Accretion of discount 3,697 3,309
Net change in income taxes (2,906) (1,346)
Changes in production rates and other (2,708) (2,080)
------- -------
End of year $29,973 $24,378
======= =======
</TABLE>
F-5
<PAGE>
Inland Resources Inc.
Introduction to Pro Forma Financial Information
The following unaudited pro forma financial statements are presented to
show the pro forma effect of the acquisition of oil and gas properties pursuant
to an agreement consummated September 30, 1997 between Inland Resources Inc.
("Inland") and Equitable Resources Energy Company ("EREC"). The unaudited Pro
Forma Consolidated Statements of Income for the twelve months ended December 31,
1996, and for the six months ended June 30, 1997, are as if the acquisition had
occurred on January 1, 1996 and January 1, 1997, respectively. The Pro Forma
Condensed Consolidated Balance Sheet is based on the assumption the transaction
was completed on June 30, 1997. The transaction is reported using the purchase
method of accounting.
Inland's unaudited historical interim financial statements have been
prepared pursuant to the rules and regulations of the SEC and, in the opinion of
the Company, include all adjustments necessary for a fair statement of the
results of each period shown. The financial information presented is not
intended to reflect all financial information customarily reported under
generally accepted accounting principles. The pro forma adjustments included in
the accompanying Pro Forma Consolidated Statements of Operations are based on
assumptions and estimates and are not necessarily indicative of the results of
operations of the Company as they may be in the future or as they may have been
had the transaction actually occurred on January 1, 1996, January 1, 1997 or
June 30, 1997, as applicable.
F-6
<PAGE>
Inland Resources Inc.
Pro Forma Condensed Consolidated Balance Sheet
June 30, 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Assets: Historical Acquisition Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Cash and cash equivalents $ 3,427 $ 3,427
Accounts receivable and accrued sales 1,548 1,548
Inventory 2,197 2,197
Other current assets 434 434
Oil and gas properties 56,415 $53,100 109,515
Other long-term assets 1,185 4,600 5,785
---------- ----------- ---------
Total assets $65,206 $57,700 $122,906
========== =========== =========
Liabilities and Stockholders' Equity:
Current liabilities $ 7,180 $ 7,180
Long-term debt 26,187 $57,700 83,887
Stockholders' equity 31,839 31,839
---------- ----------- ---------
Total liab. and stockholders'
equity $65,206 $57,700 $122,906
========== =========== =========
</TABLE>
See the accompanying notes to unaudited pro forma
consolidated financial information
F-7
<PAGE>
Inland Resources Inc.
Pro Forma Consolidated Statement of Operations
for the Six-Month Period ended June 30, 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Historical Acquisition Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales of oil and gas $ 6,488 $ 2,965 (A) $ 9,453
---------- ----------- ---------
Operating expenses:
Operating costs 1,500 1,501 (A) 3,001
Exploration 30 30
Depletion, depreciation, and 2,415 1,036 (B) 3,451
amortization
General and administrative, net 841 (C) 841
---------- ----------- ---------
Total operating expenses 4,786 2,537 7,323
---------- ----------- ---------
Operating income 1,702 428 2,130
Interest expense (1,296) (3,173)(D) (4,469)
Other income, net 304 304
---------- ----------- ---------
Net income from continuing operations $ 710 $(2,745) $(2,035)
========== =========== =========
PRIMARY EARNINGS PER SHARE
EPS from continuing operations $0.11 $(0.30)
Weighted average shares outstanding 6,715 6,715
========== =========
FULLY DILUTED EARNINGS PER SHARE
EPS from continuing operations $0.08 $(0.30)
Weighted average shares outstanding 8,316 8,316
========== =========
</TABLE>
See the accompanying notes to unaudited pro forma
consolidated financial information
F-8
<PAGE>
Inland Resources Inc.
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Historical Acquisition Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales of oil and gas $10,704 $ 8,479 (A) $19,183
---------- ----------- ---------
Operating expenses:
Operating costs 2,045 2,145 (A) 4,190
Exploration 167 167
Depletion, depreciation and amortization 3,428 1,908 (B) 5,336
General and administrative, net 1,670 (C) 1,670
---------- ----------- ---------
Total operating expenses 7,310 4,053 11,363
---------- ----------- ---------
Operating income 3,394 4,426 7,820
Interest expense (1,633) (6,347)(D) (7,980)
Other income, net 413 413
---------- ----------- ---------
Net income from continuing operations $ 2,174 $(1,921) $ 253
========== =========== =========
PRIMARY EARNINGS PER SHARE
EPS from continuing operations $0.37 $0.05
Weighted average shares outstanding 5,276 5,276
========== =========
FULLY DILUTED EARNINGS PER SHARE
EPS from continuing operations $0.29 $0.04
Weighted average shares outstanding 6,651 6,651
========== =========
</TABLE>
See the accompanying notes to unaudited pro forma
consolidated financial information
F-9
<PAGE>
Inland Resources Inc.
Notes to Unaudited Pro Forma Financial Statements
1. Basis of Presentation:
----------------------
The unaudited Pro Forma Consolidated Statements of Operations are based on
Inland's audited financial statements and the audited statement of revenues
and direct operating expenses of certain oil and gas properties of EREC for
the year ended December 31, 1996 and on Inland's unaudited financial
statements and on the unaudited statement of revenues and direct operating
expenses for certain oil and gas properties acquired from EREC for the six
months ended June 30, 1997, and upon the adjustments and assumptions
described below.
2. Pro Forma Adjustments:
----------------------
The unaudited pro forma statements of income reflect the following
adjustments:
A. Sales of oil and gas and operating costs were adjusted based on the
audited statement of revenues and direct operating expenses for the
year ended December 31, 1996 and from the unaudited statement of
revenues and direct operating expenses for the six months ended June
30, 1997.
B. Depletion, depreciation and amortization is adjusted based on Inland's
July 1, 1997 in-house reserve report for the acquired EREC properties
and the portion of the purchase price allocated to proved properties.
C. The unaudited Pro Forma Consolidated Statements of Operations do not
include any adjustment for net general and administrative expense
since the increase to gross general and administrative expense related
to the acquisition is offset by COPAS producing overhead
reimbursements on the operated properties acquired.
D. Interest expense is adjusted using Inland's blended cost of capital to
finance the transaction.
E. The Pro Forma Condensed Consolidated Balance Sheet includes
adjustments to reflect the purchase of the EREC oil and gas and other
assets for $55.5 million using funds provided by new issues of long-
term debt. The purchase price allocation includes payment for oil and
gas assets, a long-term receivable of $2.4 million and debt issue
costs of $2.2 million.
F-10
<PAGE>
EXHIBIT 4.1
EXECUTION
================================================================================
CREDIT AGREEMENT
_______________________________________________________
INLAND PRODUCTION COMPANY
Borrower
INLAND RESOURCES INC.
as Guarantor
and
ING (U.S.) CAPITAL CORPORATION
as Agent
and CERTAIN FINANCIAL INSTITUTIONS
as Banks
_______________________________________________________
September 23, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
CREDIT AGREEMENT............................................................. 1
ARTICLE I - Definitions and References....................................... 1
--------------------------
Section 1.1. Defined Terms.......................................... 1
-------------
Section 1.2. Annexes, Exhibits and Schedules; Additional
-------------------------------------------
Definitions........................................... 5
-----------
Section 1.3. Amendment of Defined Instruments....................... 6
--------------------------------
Section 1.4. References and Titles.................................. 6
---------------------
Section 1.5. Calculations and Determinations........................ 6
-------------------------------
ARTICLE II - The Loans....................................................... 6
---------
Section 2.1. Commitments to Lend; Notes............................. 6
--------------------------
Section 2.2. Requests for New Loans................................. 7
----------------------
Section 2.3. Continuations and Conversions of Existing Loans........ 8
-----------------------------------------------
Section 2.4. Use of Proceeds........................................ 8
---------------
Section 2.5. Fees................................................... 9
----
Section 2.6. Optional Prepayments................................... 9
--------------------
Section 2.7. Mandatory Prepayments.................................. 9
---------------------
Section 2.8. Scheduled Principal Payments...........................10
----------------------------
Section 2.9. Initial Borrowing Base.................................11
----------------------
Section 2.10. Subsequent Determinations of Borrowing Base............11
-------------------------------------------
ARTICLE III - Payments to Banks..............................................11
-----------------
Section 3.1. General Procedures.....................................11
------------------
Section 3.2. Capital Reimbursement..................................12
---------------------
Section 3.3. Increased Cost of Eurodollar Loans.....................12
----------------------------------
Section 3.4. Availability...........................................13
------------
Section 3.5. Funding Losses.........................................13
--------------
Section 3.6. Reimbursable Taxes.....................................14
------------------
Section 3.7. Change of Applicable Lending Office....................15
-----------------------------------
Section 3.8. Replacement of Banks...................................15
--------------------
ARTICLE IV - Conditions Precedent to Lending.................................15
-------------------------------
Section 4.1. Documents to be Delivered..............................15
-------------------------
Section 4.3. Additional Conditions Precedent........................17
-------------------------------
ARTICLE V - Representations and Warranties...................................18
------------------------------
ARTICLE VI - Affirmative Covenants of Borrower and Parent....................18
--------------------------------------------
Section 6.1. Payment and Performance................................18
-----------------------
Section 6.2. Agreement to Deliver Security Documents................18
---------------------------------------
Section 6.3. Perfection and Protection of Security Interests and
---------------------------------------------------
Liens.................................................19
-----
Section 6.4. Bank Accounts; Offset..................................19
---------------------
Section 6.5. Guaranties of Parent's Subsidiaries....................19
-----------------------------------
Section 6.6. Production Proceeds....................................19
-------------------
Section 6.7. TCW Debt...............................................20
--------
i
<PAGE>
ARTICLE VII - Events of Default and Remedies................................20
------------------------------
Section 7.1. Events of Default......................................20
-----------------
Section 7.2. Acceleration...........................................20
------------
Section 7.3. Remedies...............................................20
--------
ARTICLE VIII - Agent.........................................................20
-----
Section 8.1. Appointment and Authority..............................20
-------------------------
Section 8.2. Exculpation, Agent's Reliance, Etc.....................21
----------------------------------
Section 8.3. Credit Decisions.......................................21
----------------
Section 8.4. Indemnification........................................21
---------------
Section 8.5. Rights as Bank.........................................22
--------------
Section 8.6. Sharing of Set-Offs and Other Payments.................22
--------------------------------------
Section 8.7. Investments............................................22
-----------
Section 8.8. Benefit of Article VIII................................23
-----------------------
Section 8.9. Resignation............................................23
-----------
ARTICLE IX - Miscellaneous...................................................23
-------------
Section 9.1. Waivers and Amendments; Acknowledgements...............23
----------------------------------------
Section 9.2. Survival of Agreements; Cumulative Nature..............25
-----------------------------------------
Section 9.3. Notices................................................25
-------
Section 9.4. Payment of Expenses; Indemnity.........................25
------------------------------
Section 9.5. Joint and Several Liability; Parties in Interest;
-------------------------------------------------
Assignments...........................................26
-----------
Section 9.6. Confidentiality........................................28
---------------
Section 9.7. Governing Law; Submission to Process...................28
------------------------------------
Section 9.8. Limitation on Interest.................................29
----------------------
Section 9.9. Termination; Limited Survival..........................29
-----------------------------
Section 9.10. Severability...........................................29
------------
Section 9.11. Counterparts...........................................30
------------
Section 9.12. Waiver of Jury Trial, Punitive Damages, etc............30
-------------------------------------------
ii
<PAGE>
Annexes, Schedules and Exhibits:
- -------------------------------
Annex A - Common Definitions
Annex B - Common Representations and Warranties
Annex C - Common Covenants
Annex D - Common Events of Default
Bank Schedule
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - Environmental Compliance Certificate
Exhibit F - Opinion of Counsel for Related Persons
Exhibit G - Assignment and Assumption
iii
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT is made as of September 23, 1997, by and among Inland
Production Company, a Texas corporation, (herein called "Borrower"), Inland
Resources Inc., a Washington corporation (herein called "Parent"), ING (U.S.)
Capital Corporation (herein called "Agent") and the Banks referred to below. In
consideration of the mutual covenants and agreements contained herein the
parties hereto agree as follows:
ARTICLE I - Definitions and References
--------------------------
Section 1.1. Defined Terms. As used in this Agreement, each of the
-------------
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Agent" means ING (U.S.) Capital Corporation, as Agent hereunder, and its
-----
successors in such capacity.
"Agreement" means this Credit Agreement.
---------
"Applicable Lending Office" means, with respect to each Bank, such Bank's
-------------------------
Domestic Lending Office in the case of Base Rate Loans and such Bank's
Eurodollar Lending Office in the case of Eurodollar Loans.
"Approval Letter" has the meaning given it in the Intercreditor Agreement.
---------------
"Banks" means each signatory hereto (other than Borrower and Related
-----
Persons a party hereto), including ING (U.S.) Capital Corporation in its
capacity as a Bank hereunder rather than as Agent, and the successors of each
such party as holder of a Note.
"Base Rate" means the higher of (a) the Reference Rate and (b) the Federal
---------
Funds Rate plus one-half percent (0.5%) per annum. For purposes of this
definition, "Reference Rate" means the arithmetic average of the rates of
interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and
Morgan Guaranty Trust Company of New York (or their respective successors) as
their respective prime commercial lending rates (or, as to any such bank that
does not announce such a rate, such bank's 'base' or other rate determined by
Agent to be the equivalent rate announced by such bank), except that, if any
such bank shall, for any period, cease to announce publicly its prime commercial
lending (or equivalent) rate, Agent shall, during such period, determine the
"Base Rate" based upon the prime commercial lending (or equivalent) rates
announced publicly by the other such banks. The Base Rate shall in no event,
however, exceed the Highest Lawful Rate.
"Base Rate Loan" means a Loan which does not bear interest at the
--------------
Eurodollar Rate.
"Borrower" means Inland Production Company, a Texas corporation.
--------
"Borrowing" means a borrowing of new Loans of a single Type pursuant to
---------
Section 2.2 or a continuation or conversion of existing Loans into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.3.
"Borrowing Base" means, at the particular time in question, either the
--------------
amount provided for in Section 2.9 or the amount determined by Agent in
accordance with the provisions of Section 2.10.
"Borrowing Base Deficiency" has the meaning given it in Section 2.7(b).
-------------------------
1
<PAGE>
"Borrowing Notice" means a written or telephonic request, or a written
----------------
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
------------
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank Eurocurrency market.
"CIBC Credit Agreement" means that certain Credit Agreement dated June 30,
---------------------
1997, among Borrower, Canadian Imperial Bank of Commerce, as agent, and the
lenders named therein.
"Commitment Period" means the period from and including the date hereof
-----------------
until and including March 31, 1999 (or, if earlier, the day on which the Notes
first become due and payable in full).
"Continuation/Conversion Notice" means a written or telephonic request, or
------------------------------
a written confirmation, made by Borrower which meets the requirements of Section
2.3.
"Coverage Default" has the meaning given to such term in the TCW Agreement.
----------------
"Coverage Deficiency" has the meaning given to such term in the TCW
-------------------
Agreement.
"Default" means (a) any Event of Default and any default, event or
-------
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default and (b) any
"Default" as defined in the TCW Agreement.
"Determination Date" has the meaning given it in Section 2.10.
------------------
"Domestic Lending Office" means, with respect to any Bank, the office of
-----------------------
such Bank specified as its "Domestic Lending Office" below its name on the Bank
Schedule attached hereto, or such other office as such Bank may from time to
time specify to Borrower and Agent.
"Eligible Transferee" means a Person which either (a) is a Bank, or (b) is
-------------------
consented to as an Eligible Transferee by Agent and, so long as no Event of
Default is continuing by Borrower, which consents in each case will not be
unreasonably withheld (provided that no Person organized outside the United
States may be an Eligible Transferee if Borrower would be required to pay
withholding taxes on interest or principal owed to such Person).
"Eurodollar Loan" means a Loan which is properly designated as a Eurodollar
---------------
Loan pursuant to Section 2.2 or 2.3.
"Eurodollar Lending Office" means, with respect to any Bank, the office of
-------------------------
such Bank specified as its "Eurodollar Lending Office" below its name on the
Bank Schedule attached hereto (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Bank as such Bank may from time to
time specify to Borrower and Agent.
2
<PAGE>
"Eurodollar Rate" means, with respect to each particular Eurodollar Loan
---------------
and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR Rate + A
---------------------------
100.0% - Reserve Percentage
where A means 1.75%. The Eurodollar Rate for any Eurodollar Loan shall change
whenever the Reserve Percentage changes. No Eurodollar Rate shall ever exceed
the Highest Lawful Rate.
"Event of Default" has the meaning given it in Section 7.1.
----------------
"Facility Usage" means, at the time in question, the aggregate amount of
--------------
outstanding Loans at such time.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/100th of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.
"Guarantor" means any Person who has guaranteed some or all of the
---------
Obligations pursuant to a guaranty listed on the Security Schedule or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor or any Subsidiary of Parent which now or
hereafter executes and delivers a guaranty to Agent pursuant to Section 6.5.
"Highest Lawful Rate" means, with respect to each Bank, the maximum
-------------------
nonusurious rate of interest that such Bank is permitted under applicable Law to
contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately for
each Bank as appropriate to assure that the Loan Documents are not construed to
obligate any Person to pay interest to any Bank at a rate in excess of the
Highest Lawful Rate applicable to such Bank.
"Intercreditor Agreement" means that certain Intercreditor Agreement dated
-----------------------
of even date herewith among Agent, Banks, Tamco, Borrower and Noteholders (as
defined therein).
"Interest Period" means, with respect to each particular Eurodollar Loan in
---------------
a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the Borrowing
Notice applicable thereto, beginning on and including the date specified in such
Borrowing Notice (which must be a Business Day), and ending on but not including
the same day of the month as the day on which it began (e.g., a period beginning
on the third day of one month shall end on but not include the third day of
another month), provided that each Interest Period which would otherwise end on
a day which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the immediately
preceding Business Day). No Interest Period may be elected which would extend
past the date on which the associated Note is due and payable in full.
3
<PAGE>
"Late Payment Rate" means, at the time in question, two percent (2.0%) per
-----------------
annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "Late Payment Rate" shall mean two
percent (2.0%) per annum plus the related Eurodollar Rate. The Late Payment
Rate shall never exceed the Highest Lawful Rate.
"Lenders" means Agent and all Banks.
-------
"Lending Office" means, with respect to any Bank, the office, branch, or
--------------
agency through which it funds its Eurodollar Loans; and with respect to Agent,
the office, branch, or agency through which it administers this Agreement.
"LIBOR Rate" means, with respect to each particular Eurodollar Loan and the
----------
related Interest Period, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) reported, on the date two Business Days prior to the
first day of such Interest Period, on Telerate Access Service Page 3750 (British
Bankers Association Settlement Rate) as the London Interbank Offered Rate for
dollar deposits having a term comparable to such Interest Period and in an
amount of $1,000,000 or more (or, if such Page shall cease to be publicly
available or if the information contained on such Page, in Agent's sole
judgment, shall cease to accurately reflect such London Interbank Offered Rate,
as reported by any publicly available source of similar market data selected by
Agent that, in Agent's sole judgment, accurately reflects such London Interbank
Offered Rate).
"Loan" has the meaning given it in Section 2.1.
----
"Loan Documents" means this Agreement, the Notes, the Security Documents,
--------------
the Intercreditor Agreement, and all other agreements, certificates, documents,
instruments and writings at any time delivered in connection herewith or
therewith (exclusive of term sheets, commitment letters, correspondence and
similar documents used in the negotiation hereof, except to the extent the same
contain information about Borrower or its Affiliates, properties, business or
prospects).
"Note" has the meaning given it in Section 2.1.
----
"Obligations" means all Debt from time to time owing by any Related Person
-----------
to any Lender under or pursuant to any of the Loan Documents. "Obligation"
----------
means any part of the Obligations.
"Other Allowed Debt" means the TCW Debt.
------------------
"Other Loan Documents" means the TCW Documents.
--------------------
"Percentage Share" means, with respect to any Bank (a) when used in
----------------
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Bank's name on Bank Schedule
attached hereto, and (b) when used otherwise, the percentage obtained by
dividing (i) the sum of the unpaid principal balance of such Bank's Loans at the
time in question, by (ii) the sum of the aggregate unpaid principal balance of
all Loans at such time.
"Plan of Development" or "POD" means the Plan of Development as such is
------------------- ---
approved annually beginning with the period from January 1, 1998 to December 31,
1998, by Borrower, Agent and Tamco or is modified or replaced from time to time
by agreement among Borrower, Agent and Tamco. The first such POD must be
approved by December 1, 1997.
4
<PAGE>
"Regulation D" means Regulation D of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect.
"Required Lenders" means Agent and Banks whose aggregate Percentage Shares
----------------
(including the Percentage Share of Agent) equal or exceed sixty-six and two-
thirds percent (66 2/3%).
"Reserve Percentage" means, on any day with respect to each particular
------------------
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities", as such term is defined in Regulation D, of $1,000,000 or more.
If such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"Security Documents" means the instruments listed in the Security Schedule
------------------
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Related Person to Agent in connection with this Agreement or
any transaction contemplated hereby to secure or guarantee the payment of any
part of the Obligations or the performance of any Related Person's other duties
and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
-----------------
"Tamco" means TCW Asset Management Company, in its capacity as Agent under
-----
the TCW Agreement, and its successors in such capacity.
"TCW Agreement" means that certain Credit Agreement of even date herewith
-------------
among Borrower, Parent, Trust Company of the West and Tamco.
"TCW Debt" means any and all Debt (whether for principal, interest,
--------
indemnifications, expenses or otherwise) owing by Borrower under the TCW
Agreement or any other TCW Document providing for the payment of fees in
connection therewith, which Debt is subordinated to the Obligations pursuant to
the terms of the Intercreditor Agreement.
"TCW Documents" means the TCW Agreement and each note, mortgage, security
-------------
agreement, pledge agreement, guarantee or other agreement, certificate,
document, instrument and writing at any time delivered in connection therewith.
"Type" means, with respect to any Loans, the characterization of such Loans
----
as either Base Rate Loans or Eurodollar Loans.
Section 1.2. Annexes, Exhibits and Schedules; Additional Definitions.
-------------------------------------------------------
All Annexes, Exhibits and Schedules attached to this Agreement are a part hereof
for all purposes. Reference is hereby made to Annex A and to the Security
Schedule for the meaning of certain terms defined therein and used but not
defined herein, which definitions are incorporated herein by reference.
5
<PAGE>
Section 1.3. Amendment of Defined Instruments. Unless the context
--------------------------------
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement to
---------------------
Annexes, Exhibits, Schedules, articles, sections, subsections and other
subdivisions refer to the Annexes, Exhibits, Schedules, articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any subdivisions are for
convenience only and do not constitute any part of such subdivisions and shall
be disregarded in construing the language contained in such subdivisions. The
words "this Agreement", "this instrument", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The phrases
"this section" and "this subsection" and similar phrases refer only to the
sections or subsections hereof in which such phrases occur. The word "or" is
not exclusive, and the word "including" (in its various forms) means "including
without limitation". Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under the
-------------------------------
Loan Documents of interest chargeable with respect to Eurodollar Loans and of
fees shall be made on the basis of actual days elapsed (including the first day
but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 or
366 days, as appropriate. Each determination by a Lender of amounts to be paid
under Sections 3.2 through 3.6 or any other matters which are to be determined
hereunder by a Lender (such as any Eurodollar Rate, LIBOR Rate, Business Day,
Interest Period, or Reserve Percentage) shall, in the absence of manifest error,
be conclusive and binding. Unless otherwise expressly provided herein or unless
Required Lenders otherwise consent all financial statements and reports
furnished to any Lender hereunder shall be prepared and all financial
computations and determinations pursuant hereto shall be made in accordance with
GAAP.
ARTICLE II - The Loans
---------
Section 2.1. Commitments to Lend; Notes. Subject to the terms and
--------------------------
conditions hereof, each Bank agrees to make loans to Borrower (herein called
such Bank's "Loans") upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Banks are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, and (b) after
giving effect to such Loans, the Facility Usage does not exceed the Borrowing
Base determined as of the date on which the requested Loans are to be made. The
aggregate amount of all Loans in any Borrowing must be greater than or equal to
$1,000,000 or must equal the remaining availability under the Borrowing Base.
Borrower may have no more than six Borrowings of Eurodollar Loans outstanding at
any time. The obligation of Borrower to repay to each Bank the aggregate amount
of all Loans made by such Bank, together with interest accruing in connection
therewith, shall be evidenced by a single promissory note (herein called such
Bank's "Note") made by Borrower payable to the order of such Bank in the form of
Exhibit A with appropriate insertions. The amount of principal owing on any
Bank's Note at any given time shall be the aggregate amount of all Loans
theretofore made by such Bank minus all payments of principal
6
<PAGE>
theretofore received by such Bank on such Note. Interest on each Note shall
accrue and be due and payable as provided herein and therein, with Eurodollar
Loans bearing interest at the Eurodollar Rate and Base Rate Loans bearing
interest at the Base Rate (subject to the applicability of the Late Payment Rate
and limited by the provisions of Section 9.8). Subject to the terms and
conditions hereof, Borrower may borrow, repay, and reborrow hereunder. It is
expressly understood that Banks' commitment to make Loans is determined only by
reference to the Borrowing Base from time to time in effect, and the aggregate
amount of the Notes and the amount specified in the Security Documents are
specified at a greater amount only for the convenience of the parties to avoid
the necessity of preparing and recording supplements to the Security Documents.
Section 2.2. Requests for New Loans. Borrower must give to Agent written
----------------------
notice (or telephonic notice promptly confirmed in writing) of any requested
Borrowing of new Loans to be advanced by Banks. Each such notice constitutes a
"Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of new
Base Rate Loans and the date on which such Base Rate Loans are to be
advanced, or (ii) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is to
apply thereto), and the length of the applicable Interest Period; and
(b) be received by Agent not later than 1:00 p.m., New York, New York
time, on (i) the day on which any such Base Rate Loans are to be made, or
(ii) the third Business Day preceding the day on which any such Eurodollar
Loans are to be made.
Each such written request or confirmation must be made in the form and substance
of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. Upon receipt of any such Borrowing
Notice, Agent shall give each Bank prompt notice of the terms thereof. If all
conditions precedent to such new Loans have been met, each Bank will on the date
requested promptly remit to Agent at Agent's office in New York, New York the
amount of such Bank's new Loan in immediately available funds, and upon receipt
of such funds, unless to its actual knowledge any conditions precedent to such
Loans have been neither met nor waived as provided herein, Agent shall promptly
make such Loans available to Borrower. Unless Agent shall have received prompt
notice from a Bank that such Bank will not make available to Agent such Bank's
new Loan, Agent may in its discretion assume that such Bank has made such Loan
available to Agent in accordance with this section and Agent may if it chooses,
in reliance upon such assumption, make such Loan available to Borrower. If and
to the extent such Bank shall not so make its new Loan available to Agent, such
Bank and Borrower severally agree to pay or repay to Agent within three days
after demand the amount of such Loan together with interest thereon, for each
day from the date such amount was made available to Borrower until the date such
amount is paid or repaid to Agent, with interest at (i) the Federal Funds Rate,
if such Bank is making such payment and (ii) the interest rate applicable at the
time to the other new Loans made on such date, if Borrower is making such
repayment. If neither such Bank nor Borrower pay or repay to Agent such amount
within such three-day period, Agent shall in addition to such amount be entitled
to recover from such Bank and from Borrower, on demand, interest thereon at the
Late Payment Rate, calculated from the date such amount was made available to
Borrower. The failure of any Bank to make any new Loan to be made by it
hereunder shall not relieve any other Bank of its obligation hereunder, if any,
to make its new Loan, but no Bank shall be responsible for the failure of any
other Bank to make any new Loan to be made by such other Bank.
7
<PAGE>
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
-----------------------------------------------
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to Base
Rate Loans on the last day of the Interest Period applicable thereto, or to
continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such expiration.
In making such elections, Borrower may combine existing Loans made pursuant to
separate Borrowings into one new Borrowing or divide existing Loans made
pursuant to one Borrowing into separate new Borrowings. To make any such
election, Borrower must give to Agent written notice (or telephonic notice
promptly confirmed in writing) of any such conversion or continuation of
existing Loans, with a separate notice given for each new Borrowing. Each such
notice constitutes a "Continuation/Conversion Notice" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
(b) specify (i) the aggregate amount of any Borrowing of Base Rate
Loans into which such existing Loans are to be continued or converted and
the date on which such continuation or conversion is to occur, or (ii) the
aggregate amount of any Borrowing of Eurodollar Loans into which such
existing Loans are to be continued or converted, the date on which such
continuation or conversion is to occur (which shall be the first day of the
Interest Period which is to apply to such Eurodollar Loans), and the length
of the applicable Interest Period; and
(c) be received by Agent not later than 1:00 p.m., New York, New York
time, on (i) the day on which any such continuation or conversion to Base
Rate Loans is to occur, or (ii) the third Business Day preceding the day on
which any such continuation or conversion to Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Bank prompt notice of the terms thereof.
Each Borrowing Notice shall be irrevocable and binding on Borrower. During the
continuance of any Default, Borrower may not make any election to convert
existing Loans into Eurodollar Loans or continue existing Loans as Eurodollar
Loans. If (due to the existence of a Default or for any other reason) Borrower
fails to timely and properly give any notice of continuation or conversion with
respect to a Borrowing of existing Eurodollar Loans at least three days prior to
the end of the Interest Period applicable thereto, such Eurodollar Loans shall
automatically be converted into Base Rate Loans at the end of such Interest
Period. No new funds shall be repaid by Borrower or advanced by any Bank in
connection with any continuation or conversion of existing Loans pursuant to
this section, and no such continuation or conversion shall be deemed to be a new
advance of funds for any purpose; such continuations and conversions merely
constitute a change in the interest rate applicable to already outstanding
Loans.
Section 2.4. Use of Proceeds. Borrower shall use the proceeds of the
---------------
first Loan to pay in full the Debt outstanding under the CIBC Credit Agreement.
Borrower shall use all subsequent Loans to (i) finance future proved oil and gas
acquisitions and development by Borrower, (ii) finance the Crysen Acquisition
(but only if all Banks first approve the terms thereof) and (iii) provide
working capital for its operations. In no event shall the funds from any Loan
be used directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any "margin
securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by
8
<PAGE>
the Board of Governors of the Federal Reserve System) or to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any such
margin stock or margin securities. Borrower represents and warrants that
Borrower is not engaged principally, or as one of Borrower's important
activities, in the business of extending credit to others for the purpose of
purchasing or carrying such margin stock or margin securities.
Section 2.5. Fees.
----
(a) Commitment Fees. In consideration of each Bank's commitment to make
---------------
Loans, Borrower will pay to Agent for the account of each Bank a commitment fee
determined on a daily basis by applying a rate of one-half of one percent (.50%)
per annum to such Bank's Percentage Share of the unused portion of the Borrowing
Base on each day during the Commitment Period, determined for each such day by
deducting from the amount of the Borrowing Base at the end of such day the
Facility Usage. This commitment fee shall be due and payable in arrears on the
last day of each Fiscal Quarter and at the end of the Commitment Period.
(b) Facility Fee. In addition to all other amounts due to Agent under the
------------
Loan Documents, Borrower will pay a facility fee to Agent, for its own account,
as described in a letter agreement of even date herewith between Agent and
Borrower.
Section 2.6. Optional Prepayments. Borrower may, upon five Business
--------------------
Days' notice to each Bank, from time to time and without premium or penalty
prepay the Notes, in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Notes equals $1,000,000 or any higher
integral multiple of $1,000,000, so long as Borrower does not prepay any
Eurodollar Loan, and so long as Borrower does not make any prepayments which
would reduce the unpaid principal balance of any Loan to less than $100,000
without first either (a) terminating this Agreement or (b) providing assurance
satisfactory to Agent in its discretion that Banks' legal rights under the Loan
Documents are in no way affected by such reduction. Each partial prepayment of
principal made after the end of the Commitment Period shall be applied to the
regular installments of principal due under the Notes in the inverse order of
their maturities. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so prepaid.
Any principal or interest prepaid pursuant to this section shall be in addition
to, and not in lieu of, all payments otherwise required to be paid under the
Loan Documents at the time of such prepayment.
Section 2.7. Mandatory Prepayments.
---------------------
(a) Borrower will make all payments on the Obligations which are required
under the Intercreditor Agreement, including all prepayments of principal on the
Notes which are required under Section 3(a)(iv) of the Intercreditor Agreement.
(b) If at any time the Facility Usage is in excess of the Borrowing Base
(such excess being herein called a "Borrowing Base Deficiency"), Borrower shall,
within five Business Days after Agent gives notice of such fact to Borrower,
either:
(i) prepay the principal of the Loans in an aggregate amount at least
equal to such Borrowing Base Deficiency, or
(ii) give notice to Agent electing to prepay the principal of the
Loans in up to three monthly installments in an aggregate amount at least
equal to such Borrowing Base Deficiency, with each such installment equal
to or in excess of one-third of such Borrowing Base
9
<PAGE>
Deficiency, and with the first such installment to be paid one month after
the giving of such notice and the subsequent installments to be due and
payable at one month intervals thereafter until such Borrowing Base
Deficiency has been eliminated, or
(iii) give notice to Agent that Borrower desires to provide Agent with
deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other security documents in form and substance
satisfactory to Agent, granting, confirming, and perfecting first and prior
liens or security interests in collateral acceptable to all Banks, to the
extent needed to allow all Banks to increase the Borrowing Base (as they in
their reasonable discretion deem consistent with prudent oil and gas
banking industry lending standards at the time) to an amount which
eliminates such Borrowing Base Deficiency, and then provide such security
documents within thirty days after Agent specifies such collateral to
Borrower. If, prior to any such specification by Agent, Required Lenders
determine that the giving of such security documents will not serve to
eliminate such Borrowing Base Deficiency, then, within five Business Days
after receiving notice of such determination, Borrower will elect to make,
and thereafter make, the prepayments specified in either of the preceding
subsections (i) or (ii) of this subsection (b).
(c) Each prepayment of principal under this section shall be accompanied
by all interest then accrued and unpaid on the principal so prepaid. Any
principal or interest prepaid pursuant to this section shall be in addition to,
and not in lieu of, all payments otherwise required to be paid under the Loan
Documents at the time of such prepayment.
Section 2.8. Scheduled Principal Payments. Beginning on June 28, 1999,
----------------------------
and on each Quarterly Payment Date thereafter, Borrower will, in addition to
paying any interest then due on the Loans, make a principal payment in
accordance with the following schedule:
<TABLE>
<CAPTION>
Quarterly Amount
Payment Date of Payment
- --------------- ----------
<S> <C>
June 28, 1999 $4,000,000
Sept 28, 1999 $4,000,000
Dec 29, 1999 $4,000,000
Mar 29, 2000 $3,000,000
June 28, 2000 $3,000,000
Sept 28, 2000 $3,000,000
Dec 29, 2000 $3,000,000
Mar 28, 2001 $2,500,000
June 28, 2001 $2,500,000
Sept 28, 2001 $2,500,000
Dec 29, 2001 $2,500,000
Mar 29, 2002 $2,250,000
June 28, 2002 $2,250,000
Sept 28, 2002 $2,250,000
Dec 29, 2002 $2,250,000
Mar 29, 2003 $2,000,000
</TABLE>
10
<PAGE>
The principal installments required by this Section 2.8 are in addition to all
other principal payments required by the terms of this Agreement.
Section 2.9. Initial Borrowing Base. During the period from the date
----------------------
hereof to the first Determination Date the Borrowing Base shall be $45,000,000.
Section 2.10. Subsequent Determinations of Borrowing Base. By March 1
-------------------------------------------
and July 15 of each year Borrower shall furnish to each Bank all information,
reports and data which Agent has then requested concerning Related Persons'
businesses and properties (including their oil and gas properties and interests
and the reserves and production relating thereto), together with the Engineering
Report described in Section C.1(d) or C.1(e) of Annex C, as applicable. Within
thirty days after receiving such information, reports and data, Required Lenders
shall agree upon an amount for the Borrowing Base (provided that all Banks must
agree to any increase in the Borrowing Base) and Agent shall by notice to
Borrower designate such amount as the new Borrowing Base available to Borrower
hereunder, which designation shall take effect immediately on the date such
notice is sent (herein called a "Determination Date") and shall remain in effect
------------------
until but not including the next date as of which the Borrowing Base is
redetermined. If Borrower does not furnish all such information, reports and
data by the date specified in the first sentence of this section, Agent may
nonetheless designate the Borrowing Base at any amount which Required Lenders
determine and may redesignate the Borrowing Base from time to time thereafter
until each Bank receives all such information, reports and data, whereupon
Required Lenders shall designate a new Borrowing Base as described above.
Required Lenders shall determine the amount of the Borrowing Base based upon the
loan collateral value which they in their discretion assign to the various
proved oil and gas properties of Related Persons at the time in question and
based upon such other credit factors (including without limitation the assets,
liabilities, cash flow, hedged and unhedged exposure to price, foreign exchange
rate, and interest rate changes, business, properties, prospects, management and
ownership of Borrower and its Affiliates) as they in their discretion deem
significant. It is expressly understood that Banks and Agent have no obligation
to agree upon or designate the Borrowing Base at any particular amount, whether
in relation to the aggregate face amount of the Notes or otherwise, and that
Banks' commitments to advance funds hereunder is determined by reference to the
Borrowing Base from time to time in effect, which Borrowing Base shall be used
for calculating commitment fees under Section 2.5 and, to the extent permitted
by Law and regulatory authorities, for the purposes of capital adequacy
determination and reimbursements under Section 3.2. It is further understood
that the scheduled principal payments set forth in Section 2.8 are based upon
the Borrowing Base as in effect on the date hereof and that Banks and Agent
shall not increase the Borrowing Base without (i) an amendment to such scheduled
principal payments as determined by the Banks in connection with such Borrowing
Base increase and (ii) the consent of Tamco to such amendment to such scheduled
principal payments.
ARTICLE III - Payments to Banks
-----------------
Section 3.1. General Procedures. Borrower will make each payment which
------------------
it owes under the Loan Documents to Agent for the account of the Lender to whom
such payment is owed. Each such payment must be received by Agent not later
than 11:00 a.m., New York, New York time, on the date such payment becomes due
and payable, in lawful money of the United States of America, without set-off,
deduction or counterclaim, and in immediately available funds. Any payment
received by Agent after such time will be deemed to have been made on the next
following Business Day. Should any such payment become due and payable on a day
other than a Business Day, the maturity of such payment shall be extended to the
next succeeding Business Day, and, in the case of a payment of principal or past
due interest, interest shall accrue and be payable thereon for the period of
such extension as provided in the Loan Document under which such payment is due.
Each payment under a
11
<PAGE>
Loan Document shall be due and payable at the place provided therein and, if no
specific place of payment is provided, shall be due and payable at the place of
payment of Agent's Note. When Agent collects or receives money on account of the
Obligations, Agent shall distribute all money so collected or received, and each
Lender shall apply all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are then due (and
if such money is insufficient to pay all such Obligations, first to any
reimbursements due Agent under Section C.8 of Annex C of this Agreement or
Section 9.4 and then to the partial payment of all other Obligations then
due in proportion to the amounts thereof, or as Lenders shall otherwise
agree);
(b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other Obligations.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Sections
2.6 and 2.7. All distributions of amounts described in any of subsections (b),
(c) or (d) above shall be made by Agent pro rata to each Lender then owed
Obligations described in such subsection in proportion to all amounts owed to
all Lenders which are described in such subsection.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
---------------------
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects or
would affect the amount of capital required or expected to be maintained by any
Lender or any corporation controlling any Lender, then, upon demand by such
Lender, Borrower will pay to Agent for the benefit of such Lender, from time to
time as specified by such Lender, such additional amount or amounts which such
Lender shall determine to be appropriate to compensate such Lender or any
corporation controlling such Lender in light of such circumstances, to the
extent that such Lender reasonably determines that the amount of any such
capital would be increased or the rate of return on any such capital would be
reduced by or in whole or in part based on the existence of the face amount of
such Lender's Loans or commitments under this Agreement.
Section 3.3. Increased Cost of Eurodollar Loans. If any applicable Law
----------------------------------
(whether now in effect or hereinafter enacted or promulgated, including
Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any Lender of
any principal, interest, or other amounts attributable to any Eurodollar
Loan or otherwise due under this Agreement in respect of any Eurodollar
Loan (other than taxes imposed on the overall net income of such Lender or
any lending office of such Lender by any jurisdiction in which such Lender
or any such lending office is located); or
12
<PAGE>
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan (excluding those for which such Lender is fully compensated
pursuant to adjustments made in the definition of Eurodollar Rate) or
against assets of, deposits with or for the account of, or credit extended
by, such Lender; or
(c) shall impose on any Lender or the interbank Eurocurrency deposit
market any other condition affecting any Eurodollar Loan, the result of
which is to increase the cost to any Lender of funding or maintaining any
Eurodollar Loan or to reduce the amount of any sum receivable by any Lender
in respect of any Eurodollar Loan by an amount deemed by such Lender to be
material,
then such Lender shall promptly notify Agent and Borrower in writing of the
happening of such event and of the amount required to compensate such Lender for
such event (on an after-tax basis, taking into account any taxes on such
compensation), whereupon (i) Borrower shall pay such amount to Agent for the
account of such Lender and (ii) Borrower may elect, by giving to Agent and such
Lender not less than three Business Days' notice, to convert all (but not less
than all) of any such Eurodollar Loans into Base Rate Loans.
Section 3.4. Availability. If (a) any change in applicable Laws, or in
------------
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for any
Lender to fund or maintain Eurodollar Loans, or shall materially restrict the
authority of any Lender to purchase or take offshore deposits of dollars (i.e.,
"eurodollars"), or (b) any Lender determines that matching deposits appropriate
to fund or maintain any Eurodollar Loan are not available to it, or (c) any
Lender determines that the formula for calculating the Eurodollar Rate does not
fairly reflect the cost to such Lender of making or maintaining loans based on
such rate, then, upon notice by such Lender to Borrower and Agent, Borrower's
right to elect Eurodollar Loans from such Lender shall be suspended to the
extent and for the duration of such illegality, impracticability or restriction
and all Eurodollar Loans of such Lender which are then outstanding or are then
the subject of any Borrowing Notice and which cannot lawfully or practicably be
maintained or funded shall immediately become or remain, or shall be funded as,
Base Rate Loans of such Lender. Borrower agrees to indemnify each Lender and
hold it harmless against all costs, expenses, claims, penalties, liabilities and
damages which may result from any such change in Law, interpretation or
administration (other than taxes imposed on the overall net income of such
Lender or any lending office of such Lender). Such indemnification shall be on
an after-tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.
Section 3.5. Funding Losses. In addition to its other obligations
--------------
hereunder, Borrower will indemnify each Lender against, and reimburse each
Lender on demand for, any loss or expense incurred or sustained by such Lender
(including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by a Lender to fund or maintain
Eurodollar Loans), as a result of (a) any payment or prepayment (whether
authorized or required hereunder or otherwise) of all or a portion of a
Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the effective date, of
a Continuation/ Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure of
any Loan to be made or of any Continuation/ Conversion Notice to become
effective due to any condition precedent not being satisfied or due to any other
action or inaction of any Related Person, or (d) any conversion (whether
authorized or required hereunder or otherwise) of all or any portion of any
Eurodollar Loan into a Base Rate Loan or into a different Eurodollar Loan on a
day other than the day on which the applicable Interest Period ends. Such
indemnification shall be on an after-tax basis, taking into account any taxes
imposed on the amounts paid as indemnity.
13
<PAGE>
Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:
------------------
(a) Borrower will indemnify each Lender against and reimburse each
Lender for all present and future income, stamp and other taxes, levies,
costs and charges whatsoever imposed, assessed, levied or collected on or
in respect of this Agreement or any Eurodollar Loans (whether or not
legally or correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on or measured by the overall net income of
Agent or such Lender or any lending office of such Lender by any
jurisdiction in which such Lender or any such lending office is located
(all such non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section). Such indemnification shall
be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
(b) All payments on account of the principal of, and interest on,
each Lender's Loans and Note, and all other amounts payable by Borrower to
any Lender hereunder, shall be made in full without set-off or counterclaim
and shall be made free and clear of and without deductions or withholdings
of any nature by reason of any Reimbursable Taxes, all of which will be for
the account of Borrower. In the event of Borrower being compelled by Law
to make any such deduction or withholding from any payment to any Lender,
Borrower shall pay on the due date of such payment, by way of additional
interest, such additional amounts as are needed to cause the amount
receivable by such Lender after such deduction or withholding to equal the
amount which would have been receivable in the absence of such deduction or
withholding. If Borrower should make any deduction or withholding as
aforesaid, Borrower shall within 60 days thereafter forward to such Lender
an official receipt or other official document evidencing payment of such
deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loan, Borrower may elect, by giving to Agent and
such Lender not less than three Business Days' notice, to convert all (but
not less than all) of any such Eurodollar Loan into a Base Rate Loan, but
such election shall not diminish Borrower's obligation to pay all
Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by Law,
to deduct or withhold (and not to make any indemnification or reimbursement
for) income or other similar taxes imposed by the United States of America
(other than any portion thereof attributable to a change in federal income
tax Laws effected after the date hereof) from interest, fees or other
amounts payable hereunder for the account of any Lender, other than a
Lender (i) who is a U.S. person for Federal income tax purposes or (ii) who
has the Prescribed Forms on file with Agent (with copies provided to
Borrower) for the applicable year to the extent deduction or withholding of
such taxes is not required as a result of the filing of such Prescribed
Forms, provided that if Borrower shall so deduct or withhold any such
taxes, it shall provide a statement to Agent and such Lender, setting forth
the amount of such taxes so deducted or withheld, the applicable rate and
any other information or documentation which such Lender may reasonably
request for assisting such Lender to obtain any allowable credits or
deductions for the taxes so deducted or withheld in the jurisdiction or
jurisdictions in which such Lender is subject to tax. As used in this
section, "Prescribed Forms" means such duly executed forms or statements,
and in such
14
<PAGE>
number of copies, which may, from time to time, be prescribed by Law and
which, pursuant to applicable provisions of (x) an income tax treaty
between the United States and the country of residence of the Lender
providing the forms or statements, (y) the Internal Revenue Code of 1986,
as amended from time to time, or (z) any applicable rules or regulations
thereunder, permit Borrower to make payments hereunder for the account of
such Lender free of such deduction or withholding of income or similar
taxes.
Section 3.7. Change of Applicable Lending Office. Each Lender agrees
-----------------------------------
that, upon the occurrence of any event giving rise to the operation of Sections
3.2 through 3.6 with respect to such Lender, it will, if requested by Borrower,
use reasonable efforts (subject to overall policy considerations of such Lender)
to designate another Lending Office, provided that such designation is made on
such terms that such Lender and its Lending Office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of any such section. Nothing in this section
shall affect or postpone any of the obligations of Borrower or the rights of any
Lender provided in Sections 3.2 through 3.6.
Section 3.8. Replacement of Banks. If any Lender seeks reimbursement for
--------------------
increased costs under Sections 3.2 through 3.6, then within ninety days
thereafter -- provided no Event of Default then exists -- Borrower shall have
the right (unless such Lender withdraws its request for additional compensation)
to replace such Lender by requiring such Lender to assign its Loans and Notes
and its commitments hereunder to an Eligible Transferee reasonably acceptable to
Agent and to Borrower, provided that: (i) all Obligations of Borrower owing to
such Lender being replaced (including such increased costs, but excluding
principal and accrued interest on the Notes being assigned) shall be paid in
full to such Lender concurrently with such assignment, and (ii) the replacement
Eligible Transferee shall purchase the Note being assigned by paying to such
Lender a price equal to the principal amount thereof plus accrued and unpaid
interest thereon. In connection with any such assignment Borrower, Agent, such
Lender and the replacement Eligible Transferee shall otherwise comply with
Section 9.5. Notwithstanding the foregoing rights of Borrower under this
section, however, Borrower may not replace any Lender which seeks reimbursement
for increased costs under Section 3.2 through 3.6 unless Borrower is at the same
time replacing all Lenders which are then seeking such compensation.
ARTICLE IV - Conditions Precedent to Lending
-------------------------------
Section 4.1. Documents to be Delivered. No Bank has any obligation to
-------------------------
make its first Loan, unless Agent shall have received all of the following, at
Agent's office in New York, New York, duly executed and delivered and in form,
substance and date satisfactory to Agent:
(a) This Agreement and any other documents that Banks are to execute
in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) The Intercreditor Agreement.
(e) The Bank Interest Rate Hedge Agreement.
(f) Certain certificates of Borrower including:
15
<PAGE>
(i) An "Omnibus Certificate" of the Secretary and of the
Chairman of the Board or President of Borrower, which shall contain
the names and signatures of the officers of Borrower authorized to
execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of
Directors of Borrower and in full force and effect at the time this
Agreement is entered into, authorizing the execution of this Agreement
and the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the charter documents
of Borrower and all amendments thereto, certified by the appropriate
official of Borrower's state of organization, and (3) a copy of any
bylaws of Borrower; and
(ii) A "Compliance Certificate" of the Chairman of the Board or
President and of the chief financial officer of Borrower, of even date
with such Loan, in which such officers certify to the satisfaction of
the conditions set out in subsections (a), (b), (c) and (d) of Section
4.3.
(g) A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction, and
certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which Borrower
owns property subject to Security Documents.
(h) Documents similar to those specified in subsections (f)(i) and
(g) of this section with respect to each Guarantor and the execution by it
of the Loan Documents to which it is a party.
(i) A favorable opinion of Glast, Phillips & Murray, P.C., counsel
for Related Persons, substantially in the form set forth in Exhibit F-1,
and a favorable opinion of Welborn, Sullivan, Mech & Tooley, P.C., special
Colorado counsel for Related Persons, substantially in the form set forth
in Exhibit F-2.
(j) The Initial Engineering Report and the Initial Financial
Statements.
(k) Certificates or binders evidencing Related Persons' insurance in
effect on the date hereof.
(l) A favorable report of Pilko & Associates, Inc. regarding their
environmental assessment of the material properties of Related Persons, in
scope and results acceptable to Agent.
(m) A favorable report of Agent's professional insurance consultants
regarding their assessment of the insurance maintained by Related Persons,
in scope and results acceptable to Agent.
(n) Payment of all commitment, facility, agency and other fees
required to be paid to any Lender pursuant to any Loan Documents or any
commitment agreement heretofore entered into.
16
<PAGE>
(o) A copy of each Equitable Acquisition Document, duly executed and
delivered by each party thereto.
(p) Documents (i) confirming the payment in full of all Debt under
the CIBC Credit Agreement and all documents executed in connection
therewith, (ii) releasing and terminating all Liens on any Related Person's
property securing such Debt (or assigning such Liens to Agent for the
benefit of Banks), and (iii) terminating the credit facility under the CIBC
Credit Agreement.
(q) A true and complete copy of each TCW Document.
(r) An amendment to the Purchase and Sale Agreement dated July 14,
1997, as amended, regarding the Crysen Acquisition.
Section 4.2. Closing of Equitable Acquisition. Contemporaneously with the
--------------------------------
first Loans hereunder, Borrower shall have consummated the transactions
contemplated under the Equitable Acquisition Documents, in form and substance
satisfactory to Agent. Borrower, for itself and on behalf of each Related
Person, hereby acknowledges and agrees that (1) the consummation of the
transactions contemplated under this Agreement and the Equitable Acquisition
Documents, including without limitation the making of the first Loans, are
intended to be simultaneous for all intents and purposes, and (2) each Related
Person shall be deemed to have executed and delivered each Loan document as set
forth in Section 4.1 above, including without limitation each Security Document,
immediately prior to or simultaneously with the making of the first Loans.
Section 4.3. Additional Conditions Precedent. No Bank has any obligation
-------------------------------
to make any Loan (including its first), unless the following conditions
precedent have been satisfied:
(a) All representations and warranties made by any Related Person in
any Loan Document shall be true on and as of the date of such Loan (except
to the extent that the facts upon which such representations are based have
been changed by the extension of credit hereunder) as if such
representations and warranties had been made as of the date of such Loan.
(b) No Default shall exist at the date of such Loan.
(c) No Material Adverse Change shall have occurred to, and no event
or circumstance shall have occurred that could cause a Material Adverse
Change to, Borrower's Consolidated financial condition or businesses since
the date of this Agreement.
(d) Each Related Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Loan.
(e) The making of such Loan shall not be prohibited by any Law and
shall not subject any Bank to any penalty or other onerous condition under
or pursuant to any such Law.
(f) Agent shall have received all documents and instruments which
Agent has then requested, in addition to those described in Section 4.1
(including opinions of legal counsel for Related Persons and Agent;
corporate documents and records; documents evidencing
17
<PAGE>
governmental authorizations, consents, approvals, licenses and exemptions;
and certificates of public officials and of officers and representatives of
Borrower and other Persons), as to (i) the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Related Person in this Agreement and the other Loan Documents, (ii) the
satisfaction of all conditions contained herein or therein, and (iii) all
other matters pertaining hereto and thereto. All such additional documents
and instruments shall be satisfactory to Agent in form, substance and date.
(g) Borrower shall, prior to the making of the first Loan (or using
the proceeds thereof), have deposited $ 7,000 with Thompson & Knight, P.C.,
counsel for Agent, to be held by such counsel and applied toward payment of
costs and expenses for recordation of the Security Documents, as provided
pursuant to Section 9.4(a). If such deposit exceeds the amount of such
costs and expenses, the excess shall be returned to Borrower. If such
deposit is less than such costs and expenses, the deficit shall be paid by
Borrower pursuant to Section 9.4(a).
ARTICLE V - Representations and Warranties
------------------------------
To confirm each Lender's understanding concerning Related Persons and
Related Persons' businesses, properties and obligations and to induce each
Lender to enter into this Agreement and to extend credit hereunder, Borrower and
Parent each represent and warrant to each Lender that each of the statements in
Annex B is true and correct in all respects.
ARTICLE VI - Affirmative Covenants of Borrower and Parent
--------------------------------------------
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and extend credit hereunder, Parent and Borrower each warrant,
covenant and agree that until the full and final payment of the Obligations and
the termination of this Agreement, unless Required Lenders have previously
agreed otherwise:
Section 6.1. Payment and Performance. Borrower will pay all amounts due
-----------------------
under the Loan Documents in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition expressed or implied
in the Loan Documents, including Annex C, and Borrower and Parent will cause
each other Related Person to observe, perform and comply with every such term,
covenant and condition.
Section 6.2. Agreement to Deliver Security Documents. Parent and
---------------------------------------
Borrower agree to have any Subsidiary formed after the date hereof execute a
Guaranty for the benefit of the Lenders in form substantially similar to the
Parent Guaranty. In addition, Parent and Borrower each agree to deliver and to
cause each other Related Person to deliver, to further secure the Obligations
whenever requested by Agent in its sole and absolute discretion, deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other Security Documents in form and substance satisfactory to Agent for the
purpose of granting, confirming, and perfecting first and prior liens or
security interests in any real or personal property now owned or hereafter
acquired by any Related Person. Furthermore, Parent and Borrower each agree to
deliver and to cause each other Related Person to deliver whenever requested by
Agent in its sole and absolute discretion, an intercompany subordination
agreement in form and substance satisfactory to Agent. Borrower also agrees to
deliver, whenever requested by Agent in its sole and absolute discretion,
favorable title opinions from legal counsel acceptable to Agent with respect to
any Related Person's properties and interests designated by Agent,
18
<PAGE>
based upon abstract or record examinations to dates acceptable to Agent and (a)
stating that such Related Person has good and defensible title to such
properties and interests, free and clear of all Liens other than Permitted
Liens, (b) confirming that such properties and interests are subject to Security
Documents securing the Obligations that constitute and create legal, valid and
duly perfected first deed of trust or mortgage liens in such properties and
interests and first priority assignments of and security interests in the oil
and gas attributable to such properties and interests and the proceeds thereof,
and (c) covering such other matters as Agent may request.
Section 6.3. Perfection and Protection of Security Interests and Liens.
---------------------------------------------------------
Borrower and Parent will from time to time deliver, and will cause each other
Related Person from time to time to deliver, to Agent any financing statements,
continuation statements, extension agreements and other documents, properly
completed and executed (and acknowledged when required) by Related Persons in
form and substance satisfactory to Agent, which Agent requests for the purpose
of perfecting, confirming, or protecting any Liens or other rights in Collateral
securing any Obligations.
Section 6.4. Bank Accounts; Offset. To secure the repayment of the
---------------------
Obligations Borrower and Parent each hereby grant to each Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of any Lender at common law, under the
Loan Documents, or otherwise, and each of which shall be upon and against (a)
any and all moneys, securities or other property (and the proceeds therefrom) of
Borrower or Parent now or hereafter held or received by or in transit to any
Lender from or for the account of Borrower or Parent, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, (b) any and all deposits
(general or special, time or demand, provisional or final) of Borrower or Parent
with any Lender, and (c) any other credits and claims of Borrower or Parent at
any time existing against any Lender, including claims under certificates of
deposit. At any time and from time to time after the occurrence of any Default,
each Lender is hereby authorized to foreclose upon, or to offset against the
Obligations then due and payable (in either case without notice to Borrower or
Parent), any and all items hereinabove referred to. The remedies of foreclosure
and offset are separate and cumulative, and either may be exercised
independently of the other without regard to procedures or restrictions
applicable to the other.
Section 6.5. Guaranties of Parent's Subsidiaries. Each Subsidiary of
-----------------------------------
Parent now existing or created, acquired or coming into existence after the date
hereof shall, promptly upon request by Agent, execute and deliver to Agent an
absolute and unconditional guaranty of the timely repayment of the Obligations
and the due and punctual performance of the obligations of Parent hereunder,
which guaranty shall be satisfactory to Agent in form and substance. Each
Subsidiary of Parent existing on the date hereof shall duly execute and deliver
such a guaranty prior to the making of any Loan hereunder. Parent will cause
each of its Subsidiaries to deliver to Agent, simultaneously with its delivery
of such a guaranty, written evidence satisfactory to Agent and its counsel that
such Subsidiary has taken all corporate or partnership action necessary to duly
approve and authorize its execution, delivery and performance of such guaranty
and any other documents which it is required to execute.
Section 6.6. Production Proceeds. Notwithstanding that, by the terms of
-------------------
the various Security Documents, Related Persons are and will be assigning to
Agent and Banks all of the "Production Proceeds" (as defined therein) accruing
to the property covered thereby, so long as no Default has occurred Related
Persons may continue to receive from the purchasers of production all such
Production Proceeds, subject, however, to the Liens created under the Security
Documents, which Liens are hereby affirmed and ratified. Upon the occurrence of
a Default, Agent and Banks may exercise all rights and remedies granted under
the Security Documents, including the right to obtain possession of all
Production Proceeds then held by Related Persons or to receive directly from the
19
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purchasers of production all other Production Proceeds. In no case shall any
failure, whether purposed or inadvertent, by Agent or Banks to collect directly
any such Production Proceeds constitute in any way a waiver, remission or
release of any of their rights under the Security Documents, nor shall any
release of any Production Proceeds by Agent or Banks to Related Persons
constitute a waiver, remission, or release of any other Production Proceeds or
of any rights of Agent or Banks to collect other Production Proceeds thereafter.
Section 6.7. TCW Debt. No Related Person will make any payment on or
--------
with respect to the TCW Debt except as expressly permitted by the terms of the
Intercreditor Agreement.
ARTICLE VII - Events of Default and Remedies
------------------------------
Section 7.1. Events of Default. Each of the events described in Annex D
-----------------
constitutes an Event of Default under this Agreement.
Section 7.2. Acceleration. Upon the occurrence of an Event of Default
------------
described in subsection D.10(a), (b) or (c) of Annex D with respect to Borrower
or the acceleration of the Other Allowed Debt under the Other Loan Documents,
all of the Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any obligation
of any Bank to make any further Loans shall be permanently terminated. During
the continuance of any other Event of Default, Agent at any time and from time
to time may (and upon written instructions from Required Lenders, Agent shall),
without notice to Borrower or any other Related Person, do either or both of the
following: (1) terminate any obligation of Banks to make Loans hereunder, and
(2) declare any or all of the Obligations immediately due and payable, and all
such Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement.
Section 7.3. Remedies. If any Default shall occur and be continuing,
--------
each Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and each Lender may
enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Lenders under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
ARTICLE VIII - Agent
-----
Section 8.1. Appointment and Authority. Each Bank hereby irrevocably
-------------------------
authorizes Agent, and Agent hereby undertakes, to receive payments of principal,
interest and other amounts due hereunder as specified herein and to take all
other actions and to exercise such powers under the Loan Documents as are
specifically delegated to Agent by the terms hereof or thereof, together with
all other powers reasonably incidental thereto. The relationship of Agent to
the other Banks is only that of one commercial Bank acting as administrative
agent for others, and nothing in the Loan Documents shall be
20
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construed to constitute Agent a trustee or other fiduciary for any holder of any
of the Notes or of any participation therein nor to impose on Agent duties and
obligations other than those expressly provided for in the Loan Documents. With
respect to any matters not expressly provided for in the Loan Documents and any
matters which the Loan Documents place within the discretion of Agent, Agent
shall not be required to exercise any discretion or take any action, and it may
request instructions from Banks with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Banks in so acting or refraining from
acting) upon the instructions of Required Lenders (including itself), provided,
however, that Agent shall not be required to take any action which exposes it to
a risk of personal liability that it considers unreasonable or which is contrary
to the Loan Documents or to applicable Law. Upon receipt by Agent from Borrower
of any communication calling for action on the part of Banks or upon notice from
any other Bank to Agent of any Default or Event of Default, Agent shall promptly
notify each other Bank thereof.
Section 8.2. Exculpation, Agent's Reliance, Etc. Neither Agent nor any
----------------------------------
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the assignment
or transfer thereof in accordance with this Agreement, signed by such payee and
in form satisfactory to Agent; (b) may consult with legal counsel (including
counsel for Borrower), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any other Bank and shall not
be responsible to any other Bank for any statements, warranties or
representations made in or in connection with the Loan Documents; (d) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of the Loan Documents on the part of
any Related Person or to inspect the property (including the books and records)
of any Related Person; (e) shall not be responsible to any other Bank for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any instrument or document furnished in connection
therewith; (f) may rely upon the representations and warranties of each Related
Person and the Banks in exercising its powers hereunder; and (g) shall incur no
liability under or in respect of the Loan Documents by acting upon any notice,
consent, certificate or other instrument or writing (including any telecopy,
telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper Person or Persons.
Section 8.3. Credit Decisions. Each Bank acknowledges that it has,
----------------
independently and without reliance upon any other Bank, made its own analysis of
Borrower and the transactions contemplated hereby and its own independent
decision to enter into this Agreement and the other Loan Documents. Each Bank
also acknowledges that it will, independently and without reliance upon any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents.
Section 8.4. Indemnification. Each Bank agrees to indemnify Agent (to
---------------
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Bank's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or
21
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asserted against Agent growing out of, resulting from or in any other way
associated with any of the Collateral, the Loan Documents and the transactions
and events (including the enforcement thereof) at any time associated therewith
or contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Person or any liabilities or duties of any Person with
respect to Hazardous Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Bank shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing,
each Bank agrees to reimburse Agent promptly upon demand for such Bank's
Percentage Share of any costs and expenses to be paid to Agent by Borrower under
Section 9.4(a) to the extent that Agent is not timely reimbursed for such
expenses by Borrower as provided in such section. As used in this section the
term "Agent" shall refer not only to the Person designated as such in Section
1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.
Section 8.5. Rights as Bank. In its capacity as a Bank, Agent shall have
--------------
the same rights and obligations as any Bank and may exercise such rights as
though it were not Agent. Agent may accept deposits from, lend money to, act as
Trustee under indentures of, and generally engage in any kind of business with
any Related Person or their Affiliates, all as if it were not Agent hereunder
and without any duty to account therefor to any other Bank.
Section 8.6. Sharing of Set-Offs and Other Payments. Each Bank agrees
--------------------------------------
that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section 3.1,
causes such Bank to have received more than it would have received had such
payment been received by Agent and distributed pursuant to Section 3.1, then (a)
it shall be deemed to have simultaneously purchased and shall be obligated to
purchase interests in the Obligations as necessary to cause all Banks to share
all payments as provided for in Section 3.1, and (b) such other adjustments
shall be made from time to time as shall be equitable to ensure that Agent and
all Banks share all payments of Obligations as provided in Section 3.1;
provided, however, that nothing herein contained shall in any way affect the
right of any Bank to obtain payment (whether by exercise of rights of banker's
lien, set-off or counterclaim or otherwise) of indebtedness other than the
Obligations. Borrower expressly consents to the foregoing arrangements and
agrees that any holder of any such interest or other participation in the
Obligations, whether or not acquired pursuant to the foregoing arrangements, may
to the fullest extent permitted by Law exercise any and all rights of banker's
lien, set-off, or counterclaim as fully as if such holder were a holder of the
Obligations in the amount of such interest or other participation. If all or
any part of any funds transferred pursuant to this section is thereafter
recovered from the seller under this section which received the same, the
purchase provided for in this section shall be deemed to have been rescinded to
the extent of such recovery, together with interest, if any, if interest is
required pursuant to Tribunal order to be paid on account of the possession of
such funds prior to such recovery.
Section 8.7. Investments. Whenever Agent in good faith determines that
-----------
it is uncertain about how to distribute to Banks any funds which it has
received, or whenever Agent in good faith
22
<PAGE>
determines that there is any dispute among Banks about how such funds should be
distributed, Agent may choose to defer distribution of the funds which are the
subject of such uncertainty or dispute. If Agent in good faith believes that the
uncertainty or dispute will not be promptly resolved, or if Agent is otherwise
required to invest funds pending distribution to Banks, Agent shall invest such
funds pending distribution; all interest on any such investment shall be
distributed upon the distribution of such investment and in the same proportion
and to the same Persons as such investment. All moneys received by Agent for
distribution to Banks (other than to the Person who is Agent in its separate
capacity as a Bank) shall be held by Agent pending such distribution solely as
Agent for such Banks, and Agent shall have no equitable title to any portion
thereof.
Section 8.8. Benefit of Article VIII. The provisions of this Article
-----------------------
(other than the following Section 8.9) are intended solely for the benefit of
Banks, and no Related Person shall be entitled to rely on any such provision or
assert any such provision in a claim or defense against any Bank. Banks may
waive or amend such provisions as they desire without any notice to or consent
of Borrower or any Related Person.
Section 8.9. Resignation. Agent may resign at any time by giving written
-----------
notice thereof to Banks and Borrower. Each such notice shall set forth the date
of such resignation. Upon any such resignation, Required Banks shall have the
right to appoint a successor Agent. A successor must be appointed for any
retiring Agent, and such Agent's resignation shall become effective when such
successor accepts such appointment. If, within thirty days after the date of
the retiring Agent's resignation, no successor Agent has been appointed and has
accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a commercial bank organized or licensed to conduct a
banking or trust business under the Laws of the United States of America or of
any state thereof. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder the provisions of this Article VIII shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under the Loan Documents.
ARTICLE IX - Miscellaneous
-------------
Section 9.1. Waivers and Amendments; Acknowledgements.
----------------------------------------
(a) Waivers and Amendments. No failure or delay (whether by course of
----------------------
conduct or otherwise) by any Lender in exercising any right, power or remedy
which such Lender may have under any of the Loan Documents shall operate as a
waiver thereof or of any other right, power or remedy, nor shall any single or
partial exercise by any Lender of any such right, power or remedy preclude any
other or further exercise thereof or of any other right, power or remedy. No
waiver of any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as provided
below in this section, and then such waiver or consent shall be effective only
in the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Related Person shall
in any case of itself entitle any Related Person to any other or further notice
or demand in similar or other circumstances. This Agreement and the other Loan
Documents set forth the entire understanding between the parties hereto with
respect to the transactions contemplated herein and therein and supersede all
prior discussions and understandings with respect to the subject matter hereof
and thereof, and no waiver, consent, release, modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed by
(i) if such party is Borrower, by Borrower, (ii) if such party is Agent, by such
party, and (iii) if such party is a Bank, by such Bank or
23
<PAGE>
by Agent on behalf of Banks with the written consent of Required Lenders (which
consent has already been given as to the termination of the Loan Documents as
provided in Section 9.9). Notwithstanding the foregoing or anything to the
contrary herein, Agent shall not, without the prior consent of each individual
Bank, execute and deliver on behalf of such Bank any waiver or amendment which
would: (1) waive any of the conditions specified in Article IV (provided that
Agent may in its discretion withdraw any request it has made under Section
4.3(e)), (2) reduce any fees payable to such Bank hereunder, or the principal
of, or interest on, such Bank's Note, (3) postpone any date fixed for any
payment of any such fees, principal or interest, (4) amend the definition herein
of "Required Lenders" or otherwise change the aggregate amount of Percentage
Shares which is required for Agent, Banks or any of them to take any particular
action under the Loan Documents, (5) release Borrower from its obligation to pay
such Bank's Note or any Guarantor from its guaranty of such payment, or (7)
amend any provision of the Intercreditor Agreement.
(b) Acknowledgements and Admissions. Borrower hereby represents,
-------------------------------
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Bank, whether
written, oral or implicit, other than as expressly set out in this Agreement or
in another Loan Document delivered on or after the date hereof, (iii) there are
no representations, warranties, covenants, undertakings or agreements by any
Lender as to the Loan Documents except as expressly set out in this Agreement or
in another Loan Document delivered on or after the date hereof, (iv) no Lender
has any fiduciary obligation toward Borrower with respect to any Loan Document
or the transactions contemplated thereby, (v) the relationship pursuant to the
Loan Documents between Borrower and the other Related Persons, on one hand, and
each Lender, on the other hand, is and shall be solely that of debtor and
creditor, respectively, (vi) no partnership or joint venture exists with respect
to the Loan Documents between any Related Person and any Lender, (vii) Agent is
not Borrower's Agent, but Agent for Banks, (viii) should an Event of Default or
Default occur or exist, each Lender will determine in its sole discretion and
for its own reasons what remedies and actions it will or will not exercise or
take at that time, (ix) without limiting any of the foregoing, Borrower is not
relying upon any representation or covenant by any Lender, or any representative
thereof, and no such representation or covenant has been made, that any Lender
will, at the time of an Event of Default or Default, or at any other time,
waive, negotiate, discuss, or take or refrain from taking any action permitted
under the Loan Documents with respect to any such Event of Default or Default or
any other provision of the Loan Documents, and (x) all Lenders have relied upon
the truthfulness of the acknowledgements in this section in deciding to execute
and deliver this Agreement and to become obligated hereunder.
(c) Representation by Banks. Each Bank hereby represents that it will
-----------------------
acquire its Note for its own account in the ordinary course of its commercial
lending business; however, the disposition of such Bank's property shall at all
times be and remain within its control and, in particular and without
limitation, such Bank may sell or otherwise transfer its Note, any participation
interest or other interest in its Note, or any of its other rights and
obligations under the Loan Documents.
(d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
--------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
24
<PAGE>
Section 9.2. Survival of Agreements; Cumulative Nature. All of Related
-----------------------------------------
Persons' various representations, warranties, covenants and agreements in the
Loan Documents shall survive the execution and delivery of this Agreement and
the other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loans and the delivery of the Notes and the other
Loan Documents, and shall further survive until all of the Obligations are paid
in full to each Lender and all of Lenders' obligations to Borrower are
terminated. All statements and agreements contained in any certificate or other
instrument delivered by any Related Person to any Lender under any Loan Document
shall be deemed representations and warranties by Borrower or agreements and
covenants of Borrower under this Agreement. The representations, warranties,
indemnities, and covenants made by Related Persons in the Loan Documents, and
the rights, powers, and privileges granted to Lenders in the Loan Documents, are
cumulative, and, except for expressly specified waivers and consents, no Loan
Document shall be construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to any Lender of any such representation, warranty,
indemnity, covenant, right, power or privilege. In particular and without
limitation, no exception set out in this Agreement to any representation,
warranty, indemnity, or covenant herein contained shall apply to any similar
representation, warranty, indemnity, or covenant contained in any other Loan
Document, and each such similar representation, warranty, indemnity, or covenant
shall be subject only to those exceptions which are expressly made applicable to
it by the terms of the various Loan Documents.
Section 9.3. Notices. All notices, requests, consents, demands and other
-------
communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Lenders), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Related
Persons at the address of Borrower specified on the signature pages hereto and
to each Lender at its address specified on the signature pages hereto (unless
changed by similar notice in writing given by the particular Person whose
address is to be changed). Any such notice or communication shall be deemed to
have been given (a) in the case of personal delivery or delivery service, as of
the date of first attempted delivery during normal business hours at the address
provided herein, (b) in the case of telecopy or telex, upon receipt, or (c) in
the case of registered or certified United States mail, three days after deposit
in the mail; provided, however, that no Borrowing Notice shall become effective
until actually received by Agent.
Section 9.4. Payment of Expenses; Indemnity.
------------------------------
(a) Payment of Expenses. Whether or not the transactions contemplated by
-------------------
this Agreement are consummated, Borrower will promptly (and in any event, within
30 days after any invoice or other statement or notice) pay: (i) all transfer,
stamp, mortgage, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Loan Documents or any other document referred to herein or
therein, (ii) all reasonable costs and expenses incurred by or on behalf of
Agent (including attorneys' fees, consultants' fees and engineering fees, travel
costs and miscellaneous expenses) in connection with (1) the negotiation,
preparation, execution and delivery of the Loan Documents, and any and all
consents, waivers or other documents or instruments relating thereto, (2) the
filing, recording, refiling and re-recording of any Loan Documents and any other
documents or instruments or further assurances required to be filed or recorded
or refiled or re-recorded by the terms of any Loan Document, (3) the borrowings
hereunder and other action reasonably required in the course of administration
hereof, (4) monitoring or confirming (or preparation or negotiation of any
document related to) Borrower's compliance with any covenants or conditions
contained in this Agreement or in any Loan Document, and (iii) all reasonable
costs and expenses incurred by or on behalf of any Lender (including attorneys'
25
<PAGE>
fees, consultants' fees and accounting fees) in connection with the defense or
enforcement of any of the Loan Documents (including this section) or the defense
of any Lender's exercise of its rights thereunder. In addition to the foregoing,
until and all Obligations have been paid in full, Borrower will also pay or
reimburse Agent for all reasonable out-of-pocket costs and expenses of Agent or
its agents or employees in connection with the continuing administration of the
Loans and the related due diligence of Agent, including travel and miscellaneous
expenses and fees and expenses of Agent's outside counsel, reserve engineers and
consultants engaged in connection with the Loan Documents.
(b) Indemnity. Borrower and Parent each agree to indemnify each Lender,
---------
upon demand, from and against any and all liabilities, obligations, claims,
losses, damages, penalties, fines, actions, judgments, suits, settlements,
costs, expenses or disbursements (including reasonable fees of attorneys,
accountants, experts and advisors) of any kind or nature whatsoever (in this
section collectively called "liabilities and costs") which to any extent (in
whole or in part) may be imposed on, incurred by, or asserted against such
Lender growing out of, resulting from or in any other way associated with any of
the Collateral, the Loan Documents and the transactions and events (including
the enforcement or defense thereof) at any time associated therewith or
contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Related Person or any liabilities or duties of any
Related Person or any Lender with respect to Hazardous Materials found in or
released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER,
provided only that no Lender shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment. If any Person (including Borrower or any of
its Affiliates) ever alleges such gross negligence or willful misconduct by any
Lender, the indemnification provided for in this section shall nonetheless be
paid upon demand, subject to later adjustment or reimbursement, until such time
as a court of competent jurisdiction enters a final judgment as to the extent
and effect of the alleged gross negligence or willful misconduct. As used in
this section the term "Lenders" shall refer not only to the Persons designated
as such in Section 1.1 but also to each director, officer, agent, attorney,
employee, representative and Affiliate of such Persons.
Section 9.5. Joint and Several Liability; Parties in Interest;
-------------------------------------------------
Assignments.
- -----------
(a) All Obligations which are incurred by two or more Related Persons
shall be their joint and several obligations and liabilities. All grants,
covenants and agreements contained in the Loan Documents shall bind and inure to
the benefit of the parties thereto and their respective successors and assigns;
provided, however, that no Related Person may assign or transfer any of its
rights or delegate any of its duties or obligations under any Loan Document
without the prior consent of Required Lenders. Neither Borrower nor any
Affiliates of Borrower shall directly or indirectly purchase or otherwise retire
any Obligations owed to any Bank nor will any Bank accept any offer to do so,
unless each Bank shall have received substantially the same offer with respect
to the same Percentage Share of the Obligations owed to it. If Borrower or any
Affiliate of Borrower at any time purchases some but less than all of the
Obligations owed to all Lenders, such purchaser shall not be entitled to any
rights of any Lender under the Loan Documents unless and until Borrower or its
Affiliates have purchased all of the Obligations.
26
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(b) No Bank shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Bank and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Bank and that such transfer does not give such participant any right to
vote as a Bank or any other direct claims or rights against any Person other
than such Bank, (ii) that such participant is not entitled to payment from any
Related Person under Sections 3.2 through 3.6 of amounts in excess of those
payable to such Bank under such sections (determined without regard to the sale
of such participation), and (iii) unless such participant is an Affiliate of
such Bank, that such participant shall not be entitled to require such Bank to
take any action under any Loan Document or to obtain the consent of such
participant prior to taking any action under any Loan Document, except for
actions which would require the consent of all Banks under subsection (a) of
Section 9.1. No Bank selling such a participation shall, as between the other
parties hereto and such Bank, be relieved of any of its obligations hereunder as
a result of the sale of such participation. Each Bank which sells any such
participation to any Person (other than an Affiliate of such Bank) shall give
prompt notice thereof to Agent and Borrower.
(c) Except for sales of participations under the immediately preceding
subsection (b), no Bank shall make any assignment or transfer of any kind of its
commitments or any of its rights under its Loans or under the Loan Documents,
except for assignments to an Eligible Transferee, and then only if such
assignment is made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing to the
assignor Bank hereunder and to the unused portion of the assignor Bank's
commitments, so that after such assignment is made the assignor Bank shall
have a fixed (and not a varying) Percentage Share in its Loans and Note and
be committed to make that Percentage Share of all future Loans, the
assignee shall have a fixed Percentage Share in such Loans and Note and be
committed to make that Percentage Share of all future Loans, and the
Percentage Share of the Borrowing Base of both the assignor and the
assignee shall equal or exceed $5,000,000.
(ii) The parties to each such assignment shall execute and deliver to
Agent, for its acceptance and recording in the "Register" (as defined below
in this section), an Assignment and Assumption in the form of Exhibit F,
appropriately completed, together with the Note subject to such assignment
and a processing fee payable to Agent of $2,500. Upon such execution,
delivery, and payment and upon the satisfaction of the conditions set out
in such Assignment and Assumption, then (i) Borrower shall issue new Notes
to such assignor and assignee upon return of the old Notes to Borrower, and
(ii) as of the "Settlement Date" specified in such Assignment and
Assumption the assignee thereunder shall be a party hereto and a Bank
hereunder and Agent shall thereupon deliver to Borrower and each Bank a
schedule showing the revised Percentage Shares of such assignor Bank and
such assignee Bank and the Percentage Shares of all other Banks.
(iii) Each assignee Bank which is not a United States person (as such
term is defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended) for Federal income tax purposes, shall (to the extent it
has not already done so) provide Agent and Borrower with the "Prescribed
Forms" referred to in Section 3.6(d).
27
<PAGE>
(d) Nothing contained in this section shall prevent or prohibit any Bank
from assigning or pledging all or any portion of its Loans and Note to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Bank from its obligations hereunder.
(e) By executing and delivering an Assignment and Assumption, each
assignee Bank thereunder will be confirming to and agreeing with Borrower,
Agents and each other Bank hereunder that such assignee understands and agrees
to the terms hereof, including Article IX hereof.
(f) Agent shall maintain a copy of each Assignment and Assumption and a
register for the recordation of the names and addresses of Banks and the
Percentage Shares of, and principal amount of the Loans owing to, each Bank from
time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower and
each Lender may treat each Person whose name is recorded in the Register as a
Bank hereunder for all purposes. The Register shall be available for inspection
by Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
Section 9.6. Confidentiality. Each Lender agrees that it will take all
---------------
reasonable steps to keep confidential any proprietary information given to it by
any Related Person, provided, however, that this restriction shall not apply to
information which (i) has at the time in question entered the public domain,
(ii) is required to be disclosed by Law (whether valid or invalid) of any
Tribunal, (iii) is disclosed to any Lender's Affiliates, auditors, attorneys, or
agents (provided such Persons are obligated to hold such information in
confidence on the terms provided in this section), (iv) is furnished to any
other Lender or to any purchaser or prospective purchaser of participations or
other interests in any Loan or Loan Document (provided each such purchaser or
prospective purchaser first agrees to hold such information in confidence on the
terms provided in this section), or (v) is disclosed in the course of enforcing
its rights and remedies during the existence of an Event of Default.
Section 9.7. Governing Law; Submission to Process. EXCEPT TO THE EXTENT
------------------------------------
THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT,
THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS
OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED
STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. BORROWER
AND PARENT EACH HEREBY AGREE THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
BORROWER OR PARENT WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN
DOCUMENTS 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 AS LENDERS MAY ELECT,
AND, BY EXECUTION AND DELIVERY HEREOF, EACH OF BORROWER AND PARENT ACCEPTS AND
CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND FURTHER AGREES TO
A TRANSFER OF ANY SUCH PROCEEDING TO A FEDERAL COURT SITTING IN THE STATE OF NEW
YORK TO THE EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A
STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SUCH JURISDICTION SHALL BE
EXCLUSIVE, UNLESS WAIVED BY LENDERS IN WRITING, WITH RESPECT TO ANY ACTION OR
PROCEEDING BROUGHT BY IT AGAINST LENDERS AND ANY QUESTIONS RELATING TO USURY.
EACH OF PARENT AND BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN
DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING
BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE
OF THE FOREGOING, EACH OF PARENT AND
28
<PAGE>
BORROWER HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633
BROADWAY, NEW YORK, NEW YORK, AS AGENT OF BORROWER AND PARENT TO RECEIVE SERVICE
OF ALL PROCESS BROUGHT AGAINST BORROWER OR PARENT WITH RESPECT TO ANY SUCH
PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED
BY BORROWER AND PARENT TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.
COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY LAW, BE SENT BY
REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET FORTH BELOW, BUT THE FAILURE OF
BORROWER TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS AS AFORESAID. BORROWER SHALL FURNISH TO LENDERS A CONSENT OF CT
CORPORATION SYSTEM AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS
AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDERS TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDERS TO BRING
PROCEEDINGS AGAINST BORROWER OR PARENT IN THE COURTS OF ANY OTHER JURISDICTION.
IF FOR ANY REASON CT CORPORATION SYSTEM SHALL RESIGN OR OTHERWISE CEASE TO ACT
AS BORROWER'S OR PARENT'S AGENT, BORROWER AND PARENT HEREBY IRREVOCABLY AGREE TO
(A) IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO AGENT TO SERVE
IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE
SUBSTITUTED FOR CT CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND (B) PROMPTLY
DELIVER TO LENDERS THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO
AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 9.8. Limitation on Interest. Lenders, Related Persons and the
----------------------
other parties to the Loan Documents intend to contract in strict compliance with
applicable usury Law from time to time in effect. In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to provide for interest in excess of
the maximum amount of interest permitted to be charged by applicable Law from
time to time in effect. Neither any Related Person nor any present or future
guarantors, endorsers, or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith.
Section 9.9. Termination; Limited Survival. In its sole and absolute
-----------------------------
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Related Person in any Loan Document, any Obligations under Sections 3.2
through 3.6, and any obligations which any Person may have to indemnify or
compensate any Lender shall survive any termination of this Agreement or any
other Loan Document. At the request and expense of Borrower, Agent shall
prepare and execute all necessary instruments to reflect and effect such
termination of the Loan Documents. Agent is hereby authorized to execute all
such instruments on behalf of all Banks, without the joinder of or further
action by any Bank.
Section 9.10. Severability. If any term or provision of any Loan
------------
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
29
<PAGE>
Section 9.11. Counterparts. This Agreement may be separately executed in
------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 9.12. Waiver of Jury Trial, Punitive Damages, etc. TO THE EXTENT
--------------------------------------------
PERMITTED BY LAW, LENDERS, PARENT AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY,
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER,
OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE
OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS
OF SUCH PERSONS, PARENT OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR LENDERS' ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. PARENT,
BORROWER AND EACH LENDER HEREBY FURTHER (A) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (B) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.
30
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
INLAND PRODUCTION COMPANY
Borrower
By:
---------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
INLAND RESOURCES INC.
Parent
By:
---------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle R. Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
31
<PAGE>
ING (U.S.) Capital Corporation
Agent and Bank
By:
---------------------------------------
Christopher R. Wagner
Vice President
Address:
135 East 57th Street, 8th Floor
New York, New York 10022-2101
Attention: Christopher R. Wagner
Telephone: (212) 409-1717
Telecopy: (212) 832-3616
32
<PAGE>
ANNEX A
COMMON DEFINITIONS
"2% Affiliate" means, as to any Person, (a) any Person directly or
------------
indirectly owning, controlling or holding with power to vote 2% or more of the
outstanding voting securities of such Person, (b) any Person 2% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such Person, (c) any Person directly or indirectly
controlling, controlled by or under common control with such Person, and (d) any
officer, director, partner or sanguinal or affinal kin of such Person or any
Person described above in clause (c) of this paragraph.
"Affiliate" means, as to any Person, (a) any Person directly or indirectly
---------
owning, controlling or holding with power to vote 10% or more of the outstanding
voting securities of such Person, (b) any Person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such Person, (c) any Person directly or indirectly
controlling, controlled by or under common control with such Person, and (d) any
officer, director, partner or sanguinal or affinal kin of such Person or any
Person described above in clause (c) of this paragraph. Pengo Securities Corp.,
Randall D. Smith and any Affiliate of Randall D. Smith including any trusts of
which Randall D. Smith or any of his heirs at law is settlor, trustee or
beneficiary shall, for purposes of such 10% test, be treated as a single Person.
"ANCF", "ANCF Capital Expenditures", "ANCF Hierarchy", "ANCF LOE", "ANCF
---- ------------------------- -------------- -------- ----
Overhead Costs", and "ANCF Transportation Costs" have the meanings given to such
- -------------- -------------------------
terms in the Intercreditor Agreement.
"Bank Interest Rate Hedge Agreement" has the meaning given it in the
----------------------------------
Intercreditor Agreement.
"Change of Control" means the occurrence of either of the following events:
-----------------
(i) any Person or two or more Persons acting as a group shall acquire beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Act of 1934, as amended, and including holding
proxies to vote for the election of directors other than proxies held by
Parent's management or their designees to be voted in favor of Persons nominated
by Parent's Board of Directors) a larger percentage of the outstanding voting
securities of Parent than the aggregate percentage owned by Randall D. Smith and
Pengo Securities Corp., and the percentage of outstanding voting securities of
Parent owed by such Person or Persons is 35% or more of the outstanding voting
securities of Parent, measured by voting power (including both common stock and
any preferred stock or other equity securities entitling the holders thereof to
vote with the holders of common stock in elections for directors of Parent) or
(ii) one-third or more of the directors of Parent shall consist of Persons not
nominated by Parent's Board of Directors (including as Board nominees any
directors which the Board is obligated to nominate pursuant to shareholders
agreements, voting trust arrangements or similar arrangements which are in place
as of the date hereof, but not those which arise after the date hereof unless
they deal with the same parties or their Affiliates and no one else).
"Collateral" means all property of any kind which is subject to a Lien in
----------
favor of Lenders or which, under the terms of any Security Document, is
purported to be subject to such a Lien.
"Consolidated" refers to the consolidation of Parent, Borrower or any other
------------
Related Person, in accordance with GAAP, with its properly consolidated
subsidiaries. References herein to a Person's
A-1
<PAGE>
Consolidated financial statements, financial position, financial condition,
liabilities, etc. refer to the consolidated financial statements, financial
position, financial condition, liabilities, etc. of such Person and its properly
consolidated subsidiaries. "Consolidating", when used with reference to the
-------------
financial statements of Parent, means the financial statements of Parent and its
properly consolidated subsidiaries, presented in a manner acceptable to Agent
which (a) shows the net intercompany transactions between each of Parent and
such subsidiaries and (b) presents substantially the same information with
respect to Borrower which would be presented on individual financial statements
of Borrower.
"Consolidated Net Income" means, as to any Person or Persons for any
-----------------------
period, the gross revenues of such Person or Persons for such period, plus any
cash dividends or distributions actually received by such Person or Persons from
any other business entity, minus all expenses and other proper charges
(including taxes on income, to the extent imposed upon such Person or Persons),
determined on a Consolidated basis after eliminating earnings or losses
attributable to outstanding minority interests, but excluding the net earnings
of any other business entity in which such Person or Persons has an ownership
interest.
"Consolidated Tangible Net Worth" means the remainder of all Consolidated
-------------------------------
assets of Parent, other than intangible assets (including as intangible assets
such assets as patents, copyrights, licenses, franchises, goodwill, trade
names, trade secrets and leases other than oil, gas or mineral leases or leases
required to be capitalized under GAAP), minus Parent's Consolidated Debt,
provided that for purposes of this definition, Parent's Series C Convertible
Preferred Stock shall not be included in the calculation of Parent's
Consolidated Debt and shall be considered equity.
"Crysen Acquisition" means the purchase by Inland Refining of the Crysen
------------------
refinery and other assets located in Woods Cross, Utah pursuant to the Purchase
and Sale Agreement dated July 14, 1997, as amended, among Crysen Refining, Inc.,
Sound Refining, Inc., Crysen Corporation, Parent and Inland Refining.
"Debt" means, as to any Person, all indebtedness, liabilities and
----
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Direct Taxes" has the meaning given it in the Intercreditor Agreement.
------------
"Disclosure Report" means either a notice given by Borrower under Section
-----------------
C.3 of Annex C or a certificate given by Borrower's chief financial officer
under Section C.1 of Annex C.
"Disclosure Schedule" means Schedule 1 to this Agreement.
-------------------
"Distribution" means (a) any dividend or other distribution made by a
------------
Related Person on or in respect of any stock, partnership interest, or other
equity interest in such Related Person (including any option or warrant to buy
such an equity interest), or (b) any payment made by a Related Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Related Person (including any such option or warrant).
"EBITDA" means, for any four-Fiscal Quarter period, the sum of (1) the
------
Consolidated Net Income of Parent during such period, plus (2) all cash interest
paid during such period on Restricted Debt (including amortization of original
issue discount and the interest component of any deferred payment obligations
and capital lease obligations) which was deducted in determining such
A-2
<PAGE>
Consolidated Net Income, plus (3) all income taxes which were deducted in
determining such Consolidated Net Income, plus (4) all depreciation,
amortization (including amortization of good will and debt issue costs) and
other non-cash charges (including any provision for the reduction in the
carrying value of assets recorded in accordance with GAAP) which were deducted
in determining such Consolidated Net Income, minus (5) all non-cash items of
income which were included in determining such Consolidated Net Income.
"Eligible Mortgaged Properties" means, collectively, those Properties which
-----------------------------
(a) are owned by Borrower and mortgaged to secure the Obligations and the Other
Allowed Debt, (b) for which Agent has received title opinions and other title
information concerning such Properties in form, substance and authorship
satisfactory to Agent, and (c) are free and clear of all Liens other than
Permitted Liens.
"Engineering Report" means the Initial Engineering Report and each
------------------
engineering report delivered pursuant to Section C.1(d) or C.1(e) of Annex C.
"Environmental Laws" means any and all Laws relating to the environment or
------------------
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"Equitable Acquisition" means the purchase by Borrower of certain Utah oil
---------------------
and gas properties pursuant to the Equitable Acquisition Documents.
"Equitable Acquisition Documents" means (a) the Purchase and Sale Agreement
-------------------------------
dated July 24, 1997 between Equitable Resources Energy Company and Borrower, (b)
the Assignment and Bill of Sale by Equitable Resources Energy Company in favor
of Borrower, and (c) other agreements or instruments delivered in connection
therewith to consummate the Equitable Acquisition.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group of
---------------
corporations and all trades or businesses (whether or not incorporated) under
common control that, together with Borrower, are treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title IV of
----------
ERISA maintained by any ERISA Affiliate with respect to which any Related Person
has a fixed or contingent liability.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
--------------
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
-----------
year.
"Floating Rate Debt" means any part of the Obligations which bears interest
------------------
at a floating rate.
A-3
<PAGE>
"GAAP" means those generally accepted accounting principles and practices
----
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Parent and its
Consolidated subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the audited Initial Financial Statements. If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for or practice to continue as
a generally accepted accounting principle or practice, all reports and financial
statements required hereunder with respect to Parent or with respect to Parent
and its Consolidated subsidiaries may be prepared in accordance with such
change, but all calculations and determinations to be made hereunder may be made
in accordance with such change only after notice of such change is given to each
Lender and Required Lenders agree to such change insofar as it affects the
accounting of Parent or of Parent and its Consolidated subsidiaries.
"Hazardous Materials" means any substances regulated under any
-------------------
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options, swaps,
----------------
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement, including "Permitted Commodity Hedges" (as defined in
the Intercreditor Agreement).
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
------------
hydrocarbons.
"ING Pricing" means the pricing assumptions required under Regulations S-B,
-----------
S-K or S-X , as applicable, promulgated by the Securities and Exchange
Commission.
"Initial Engineering Report" means the engineering report concerning oil
--------------------------
and gas properties of Related Persons dated July 1, 1997, prepared by Ryder
Scott Company.
"Initial Financial Statements" means (i) the audited annual Consolidated
----------------------------
financial statements of Parent dated as of December 31, 1996, (ii) the
unaudited quarterly Consolidated financial statements of Parent dated as of June
30, 1997, (iii) the unaudited balance sheet of Inland Refining as of September
23, 1997, and (iv) other financial statements of Inland Refining from date of
incorporation to September 23, 1997 .
"Inland Refining" means Inland Refining, Inc. a Utah corporation.
---------------
"Insurance Schedule" means Schedule 3 to this Agreement.
------------------
"Law" means any statute, law, regulation, ordinance, rule, treaty,
---
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"Lien" has the meaning given it in the Intercreditor Agreement.
----
A-4
<PAGE>
"Material Adverse Change" means a material and adverse change, from the
-----------------------
state of affairs presented in the Initial Financial Statements or in this
Agreement (including the Disclosure Schedule), to (a) Parent's and its
Subsidiaries' Consolidated financial condition, (b) the operations or properties
of Parent and its Subsidiaries, considered as a whole, (c) Borrower's ability to
timely pay the Obligations and perform its other obligations under the Loan
Documents, or (d) the validity and enforceability of the material terms of any
Loan Documents.
"NPV" means, with respect to any Proved Reserves expected to be produced
---
from any Properties, the net present value, discounted at 10% per annum, of the
future net revenues expected to accrue to Borrower's interests in such reserves
during the remaining expected economic lives of such reserves. Each calculation
of such expected future net revenues shall be made in accordance with the then
existing standards of the Society of Petroleum Engineers, provided that in any
event (i) appropriate deductions shall be made for Direct Taxes, operating,
gathering, transportation and marketing costs, and any capital expenditures
required for the production and sale of such reserves, and (ii) the pricing
assumptions and escalations used in determining NPV for any particular reserves
shall be the TCW Pricing. NPV shall be calculated hereunder in connection with
each Engineering Report, either by Borrower, Tamco or the engineering firm who
prepares such Engineering Report; in the event of any conflict, Tamco's
calculation shall be conclusive and final.
"Parent" means Inland Resources Inc., a Washington corporation.
------
"Permitted Investments" means investments:
---------------------
(a) in open market commercial paper, maturing within 270 days after
acquisition thereof, which is rated at least A-1 by Standard & Poor's Ratings
Group (a division of McGraw Hill, Inc.) or P-1 by Moody's Investors Service,
Inc.
(b) in marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America.
(c) in demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of any national or state bank or trust company which is organized under
the Laws of the United States of America or any state therein, which has
capital, surplus and undivided profits of at least $500,000,000, and whose
certificates of deposit are rated at least Aa3 by Standard & Poor's Ratings
Group (a division of McGraw Hill, Inc.) or AA- by Moody's Investors Service,
Inc.
"Permitted Lien" has the meaning given to such term in Section C.19 of
--------------
Annex C.
"Person" has the meaning given it in the Intercreditor Agreement.
------
"Properties" has the meaning given in the Intercreditor Agreement.
----------
"Proved Reserves" means "Proved Reserves" as defined in the Definitions for
---------------
Oil and Gas Reserves (in this paragraph, the "Definitions") promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question. "Proved Developed Producing Reserves" means
-----------------------------------
Proved Reserves which are categorized as both "Developed" and "Producing" in the
Definitions, "Proved Developed Nonproducing Reserves" means Proved Reserves
--------------------------------------
which are categorized as both "Developed" and "Nonproducing" in the Definitions,
and "Proved Undeveloped Reserves" means Proved Reserves which are categorized as
---------------------------
"Undeveloped" in the Definitions.
A-5
<PAGE>
"Quarterly Payment Date" means the second to last Business Day in each
----------------------
Fiscal Quarter, beginning with December 29, 1997.
"Rating Agency" means either Standard & Poor's Ratings Group (a division of
-------------
McGraw Hill, Inc.) or Moody's Investors Service, Inc. or their respective
successors
"Related Person" has the meaning given it in the Intercreditor Agreement.
--------------
"Restricted Debt" of any Person means Debt in any of the following
---------------
categories:
(a) Debt for borrowed money,
(b) Debt constituting an obligation to pay the deferred purchase price of
property or services,
(c) Debt evidenced by a bond, debenture, note or similar instrument,
(d) Debt which (i) would under GAAP be shown on such Person's balance
sheet as a liability, and (ii) is payable more than one year from the date of
creation thereof (other than reserves for taxes and reserves for contingent
obligations),
(e) Debt arising under futures contracts, forward contracts, swap, cap or
collar contracts, option contracts, hedging contracts, other derivative
contracts, or similar agreements (excluding only option contracts giving such
Person the right - and not the duty - to buy or sell goods expected to be bought
or sold by such Person in the ordinary course of its business, so long as such
Person has no obligation other than the initial payment in full of the purchase
price for the option),
(f) Debt constituting principal under leases capitalized in accordance
with GAAP,
(g) Debt arising under conditional sales or other title retention
agreements,
(h) Debt owing under direct or indirect guaranties of Debt of any other
Person or constituting obligations to purchase or acquire or to otherwise
protect or insure a creditor against loss in respect of Debt of any other Person
(such as obligations under working capital maintenance agreements, agreements to
keep-well, or agreements to purchase Debt, assets, goods, securities or
services), but excluding endorsements in the ordinary course of business of
negotiable instruments in the course of collection,
(i) Debt (for example, repurchase agreements) consisting of an obligation
to purchase securities or other property, if such Debt arises out of or in
connection with the sale of the same or similar securities or property,
(j) Debt with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Debt with respect to payments received in consideration of oil, gas,
or other minerals yet to be acquired or produced at the time of payment
(including obligations under "take-or-pay" contracts to deliver gas in return
for payments already received and the undischarged balance of any production
payment created by such Person or for the creation of which such Person directly
or indirectly received payment), or
--
A-6
<PAGE>
(l) Debt with respect to other obligations to deliver goods or services in
consideration of advance payments therefor;
provided, however, that the "Restricted Debt" of any Person shall not include
Debt that was incurred by such Person on ordinary trade terms to vendors,
suppliers, or other Persons providing goods and services for use by such Person
in the ordinary course of its business, unless and until such Debt is
outstanding more than 90 days past the inccurence thereof, or, if earlier, when
due in accordance with its terms.
"Subsidiary" has the meaning given it in the Intercreditor Agreement.
----------
"TCW Pricing" means those prices (a) for anticipated sales of Hydrocarbons
-----------
that are hedged by a Hedging Contract with an investment grade counter party,
which Hedging Contract has been approved by Tamco, equal to the fixed price or
prices provided for in such Hedging Contract during the term thereof, and
thereafter the prices provided for in subsection (b) below; and (b) for
anticipated sales of Hydrocarbons, if such sales are not hedged by a Hedging
Contract that has been approved by Tamco, equal to the lowest of (i) the average
price received by Borrower for Hydrocarbons of such kind produced from the
Eligible Mortgaged Properties during the twelve months preceding the date of
calculation, (ii) the average price received by Borrower for Hydrocarbons of
such kind produced from the Eligible Mortgaged Properties during the six months
preceding the date of calculation, and (iii) the average of the prices on the
New York Mercantile Exchange (or any successor organization), as reported in the
Wall Street Journal for the date of calculation (or, if such date is not a
Business Day, for the first Business Day thereafter) under the twelve forward
contracts which are listed therein as the first to mature after such date of
calculation, with any necessary adjustment specified by Tamco for quality and
geographical differentials. The applicable price determined pursuant to the
preceding clause (b) shall be escalated at 3% per annum for each year after the
then current year
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
-----------------
of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA or
(ii) any other reportable event described in Section 4043(b) of ERISA other than
a reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an
ERISA Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent
to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or any
--------
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted and/or existing.
A-7
<PAGE>
ANNEX B
COMMON REPRESENTATIONS AND WARRANTIES
Section B.1. No Default. No Related Person is in default in the
----------
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section B.2. Organization and Good Standing. Each Related Person is duly
------------------------------
organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby. Each
Related Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Related Person has
taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside the
United States, if any, wherein the character of the properties owned or held by
it or the nature of the business transacted by it makes such actions and
procedures desirable.
Section B.3. Authorization. Each Related Person has duly taken all
-------------
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section B.4 No Conflicts or Consents. The execution and delivery by the
------------------------
various Related Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Related Person, or (3) any agreement, judgment,
license, order or permit applicable to or binding upon any Related Person, (ii)
result in the acceleration of any Restricted Debt owed by any Related Person, or
(iii) result in or require the creation of any Lien upon any assets or
properties of any Related Person except as expressly contemplated in the Loan
Documents. Except as expressly contemplated in the Loan Documents no consent,
approval, authorization or order of, and no notice to or filing with, any
Tribunal or third party is required in connection with the execution, delivery
or performance by any Related Person of any Loan Document or to consummate any
transactions contemplated by the Loan Documents.
Section B.5. Enforceable Obligations. This Agreement is, and the other
-----------------------
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Related Person which is a party hereto or thereto,
enforceable in accordance with their terms except as such enforcement may be
limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section B.6. Initial Financial Statements. Borrower has heretofore
----------------------------
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present each of
Inland Refining's and Parent's Consolidated financial position at the respective
dates thereof, the results of Inland Refining's operations and Inland Refining's
cash flows for the respective periods thereof, and the Consolidated results of
Parent's operations and Parent's Consolidated cash flows for the respective
periods thereof. Since the date of the annual Initial Financial Statements no
Material Adverse Change has occurred, except as reflected in the Disclosure
Schedule or a Disclosure Report. All Initial Financial Statements were prepared
in accordance with GAAP.
B-1
<PAGE>
Section B.7. Other Obligations and Restrictions. No Related Person has
----------------------------------
any outstanding Debt of any kind (including obligations under farm-in
agreements, other obligations to make capital expenditures, contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, material to Borrower or material with respect to
Parent's Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule or a Disclosure Report. All
obligations of any Related Person to make capital expenditures to drill or
otherwise develop any oil, gas or mineral properties are specified in a
Disclosure Schedule or Disclosure Report (by well or project, describing the
dollar amount of each such obligation). Except as shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report, no Related Person is subject to or restricted by any franchise,
contract, deed, charter restriction, or other instrument or restriction which is
materially likely to cause a Material Adverse Change.
Section B.8. Full Disclosure. No certificate, statement or other
---------------
information delivered herewith or heretofore by any Related Person to any Lender
in connection with the negotiation of this Agreement or in connection with any
transaction contemplated hereby contains any untrue statement of a material fact
or omits to state any material fact known to any Related Person (other than
industry-wide risks normally associated with the types of businesses conducted
by Related Persons) necessary to make the statements contained herein or therein
not misleading as of the date made or deemed made. There is no fact known to
any Related Person (other than industry-wide risks normally associated with the
types of businesses conducted by Related Persons) that has not been disclosed to
each Lender in writing which is materially likely to cause a Material Adverse
Change. There are no statements or conclusions in any Engineering Report which
are based upon or include misleading information or fail to take into account
material information regarding the matters reported therein, it being understood
that each Engineering Report is necessarily based upon professional opinions,
estimates and projections and that Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. Borrower
has heretofore delivered to each Lender true, correct and complete copies of the
Initial Engineering Report.
Section B.9. Litigation. Except as disclosed in the Initial Financial
----------
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Related Person threatened, against any Related Person before
any Tribunal which could cause a Material Adverse Change, and (ii) there are no
outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Related Person or any Related Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section B.10. Labor Disputes and Acts of God. Except as disclosed in the
------------------------------
Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Related Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section B.11. ERISA Plans and Liabilities. All currently existing ERISA
---------------------------
Plans are listed in the Disclosure Schedule or a Disclosure Report. Except as
disclosed in the Initial Financial Statements or in the Disclosure Schedule or a
Disclosure Report, no Termination Event has occurred with respect
B-2
<PAGE>
to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in the Disclosure
Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary of
the Treasury or his delegate, and (ii) the current value of each ERISA Plan's
benefits does not exceed the current value of such ERISA Plan's assets available
for the payment of such benefits by more than $500,000.
Section B.12. Environmental and Other Laws. As used in this section:
----------------------------
"CERCLA" means the Comprehensive Environmental Response, Compensation and
- -------
Liability Act of 1980, as amended, "CERCLIS" means the Comprehensive
-------
Environmental Response, Compensation and Liability Information System List of
the Environmental Protection Agency, and "Release" has the meaning given such
-------
term in 42 U.S.C. (S) 9601(22). Except as set forth in the Disclosure Schedule
or a Disclosure Report:
(a) Related Persons are conducting their businesses in compliance with all
applicable Laws, including Environmental Laws, and have all permits, licenses
and authorizations required in connection with the conduct of their businesses,
except to the extent failure to have any such permit, license or authorization
could not cause a Material Adverse Change. Each Related Person is in compliance
with the terms and conditions of all such permits, licenses and authorizations,
and is also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply could
not cause a Material Adverse Change.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed, and no investigation or review is pending or threatened by any
Tribunal or any other Person with respect to (i) any alleged generation,
treatment, storage, recycling, transportation, disposal, or Release of any
Hazardous Materials, either by any Related Person or on any property owned by
any Related Person, (ii) any material remedial action which might be needed to
respond to any such alleged generation, treatment, storage, recycling,
transportation, disposal, or Release, or (1) any alleged failure by any Related
Person to have any permit, license or authorization required in connection with
the conduct of its business or with respect to any such generation, treatment,
storage, recycling, transportation, disposal, or Release.
(c) No Related Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Related Person has handled any Hazardous Materials, other than as a
generator, on any properties now or previously owned or leased by any Related
Person to an extent that such handling has caused, or could cause, a Material
Adverse Change; and
(i) no PCBs are or have been present at any properties now or previously
owned or leased by any Related Person;
(ii) no asbestos is or has been present at any properties now or previously
owned or leased by any Related Person;
B-3
<PAGE>
(iii) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any properties now or previously owned or leased by
any Related Person;
(iv) no Hazardous Materials have been Released, in a reportable quantity,
where such a quantity has been established by statute, ordinance, rule,
regulation or order, at, on or under any properties now or previously owned
or leased by any Related Person;
(v) no Hazardous Materials have been otherwise Released at, on or under any
properties now or previously owned or leased by any Related Person to an
extent that such release has caused, or could cause, a Material Adverse
Change.
(e) No Related Person has transported or arranged for the transportation
of any Hazardous Material to any location which is listed on the National
Priorities List under CERCLA, listed for possible inclusion on the National
Priorities List by the Environmental Protection Agency in CERCLIS, or listed on
any similar state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against any
Related Person for clean-up costs, remedial work, damages to natural resources
or for personal injury claims, including, but not limited to, claims under
CERCLA.
(f) No Hazardous Material generated by any Related Person has been
recycled, treated, stored, disposed of or released by any Related Person at any
location other than those listed in Disclosure Schedule.
(g) No oral or written notification of a Release of a Hazardous Material
has been filed by or on behalf of any Related Person (and to the best knowledge
of Borrower, no such notification has been filed with respect to any Related
Person by any other Person), and no property now or previously owned or leased
by any Related Person is listed or proposed for listing on the National Priority
list promulgated pursuant to CERCLA, in CERCLIS, or on any similar state list of
sites requiring investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental Laws
on any of the real properties or properties owned or leased by any Related
Person, and no government actions have been taken or are in process which could
subject any of such properties to such Liens; nor would any Related Person be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any properties owned by it in any deed to such
properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Related Person in relation to any properties or facility now or previously
owned or leased by any Related Person which have not been made available to
Agent.
Section B.13. Names and Places of Business. No Related Person has,
----------------------------
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the chief
executive office and principal place of business of each Related Person are (and
for the preceding five years have been) located at the address of Borrower set
out in Section 9.3. Except as indicated in the Disclosure Schedule or a
Disclosure Report, no Related Person has any other office or place of business.
B-4
<PAGE>
Section B.14. Subsidiaries. Neither Borrower nor Parent presently has
------------
any Subsidiary or owns any stock in any corporation or association except those
listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower nor
any Related Person is a member of any general or limited partnership, joint
venture or association of any type whatsoever except those listed in the
Disclosure Schedule or a Disclosure Report. Except as otherwise revealed in a
Disclosure Report, Parent owns, directly or indirectly, the equity interest in
each of its Subsidiaries which is indicated in the Disclosure Schedule.
Section B.15. Licenses. Each Related Person possesses all licenses,
--------
permits, franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such intellectual
property without violation of the rights of any other Person) which are
necessary to carry out its business as presently conducted and as presently
proposed to be conducted hereafter, and no Related Person is in violation in any
material respect of the terms under which it possesses such intellectual
property or the right to use such intellectual property.
Section B.16. Government Regulation. Neither Borrower nor any other
---------------------
Related Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Restricted Debt,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
Section B.17. Ownership of Borrower and Inland Refining. All of the
-----------------------------------------
outstanding shares of Borrower and Inland Refining are owned and shall at all
times be owned by Parent.
Section B.18. Taxes. Each Related Person has filed all United States
-----
Federal income tax returns and all other material tax returns that are required
to be filed by it and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any Related Person and all other
penalties or charges. The charges, accruals and revenues on the books of each
Related Person in respect of taxes and other governmental charges are, in the
opinion of Parent, adequate. No Related Person has not given or been requested
to give a waiver of the statute of limitations relating to the payment of any
federal or other taxes, except as listed in the Disclosure Schedule or a
Disclosure Report.
B-5
<PAGE>
ANNEX C
COMMON COVENANTS
Section C.1. Books, Financial Statements and Reports. Parent, acting
---------------------------------------
through or on behalf of the Related Persons, will at all times maintain full and
accurate books of account and records and a standard system of accounting, will
maintain its Fiscal Year, and will furnish the following statements and reports
to each Lender at Parent's expense:
(a) As soon as available, and in any event within ninety (90) days
after the end of each Fiscal Year, complete Consolidated and consolidating
financial statements of Parent together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
Arthur Anderson, L.L.P., or other independent certified public accountants
selected by Parent and acceptable to Required Lenders, stating that such
Consolidated financial statements have been so prepared. These financial
statements shall contain a Consolidated and consolidating balance sheet as
of the end of such Fiscal Year and Consolidated and consolidating
statements of earnings, of cash flows, and of changes in owners' equity for
such Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90)
days after the end of each Fiscal Year Parent will furnish a report signed
by such accountants (i) stating that they have read this Agreement, (ii)
containing calculations showing compliance (or non-compliance) at the end
of such Fiscal Year with the requirements of Sections C.18, C.21, C.23,
C.24, C.27, C.28, C.29 and C.30 of this Annex C and (iii) further stating
that in making their examination and reporting on the Consolidated
financial statements described above they did not conclude that any Default
existed at the end of such Fiscal Year or at the time of their report, or,
if they did conclude that a Default existed, specifying its nature and
period of existence.
(b) As soon as available, and in any event within fifty (50) days
after the end of each Fiscal Quarter, Parent's Consolidated and
consolidated balance sheet as of the end of such Fiscal Quarter and
Consolidated and consolidating statements of earnings and cash flows for
the period from the beginning of the then current Fiscal Year to the end of
such Fiscal Quarter, all in reasonable detail and prepared in accordance
with GAAP, subject to changes resulting from normal year-end adjustments.
In addition, Parent will, together with each such set of financial
statements and each set of financial statements furnished under subsection
(a) of this section, furnish a certificate in the form of Exhibit D signed
by the chief financial officer of Parent stating that such financial
statements are accurate and complete (subject to normal year-end
adjustments), stating that he has reviewed the Loan Documents, containing
calculations showing compliance (or non-compliance) at the end of such
Fiscal Quarter with the requirements of Sections C.18, C.21, C.23, C.24,
C.27, C.28, C.29 and C.30 of this Annex C and stating that no Default or
Coverage Deficiency exists at the end of such Fiscal Quarter or at the time
of such certificate or specifying the nature and period of existence of any
such Default or Coverage Deficiency.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by any Related
Person to its stockholders and all registration statements, periodic
reports and other statements and schedules filed by any Related Person with
any securities exchange, the Securities and Exchange Commission or any
similar governmental authority.
C-1
<PAGE>
(d) By March 1 following the end of each Fiscal Year, beginning on
March 1, 1998, an engineering report prepared as of the end of such Fiscal
Year by Ryder Scott Company or other independent petroleum engineers chosen
by Borrower and acceptable to Required Lenders, concerning the Properties.
The report (1) shall separately report on Proved Producing Reserves, Proved
Developed Nonproducing Reserves, Proved Undeveloped Reserves and probable
reserves and separately calculate the NPV of each such category of Proved
Reserves (and the similar net present value of such probable reserves), (2)
shall be prepared in two versions, the first using ING Pricing and the
second using TCW Pricing, and each using a 10% discount factor, (3) shall
address the various factors to be taken into account in calculating ANCF so
that projected ANCF can be readily calculated from the report, (4) shall
take into account Borrower's actual experiences with leasehold operating
expenses and other costs in determining projected leasehold operating
expenses and other costs, (5) shall identify and take into account any
"over-produced" or "under-produced" status under gas balancing
arrangements, (6) shall contain information and analysis comparable in
scope to that contained in the Initial Engineering Reports, and (7) shall
otherwise be in form and substance satisfactory to Required Lenders. The
report shall distinguish (or shall be delivered together with a certificate
from an appropriate officer of Borrower which distinguishes) those
Properties treated in the report which are Eligible Mortgaged Properties
from those properties treated in the report which are not Eligible
Mortgaged Properties. In the event that Borrower and Tamco disagree over
whether or not any workovers or other remedial capital expenditures should
be included in the report for the purposes of calculating NPV, the
engineers preparing such report shall resolve such disagreement by
determining whether such expenditures are likely to be required in
accordance with prudent industry practice and shall include or exclude such
expenditures based on such determination.
(e) By July 15 of each year an engineering report prepared by in-
house petroleum engineers employed by Borrower, concerning all oil and gas
properties and interests owned by any Related Person which are located in
or offshore of the United States and which have attributable to them proved
oil and gas reserves. This report shall be substantially in the form and
substance as the reports delivered under subsection (d) above and otherwise
shall be satisfactory to Required Lenders.
(f) Within fifty (50) days after the end of each Fiscal Quarter, a
report in detail acceptable to Required Lenders with respect to the
Properties during the Fiscal Quarter immediately prior thereto:
(1) describing by well and field the net quantities of oil, gas,
natural gas liquids, and water produced (and the quantities of water
injected) during such Fiscal Quarter;
(2) describing by well and field the quantities of oil, gas and
natural gas liquids sold during such Fiscal Quarter out of production
from the Properties and calculating the average sales prices of such
oil, natural gas, and natural gas liquids;
(3) regardless of whether the same are included in the
calculation of ANCF, specifying any leasehold operating expenses,
overhead charges, gathering costs, transportation costs, and other
costs with respect to the Properties of the kind chargeable as direct
charges or overhead under an Onshore COPAS Accounting Procedure for
Joint Operations (1984 form published by the Council of Petroleum
Accountants Societies);
C-2
<PAGE>
(4) setting forth the amount of Direct Taxes on the Properties
during such Fiscal Quarter and the amount of royalties paid with
respect to the Properties during such Fiscal Quarter;
(5) describing all activities carried out during such Fiscal
Quarter in furtherance of the Plan of Development, all other capital
expenditures during such Fiscal Quarter, and all projections of
capital expenditures projected to be made on any of the Eligible
Mortgaged Properties; and
(6) describing all workover work and drilling during such Fiscal
Quarter, including the cost and status of each well drilled or worked
over during such Fiscal Quarter, test reports for each well tested
during such Fiscal Quarter, reports on prices and volumes received for
such Fiscal Quarter, reports for each well completed during such
Fiscal Quarter, and accompanying authorizations for expenditures.
(g) As soon as available, and in any event within forty-five (45)
days after the end of each Fiscal Quarter, a list, by name and address, of
those Persons who have purchased production during such Fiscal Quarter from
the properties described in subsection (d) above, giving each such
purchaser's owner number for Borrower and each such purchaser's property
number for each such property.
(h) As soon as available, and in any event within thirty (30) days
after the end of each Fiscal Year, Borrower shall deliver to Agent an
environmental compliance certificate signed by the president or chief
executive officer of Borrower in the form attached hereto as Exhibit E.
Further, if requested by Agent, Borrower shall permit and cooperate with an
environmental and safety review made in connection with the operations of
Borrower's oil and gas properties one time during each Fiscal Year
beginning with the Fiscal Year 1998, by Pilko & Associates, Inc. or other
consultants selected by Agent which review shall, if requested by Agent, be
arranged and supervised by environmental legal counsel for Agent, all at
Borrower's cost and expense. The consultant shall render a verbal or
written report, as specified by Agent, based upon such review at Borrower's
cost and expense.
(i) Concurrently with the annual renewal of the Borrower's insurance
policies, Borrower shall, if requested by Agent in writing, cause a
certificate or report to be issued by Agent's professional insurance
consultants or other insurance consultants satisfactory to Agent certifying
that Borrower's insurance for the next succeeding year after such renewal
(or for such longer period for which such insurance is in effect) complies
with the provisions of this Agreement and the Security Documents.
(i) By November 1 of each year, beginning with November 1, 1998, a
proposed Plan of Development for the next succeeding year.
Section C.2. Other Information and Inspections. Each Related Person will
---------------------------------
furnish to each Lender any information which Agent may from time to time request
in writing concerning any covenant, provision or condition of the Loan Documents
or any matter in connection with Related Persons' businesses and operations.
Each Related Person will permit representatives appointed by Agent (including
independent accountants, auditors, agents, attorneys, appraisers and any other
Persons) to visit and inspect during normal business hours any of such Related
Person's property, including its books of account, other books and records, and
any facilities or other business assets, and to make extra copies therefrom and
photocopies and photographs thereof, and to write down and record
C-3
<PAGE>
any information such representatives obtain, and each Related Person shall
permit Agent or its representatives to investigate and verify the accuracy of
the information furnished to Agent or any Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives.
Section C.3. Notice of Material Events and Change of Address. Borrower
-----------------------------------------------
and Parent will promptly notify each Lender in writing, stating that such notice
is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default or Coverage Deficiency,
(c) the acceleration of the maturity of any Restricted Debt owed by
any Related Person or of any default by any Related Person under any
indenture, mortgage, agreement, contract or other instrument to which any
of them is a party or by which any of them or any of their properties is
bound, if such acceleration or default could cause a Material Adverse
Change,
(d) the occurrence of any Termination Event,
(e) any claim of $50,000 or more, any notice of potential liability
under any Environmental Laws which might exceed such amount, or any other
material adverse claim asserted against any Related Person or with respect
to any Related Person's properties,
(f) the filing of any suit or proceeding against any Related Person
in which an adverse decision could cause a Material Adverse Change, and
(g) the receipt by any Related Person of a notice of any "Event of
Default" under the Other Loan Documents.
Upon the occurrence of any of the foregoing Related Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also notify
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that any Related Person changes its name or the location of its chief
executive office or principal place of business or the place where it keeps its
books and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section C.4. Maintenance of Properties. Each Related Person will
-------------------------
maintain, preserve, protect, and keep all Collateral and all other property used
or useful in the conduct of its business in good condition and in compliance
with all applicable Laws, and will from time to time make all repairs, renewals
and replacements needed to enable the business and operations carried on in
connection therewith to be conducted at all times consistent with prudent
industry practices.
Section C.5. Maintenance of Existence and Qualifications. Each Related
-------------------------------------------
Person will maintain and preserve its existence and its rights and franchises in
full force and effect and will qualify to do business in all states or
jurisdictions (a) where Collateral is located and (b) where required by
applicable Law, except where the failure so to qualify will not cause a Material
Adverse Change.
C-4
<PAGE>
Section C.6. Payment of Trade Debt, Taxes, etc. Each Related Person will
----------------------------------
(a) timely file all required tax returns; (b) timely pay all taxes, assessments,
and other governmental charges or levies imposed upon it or upon its income,
profits or property; (c) within 90 days past the original invoice or billing
date thereof, or, if earlier, when due in accordance with its terms, all Debt
owed by it on ordinary trade terms to vendors, suppliers and other Persons
providing goods and services used by it in the ordinary course of its business;
(d) pay and discharge when due all other Debt now or hereafter owed by it; and
(e) maintain appropriate accruals and reserves for all of the foregoing in
accordance with GAAP. Each Related Person may, however, delay paying or
discharging any of the foregoing so long as it is in good faith contesting the
validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor.
Section C.7. Bonding and Insurance. The Related Persons will maintain
---------------------
all bonds and letters of credit in lieu of bonds which they are required to
maintain (by law, lease terms, or consistent with prudent industry practices) in
order to carry out development and production operations on, the Properties.
Each Related Person will keep or cause to be kept adequately insured by
financially sound and reputable insurers its and its Subsidiaries' vehicles and
all other property in accordance with Schedule 3. Any insurance policies
covering Collateral shall be endorsed (i) to provide for payment of losses to
Agent, on behalf of Lenders, as their interests may appear, pursuant to a
mortgage clause (without contribution) of standard form made part of the
applicable policy, (ii) to provide that such policies may not be cancelled,
reduced or adversely affected in any manner for any reason without fifteen days
prior notice to Agent, (iii) to provide for any other matters specified in any
applicable Security Document or which Agent may reasonably require; and (iv) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that the
Mortgage or any other Security Document contains other additional requirements
for such endorsement, each Related Person shall also comply with such additional
requirements.) Each Related Person shall at all times maintain adequate
insurance against its liability for injury to persons or property, which
insurance shall be by financially sound and reputable insurers and shall without
limitation provide the following coverages: comprehensive general liability
(including coverage for damage to underground resources and equipment, damage
caused by blowouts or cratering, damage caused by explosion, damage to
underground minerals or resources caused by saline substances, broad form
property damage coverage, broad form coverage for contractually assumed
liabilities and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Each Related Person shall at
all times maintain cost of control of well insurance with respect to all wells
being drilled or deepened, which shall insure against the following costs: cost
of control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
Section C.8. Performance on Borrower's Behalf. If any Related Person
--------------------------------
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each amount
paid by Agent shall constitute an Obligation owed hereunder which is due and
payable on the date such amount is paid by Agent.
Section C.9. Interest. Borrower hereby promises to each Lender to pay
--------
interest at the Late Payment Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender and which are not paid when due. Such
interest shall accrue from the date such Obligations become due until they are
paid.
C-5
<PAGE>
Section C.10. Compliance with Agreements and Law. Each Related Person
----------------------------------
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease,
franchise, agreement, contract or other instrument or obligation to which it is
a party or by which it or any of its properties is bound. Each Related Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.
Section C.11. Environmental Matters; Environmental Reviews.
--------------------------------------------
(a) Each Related Person will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Related Person and
shall obtain, at or prior to the time required by applicable Environmental
Laws, all environmental, health and safety permits, licenses and other
authorizations necessary for its operations and will maintain such
authorizations in full force and effect.
(b) Borrower will promptly furnish to Agent all written notices of
violation, orders, claims, citations, complaints, penalty assessments,
suits or other proceedings received by Borrower, or of which it has notice,
pending or threatened against Borrower, by any governmental authority with
respect to any alleged violation of or non-compliance with any
Environmental Laws or any permits, licenses or authorizations in connection
with its ownership or use of its properties or the operation of its
business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other notifications,
received by Borrower in connection with its ownership or use of its
properties or the conduct of its business, relating to potential
responsibility with respect to any investigation or clean-up of Hazardous
Material at any location.
Section C.12. Evidence of Compliance. Each Related Person will furnish
----------------------
to each Lender at such Related Person's or Borrower's expense all evidence which
Agent from time to time reasonably requests in writing as to the accuracy and
validity of or compliance with all representations, warranties and covenants
made by any Related Person in the Loan Documents, the satisfaction of all
conditions contained therein, and all other matters pertaining thereto.
Section C.13. Solvency. Upon giving effect to the issuance of the Notes,
--------
the execution of the Loan Documents by Borrower and the consummation of the
transactions contemplated hereby, Borrower will be solvent (as such term is used
in applicable bankruptcy, liquidation, receivership, insolvency or similar
laws).
Section C.14. Completion of Activities. Borrower will (1) timely develop
------------------------
the Eligible Mortgaged Properties in accordance with the Plan of Development,
and (2) except to the extent regulatory approval has not yet been obtained, have
each producing and injection well which is hereafter completed put into normal
operation. Borrower will make capital expenditures for the drilling and
development of the Eligible Mortgaged Properties in accordance with the Plan of
Development. The Plan of Development designates certain operations as "Primary
Phases" and others, which are contingent upon the success of the "Primary
Phases", are designated as "Secondary Phases". Prior to Borrower making capital
expenditures with respect to "Secondary Phase" operations, if a specific measure
of success with respect to the "Primary Phase" operations is set forth in the
Plan of Development, such measure must have been achieved, or if no specific
measure is set forth, Agent and Borrower must have agreed that the "Primary
Phase" operation has been successful.
C-6
<PAGE>
Section C.15. Hedging Contracts. No Related Person will be a party to or
-----------------
in any manner be liable on any forward, future, swap or hedging contract, other
than (a) existing hedging contracts listed in the Disclosure Schedule, (b)
interest rate hedges under the Bank Interest Rate Hedge Agreement required under
Section C.17 of this Annex C, and (c) any other commodity floors approved by
Required Lenders from time to time, including terms, duration and counterparty.
Section C.16. Reviews. Borrower will meet with Agent, at Borrower's
-------
expense, from time to time (as frequently as monthly and in any event at least
once per Fiscal Quarter), at the offices of Agent or at such other location as
Agent and Borrower may agree, to review all operational activities of Borrower
with respect to the Eligible Mortgaged Properties and all financial reports of
the Related Persons since the date of the prior review. Each review shall be in
scope satisfactory to Agent, but will include at a minimum, an update by
Borrower on the development activities made pursuant to the Plan of Development,
any requests by Borrower that changes be made to the Plan of Development, any
cost or expense overruns or underruns, any mechanical problems incurred, and any
differences in reserves or production estimates.
Section C.17. Interest Hedging Contracts. Until the Floating Rate Debt
--------------------------
is paid in full, Borrower will maintain Hedging Contracts under the Bank
Interest Rate Hedge Agreement with respect to the Floating Rate Debt. Such
Hedging Contracts shall: (i) during the Commitment Period, have notional
amounts of not less than 80% of the principal amount of the Floating Rate Debt
projected by Borrower to be outstanding during the term of such Hedging
Contracts, (ii) at all times after the Commitment Period, have notional amounts
equal to the principal amount of the Floating Rate Debt projected by Borrower
to be outstanding during the term of such Hedging Contracts, (iii) fix a cap for
Borrower's exposure to increases in the interest rates payable on the Floating
Rate Debt for an initial term of three (3) years, and (iv) effectively fix a cap
at eight and one-half percent (8.5%) or less for Borrower's exposure to
increases in the interest rates payable on the Floating Rate Debt. Borrower
shall enter into replacement Hedging Contracts at the end of each expiring
Hedging Contract and, concurrently with any increase in the amount of the
Floating Rate Debt, shall enter into such additional Hedging Contracts as may be
required to keep Borrower in compliance with this Section C.17.
Section C.18. Restricted Debt. No Related Person will in any manner owe
---------------
or be liable for Restricted Debt except:
(a) the Obligations.
(b) the Other Allowed Debt.
(c) Hedging transactions required under Section C.17 or permitted
under Section C.15 of this Annex C.
(d) any Restricted Debt assumed or incurred by any Related Person
after the date hereof to finance all or any part of the purchase price of
property acquired by such Related Person, provided that:
(i) such Restricted Debt shall be secured only by the property
so acquired and the improvements thereon,
(ii) each Lien securing such Restricted Debt shall attach or be
existing at the time of acquisition,
C-7
<PAGE>
(iii) only the Related Person that acquired such property shall
be liable on such Restricted Debt,
(iv) the principal amount of such Restricted Debt in respect of
such property shall not exceed the lower of the acquisition price of
or market value of the property at the time of acquisition thereof by
such Related Person,
(v) the aggregate outstanding principal amount of such
Restricted Debt of the Related Persons incurred for the purchase of
trucks or automobiles does not at any time exceed $250,000, and the
aggregate principal amount of such Restricted Debt which is incurred
for such purpose in any Fiscal Year does not exceed $100,000, and
(vi) the aggregate outstanding principal amount of such
Restricted Debt of the Related Persons incurred for purposes other
than the purchase of trucks or automobiles, does not at any time
exceed $200,000, and the aggregate principal amount of such Restricted
Debt which is incurred for such other purposes in any Fiscal Year does
not exceed $50,000.
(e) the Carmen promissory note described in paragraph C.18 of the
Disclosure Schedule, as from time to time extended (but not increased).
(f) Parent's Series C Convertible Preferred Stock.
(g) miscellaneous items of Restricted Debt not described in
subsections (a) through (f) which do not in the aggregate (taking into
account all such Restricted Debt of all Related Persons) exceed $150,000 at
any one time outstanding.
Section C.19. Limitation on Liens. No Related Person will create, assume
-------------------
or permit to exist any Lien upon any of the properties or assets which it now
owns or hereafter acquires, except, to the extent not otherwise forbidden by the
Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) Liens which secure the Other Allowed Debt, provided that such
Liens are subject to the Intercreditor Agreement.
(c) statutory Liens for taxes, statutory mechanics' and materialmen's
Liens incurred in the ordinary course of business, and other similar Liens
incurred in the ordinary course of business, provided such Liens do not
secure Restricted Debt and secure only Restricted Debt which is not
delinquent or which is being contested as provided in Section C.6.
(d) Liens securing the Restricted Debt permitted by Section C.18(d),
(e) or (g) of this Annex C.
Section C.20. No Mergers. No Related Person will merge or consolidate
----------
with or into any other business entity. No Subsidiary of Parent will issue any
additional shares of its capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
except to Parent or another wholly-owned Subsidiary of Parent. No Subsidiary of
Parent which is a partnership will allow any diminution of Parent's interest
(direct or indirect) therein. No Related Person shall create or own any
Subsidiary other than those listed in the Disclosure Schedule.
C-8
<PAGE>
Section C.21. Limitation on Dividends and Redemptions. No Related Person
---------------------------------------
will make any Distribution in respect of any class of its capital stock or any
partnership or other interest in it, nor will any Related Person directly or
indirectly make any Distribution in respect of any shares of the capital stock
of or partnership interests in any Related Person (whether such interests are
now or hereafter issued, outstanding or created), or cause or permit any
reduction or retirement of the capital stock of any Related Person, except that
Parent may at any time make Distributions in the form of Parent's common stock
to the holders of Parent's Series C Convertible Preferred Stock.
Section C.22. Limitation on Sales of Property. No Related Person will
-------------------------------
sell, transfer, lease, exchange, alienate or dispose of any of its material
assets or properties or any material interest therein except, to the extent not
otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value.
(b) personal property inventory (including oil and gas sold as
produced and seismic data) which is sold in the ordinary course of business
on ordinary trade terms.
(c) specific properties not subject to the Mortgage (or specific
portions thereof), provided the same are abandoned and not otherwise
disposed of and further provided that no well situated on the property to
be abandoned, or located on any unit containing all or any part thereof, is
capable (or is subject to being made capable through commercially feasible
operations) of producing oil, gas or other hydrocarbons or minerals in
paying quantities (with such determination of paying quantities being made
taking into account the prudent operation of any unit in which such
property is located).
(d) farmouts on terms and conditions reasonably acceptable to
Required Lenders.
Neither Parent nor any of Parent's Subsidiaries will sell, transfer or otherwise
dispose of capital stock of any of Parent's Subsidiaries except that any
Subsidiary of Parent may sell or issue its own capital stock to the extent not
otherwise prohibited hereunder. No Related Person will discount, sell, pledge
or assign any notes payable to it, accounts receivable or future income except
to the extent expressly permitted under the Loan Documents.
Section C.23. Limitation on Investments and New Businesses. No Related
--------------------------------------------
Person will (i) make any expenditure or commitment or incur any obligation or
enter into or engage in any transaction except in the ordinary course of
business, (ii) engage directly or indirectly in any business or conduct any
operations except in connection with or incidental to its present businesses and
operations, (iii) make any acquisitions of or capital contributions to or other
investments in any Person, other than Permitted Investments, or (iv) make any
significant acquisitions or investments in any properties other than oil and gas
properties.
Section C.24. Limitation on Credit Extensions. Except for Permitted
-------------------------------
Investments, no Related Person will extend credit, make advances or make loans
other than normal and prudent extensions of credit to customers buying goods and
services in the ordinary course of business, which extensions shall not be for
longer periods than those extended by similar businesses operated in a normal
and prudent manner.
Section C.25. Transactions with Affiliates. Borrower will not engage in
----------------------------
any material transaction with any of its Affiliates other than for customary
director compensation paid to such
C-9
<PAGE>
Affiliates and for issuances of equity to Affiliates for fair value, provided
that such issuances are permitted by Section C.21, unless the terms of such
transaction are no less favorable than those which would have been obtainable at
the time in arm's-length dealings with Persons other than an Affiliate.
Section C.26. Certain Contracts; Amendments; Multiemployer ERISA Plans.
--------------------------------------------------------
Except as expressly provided for in the Loan Documents, no Related Person will,
directly or indirectly, enter into, create, or otherwise allow to exist any
contract or other consensual restriction on the ability of any Subsidiary of
Borrower to: (i) make Distributions to Borrower, (ii) to redeem equity interests
held in it by Borrower, (iii) to repay loans and other indebtedness owing by it
to Borrower, or (iv) to transfer any of its assets to Borrower. No Related
Person will enter into any "take-or-pay" contract or other contract or
arrangement for the purchase of goods or services which obligates it to pay for
such goods or service regardless of whether they are delivered or furnished to
it. No Related Person will amend or permit any amendment to any contract or
lease which releases, qualifies, limits, makes contingent or otherwise
detrimentally affects the rights and benefits of any Lender under or acquired
pursuant to any Security Documents. No ERISA Affiliate will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
Section C.27. Working Capital. Working Capital will never be less than
---------------
$1,000,000. As used herein, "Working Capital" means Borrower's current assets
minus Borrower's current liabilities, provided that for the purposes of
determining Working Capital: (i) current assets will be calculated without
including (1) any accounts receivable or other Debts owed to Borrower by its
Affiliates, employees or shareholders, and (2) any account receivable unpaid
more than 120 days after its original invoice date, and (ii) for so long as no
Event of Default exists, current liabilities will be calculated without
including any payments of principal on the Obligations and the Other Allowed
Debt which are required to be made within one year from the time of calculation.
Section C.28. Tangible Net Worth. Parent's Consolidated Tangible Net
------------------
Worth will never be less than $35,000,000 plus (a) an aggregate amount equal to
fifty percent (50%) of Parent's cumulative Consolidated Net Income beginning
with the Fiscal Quarter ending December 31, 1997, plus (b) the aggregate amount
of net proceeds from the sale of any of Parent's stock by Parent on or after the
date hereof.
Section C.29. EBITDA. At the end of any Fiscal Quarter, beginning with
------
the Fiscal Quarter ending December 31, 1997, the ratio of (a) Parent's EBITDA to
(b) required interest payments on Parent's Consolidated Debt, for the four-
Fiscal Quarter period ending with such Fiscal Quarter will not be less than 3 to
1 for any such period.
Section C.30. General and Administrative Expenses. Parent's Consolidated
-----------------------------------
general and administrative expenses in any Fiscal Year shall not exceed the ANCF
Overhead Costs for such Fiscal Year.
Section C.31. No Public Announcements. No Related Person may make any
-----------------------
public announcement or disclosure of the transactions contemplated by this
Agreement or any other Loan Document, except as required by law or approved by
Agent, in its sole and absolute discretion prior to the making of any such
public announcement or disclosure.
Section C.32. Refinery Acquisitions. No Related Person will enter into
---------------------
the Crysen Acquisition or any other acquisition of a refinery (regardless of
whether or not the proceeds of any Loan are used to finance such acquisition)
unless all aspects of such acquisition, including the structure of the
acquisition, related documentation, additional Security Documents, liabilities
to be assumed by any Related Person in connection therewith, and environmental
inspections, have been reviewed and approved by Lenders in their absolute
discretion.
C-10
<PAGE>
Section C.33 Transactions Regarding Crysen Refinery. If Inland
--------------------------------------
Refining does not acquire the Crysen Refinery for any reason, but such Crysen
Refinery is acquired by any Affiliate or any 2% Affiliate of a Related Person,
then no Related Person shall enter into any contract for the sale, purchase,
processing, refining or treatment of hydrocarbons with the owner, operator or
lessee of such Crysen Refinery unless such contract is on terms and conditions
that are no less favorable than those which would have been obtained in an arms
length transaction with Persons other than Affiliates, which shall be determined
by Agent in its reasonable discretion, and unless Agent has been provided with
thirty (30) days prior written notice of the contract.
C-11
<PAGE>
ANNEX D
COMMON EVENTS OF DEFAULT
Section D.1 Any Related Person fails to pay the principal component of
any Obligation when due and payable, whether at a date for the payment of a
fixed installment or as a contingent or other payment becomes due and payable or
as a result of acceleration or otherwise, and such failure is not remedied in
full within one (1) Business Day thereafter.
Section D.2. Any Related Person fails to pay any Obligation (other than
the Obligations in Section D.1 above) when due and payable, whether at a date
for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise, within one
(1) Business Day after the same becomes due in the case of interest or fifteen
(15) days thereafter in the case of any other Obligation.
Section D.3. Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document.
Section D.4. Any Related Person fails to duly observe, perform or comply
with any covenant, agreement or provision of Section C.3 or any of Sections C.17
through and including C.32 of Annex C.
Section D.5. Any Related Person fails (other than as referred to in
Sections D.1, D.2, D.3 or D.4 above) to duly observe, perform or comply with any
covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of such
failure is given by Agent to Borrower.
Section D.6. Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Related Person in connection
with any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, or any Loan Document at any
time ceases to be valid, binding and enforceable as warranted in Section B.5 of
Annex B for any reason other than its release or subordination by Agent.
Section D.7. Any Related Person fails to duly observe, perform or comply
with (a) any agreement with any Person or any term or condition of any
instrument, if such agreement or instrument is materially significant to
Borrower or to Parent and its Subsidiaries on a Consolidated basis or materially
significant to any Guarantor, or (b) any provision of any Other Loan Document
and, in either case, such failure is not remedied within the applicable period
of grace (if any) provided in such agreement or instrument.
Section D.8. Any Related Person (i) fails to pay any portion, when such
portion is due, of any of its Restricted Debt in excess of $100,000 (other than
the Obligations, the Other Allowed Debt and Debt described in Section C.6 of
Annex C which is not required to be paid so long as the Related Person is in
good faith contesting the validity thereof by appropriate proceedings), or (ii)
breaches or defaults in the performance of any agreement or instrument by which
any such Restricted Debt is issued, evidenced, governed, or secured, and any
such failure, breach or default continues beyond any applicable period of grace
provided therefor.
D-1
<PAGE>
Section D.9. Either (iii) any "accumulated funding deficiency" (as defined
in Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$100,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (iv) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $100,000 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount).
Section D.10. Any Related Person:
(a) suffers the entry against it of a judgment, decree or order for
relief by a Tribunal of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar Law
of any jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such proceeding
commenced against it which remains undismissed for a period of sixty days;
or
(b) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents
to the entry of an order for relief in an involuntary case under any such
Law; or makes a general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its debts as
such debts become due; or takes corporate or other action to authorize any
of the foregoing; or
(c) suffers the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of all or a substantial part of its assets or of any part of the Collateral
in a proceeding brought against or initiated by it, and such appointment or
taking possession is neither made ineffective nor discharged within thirty
days after the making thereof, or such appointment or taking possession is
at any time consented to, requested by, or acquiesced to by it; or
(d) suffers the entry against it of a final judgment for the payment
of money in excess of $100,000 (not covered by insurance satisfactory to
Agent in its discretion), unless the same is discharged within thirty days
after the date of entry thereof or an appeal or appropriate proceeding for
review thereof is taken within such period and a stay of execution pending
such appeal is obtained; or
(e) suffers a writ or warrant of attachment or any similar process to
be issued by any Tribunal against all or any substantial part of its assets
or any part of the Collateral, and such writ or warrant of attachment or
any similar process is not stayed or released within thirty days after the
entry or levy thereof or after any stay is vacated or set aside.
Section D.11. Any Change in Control occurs.
Section D.12. Any "Event of Default" (as defined in the Other Loan
Documents) occurs under the Other Loan Documents.
D-2
<PAGE>
SCHEDULE 1
DISCLOSURE SCHEDULE
-------------------
To supplement the following sections of the Agreement of which this
Schedule is a part, Parent and Borrower hereby make the following disclosures:
1. Section B.6 Initial Financial Statements:
----------------------------
No Material Adverse Change.
2. Section B.7 Other Obligations:
-----------------
a. Swap Agreement with Joint Energy Development Investments Limited
Partnership, dated November 22, 1994, structured as a costless
collar with a floor price of $18.00 per barrel and a ceiling
price of $20.55 per barrel using the average settlement price for
the prompt month of NYMEX Light Sweet Crude Oil for the following
remaining quantities and periods of time:
January 1, 1997 through December 31, 1997 10,900 barrels per
month
January 1, 1998 through December 31, 1998 12,500 barrels per
month
January 1, 1999 through December 31, 1999 14,000 barrels per
month
January 1, 2000 through December 31, 2000 14,000 barrels per
month
b. Swap Agreement with Koch Oil Company, dated January 1, 1997,
structured as a reverse collar with a Put price of $18.00 per
barrel and a Call strike price of $20.55 per barrel using the
average settlement price for the prompt month of NYMEX Light
Sweet Crude Oil for the following quantities and periods of time:
January 1, 1998 through December 31, 1998 12,500 barrels per
month
January 1, 1999 through December 31, 1999 14,000 barrels per
month
January 1, 2000 through December 31, 2000 14,000 barrels per
month
3. Section B.9 Litigation:
----------
None.
4. Section B.10 Labor Disputes and Acts of God:
------------------------------
None.
1
<PAGE>
5. Section B.11 ERISA Liabilities:
-----------------
a. Inland Resources Inc. 401(k) Plan.
b. Inland Resources Inc. Section 125 Cafeteria Plan.
c. Inland Resources Inc. Medical Plan through United Healthcare
Choice Plus/PPO
6. Sections B.12 Environmental Laws and Other:
----------------------------
None.
7. Sections B.13 Names and Places of Business:
----------------------------
a. On April 28, 1993, the name of Inland Gold and Silver Corp. was
changed to Inland Resources Inc. for the past five years,
Parent's places of business have been:
June 1993 until Present
-----------------------
475 Seventeenth Street, Suite 1500
Denver CO 80202
Prior to June 1993
------------------
b. On July 1, 1995, the name of Lomax Exploration Company was
changed to Inland Production Company. For the past five years,
Borrower's places of business have been:
October 1994 until Present
- ------------------------------
P.O. Box 1446 Also 475 Seventeenth Street
West Pole Road Suite 1500
Roosevelt UT 80466 Denver CO 80202
June 1993 through September 1994
--------------------------------
77 West, 200 South, Suite 402
Salt Lake City UT 84101
Prior to June 1993
------------------
13405 Northwest Freeway, Suite 314
Houston TX 77040
8. Section B.14 Subsidiaries and Stockholdings:
------------------------------
Subsidiaries
------------
a. Borrower is 100% owned by Parent
b. Inland Refining is 100% owned by Parent
2
<PAGE>
Partnership Interest
--------------------
a. Borrower is a General Partner in the following Limited
Partnerships:
LOEX Properties 1983, LTD, a Texas Limited Partnership,
Borrower has a 0.62% interest in the partnership. The
partnership's principal place of business is 475 Seventeenth
Street, Suite 1500, Denver CO 80202.
LOEX Properties 1984, LTD, a Texas Limited Partnership,
Borrower has a 0.57% interest in the partnership. The
partnership's principal place of business is 475 Seventeenth
Street, Suite 1500, Denver CO 80202.
b. Borrower is a Managing Partner in the following General
Partnerships:
West Monument Butte Pipeline Company, a Texas General
Partnership, Borrower has an 80.96% interest in the
partnership. The partnership's principal place of business
is 475 Seventeenth Street, Suite 1500, Denver CO 80202.
Castle Peak Pipeline Company, a Texas General Partnership,
Borrower has a 49.45% interest in the partnership. The
partnership's principal place of business is 475 Seventeenth
Street, Suite 1500, Denver CO 80202.
9. Section C.18. Restricted Debt:
---------------
All-Inclusive Promissory note secured by All-Inclusive Deed of Trust
payable to the Carmen Family Investment Company dated May 1, 1995, for
a total of $202,906.67 principal balance to be paid in fourteen annual
installments of $26,797.54 including interest (interest rate is 9.5%
per annum). The All-Inclusive Deed of Trust includes lands in
Township 8 South, Range 17 East, S.L.M. in Sections 20 (NE 1/4 of the
SE 1/4), 21 (SE 1/4) and 28 (N 1/2 of the NW 1/4) in Duchess County,
Utah.
Existing Commodity Floor Contracts:
----------------------------------
a. Put option with Koch, dated July 8, 1996, with a strike price of
$15.00 per barrel using the average settlement price for the
prompt month of NYMEX Light Sweet Crude Oil for the following
quantities and periods of time:
January 1, 1997 through December 31, 1997 60,000 barrels per
month
b. Put option with Enron Capital and Trade Resources Corp., dated
May 12, 1997, with a strike price of $16.000 per barrel using the
average settlement price for the prompt month of NYMEX Light
Sweet Crude Oil for the following quantities and periods of time:
January 1, 1998 through March 31, 1998 100,000 barrels per month
3
<PAGE>
4
<PAGE>
SCHEDULE 2
SECURITY SCHEDULE
-----------------
1. Guaranty of even date herewith executed by Parent for the benefit of Agent
(the "Parent Guaranty").
2. Guaranty of even date herewith executed by Inland Refining for the benefit
of Agent.
3. Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement from Borrower to Agent
dated as of September 30, 1997 (the "Mortgage").
4. Pledge Agreement (the "Pledge Agreement") from Parent to Agent, dated of
even date herewith.
5. Security Agreement (the "Security Agreement") from Borrower to Agent, dated
of even date herewith.
6. Financing Statements signed by Borrower for filing with the Secretaries of
State of Colorado and Utah in connection with the Mortgage.
7. Financing Statements signed by Parent for filing with the Secretaries of
State of Colorado and Texas in connection with the Pledge Agreement.
8. Financing Statement signed by Borrower for filing with the Secretaries of
State of Colorado and Utah in connection with the Security Agreement.
1
<PAGE>
EXHIBIT A
PROMISSORY NOTE
---------------
$_________________ New York, New York *[Date]
FOR VALUE RECEIVED, the undersigned, Inland Production Company, a Texas
corporation, (herein called "Borrower"), hereby promises to pay to the order of
________________________________________________, a *[____________ state banking
corporation] *[national banking association] (herein called "Bank"), the
principal sum of
__________________________________________________________________ Dollars ($
__________), or, if greater or less, the aggregate unpaid principal amount of
the Loan made under this Note by Bank to Borrower pursuant to the terms of the
Credit Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of the Agent under the Credit Agreement, 135 East 57th Street, New
York, New York or at such other place as from time to time may be designated by
the holder of this Note.
This Note (a) is issued and delivered under that certain Credit Agreement
of even date herewith among Borrower, Inland Resources Inc., ING (U.S.) Capital
Corporation, as Agent, and the Banks (including Bank) referred to therein
(herein, as from time to time supplemented, amended or restated, called the
"Credit Agreement"), and is a "Note" as defined therein, (b) is subject to the
terms and provisions of the Credit Agreement, which contains provisions for
payments and prepayments hereunder and acceleration of the maturity hereof upon
the happening of certain stated events, and (c) is secured by and entitled to
the benefits of certain Security Documents (as identified and defined in the
Credit Agreement). Payments on this Note shall be made and applied as provided
herein and in the Credit Agreement. Reference is hereby made to the Credit
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) each Quarterly Payment Date,
beginning December 29, 1997, and (ii) any day on which past due interest or
principal is owed hereunder and is unpaid. If the terms hereof or of the
Credit Agreement provide that payments of interest or principal hereon
shall be deferred from one Base Rate Payment Date to another day, such
other day shall also be a Base Rate Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
Loan: (i) the day on which the related Interest Period ends (and, if such
Interest Period is three months or longer, the three-month anniversary of
the first day of such Interest Period), and (ii) any day on which past due
interest or past due principal is owed hereunder with respect to such
Eurodollar Loan and is unpaid. If the terms hereof or of the Credit
Agreement provide that payments of interest or principal with respect to
such Eurodollar Loan shall be deferred from one Eurodollar Rate Payment
Date to another day, such other day shall also be a Eurodollar Rate Payment
Date.
1
<PAGE>
The principal amount of this Note s hall be due and payable quarterly as
provided in the Credit Agreement. On March 29, 2003, the unpaid principal
balance of this Note and all interest accrued hereon shall be due and payable in
full.
Base Rate Loans (exclusive of any past due principal or interest) from time
to time outstanding shall bear interest on each day outstanding at the Base Rate
in effect on such day. On each Base Rate Payment Date Borrower shall pay to the
holder hereof all unpaid interest which has accrued on the Base Rate Loans to
but not including such Base Rate Payment Date. Each Eurodollar Loan (exclusive
of any past due principal or interest) shall bear interest on each day during
the related Interest Period at the related Eurodollar Rate in effect on such
day. On each Eurodollar Rate Payment Date relating to such Eurodollar Loan,
Borrower shall pay to the holder hereof all unpaid interest which has accrued on
such Eurodollar Loan to but not including such Eurodollar Rate Payment Date.
All past due principal of and past due interest on the Loan shall bear interest
on each day outstanding at the Late Payment Rate in effect on such day, and such
interest shall be due and payable daily as it accrues.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum interest which, under applicable Law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
2
<PAGE>
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK, (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE FEDERAL LAW.
INLAND PRODUCTION COMPANY
By:
-----------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT B
BORROWING NOTICE
----------------
Reference is made to that certain Credit Agreement dated as of September
23, 1997 (as from time to time amended, the "Agreement"), by and among Inland
Production Company, as Borrower, Inland Resources Inc., ING (U.S.) Capital
Corporation, as Agent, and certain financial institutions, as Banks. Terms
which are defined in the Agreement are used herein with the meanings given them
in the Agreement.
Borrower hereby requests a Borrowing of new Loans to be advanced pursuant
to Section 2.2 of the Agreement as follows:
Aggregate amount of Borrowing: $__________________
Type of Loans in Borrowing: __________________
Date on which Loans are to be advanced: __________________
Length of Interest Period for Eurodollar
Loans (1, 2, 3 or 6 months): ___________ months
Borrower hereby represents, warrants, acknowledges, and agrees to and with
each Lender that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereto having all necessary authority to act for
Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the extension
of credit under the Agreement), with the same effect as though such
representations and warranties had been made on and as of the date hereof.
(c) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 9.1(a) of the Agreement; nor will any such Default
exist upon Borrower's receipt and application of the Loans requested
hereby. Borrower will use the Loans hereby requested in compliance with
Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in Section
9.1(a) of the Agreement, Borrower has performed and complied with all
agreements and conditions in the Agreement required to be performed or
complied with by Borrower on or prior to the date hereof, and each of the
conditions precedent to Loans contained in the Agreement remains satisfied.
(e) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course of
dealing, or by any other means not provided for in Section 9.1(a) of the
Agreement. The Agreement and the other Loan Documents are hereby ratified,
approved, and confirmed in all respects.
1
<PAGE>
The officer of Borrower signing this instrument hereby certifies in his
capacity as an officer of Borrower and in the name and on behalf of Borrower,
that to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgements, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________, 199__.
INLAND PRODUCTION COMPANY
By:
------------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
------------------------------
Reference is made to that certain Credit Agreement dated as of September
23,1997 (as from time to time amended, the "Agreement"), by and among Inland
Production Company, as Borrower, Inland Resources Inc., ING (U.S.) Capital
Corporation, as Agent, and certain financial institutions, as Banks. Terms
which are defined in the Agreement are used herein with the meanings given them
in the Agreement.
Borrower hereby requests a conversion or continuation of existing Loans
into a new Borrowing pursuant to Section 2.3 of the Agreement as follows:
Existing Borrowing(s) to be continued or converted:
$__________ of Eurodollar Loans with Interest Period ending __________
$__________ of Base Rate Loans
Aggregate amount of new Borrowing: $__________________
Type of Loans in new Borrowing: __________________
Date of continuation or conversion: __________________
Length of Interest Period for Eurodollar
Loans (1, 2, 3 or 6 months): ___________ months
Borrower hereby represents, warrants, acknowledges, and agrees to and with
each Lender that:
(a) The officer of Borrower signing this instrument is the duly
elected, qualified and acting officer of Borrower as indicated below such
officer's signature hereto having all necessary authority to act for
Borrower in making the request herein contained.
(b) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 9.1(a) of the Agreement; nor will any such Default
exist upon Borrower's receipt and application of the Loans requested
hereby.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course of
dealing, or by any other means not provided for in Section 9.1(a) of the
Agreement. The Agreement and the other Loan Documents are hereby ratified,
approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies in his
capacity as an officer of Borrower and in the name and on behalf of Borrower,
that to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgements, and agreements of Borrower are true, correct and
complete.
1
<PAGE>
IN WITNESS WHEREOF, this instrument is executed as of ____________, 199__.
INLAND PRODUCTION COMPANY
By:
---------------------------
Name:
Title:
2
<PAGE>
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
------------------------
Reference is made to that certain Credit Agreement dated as of September
23, 1997 (as from time to time amended, the "Agreement"), by and among Inland
Production Company ("Borrower"), Inland Resources Inc., ING (U.S.) Capital
Corporation, as Agent, and certain financial institutions ("Banks"), which
Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section C.2(b) of Annex C of the
Agreement. Together herewith Borrower is furnishing to Agent and each Bank
Parent's *[audited/unaudited] financial statements (the "Financial Statements")
as at ____________ (the "Reporting Date"). Borrower hereby represents, warrants,
and acknowledges to Agent and each Bank that:
(a) the officer of Parent signing this instrument is the duly
elected, qualified and acting ____________ of Parent and as such is
Parent's chief financial officer;
(b) the Financial Statements are accurate and complete and satisfy
the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing Parent's
compliance as of the Reporting Date with the requirements of Sections
____________ of the Agreement *[and Parent's non-compliance as of such date
with the requirements of Section(s) ____________ of the Agreement];
(d) on the Reporting Date Parent and Borrower were, and on the date
hereof Parent and Borrower are, in full compliance with the disclosure
requirements of Section C.4 of Annex C of the Agreement, and no Default
otherwise existed on the Reporting Date or otherwise exists on the date of
this instrument *[except for Default(s) under Section(s) ____________ of
the Agreement, which *[is/are] more fully described on a schedule attached
hereto].
(e) *[Unless otherwise disclosed on a schedule attached hereto,] The
representations and warranties of Borrower and Parent set forth in the
Agreement and the other Loan Documents are true and correct on and as of
the date hereof (except to the extent that the facts on which such
representations and warranties are based have been changed by the extension
of credit under the Agreement), with the same effect as though such
representations and warranties had been made on and as of the date hereof.
The officer of Parent signing this instrument hereby certifies in his
capacity as an officer of Borrower and in the name and on behalf of Borrower,
that he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Parent and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and complete.
1
<PAGE>
IN WITNESS WHEREOF, this instrument is executed as of ____________, 19__.
INLAND RESOURCES INC.
By:
----------------------------
Name:
Title:
2
<PAGE>
EXHIBIT E
ENVIRONMENTAL COMPLIANCE CERTIFICATE
------------------------------------
Reference is made to that certain Credit Agreement dated as of September
23, 1997 (as from time to time amended, the "Agreement"), by and among Inland
Production Company ("Borrower"), Inland Resources Inc., ING (U.S.) Capital
Corporation as Agent, and certain financial institutions. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement. The undersigned, being the *[President/Chief Executive Officer] of
Borrower, hereby certifies to Agent and Banks as follows:
1. For the Fiscal Year ending immediately prior to the date hereof,
Borrower has complied and is complying with Section C.12 of Annex C of the
Credit Agreement *[except as set forth in Schedule I attached hereto];
2. To the best knowledge of the undersigned after due inquiry,
Borrower is on the date hereof in compliance with all applicable
Environmental Laws, noncompliance with which could cause a Material Adverse
Change;
3. Borrower has taken (and continues to take) steps to minimize the
generation of potentially harmful effluents;
4. Borrower has established an ongoing program of conducting an
internal audit of each operating facility of Borrower to identify actual or
potential environmental liabilities which could cause a Material Adverse
Change; and
5. Borrower has established an ongoing program of training its
employees in issues of environmental, health and safety compliance, and
Borrower presently has one or more individuals in charge of implementing
such training program.
The officer of Borrower signing this instrument hereby certifies in his
capacity as an officer of Borrower and in the name and on behalf of Borrower,
that to the best of his knowledge after due inquiry and consultation with the
operating officers of Borrower, the above representations, warranties,
acknowledgements, and agreements of Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________, 19__.
INLAND PRODUCTION COMPANY
By:
-------------------------------------
Name:
Title:
1
<PAGE>
EXHIBIT F
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Date _______________, 199__
Reference is made to that certain Credit Agreement dated as of September
23, 1997 (as from time to time amended, the "Agreement"), by and among by and
among Inland Production Company, as Borrower, Inland Resources Inc., ING (U.S.)
Capital Corporation, as Agent, and certain financial institutions, as Banks,
which Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
____________________ ("Assignor") and ____________________ ("Assignee")
hereby agree as follows:
1. Assignor hereby sells and assigns to Assignee without recourse and
without representation or warranty (other than as expressly provided herein),
and Assignee hereby purchases and assumes from Assignor, that interest in and to
all of Assignor's rights and duties under the Agreement as of the date hereof
which represents the percentage interest specified in Item 3 of Annex I hereto
(the "Assigned Share") of all of the outstanding rights and obligations of all
Banks under the Agreement, including, without limitation, all rights and
obligations with respect to the Assigned Share in Assignor's Loans and Note.
After giving effect to such sale and assignment, Assignee's Percentage Share
(and Assignor's remaining Percentage Share) will be as set forth in Item 3 of
Annex I hereto.
2. Assignor: (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement, the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, the other Loan Documents or
any other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any other Related Person or the performance or
observance by any of them of any of their respective obligations under the
Agreement, the other Loan Documents, or any other instrument or document
furnished pursuant thereto.
3. Assignee: (i) confirms that it has received a copy of the Agreement,
together with copies of the financial statements most recently delivered
thereunder and such other Loan Documents and other documents and information as
it has deemed appropriate to make its own analysis of Borrower and the
transactions contemplated by the Agreement and its own independent decision to
enter into this Assignment and Assumption Agreement; (ii) agrees that it will,
independently and without reliance upon Assignor or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Agreement; (iii) confirms that it is a an Eligible Transferee under the
Agreement; (iv) appoints and authorizes Agent to take such action as agent on
its behalf and to exercise such powers under the Agreement and the other Loan
Documents as are specifically delegated to them, together with all other powers
reasonably incidental thereto; and (v) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Agreement are
required to
1
<PAGE>
be performed by it as a Bank (including the obligation to make future Loans). [;
and (vi) attaches the "Prescribed Forms" described in Section 3.6(d) of the
Agreement.]
4. Following the execution of this Assignment and Assumption Agreement by
Assignor and Assignee, an executed original hereof (together with all
attachments) will be delivered to Agent. The effective date of this Assignment
and Assumption Agreement (the "Settlement Date") shall be the date specified in
Item 4 of Annex I hereto; provided that this Assignment and Assumption Agreement
shall not be deemed to have taken effect unless (i) the consent hereto of Agent
and Borrower has been obtained (to the extent required in the Agreement), (ii)
Agent has received a fully executed original hereof, and (iii) Agent has
received the processing fee referred to in Section 9.5(c)(ii) of the Agreement.
5. Upon the satisfaction of the foregoing conditions, then as of the
Settlement Date: (i) Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Assumption Agreement, have the rights and
obligations of a Bank thereunder and under the other Loan Documents and (ii)
Assignor shall, to the extent provided in this Assignment and Assumption
Agreement, relinquish its rights and be released from its duties under the
Agreement and the other Loan Documents.
6. All interest, fees and other amounts that would otherwise accrue
pursuant to the Agreement and Assignor's Note for the account of Assignor from
and after the Settlement Date shall, instead accrue for the account of, and be
payable to, Assignor and Assignee, as the case may be, in accordance with their
respective interests as reflected in Item 3 to Annex I hereto. All payments of
principal that would otherwise be payable from and after the Settlement Date to
or for the account of Assignor pursuant to the Agreement and Assignor's Note
shall, instead, be payable to or for the account of Assignor and Assignee, as
the case may be, in accordance with their respective interests as reflected in
Item 3 to Annex I hereto. On the Settlement Date, Assignee shall pay to
Assignor an amount specified by Assignor in writing which represents the portion
of Assignor's Loans which is being assigned and which is outstanding on the
Settlement Date, net of any closing costs. Assignor and Assignee shall make all
appropriate adjustments in payments under the Agreement for periods prior to the
Settlement Date directly between themselves on the Settlement Date.
7. Each of the parties to this Assignment and Assumption Agreement agrees
that at any time and from time to time upon the written request of any other
party, it will execute and deliver such further documents and do such further
acts and things as such other party may reasonably request in order to effect
the purposes of this Assignment and Assumption Agreement.
8. This Assignment and Assumption Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Assignment and Assumption Agreement, as of
the date first above written, such execution also being made on Annex I hereto.
[NAME OF ASSIGNOR]
as Assignor
By:
-----------------------------
Title:
2
<PAGE>
[NAME OF ASSIGNEE]
By:
-----------------------------
Title:
CONSENTED TO AND ACKNOWLEDGED:
ING (U.S.) CAPITAL CORPORATION
as Agent
By:
-----------------------------
Title:
3
<PAGE>
ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT
ANNEX I
1. Borrower: Inland Production Company
2. Date of Assignment Agreement:
3. Amounts (as of date of item #2 above):
Assignor Assignee
(as Revised) (New)
------------ --------
a. Percentage Share/1/ ________% ________%
b. Percentage Share of
Borrowing Base: $________ $________
4. Settlement Date:
5. Notices:
ASSIGNEE:
____________________
____________________
____________________
Attention:
Telephone:
Telecopy:
6. Wiring Instructions:
____________________
____________________
____________________
- --------------------
/1/ Percentage taken to 12 decimal places.
<PAGE>
EXHIBIT 4.2
EXECUTION ORIGINAL
CREDIT AGREEMENT
AMONG
INLAND PRODUCTION COMPANY and INLAND RESOURCES INC.,
TRUST COMPANY OF THE WEST,
and
TCW ASSET MANAGEMENT COMPANY,
in the capacities described below
$75,000,000
September 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Definitions and References................................. 1
Section 1.1. Defined Terms......................................... 1
Section 1.2. Exhibits and Schedules; Additional Definitions........ 8
Section 1.3. Amendment of Defined Instruments...................... 8
Section 1.4. References and Titles................................. 8
Section 1.5. Calculations and Determinations....................... 8
ARTICLE II The Loan................................................... 9
Section 2.1. Advance............................................... 9
Section 2.2. Request for Advance................................... 9
Section 2.3. Use of Proceeds....................................... 9
Section 2.4. Funding Fees.......................................... 10
Section 2.5. Principal Payments.................................... 10
Section 2.6. Principal Payments from ANCF.......................... 10
Section 2.7. Optional Prepayments in Whole......................... 11
Section 2.8. Additional Interest................................... 11
ARTICLE III Conditions Precedent to Lending............................ 12
Section 3.1. Documents to be Delivered............................. 12
Section 3.2. General Conditions Precedent.......................... 15
Section 3.3. Crysen Acquisition.................................... 16
Section 3.4. Conditions Precedent for Additional Bank
Loan Advances........................................ 17
ARTICLE IV Representations and Warranties............................. 18
Section 4.1. Borrower's and Parent's Representations
and Warranties....................................... 18
Section 4.2. Representation and Disclosures by Noteholder.......... 18
ARTICLE V Covenants of Borrower...................................... 18
Section 5.1. Affirmative Covenants................................. 18
Section 5.2. Coverage Ratio........................................ 20
ARTICLE VI Security................................................... 20
Section 6.1. The Security.......................................... 20
Section 6.2. Agreement to Deliver Security Documents............... 21
<PAGE>
Page
----
Section 6.3. Perfection and Protection of Security Interests
and Liens............................................ 21
Section 6.4. Production Proceeds................................... 21
Section 6.5. Appointment of Agent and Collateral Agent............. 22
ARTICLE VII Events of Default and Remedies............................. 25
Section 7.1. Events of Default..................................... 25
Section 7.2. Remedies.............................................. 26
Section 7.3. Indemnity............................................. 26
Section 7.4. Substitution of Operator.............................. 27
ARTICLE VIII Miscellaneous.............................................. 28
Section 8.1. Waivers and Amendments; Acknowledgments............... 28
Section 8.2. Survival of Agreements; Cumulative Nature............. 30
Section 8.3. Notices............................................... 30
Section 8.4. Parties in Interest................................... 31
Section 8.5. GOVERNING LAW; SUBMISSION TO PROCESS.................. 32
Section 8.6. Limitation on Interest................................ 32
Section 8.7. Termination; Limited Survival......................... 33
Section 8.8. Severability.......................................... 33
Section 8.9. Counterparts.......................................... 33
SECTION 8.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC........... 34
SCHEDULE 1 - Disclosure Schedule
SCHEDULE 2 - Security Schedule
SCHEDULE 3 - Insurance Schedule
SCHEDULE 4 - Scheduled Bank Payments
SCHEDULE 5 - Calculation of 12.5% Internal Rate of Return
EXHIBIT A-1 - A Note
EXHIBIT A-2 - B Note
EXHIBIT B - Request for Advance
EXHIBIT C - Notice of Bank Advance
EXHIBIT D - Certificate Accompanying Financial Statement
EXHIBIT E - Environmental Compliance Certificate
- ii -
<PAGE>
Page
----
EXHIBIT F - Approval Letter
EXHIBIT G-1 - Opinion of Counsel for Related Persons
EXHIBIT G-2 - Opinion of Colorado Counsel for Related Persons
EXHIBIT H - Mortgage
EXHIBIT I-1 - Parent Guaranty
EXHIBIT I-2 - Inland Refining Guaranty
EXHIBIT J - Intentionally Omitted
EXHIBIT K - Intercreditor Agreement
EXHIBIT L - Warrants
- iii -
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT (this "Agreement") is made as of September 23,
1997, by and among Inland Production Company, a Texas corporation ("BORROWER"),
Inland Resources Inc., a Washington corporation ("PARENT"), Trust Company of the
West, in its capacity as holder of the Note described below (in such capacity,
"NOTEHOLDER"), and TCW Asset Management Company, in its capacities as Agent and
Collateral Agent (as described below). In consideration of the mutual covenants
and agreements contained herein the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
Section 1.1. Defined Terms. As used in this Agreement, each of the
-------------
following terms has the meaning given in this Section 1.1, in Annex A attached
-----------
hereto, in the Intercreditor Agreement (as defined in Annex A) if specifically
referred to in this Section 1.1, Annex A or otherwise as being defined the
Intercreditor Agreement (regardless of whether the Intercreditor Agreement is in
effect) or in the sections and subsections referred to below:
"2% AFFILIATE" means, as to any Person, (a) any Person directly or
indirectly owning, controlling or holding with power to vote 2% or more of the
outstanding voting securities of such Person, (b) any Person 2% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by such Person, (c) any Person directly or indirectly
controlling, controlled by or under common control with such Person, and (d) any
officer, director, partner or sanguinal or affinal kin of such Person or any
Person described above in clause (c) of this paragraph.
"12.5% IRR" has the meaning given such term in Schedule 5. Schedule 5
also defines when a 12.5% IRR has been achieved by TCW.
<PAGE>
"100% QUARTER" means a Fiscal Quarter for which any of the following
applies:
(i) An Event of Default has occurred on or before the Quarterly
Payment Date thereof and has not been waived by the Agent, Collateral Agent
or the Noteholder;
(ii) Borrower is unable to make the Scheduled Minimum Principal
Payment; or
(iii) A Coverage Deficiency exists on the Quarterly Payment Date.
During a 100% Quarter, 100% of ANCF shall be applied in the order of the ANCF
Hierarchy.
"A NOTE" has the meaning given in Section 2.1.
-----------
"ADDITIONAL INTEREST" has the meaning given in Section 2.8.
-----------
"ADJUSTED INVESTMENT" means the sum, at the time in question, of:
(i) the then-outstanding principal amount of the Bank Debt;
(ii) the then-outstanding principal amount of the Notes;
(iii) any past due interest owing on the Notes or the Bank Debt;
(iv) any outstanding expenses or fees owed to Agent Bank, Agent,
Collateral Agent or Noteholder; and
(v) if Working Capital is a negative number, the absolute value
of such Working Capital.
"ADVANCE" has the meaning given in Section 2.1.
-----------
- 2 -
<PAGE>
"AGENT" has the meaning given in Section 6.5.
-----------
"AGENT BANK" means ING (U.S.) Capital Corporation, as agent under the
Bank Credit Agreement, together with its successors and assigns in such
capacity.
"AGREEMENT" means this Credit Agreement.
"ALLOWED BANK INDEBTNESS" has the meaning given in the Intercreditor
Agreement.
"APPROVAL LETTER" has the meaning given it in the Intercreditor
Agreement.
"APPROVED SALES OR FINANCINGS" has the meaning given in the
Intercreditor Agreement.
"B NOTE" has the meaning given in Section 2.1.
-----------
"BANK CREDIT AGREEMENT" means that certain Credit Agreement dated as
of even date herewith among Borrower, Agent Bank and the other financial
institutions named therein from time to time as lenders.
"BANK DEBT" means all Debt of Borrower, Parent or any Subsidiary of
Borrower or Parent owing under any Bank Document to Agent Bank or Banks.
"BANK DOCUMENTS" mean, collectively, (a) the Bank Credit Agreement,
(b) all promissory notes made by Borrower evidencing the Bank Debt, (c) the Bank
Interest Hedge Agreement, (d) all security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by Borrower or Parent in
connection with the Bank Credit Agreement and notes or any transaction
contemplated thereby to secure or guarantee the payment or performance of any
part of the obligations and duties of Borrower under such Loan Agreement and
notes, and (e) all other agreements, certificates, documents,
- 3 -
<PAGE>
instruments and writings at any time delivered in connection with any of the
foregoing.
"BANKS" means any lender from time to time a party to the Bank Credit
Agreement.
"BORROWER" means Inland Production Company, a Texas corporation.
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public both in the State of
California and in the State of Colorado.
"CALCULATION QUARTER" has the meaning given in the Intercreditor
Agreement.
"CLOSING DATE" means September 30, 1997.
"COLLATERAL AGENT" has the meaning given in Section 6.5.
-----------
"COVERAGE DEFAULT" has the meaning given in Section 5.3.
-----------
"COVERAGE DEFICIENCY" has the meaning given in Section 5.3.
-----------
"COVERAGE RATIO" has the meaning given in Section 5.2.
-----------
"CRYSEN REFINERY" means that certain refinery located in Woods Cross,
Utah which is the subject of the Crysen Acquisition Documents.
"DEFAULT" means any Coverage Default, any Event of Default, and any
default, event or condition which would, with the giving of any requisite
notices and the passage of any requisite periods of time, constitute an Event of
Default.
"EVENT OF DEFAULT" has the meaning given in Section 7.1.
-----------
- 4 -
<PAGE>
"HIGHEST LAWFUL RATE" means the maximum nonusurious rate of interest
that Noteholder is permitted under applicable law to contract for, take, charge,
or receive with respect to the Obligation in question.
"INLAND REFINING GUARANTY" means the Guaranty of even date herewith
made by Inland Refining for the benefit of Noteholder, in the form of
Exhibit I-2.
"INITIAL AMORTIZATION DATE" means the earliest to occur of the
following: (i) December 31, 2003, the maturity date of the Allowed Bank
Indebtedness; (ii) the date on which all Allowed Bank Indebtedness has been
repaid; (iii) the date of any acceleration of any Allowed Bank Indebtedness; and
(iv) the date of any acceleration of the Obligations.
"INLAND REFINING" means Inland Refining, Inc., a Utah corporation.
"INTERCREDITOR AGREEMENT" means an Intercreditor Agreement of even
date herewith executed by Borrower, Agent, Noteholder, Agent Bank and the Banks
in the form attached hereto as Exhibit K.
"LATE PAYMENT RATE" means, at the time in question, twelve percent
(12%) per annum, provided, however, that the Late Payment Rate shall in no event
exceed the Highest Lawful Rate.
"LEASE VALUE AMOUNT" has the meaning given in Section 5.2.
-----------
"LENDER" means the Noteholder.
"LOAN" has the meaning given in Section 2.1.
-----------
"LOAN DOCUMENTS" means this Agreement, the Note, the Intercreditor
Agreement, the Security Documents, the Warrant Documents, and all other
agreements, certificates, documents, instruments and writings at any time
delivered in connection herewith or therewith (exclusive of all term sheets,
commitment letters, correspondence and similar documents used in the negotiation
hereof, except to the extent the same contain
- 5 -
<PAGE>
information about Borrower or its Affiliates, properties, business or
prospects).
"LOAN DOCUMENT DISBURSEMENTS" shall have the meaning given in
Schedule 5.
"LOAN DOCUMENT PAYMENTS" shall have the meaning given in Schedule 5.
"MATURITY DATE" means December 31, 2006.
"MAXIMUM LOAN AMOUNT" means $75,000,000.
"MODIFIED NPV" means, at the time in question, based on the then most
recent calculations of NPV, the sum of:
(a) the NPV of 90% to 100% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved
Developed Producing Reserves attributable to the Eligible Mortgaged
Properties;
(b) the NPV of 80% to 90% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved
Developed Nonproducing Reserves attributable to the Eligible Mortgaged
Properties;
(c) the NPV of 60% to 90% (as chosen at such time by Agent or
Collateral Agent in its sole and absolute discretion) of any Proved
Undeveloped Reserves attributable to the Eligible Mortgaged Properties;
provided, however, that:
(i) Modified NPV shall be zero for any such Proved Developed
Nonproducing Reserves or Proved Undeveloped Reserves if (1) Borrower has
not scheduled consistent with the Plan of Development the capital
expenditures necessary to bring such reserves into production (as
contemplated in such Engineering Report) to be made at or prior to the time
contemplated in such Engineering Report, (2) such capital expenditures have
not been approved by means of an Approval
- 6 -
<PAGE>
Letter, (3) Noteholder does not reasonably expect that Borrower will have
funds available to make such capital expenditures, or (4) Noteholder has
not concurred with the amount of such reserves as reflected in the
Engineering Report most recently given prior to the calculation of such
Modified NPV or the engineer in the Engineering Report has determined that
the investment of the scheduled development expenditures to develop such
reserves (i.e., to bring into production) will not produce on a risked
basis (i.e., to the same extent as the particular reserves are risked in
the calculation of Modified NPV) a fifteen percent (15%) internal rate of
return per annum on such scheduled development expenditures.
No category of reserves other than Proved Reserves shall be taken into account
in determining Modified NPV.
"MORTGAGE" means the Deed of Trust, Mortgage, Line of Credit Mortgage,
Assignment, Security Agreement, Fixture Filing and Financing Statement,
substantially in the form of Exhibit H, which Borrower or Parent executes and
delivers to Collateral Agent in connection herewith.
"NOTES" means, collectively, the A Note and the B Note.
"NOTEHOLDER" means Trustco, acting in its capacity as Sub-Custodian
for Mellon Bank for the benefit of Account No. CPFF 873-3032, together with its
successors and assigns as holder of any Note.
"NOTEHOLDER GOVERNING DOCUMENTS" has the meaning given in Section 6.5.
-----------
"OBLIGATIONS" means the sum of (a) all Debt from time to time owing by
any of the Related Persons to Noteholder, Collateral Agent or Agent under or
pursuant to any of the Loan Documents, plus (b) all other Debt from time to time
owing by any of the Related Persons to any of Noteholder, Collateral Agent, or
Agent. "OBLIGATION" means any part of the Obligations.
"OTHER ALLOWED DEBT" means the Bank Debt.
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<PAGE>
"OTHER LOAN DOCUMENTS" means the Bank Documents.
"PARENT GUARANTY" means that Guaranty of even date herewith made by
Parent for the benefit of Noteholder, in the form of Exhibit I-1.
"PLAN OF DEVELOPMENT" or "POD" means the Plan of Development as such
is approved annually, beginning with the period from January 1, 1998 to December
31, 1998, by Borrower, Agent and Agent Bank or is modified or replaced from time
to time by agreement among Borrower, Agent and Agent Bank. The first such POD
must be approved by December 1, 1997.
"PROBABLE RESERVES" means "Probable Reserves" as defined in the
Definitions for Oil and Gas Reserves promulgated by the Society of Petroleum
Engineers (or any generally recognized successor) as in effect at the time in
question.
"QUARTERLY PAYMENT" means that payment of principal to be made on a
Quarterly Payment Date pursuant to Section 2.5.
-----------
"REQUEST FOR ADVANCE" means a written request made by Borrower which
meets the requirements of Section 2.3.
-----------
"REQUIRED LENDERS" means any one of Agent, Collateral Agent or any
Noteholder or Noteholders holding Notes evidencing 66 2/3% of the outstanding
amount of the Loan.
"SCHEDULED BANK PAYMENTS" has the meaning given in Section 2.6.
-----------
"SCHEDULED MINIMUM PRINCIPAL PAYMENT" has the meaning given in
Section 2.5.
- -----------
"SECURITY DOCUMENTS" means the Mortgage, the Parent Guaranty, the
Inland Refining Guaranty, any other instruments listed in the Security Schedule,
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any
- 8 -
<PAGE>
Related Person to Noteholder, Agent or Collateral Agent in connection with this
Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Related
Person's other duties and obligations under the Loan Documents.
"SECURITY SCHEDULE" means Schedule 2 hereto.
"TAMCO" means TCW Asset Management Company, a California corporation,
provided that as used in Annex's A, B, C and D the term "Tamco" shall mean Tamco
in its capacity as Agent.
"TCW ENTITY" has the meaning given in Section 7.5.
-----------
"TRUSTCO" means Trust Company of the West, a California trust company.
"UNEVALUATED PROPERTY" means any Property owned by Borrower and
located in the Uinta Basin that, at the time in question (a) is not evaluated in
the then most-recent Engineering Report (or supplemental information) delivered
to Noteholder as having Proved Reserves attributed thereto, and (b) is not
otherwise included, or reasonably anticipated to be included, in the proration
unit or drilling and spacing unit allocable to any Property of Borrower that has
been so evaluated as having Proved Reserves attributed thereto; provided that no
Property subject to Liens permitted under Section C.19(c) of Annex C is to be
---------------
included herein.
"WARRANT AGREEMENT" means that certain Warrant Agreement dated as of
even date herewith between Parent and Warrant Holder.
"WARRANT DOCUMENTS" means, collectively, the Warrant Agreement and the
Warrants.
"WARRANT HOLDER" means, initially, TCW Portfolio No. 1555 DR V
Sub-Custody Partnership, L.P., a California limited partnership, and any other
Person holding the Warrant.
- 9 -
<PAGE>
"WARRANTS" means the warrants in the form of Exhibit L issued by
Borrower to Noteholder.
"WORKING CAPITAL" has the meaning given in Section C.27 of Annex C.
------------
Section 1.2. Exhibits and Schedules; Additional Definitions. All
----------------------------------------------
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Certain additional terms may be defined in the Security Schedule and
used but not defined in the body of this Agreement; reference is hereby made to
the Security Schedule for the meaning of any such terms.
Section 1.3. Amendment of Defined Instruments. Unless the context
--------------------------------
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement
---------------------
to Exhibits, Schedules, Annexes, articles, sections, subsections and other
subdivisions refer to the Exhibits, Schedules, Annexes, articles, sections,
subsections and other subdivisions of this Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any subdivisions are for
convenience only and do not constitute any part of such subdivisions and shall
be disregarded in construing the language contained in such subdivisions. The
words "this Agreement", "this instrument", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation." Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the
- 10 -
<PAGE>
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
Section 1.5. Calculations and Determinations. All fees and interest
-------------------------------
accruing under the Loan Documents shall be calculated on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 360
days. Unless otherwise expressly provided herein or unless Noteholder other
wise consents all financial statements and reports furnished to Noteholder
hereunder shall be prepared and all financial computations and determinations
pursuant hereto shall be made in accordance with GAAP. Each matter to be
determined, consented or agreed to, or accepted by Noteholder, Agent or
Collateral Agent under the Loan Documents (such as the determination of Modified
NPV) shall be made by Noteholder, Agent or Collateral Agent in its sole and
absolute discretion, unless the applicable provision expressly states that the
determination, consent, agreement or acceptance by Noteholder, Agent or
Collateral Agent is to be made in compliance with some express restriction on
Noteholder's, Agent's, or Collateral Agent's discretion (for example, if
Noteholder's consent to a particular matter is required "not to be unreasonably
withheld").
ARTICLE II
THE LOAN
Section 2.1. Advance; Interest. Subject to the terms and conditions
-----------------
hereof, Noteholder agrees to make one advance to Borrower (the "ADVANCE"), the
amount of which Advance shall not exceed the Maximum Loan Amount. The
obligation of Borrower to repay the aggregate amount of the Advance made by
Noteholder (the "LOAN"), together with interest accruing in connection
therewith, shall be evidenced by two (2) promissory notes, one in the original
principal amount of $65,000,000 (the "A NOTE") and one in the original principal
amount of $10,000,000 (the "B NOTE") made by Borrower in the form of Exhibits
A-1 and A-2 with appropriate insertions, payable to the order of Noteholder.
Amounts borrowed and repaid on the Notes may not be reborrowed hereunder.
Subject to the terms hereof and of the Notes, the unpaid principal of the Notes
(exclusive of any past due
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<PAGE>
principal or interest) from time to time outstanding shall bear interest on each
day outstanding at the rate of nine and three quarters percent (9.75%) per
annum, payable quarterly on each Quarterly Payment Date, calculated as of the
last day of the Fiscal Quarter then ending. All principal and interest owed
under the Notes and which has not been paid when due shall bear interest on each
day outstanding at the Late Payment Rate in effect on such day, and such
interest shall be due and payable daily as it accrues.
Section 2.2. Request for Advance. The request for an Advance must be
-------------------
made in the form and substance of the Request for Advance attached hereto as
Exhibit B, duly completed. If all conditions precedent to such Advance have
been met, Noteholder will on the date requested make such Advance available to
Borrower in immediately available funds at such account and bank as Borrower may
specify with such Request for Advance.
Section 2.3. Use of Proceeds. Borrower shall use the funds from the
---------------
Advance to (i) make the Equitable Acquisition and to pay its costs related to
the Equitable Acquisition; (ii) to provide Borrower working capital (or to pay
down the Bank Debt); and (iii) to pay the costs and expenses related to the Bank
Debt and the Loan. In no event shall the funds from any Advance be used
directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any "margin
securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin securities. Borrower
represents and warrants to Noteholder that Borrower is not engaged principally,
or as one of Borrower's important activities, in the business of extending
credit to others for the purpose of purchasing or carrying such margin stock or
margin securities.
Section 2.4. Funding Fees. On the date on which the Advance is made,
------------
Borrower shall pay to Noteholder a funding fee
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<PAGE>
in an amount equal to three percent (3%) of the amount of the Advance.
Section 2.5. Principal Payments.
------------------
(a) The outstanding principal balance of the Notes shall be due and
payable in full on the Maturity Date.
(b) On each Quarterly Payment Date, beginning with the first Quarterly
Payment Date after the Initial Amortization Date and continuing until the
Maturity Date, Borrower will make a payment of principal on account of the
outstanding principal balance of the Loan in an amount equal to the greater of:
(i) ninety percent (90%) of ANCF (less the interest payments made on the Notes
on such Quarterly Payment Date pursuant to Section 2.1 hereof); or (ii) in the
-----------
amount (the "SCHEDULED MINIMUM PRINCIPAL PAYMENT") set forth below in the
following table opposite the applicable Quarterly Payment number:
<TABLE>
<CAPTION>
Quarterly Payment Scheduled Minimum
Number Principal Payment
------ -----------------
<S> <C>
1-4 $6,250,000
5-8 $8,750,000
9-12 $3,750,000
</TABLE>
Section 2.6. Principal Payments from ANCF.
----------------------------
(a) Schedule 4 sets forth the amounts and dates for payment of all
principal payments of Allowed Bank Indebtedness which are required under the
Bank Documents (the "SCHEDULED BANK PAYMENTS"). All parties hereto acknowledge
and agree that, on or before the Quarterly Payment Date following each
Calculation Quarter, all ANCF with respect to such Calculation Quarter (and any
proceeds from Approved Sales or Financings which are used to pay Bank Debt or
the Obligations) shall be applied in the order of the ANCF Hierarchy as set
forth in Section 3 of the Intercreditor Agreement.
---------
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<PAGE>
(b) Together with each payment made pursuant to this Section 2.6,
-----------
Borrower shall deliver to Noteholder a report in detail acceptable to Noteholder
setting out a detailed calculation of the ANCF for such Calculation Quarter.
Any principal payments made out of ANCF pursuant to this Section 2.6 will be
-----------
applied toward the minimum principal payments required under Section 2.5 on the
-----------
applicable Quarterly Payment Date, but the minimum principal payments required
under Section 2.5 will be required regardless of the amount of the payments
-----------
based on ANCF which are required under this Section 2.6.
-----------
(c) So long as no Event of Default has occurred and is then
continuing, Noteholder shall first apply all principal payments on the Loan made
pursuant to the preceding subsection (b) to the payment of any minimum principal
payment then required under Section 2.5 and shall then apply any remaining
-----------
payments made pursuant to this section to the prepayment, without premium or
penalty, of the principal payments thereafter required under Section 2.5 in the
-----------
inverse order of their maturity.
(d) If any Event of Default has occurred and is continuing, and if no
Bank Debt is then outstanding, then Noteholder may in its sole and absolute
discretion apply the ANCF as it elects to the various Obligations which are then
due and payable.
Section 2.7. Optional Prepayments in Whole. In addition to the
-----------------------------
payments required under Sections 2.5 and 2.6, Borrower may, at any time after
------------ ---
October 1, 1999 and after Borrower has given at least forty-five (45) days
advance notice to Noteholder, from time to time and without premium or penalty
prepay the Notes, in whole but not in part. Any prepayment of principal made
under this section shall be accompanied by all interest then accrued and unpaid
on the principal so prepaid. Prior to October 1, 1999, Borrower may not prepay
any principal of the Notes without the prior written consent of the Required
Lenders, which consent may be given or withheld in their sole and absolute
discretion.
Section 2.8. Additional Interest. Concurrently with the final
-------------------
payment of all principal and interest on the A Note
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<PAGE>
(whether at its stated maturity date, as a result of mandatory or optional
prepayments, or otherwise) or, if earlier, upon the acceleration of the A Note,
Noteholder shall be entitled to receive additional payment (the "ADDITIONAL
INTEREST") in cash in the amount required to give Noteholder a 12.5% IRR on the
entire amount of the Loan Document Disbursements with respect to the A Note, and
Borrower shall be obligated to pay the Additional Interest (it being understood
and agreed that the Additional Interest is in addition to the principal and
stated interest owing on the Loan, represents deferred compensation for the
making and commitment to make the Loan, and in no way constitutes a penalty).
Section 2.9. General Payment Provisions. Borrower will make each
--------------------------
payment which it owes under the Loan Documents such that payment is received by
Noteholder no later than 11:00 a.m., Boston, Massachusetts time, on the date
such payment becomes due and payable, in lawful money of the United States of
America, without set-off, deduction or counterclaim, and in immediately
available funds sent by wire transfer in care of:
Boston Safe Deposit
ABA No. 011001234
Real Estate Wiring No. 039624
Cost Center No. 3137
Re: Mellon Bank / Morgan Stanley / Fund V /Inland
Account No. CPFF 873-3032
(or to such other bank and accounts as Noteholder may from time to time
specify). Any payment received by Noteholder after such time will be deemed to
have been made on the next following Business Day. Should any such payment
become due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. Each payment under a Loan Document
shall be due and payable at the place provided therein and, if no specific place
of payment is provided, shall be due and payable at the place of payment of the
Note. When Noteholder collects or
- 15 -
<PAGE>
receives money on account of the Obligations which is insufficient to pay all
Obligations then due and payable, Noteholder may apply such money as it elects
to the various Obligations which are then due and payable.
ARTICLE III
CONDITIONS PRECEDENT TO LENDING
Section 3.1. Documents to be Delivered. Noteholder has no obligation
-------------------------
to make the Advance unless Noteholder shall have received all of the following,
at Trustco's office in Los Angeles, California or at such other place as may be
designated by Noteholder, duly executed and delivered and in form, substance and
date satisfactory to Noteholder:
(a) The Notes;
(b) The Mortgage, the Parent Guaranty, the Inland Refining Guaranty
and each other Security Document listed in the Security Schedule;
(c) An "Omnibus Certificate" of the Secretary and of the Chief
Executive Officer and President of Borrower, which shall contain the names and
signatures of the officers of Borrower authorized to execute Loan Documents and
which shall certify to the truth, correctness and completeness of the following
exhibits attached thereto: (i) a copy of resolutions duly adopted by the Board
of Directors of Borrower and in full force and effect at the time this Agreement
is entered into, authorizing the execution of this Agreement and the other Loan
Documents delivered or to be delivered in connection herewith and the
consummation of the transactions contemplated herein and therein, (ii) a copy of
the charter documents of Borrower and all amendments thereto, certified by the
appropriate official of Borrower's state of organization, and (iii) a copy of
any bylaws of Borrower;
(d) An "Omnibus Certificate" of the Secretary and of the Chief
Executive Officer and President of Parent, which shall contain the names and
signatures of the officers of Parent
- 16 -
<PAGE>
authorized to execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached thereto: (i) a
copy of resolutions duly adopted by the Board of Directors of Parent and in full
force and effect at the time this Agreement is entered into, authorizing the
execution of the Loan Documents to which Parent is a party delivered or to be
delivered in connection herewith and the consummation of the transactions
contemplated herein and therein, (ii) a copy of the charter documents of Parent
and all amendments thereto, certified by the appropriate official of Parent's
state of organization, and (iii) a copy of any bylaws of Parent;
(e) An "Omnibus Certificate" of the Secretary and of the Chief
Executive Officer and President of Inland Refining, which shall contain the
names and signatures of the officers of Inland Refining authorized to execute
Loan Documents and which shall certify to the truth, correctness and
completeness of the following exhibits attached thereto: (i) a copy of
resolutions duly adopted by the Board of Directors of Parent and in full force
and effect at the time this Agreement is entered into, authorizing the execution
of the Loan Documents to which Parent is a party delivered or to be delivered in
connection herewith and the consummation of the transactions contemplated herein
and therein, (ii) a copy of the charter documents of Parent and all amendments
thereto, certified by the appropriate official of Inland Refining's state of
organization, and (iii) a copy of any bylaws of Inland Refining;
(f) A certificate (or certificates) of the due formation, valid
existence and good standing of each of Borrower, Parent and Inland Refining in
its state of organization, issued by the appropriate authorities of such
jurisdiction;
(g) A "Compliance Certificate" of the Chief Executive Officer and
President and of the chief financial officer of Borrower, in their capacities as
such officers, of even date with the Loan, in which such Persons certify to the
satisfaction of the conditions set out in subsections (a), (b), (c) and (d) of
Section 3.2;
- -----------
- 17 -
<PAGE>
(h) (i) A favorable opinion of Glast, Phillips, & Murray, P.C.,
counsel for Related Persons, substantially in the form set forth in Exhibit G-1,
together with the certificate provided for in such certificate, (ii) a favorable
opinion of Welborn, Sullivan, Mech & Tooley, P.C., special Colorado counsel for
Related Persons, substantially in the form set forth in Exhibit G-2, and (iii) a
favorable opinion, in form satisfactory to Noteholder, from its special
California counsel, Milbank, Tweed, Hadley and McCloy;
(i) Certificates of Borrower's and Parent's good standing and due
qualification to do business, issued by appropriate officials in any states in
which Borrower or Parent owns property subject to Security Documents;
(j) A Phase One Environmental Report covering the Properties
mortgaged under the Mortgage, which has been prepared by a consultant approved
by Noteholder and which is satisfactory to Noteholder in form and substance;
(k) True and complete copies of the Equitable Acquisition Documents;
(l) The Intercreditor Agreement;
(m) The Plan of Development;
(n) True and complete copies of the Bank Documents;
(o) The Warrant Documents;
(p) Title opinions and other title information concerning the
properties acquired pursuant to the Equitable Acquisition in form, substance and
authorship satisfactory to Noteholder;
(q) The Initial Engineering Reports; and
(r) An amendment to the Crysen Acquisition Documents in form and
substance satisfactory to the Noteholder.
- 18 -
<PAGE>
Section 3.2. General Conditions Precedent. Noteholder has no
----------------------------
obligation to make the Advance unless the following conditions precedent have
been satisfied:
(a) All representations and warranties made by any Related Person in
any Loan Document shall be true in all material respects on and as of the date
of the Advance (except to the extent that the facts upon which such
representations are based have been changed by the extension of credit
hereunder) as if such representations and warranties had been made as of the
date of the Advance.
(b) No Default or Coverage Deficiency shall exist at the date of the
Advance, either before or after giving effect thereto.
(c) No material adverse change shall have occurred to Borrower's or
Inland Refining's individual (or Parent's Consolidated) financial condition,
assets, operation, businesses or prospects since the date of this Agreement, and
no material environmental condition, circumstance or event shall have occurred
on or relating to any Property of any Related Person, or become known to any
Related Person, since the date of, or which was not reflected in, the
environmental reports described in Sections 3.1(j) and 3.3 (e).
--------------- -------
(d) Each Related Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Advance.
(e) The making of the Loan shall not be prohibited by any law or any
regulation or order of any court or governmental agency or authority and shall
not subject Noteholder, Agent or Collateral Agent to any penalty or other
onerous condition under or pursuant to any such law, regulation or order.
(f) Noteholder shall have received all documents and instruments
which Noteholder has then requested, in addition to those described in
Sections 3.1 and 3.2 (including opinions of legal counsel for the Related
- ------------ ---
Persons and Noteholder; corporate
- 19 -
<PAGE>
documents and records; documents evidencing governmental authorizations,
consents, approvals, licenses and exemptions; and certificates of public
officials and of officers and representatives of Borrower and other Persons),
as to (i) the accuracy and validity of or compliance with all representations,
warranties and covenants made by any of the Related Persons in this Agreement
and the other Loan Documents, (ii) the satisfaction of all conditions contained
herein or therein, and (iii) all other matters pertaining hereto and thereto.
All such additional documents and instruments shall be satisfactory to
Noteholder in form, substance and date.
(g) All legal matters relating to the Loan Documents and the
consummation of the transactions contemplated thereby shall be satisfactory to
Noteholder's counsel.
Section 3.3. Crysen Acquisition. Borrower shall not provide funds to
------------------
Inland Refining or Parent for, nor shall Parent permit Inland Refining to enter
into, the Crysen Acquisition unless:
(i) each of Noteholder and Agent Bank shall have given its approval to
the Crysen Acquisition in an Approval Letter;
(ii) The representation and warranty set forth in Section B.12 of Annex B
------------
shall be true and correct as of the date of such Crysen Acquisition and as of
the time immediately after the closing of the Crysen Acquisition; and
(iii) Noteholder shall have received all of the following, duly executed
and delivered and in form, substance and date satisfactory to Noteholder:
(a) A mortgage encumbering the Crysen refinery;
(b) A security agreement executed by Borrower covering the collateral
described in the mortgage described in (a) above;
(c) A title insurance policy concerning the Crysen refinery in form,
substance and authorship satisfactory to Noteholder;
- 20 -
<PAGE>
(d) Favorable opinions of Glast, Phillips, & Murray, P.C. and such
other counsel for the Related Persons in form and substance satisfactory to
Noteholder;
(e) One or more environmental reports covering the Crysen refinery,
which has been prepared by a consultant approved by Noteholder and Agent Bank
and which is satisfactory to Noteholder and Agent Bank in form and substance;
(f) A bank facility to finance the operation and expansion of the
Crysen refinery acceptable to Noteholder;
(g) A plan of operation for (including the expansion of) the Crysen
refinery acceptable to Noteholder;
(h) Proof of insurance and the levels of coverage for the Crysen
refinery, all acceptable to Noteholder; and
(i) Any other due diligence information reasonably requested by
Agent, Collateral Agent or Noteholder in connection with Inland Refining's
acquisition of, and Noteholder's financing for, the Crysen refinery.
Borrower and Parent hereby expressly acknowledge and agree that Noteholder and
Agent Bank have no obligation to approve the Crysen Acquisition, and if either
Noteholder or Agent Bank disapproves the Crysen Acquisition for any reason in
its sole and absolute discretion, none of Noteholder, Agent, Collateral Agent or
Agent Bank shall be liable to Borrower, Parent or Inland Refining or to any
party to the Crysen Acquisition for such disapproval. Borrower, Parent and
Inland Refining hereby release Noteholder, Agent, Collateral Agent and Agent
Bank from any claims arising from the failure to approve the Crysen Acquisition
and agree to indemnify Noteholder, Agent, Collateral Agent and Agent Bank from
and against any and all liabilities, obligations, claims, losses, damages,
penalties, fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, accountants, experts and
advisors) of any kind or nature whatsoever which to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against Noteholder, Agent,
Collateral Agent or Agent Bank growing out of,
- 21 -
<PAGE>
resulting from or in any other way associated with the failure to approve the
Crysen Acquisition.
Section 3.4. Conditions Precedent for Additional Bank Loan Advances.
------------------------------------------------------
Borrower shall be permitted to obtain additional advances under the Bank Credit
Agreement only if:
(a) no Coverage Deficiency or Default exists or would exist upon the
making of the advance;
(b) such advances are used to develop Eligible Proved Properties
pursuant to the Plan of Development;
(c) such advance amounts, in the aggregate with the initial advance,
do not exceed the maximum amount of the Allowed Bank Indebtedness; and
(d) Borrower has provided Noteholder with a Notice of Bank Advance in
the form of Exhibit C attached hereto at least one day before delivered to the
Agent Bank, and all representations and warranties made by Borrower in such
Notice of Bank Advance shall be true in all material respects on and as of the
date of such Notice of Bank Advance and as of the date such advance is to be
made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Borrower's and Parent's Representations and Warranties.
------------------------------------------------------
To confirm Noteholder's understanding concerning Borrower, Parent and their
business, properties and obligations and to induce Noteholder to enter into this
Agreement and to make the Loan, Borrower and Parent each represent and warrant
to Noteholder that each of the statements in Annex B is true and correct in all
respects.
Section 4.2. Representation and Disclosures by Noteholder.
--------------------------------------------
Noteholder hereby represents that Noteholder will acquire the Note for its own
account in the ordinary course of its business; however, the disposition of
Noteholder's property shall at all times be and remain within its control and,
in
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<PAGE>
particular and without limitation, Noteholder may sell or otherwise transfer the
Note, any participation interest or other interest in the Note, or any of its
other rights and obligations under the Loan Documents.
ARTICLE V
COVENANTS OF BORROWER
Section 5.1. Covenants. To conform with the terms and conditions
---------
under which Noteholder is willing to have credit outstanding to Borrower, and to
induce Noteholder to enter into this Agreement and make the Loan, Parent and
Borrower each warrant, covenant and agree that, until the full and final payment
of the Obligations and the termination of this Agreement, unless Noteholder has
previously agreed otherwise:
(a) Payment and Performance. Borrower will pay all amounts due under
-----------------------
the Loan Documents in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition expressed or implied
in the Loan Documents. Borrower and Parent will cause each other Related Person
to observe, perform and comply with every such term, covenant and condition
which is applicable to such Related Person.
(b) Payment of Expenses. Whether or not the transactions
-------------------
contemplated by this Agreement are consummated, Borrower will promptly (and in
any event, within 30 days after any invoice or other statement or notice) pay
(A) Agent's and Collateral Agent's direct out-of-pocket expenses in the amount
of $25,000 and (B) all third-party costs and expenses incurred by or on behalf
of Noteholder, Agent or Collateral Agent (including reasonable attorneys' fees)
in connection with (i) the negotiation, preparation, execution and delivery of
the Loan Documents, and any and all consents, waivers or other documents or
instruments relating thereto, (ii) the filing, recording, refiling and
re-recording of any Loan Documents and any other documents or instruments or
further assurances required to be filed or recorded or refiled or re-recorded by
the terms of any Loan Document, (iii) the borrowings hereunder and other action
reasonably required in the course of administration of the
- 23 -
<PAGE>
various Loan Documents, (iv) the defense or enforcement of the Loan Documents or
the defense of Noteholder's or Collateral Agent's exercise of their rights
thereunder, (v) the reviews contemplated by Section C.16 of Annex C, and (vi) a
------------
semi-annual audit by Noteholder, Agent or Collateral Agent of the Related
Persons' books and records.
(c) Engineering Reports. Borrower will pay all costs and expenses
-------------------
relating to all Engineering Reports.
(d) Board Visitation Rights. Noteholder shall have the right to
-----------------------
appoint two (2) representatives, and such representatives shall: (i) receive
all notice of all meetings (both regular and special) of the respective board of
directors of Borrower and Parent and copies of all unanimous consents presented
to the directors or such board; (ii) be entitled to attend (or, in the case of
telephone meetings, monitor) all such meetings; and (iii) receive as soon as
available (but in any event not later than thirty (30) days after such meetings)
copies of the minutes of all such meetings. If either such board proposes to
take any action by written consent in lieu of a meeting, Borrower will give
written notice to such representatives, which notice shall describe in
reasonable detail the nature and substance of such proposed action. Borrower
will furnish such representatives with a copy of each such written consent not
later than five (5) days after execution. Such representatives shall not be
members of either board and shall not be entitled to vote on any matters
presented at such meetings of the boards or to consent to any matters as to
which the consent of such board has been requested, but shall be entitled to
receive reimbursement for expenses equivalent to that provided members of the
board(s).
(e) Additional Guaranties. Any Subsidiary formed after the date
---------------------
hereof will execute a Guaranty for the benefit of Noteholder in the form of the
Inland Refining Guaranty.
(f) Annex C. All of the covenants contained in Annex C will be
-------
observed.
- 24 -
<PAGE>
Section 5.2. Coverage Ratio.
--------------
(a) On and after July 1, 1998, Borrower shall maintain a Coverage
Ratio (as defined in subsection (b) below) of at least 150% at all times while
--------------
any of the Obligations under the Loan Documents remain outstanding. A Coverage
Ratio of 125% or less at any time is herein called a "COVERAGE DEFAULT", and a
Coverage Ratio of more than 125% but less than 150% at any time is herein called
a "COVERAGE DEFICIENCY". If any Coverage Default exists, Borrower must (or if
any Coverage Deficiency exists, Borrower may in its discretion in order to avoid
a 100% Quarter), within thirty (30) days after obtaining knowledge thereof, cure
such Coverage Default (or Coverage Deficiency), either by furnishing and
mortgaging additional engineered producing oil and gas properties satisfactory
to Noteholder in order to increase Modified NPV or by making payments in order
to reduce the Adjusted Investment; provided that Borrower may not cure more than
two (2) Coverage Defaults by mortgaging additional engineered producing oil and
gas properties.
(b) As used in this section, "COVERAGE RATIO" means at any time in
question the quotient obtained by dividing:
(i) the sum of (A) 100% of the Modified NPV as determined from the
Engineering Report most recently prepared as of such time in question, (B)
the Lease Value Amount (as defined below) and (C) Working Capital,
(ii) by the "ADJUSTED INVESTMENT" at such time.
For purposes of this Section 5.2, the term "LEASE VALUE AMOUNT" means (a) until
-----------
July 1, 1998, the working interest of Borrower in each Unevaluated Property
multiplied by $250 per acre, (b) during the period beginning July 1, 1998 and
ending on June 30, 1999, the working interest of Borrower in each Unevaluated
Property multiplied by $150 per acre, (c) during the period beginning July 1,
1999 and ending on June 30, 2000, the working interest of Borrower in each
Unevaluated Property multiplied by $50 per acre, and (d) at all times after June
30, 2000, zero.
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<PAGE>
ARTICLE VI
SECURITY
Section 6.1. The Security. The Obligations will be secured by the
------------
Security Documents listed in the Security Schedule and by any additional
Security Documents hereafter delivered by any Related Person and accepted by
Collateral Agent.
Section 6.2. Agreement to Deliver Security Documents. Parent and
---------------------------------------
Borrower agree to deliver to further secure the Obligations whenever requested
by Collateral Agent in its sole and absolute discretion, deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other Security Documents in form and substance satisfactory to Collateral Agent
for the purpose of granting, confirming, and perfecting first and prior liens or
security interests in any real or personal property of Borrower or Parent,
except Liens permitted under Section C.19 of Annex C. Borrower also agrees to
------------
deliver, whenever requested by Collateral Agent in its sole and absolute
discretion, favorable title opinions from legal counsel acceptable to Collateral
Agent with respect to Properties designated by Collateral Agent, based upon
abstract or record examinations to dates acceptable to Collateral Agent and (a)
stating that Borrower or Parent has good and defensible title thereto, free and
clear of all Liens other than Permitted Liens, (b) confirming that such
properties and interests are subject to Security Documents, subject to the
provisions of the Bank Documents and Intercreditor Agreement, securing the
Obligations that constitute and create legal, valid and duly perfected first
deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable
thereto and in the proceeds thereof, and (c) covering such other matters as
Collateral Agent may request.
Section 6.3. Perfection and Protection of Security Interests and
---------------------------------------------------
Liens. Borrower and Parent will from time to time deliver to Collateral Agent
- -----
any financing statements, continuation statements, extension agreements and
other documents, properly completed and executed (and acknowledged when
required) in form and substance satisfactory to Collateral Agent, which
Collateral Agent requests for the purpose of perfecting, con-
- 26 -
<PAGE>
firming, or protecting any Liens or other rights in Collateral securing any
Obligations.
Section 6.4. Production Proceeds. Notwithstanding that, by the terms
-------------------
of the Mortgage, Borrower and Parent are or will be assigning to Collateral
Agent all of the "Production Proceeds" (as defined therein) accruing to the
property covered thereby, so long as no Default has occurred Borrower and Parent
may continue to receive from the purchasers of production all such Production
Proceeds, subject, however, to the Liens created under the Security Documents,
which Liens are hereby affirmed and ratified. Upon the occurrence of a Default,
Collateral Agent may exercise all rights and remedies granted under the Security
Documents, subject to the provisions of the Bank Documents and Intercreditor
Agreement, including the right to obtain possession of all Production Proceeds
then held by Borrower or Parent and to receive directly from the purchasers of
production all other Production Proceeds. In no case shall any failure, whether
purposed or inadvertent, by Collateral Agent to collect directly any such
Production Proceeds constitute in any way a waiver, remission or release of any
of its rights under the Security Documents, nor shall any release of any
Production Proceeds by Collateral Agent to Borrower or Parent constitute a
waiver, remission, or release of any other Production Proceeds or of any rights
of Collateral Agent to collect other Production Proceeds thereafter.
Section 6.5. Appointment of Agent and Collateral Agent.
-----------------------------------------
(a) Agent. Noteholder hereby appoints Tamco as agent (together with
-----
its successors in such capacity herein called "AGENT") to act for and on behalf
of Noteholder under or pursuant to this Agreement and the other Loan Documents,
and Tamco hereby accepts such appointment. Agent is authorized to act on behalf
of Noteholder in (i) exercising rights and remedies with respect to Collateral
(which may be delegated to Collateral Agent) or with respect to any other matter
under any of the Loan Documents, (ii) giving notices or instructions to
Borrower, (iii) receiving information from or notices by Borrower, and (iv)
communicating to Borrower determinations required or permitted to be made under
- 27 -
<PAGE>
this Agreement or any other Loan Document. Agent may, on behalf of Noteholder,
take any other action which Noteholder is entitled to take hereunder or under
any of the Loan Documents. Borrower and Parent may rely on any action of Agent
as binding upon Noteholder. Such appointment of Tamco as Agent shall not,
however, impair or modify any rights, obligations or duties which Tamco or any
Affiliate of Tamco otherwise has with respect to Noteholder. In its
administration of this Agreement and the other Loan Documents, except to the
extent to which another standard applies to Tamco by reason of any other
document between Tamco and Noteholder, Agent will exercise the same care that it
exercises in the administration or handling of transactions for its own account,
subject, however, to subsection (g) below.
(b) Collateral Agent. Noteholder hereby appoints Tamco as collateral
----------------
agent (herein, together with its successors and assigns in such capacity,
"COLLATERAL AGENT") under the Loan Documents, to exercise such powers under the
Loan Documents as are delegated to Collateral Agent by the terms thereof,
together with all such powers as are reasonably incidental thereto, including
taking, holding and disposing of the Collateral. Tamco hereby accepts such
appointment. Collateral Agent shall act for and on behalf of Noteholder in
connection with all Collateral and all Security Documents, including serving as
mortgagee under each Mortgage and exercising rights and remedies provided
thereunder. Borrower and Parent may rely on any action of Collateral Agent as
binding upon Noteholder. The Mortgage contemplates that Collateral Agent may
release Collateral in accordance with the terms thereof and Collateral Agent is
hereby authorized to do so if it has received the prior consent of Noteholder,
it being understood that Noteholder itself need not be a party to any such
release. In its administration of this Agreement and the other Loan Documents,
except to the extent to which another standard applies to Tamco by reason of any
other document between Tamco and Noteholder, Collateral Agent will exercise the
same care that it exercises in the administration or handling of transactions
for its own account, subject, however, to subsection (g) below.
(c) Limitation of Duties and Fiduciary Relationship. Neither Agent nor
-----------------------------------------------
Collateral Agent shall have any duties or responsibilities, except those
expressly set forth in:
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<PAGE>
(i) this Agreement;
(ii) the other Loan Documents; and
(iii) the other documents entered into between any of Trustco, Tamco,
Mellon Bank and Morgan Stanley Group, Inc. to establish their relationship
with respect to the funds invested by Noteholder (in this section called
the "NOTEHOLDER GOVERNING DOCUMENTS").
nor shall Agent or Collateral Agent have any additional fiduciary relationship
with Noteholder arising under this section, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents against Agent or Collateral Agent.
(d) Written Directions. Agent or Collateral Agent may at any time
------------------
request written directions from Noteholder with respect to (i) any
interpretation of this Agreement, the Note and the other Loan Documents, or (ii)
any action to be taken or not to be taken hereunder or thereunder, and may
withhold any action until such directions have been received from the
Noteholder. Agent and Collateral Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement in accordance with a
direction of Noteholder under the terms of this Agreement.
(e) Agents and Attorneys. Each of Agent and Collateral Agent may
--------------------
execute any of its respective duties under this Agreement, the Note and the
other Loan Documents by or through agents or attorneys selected by Agent or
Collateral Agent, respectively, using reasonable care. Neither Agent nor
Collateral Agent shall be responsible to Noteholder for the negligence or
misconduct of any agents or attorneys so selected. Agent and Collateral Agent
shall be entitled to the advice of counsel concerning all matters pertaining to
their respective duties hereunder.
(f) Limitation of Liability. Agent, Collateral Agent, and their
-----------------------
respective officers, directors, employees, agents, attorneys-in-fact and
affiliates shall not:
- 29 -
<PAGE>
(i) be liable to Noteholder for any action taken or omitted to be
taken by any of such Persons or for any error in judgment under or in
connection with this Agreement, the Notes or any other Loan Documents,
except for any such Person's gross negligence or willful misconduct; or
(ii) be responsible in any manner to Noteholder or any other Person
for any failure of any other party to perform its obligations under this
Agreement, the Note or any other Loan Document.
Nothing in this subsection, however, shall be deemed to limit or restrict any
liability, fiduciary duty or responsibility of Tamco in any capacity other than
as Agent or Collateral Agent, respectively, including any liability, fiduciary
duty or responsibility under the Noteholder Governing Documents.
(g) Reliance upon Documentation. Each of Agent and Collateral Agent
---------------------------
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or any telephone conversation believed, respectively, by Agent or
Collateral Agent to be genuine and correct and to have been signed, sent, made
or spoken by the proper person or persons, and upon the advice and statements of
legal counsel, independent accountants and other experts selected, respectively,
by Agent or Collateral Agent.
(h) Reliance by Borrower and Parent. Noteholder agrees that, prior to
-------------------------------
the delivery to Borrower or Parent of a notice of the removal or termination of
Tamco as Agent as set forth below, Borrower and Parent shall be entitled to rely
on Tamco's or any subsequent Agent's authority to act on behalf of Noteholder in
all dealings with Tamco (or any such subsequent Agent) with respect to the Loan
and the Loan Documents; Borrower and Parent shall be protected in relying on
actions, communications, notices and terminations relating thereto or required
or permitted thereunder by Agent; and Borrower and Parent shall discharge their
respective obligations under this Agreement and the Loan Documents by delivering
payments, notices and other
- 30 -
<PAGE>
information to Agent. In the event of the removal of Agent and the appointment
of a successor Agent by Noteholder, Borrower and Parent shall not be required to
recognize any such removal or appointment unless and until Borrower and Parent
shall have received a writing setting forth such removal and appointment
executed by Noteholder, and Borrower and Parent shall be entitled to rely on
such writing as being genuine and what it purports to be without any necessity
of any investigation whatsoever. Noteholder similarly agrees that, prior to the
delivery to Borrower and Parent of a notice of the removal or termination of
Tamco as Collateral Agent as set forth below, Borrower and Parent shall be
entitled to rely on Tamco's or any subsequent Collateral Agent's authority to
act on behalf of Noteholder in all dealings with Tamco (or any such subsequent
Collateral Agent) with respect to the Loan and the Loan Documents; and Borrower
and Parent shall be protected in relying on actions, communications, notices and
terminations relating thereto or required or permitted thereunder by Collateral
Agent. In the event of the removal of Collateral Agent and the appointment of a
successor Collateral Agent by Noteholder, Borrower and Parent shall not be
required to recognize any such removal or appointment unless and until Borrower
and Parent shall have received a writing setting forth such removal and
appointment executed by Noteholder, and Borrower and Parent shall be entitled to
rely on such writing as being genuine and what it purports to be without any
necessity of any investigation whatsoever.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default.
-----------------
(a) Each of the following events constitutes an Event of Default
under this Agreement:
(i) Any event listed on Annex D attached hereto.
(ii) Any Material Adverse Change occurs in Borrower's individual
(or Parent's Consolidated) financial condition, assets, business or
operations and
- 31 -
<PAGE>
such adverse change is not remedied within sixty (60) days thereafter.
(iii) The occurrence of (A) a total of three (3) 100% Quarters
within a five (5) consecutive Calendar Quarter period, or (B) a total
of four (4) 100% Quarters prior to repayment in full of the
Obligations; and
(iv) The occurrence of a Coverage Default which is not cured
within thirty (30) days as provided in Section 5.2(a).
--------------
(b) Upon the occurrence of an Event of Default described in
Section D.10 (a), (b) or (c) of Annex D with respect to Borrower or the
- ----------------------------
acceleration of the Other Allowed Debt under the Other Loan Documents, all of
the Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Related Person who at any time
ratifies or approves this Agreement. During the continuance of any other Event
of Default, Noteholder at any time and from time to time may without notice to
Borrower or any other Related Person declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice of demand or of
dishonor and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Borrower
and each Related Person who at any time ratifies or approves this Agreement.
After any such acceleration (whether automatic or due to declaration by
Noteholder), any obligation of Noteholder to make any further loans of any kind
under any agreement with Borrower shall be permanently terminated.
Section 7.2. Remedies. If any Default shall occur and be continuing,
--------
Noteholder may protect and enforce its rights under the Loan Documents by any
appropriate proceedings,
- 32 -
<PAGE>
including proceedings for specific performance of any covenant or agreement
contained in any Loan Document, and Noteholder may enforce the payment of any
Obligations due or enforce any other legal or equitable right. All rights,
remedies and powers conferred upon Noteholder, Agent or Collateral Agent under
the Loan Documents shall be deemed cumulative and not exclusive of any other
rights, remedies or powers available under the Loan Documents or at law or in
equity.
Section 7.3. Indemnity. Borrower and Parent jointly and severally
---------
agree to indemnify each TCW Entity, upon demand, from and against any and all
liabilities, obligations, claims, losses, damages, penalties, fines, actions,
judgments, suits, settlements, costs, expenses or disbursements (including
reasonable fees of attorneys, accountants, experts and advisors) of any kind or
nature whatsoever (in this section collectively called "liabilities and costs")
which to any extent (in whole or in part) may be imposed on, incurred by, or
asserted against such TCW Entity growing out of, resulting from or in any other
way associated with any of the Collateral, the Loan Documents, or the
transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Related Person or any
liabilities or duties of any Related Person or of any TCW Entity with respect to
Hazardous Materials found in or released into the environment). In furtherance
thereof, Borrower and Parent also agree to indemnify each TCW Entity, upon
demand, from and against any all liabilities and costs arising from their
failure to approve the Crysen Acquisition.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR ARE IN ANY EXTENT CAUSED, IN
WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY TCW
ENTITY,
provided only that no TCW Entity shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which (a)
is proximately caused by its
- 33 -
<PAGE>
own individual gross negligence or willful misconduct, as determined in a final
judgment, or by its own individual actions with respect to Collateral in its
possession, or (b) is owed by it to Noteholder as a result of such TCW Entity's
breach of a duty owed by it to Noteholder, but only to the extent proximately
caused by such breach. As used in this section the term "TCW ENTITY" refers to
each of Noteholder, Agent, Collateral Agent, Trustco, Tamco, and each director,
officer, agent, trustee, manager, attorney, employee, representative and
Affiliate of any such Person.
Section 7.4. Substitution of Operator. During the continuance of any
------------------------
Event of Default, Collateral Agent shall (in addition to all of its other
remedies) have the right, exercisable in its sole and absolute discretion, to
demand in writing that Borrower resign as the operator (whether under an
applicable joint operating agreement, in the records of any applicable
regulatory authority, or otherwise) of all or any of the Properties constituting
Collateral. Upon receiving such written demand (in this section called a
"RESIGNATION DEMAND") from Collateral Agent, Borrower shall immediately take
whatever actions are legally available to it in order to facilitate the
succession of a reputable third party, chosen by Collateral Agent in its sole
and absolute discretion, to the position as operator of any property or group of
properties included in the Properties constituting Collateral and covered by the
subject Resignation Demand. Without limitation of the generality of the
foregoing:
(a) In the event Borrower owns one hundred percent (100%) of the
working interest in a Property or group of properties covered by a Resignation
Demand, Borrower shall immediately turn over operation of such Property or group
of Properties to the successor operator chosen by Collateral Agent, and shall
further execute or cause to be executed and filed with the appropriate
regulatory authorities any such instruments as may be requested by Collateral
Agent in order to document or effect such succession.
(b) In the event Borrower owns less than 100% of the working interest
in a Property or group of Properties covered by a Resignation Demand, Borrower
shall:
- 34 -
<PAGE>
(i) notify any nonoperators of its resignation, such
notification to be made in writing and otherwise made in accordance with
the provisions of any applicable joint operating agreement or similar
agreement;
(ii) take whatever action is legally available to it in order to
expedite the effective time that a successor operator shall assume
Borrower's duties as operator (by way of example and not by way of
limitation, Borrower shall facilitate the election and succession of a new
operator without waiting for any applicable grace period to expire under
the operative joint operating agreement or similar agreement); and
(iii) cast its vote under the applicable joint operating
agreement or similar agreement successor operator chosen by Collateral
Agent, and such vote shall be cast by Borrower for the successor chosen by
Collateral Agent both on an interim basis (if called for under the
applicable joint operating agreement or similar agreement) and on a
permanent basis.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Waivers and Amendments; Acknowledgments.
---------------------------------------
(a) Waivers and Amendments. No failure or delay (whether by course
----------------------
of conduct or otherwise) by Noteholder, Agent or Collateral Agent in exercising
any right, power or remedy which either may have under any of the Loan Documents
shall operate as a waiver thereof or of any other right, power or remedy, nor
shall any single or partial exercise by Noteholder, Agent or Collateral Agent of
any such right, power or remedy preclude any other or further exercise thereof
or of any other right, power or remedy. No waiver of any provision of any Loan
Document and no consent to any departure therefrom shall ever be effective
unless it is in writing and signed by Noteholder, Agent or Collateral Agent, and
then such waiver or consent shall be effective only in the specific instances
and for
- 35 -
<PAGE>
the purposes for which given and to the extent specified in such writing. No
notice to or demand on any Related Person shall in any case of itself entitle
any Related Person to any other or further notice or demand in similar or other
circumstances. This Agreement and the other Loan Documents set forth the entire
understanding and agreement of the parties hereto and thereto with respect to
the transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof and
thereof, and no modification or amendment of or supplement to this Agreement or
the other Loan Documents shall be valid or effective unless the same is in
writing and signed by the party against whom it is sought to be enforced.
(b) Acknowledgements and Admissions. Borrower and Parent each hereby
-------------------------------
represent, warrant, acknowledge and admit that (i) it has been advised by
counsel in the negotiation, execution and delivery of the Loan Documents to
which it is a party, (ii) it has made an independent decision to enter into this
Agreement and the other Loan Documents to which it is a party, without reliance
on any representation, warranty, covenant or undertaking by Noteholder, Agent,
or Collateral Agent whether written, oral or implicit, other than as expressly
set out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Noteholder, Agent, or Collateral Agent as to the
Loan Documents except as expressly set out in this Agreement or in another Loan
Document delivered on or after the date hereof, (iv) neither Noteholder nor
Agent nor Collateral Agent owes any fiduciary duty to Borrower or Parent with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower, on one hand, and
Noteholder, Agent and Collateral Agent, on the other hand, is and shall be
solely that of debtor and creditor, respectively, (vi) no partnership or joint
venture exists with respect to the Loan Documents between either of Borrower or
Parent and any of Noteholder, Agent, or Collateral Agent, (vii) should an Event
of Default or Default occur or exist each of Noteholder, Agent and Collateral
Agent will determine in its sole and absolute discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that time,
(viii) without limiting any of the
- 36 -
<PAGE>
foregoing, neither Borrower nor Parent is relying upon any representation or
covenant by Noteholder, Agent, Collateral Agent, or any representative thereof,
and no such representation or covenant has been made, that Noteholder, Agent, or
Collateral Agent will, at the time of an Event of Default or Default, or at any
other time, waive, negotiate, discuss, or take or refrain from taking any action
permitted under the Loan Documents with respect to any such Event of Default or
Default or any other provision of the Loan Documents, and (ix) Noteholder has
relied upon the truthfulness of the acknowledgements in this section in deciding
to execute and deliver this Agreement and to make the Loan.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 8.2. Survival of Agreements; Cumulative Nature. All of the
-----------------------------------------
various representations, warranties, covenants and agreements in the Loan
Documents shall survive the execution and delivery of this Agreement and the
other Loan Documents and the performance hereof and thereof, including the
making or granting of the Loan and the delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to Noteholder, Agent and Collateral Agent and all of Noteholder's
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Related Person to
Noteholder, Agent or Collateral Agent under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, and covenants
made by the Related Persons in the Loan Documents, and the rights, powers, and
privileges granted to Noteholder and Collateral Agent in the Loan Documents, are
cumulative, and, except for expressly specified waivers and consents, no Loan
Document shall be construed in the context of another to diminish, nullify, or
otherwise reduce the
- 37 -
<PAGE>
benefit to Noteholder and Collateral Agent of any such representation,
warranty, covenant, right, power or privilege. In particular and without
limitation, no exception set out in this Agreement to any representation,
warranty or covenant herein contained shall apply to any similar representation,
warranty or covenant contained in any other Loan Document, and each such similar
representation, warranty or covenant shall be subject only to those exceptions
which are expressly made applicable to it by the terms of the various Loan
Documents.
Section 8.3. Notices. All notices, requests, consents, demands and
-------
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document, and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery, or by registered or
certified United States mail, postage prepaid, to Borrower and the Related
Persons at the address of Borrower specified on the signature pages hereto and
to Noteholder at both of the addresses specified below (unless changed by
similar notice in writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
first attempted delivery at the address and in the manner provided herein, (b)
in the case of telecopy, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail. Any such
notice or communication to Agent or Collateral Agent shall be given to
Noteholder and shall be deemed received by Agent or Collateral Agent when
received by Noteholder. Noteholder's addresses are:
Trust Company of the West
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telephone: (213) 244-0053
Telecopy: (213) 244-0604
TCW Asset Management Company
2175 First Interstate Bank Plaza
- 38 -
<PAGE>
1000 Louisiana Street
Houston, Texas 77002
Attention: George R. Hutchinson
Telephone: (713) 615-7410
Telecopy: (713) 615-7460
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street
Thirtieth Floor
Los Angeles, California 90017
Attention: David A. Lamb, Esq.
Telephone: (213) 892-4000
Telecopy: (213) 629-5063
Section 8.4. Parties in Interest. All grants, covenants and
-------------------
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that no Related Person may assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior consent of Noteholder.
SECTION 8.5. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE
------------------------------------
EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN
DOCUMENT, THE LOAN DOCUMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AND OF THE UNITED STATES OF
AMERICA (WITHOUT REGARD TO CALIFORNIA PRINCIPLES OF CONFLICTS OF LAW). EACH OF
BORROWER AND PARENT HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RELATED
PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING
IN THE STATE OF CALIFORNIA AND THE COUNTY OF LOS ANGELES AND AGREES AND CONSENTS
THAT SERVICE OF PROCESS MAY BE MADE UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY
LEGAL PROCEEDING RELATING TO THE LOAN DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS
ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. EACH OF BORROWER AND PARENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A
- 39 -
<PAGE>
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 8.6. Limitation on Interest. Noteholder, Agent, Collateral
----------------------
Agent, the Related Persons and any other parties to the Loan Documents intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof such Persons stipulate and agree that none of the
terms and provisions contained in the Loan Documents shall ever be construed to
create a contract to pay, for the use, forbearance or detention of money,
interest in excess of the maximum amount of interest permitted to be charged by
applicable law from time to time in effect. Neither any Related Person nor any
present or future guarantors, endorsers, or other Persons hereafter becoming
liable for payment of any Obligation shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum amount that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this section shall control over all other
provisions of the Loan Documents which may be in conflict or apparent conflict
herewith. Noteholder, Agent and Collateral Agent expressly disavow any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of any Obligation is accelerated. If (a) the maturity of
any Obligation is accelerated for any reason, (b) any Obligation is prepaid and
as a result any amounts held to constitute interest are determined to be in
excess of the legal maximum, or (c) Noteholder or any other holder of any or
all of the Obligations shall otherwise collect moneys which are determined to
constitute interest which would otherwise increase the interest on any or all of
the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations or,
at Noteholder's or such holder's option, promptly returned to Borrower or the
other payor thereof upon such determination. In determining whether or not the
interest paid or payable, under any specific circumstance, exceeds the maximum
amount permitted under applicable law, Agent, Noteholder, Collateral Agent and
the Related Persons (and any other payors thereof) shall to the
- 40 -
<PAGE>
greatest extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
Section 8.7. Termination; Limited Survival. In its sole and absolute
-----------------------------
discretion Borrower may at any time that no Obligations are owing under the Loan
Documents elect in a notice delivered to Noteholder to terminate this Agreement
and the other Loan Documents. Upon receipt by Noteholder of such a notice, if no
such Obligations are then owing then this Agreement and all other Loan Documents
shall thereupon be terminated, the Liens thereunder released, and the parties
thereto released from all prospective obligations thereunder. Notwithstanding
the foregoing or anything herein to the contrary, any waivers or admissions made
by any Related Person in any Loan Documents, the obligations of Parent and
Borrower under Section 7.3, and any other obligations which any Person may have
-----------
to indemnify or compensate Noteholder or any of Noteholder's Affiliates shall
survive any termination of this Agreement or any other Loan Document. At the
request and expense of Borrower, Noteholder shall prepare and execute all
necessary instruments to reflect and effect such termination of the Loan
Documents.
Section 8.8. Severability. If any term or provision of any Loan
------------
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.
Section 8.9. Counterparts. This Agreement may be separately executed
------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
- 41 -
<PAGE>
SECTION 8.10. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF
--------------------------------------------
BORROWER, PARENT, AGENT, COLLATERAL AGENT AND NOTEHOLDER HEREBY (a) KNOWINGLY,
VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF,
UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED
THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO
CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES;
(c) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL
FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT
SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS, AND (d) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED
IN THIS SECTION.
- 42 -
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
BORROWER: INLAND PRODUCTION COMPANY
By:
--------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
PARENT: INLAND RESOURCES INC.
By:
--------------------------------------
Bill I. Pennington
Chief Financial Officer
Address:
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Kyle Miller
Telephone: (303) 292-0900
Telecopy: (303) 296-4070
- 43 -
<PAGE>
NOTEHOLDER: TRUST COMPANY OF THE WEST, a California trust
company, as Sub-Custodian for Mellon Bank for the
benefit of Account No. CPFF 873-3032
By:
--------------------------------------
Arthur R. Carlson
Managing Director
By:
--------------------------------------
Marc MacAluso
Sr. Vice-President
AGENT: TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under that
certain Agreement dated as of June 13, 1994,
between TCW Asset Management Company and Morgan
Stanley Group, Inc.
By:
--------------------------------------
Arthur R. Carlson
Managing Director
By:
--------------------------------------
Marc MacAluso
Sr. Vice-President
- 44 -
<PAGE>
COLLATERAL AGENT: TCW ASSET MANAGEMENT COMPANY, a California
corporation
By:
--------------------------------------
Arthur R. Carlson
Managing Director
By:
--------------------------------------
Marc MacAluso
Sr. Vice-President
- 45 -
<PAGE>
SCHEDULE 1
Disclosure Schedule
-------------------
See attached.
- 1 -
<PAGE>
SCHEDULE 2
Security Schedule
-----------------
1. Deed of Trust, Mortgage, Line of Credit Mortgage, Assignment, Security
Agreement, Fixture Filing and Financing Statement from Borrower to
Collateral Agent dated of even date herewith.
2. Security Agreement from Parent to Collateral Agent, dated of even date
herewith.
3. Pledge Agreement from Parent to Collateral Agent, dated as of even date
herewith.
4. Security Agreement from Borrower to Collateral Agent, dated of even date
herewith.
5. Financing Statements signed by Borrower for filing with the Secretaries of
State of Colorado and Utah in connection with the Mortgage.
6. Financing Statements signed by Borrower for filing with the Secretaries of
State of Colorado and Utah in connection with the Security Agreement.
7. Financing Statement signed by Parent for filing with the Secretaries of
State of Colorado and Texas in connection with the Pledge Agreement.
8. Guaranty from Parent to Agent and Collateral Agent dated of even date
herewith.
9. Guaranty from Inland Refining to Agent and Collateral Agent dated of even
date herewith.
- 1 -
<PAGE>
SCHEDULE 3
Insurance Schedule
------------------
Policy Name of Type of Term
Number Insurance Company Policy of Policy
-------- ----------------- ------- ---------
A. 37650017 TIG Insurance Co. of Michigan General 6/1/97 -
Liability 6/1/98
General Liability:
-----------------
a) Limits:
$2,000,000 General Aggregate
$1,000,000 Products/Completed Operations Aggregate
$1,000,000 Each Occurrence
$1,000,000 Personal and Advertising Injury
$1,000,000 Fire Damage
$ 10,000 Medical Expense
b) Coverage:
Commercial General Liability Form
B. CCOPA58396 Security Insurance Company Property 6/1/97 -
of Hartford 6/1/98
a) Limits:
$500,000 Blanket
b) Deductible:
$1,000 per occurrence
C. 1638-00-13682 Wausau Underwriters Automobile 6/1/97 -
Insurance Company 6/1/98
a) Limits:
$1,000,000 Each accident combined single limit Bodily injury and
property damage liability including hired and non-owned
auto liability
$1,000,000 Uninsured/underinsured motorists coverage Each accident
combined single limit
- 1 -
<PAGE>
Policy Name of Type of Term
Number Insurance Company Policy of Policy
-------- ----------------- ------- ---------
Bodily personal injury protection
Basic Person personal injury protection
D. 37650017 TIG Insurance Co. of Michigan Umbrella 6/1/97 -
6/1/98
a) Limits:
$10,000,000 Aggregate
$10,000,000 Each Occurrence
E. 37650017 TIG Insurance Co. of Michigan OEE 6/1/97 -
6/1/98
a) Limits:
$6,000,000 Drilling Limit
$3,000,000 Producing Limit Each Occurrence Combined
b) Deductible:
$ 25,000 Each Incident
- 2 -
<PAGE>
SCHEDULE 4
Scheduled Bank Payments
-----------------------
- 1 -
<PAGE>
SCHEDULE 5
Calculation of 12.5% Internal Rate of Return
--------------------------------------------
Reference is made to the Credit Agreement to which this Schedule is
attached for the meaning of terms defined therein and used herein without
further definition. As used herein, the following additional terms have the
following meanings:
"LOAN DOCUMENT DISBURSEMENTS" means, with respect to the A Note,
$65,000,000 of the Advance and all other amounts advanced or expended by
Noteholder, Agent or Collateral Agent which Borrower is obligated to repay or
reimburse under the Credit Agreement or any Loan Document, and, with respect to
the B Note, $10,000,000 of the Advance.
"LOAN DOCUMENT PAYMENTS" means all payments received by Noteholder,
Agent or Collateral Agent pursuant to any Loan Documents, including all interest
and principal on the Note (excluding any interest in excess of 9.75% per annum
paid on any past due amount), the financing fee payable under Section 2.4 of the
Credit Agreement and all reimbursements of other Loan Document Disbursements.
"12.5% IRR" means a twelve and one-half (12.5%) percent nominal, cash-
on-cash internal rate of return on all Loan Document Disbursements calculated
over the period from the date of the initial Advance to the date in question.
The method of calculating such rate of return is set forth in the example on
page 5-3 of this Schedule (the "Example Calculation"), and the present value
discount factors to be used for calculating such internal rate of return are set
forth on page 5-4 of this Schedule.
The periods referred to in the Example Calculation are calendar quarters
(January through March, April through June, July through September, and October
through December), with the exception of Period 0, which is from the date of the
Advance under the Note to and including September 30, 1997, and Period 1, which
is the period beginning on September 30, 1997 and ending on December 31, 1997.
All Loan Document Disbursements and all Loan Document Payments will be
treated as shown in the Example Calculation.
- 1 -
<PAGE>
The Advance will be discounted by a discount factor of 1.0. The financing fee
will be discounted by a discount factor of 1.0 provided the fee is received on
the date of the Advance. Each subsequent Loan Document Disbursement will be
discounted by the discount factor corresponding to the period in which it is
advanced or disbursed (e.g., a Loan Document Disbursement made in October 1997
would be discounted by a factor of 0.969365). All Loan Document Payments will
be discounted by the discount factor corresponding to the period in which they
are received (e.g., Loan Document Payments received in March, 1998 will be
discounted by a factor of 0.939991).
If Noteholder elects to have a 12.5% IRR calculated on all but
$10,000,000 of the Loan Document Disbursements (as to which $10,000,000 the
12.5% IRR Calculation shall be made at the time and in the manner set forth in
the Warrant Documents), the last $10,000,000 advanced on the Loan will be
excluded from the "Advance to Borrower" in calculating the Additional Interest
and "NPV of Cash Proceeds".
When the "NPV of Total Loan Amount" less the "NPV of Cumulative Cash
Proceeds" is less than or equal to zero, after Additional Interest has been paid
Noteholder will have been given a 12.5% IRR. In the Example Calculation, this
occurs in the quarter ending June 2000.
- 2 -
<PAGE>
EXHIBIT 4.3
INTERCREDITOR AGREEMENT
------------------------
This Intercreditor Agreement (this "Agreement") is made as of
September ____, 1997, by the signatories hereto.
RECITALS:
1. Concurrently herewith Inland Production Company, a Texas
corporation ("Borrower") and Parent (as defined below) are entering into a
Credit Agreement of even date herewith (as from time to time supplemented or
amended in compliance with the terms hereof, the "Bank Agreement") with the
Banks (as defined below), pursuant to which the Banks have agreed to extend
credit to Borrower.
2. Concurrently herewith Borrower and Parent (as defined below) are
also entering into a Credit Agreement of even date herewith (as from time to
time supplemented or amended in compliance with the terms hereof, the "TCW
Agreement") with Trust Company of the West ("Trustco") and TCW Asset Management
Company ("Tamco"), each acting in various capacities, pursuant to which the
Noteholders (as defined below) have agreed to extend credit to Borrower.
3. The execution and delivery of this Agreement are conditions
precedent to the extension of credit under both the Bank Agreement and the TCW
Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to induce the Banks and the Noteholders to extend
credit to Borrower, the parties hereto hereby agree as follows:
Section 1. Definitions and References.
--------------------------
(a) Specific Definitions. As used herein, the terms "Bank
--------------------
Agreement," "Borrower," "Tamco," "TCW Agreement" and "Trustco" have the meanings
indicated above, and the following additional terms have the following meanings:
"100% Dedication Quarter" means any Calculation Quarter during which a
-----------------------
"Coverage Deficiency" (as defined in the TCW Agreement), a TCW Default or a Bank
Default exists or in which Borrower is unable to make the Scheduled Minimum
Principal Payment (as defined in the TCW Agreement).
"Agent Lender" means ING (U.S.) Capital Corporation, in its capacity
------------
as Agent under the Bank Agreement, together with its successors in such
capacity.
1
<PAGE>
"Agent Noteholder" means Tamco, in its capacity as Agent under the TCW
----------------
Agreement, together with its successors in such capacity.
"Allowed Bank Indebtedness" means:
-------------------------
(i) all principal indebtedness for loans made by, and letters of
credit issued by, the Banks to Borrower under the Bank Documents, provided
that (unless otherwise expressly agreed by the Agent Noteholder) there
shall be excluded from Allowed Bank Indebtedness the portion of any such
loans or letters of credit which, when actually funded during the
applicable period set forth in the following table and added to the loans
outstanding under the Bank Agreement on the date of such funding, exceeds
the amount set out opposite such period in the following table:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Prior to January 1, 1998 $ 45,000,000
January 1, 1998 through December 31, 1998 $ 65,000,000
January 1, 1999 through March 31, 2000 $ 80,000,000
April 1, 2000 through June 30, 2000 $ 77,500,000
July 1, 2000 through September 30, 2000 $ 75,000,000
October 1, 2000 through December 31, 2000 $ 72,500,000
January 1, 2001 through March 31, 2001 $ 70,000,000
April 1, 2001 through June 30, 2001 $ 66,250,000
July 1, 2001 through September 30, 2001 $ 62,500,000
October 1, 2001 through December 31, 2001 $ 58,750,000
January 1, 2002 through March 31, 2002 $ 55,000,000
April 1, 2002 through June 30, 2002 $ 51,250,000
July 1, 2002 through September 30, 2002 $ 47,500,000
October 1, 2002 through December 31, 2002 $ 43,750,000
January 1, 2003 through March 31, 2003 $ 40,000,000
April 1, 2003 through June 30, 2003 $ 30,000,000
July 1, 2003 through September 30, 2003 $ 20,000,000
October 1, 2003 through December 31, 2003 $ 10,000,000;
</TABLE>
it being expressly understood and agreed that (A) any conversion between
loans accruing interest based upon a prime or base rate of interest and
loans accruing interest based upon a eurodollar or interbank offered rate
or between loans with different eurodollar or interbank offered rate
interest periods, shall not be treated as a funding of a new loan and (B)
loans which constitute Allowed Bank Indebtedness and are outstanding on the
date of a decrease in the amount of Allowed Bank Indebtedness in the
foregoing table (as contrasted with a new funding after such date) shall
continue to be Allowed Bank Indebtedness,
2
<PAGE>
and
(ii) all interest, fees, indemnifications, and expenses owing by
Borrower to any Bank under the Bank Documents, provided that there shall be
excluded from Allowed Bank Indebtedness any interest owing on any loans
which are themselves excluded from Allowed Bank Indebtedness under the
immediately preceding subsection (i) and any fees, indemnifications, and
expenses relating to any such excluded loans or excluded interest,
and
(iii) obligations and liabilities in respect of Permitted Interest
Rate Hedges.
Any allowed claim in an Insolvency Proceeding of Borrower for any of the
foregoing Allowed Bank Indebtedness shall also constitute "Allowed Bank
Indebtedness", but any disallowed claim in such a proceeding shall cease to
constitute "Allowed Bank Indebtedness".
"ANCF" means, with respect to any Calculation Quarter, the remainder
----
of:
(a) the sum of (i) all revenues and receipts of Borrower, Parent and
any Subsidiary of Borrower or Parent from any source or activity (excluding
any funds received by Borrower, Parent or any of their Subsidiaries from
Approved Sales or Financings or by Borrower under the TCW Agreement or from
advances under the Bank Agreement or receipts from sales of equity of
Parent) accounted for under GAAP during any Calculation Quarter (and
specifically including, without limiting the generality of the foregoing,
receipts from Permitted Interest Rate Hedges and Permitted Commodity
Hedges), beginning with the Calculation Quarter which starts September 30,
1997 and (ii) after the occurrence of two (2) consecutive 100% Dedication
Quarters, any of Borrower's Working Capital which exceeds the minimum
Working Capital required under the TCW Agreement or under the Bank
Agreement
less,
(b) the sum of all expenses and expenditures, net to Borrower's
interest, accounted for under GAAP during such Calculation Quarter
(excluding any payments financed by funds described in subparagraph (i)
above) for:
(i) Direct Taxes on the Borrower's Properties;
(ii) ANCF LOE;
(iii) ANCF Transportation Costs;
(iv) ANCF Capital Expenditures;
(v) ANCF Overhead Costs; and
(vi) Delay rentals payable with respect to Borrower's Properties.
3
<PAGE>
"ANCF Capital Expenditures" means capital expenditures made or to be
-------------------------
made in cash during the Calculation Quarter by Borrower on the Eligible
Mortgaged Properties to the extent the same have been included in the Plan of
Development as then in effect or approved at the time in question by means of an
Approval Letter, in either case, only if the expenditures are specified in such
Plan of Development or Approval Letter as being payable from ANCF rather than
from advances under the TCW Agreement or the Bank Agreement.
"ANCF Hierarchy" has the meaning given in Section 3(a) hereof.
--------------
"ANCF LOE" means leasehold operating expenses and other field level or
--------
lease level charges for operations on the Eligible Mortgaged Properties, other
than capital expenditures, to the extent the same have been approved at the time
in question by means of an Approval Letter.
"ANCF Overhead Costs" means general and administrative costs of
-------------------
Borrower and Parent, and up front costs of or premium paid for Permitted
Commodity Hedges, to the extent the same have been approved at the time in
question by means of an Approval Letter.
"ANCF Transportation Costs" means (i) the actual costs of gathering,
-------------------------
processing, transporting and marketing production from the Eligible Mortgaged
Properties from the wellhead to the point of sale, provided that all such costs
are negotiated with, and payable to, third parties in arms' length transactions
on terms which are reasonable in the area of operations at the time such prices
are agreed to, and (ii) any other gathering, processing, transportation or
marketing costs, to the extent the same have been approved at the time in
question by means of an Approval Letter.
"Approval Letter" means, until the end of the Revolver Period and the
---------------
Bank Indebtedness is paid in full, any letter agreement substantially in the
form of Exhibit A hereto which is from time to time entered into by (a) the
Agent Noteholder, acting on behalf of the Noteholders, (b) the Agent Lender,
acting on behalf of the Banks, and (c) Borrower, and after the Bank Indebtedness
has been paid in full, any letter agreement substantially in the form of Exhibit
F to the TCW Agreement which is from time to time entered into by the Agent
Noteholder, acting on behalf of the Noteholders and Borrower . It is
anticipated that ANCF LOE, ANCF Overhead Costs and ANCF Transportation Costs
will be submitted by Borrower and approved in such Approval Letter in a calendar
year budget format (i) for the period from September 30, 1997 through December
31, 1998 and (ii) thereafter for each succeeding calendar year, subject to the
right of Borrower to seek approval for modifications from time to time by means
of another Approval Letter.
4
<PAGE>
"Approved Sales or Financings" means any sale of Properties or other
----------------------------
assets owned by Borrower, Parent or any Related Person or any borrowing by
Borrower, Parent or any Related Person (with Noteholders, Banks or a third
party) which is from time to time approved by the Agent Noteholder and the Agent
Lender and which is designated as an "Approved Sale or Financing" in such
approvals.
"Bank Default" means any "Event of Default" under the Bank Agreement
------------
and any other event which causes or allows the acceleration of the Allowed Bank
Indebtedness.
"Bank Documents" means the Bank Agreement, any Commodity Hedge
--------------
Agreement entered into with a Bank, the Bank Interest Rate Hedge Agreement and
each note, mortgage, security agreement, pledge agreement, guarantee or other
agreement, certificate, document, instrument and writing at any time delivered
in connection therewith or pursuant thereto.
"Bank Interest Rate Hedge Agreement" means an ISDA Master Agreement or
----------------------------------
other agreement and related confirmations providing for swaps, caps, floors or
other hedges of interest rates entered into from time to time between Borrower
and one or more of the Banks.
"Bank Indebtedness" means all Allowed Bank Indebtedness and any Excess
-----------------
Bank Indebtedness.
"Banks" means (a) the Agent Lender, and (b) all Persons which now or
-----
hereafter constitute "Banks" under the Bank Agreement.
"Calculation Quarter" means the three-month period (December through
-------------------
February, March through May, June through August, or September through November)
immediately prior to each Payment Date. The initial calculation quarter shall
be the period from September 1, 1997 through November 30, 1997.
"Commodity Hedge Agreement" means an ISDA Master Agreement or other
-------------------------
agreement and related confirmations providing for swaps, caps, floors or other
hedges of hydrocarbon prices entered into from time to time by Borrower.
"Direct Taxes" means any severance, ad valorem, or other direct taxes
------------
on the Properties or the production therefrom or the proceeds of such
production; provided that federal, state or local income or franchise taxes
shall in no event be considered to be Direct Taxes.
"Enforcement Action" means any acceleration of any or all of the TCW
------------------
Indebtedness or the Bank Indebtedness, any enforcement or foreclosure of Liens
granted by Borrower, Parent or any Related Person to secure any or all of the
TCW Indebtedness or the Bank Indebtedness, the institution of any Insolvency
Proceeding with respect to Borrower, Parent or any Related Person, or any other
effort of any kind (whether by set-off, by self-help, in court,
5
<PAGE>
or otherwise) to collect the TCW Indebtedness or the Bank Indebtedness from
Borrower, Parent or any Related Person or from the assets or properties of
Borrower, Parent or any Related Person; provided, however, that none of the
following shall constitute an Enforcement Action: (i) collection of any of the
TCW Indebtedness or any of the Allowed Bank Indebtedness from ANCF in accordance
with Section 3 hereof, (ii) the filing of proofs of claim or other pleadings in
any Insolvency Proceeding (other than an Insolvency Proceeding brought in
contravention hereof by or on behalf of the Person filing such proofs of claim
or other pleadings), (iii) actions to obtain possession of Permitted Junior
Securities in exchange for or on account of TCW Indebtedness, (iv) enforcement
of Liens, guaranties, or other rights granted by Persons other than Borrower,
Parent or any Related Person, or (v) notifying Borrower, Parent or any other
Person of any amounts which are due and owing under the Bank Documents or the
TCW Documents, making demand with respect to any such amounts due and owing, and
giving any other notice or taking other actions in respect to any future remedy
or to preserve any rights or remedies.
"Excess Bank Indebtedness" means all indebtedness and obligations
------------------------
owing by Borrower to any Bank other than Allowed Bank Indebtedness.
"Initial TCW Amortization Date" means the earliest to occur of the
-----------------------------
following: (i) the Payment Date in December, 2003, (ii) the first date on which
all Allowed Bank Indebtedness has been paid (and if paid in full before the end
of the Revolver Period, all commitments to extend credit under the Bank
Documents have been terminated), (iii) the date of any acceleration of any
Allowed Bank Indebtedness, and (iv) the date of any acceleration of TCW
Indebtedness which is made in accordance herewith.
"Insolvency Proceeding" means any voluntary or involuntary
---------------------
liquidation, dissolution, sale of all or substantially all assets, marshaling of
assets or liabilities, receivership, conservatorship, general assignment for the
benefit of creditors, insolvency, bankruptcy, reorganization, arrangement or
composition of Borrower, Parent or any Related Person which is either a
guarantor of any obligation of Borrower to the Noteholders or the Banks or a
mortgagor or encumbrancer of any property to secure any such obligation.
"Lien" means, with respect to any property or assets, any right or
----
interest therein of a creditor to secure indebtedness owed to him or any other
arrangement with such creditor which provides for the payment of such
indebtedness out of such property or assets or which allows him to have such
indebtedness satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would serve
to perfect a Lien described in the preceding sentence, regardless of whether
such financing
6
<PAGE>
statement is filed, such registration is made, or such arrangement or action is
undertaken before or after such Lien exists.
"Noteholders" means (a) the Agent Noteholder, and (b) all Persons
-----------
which now or hereafter constitute "Noteholder" under the TCW Agreement. Trustco,
acting as Sub-Custodian for Mellon Bank for the benefit of Account No. CPFF 873-
3032, is initially the only Noteholders, but the parties hereto recognize and
agree that future assignees and successors thereof will also be "Noteholders"
hereunder.
"Parent" means Inland Resources, Inc., a Washington corporation, which
------
owns 100% of the outstanding shares of common stock of Borrower.
"Quarterly Payment Date" means the second to last business day of each
----------------------
March, June, September and December, beginning with December 29, 1997.
"Permitted Commodity Hedges" means any transaction under a Commodity
--------------------------
Hedge Agreement except to the extent prohibited by the TCW Agreement and not
otherwise approved by the Agent Noteholder or prohibited by the Bank Agreement
and not otherwise approved by the Agent Lender.
"Permitted Interest Rate Hedges" means any transaction under a Bank
------------------------------
Interest Rate Hedge Agreement.
"Permitted Junior Securities" means any equity securities or
---------------------------
subordinated debt securities of Borrower or any successor obligor with respect
to the TCW Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Allowed Bank Indebtedness that may at the time be
outstanding to the same degree as, or to a greater extent than, the TCW
Indebtedness is so subordinated under this Agreement.
"Person" means an individual, corporation, partnership, limited
------
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture, court
or governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
"Properties" means, collectively, those undivided interests in oil
----------
and gas properties and interests in other real and personal property which are,
at the time in question, owned by Borrower, Parent or any Related Person.
"Related Person" means any of Parent, Borrower or any Subsidiary of
--------------
Parent, whether now existing or hereafter formed or acquired.
7
<PAGE>
"Revolver Period" means the period from the date hereof until March
---------------
31, 1999 or such earlier date on which the commitment of the Banks to make
revolving credit available to the Borrower is terminated pursuant to the Bank
Agreement.
"Scheduled Bank Payments" has the meaning given to such term in
-----------------------
Section 3 hereof.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person,
provided that associations, joint ventures or other relationships (a) which are
established pursuant to a standard form operating agreement or similar agreement
or which are partnerships for purposes of federal income taxation only, (b)
which are not corporations or partnerships (or subject to the Uniform
Partnership Act) under applicable state law, and (c) whose businesses are
---
limited to the exploration, development and operation of oil, gas or mineral
properties and interests owned directly by the parties in such associations,
joint ventures or relationships, shall not be deemed to be "Subsidiaries" of
such Person.
"TCW Default" means any "Event of Default" under the TCW Agreement and
-----------
any other event which causes or allows the acceleration of the TCW Indebtedness.
"TCW Documents" means the TCW Agreement and each note, mortgage,
-------------
security agreement, pledge agreement, guarantee, or other agreement,
certificate, document instrument and writing at any time delivered in connection
therewith or pursuant thereto.
"TCW Indebtedness" means any and all indebtedness (whether for
----------------
principal, interest, fees, indemnifications, expenses, or otherwise) owing by
Borrower to any Noteholder under any TCW Document, provided that (unless
otherwise expressly agreed by the Agent Lender) there shall be excluded from TCW
Indebtedness (i) any loans made by the Noteholders to Borrower on or after the
date hereof which in the aggregate exceed $75,000,000 and (ii) all interest
owing on any loans which are themselves excluded from TCW Indebtedness and any
fees, indemnifications, and expenses relating to any such excluded loans or
excluded interest.
(b) References and Headings. Unless the context otherwise requires
-----------------------
or unless otherwise provided herein, references in this Agreement to a
particular agreement, instrument or document (including references to promissory
notes, loan agreements, guaranties and security documents) also refer to and
include all renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document which are made in
writing by the parties thereto, provided that nothing contained in this Section
shall be construed to authorize any party hereto to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.
The headings used herein are for purposes of convenience only and shall not be
used in construing the provisions hereof. The words "this Agreement," "this
instrument," "herein," "hereof," "hereby" and words of similar import refer to
8
<PAGE>
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. The word "or" is not exclusive, and the word "including" (in its
various forms) means "including without limitation". Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires. Use of the terms "Bank" is for
ease of reference only, it being understood that ING (U.S.) Capital Corporation
is not a commercial bank and the other "Banks" under the Bank Agreement may or
may not be commercial banks.
Section 2. Subordination of Liens.
----------------------
All Liens granted by Borrower, Parent or any Related Person which at
any time secure any TCW Indebtedness are hereby made -- and will at all times
prior to the full payment or discharge of all Allowed Bank Indebtedness be --
subject and subordinate to all Liens at any time granted by Borrower to secure
Allowed Bank Indebtedness (but only to the extent that such Liens granted to or
for the benefit of the Banks secure Allowed Bank Indebtedness). All Liens
granted by Borrower, Parent or any Related Person which at any time secure any
Excess Bank Indebtedness are hereby made -- and will at all times prior to the
full payment or discharge of all TCW Indebtedness be -- subject and subordinate
to all Liens granted by Borrower, Parent or any Related Person which at any time
secure any TCW Indebtedness (but only to the extent that such Liens granted to
or for the benefit of the Banks secure Excess Bank Indebtedness and such Liens
granted to or for the benefit of TCW secure TCW Indebtedness). The foregoing
subordinations shall be to the same extent as if (i) all such Liens securing
Allowed Bank Indebtedness had been properly recorded, filed and otherwise
perfected prior to all such Liens securing TCW Indebtedness and (ii) all such
Liens securing TCW Indebtedness had been properly recorded, filed and otherwise
perfected prior to all such Liens securing Excess Bank Indebtedness, all
regardless of the relative priority of any such Liens as determined without
regard to this Agreement.
Section 3. Required Payments from ANCF; Limitations on Indebtedness.
--------------------------------------------------------
(a) Schedule 1 attached hereto sets forth the amounts and dates for
payment of all principal payments of Allowed Bank Indebtedness which are
required under the Bank Documents (herein called the "Scheduled Bank Payments").
All parties hereto acknowledge and agree that on or before the Payment Date
following each Calculation Quarter, all ANCF with respect to such Calculation
Quarter (and any proceeds from Approved Sales or Financings, proceeds from sales
of equity of Parent and any other sources of funds received by Borrower, Parent
or any other Related Person, in each case to the extent used to pay, redeem,
purchase or discharge Bank Indebtedness or TCW Indebtedness) shall be applied in
the following order (the "ANCF Hierarchy"):
(i) first, to any Scheduled Bank Payments, payments in respect of
Permitted Interest Rate Hedges and any interest or fees on, or other non-
principal items of, Allowed Bank Indebtedness, to the extent such Scheduled
Bank Payments, payments in respect of Permitted Interest Rate Hedges,
interest, fees or other non-principal items are due on or before such
Payment Date,
9
<PAGE>
(ii) second, to any Allowed Bank Indebtedness which has been
accelerated and become due in accordance with the terms of both this
Agreement and the Bank Documents,
(iii) third, to any interest or fees on, or other non-principal items
of, TCW Indebtedness, to the extent such interest, fees or other items are
due (whether due to acceleration thereof or otherwise) on or before such
Payment Date,
(iv) fourth, to any payments of principal (other than those described
in subsections (i) and (ii) above) which are due on the Allowed Bank
Indebtedness on or before such Payment Date,
(v) fifth (but only on or after the Initial TCW Amortization Date),
to any payments of principal which are due on the TCW Indebtedness (whether
due to acceleration thereof or otherwise) on or before such Payment Date,
(vi) sixth, except during any 100% Dedication Quarter, up to ten
percent (10%) of the ANCF for such Calculation Quarter may be retained by
Borrower and used in Borrower's business,
(vii) seventh, (x) if made during the Revolver Period to prepay
Allowed Bank Indebtedness, subject to the Borrower's ability to obtain
subsequent advance pursuant to the terms of the Bank Documents or the TCW
Documents or (y) if made after the Revolver Period to prepay any Scheduled
Bank Payments (other than those described in subsection (i), (ii) or (iv)
above), in inverse order of maturity,
(viii) eighth, after all Scheduled Bank Payments and other Allowed
Bank Indebtedness have been paid (or if the Banks elect not to accept any
prepayments under the preceding subsection (vii)), to prepay or repay any
TCW Indebtedness,
(ix) ninth, after all TCW Indebtedness has been paid (or if the
Noteholders elect, in their sole and absolute discretion not to accept any
prepayments under the preceding section (viii)), to repay any Excess Bank
Indebtedness, to the extent Excess Bank Indebtedness is due (whether due to
acceleration or otherwise), and
(x) tenth, the remainder may be retained by Borrower and used in
Borrower's business.
This Section 3(a) is intended only to create an obligation of Borrower to pay
and apply ANCF and other amounts described therein in the order and the
respective amounts set forth therein, and
10
<PAGE>
to create an obligation on the Banks and the Noteholders to turnover funds
improperly received or collected as more particularly set forth in Section 9. No
failure of Borrower to make payment or application of ANCF or any other amount
to the Indebtedness in the manner provided in Section 3(a), and no failure of
the Banks or Agent Lender to enforce such payment or application nor any other
act or omission by Borrower or Banks or Agent Lender shall cause any Allowed
Bank Indebtedness to be deemed to have been paid nor to otherwise no longer be
entitled to the priority of payment set forth in this Section 3(a) nor affect
any other right or privilege of the Banks or the Agent Lender. No failure of
Borrower to make payment or application of ANCF or any other amount to the
Indebtedness in the manner provided in Section 3(a), and no failure of the
Noteholders or the Agent Noteholder to enforce such payment or application nor
any other act or omission by Borrower or the Noteholders or the Agent Noteholder
shall cause any TCW Indebtedness to be deemed paid nor to otherwise no longer be
entitled to the priority of payment set forth in this Section 3(a) nor affect
any other right or privilege of the Noteholders or the Agent Noteholder.
(b) As further provided in Sections 5 and 6, (i) neither the amount
nor the date for payment of any Scheduled Bank Payment may be modified and no
provision of the Bank Documents may be amended or modified to increase the rate
or the manner of determining interest, fees, expenses or other non-principal
items due on the Allowed Bank Indebtedness, without the prior consent of the
Agent Noteholder, and (ii) the scheduled dates for payment of the principal of
the TCW Indebtedness shall not be modified to occur prior to the Initial TCW
Amortization Date and no provision of the TCW Documents may be amended or
modified to increase the rate or the manner of determining interest, fees,
expenses or other non-principal items due on the TCW Indebtedness, without the
consent of the Agent Lender, if either the Revolver Period has not ended or
there is any outstanding Allowed Bank Indebtedness. No Excess Bank
Indebtedness shall be lent to or incurred by Borrower, Parent or any Related
Person without the consent of the Agent Noteholder until all TCW Indebtedness
has been paid in full, and no loans in excess of $75,000,000 shall be made to
Borrower, Parent or any Related Person or borrowed by Borrower under the TCW
Documents without the consent of the Agent Lender until all Allowed Bank
Indebtedness has been paid in full.
(c) Interest on each Eurodollar Loan, as defined and provided for
under the Bank Agreement, is payable on the last day of the Interest Period for
such Eurodollar Loan and, in the case of any Interest Period in excess of 90
days, on the 90th day of such Interest Period. Payments on Permitted Interest
Rate Hedges may come due on a day other than a Quarterly Payment Date.
Notwithstanding Section 3(a), such Interest on each Eurodollar Loan shall be
paid when due under the Bank Agreement and payments on Permitted Interest Rate
Hedges shall be paid when due under the Bank Interest Rate Hedge Agreement and
each shall, for purposes of the ANCF Hierarchy, be accounted for out of ANCF as
if paid on the next succeeding Quarterly Payment Date.
11
<PAGE>
Section 4. Rights to Cure Defaults.
-----------------------
(a) Within two Business days after determining that any Bank Default
has occurred, the Borrower will give notice of such Bank Default to the Agent
Noteholder. Agent Lender may, but is not obligated to, give notice of any Bank
Default to the Agent Noteholder. Although no Noteholder has any obligation to
cure any Bank Default, Borrower hereby authorizes each Noteholder to make any
such cure, if any Noteholder so elects, and the Banks hereby agree that they
will allow such Noteholder to make any such cure on behalf of Borrower, provided
such cure is in compliance with the Bank Agreement and does not otherwise cause
a Bank Default. The Banks further agree that without the consent of the Agent
Noteholder no Bank shall commence or continue any Enforcement Action with
respect to any Bank Default until the earlier to occur of (i) the ninetieth
(90th) day after the date upon which the Agent Lender receives notice of such
Bank Default from the Borrower or the Agent Noteholder (and then only if such
Bank Default remains uncured and otherwise continues to exist) and (ii) any
acceleration of the TCW Indebtedness or any enforcement by any Noteholder of any
Lien upon assets of Borrower in compliance with the terms hereof.
(b) Within two Business days after determining that any TCW Default
has occurred, the Borrower will give notice of such TCW Default to the Agent
Lender. Agent Noteholder may, but is not obligated to, give notice of any TCW
Default to the Agent Lender. Although no Bank has any obligation to cure any TCW
Default, Borrower hereby authorizes each Bank to make any such cure, if any Bank
so elects, and the Noteholders hereby agree that they will allow such Bank to
make any such cure on behalf of Borrower, provided such cure is in compliance
with the TCW Agreement and does not otherwise cause a TCW Default. The
Noteholders further agree that without the consent of the Agent Lender, no
Noteholder shall commence or continue any TCW Enforcement Action with respect to
any TCW Default until the earlier to occur of (i) the ninetieth (90th) day
after the date upon which the Agent Noteholder receives notice of such TCW
Default from the Borrower or the Agent Lender (and then only if such TCW Default
remains uncured and otherwise continues to exist) and (ii) any acceleration of
the Bank Indebtedness or any enforcement by any Bank of any Lien upon assets of
Borrower in compliance with the terms hereof.
Section 5. Amendments to Bank Documents. No provision of the Bank
----------------------------
Documents shall, without the prior written consent of the Agent Noteholder, be
amended, supplemented, modified or waived if the effect of such amendment,
supplement, modification or wavier would be to (a) increase the rate of interest
or the manner of determining prepayment charges, fees, expenses or other amounts
payable with respect to (or constituting items of) the Allowed Bank Indebtedness
(provided that the foregoing shall not prevent the interest rate applicable to
any past due Allowed Bank Indebtedness from increasing by up to two percent per
annum as presently provided in the Bank Agreement), (b) change the date on which
any Scheduled Bank Payment becomes due or change the amount thereof, (c) change
the scheduled payment date of any other Allowed Bank Indebtedness, (d) add new
covenants or events of default, (e) extend the Commitment Period or allow a loan
under the Bank Documents after the
12
<PAGE>
March 31, 1999, or (f) otherwise change the terms of the Bank Documents in any
way which is more onerous to Borrower, Parent or any Related Person or causes,
or increases the likelihood of, the occurrence of a Bank Default The parties
recognize that the Bank Agreement is a revolving credit agreement until March
31, 1999, with floating interest rate options, and neither (i) the borrowing of
loans under such revolving credit feature (provided the aggregate outstanding
amounts thereof do not exceed the limits set forth above in the definition of
"Allowed Bank Indebtedness") nor (ii) any fluctuations in the underlying
eurodollar rate or prime rate on which are based the interest rate provisions of
the Bank Agreement, nor (iii) the occurrence of any event triggering Eurodollar
Rate costs or a late payment rate, shall be deemed to be a violation of this
Section 5.
Nothing to the contrary contained in this Agreement shall (i)
restrict, prohibit or regulate the determinations which may be made from time to
time by the Banks or the Agent Lender under the Bank Agreement, including
specifically, but without limitation, the right of the Banks and/or Agent Lender
to determine the Borrowing Base from time to time in accordance with the
provisions of the Bank Agreement. Any amount required to be repaid under the
Bank Agreement as a result of a Borrowing Base determination shall be paid
pursuant to clause (iv) of Section 3(a) of this Agreement. Such required
payment shall not be considered a modification within the meaning of Section
3(b). Borrower acknowledges and agrees that the Scheduled Bank Payments are
based upon the Borrowing Base currently in existence under the Bank Agreement
and the Banks will not increase the Borrowing Base under the Bank Agreement (i)
without an amendment to such Scheduled Bank Payments as determined by the Banks
in connection with such Borrowing Base increase and (ii) the consent of the
Agent Noteholder to such amendment to such Scheduled Bank Payments.
Section 6. Amendments to TCW Documents. No provision of the TCW
---------------------------
Documents shall, without the prior written consent of the Agent Lender, be
amended, supplemented, modified or waived if the effect of such amendment,
supplement, modification or wavier would be to (a) increase the rate of
interest, prepayment charges, fees, expenses or other amounts payable with
respect to (or constituting items of) the TCW Indebtedness (provided that the
foregoing shall not prevent the interest rate applicable to any past due TCW
Indebtedness from increasing to twelve percent per annum as presently provided
in the TCW Agreement), (b) provide for scheduled principal payments on the TCW
Indebtedness prior to the Initial TCW Amortization Date, (c) change the
scheduled payment date of any non-principal items of TCW Indebtedness, (d) add
new covenants or events of default, or (e) otherwise change the terms of the TCW
Documents in any way which causes, or increases the likelihood of, the
occurrence of a TCW Default. The parties further recognize that, pursuant to
the TCW Agreement, Parent and Warrantholder entered into that certain Warrant
Agreement and Parent issued to Warrantholder certain Warrants as described in
the Warrant Agreement and that any exercise by Warrantholder of such Warrants or
any rights under the TCW Warrant Documents or any enforcement thereof shall not
be deemed to be a violation of this Section 6.
13
<PAGE>
Section 7. Insolvency Proceedings. Upon any distribution of
----------------------
properties or assets of Borrower in any Insolvency Proceeding, or upon any
payment on behalf of Borrower in any Insolvency Proceeding:
(a) The Banks shall be entitled to receive payment in full in cash of
the Allowed Bank Indebtedness, or provision must be made for immediate payment
in full in cash of the Allowed Bank Indebtedness, before the Noteholders are
entitled to receive any direct or indirect payment or distribution of properties
or assets of Borrower of any kind or character (whether in cash, property or
securities and by set-off or otherwise), other than Permitted Junior Securities,
on account of the TCW Indebtedness.
(b) Any direct or indirect payment or distribution of properties or
assets of Borrower of any kind or character, other than a payment or
distribution in the form of Permitted Junior Securities, to which the
Noteholders would be entitled but for the provisions of this Agreement shall be
paid by Borrower or by any liquidating trustee or agent or other Person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the Banks or their representative
or representatives, ratably according to the aggregate unpaid amounts of Allowed
Bank Indebtedness held or represented by each, to the extent necessary to make
payment in full of all Allowed Bank Indebtedness after giving effect to any
concurrent payment or distribution to the Banks.
(c) If, notwithstanding the foregoing provisions of this Section 7,
any Noteholder shall receive any payment or distribution of properties or assets
of Borrower of any kind or character, other than a payment or distribution in
the form of Permitted Junior Securities, on account of the TCW Indebtedness
before all Allowed Bank Indebtedness is paid or provided for in full, then such
payment or distribution shall be received and held in trust for and shall be
paid over or delivered forthwith to the Banks remaining unpaid or their
representatives, to the extent necessary to pay all Allowed Bank Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the Banks.
(d) Except as provided in subsections (a), (b) and (c) of this Section
7, the Banks and the Noteholders will be entitled to freely exercise all rights
and remedies available to them in any Insolvency Proceeding. Furthermore,
nothing in this Section 7 or any other provision of this Agreement shall be
deemed or construed to constitute a waiver by Agent Noteholder or any Noteholder
of any right to vote for or against or to propose any plan of reorganization in
any Insolvency Proceeding, all of which are expressly reserved and retained by
Agent Noteholder and the Noteholders.
Section 8. Notice of Acceleration; Right to Purchase Indebtedness.
------------------------------------------------------
(a) Within one business day after any acceleration of the maturity of
any Allowed Bank Indebtedness, the Agent Lender will give notice thereof to the
Agent Noteholder. Within
14
<PAGE>
one business day after any acceleration of the maturity of any TCW Indebtedness,
the Agent Noteholder will give notice thereof to the Agent Lender.
(b) The Banks will at any time during the continuance of any Bank
Default or Insolvency Proceeding, upon request by the Agent Noteholder, assign
all of the Allowed Bank Indebtedness and all appurtenant Liens, rights,
documents and instruments to the Noteholders for a price equal to 100% of the
Allowed Bank Indebtedness.
(c) Before any Noteholder sells any TCW Indebtedness, it shall first
give written offer to the Agent Lender to sell such TCW Indebtedness, specifying
the amount of TCW Indebtedness to be sold and all material terms of such sale.
The Banks shall have the right to purchase such TCW Indebtedness on such offered
terms for a period of 45 days ("Offer Period") after receipt by the Agent Lender
of such notice. If the Banks do not purchase such TCW Indebtedness during such
Offer Period, the Noteholder may sell the TCW Indebtedness to any third party on
the same terms which were offered to the Banks for a period of 180 days
following the end of such Offer Period. Such Noteholder must again provide the
Banks an offer to sell TCW Indebtedness as a condition to (i) any sale of TCW
Indebtedness after such 180 day period or (ii) any sale of TCW Indebtedness on
terms more favorable to the proposed purchaser than the terms offered the Banks;
provided that such offer on more favorable terms to a proposed purchaser within
such 180 day period shall be limited to an Offer Period of 15 days after receipt
by Agent Lender of notice of such offer. The provisions of this Section 8(c)
does not apply to any sale by a Noteholder to an Affiliate or to any transfer by
a Noteholder to any party having a beneficial interest in such Noteholder or in
any Note or to any custodian, sub-custodian, investment manager or designee of
such beneficial owner.
Section 9. Turnover of Payments Wrongly Received. If Borrower shall
-------------------------------------
make any payment to a Noteholder which is prohibited hereby or any Noteholder
shall collect any payment as a result of an Enforcement Action which is
prohibited hereby, then such payment shall be paid over and delivered forthwith
by such Noteholder to the Agent Lender. If Borrower shall make any payment to a
Bank which is prohibited hereby or any Bank shall collect any payment as a
result of an Enforcement Action which is prohibited hereby, then such payment
shall be paid over and delivered by such Bank to the Agent Noteholder.
Section 10. Payments and Enforcement Actions Otherwise Permitted.
----------------------------------------------------
Except as expressly provided herein, nothing shall prevent Borrower from making,
or any Noteholder or Bank from receiving, any payments on the TCW Indebtedness
or Allowed Bank Indebtedness, as applicable, or limit the rights of the Banks or
the Noteholders to take Enforcement Actions.
Section 11. Subrogation to Rights of Banks. After the payment in
------------------------------
full of all Allowed Bank Indebtedness, the Noteholders shall be subrogated to
the rights of the Banks to receive payments and distributions of cash, property
and securities applicable to Allowed Bank Indebtedness and the Liens securing
the Allowed Bank Indebtedness until all amounts owing on the TCW Indebtedness
shall be paid in full. For purposes of such subrogation, no payments or
15
<PAGE>
distributions to the holders of Allowed Bank Indebtedness by or on behalf of
Borrower or by or on behalf of the Noteholders by virtue of this Agreement which
otherwise would have been made to the Noteholders shall, as between Borrower,
its creditors other than the Banks, and the Noteholders, be deemed to be a
payment or distribution by Borrower to or on account of the Allowed Bank
Indebtedness.
Section 12. Provisions Solely to Define Relative Rights. The
-------------------------------------------
provisions of this Agreement are, and are intended solely, for the purpose of
defining the relative rights of the Noteholders on the one hand and of the Banks
on the other hand. Nothing contained in this Agreement is intended to or shall
(a) impair, as between Borrower and the Noteholders, the obligation of Borrower,
which is absolute and unconditional, to pay all TCW Indebtedness as and when the
same shall become due and payable in accordance with its terms; (b) affect the
relative rights against Borrower of the Noteholders and any creditors of
Borrower other than the Banks; or (c) prevent the Noteholders from exercising
all remedies otherwise permitted by applicable law upon default under the TCW
Agreement, subject to the rights of the Banks, if applicable, under this
Agreement. Nothing contained in this Agreement is intended to or shall (a)
impair, as between Borrower and the Banks, the obligation of Borrower, which is
absolute and unconditional, to pay all Bank Indebtedness as and when the same
shall become due and payable in accordance with its terms; (b) affect the
relative rights against Borrower of the Banks and any creditors of Borrower
other than the Noteholders; or (c) prevent the Banks from exercising all
remedies otherwise permitted by applicable law upon default under the Bank
Agreement, subject to the rights of the Noteholders, if applicable, under this
Agreement. Without the consent of the Borrower, the provisions of this Agreement
defining the relative rights of the Noteholders and the Banks may be modified by
the Noteholders and the Banks without modifying the rights of the Borrower,
provided that Agent Noteholder and Agent Lender shall give notice thereof to the
Borrower.
Section 13. Possession of Stock. ING acknowledges that it holds the
-------------------
stock of Borrower pursuant to the Pledge Agreements by Parent, for ING, as
Agent for the Banks, and for the Collateral Agent as defined under the TCW
Agreement, as agent for the Noteholders, to perfect the security interest
granted in such Pledge Agreements by Parent . ING shall have no obligation or
duty to such Collateral Agent or Noteholders as a result thereof; provided that
upon payment in full of the Allowed Bank Indebtedness and the end of the
Revolving Period, ING shall not surrender the stock to the Parent but shall
deliver the same to the Collateral Agent.
Section 14. No Waiver. No right of any Bank or Noteholder to enforce
---------
its rights as herein provided shall at any time or in any way be prejudiced or
impaired by any act or failure to act on the part of any other party hereto or
by any non-compliance by any other party with the terms of this Agreement,
regardless of any knowledge thereof which any such Bank or Noteholder may have
or otherwise be charged with (provided that in all events the Noteholders may
conclusively rely on the authority of the Agent Lender to act for the Banks and
that the Banks may conclusively rely on the authority of the Agent Noteholder to
act for the Noteholders). The rights and duties of the parties hereto shall
continue in effect and apply to the
16
<PAGE>
Bank Indebtedness and the TCW Indebtedness and to the Bank Documents and the TCW
Documents, as each is from time to time amended or modified or waived, subject
to the provisions of Sections 3, 5 and 6.
Section 15. No Oral Change. No amendment of any provision of this
--------------
Agreement shall be effective unless it is in writing and signed by Borrower, the
Agent Noteholder and the Agent Lender. No waiver of any provision of this
Agreement, and no consent to any departure by Borrower, any Noteholder or any
Bank therefrom, shall be effective unless it is in writing and signed by both
the Agent Noteholder and the Agent Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
Section 16. Governing Law. This Agreement shall be deemed a contract
-------------
and instrument made under the laws of the State of New York and shall be
construed and enforced in accordance with and governed by the laws of such state
and the laws of the United States of America, without regard to principles of
conflicts of law.
Section 17. Invalidity of Particular Provisions. If any term or
-----------------------------------
provision of this Agreement shall be determined to be illegal or unenforceable,
all other terms and provisions hereof shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 18. Notices. All notices, requests, consents, demands and
-------
other communications to Borrower, any Noteholder or any Bank which are required
or permitted under this Agreement shall be in writing and shall be deemed
sufficiently given or furnished if delivered by personal delivery, by telecopy,
by delivery service with proof of delivery, or by registered or certified United
States mail, postage prepaid, at the addresses listed below (unless changed by
similar notice in writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
first attempted delivery at the address and in the manner provided herein, (b)
in the case of telecopy, upon receipt, or (c) in the case of registered or
certified United States mail, three days after deposit in the mail. Any such
notice to any Noteholder may be delivered in care of the Agent Noteholder, and
any such notice to any Bank may be delivered in care of the Agent Lender.
Borrower's Address:
Inland Production Company
475 17th Street, Suite 1500
Denver, Colorado
Attention: Kyle Miller
Telecopy: 303-296-9695
17
<PAGE>
Agent Noteholder's Addresses:
TCW Asset Management Company
865 South Figueroa
Los Angeles, California 90017
Attention: Arthur R. Carlson
Telecopy: 213/244-0604
with a copy to:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: George Hutchinson
Telecopy: 713/615-7460
Agent Lender's Address:
ING (U.S.) Capital Corporation
135 East 57th Street, 8th Floor
New York, New York 10022-2101
Attention: Christopher R. Wagner
Telecopy: (212) 832-3616
Section 19. Successors and Assigns. This Agreement shall pass to and
----------------------
be fully binding upon and inure to the benefit of the successors and assigns of
each party hereto.
Section 20. Agent Lender and Agent Noteholder Consents. References
------------------------------------------
to consent by Agent Lender means such consent with such approval or concurrence
of the Banks except as otherwise provided in the Bank Agreement. References to
consent by Agent Noteholder means such consent with such approval or concurrence
of the Noteholders as may be required or permitted from time to time under the
TCW Agreement.
Section 21. Counterparts. This Agreement may be separately executed
------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
18
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
Borrower: INLAND PRODUCTION COMPANY
By:
--------------------------
Bill I. Pennington
Chief Financial Officer
Parent: INLAND RESOURCES, INC.
By:
--------------------------
Bill I. Pennington
Chief Financial Officer
Agent Noteholder: TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under that
certain Agreement dated as of June 13, 1994,
between TCW Asset Management and Morgan Stanley
Group, Inc.
By:
--------------------------
Arthur R. Carlson
Managing Director
By:
--------------------------
Marc MacAluso
Senior Vice President
19
<PAGE>
Noteholders: TRUST COMPANY OF THE WEST, acting in its capacity
as sub-custodian for Mellon Bank for the benefit
of Account No. CPFF873-3032
By:
--------------------------
Arthur R. Carlson
Managing Director
By:
--------------------------
Marc MacAluso
Senior Vice President
Agent Lender: ING (U.S.) Capital Corporation, in its capacity as
Agent
By:
--------------------------
Christopher R. Wagner
Banks: ING (U.S.) Capital Corporation
By:
--------------------------
Christopher R. Wagner
20
<PAGE>
SCHEDULE 1
SCHEDULED BANK PAYMENTS
-----------------------
<TABLE>
<CAPTION>
Month In Which
Payment Date Occurs Amount of Payment
------------------- -----------------
<S> <C>
29-Mar-99 $ 0
28-Jun-99 $4,000,000
28-Sep-99 $4,000,000
29-Dec-99 $4,000,000
29-Mar-00 $3,000,000
28-Jun-00 $3,000,000
28-Sep-00 $3,000,000
29-Dec-00 $3,000,000
29-Mar-01 $2,500,000
28-Jun-01 $2,500,000
28-Sep-01 $2,500,000
29-Dec-01 $2,500,000
29-Mar-02 $2,250,000
28-Jun-02 $2,250,000
28-Sep-02 $2,250,000
29-Dec-02 $2,250,000
29-Mar-03 $2,000,000
</TABLE>
21
<PAGE>
EXHIBIT A
APPROVAL LETTER
---------------
[Date]
Inland Production Company
475 17th Street, Suite 1500
Denver, Colorado 80202
Attention:________________________
Gentlemen:
Reference is made to the Intercreditor Agreement dated September
_____, 1997, among Inland Production Company, Inland Resources, Inc., Trust
Company of the West, as Noteholder, TCW Asset Management Company, as Agent and
Collateral Agent and ING (US) Capital Corporation, as Agent and initial Lender.
(Such Intercreditor Agreement, as from time to time amended, is herein called
the "Intercreditor Agreement"). Reference is hereby made to the Intercreditor
Agreement for all purposes, and terms defined therein shall have the same
meanings when used herein.
The Intercreditor Agreement contemplates that certain Approval Letters
may be given from time to time in connection therewith in order to specify
certain ANCF Capital Expenditures, ANCF LOE, ANCF Overhead Costs, or ANCF
Transportation Costs. This letter is such an Approval Letter and is given by
the undersigned in order so to approve the ANCF _____________ which are
specified in the schedule attached hereto.
This letter [is in addition to/supersedes] all previous Approval
Letters dealing with ANCF ____________.
This letter is a Loan Document under the TCW Agreement and the Bank
Agreement., and all provisions of the TCW Agreement and the Bank Agreement which
apply to Loan Documents shall apply hereto.
This letter may be separately executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed shall be deemed to constitute one and the same Approval Letter.
1
<PAGE>
Please execute a counterpart of this letter in the place provided
below to evidence your agreement to the foregoing and your continuing
ratification of the TCW Agreement and the Bank Agreement and the other TCW
Documents and Bank Documents in consideration of the approval herein contained.
Yours truly,
TCW ASSET MANAGEMENT COMPANY, as Agent under the
TCW Agreement
By:
-------------------------------------
Name:
Title:
ING (US) CAPITAL CORPORATION, as Agent under the
Bank Agreement
By:
-------------------------------------
Name:
Title:
Accepted and agreed to as
of the date first written
above
INLAND PRODUCTION COMPANY
By:
----------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT 4.4
WARRANT AGREEMENT
by and between
INLAND RESOURCES INC.,
a Washington corporation
and
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY PARTNERSHIP, L.P.,
a California limited partnership
Dated as of September 23, 1997
<PAGE>
TABLE OF CONTENTS
RECITALS................................................................... 1
SECTION 1. Issuance of Warrants........................................... 5
1.01. Authorization and Issuance of Shares and Warrants.............. 5
1.02. Closing........................................................ 5
1.03. TCW Investment Representation.................................. 6
SECTION 2. Special Rights Relating to the Warrants........................ 6
2.01. Right of Observer to Attend Board and Other Meetings........... 6
2.02. Warrant Repurchase.
SECTION 3. Representations, Warranties and Covenants of the Company....... 7
3.01. Sale is Legal, etc............................................. 7
3.02. Governmental Consent........................................... 9
3.03. Private Offering............................................... 9
SECTION 4. Additional Covenants of the Company............................ 9
4.01. Delivery Expenses.............................................. 9
4.02. Taxes.......................................................... 9
4.03. Replacement of Instruments..................................... 10
4.04. Information, etc............................................... 10
4.05. Inspection..................................................... 10
SECTION 5. Registration Rights............................................ 11
5.01. Demand Registration............................................ 11
5.02. Piggyback Registration......................................... 12
5.03. Registration Procedures........................................ 14
5.04. Expenses; Limitations on Registration.......................... 17
5.05. Termination of Restrictions.................................... 18
5.06. Rule 144 and 144A.............................................. 19
5.07. Indemnification................................................ 19
5.08. Miscellaneous Registration Provisions.......................... 22
SECTION 6. Transfer Restrictions.......................................... 22
6.01. Transfers of Securities........................................ 22
SECTION 7. Miscellaneous.................................................. 23
7.01. Successors and Assigns......................................... 23
7.02. Governing Law.................................................. 23
7.03. Headings....................................................... 23
7.04. Entire Agreement............................................... 23
7.05. Counterparts................................................... 24
7.06. Notices........................................................ 24
7.07. Accounting Terms............................................... 24
7.08. Brokers; Information........................................... 24
7.09. Jurisdiction and Service of Process............................ 24
i
<PAGE>
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT (this "Agreement"), dated as of September 23,
---------
1997, by and between Inland Resources Inc., a Washington corporation (the
"Company"), and TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., a
-------
California limited partnership ("TCW").
---
RECITALS
--------
1. Pursuant to the Credit Agreement (as amended from time to time,
the "Credit Agreement") of even date herewith among the Company, Inland
----------------
Production Company, a Texas corporation (the "Borrower"), and TCW Asset
--------
Management Company, a California corporation, in its capacities set forth in the
Credit Agreement ("TAMCO"), Trust Company of the West, in its capacity as holder
-----
of the Notes described therein ("Trustco"), and TCW (together with TAMCO and
-------
Trustco, the "TCW Entities"), the TCW Entities have made loans or other advances
------------
of credit to the Borrower for the benefit of the Company.
2. In consideration of the TCW Entities' agreement to make loans
or other advances of credit to the Borrower for the benefit of the Company
pursuant to the Credit Agreement, the Company issued the Warrants (as defined
below) to TCW.
AGREEMENT
---------
In consideration of the premises and of the terms and conditions
herein contained, the parties hereto mutually agree as
follows:
DEFINITIONS
-----------
As used herein, the following terms shall have the following
respective meanings:
-1-
<PAGE>
"$10mm Note" shall mean the Note in the original principal amount of
----------
$10,000,000, initially issued to Trustco.
"12.5% IRR" shall have the meaning assigned to such term in the
---------
Credit Agreement.
"Affiliate" shall mean, with respect to any Person, any other Person
---------
directly or indirectly controlling, controlled by or under common control
with such Person. As used in this definition, "control" (including, with
-------
its correlative meanings, "controlled by" and "under common control with")
------------- -------------------------
shall mean possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). Notwithstanding the foregoing, (i) no individual shall be
deemed to be an Affiliate of a corporation solely by reason of his or her
being an officer or director of such corporation and (ii) neither TCW nor
TCW shall be deemed to be an Affiliate of the Company or its Affiliates.
"Appraised Value" shall have the meaning assigned to such term in
---------------
the form of Warrant attached hereto as Annex 1.
-------
"Board" shall have the meaning specified in Section 2.01 below.
----- ------------
"Board of Advisors" shall mean the individuals appointed from time
-----------------
to time by management of the Company to provide nonbinding informal advice
and direction to the Company and management of the Company.
"Business Day" shall mean any day, other than a Saturday, a Sunday
------------
or a legal holiday on which commercial banks are authorized or obligated by
law or executive order to close, in the State of California.
"Closing" shall have the meaning specified in Section 1.02(a) below.
------- ---------------
-2-
<PAGE>
"Commission" shall mean the Securities and Exchange Commission.
----------
"Common Stock" shall have the meaning ascribed to such term in the
------------
form of Warrant attached hereto as Annex 1.
-------
"Company" shall have the meaning specified in the introductory
-------
paragraph to this Agreement.
"Credit Agreement" shall have the meaning specified in the recitals
----------------
to this Agreement.
"Current Market Price" shall have the meaning assigned to such term
--------------------
in the form of Warrant attached hereto as Annex 1.
-------
"Current Warrant Price" shall have the meaning assigned to such term
---------------------
in the form of Warrant attached hereto as Annex 1.
-------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles, applied
----
on a consistent basis.
"Governmental Body" shall mean any federal, state, municipal or
-----------------
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"Lien" shall mean with respect to any property or assets, any right
----
or interest therein of a creditor to secure debt owed to him or any other
arrangement with such creditor which provides for the payment of such debt
out of such property or assets or which allows him to have such debt
satisfied out of such property or assets prior to the general creditors of
any owner thereof, including any lien, mortgage, security interest, pledge,
deposit, production payment, rights of a vendor under any title retention
or
-3-
<PAGE>
conditional sale agreement or lease substantially equivalent thereto, tax
lien, mechanic's or materialman's lien, or any other charge or encumbrance
for security purposes, whether arising by law or agreement or otherwise,
but excluding any right of offset which arises without agreement in the
ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
unregistered securities), or any other arrangement or action which would
serve to perfect a Lien described in the preceding sentence, regardless of
whether such financing statement is filed, such registration is made, or
such arrangement or action is undertaken before or after such Lien exists.
"Notes" shall mean an aggregate amount of $75,000,000 of the
-----
Company's Senior Subordinated Secured Amortizing Term Notes due December
31, 2006.
"Person" shall mean any individual, corporation, partnership,
------
association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, court or
governmental unit or any agency subdivision thereof, or any other legally
recognizable entity.
"Recommended Number" shall have the meaning ascribed thereto in
------------------
Section 5.01(a).
---------------
"Restricted Certificate" shall mean a certificate for Common Stock
----------------------
or a Warrant bearing the restrictive legend set forth in Section 1.03 of
------------
this Agreement.
"Restricted Securities" shall mean Restricted Stock and Restricted
---------------------
Warrants.
"Restricted Stock" shall mean Warrant Stock evidenced by a
----------------
Restricted Certificate or otherwise restricted from transfer pursuant to
the Securities Act or Exchange Act.
-4-
<PAGE>
"Restricted Warrant" shall mean a Warrant evidenced by a Restricted
------------------
Certificate.
"Rule 144" shall mean Rule 144 promulgated by the Commission under
--------
the Securities Act, and any successor provision thereto.
"Securities" shall mean any of the Warrants and Warrant Stock.
----------
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and all rules and regulations thereunder.
"Seller" shall mean a holder of Restricted Stock of the Company for
------
which the Company shall be required to file a registration statement or
which shall be registered under the Securities Act at the request of such
holder pursuant to any of the provisions of Section 5. Neither the Company
---------
nor any of its Affiliates shall be deemed a "Seller" for any purposes of
this Agreement.
"Subsidiary" shall mean, with respect to any Person, any
----------
corporation, association, partnership, joint venture, or other business or
corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled by or owned
fifty percent or more by such Person, provided that associations, joint
ventures, partnership or other relationships (a) which are established
pursuant to a standard form operating agreement or similar agreement or
which are partnerships for purposes of federal income taxation, (b) which
are not corporations or partnerships (or subject to the Uniform Partnership
Act) under applicable state law, and (c) whose businesses are limited to
the exploration, development and operation of oil, gas or mineral
properties and interests owned directly by the parties in such
associations, partnerships, joint ventures or relationships, shall not be
deemed to be "Subsidiaries" of such Person.
"TCW" shall have the meaning specified in the introductory paragraph
---
to this Agreement.
-5-
<PAGE>
"Warrant" and "Warrants" shall have the meanings specified in
------- --------
Section 1.01 below.
------------
"Warrant Stock" shall mean the shares of Common Stock purchasable by
-------------
the holder of a Warrant upon exercise of such Warrant.
SECTION 1. Issuance of Warrants.
--------------------
1.011 Authorization and Issuance of Shares and Warrants. The Company
-------------------------------------------------
has authorized: (a) the issue of one or more warrant certificates covering the
purchase of shares of Common Stock in the form of the Warrant certificate issued
to TCW at the Closing in the form set forth as Annex 1 to this Agreement
(herein, together with the rights to purchase Common Stock provided thereby,
sometimes called, individually, a "Warrant" and, collectively, the "Warrants")
------- --------
pursuant to this Agreement and (b) the issue of such number of shares of Common
Stock as will permit the compliance by the Company with its obligations to issue
Common Stock pursuant to the Warrants.
1.012 Closing.
-------
(a) At a closing (the "Closing") held on the date hereof the Company
-------
issued to TCW Warrants to purchase an aggregate of 100,000 shares of Common
Stock of the Company (representing approximately 1.0% of the outstanding shares
of Common Stock of the Company, on a fully diluted basis as of the date hereof)
and subject to adjustment as provided in the Warrants. TCW concurrently with
the issuance of the Warrants executed and delivered the Credit Agreement.
(b) At the Closing, the Company delivered to TCW:
(i) a certificate for the Warrants issued in TCW's name; and
(ii) certified resolutions of the Board authorizing the execution
and delivery of this Agreement and all related documents and the
consummation of the transactions contemplated hereby and thereby.
-6-
<PAGE>
1.013 TCW Investment Representation. In connection with the purchase
-----------------------------
of the Warrants, TCW represents and warrants to the Company that (a) TCW
acquired the Warrants solely for TCW's own account with no intention to resell
or distribute the Warrants or any Warrant Stock or any portion thereof, (b) TCW
is an "accredited investor," as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act. TCW is a sophisticated investor with such
knowledge and experience in financial matters as is necessary to enable it to
evaluate the merits and risks of an investment in the Warrants and in the Common
Stock, and is capable of bearing the economic risks of such investment. TCW
acknowledges that (a) the sale of the Securities has not been registered under
the Securities Act or registered or qualified under applicable state securities
or blue sky laws and TCW agrees that the Securities will not be sold, conveyed,
transferred or disposed of by TCW except in compliance with the Securities Act
and applicable state securities or blue sky law and (b) that in making the
representations set forth in Sections 3.01, 3.02 and 3.03, the Company is
----------------------------
relying, to the extent applicable, upon the representations and warranties of
TCW made in this Section 1.03. The certificates for the Securities shall bear a
------------
legend to the effect of clause (a) of the preceding sentence until transferred
pursuant to an effective registration statement under the Securities Act or Rule
144.
SECTION 2. Special Rights Relating to the Warrants.
---------------------------------------
1.021. Right of Observer to Attend Board and Other Meetings.
----------------------------------------------------
[Intentionally Left Blank]
1.022 Warrant Repurchase. Each holder of Warrants shall have the right
------------------
at its option, for up to fifteen (15) business days following the first to occur
of (i) the Company's payment in full of the Notes for cash prior to their stated
maturity or (ii) the maturity of the Notes in accordance with their terms, to
cause the Company to purchase for cash the Warrant(s) held by such electing
holder in an amount equal to
-7-
<PAGE>
such holder's pro rata share (such pro rata share to be determined based on the
total number of shares of Common Stock underlying any exercised or unexercised
Warrant issued pursuant to the Warrant Agreement) of an amount equal to the
amount necessary to cause a 12.5% IRR to be achieved by the holder of the
Company's $10mm Note, as described in and on the terms more fully described in
Section 9 of the Warrant.
SECTION 3. Representations, Warranties and Covenants of the Company. The
--------------------------------------------------------
Company represents and warrants, as set forth below in this Section 3.
---------
1.031. Sale is Legal, etc.
-------------------
(a) Upon the issuance of the Warrants the total number of shares of
capital stock which the Company had authority to issue was 25,000,000 shares of
Common Stock. The Company has the power and authority and has taken all actions
necessary to authorize it to enter into and perform its obligations and
undertakings under this Agreement and the Warrants. Immediately prior to the
issuance of the Warrants, 8,354,330 shares of Common Stock were issued and
outstanding. Upon the issuance of the Warrants, the Company did not have
outstanding any (i) stock or securities convertible into or exchangeable for any
shares of capital stock except for the Warrants or (ii) 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, any capital stock or stock or securities
convertible into or exchangeable for any capital stock, other than (a) the
Warrants; (b) the 139,700 outstanding unexercised options issued pursuant to the
Amended 1988 Stock Option Plan of the Company; (c) the 500,000 options issued or
to be issued under the Company's 1997 Stock Option Plan; (d) 100,000 shares of
the Company's Series C Cumulative Convertible Preferred Stock issued as of the
date hereof; and (e) warrants and/or options to purchase an aggregate of 681,911
shares of Common Stock issued to the parties and in the amount indicated on
Schedule 3.01(a) hereto. There are no preemptive rights or rights of first
- ----------------
refusal to purchase any capital stock of the Company, other than the anti-
dilution rights of the Series C Cumulative Convertible Preferred Stock upon
conversion.
-8-
<PAGE>
(b) The Company will at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
the exercise of the Warrants, such number and class of shares of Common Stock
issuable upon the exercise of all outstanding Warrants. All shares of Common
Stock which are so issuable will, when issued, be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, charges and preemptive
rights. The Company will take all such actions as may be necessary to assure
that all such shares of Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock may be listed.
(c) None of the execution and delivery of this Agreement or the issue
and sale of the Warrants and the Warrant Stock, or the consummation of the
transactions herein or therein contemplated or compliance with the terms and
provisions hereof and thereof will violate or result in a breach of, or require
any consent under, the Charter or Bylaws of the Company, or any applicable law
or regulation, or any order, writ, injunction or decree of any court or
Governmental Body (other than (i) filings that have been made by the Company to
the extent required pursuant to applicable securities laws and (ii) filings that
may be required hereafter in connection with matters set forth in Section 5
hereof), or any material agreement or material instrument to which the Company
or any of its Subsidiaries is a party or by which any of them is bound or to
which any of them is subject, or constitute a default (or an event which, with
notice or the passage of time or both, would be a default) under any such
material agreement or material instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of the Company or any
of its Subsidiaries pursuant to the terms of any such agreement or instrument.
(d) There is not in effect on the date hereof any agreement by the
Company (other than this Agreement) pursuant to which any holders of securities
of the Company have a right to cause the Company to register such securities
under the Securities Act, except as disclosed on Schedule 3.01 to this
-------------
Agreement.
-9-
<PAGE>
(e) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Washington. The Company has the
corporate power and authority to execute and deliver this Agreement and the
Warrants and to perform the terms hereof and thereof, including the issuance of
Warrant Stock upon exercise of the Warrants. The Company has taken all action
necessary to authorize the execution, delivery and performance of this
Agreement, the issuance of the Warrants and the issuance of the Warrant Stock
upon exercise of the Warrants. This Agreement and the Warrants have been duly
authorized and executed and constitute the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with their terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors', rights generally.
1.032. Governmental Consent. Neither the nature of the Company or of
--------------------
any of the Company's Subsidiaries, or of any of their respective businesses or
properties, nor any relationship between the Company or any of the Company's
Subsidiaries and any other Person, nor (except as expressly provided for in this
Agreement) any circumstance in connection with the offer, issue or sale of the
Warrants, or the issue to TCW of Warrant Stock upon exercise of the Warrants, is
such as to require consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Body on the part of the
Company as a condition to the execution, delivery and performance of this
Agreement, and the issue of the Warrants or the issue of Warrant Stock upon
exercise of the Warrants.
1.033. Private Offering. Neither the Company nor any Person acting
----------------
on its behalf has offered or will offer the Warrants, the Warrant Stock, or any
part thereof or any similar securities for issue or sale to, or has solicited or
will solicit any offer to acquire any of the same from, anyone so as to cause
the Warrants or the Warrant Stock to be required to be registered pursuant to
the provisions of Section 5 of the Securities Act.
-10-
<PAGE>
SECTION 4. Additional Covenants of the Company.
-----------------------------------
1.041 Delivery Expenses. If TCW surrenders any certificate for
-----------------
Warrants or Warrant Stock to the Company or a transfer agent of the Company for
exchange for instruments of other denominations, the Company will cause such new
instruments to be issued (provided that such issuance does not violate any
applicable securities laws) and will pay the cost of delivering to or from the
office of TCW from or to the Company or its transfer agent, duly insured, the
surrendered instrument and any new instruments issued in substitution or
replacement for the surrendered instrument.
1.042 Taxes. The Company will pay all taxes (other than federal,
-----
state or local income taxes) which may be payable in connection with the
execution and delivery of this Agreement or the issuance and sale of the
Warrants or Warrant Stock hereunder or in connection with any modification of
the Warrants and will save TCW harmless without limitation as to time against
any and all liabilities with respect to or resulting from any delay in paying,
or omission to pay such taxes, except as provided otherwise in the Warrant. The
obligations of the Company under this Section 4.02 shall survive any redemption,
------------
repurchase or acquisition of Warrants or Warrant Stock by the Company and the
termination of this Agreement.
1.043. Replacement of Instruments. Upon receipt by the Company of
--------------------------
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any
Warrants or Warrant Stock, and
(a) in the case of loss, theft or destruction, on receipt of
indemnity reasonably satisfactory to the Company (provided that, if
the owner of the same is TCW or a commercial bank, its own agreement
of indemnity shall be deemed to be satisfactory), or
-11-
<PAGE>
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company, at the holder's expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
an equal number of Warrants or Warrant
Stock.
1.044. Information, etc. The Company covenants and agrees that, it
-----------------
will, to the extent not already provided to TCW or its Affiliates pursuant to
the Credit Agreement, deliver to TCW at the Company's expense the information
specified below:
(a) promptly after the same are available, copies of all such proxy
statements, financial statements and reports as the Company shall send or make
available generally to any of its security holders or as any Subsidiary of the
Company shall send or make available generally to any of its security holders
other than the Company or another Subsidiary, and copies of all regular and
periodic reports on Forms 10-KSB, 10-QSB or 8-K and of all final registration
statements (other than those on Form S-8) and prospectuses which the Company or
any Subsidiary of the Company may file with the Commission, or with any
securities exchange; and
(b) such other information, including financial statements and
computations, relating to the performance of the provisions of this Agreement
and the affairs of the Company or any of the Company's Subsidiaries as TCW may
from time to time reasonably request.
1.045. Inspection. The Company covenants and agrees that it shall
----------
afford one or more representatives chosen by TCW reasonable access, at
reasonable times and at TCW's sole expense, upon reasonable prior notice and for
a proper purpose, to inspect the books and records of the Company and to discuss
with management the business and affairs of the Company.
-12-
<PAGE>
SECTION 5. Registration Rights.
-------------------
1.051. Demand Registration. At any time after the Warrants become
-------------------
exercisable and so long as the Company continues to have a class of securities
registered in accordance with Section 12 or Section 15A of the Exchange Act, the
holders of Restricted Securities may request the Company to register for sale
under the Securities Act and any applicable state securities or "blue sky" laws
all or any portion of the Restricted Stock that is then outstanding. From and
after December 31, 2007, the holders of Restricted Stock shall have no further
rights to require the Company to register Restricted Stock pursuant to this
Section 5.01. The Company shall be obligated to effect registration pursuant to
- ------------
this Section 5.01 no more than one time, notwithstanding the fact that
------------
Restricted Stock may be held by more than one person. Whenever the Company
shall have received a request to effect registration pursuant to this Section
-------
5.01, the Company shall promptly give written notice to all other holders of
- ----
outstanding Restricted Securities of such proposed registration. Any such
holder of Restricted Securities may, within 30 days after receipt of such
notice, request that all of such holders' Restricted Stock, or any portion
thereof designated by such holder, be included in the offering. In connection
therewith, the Company shall file a registration statement covering the
Restricted Stock sought to be registered by such holder with the Commission
within 60 days of such request by such holder, unless such request is withdrawn.
The managing underwriter in any such offering will be designated by the Seller
and shall be reasonably satisfactory to the Company. Except as permitted in the
next succeeding paragraph, the Company agrees not to effect any public or
private sale or distribution of its equity securities during the 10-day period
prior to, and during the 30-day period beginning on, the effective date of the
registration statement relating to such offering.
The Company, and any other shareholder of the Company entitled to
participate in such registration, may participate in such registration (i)
subject to the limitations set forth in the last paragraph of this Section 5.01
------------
and (ii) only if the Company or such other shareholder agrees (x) to sell any
shares being registered on their behalf on the same basis as provided in any
underwriting agreement to which the Seller or Sellers are a party, (y) to timely
complete and execute all questionnaires,
-13-
<PAGE>
powers of attorney, indemnities, hold-back agreements and other documents
reasonably required under the terms of such underwriting agreement or by the
Commission or any state securities regulatory body, and (z) to withdraw any
shares from such registration which they may desire to withdraw only on terms
and at a time agreed to by the Sellers which agreement will not be unreasonably
withheld. If the Company participates in such registration and registers a
number of shares of Common Stock equal to or greater than the number being
registered by the Sellers, then the Company may specify a co-managing
underwriter for the offering which is reasonably acceptable to the Sellers and
the managing underwriter selected by the Sellers.
If the managing underwriter for the offering advises that the
registration of the number of shares of Restricted Stock sought to be registered
by the Sellers, together with the number of shares of Common Stock sought to be
registered by the Company and any other shareholder of the Company entitled to
participate in such registration, if any, in its opinion will have a material
adverse impact on the offering (including without limitation causing the
proceeds or the price per share the Sellers will derive from such registration
to be reduced or causing the number of securities to be registered to be too
large a number to be reasonably sold), the number of securities sought to be
registered shall be reduced as follows:
(a) first, the number of shares of Common Stock sought to be
registered by the Company or any holders of Common Stock, other than
Restricted Stock, shall be reduced pro rata, to the extent necessary to
reduce the total number of shares of Common Stock sought to be registered
to the number recommended by the managing underwriter (the "Recommended
-----------
Number"); and
------
(b) second, if the reduction provided for in clause (a) above
does not reduce the number of shares of Common Stock sought to be
registered to the Recommended Number, then the remaining number of shares
of Restricted Stock sought to be registered shall be reduced pro rata to
the extent necessary to reduce the number of securities to be registered to
the Recommended Number.
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<PAGE>
1.052. Piggyback Registration. If the Company at any time proposes
----------------------
to register any of its equity securities under the Securities Act on Form S-1,
S-2, S-3 or SB-2, or the equivalent, whether of its own accord or at the request
of any holder or holders of such securities, it will each such time (so long as
any holder of Restricted Securities has registration rights under this Section
-------
5.02) give written notice to all holders of outstanding Restricted Securities of
- ----
its intention so to do not less than 30 days prior to the filing of such
registration statement, stating in such notice the number and type of equity
securities proposed to be registered and the name of the managing underwriter.
Upon the written request of a holder or holders of any Restricted
Securities given within 20 days after receipt of any such notice (stating the
intended method of disposition of such securities by the prospective Seller or
Sellers), the Company will use its best efforts to cause all Restricted Stock,
the holders of which shall have so requested registration thereof, to be
registered under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the intended methods thereof as
aforesaid) by the prospective Seller or Sellers of the Restricted Stock so
registered; provided, however, the Company may elect not to file a registration
-------- -------
statement pursuant to this Section 5.02 or may withdraw any registration
------------
statement filed pursuant to this Section 5.02 at any time prior to the effective
------------
date thereof. In the case of an underwritten public equity offering by the
Company, (i) each holder of Restricted Securities shall, if requested by the
managing underwriter, agree not to sell publicly any equity securities of the
Company held by such holder of Restricted Securities (other than the Restricted
Stock so registered) during the 15-day period prior to, and during the 90-day
period beginning on, the effective date of the registration statement relating
to such offering (and the Company may issue stop transfer instructions with
respect to the Restricted Stock to enforce the foregoing covenant), and (ii)
each Seller agrees (x) to sell any shares being registered on his behalf on the
same basis as provided in any underwriting agreement to which the Company is a
party, (y) to timely complete and execute all questionnaires, powers of
attorney, indemnities, hold-back
-15-
<PAGE>
agreements, and other documents reasonably required under the terms of such
underwriting agreement or by the Commission or any state securities regulatory
body, and (z) to withdraw any shares from such registration which they may
desire to withdraw only on terms and at a time agreed to by the Company, which
agreement will not be unreasonably withheld.
If the managing underwriter for the offering advises that the
inclusion in such registration of the Restricted Stock sought to be registered
by the Seller or Sellers, together with the shares sought to be registered by
the Company and any other shareholder of the Company participating in such
registration, in its opinion will have a material adverse impact on the offering
(including without limitation causing the proceeds or the price per share which
the Company or the holders of securities will derive from such registration to
be materially reduced or causing the number of securities to be registered to be
too large a number to be reasonably sold), the number of securities sought to be
registered shall be reduced as set forth below:
(a) first, the number of shares of Restricted Stock sought to be
registered by the Sellers shall be reduced pro rata along with other
sellers selling pursuant to similar piggyback registration rights (subject
only to the terms of agreements in effect dated prior to the date hereof,
if any, providing piggyback registration rights to holders of the Company's
capital stock), to the extent necessary to reduce the total number of
shares of Common Stock sought to be registered to the Recommended Number;
and
(b) second, if the reduction provided for in clause (a) above does
not reduce the number of shares of Common Stock sought to be registered to
the Recommended Number, then the number of shares of Common Stock sought to
be registered by the Company or other persons exercising demand
registration rights, as the case may be, shall be reduced, in the manner
that the Company and such other persons may agree, to the extent necessary
to reduce the number of shares of Common Stock sought to be registered to
the Recommended Number.
-16-
<PAGE>
Without the prior written consent of the holders of at least a
majority of the Restricted Stock, the Company will not grant to any person at
any time on or after the date hereof the right to request the Company to
register any securities of the Company under the Securities Act unless such
right provides that such securities shall not be registered and sold at the same
time as any Restricted Stock is being sold in a registered offering pursuant to
Sections 5.02 or 5.01 if the managing underwriter for the respective Sellers
- ---------------------
believes that sale of such securities would materially and adversely affect the
amount of, or price at which, the respective Restricted Stock being registered
under Sections 5.01 or 5.02 can be sold.
---------------------
1.053 Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions of this Section 5 to use its best efforts to effect
---------
the registration of any of the Restricted Stock under the Securities Act, the
Company will (except as otherwise provided in this Agreement), as expeditiously
as possible,
(a) cooperate with any underwriters for, and the Sellers of,
such Restricted Stock, and will enter into a usual and customary
underwriting agreement (containing indemnification provisions and
procedures no less favorable to the Sellers and the underwriters, if any,
than those set forth in Section 5.07) with respect thereto and take all
------------
such other reasonable actions as are necessary to permit the disposition of
such Restricted Stock in the manner contemplated by the related
registration statement, and the Company will provide to any Seller of
Restricted Stock, any underwriter participating in any distribution
thereof, pursuant to a registration statement, and any attorney, accountant
or other agent retained by any Seller or underwriter, reasonable access
solely for the purpose of permitting appropriate "due diligence" for the
avoidance of liability under applicable securities laws to appropriate
Company officers and employees to answer questions and to supply
information reasonably requested by any such Seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
-17-
<PAGE>
(b) use its best efforts to furnish or cause to be furnished to
each Seller of Restricted Stock covered by such registration statement,
addressed to such Sellers and to the underwriters, a copy of the opinion of
counsel for the Company, and a copy of the "comfort" letter signed by the
independent public accountants who have certified the Company's financial
statements included in the registration statement, delivered on the closing
date to the underwriters of such Restricted Stock;
(c) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective; and prepare and
file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective (subject to
the terms of this Section 5) and to comply with the provisions of the
---------
Securities Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Seller or
Sellers of such securities shall desire to sell or otherwise dispose of the
same; provided that no such registration statement will be filed by the
Company until counsel for the Sellers of securities included therein shall
have had a reasonable opportunity (of no more than 7 days) to review the
same and to exercise their rights under clause (a) above with respect
thereto and no amendment to any such registration statement naming such
Sellers as selling shareholders shall be filed with the Commission until
such Sellers shall have had at least one day to review such registration
statement as originally filed and theretofore amended (to the extent
reasonably practicable) and to exercise their rights under clause (a)
above;
(d) furnish to each Seller and the underwriters (i) such numbers
of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such Seller or underwriters
may reasonably request in order to facilitate the public sale or
-18-
<PAGE>
other disposition of the securities owned by such Seller and (ii) at least
one signed copy of the registration statement and any post-effective
amendment thereto, including all financial statements, schedules and
exhibits (including any exhibits incorporated by reference);
(e) use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as each Seller or the managing underwriter
shall reasonably request, and do any and all other acts and things which
may be necessary to enable such Seller to consummate the public sale or
other disposition in such jurisdictions of the securities owned by such
Seller, except that the Company shall not for any such purpose be required
to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to
service or submit to the general taxation of any jurisdiction;
(f) in the event of the issuance of any stop order suspending the
effectiveness of any registration statement or of any order suspending or
preventing the use of any prospectus or suspending the qualification of any
Restricted Stock for sale in any jurisdiction, use its best efforts
promptly to obtain its withdrawal;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, beginning with the first fiscal
quarter beginning after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act; and
(h) list such securities on any securities exchange, national
market system or automated quotation system on which any stock of the
Company is then listed, if the listing of such securities is then permitted
under the
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<PAGE>
rules of such exchange or system; provided, however, that notwithstanding
-------- -------
any other provision of this Section 5, the Company shall not be required to
---------
maintain the effectiveness of any registration statement for a period in
excess of the earlier of 120 days or the disposition of the Warrant Stock
as described therein (plus any period during which the effectiveness of
----
such registration has been suspended).
Notwithstanding anything to the contrary contained herein, the Company
shall not be required to cause a registration statement previously filed
pursuant to this Section 5 to become effective, and may suspend sales by any of
---------
the Sellers under any registration that has previously become effective, at any
time when, in the good faith judgment of the board of directors, it reasonably
believes that the effectiveness of such registration statement or the offering
of securities pursuant thereto, would materially and adversely affect a pending
or proposed material acquisition, merger, recapitalization, reorganization or
similar transaction or negotiations, discussions or pending proposals with
respect thereto.
From time to time after a transfer of Warrant Stock pursuant to a
registration statement, the Company will file all 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 will take such further
action as any holder or holders of Restricted Stock may reasonably request, all
to the extent required to enable such holders to sell Restricted Stock pursuant
to such laws and regulations thereunder and subject to the terms hereof; and
promptly notify the Seller or Sellers and the managing underwriters (i) when any
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to the registration statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
Commission for amendments or supplements to the registration statement or any
prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification
-20-
<PAGE>
of the Restricted Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and (v) of the happening of any
event which makes any statement made in the registration statement, any
prospectus or any document incorporated therein by reference untrue in any
material respect or which requires the making of any changes in the registration
statement in order to make the statements therein not misleading in any material
respect.
1.054. Expenses; Limitations on Registration. All expenses incident
-------------------------------------
to the Company's performance of its obligations in connection with any
registration of the Sellers' Restricted Stock, pursuant to Section 5.01 or
------------
Section 5.02, under this Agreement including, without limitation, printing
- ------------
expenses, fees and disbursements of counsel for the Company, fees of the
National Association of Securities Dealers, Inc. in connection with its review
of any offering contemplated in any registration statement and expenses of any
special audits to which the Company shall agree or which shall be necessary to
comply with governmental requirements in connection with any such registration
shall be paid by the Company. In addition, the Company shall pay (i) all
registration and filing fees for the Sellers' Restricted Stock under federal and
state securities laws and (ii) expenses of registering or qualifying under or
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 5.03(e), unless otherwise required by the securities administrators of
- ---------------
each such jurisdiction. The Sellers shall pay, in connection with the exercise
of their registration rights pursuant to Sections 5.01 or 5.02, all underwriting
---------------------
discounts and selling commissions allocable to the sale of Restricted Stock
incurred for or on behalf of the Sellers and expenses of Seller's counsel and
other experts.
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 5 in respect of the Securities which
---------
are to be registered at the request of any prospective Seller that (i) subject
to the immediately preceding paragraph, the Company shall have received an
undertaking satisfactory to it from such prospective Seller to pay all expenses
to be incurred by or for the account of and required to be paid by such Seller,
and (ii) such prospective
-21-
<PAGE>
Seller shall furnish to the Company such information regarding the securities
held by such Seller and the intended method of disposition thereof as the
Company shall reasonably request and as shall be required in connection with the
action to be taken by the Company.
The holders of Warrants and Warrant Stock shall be entitled to an
aggregate of one effective registration pursuant to requests made under Section
-------
5.01 and an unlimited number of registrations pursuant to requests made under
- ----
Section 5.02, each subject to the provisions of Section 5.05 below; provided
- ------------ ------------
that any such registration request made by the requisite number of holders
specified in Section 5.01 which request shall be withdrawn (other than by reason
------------
of the Company's failure to perform its obligations hereunder or a material
adverse change in its financial position, business or business prospects) by the
holders of a majority in number of shares evidenced or covered by the Restricted
Stock sought to be so registered, after the respective registration statement
shall have become effective, shall be treated as an "effective" registration for
purposes of this Agreement.
1.055. Termination of Restrictions. Notwithstanding the foregoing
---------------------------
provisions of this Section 5, the restrictions imposed upon the transferability
---------
of the Restricted Stock shall cease and terminate as to any particular
Restricted Security when such Restricted Security shall have been effectively
registered under the Securities Act and sold by the holder thereof in accordance
with such registration or the holder of such Restricted Security has delivered
to the Company an opinion of counsel in form and substance reasonably
satisfactory to the Company that all of the Restricted Stock may simultaneously
be sold in accordance with the safe harbor provisions of Rule 144(k). No
request for registration may be made by a holder of Restricted Stock pursuant to
this Section 5, nor may any registration be required to be maintained if such
---------
holder of Restricted Stock is advised by the Company, and promptly furnished an
opinion of the Company's counsel reasonably satisfactory to such holder, to the
effect that all of the shares of Restricted Stock subject to registration under
this Agreement are eligible for simultaneous sale under the conditions of Rule
-22-
<PAGE>
144 as promulgated by the Commission, and no request for registration may be
made with respect to such shares of Restricted Stock to which such opinion is
applicable, and no registration need be maintained in respect thereof under
either such circumstance. Whenever the restrictions imposed shall terminate as
to a Restricted Certificate, as hereinabove provided, the holder thereof shall
be entitled to receive from the Company, without expense, a new certificate not
bearing the restrictive legend otherwise required to be borne thereby.
1.056. Rule 144 and 144A. In order to permit the holders of
-----------------
Restricted Securities to sell the same, if they so desire, pursuant to Rule 144
or Rule 144A promulgated by the Commission (or any successors to such rules),
the Company will comply with all rules and regulations of the Commission
applicable in connection with use of each of Rule 144 and Rule 144A (or any
successors thereto), including the timely filing of all reports with the
Commission and the provision of any information regarding the Company in order
to enable such holders, if they so elect, to utilize Rule 144 or Rule 144A, and
the Company will cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Warrant Stock which is
exempt from registration under the Securities Act pursuant to Rule 144 or Rule
144A. Upon the request of any holder of Restricted Securities, the Company will
deliver to such holder a written statement verifying that it has complied with
such requirements.
1.057. Indemnification.
---------------
(a) In the event of any registration of any of its securities under
the Securities Act pursuant to this Section 5, the Company shall indemnify and
---------
hold harmless the Seller of such Restricted Stock, its directors and officers,
and each other Person, if any, who controls such Seller within the meaning of
the Securities Act ("Controlling Person"), against any losses, claims, damages
------------------
or liabilities, joint or several, to which such Seller or any such director or
officer or Controlling Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
-23-
<PAGE>
based upon (i) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, or in any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, (ii) any alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any violation by the Company of any rule or regulation promulgated under
the Securities Act or the Exchange Act, or other federal or state law applicable
to the Company and relating to any action or inaction required of the Company in
connection with such registration, and shall reimburse such Seller or such
director, officer or Controlling Person for any reasonable legal or any other
expenses reasonably incurred by such Seller or such director, officer or
Controlling Person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company shall
-------- -------
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any alleged untrue statement or
alleged omission made in such registration statement, preliminary prospectus,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Seller, by any underwriter
in the transaction or by such Controlling Person specifically for use therein;
and provided further, however, that the Company shall not be liable hereunder to
any underwriter or any person who controls an underwriter within the meaning of
the Securities Act and the Exchange Act for any claim, damage or liability that
is based upon any untrue statement or alleged untrue statement or any omission
contained in any preliminary prospectus that was corrected by any subsequent
prospectus, and the underwriter was required to deliver but failed to deliver
such prospectus as required by the Securities Act. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Seller or such director, officer or Controlling Person, and shall survive
the transfer of such securities by such Seller.
(b) Each holder of any Restricted Stock shall, by acceptance thereof,
severally and not jointly, indemnify and hold
-24-
<PAGE>
harmless the Company, its directors and officers and each other Person, if any,
who controls the Company against any losses, claims, damages or liabilities,
joint or several, to which the Company or any such director or officer or any
such Person may become subject under the Securities Act or any other statute or
at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which Restricted Stock was registered under
the Securities Act, or in any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (ii) any alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such alleged untrue statement or alleged
omission was contained in written information furnished to the Company by such
holder specifically for use therein, and shall reimburse the Company or such
director, officer or other Person for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such loss, claim,
damage, liability or action. Notwithstanding the foregoing, obligations of any
holder shall be limited to an amount equal to the proceeds to such holder from
the Restricted Stock sold pursuant to the registration statement to which the
losses, claims, liabilities or damages related.
(c) Indemnification similar to that specified in clauses (a) and (b)
of this Section 5.07 shall be given by the Company and each holder of any
------------
Restricted Certificate (with such modifications as shall be appropriate) to each
other and to any underwriter with respect to any required registration or other
qualification of any Restricted Stock under any federal or state law or
regulation of governmental authority other than the Securities Act. The
indemnity and expense reimbursement obligations of the Company under clause (a)
of this Section 5.07 shall be in addition to any liability the Company may
------------
otherwise have.
(d) Each Person ("Indemnitor") who under the preceding provisions of
----------
this Section 5.07 agrees to indemnify
------------
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<PAGE>
another Person ("Indemnitee") shall have the right, subject to the provisions
----------
hereto, to designate counsel (reasonably acceptable to the Indemnitee) to defend
any case or proceeding against the Indemnitee arising in respect of any claim of
liability for which such indemnification may be claimed, to the end that
duplication of legal expense may be minimized; provided that, if the Indemnitee
notifies the Indemnitor that the Indemnitee has reasonably concluded and has
been advised by its counsel that any single counsel in such case or proceeding
would have a conflict of interest in representing both the Indemnitor and the
Indemnitee, the Indemnitee may designate its own counsel in such case or
proceeding and, to the extent so provided above in this Section 5.07, shall be
------------
entitled to be reimbursed by the Indemnitor for the Indemnitee's legal expenses
reasonably incurred in connection with defending itself in such case or
proceeding. Each Indemnitee may engage legal counsel at the Indemnitor's expense
if the Indemnitor shall fail to perform hereunder.
1.058. Miscellaneous Registration Provisions.
-------------------------------------
(a) Without limiting in any way any of the rights the holders of the
Restricted Securities may otherwise have at law or in equity, for damages or
otherwise, the Company hereby agrees to indemnify and hold harmless each holder
of Restricted Securities from and against any loss or expense that may be
incurred or suffered by such holder which arises from any of the following: (i)
a registration statement is not filed with the Commission on or before the time
required in Section 5.01 or (ii) the Company does not use its best efforts to
------------
cause such registration statement to be declared effective by the Commission at
the time reasonably requested by the underwriters and to remain effective until
completion of the offering of the Restricted Securities, or to cause the
Restricted Securities to be qualified or registered for sale in all appropriate
jurisdictions as provided in Section 5.03(e) and to remain so qualified or
---------------
registered thereafter during the applicable period under applicable law.
(b) Each holder of Restricted Securities, in addition to being
entitled to exercise all rights provided herein
-26-
<PAGE>
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by the Company hereof and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(c) The Company will not on or after the date hereof enter into, any
agreement with respect to its securities which is inconsistent with the terms
hereof, including any agreement which impairs or limits the registration rights
granted to the holder of Restricted Securities or which otherwise conflicts with
the provisions hereof or would preclude the Company from discharging its
obligations hereunder, without the prior written consent of the holders of at
least a majority of the Restricted Stock.
SECTION 6. Transfer Restrictions.
---------------------
1.061. Transfers of Securities. Prior to any sale, assignment or
-----------------------
other transfer (a "Transfer") or attempted Transfer of any Warrants or any
Warrant Stock, the holder of such Warrants or Warrant Stock shall give at least
ten (10) days' prior written notice ("Transfer Notice") to the Company of such
holder's intention to effect such Transfer, such Transfer Notice describing the
manner and circumstances of the proposed Transfer, and shall obtain from legal
counsel to such holder, an opinion that the proposed Transfer of such Warrants
or such Warrant Stock may be effected without registration under the Securities
Act or any other federal or state securities laws. After receipt of the Transfer
Notice and legal opinion, the Company shall, within five (5) days thereof,
notify the holder of such Warrants or such Warrant Stock as to whether such
opinion is reasonably satisfactory, or if the Company does not so notify such
holder within such five (5) day period, such holder shall thereupon be entitled
to effect such Transfer of such Warrants or such Warrant Stock, in accordance
with the terms of the Transfer Notice. The Company shall have no obligation to
register any Warrants under the Securities Act or any other federal or state
securities laws.
-27-
<PAGE>
Each Warrant certificate shall be imprinted with the legend on the
face of the Warrant certificate attached hereto. Each share of Common Stock
issued upon the exercise of a Warrant shall be subject to the legend prescribed
in Section 1.03 of this Agreement.
------------
SECTION 7. Miscellaneous.
-------------
1.071. Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties, and their respective successors
and assigns.
1.072. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of California,
excluding principles of conflicts of laws.
1.073. Headings. Section headings are inserted herein for
--------
convenience only and do not form a part of this Agreement.
1.074 Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties hereto with respect to the transactions contemplated herein,
supersedes all prior written agreements and negotiations and oral
understandings, if any, and may not be amended, supplemented or discharged
except by performance or by an instrument in writing signed by the parties
hereto.
1.075 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
1.076 Notices. All notices, statements, instructions or other
-------
documents required to be given hereunder, shall be in writing and shall be given
personally, by courier, by mailing the same in a sealed envelope, first-class
mail, postage prepaid and either certified or registered, return receipt
requested, or by confirmed telecopy addressed to the Company at its principal
office located at 475 17th Street, Suite 1500,
-28-
<PAGE>
Denver, Colorado 80202 and to TCW at its address reflected in the stock records
of the Company. Each party hereto, by written notice given to the other party
hereto accordance with this Section 7.06, may change the address to which
------------
notices, statements, instructions or other documents are to be sent to such
party. All notices, statements, instructions and other documents hereunder that
are mailed shall be deemed to have been given when actually received or five
days after deposited in the United States mails.
1.077. Accounting Terms. Unless otherwise specified, all accounting
----------------
terms used in this Agreement shall be interpreted in accordance with GAAP.
1.078. Brokers; Information. Neither party hereto nor any of their
--------------------
Affiliates has dealt with any broker, finder, commission agent or other Person
in connection with the Warrants or Warrant Stock or any other securities or
aspects of the transactions contemplated by this Agreement; and no party hereto
is under any obligation to pay any broker's fee or other commission in
connection therewith. No party hereto has willfully misrepresented or willfully
provided incomplete or inaccurate information to anyone with respect to any
transactions contemplated by this Agreement.
1.079. Jurisdiction and Service of Process. Any suit, action or
-----------------------------------
proceeding against the Company arising from or in connection with this Agreement
may be brought in the Superior Court of the County of Los Angeles, California or
in the United States District Court for the Central District of California, and
the Company irrevocably submits to the jurisdiction of each such court for the
purpose of any such suit, action or proceeding. The Company hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any such suit, action or proceeding brought in any of such courts, and hereby
irrevocably waives any claim that any such suit, action or proceeding in any
such court has been brought in an inconvenient forum.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first written above.
INLAND RESOURCES INC.,
a Washington corporation
By:
--------------------------
Bill I. Pennington
Chief Financial Officer
TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P., a California limited
partnership
By: TCW Royalty Company V, a California
corporation, Managing General Partner
By:
---------------------
Thomas F. Mehlberg
Vice-President
-30-
<PAGE>
EXHIBIT 4.5
WARRANT
TO PURCHASE COMMON STOCK OF
INLAND RESOURCES INC.
A WASHINGTON CORPORATION
ISSUED ON SEPTEMBER 23, 1997
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED (EXCEPT AS PERMITTED PURSUANT TO THAT
CERTAIN WARRANT AGREEMENT DATED AS OF SEPTEMBER 23, 1997 AMONG INLAND
RESOURCES INC. (THE "COMPANY") AND TCW PORTFOLIO NO. 1555 DR V SUB-CUSTODY
PARTNERSHIP, L.P. (AS AMENDED FROM TIME TO TIME, THE "WARRANT AGREEMENT"),
TO THE EFFECT THAT THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION
OR QUALIFICATION UNDER FEDERAL OR STATE SECURITIES LAWS. THE WARRANT
EVIDENCED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS AS SET
FORTH IN THE WARRANT AGREEMENT.
THIS IS TO CERTIFY THAT:
TCW Portfolio No. 1555 DR V Sub-Custody Partnership, L.P., a California limited
partnership ("HOLDER"), or registered assigns, is entitled to purchase from the
------
Company at any time on and after the earlier of (i) third (3rd) anniversary of
the date of issuance of this Warrant or (ii) the date on which the Company
prepays in full the Notes prior to their maturity, but in no event later than
5:00 p.m., Los Angeles Time, on the tenth (10th) anniversary of the date of
issuance of this Warrant (the "EXPIRATION DATE"), ONE HUNDRED THOUSAND (100,000)
---------------
Stock Units, in whole or in part, at a per Stock Unit purchase price at any date
equal to the Purchase Price (as defined below), all on the terms and conditions
hereinbelow provided.
<PAGE>
(S) 1. Certain Definitions. Initially capitalized terms not otherwise
-------------------
defined herein shall have the meanings ascribed to such terms in the Warrant
Agreement. As used in this Warrant:
"5-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or a national
market system on which the Common Stock is then listed, or the average of the
closing "bid" and "ask" prices if quoted on The Nasdaq Stock Market or a similar
quotation system, over the 5-trading day period immediately prior to such date.
"$10MM NOTE" shall mean that certain Note in the original principal
amount of $10,000,000, initially issued by the Company to Trustco, and any other
note issued in substitution or as a replacement therefor.
"12.5% IRR" shall have the meaning assigned to such term in the Credit
Agreement.
"30-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or a national
market system on which the Common Stock is then listed, or the average of the
closing "bid" and "ask" prices if quoted on The Nasdaq Stock Market or a similar
quotation system, over the 30-trading day period immediately prior to such date.
"ADDITIONAL SHARES OF NONPREFERRED STOCK" shall mean all shares of
Nonpreferred Stock issued by the Company after the Closing Date other than (i)
the Common Stock issued pursuant to the Warrants, (ii) an aggregate of 639,700
shares of Common Stock issued upon exercise of options granted pursuant to the
Company's Amended 1988 Stock Option Plan or the Company's 1997 Stock Option
Plan, (iii) so long as the Company remains a Public Company, all shares of
Common Stock issued for the benefit of officers, key employees, directors and
consultants of the Company, which issuances have been approved in advance by the
Board of Directors of the Company, a committee thereof or the shareholders of
the
-2-
<PAGE>
Company and which grants (A) have been issued as bonus stock to such persons
after the date hereof, or (B) have been or are to be issued upon exercise of
options or warrants issued after the date hereof, (iv) the shares of Common
Stock issued pursuant to the conversion of the Company's Series C Cumulative
Convertible Preferred Stock outstanding as of the date hereof; (v) 681,911
shares of Common Stock issued pursuant to warrants and options granted by the
Company to certain of its employees and consultants as more fully described on
Schedule 3.01(a) to the Warrant Agreement, (vi) the shares of Common Stock
issued in a public offering of Common Stock at a price per share of Common Stock
which is not less than the Current Warrant Price thereof on the earlier of the
date on which the Company shall enter into a firm commitment or contract for the
issuance of such Common Stock and the date such Common Stock is issued; (vii)
the shares of Common Stock issuable on exercise of the terms of any Convertible
Securities issued in a public or private offering where the aggregate of the
consideration received or receivable by the Company on the issuance of such
Convertible Securities and upon the issuance of Common Stock pursuant to the
terms of such Convertible Securities is not less than the Current Warrant Price
on the earlier of the date on which the Company enters into a firm commitment or
contract for the issuance of such Convertible Securities and the date on which
such Convertible Securities are issued; or (viii) shares of Common Stock issued
at a cash price, or fair market value of property, per share equal to or in
excess of the Current Warrant Price.
"AGGREGATE PURCHASE PRICE" shall have the meaning given in (S) 2
below.
"APPRAISED VALUE" shall mean the fair market value of all outstanding
Common Stock, as determined by a written appraisal (the "APPRAISAL") prepared by
---------
a national or major regional investment bank acceptable to the Board of
Directors of the Company and the Holders of the Warrants exercisable for a
majority of the Warrant Stock then unissued. "Fair market value" is defined for
this purpose as the price in a single transaction determined on a going-concern
basis that would be agreed upon by the most likely hypothetical buyer for 100%
of the equity capital of the Company. In the event that the Company and said
Holders
-3-
<PAGE>
cannot, in good faith, agree upon an investment bank, then the Company, on the
one hand, and said Holders, on the other hand, shall each select an investment
bank, the two investment banks so selected shall select a third investment bank
who shall be directed to prepare the Appraisal and the term Appraised Value
shall mean the appraised value set forth in the Appraisal prepared in accordance
with this definition. The Company and the Holders shall each pay for one-half of
the cost of any such Appraisal.
"BOARD OF DIRECTORS" shall mean the duly appointed board of directors
of the Company.
"BUSINESS DAY" shall mean a day, other than a Saturday, Sunday or
legal holiday on which commercial banks are authorized or obligated by law or
executive order to close in the State of California.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMMON STOCK" shall mean the Company's authorized common stock, $.001
par value, irrespective of class unless otherwise specified, as constituted on
the date of original issuance of this Warrant, and any stock into which such
common stock may thereafter be changed, and shall also include stock of the
Company of any other class, which is not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption, issued to the holders of shares of Common Stock upon any
reclassification thereof.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable for
Additional Shares of Nonpreferred Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"CURRENT MARKET PRICE" per share of Common Stock for the purposes of
any provision of this Warrant at a date herein specified, shall mean the greater
of (i) the 30-Day Average Price of the Common Stock or (ii) the 5-Day Average
Price of the Common
-4-
<PAGE>
Stock; provided, that if the Current Market Price per share of Common Stock
--------
cannot be ascertained by such methods, then the Current Market Price per share
of Common Stock shall be the price agreed upon by the Company and the Holders of
Warrants exercisable for a majority of the Warrant Shares then unissued, and if
they cannot so agree within 30 days, then the Current Market Price of Common
Stock shall be deemed to be the greater of (i) the net book value per share of
Common Stock, determined in accordance with generally accepted accounting
principles, or (ii) the fair value per share of Common Stock determined pursuant
to the Appraised Value.
"CURRENT WARRANT PRICE" per share of Common Stock, for the purpose of
any provision of this Warrant at the date herein specified, shall mean the
amount equal to the quotient resulting from dividing the Purchase Price per
Stock Unit in effect on such date by the number of shares (including any
fractional share) of Common Stock comprising a Stock Unit on such date.
"NONPREFERRED STOCK" shall mean the Common Stock and shall also
include stock of the Company of any other class which is not preferred as to
dividends or rights in assets over any other class of stock of the Company and
which is not subject to redemption.
"NOTES" shall mean the Senior Subordinated Amortizing Term Notes due
December 31, 2006 of the Company issued pursuant to the Credit Agreement.
"OBLIGATIONS" shall have the meaning set forth therefor in the Credit
Agreement.
"PERSON" shall mean any individual, corporation, partnership,
association, joint stock company, trust or trustee thereof, estate or executor
thereof, unincorporated organization or joint venture, court or governmental
unit or any agency or subdivision thereof, or any other legally recognizable
entity.
"PUBLIC COMPANY" shall mean a company with one or more classes of
securities subject to the registration requirements of Section 12 or 15A of the
Securities Exchange Act of 1934, as amended.
-5-
<PAGE>
"PURCHASE PRICE" initially shall be $10.00, as adjusted from time to
time pursuant to (S) 4.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"STOCK UNIT" shall mean one share of Common Stock, as such Common
Stock was constituted on the date of original issue of this Warrant and
thereafter shall mean such number of shares (including any fractional shares) of
Common Stock as shall result from the adjustments specified in (S) 4.
"WARRANTS" shall mean the Warrants originally issued by the Company
pursuant to the Warrant Agreement, of which this Warrant is one, evidencing
rights to purchase shares of Common Stock, and all Warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the Common Stock for which they may be exercised.
"WARRANT STOCK" shall mean the shares of Common Stock purchasable by
the holder of a Warrant upon the exercise of such Warrant.
(S) 2. Exercise of Warrant. The holder of this Warrant may, at any time
-------------------
on or after the date hereof but not later than the Expiration Date, exercise
this Warrant in whole or in part for the number of Stock Units which such holder
is then entitled to purchase hereunder. In order to exercise this Warrant, in
whole or in part, the holder hereof shall deliver to the Company at its office
maintained for such purpose pursuant to (S) 16 (i) a written notice of such
holder's election to exercise this Warrant, (ii) this Warrant, and (iii) the
total purchase price for the shares being purchased upon such exercise (a) by
delivery of immediately
-6-
<PAGE>
available funds in an amount equal to the product of the Purchase Price
multiplied by the number of Stock Units being purchased upon such exercise (the
"AGGREGATE PURCHASE PRICE"), (b) upon notification to the holder at least 45
------------------------
days prior to the prepayment of the Notes in full by the Company, by credit of a
portion of the prepayment amount to be paid to the holder of the $10mm Note by
the Company pursuant to the terms of the Credit Agreement (the "Prepayment
Amount") in an aggregate amount equal to the Aggregate Purchase Price, such
credit being conditional upon receipt by the Company of a written release,
satisfaction or acknowledgement of credit delivered to the Company executed by
the holder of such $10mm Note, being released or credited in payment of the
Aggregate Purchase Price and setting forth the amount of the Prepayment Amount
so released or credited, (c) any combination of the foregoing clauses (a) and
---------------
(b), or (d) to the extent permitted by applicable law, the delivery of a notice
- ---
to the Company that the Holder is exercising the Warrant without payment of the
Purchase Price by authorizing the Company to deliver the number of shares of
Warrant Stock issuable upon exercise of the Warrant to be determined based upon
the following formula:
((MP - WP) x WS)/MP = the number of shares of Warrant Stock issuable upon
exercise of this Warrant without payment of the
Purchase Price
WHERE:
MP = Current Market Price
WP = Current Warrant Price
WS = The number of shares of Warrant Stock issuable upon exercise of
this Warrant (in whole or in part).
Such notice may be in the form of the Subscription set out at the end of this
Warrant. Upon receipt thereof, the Company shall, as promptly as practicable
and in any event within ten (10) Business Days thereafter, cause to be executed
and delivered to such
-7-
<PAGE>
holder a certificate or certificates representing the aggregate number of fully
paid and nonassessable shares of Warrant Stock issuable upon such exercise.
The stock certificate or certificates for Warrant Stock so delivered
shall be endorsed with a legend as set forth in Section 1.03 to the Warrant
Agreement and shall be in such denominations as may be specified in said notice
and shall be registered in the name of such holder or such other name or names
as shall be designated in said notice. Such certificate or certificates shall
be deemed to have been issued and such holder or any other Person so designated
to be named therein shall be deemed to have become a holder of record of such
shares, including to the extent permitted by law the right to vote such shares
or to consent or to receive notice as a stockholder, as of the time said notice
is received by the Company as aforesaid.
Except as otherwise provided in (S) 8 hereof, the Company shall pay
all expenses, transfer taxes and other charges payable in connection with the
preparation, issue and delivery of stock certificates under this (S) 2, except
that, in case such stock certificates shall be registered in a name or names
other than the name of the holder of this Warrant, funds sufficient to pay all
stock transfer taxes which shall be payable upon the issuance of such stock
certificate or certificates shall be paid by the holder hereof at the time of
delivering the notice of exercise mentioned above.
All shares of Warrant Stock issuable upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable, and free from all liens
and other encumbrances thereon.
The Company will not close its books against the transfer of this
Warrant or of any share of Warrant Stock in any manner which interferes with the
timely exercise of this Warrant. With the consent of the holder of this Warrant,
the Company will from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Common Stock acquirable upon
exercise of this Warrant is at all times equal to or less than the Current
Warrant Price per share of Common Stock then in effect.
-8-
<PAGE>
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. If the exercise of this Warrant
results in a required issuance of a fraction of a share, an amount equal to such
fraction multiplied by the Current Market Price per share of Common Stock on the
day of delivery of notice of exercise to the Company shall be paid to the holder
of this Warrant in cash by the Company.
(S) 3. Transfer, Division and Combination. Subject to (S) 11, this
----------------------------------
Warrant and all rights hereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of this
Warrant at the office of the Company maintained for such purpose pursuant to (S)
16, together with a written assignment of this Warrant duly executed by the
holder hereof or its agent or attorney and payment of funds sufficient to pay
any stock transfer taxes payable upon the making of such transfer. Upon such
surrender and payment the Company shall, subject to (S) 11, execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and in the
denominations specified in such instrument of assignment, and this Warrant shall
promptly be cancelled. If and when this Warrant is assigned in blank (in case
the restrictions on transferability in (S) 11 shall have been terminated), the
Company may (but shall not be obliged to) treat the bearer hereof as the
absolute owner of this Warrant for all purposes and the Company shall not be
affected by any notice to the contrary. This Warrant, if properly assigned in
compliance with this (S) 3 and (S) 11, may be exercised by an assignee for the
purchase of shares of Common Stock without having a new Warrant issued.
This Warrant may, subject to (S) 11, be divided or combined with other
Warrants upon presentation at the aforesaid office of the Company, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued, signed by the holder hereof or its agent or attorney. Subject
to compliance with the preceding paragraph and with (S) 11, as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
-9-
<PAGE>
The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this (S) 3.
The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Warrants.
(S) 4. Adjustment of Stock Unit. The number of shares of Common Stock
------------------------
comprising a Stock Unit shall be subject to adjustment from time to time as set
forth in this (S)4 with respect to any fact or event described herein occurring
after the date hereof. The Company will not take any action with respect to its
Nonpreferred Stock of any class requiring an adjustment pursuant to any of the
following Subsections A, B, or H without at the same time taking like action
----------- - - -
with respect to its Nonpreferred Stock of each other class; and the Company will
not create any class of Nonpreferred Stock which carries any rights to dividends
or assets differing in any respect from the rights of the Common Stock on the
date hereof. Anything contained in this (S) 4 notwithstanding, any adjustment
made pursuant to any provision of this (S) 4 shall be made without duplication
of an adjustment otherwise required by and made pursuant to another provision of
this (S) 4 on account of the same facts or events.
A. Stock Dividends, Subdivisions and Combinations. In case at any
----------------------------------------------
time or from time to time the Company shall:
(1) take a record of the holders of its Nonpreferred Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Nonpreferred Stock, or
(2) subdivide its outstanding shares of Nonpreferred Stock into a
larger number of shares of Nonpreferred Stock, or
-10-
<PAGE>
(3) combine its outstanding shares of Nonpreferred Stock into a
smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any event described in clauses (1) through (3) above
-----------------------
shall be adjusted so as to consist of the number of shares of Common Stock which
a record holder of the number of shares of Common Stock constituting a Stock
Unit immediately prior to the happening of such event would own or be entitled
to receive after the happening of event described in clauses (1) through (3)
-----------------------
above.
B. Certain Other Dividends and Distributions. In case at any time
-----------------------------------------
or from time to time the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(1) cash (other than a cash distribution made as a dividend and
payable out of earnings or earned surplus legally available for the payment
of dividends under the laws of the jurisdiction of incorporation of the
Company), or
(2) any evidence of its indebtedness (other than Convertible
Securities) or any other property of any nature whatsoever (other than cash
and other than Convertible Securities or Additional Shares of Nonpreferred
Stock), or
(3) any warrants, options or other rights to subscribe for or
purchase (i) any evidences of its indebtedness (other than Convertible
Securities), (ii) any shares of its stock (other than Additional Shares of
Nonpreferred Stock) or (iii) any other property of any nature whatsoever
(other than cash and other than Convertible Securities or Additional Shares
of Nonpreferred Stock),
then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by
-11-
<PAGE>
multiplying the number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment by a fraction (i) the numerator of which
shall be the Current Market Price per share of Common Stock at the date of
taking such record, and (ii) the denominator of which shall be such Current
Market Price per share of Common Stock minus the portion applicable to one share
of Common Stock of any such cash so distributable (if any) and of the fair value
of any and all such evidences of indebtedness, other property, or warrants,
options or other subscription or purchase rights, so distributable (if any).
Such fair value shall be determined in good faith by the Board of Directors of
the Company, provided that if such determination is objected to by the holders
of Warrants entitled to purchase a majority of the Stock Units covered thereby,
such determination shall be made by an independent appraiser selected by such
Board of Directors and not objected to by such holders. The Company and the
Holders shall each pay one-half of the fees and expenses of such appraiser. A
reclassification (other than a change in par value) of the Nonpreferred Stock
into shares of Nonpreferred Stock and shares of any other class of stock shall
be deemed a distribution by the Company to the holders of its Nonpreferred Stock
of such shares of such other class of stock within the meaning of this
Subsection and, if the outstanding shares of Nonpreferred Stock shall be changed
into a larger or smaller number of shares of Nonpreferred Stock as a part of
such reclassification, shall be deemed a subdivision or combination, as the case
may be, of the outstanding shares of Nonpreferred Stock within the meaning of
Subsection A of this (S) 4.
- ------------
C. Issuance of Additional Shares of Nonpreferred Stock. In case at
---------------------------------------------------
any time or from time to time the Company shall (except as hereinafter provided)
issue, whether in connection with the merger of a corporation into the Company
or otherwise, any Additional Shares of Nonpreferred Stock for a consideration
per share less than the Current Warrant Price per share of Common Stock, then
the number of shares of Common Stock thereafter comprising a Stock Unit shall be
adjusted to be the greater of (A) that number determined by multiplying the
number of shares of Common Stock comprising a Stock Unit immediately prior to
such adjustment by a fraction (i) the numerator of which shall be the Current
Warrant Price per share of Common Stock, and
-12-
<PAGE>
(ii) the denominator of which shall be the consideration per share received by
the Company for such Additional Shares of Nonpreferred Stock or (B) that number
determined by multiplying the number of shares of Common Stock comprising a
Stock Unit immediately prior to such adjustment by a fraction (i) the numerator
of which shall be the number of shares of Nonpreferred Stock outstanding
immediately prior to such issuance, plus the number of such Additional Shares of
Nonpreferred Stock so issued, and (ii) the denominator of which shall be the
number of shares of Nonpreferred Stock immediately prior to such issuance, plus
the number of shares of Nonpreferred Stock which the aggregate consideration for
the total number of such Additional Shares of Nonpreferred Stock would purchase
at the Current Warrant Price. For purposes of this Subsection, the date as of
which the Current Warrant Price shall be computed shall be the earlier of (a)
the date on which the Company shall enter into a firm contract for the issuance
of such Additional Shares of Nonpreferred Stock, or (b) the date of actual
issuance of such Additional Shares of Nonpreferred Stock. The provisions of this
Subsection shall not apply to any issuance of Additional Shares of Nonpreferred
Stock for which an adjustment is provided under Subsection A of this (S) 4. No
------------
adjustment of the number of shares of Common Stock comprising a Stock Unit shall
be made under this Subsection upon the issuance of any Additional Shares of
Nonpreferred Stock which are issued pursuant to the exercise of any warrants,
options or other subscription or purchase rights or pursuant to the exercise of
any conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants,
options or other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrants, options or other rights therefor) pursuant to
Subsection D or E of this (S) 4.
- ------------ -
D. Issuance of Warrants, Options or Other Rights. In case at any
---------------------------------------------
time or from time to time the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive a distribution
of, or shall otherwise issue, any warrants, options or other rights to subscribe
for or purchase any Additional Shares of Nonpreferred Stock or any Convertible
Securities and the consideration per share for which Additional Shares of
Nonpreferred Stock may at
-13-
<PAGE>
any time thereafter be issuable pursuant to such warrants, options or other
rights or pursuant to the terms of such Convertible Securities shall be less
than the Current Warrant Price per share of Common Stock, then the number of
shares of Common Stock thereafter comprising a Stock Unit shall be adjusted to
be the number determined pursuant to the first sentence of Subsection C of this
------------
(S) 4. All adjustments made pursuant to this Subsection D shall be made on the
------------
basis that (i) the maximum number of Additional Shares of Nonpreferred Stock
issuable pursuant to all such warrants, options or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued as of the date specified in the last sentence of this
Subsection, (ii) the aggregate consideration for such maximum number of
Additional Shares of Nonpreferred Stock shall be deemed to be the consideration
received and receivable by the Company for the issuance of such Additional
Shares of Nonpreferred Stock pursuant to such warrants, options or other rights
or pursuant to the terms of such Convertible Securities and (iii) the
consideration per share received by the Company for such Additional Shares of
Nonpreferred Stock shall be that number determined by dividing (x) the aggregate
consideration for such maximum number of Additional Shares of Nonpreferred Stock
(determined as set forth in clause (ii) of this sentence) by (y) the maximum
number of Additional Shares of Nonpreferred Stock issuable pursuant to all such
warrants, options or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities (determined as set forth in clause
(i) of this sentence). For purposes of this Subsection, the computation date for
subclause (i) above and as of which the Current Warrant Price shall be computed
shall be the earliest of (a) the date on which the Company shall take a record
of the holders of its Nonpreferred Stock for the purpose of entitling them to
receive any such warrants, options or other rights, (b) the date on which the
Company shall enter into a firm contract for the issuance of such warrants,
options or other rights, and (c) the date of actual issuance of such warrants,
options or other rights.
E. Issuance of Convertible Securities. In case at any time or from
----------------------------------
time to time the Company shall take a record of the holders of its Nonpreferred
Stock for the purpose of
-14-
<PAGE>
entitling them to receive a distribution of, or shall otherwise issue, any
Convertible Securities and the consideration per share for which Additional
Shares of Nonpreferred Stock may at any time thereafter be issuable pursuant to
the terms of such Convertible Securities shall be less than the Current Warrant
Price per share of Common Stock, then the number of shares of Common Stock
thereafter comprising a Stock Unit shall be adjusted to be the number determined
pursuant to the first sentence of Subsection C of this (S) 4. All adjustments
------------
made pursuant to this Subsection E shall be made on the basis that (i) the
------------
maximum number of Additional Shares of Nonpreferred Stock necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the computation date specified in the penultimate
sentence of this Subsection, (ii) the aggregate consideration for such maximum
number of Additional Shares of Nonpreferred Stock shall be deemed to be the
consideration received and receivable by the Company for the issuance of such
Additional Shares of Nonpreferred Stock pursuant to the terms of such
Convertible Securities and (iii) the consideration per share received by the
Company for such Additional Shares of Nonpreferred Stock shall be that number
determined by dividing (x) the aggregate consideration for such maximum number
of Additional Shares of Nonpreferred Stock (determined as set forth in clause
(ii) of this sentence) by (y) the maximum number of Additional Shares of
Nonpreferred Stock necessary to effect the conversion or exchange of all such
Convertible Securities (determined as set forth in clause (i) of this sentence).
For purposes of this Subsection, the computation date for clause (i) above and
as of which the Current Warrant Price shall be computed shall be the earliest of
(a) the date on which the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive any such
Convertible Securities, (b) the date on which the Company shall enter into a
firm contract for the issuance of such Convertible Securities, and (c) the date
of actual issuance of such Convertible Securities. No adjustment of the number
of shares of Common Stock comprising a Stock Unit shall be made under this
Subsection upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants, options or other subscription or
purchase rights therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants, options or other rights pursuant to
Subsection D of this (S) 4.
- ------------
-15-
<PAGE>
F. Superseding Adjustment of Stock Unit. If, at any time after any
------------------------------------
adjustment of the number of shares of Common Stock comprising a Stock Unit shall
have been made pursuant to the foregoing Subsection D or E of this (S) 4 on the
------------ -
basis of the issuance of warrants, options or other rights or the issuance of
other Convertible Securities, or after any new adjustment of the number of
shares of Common Stock comprising a Stock Unit shall have been made pursuant to
this Subsection,
(1) such warrants, options or rights or the right of conversion
or exchange in such other Convertible Securities shall expire, and a
portion or all of such warrants, options or rights, or the right of
conversion or exchange in respect of a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(2) the consideration per share for which Additional Shares of
Nonpreferred Stock are issuable pursuant to such warrants, options or
rights or the terms of such other Convertible Securities, shall be
increased solely by virtue of provisions therein contained for an automatic
increase in such consideration per share upon the arrival of a specified
date or the happening of a specified event,
such previous adjustment shall be rescinded and annulled and the Additional
Shares of Nonpreferred Stock which were deemed to have been issued by virtue of
the computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants, options
or rights or other Convertible Securities on the basis of:
(3) treating the number of Additional Shares of Nonpreferred
Stock, if any, theretofore actually issued or issuable pursuant to the
previous exercise of such warrants, options or rights or such right of
conversion or exchange,
-16-
<PAGE>
as having been issued on the date or dates of such issuance as determined
for purposes of such previous adjustment and for the consideration actually
received and receivable therefor, and
(4) treating any such warrants, options or rights or any such
other Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such expiration or of such
increase of the consideration per share for which such Additional Shares of
Nonpreferred Stock are issuable under such warrants, options or rights or
other Convertible Securities, at the increased per share consideration,
and, if and to the extent called for by the foregoing provisions of this (S) 4
on the basis aforesaid, a new adjustment of the number of shares of Common Stock
comprising a Stock Unit shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
G. Other Provisions Applicable to Adjustments Under this Section.
-------------------------------------------------------------
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock comprising a Stock Unit hereinbefore provided
for in this (S) 4:
(1) Treasury Stock. The sale or other disposition of any issued
--------------
shares of Nonpreferred Stock, other than any Additional Shares of
Nonpreferred Stock, owned or held by or for the account of the Company
shall be deemed an issuance thereof for purposes of this (S) 4.
(2) Computation of Consideration. To the extent that any
----------------------------
Additional Shares of Nonpreferred Stock or any Convertible Securities or
any warrants, options or other rights to subscribe for or purchase any
Additional Shares of Nonpreferred Stock or any Convertible Securities shall
be issued solely for cash consideration, the consideration received by the
Company therefor shall be deemed to be the amount of cash received by the
Company therefor, or, if such Additional Shares of Nonpreferred Stock or
Convertible Securities are offered by the Company for subscription, the
-17-
<PAGE>
subscription price, or, if such Additional Shares of Nonpreferred Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any
compensation, discounts or expenses paid or incurred by the Company for and
in the underwriting of, or otherwise in connection with, the issue thereof.
To the extent that such issuance shall be for a consideration other than
solely for cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by
the Board of Directors of the Company, provided that if such determination
is objected to by the holders of Warrants entitled to purchase a majority
of the Stock Units covered thereby, such determination shall be made by an
independent appraiser selected by such Board of Directors and not objected
to by such holder. The Company, on the one hand, and the holders of
Warrants, on the other, shall each pay one-half of the fees and expenses of
such appraiser. The consideration for any Additional Shares of
Nonpreferred Stock issuable pursuant to any warrants, options or other
rights to subscribe for or purchase the same shall be the consideration
received or receivable by the Company for issuing such warrant, options or
other rights, plus the additional consideration payable to the Company upon
the exercise of such warrants, options or other rights. The consideration
for any Additional Shares of Nonpreferred Stock issuable pursuant to the
terms of any Convertible Securities shall be the consideration received or
receivable by the Company for issuing any warrants, options or other rights
to subscribe for or purchase such Convertible Securities (if any), plus the
consideration paid or payable to the Company in respect of the subscription
for or purchase of such Convertible Securities, plus the additional
consideration, if any, payable to the Company upon the exercise of the
right of conversion or exchange in such Convertible Securities.
-18-
<PAGE>
(3) When Adjustments To Be Made. The adjustments required by the
---------------------------
preceding Subsections of this (S) 4 shall be made whenever and as often as
any specified event requiring an adjustment shall occur, except that no
adjustment of the number of shares of Common Stock comprising a Stock Unit
that would otherwise be required shall be made (except in the case of a
subdivision or combination of shares of the Nonpreferred Stock, as provided
for in Subsection A) unless and until such adjustment, either by itself or
------------
with other adjustments not previously made, adds or subtracts at least
$0.005 to the Current Warrant Price per share of Common Stock, as
determined in good faith by the Board of Directors of the Company, provided
that, in any event such adjustment shall be made if such adjustment either
by itself or with other adjustments not previously made adds or subtracts
at least 1/20th of a share to or from the number of shares of Common Stock
comprising a Stock Unit immediately prior to the making of such adjustment.
Any adjustment representing a change of less than such minimum amount
(except as aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this (S) 4 and not
previously made, would result in a minimum adjustment. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(4) Fractional Interests. In computing adjustments under this
--------------------
Section, fractional interests in Non preferred Stock shall be taken into
account to the nearest 1/100th of a share.
(5) When Adjustment Not Required. If the Company shall take a
----------------------------
record of the holders of its Nonpreferred Stock for the purpose of
entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution thereof
to shareholders, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be rescinded and
annulled.
-19-
<PAGE>
H. Merger, Consolidation or Disposition of Assets. In case the
----------------------------------------------
Company shall merge or consolidate into another corporation and the Company is
not the surviving entity, or the Company shall sell, transfer or otherwise
dispose of all or substantially all of its property, assets or business to
another corporation, then each holder of a Warrant (regardless of whether this
Warrant is then exercisable) shall have the right to receive notice from the
Company of such merger, consolidation or disposition at least forty-five (45)
days prior to the closing of such merger, consolidation or disposition, which
notice shall include a copy of the operative merger, consolidation or
disposition documents or a summary of their operative terms and shall include a
statement from the surviving or acquiring entity that it does not wish to assume
the Company's obligations under this Warrant. Thereafter, the holder of this
Warrant shall have until ten (10) days prior to the closing date of the merger,
consolidation or disposition, to exercise this Warrant and participate in such
merger, consolidation or disposition on the terms negotiated by the Company,
regardless of whether this Warrant had yet become exercisable in accordance with
its terms. If this Warrant is not then exercised, it shall terminate effective
as of the closing date of such merger, consolidation or disposition.
I. Other Action Affecting Nonpreferred Stock. In case at any time
-----------------------------------------
or from time to time the Company shall take any action affecting its
Nonpreferred Stock, other than an action described in any of the foregoing
Subsections A to H, inclusive, of this (S) 4 and the actions described in
- ------------- -
clauses (i) through (viii) of the definition of Additional Shares of
Nonpreferred Stock, then, unless in the reasonable opinion of the Board of
Directors of the Company such action will not have a materially adverse effect
upon the rights of the holders of the Warrants, the number of shares of Common
Stock or other stock comprising a Stock Unit, or the purchase price thereof,
shall be adjusted in such manner and at such time as the Board of Directors of
the Company may in good faith determine to be equitable in the circumstances.
-20-
<PAGE>
J. No Adjustments for Certain Transactions. Anything contained in
---------------------------------------
this Warrant notwithstanding, the number of shares of Common Stock comprising a
Stock Unit and the Purchase Price per Stock Unit shall not be adjusted, nor be
subject to adjustment, on account of the granting of any rights under a phantom
stock plan, stock appreciation rights plan or other deferred compensation plan
to officers, directors or employees of the Company or its affiliates, and (i) no
shares of Nonpreferred Stock are issued or required to be issued under any such
plan and (ii) the only consideration paid or payable to any participant in such
plan is cash.
K. Special Adjustments for Certain Transactions. Anything contained
--------------------------------------------
in this Warrant notwithstanding, if any Affiliate of the Company that owns ten
percent (10%) or more of the Common Stock of the Company (calculated on a fully-
diluted basis) sells or otherwise transfers (other than to a family member or
trust for tax planning purposes or to an Affiliate of such Person) in the
aggregate more than 1,000,000 shares of Common Stock or an equivalent number of
shares of the Company's capital stock which is convertible into Common Stock (in
such case based on the number of shares of Common Stock for which such share is
then convertible) at a price less than the Current Warrant Price, then such sale
or transfer shall be deemed an issuance by the Company of Additional Shares of
Nonpreferred Stock under (S) 4.C hereof and shall be subject to the adjustments
set forth therein. The consideration for such sale or transfer under this (S)
4.K, for purposes of the adjustments to be made pursuant to (S) 4.C, shall be
equal to the average weighted sale price per share of Common Stock sold (or in
the case of shares of the Company's capital stock other than Common Stock, on
the sale price per share of Common Stock then underlying such share sold).
(S) 5. Notice to Warrant Holders.
-------------------------
A. Notice of Adjustment of Stock Unit or Purchase Price. Whenever
----------------------------------------------------
the number of shares of Warrant Stock comprising a Stock Unit or the Purchase
Price per Stock Unit shall be adjusted pursuant to (S) 4, the Company shall
forthwith obtain a certificate signed by the president of the Company, the
principal
-21-
<PAGE>
financial officer of the Company and independent accountants, of recognized
national standing, then engaged by the Company and reasonably acceptable to the
holders of a majority of the Warrants, setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a statement of the fair value, as determined by the Board
of Directors of the Company, of any evidences of indebtedness, shares of stock,
other securities or property or warrants, options or other subscription or
purchase rights referred to in (S) 4.B, (S) 4.G(2) or (S) 4.H) and specifying
the number of shares of Common Stock comprising a Stock Unit and (if such
adjustment was made pursuant to (S) 4.H or (S) 4.I) describing the number and
kind of any other shares of stock comprising a Stock Unit, and any change in the
Purchase Price thereof after giving effect to such adjustment or change. The
Company shall promptly, and in any case within 30 days after the making of such
adjustment, cause a signed copy of such certificate to be delivered to each
holder of a Warrant in accordance with (S) 16. The Company shall keep at its
office or agency, maintained for the purpose pursuant to (S) 16, copies of all
such certificates and cause the same to be available for inspection at said
office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by a holder thereof.
B. Notice of Certain Corporate Action. In case the Company shall
----------------------------------
propose (a) to pay any dividend payable in cash or in stock of any class to the
holders of its Nonpreferred Stock or to make any other distribution to the
holders of its Nonpreferred Stock, or (b) to offer to the holders of its
Nonpreferred Stock rights to subscribe for or to purchase any Additional Shares
of Nonpreferred Stock or shares of stock of any class or any other securities,
rights or options, or (c) to effect any reclassification of its Nonpreferred
Stock (other than a reclassification involving only the subdivision or
combination of outstanding shares of Nonpreferred Stock), or (d) to effect any
capital reorganization, or (e) to effect any consolidation, merger or sale,
change to the Company's charter, transfer or other disposition of all or
substantially all of its property, assets or business, or (f) to effect the
liquidation, dissolution or winding up of the Company, then in each such case,
the Company
-22-
<PAGE>
shall give to each holder of a Warrant, in accordance with (S) 17, a notice,
certified by the president of the Company and the principal financial officer of
the Company, of such proposed action, which shall specify the date on which a
record is to be taken for the purposes of such stock dividend, distribution or
rights, or the date on which such reclassification, reorganization,
consolidation, merger, sale, change to the Company's charter, transfer,
disposition, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of Nonpreferred Stock, if any such
date is to be fixed, and shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on the
Nonpreferred Stock and the number and kind of any other shares of stock which
will comprise a Stock Unit, and the purchase price or prices thereof, after
giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least ten days prior to the record date for
determining holders of the Nonpreferred Stock for purposes of such action, and
in the case of any other such action, at least twenty days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of Nonpreferred Stock, whichever shall be the earlier.
(S) 6. Reservation and Authorization of Nonpreferred Stock; Registration
-----------------------------------------------------------------
with or Approval of any Governmental Authority. The Company shall at all times
- ----------------------------------------------
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant or
upon such conversion, as the case may be, shall be duly and validly issued and
fully-paid and nonassessable.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price per share of Common Stock below the then par value, if
any, of the shares of Common Stock issuable upon exercise of the Warrants, the
Company shall take any corporate action which may, in the opinion of its
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<PAGE>
counsel, be necessary in order that the Company may validly and legally issue
fully-paid and nonassessable shares of Common Stock at such adjusted Current
Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock comprising a Stock Unit or in the Current
Warrant Price per share of Common Stock, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof (except
that nothing contained in this Warrant certificate shall require the Company to
register the Warrants under the Securities Act or any similar federal or state
equivalent).
(S) 7. Taking of Record; Stock and Warrant Transfer Books. In the case
--------------------------------------------------
of all dividends or other distributions by the Company to the holders of its
Nonpreferred Stock with respect to which any provision of (S) 4 refers to the
taking of a record of such holders, the Company will in each such case take such
a record and will take such record as of the close of business on a Business
Day. The Company will not at any time, except (i) upon dissolution, liquidation
or winding up, or (ii) for purposes of declaring and paying a dividend or
matters related to voting by shareholders of the Company, close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
(S) 8. Transfer Taxes. The Company will pay any and all transfer taxes
--------------
that may be payable in respect of the issuance or delivery of shares of Common
Stock on exercise of this Warrant. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
this Warrant is registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Company the amount of
any such tax, or has established, to the satisfaction of the Company, that such
tax has been paid.
(S) 9. Warrant Repurchase. The holder of this Warrant shall have the
------------------
right at its option, for up to fifteen (15)
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<PAGE>
business days following the first to occur of (i) the Company's payment in full
of the Notes for cash prior to their stated maturity or (ii) the maturity of the
Notes in accordance with their terms (including maturity due to acceleration
thereunder), to cause the Company to repurchase for cash this Warrant in an
amount equal to the holder of this Warrant's pro rata share (such pro rata share
to be determined based on the total number of shares of Common Stock underlying
any exercised or unexercised Warrant issued pursuant to the Warrant Agreement)
of an amount equal to the amount necessary to cause a 12.5% IRR to be achieved
by the holder of the Company's $10mm Note (assuming that the Warrant Repurchase
Price (as defined below) is received by such holder).
If the holder hereof elects to have the Company repurchase this
Warrant in accordance with this (S) 9, the holder hereof shall provide notice to
the Company at the Company's address set forth in (S) 17 hereof within the time
period specified above. Upon receipt of such request, the Company shall provide
an accounting of the amount to be paid for the repurchase of this Warrant (the
"WARRANT REPURCHASE PRICE") to the holder hereof within five (5) Business Days
of receipt of such notice (the "ACCOUNTING NOTICE"). Within five (5) Business
Days from the mailing of such Accounting Notice, the Company shall deliver in
immediately available funds to the holder hereof the Warrant Repurchase Price.
Upon receipt of the Warrant Repurchase Price, this Warrant shall no longer be
exercisable and shall be returned to the Company for cancellation.
(S) 10. Voting Rights. This Warrant shall not entitle the holder hereof
-------------
to voting rights with respect to the underlying Warrant Stock or to any rights
as a stockholder of the Company with respect to such underlying Warrant Stock
until this Warrant has been exercised in accordance with its terms.
(S) 11. Restrictions on Transferability. The Warrants and the Warrant
-------------------------------
Stock shall be transferable only (i) in accordance with the provisions of
Section 6 of the Warrant Agreement and (ii) upon compliance with the conditions
specified in this Warrant and in compliance with the provisions of the
Securities Act and applicable state securities laws in respect of the
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<PAGE>
transfer of any Warrant or any Warrant Stock, and any holder of this Warrant
shall be bound by the provisions of (and entitled to the benefits of) (S) 3.
(S) 12. Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by the holder hereof to purchase shares of Common Stock, and
no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the purchase price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
(S) 13. Loss, Destruction of Warrant Certificates. Upon receipt of
-----------------------------------------
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original holder's or any other institutional holder's indemnity being
satisfactory indemnity in the event of loss, theft or destruction of any Warrant
owned by such institutional holder), or, in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of shares of Common Stock.
(S) 14. Furnish Information. The Company agrees that it shall deliver to
-------------------
the holder of record hereof promptly after their becoming available copies of
all financial statements, reports and proxy statements which the Company shall
have sent to its stockholders generally.
(S) 15. Amendments. The terms of this Warrant and all other Warrants may
----------
be amended, and the observance of any term therein may be waived, but only with
the written consent of the holders of Warrants evidencing 66-2/3% in number of
the total number of Stock Units at the time purchasable upon the exercise of all
then outstanding Warrants, provided that no such action may change the number of
shares of stock comprising a Stock Unit or the Current Warrant Price, without
the written consent of the holders of Warrants representing at least 66-2/3% in
number of the total number of Stock Units at the time purchasable upon the
exercise of all then outstanding Warrants.
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<PAGE>
(S) 16. Office of the Company. So long as any of the Warrants remains
---------------------
outstanding, the Company shall maintain an office in Denver, Colorado where the
Warrants may be presented for exercise, transfer, division or combination as in
this Warrant provided. Such office shall be at 475 17th Street, Suite 1500,
Denver, Colorado 80202 unless and until the Company shall designate and maintain
some other office for such purposes and give written notice thereof to the
holders of all outstanding Warrants.
(S) 17. Notices Generally. Any notice, demand or delivery pursuant to
-----------------
the provisions hereof shall be sufficiently given or made if given or made as
set forth in Section 7.06 of the Warrant Agreement, which is incorporated herein
by reference.
(S) 18. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW. NOTWITHSTANDING SUCH CHOICE OF LAW, THE
COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RELATED PERSON TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE
OF CALIFORNIA AND THE COUNTY OF LOS ANGELES AND AGREES AND CONSENTS THAT SERVICE
OF PROCESS MAY BE MADE UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL
PROCEEDING RELATING TO THE OPERATIVE DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS
ALLOWED UNDER CALIFORNIA OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
(S) 19. Subject to Other Agreements. This Warrant Certificate evidences
---------------------------
a "Warrant" referred to in Section 1 of the Warrant Agreement, and this Warrant,
and all Warrant Stock issued upon the exercise hereof, is entitled to the
benefits of, and subject to all of the restrictions set forth in the Warrant
Agreement.
-27-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed in its name by its Chief Financial Officer, such signature to be
attested to by the Company's Secretary or Assistant Secretary, and the Company's
corporate seal to be impressed hereon.
Dated: September 23, 1997
[SEAL] INLAND RESOURCES INC.,
a Washington corporation
By:
--------------------------
Bill I. Pennington
Chief Financial Officer
Attested to by:
- -------------------------
Michael J. Stevens
Secretary
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<PAGE>
SUBSCRIPTION FORM
(to be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ___________ Stock Units of Inland Resources Inc.,
a Washington corporation, purchasable with this Warrant, herewith makes payment
therefor on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to ______________________ whose address is ________________________.
Dated:
---------------------------
-------------------------------------
(Signature of Registered Owner)
-------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
-29-
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
Stock Units set forth below:
No. of Stock
Name and Address of Assignee Units
---------------------------- --------------
and does hereby irrevocably constitute and appoint _____________________
attorney to make sure transfer on the books of Inland Resources Inc., a
Washington corporation, maintained for the purpose, with full power of
substitution in the premises.
Dated:
-----------------------------
Signature
------------------------------
Witness
NOTICE: The signature to the assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
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<PAGE>
The signature to this assignment must be guaranteed by an Eligible
Guarantor Institution as defined in Rule 17Ad-15 promulgated under the
Securities Exchange Act of 1934, as amended, or any successor thereto.
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<PAGE>
EXHIBIT 10.1
AGREEMENT OF SALE AND PURCHASE
------------------------------
This Agreement dated July ___, 1997, by and between EQUITABLE RESOURCES
ENERGY COMPANY (herein called "SELLER") and INLAND PRODUCTION COMPANY (herein
called "BUYER");
W I T N E S S E T H:
1. PROPERTY TO BE SOLD AND PURCHASED. Seller agrees to sell and Buyer
---------------------------------
agrees to purchase, for the consideration hereinafter set forth, and subject to
the terms and provisions herein contained, the following described properties,
rights and interests:
(a) All right, title and interest of Seller in and to oil, gas and/or
mineral leases described on EXHIBIT A hereto; and
(b) All rights, titles and interests of Seller in and to, or otherwise
derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders (including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any federal, state, or other
authority having jurisdiction, and voluntary unitization agreements,
designations and/or declarations) relating to the properties described in
subsection (a) above; and
(c) All rights, titles and interests of Seller in and to all presently
existing and valid production sales contracts, operating agreements, and
other agreements and contracts which relate to any of the properties
described in subsections (a) and (b) above, to the extent and only to the
extent such rights, titles and interests are attributable to the properties
described in subsections (a) and (b) above; and
(d) All rights, titles and interests of Seller in and to all materials,
supplies, machinery, equipment, improvements and other personal property and
fixtures (including, but not by way of limitation, all wells, wellhead
equipment, pumping units, flowlines, tanks, buildings, saltwater disposal
facilities, injection facilities, compression facilities, gathering systems,
and other equipment) located on the properties described in subsections (a)
and (b) above and used in connection with the exploration, development,
operation or maintenance thereof, and in and to water rights, permits,
licenses, rights of way, easements, and other rights of surface use used in
connection with the exploration, development, operation or maintenance, of
the properties described in subsections (a) and (b) above, in each case to
the extent and only to the extent such rights, titles and interests are
attributable to the properties described in subsections (a) and (b) above.
The properties, rights and interests specified in the foregoing subsections (a)
and (b), exclusive of the properties, rights and interests excluded below, are
herein sometimes collectively called the "OIL AND GAS PROPERTIES," and the
properties, rights and interests specified in the foregoing subsections (a),
(b), (c) and (d), exclusive of the properties, rights and interests excluded
below, are herein sometimes collectively called the "PROPERTIES". The
Properties do
1
<PAGE>
not include, and there is hereby expressly excepted and excluded therefrom and
reserved to Seller, all rights and choses in action, arising, occurring or
existing in favor of Seller prior to the Effective Date or arising out of the
operation of or production from the Oil and Gas Properties prior to the
Effective Date (including, but not limited to, any and all contract rights,
claims, receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, escrow accounts, mispayments, erroneous payments or other claims of
any nature in favor of Seller and relating and accruing to any time period prior
to the Effective Date).
2. PURCHASE PRICE. The purchase price for the Properties shall be Fifty One
--------------
Million Three Hundred Forty Two Thousand ($51,342,000) (such amount, unadjusted
by any adjustments provided for in this Agreement or agreed to by the parties,
being herein called the "BASE PURCHASE PRICE"). Such Base Purchase Price may be
adjusted as provided in this Agreement (the Base Purchase Price, as so adjusted,
and as the same may otherwise be adjusted by mutual agreement of the parties,
being herein called the "PURCHASE PRICE"). The Purchase Price shall be paid in
cash, by wire transfer, at the Closing as hereinafter provided.
3. DEPOSIT. Not later than the next business day following the execution of
-------
this Agreement, Buyer has paid to Seller an amount equal to ten percent (10%) of
the Base Purchase Price (such amount is being herein called the "DEPOSIT"). In
the event the transaction contemplated hereby is consummated in accordance with
the terms hereof, the Deposit shall be applied to the Purchase Price to be paid
by Buyer at the Closing. In the event Seller defaults on its obligation to
close the transaction contemplated hereby in the absence of a default by Buyer,
or in the event the Agreement is terminated by Buyer or Seller under Sections
9(a), 9(b), 9(c), 9(d), 10(c), or 10(d), the Deposit shall be returned to Buyer.
If the transaction contemplated hereby otherwise fails to close on the Closing
Date, Seller shall retain the Deposit. The Deposit shall not bear interest.
THE PARTIES HEREBY ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO SELLER OCCASIONED
BY THE FAILURE OF THIS TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR
EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT IS A FAIR
AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE CIRCUMSTANCES AND DOES NOT
CONSTITUTE A PENALTY.
4. REPRESENTATIONS OF SELLER.
-------------------------
(a) REPRESENTATIONS. Seller represents to Buyer that:
---------------
(i) ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
------------------------------
organized and legally existing and under the laws of its state of
incorporation, and is qualified to do business and in good standing in
each of the states in which Oil and Gas Properties are located where the
laws of such state would require a corporation owning the Oil and Gas
Properties located in such state to so qualify.
2
<PAGE>
(ii) DUE AUTHORIZATION. Seller has full power to enter into and
-----------------
perform its obligations under this Agreement and has taken all proper
action to authorize entering into this Agreement and performance of its
obligations hereunder.
(iii) APPROVALS. Other than requirements (if any) that there be
---------
obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for approvals ("Routine
Governmental Approvals") required to be obtained from governmental
entities who are lessors under leases forming a part of the Oil and Gas
Properties (or who administer such leases on behalf of such lessors)
which are customarily obtained post-closing, and except for the
requirements of any maintenance of uniform interest provisions contained
in any operating or other agreements, to Seller's knowledge (which, as
used in this Agreement, shall mean to the actual knowledge of the manager
employee of Equitable Resources Energy Co. in charge of the particular
function) neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any default under any agreement or
instrument to which Seller is a party or by which the Properties are
bound, or violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Seller or to the Properties.
(iv) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes
------------------------------
(and the Conveyance provided for herein to be delivered at Closing will,
when executed and delivered, constitute) the legal, valid and binding
obligation of Seller, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor's
rights and as limited by general equitable principles.
(v) LITIGATION. Except as disclosed on SCHEDULE 4(A)(V) attached
----------
hereto, there are no pending suits, actions, or other proceedings in
which Seller is a party (or, to Seller's knowledge, which have been
threatened to be instituted against Seller) which affect the Properties
in any material respect (including, without limitation, any actions
challenging or pertaining to Seller's title to any of the Properties), or
affecting the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(b) DISCLAIMERS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
-----------
CONTAINED IN SECTION 4(a) ABOVE ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND
SELLER EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND
WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE PROPERTIES SHALL BE
CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION WHETHER
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE PROPERTIES
OR RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR
PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF
3
<PAGE>
MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY
PURPOSE, AND, EXCEPT AS PROVIDED OTHERWISE IN THE FIRST SENTENCE OF THIS
PARAGRAPH, WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY
OR REPRESENTATION WHATSOEVER. BUYER SHALL HAVE INSPECTED, OR WAIVED (AND
UPON CLOSING SHALL BE DEEMED TO HAVE WAIVED) ITS RIGHT TO INSPECT, THE
PROPERTIES FOR ALL PURPOSES AND SATISFIED ITSELF AS TO THEIR PHYSICAL AND
ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT
LIMITED TO CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR
DISPOSAL OF HAZARDOUS SUBSTANCES, SOLID WASTES, ASBESTOS AND OTHER MAN MADE
FIBERS, OR NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM"). BUYER IS
RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTIES, AND BUYER SHALL,
EXCEPT AS PROVIDED OTHERWISE HEREIN, ACCEPT ALL OF THE SAME IN THEIR "AS IS,
WHERE IS" CONDITION. ALSO WITHOUT LIMITATION OF THE FOREGOING, SELLER MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS
TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO BUYER IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT
LIMITATION, RELATIVE TO PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF
HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY
OR POTENTIAL OF THE PROPERTIES TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL
CONDITION OF THE PROPERTIES OR ANY OTHER MATTERS CONTAINED IN THE
PROPRIETARY DATA OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO BUYER
BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH DATA,
RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR
ORAL) FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO BUYER
ARE PROVIDED BUYER AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST SELLER AND ANY RELIANCE ON OR USE OF THE SAME SHALL
BE AT BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
5. REPRESENTATIONS OF BUYER. Buyer represents to Seller that:
------------------------
(a) ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
------------------------------
organized and legally existing and under the laws of its state of
incorporation, and is qualified to do business and in good standing in each
of the states in which Oil and Gas Properties are located where the laws of
such state would require a corporation owning the Oil and Gas Properties
located in such state to so qualify. Buyer is also qualified to own and
operate oil and gas properties with all applicable governmental agencies
having jurisdiction over
4
<PAGE>
the Properties, to the extent such qualification is necessary or appropriate
or will be necessary or appropriate upon consummation of the transactions
contemplated hereby (including, without limitation, Buyer has met, or will
have met by Closing, all bonding requirements of such agencies).
(b) DUE AUTHORIZATION. Buyer has full power to enter into and perform
-----------------
its obligations under this Agreement and has taken all proper action to
authorize entering into this Agreement and performance of its obligations
hereunder.
(c) APPROVALS. Other than requirements (if any) that there be obtained
---------
consents to assignment (or waivers of preferential rights to purchase) from
third parties, and except for Routine Governmental Approvals, and except for
the requirements of any maintenance of uniform interest provisions contained
in any operating or other agreement, neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, nor the compliance with the terms hereof, will result in any default
under any agreement or instrument to which Buyer is a party or by which the
Properties are bound, or violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer or to the Properties.
(d) VALID, BINDING AND ENFORCEABLE. This Agreement constitutes (and
------------------------------
the Conveyance provided for herein to be delivered at Closing will, when
executed and delivered, constitute) the legal, valid and binding obligation
of Buyer, enforceable in accordance with its terms, except as limited by
bankruptcy or other laws applicable generally to creditor's rights and as
limited by general equitable principles.
(e) NO LITIGATION. There are no pending suits, actions, or other
-------------
proceedings in which Buyer is a party (or, to Buyer's knowledge, which have
been threatened to be instituted against Buyer) which affect the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(f) KNOWLEDGEABLE BUYER, NO DISTRIBUTION. Buyer is a knowledgeable
------------------------------------
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to make
a distribution in violation of the Securities Act of 1933 as amended (and
the rules and regulations pertaining thereto) or in violation of any other
applicable securities laws, rules or regulations.
6. CERTAIN COVENANTS OF SELLER PENDING CLOSING. Between the date of this
-------------------------------------------
Agreement and the Closing Date:
(a) ACCESS BY BUYER.
---------------
(i) RECORDS. Seller will give Buyer, or Buyer's authorized
-------
representatives, at Seller's office and at all reasonable times before
the Closing Date, access to Seller's records pertaining to the ownership
and/or operation of the Properties (including,
5
<PAGE>
without limitation, title files, division order files, and production,
severance and ad valorem tax records), for the purpose of conducting due
diligence reviews contemplated by Section 7 below. Buyer may make copies
of such records, at its expense, but shall, if Seller so requests,
return all copies so made if the Closing does not occur; all costs of
copying such items shall be borne by Buyer. Seller shall not be
obligated to provide Buyer with access to any records or data which
Seller considers to be proprietary or confidential to it or which Seller
cannot provide to Buyer without, in its opinion, breaching, or risking a
breach of, confidentiality agreements with other parties, or waiving, or
risking waiving, legal privilege. BUYER RECOGNIZES AND AGREES THAT ALL
MATERIALS MADE AVAILABLE TO IT IN CONNECTION WITH THE TRANSACTION
CONTEMPLATED HEREBY, WHETHER MADE AVAILABLE PURSUANT TO THIS SECTION OR
OTHERWISE, ARE MADE AVAILABLE TO IT AS AN ACCOMMODATION, AND WITHOUT
REPRESENTATION OR WARRANTY OF ANY KIND AS TO THE ACCURACY AND
COMPLETENESS OF SUCH MATERIALS. NO WARRANTY OF ANY KIND IS MADE BY
SELLER AS TO THE INFORMATION SUPPLIED TO BUYER OR WITH RESPECT TO
PROPERTIES TO WHICH THE INFORMATION RELATES, AND BUYER EXPRESSLY AGREES
THAT ANY CONCLUSIONS DRAWN THEREFROM SHALL BE THE RESULT OF ITS OWN
INDEPENDENT REVIEW AND JUDGMENT.
(ii) PHYSICAL INSPECTION. Seller shall give Buyer, or Buyer's
-------------------
authorized representatives, at all reasonable times before the Closing
Date and upon adequate notice to Seller, physical access to the Oil and
Gas Properties which Seller operates, for the purpose of inspecting
same. Buyer recognizes that some or all of the Properties may be
operated by parties other than Seller and that Seller's ability to
obtain access to such properties, and the manner and extent of such
access, is subject to such third parties. Buyer agrees to comply fully
with the rules, regulations and instructions issued by Seller (and,
where Properties are operated by other parties, such other parties)
regarding the actions of Buyer while upon, entering or leaving the
Properties.
(iii) EXCULPATION AND INDEMNIFICATION. If Buyer exercises rights of
-------------------------------
access under this Section or otherwise, or conducts examinations or
inspections under this Section or otherwise, then (a) such access,
examination and inspection shall be at Buyer's sole risk, cost and
expense and Buyer waives and releases all claims against Seller (its
affiliates and its and their respective directors, officers, employees,
attorneys, contractors and agents) arising in any way therefrom or in
any way connected therewith or arising in connection with the conduct of
its directors, officers, employees, attorneys, contractors and agents in
connection therewith and (b) Buyer shall indemnify, defend and hold
harmless Seller (and its affiliates and its and their respective
officers, directors, employees, attorneys, contractors and agents) from
any and all claims, actions, causes of action liabilities, damages,
losses, costs or expenses (including, without limitation, court costs
and attorneys
6
<PAGE>
fees), or liens or encumbrances for labor or materials, arising out of
or in any way connected with such matters. THE FOREGOING RELEASE AND
INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH CLAIMS, ACTIONS, CAUSES
OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES ARISE OUT OF
(i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE, CONCURRENT
NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT INCLUDING
GROSS NEGLIGENCE) OF SELLER OR ANY OTHER INDEMNIFIED PARTY, OR (ii)
STRICT LIABILITY.
(b) INTERIM OPERATION. Seller will continue the operation of the
-----------------
Properties in the ordinary course of its business (or, where Seller is not
the operator of a Property, will continue its actions as a non-operator in
the ordinary course of its business), and will not sell or otherwise dispose
of any portion of the Oil and Gas Properties; provided that Seller shall not
be obligated to renew or extend expiring leases after the Effective Date
unless mutually agreed at Buyer's expense. Seller may make sales or other
dispositions of oil, gas and other minerals in the ordinary course of
business after production, and may make sales or other dispositions of
portions of the Properties other than Oil and Gas Properties so long as (i)
such sales or other dispositions are in the ordinary course of business and
(ii) in the case of equipment, other personal property or fixtures described
in Section 1(d) above, such equipment, other personal property or fixtures
has become obsolete or is replaced by an item or items of at least equal
suitability. Except for those disclosed on SCHEDULE 6(b) attached hereto,
Seller will not, without Buyer's consent, propose the drilling of any
additional wells, or propose the deepening, plugging back or reworking of any
existing wells, or propose the conducting of any other operations which
require consent under the applicable operating agreement. Except for those
disclosed on SCHEDULE 6(b) attached hereto (with respect to which Seller may
take the action or actions disclosed in connection therewith on such SCHEDULE
6(b)), Seller will advise Buyer of any such proposals made by other parties,
and will consult with Buyer concerning such proposals, but any decisions with
respect to proposals shall be made by Seller in its own discretion, so long
as the decisions are made in the ordinary course of business; provided that,
if the period for responding to such a proposal extends beyond the Closing
Date, Seller will not respond to such proposal unless the Closing does not
occur prior to the next to last day allowed to respond (in which case Seller
may respond). Without expanding any obligations which Seller may have to
Buyer, it is expressly agreed that Seller shall never have any liability to
Buyer with respect to operation of a Property greater than that which it
might have as the operator to a non-operator under the applicable operating
agreement (or, in the absence of such an agreement, under the AAPL 610 (1989
Revision) form Operating Agreement), IT BEING RECOGNIZED THAT, UNDER SUCH
AGREEMENTS AND SUCH FORM, THE OPERATOR IS NOT RESPONSIBLE FOR ITS OWN
NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER THAN FOR GROSS NEGLIGENCE OR
WILFUL MISCONDUCT.
7
<PAGE>
(c) PREFERENTIAL RIGHTS. Seller will use its best efforts, consistent
-------------------
with industry practices in transactions of this type, to identify, with
respect to all material Oil and Gas Properties, (i) all preferential rights
to purchase ("PREFERENTIAL RIGHTS") which would be applicable to the
transactions contemplated hereby and (ii) the names and addresses of parties
holding such rights; in attempting to identify such Preferential Rights, and
the names and addresses of such parties holding the same, Seller shall in no
event be obligated to go beyond its own records. Seller will request, from
the parties so identified (and in accordance with the documents creating
such rights), execution of waivers of Preferential Rights so identified.
Seller shall have no obligation other than to so attempt to identify such
Preferential Rights and to so request such execution of waivers of
Preferential Rights (including, without limitation, Seller shall have no
obligation to assure that such waivers of Preferential Rights are obtained).
If a party from whom a waiver of a Preferential Right is requested refuses
to give such waiver, Seller will tender to such party the required interest
in the Property (at a price equal to the amount specified in EXHIBIT B
hereto for such Property, reduced appropriately, as determined by mutual
agreement of Buyer and Seller, if less than the entire Property must be
tendered), and to the extent that such Preferential Right is exercised by
such party, and such interest in such Property is actually sold to such
party so exercising such right, such interest in such Property will be
excluded from the transaction contemplated hereby and the Purchase Price
will be adjusted downward by the amount paid to Seller by the party
exercising such right.
7. DUE DILIGENCE REVIEWS.
---------------------
(a) REVIEW BY BUYER. Buyer may conduct, at its sole cost, such title
---------------
examination or investigation, and other examinations and investigations, as
it may in its sole discretion choose to conduct with respect to the
Properties in order to determine whether Defects (as below defined) exist.
Should, as a result of such examinations and investigations, or otherwise,
one or more matters come to Buyer's attention which would constitute a
Defect (as below defined), and should there be one or more of such Defects
which Buyer is unwilling to waive and close the transaction contemplated
hereby notwithstanding the fact that such Defects exist, Buyer shall notify
Seller in writing of such Defects as soon as the same are identified by
Buyer, but in no event later than August 28, 1997 (such Defects of which
Buyer so provides notice are herein called "ASSERTED DEFECTS"). Such
notification shall include, for each Asserted Defect, (i) a description of
the Asserted Defect and the wells and/or units listed on Exhibit B to which
it relates and all supporting documentation reasonably necessary to fully
describe the basis for the Defect, (ii) for each applicable well or unit,
the size of any variance from "Revenue Interest" or "Working Interest" which
does or could result from such Asserted Defect and (iii) the amount by which
Buyer would propose to adjust the Purchase Price, based on the amounts
attributable to the affected Properties as shown on Exhibit B. All Defects
with respect to which Buyer fails to so give Seller notice will be deemed
waived for all purposes. All access to Sellers records and the Properties in
connection with such due diligence shall be subject and pursuant to Section
6(a) (including, without limitation, the exculpation and indemnification
provisions contained in Section 6(a)(iii)).
8
<PAGE>
(b) NATURE OF DEFECTS. The term "DEFECT" as used in this Section shall
-----------------
mean the following:
(i) NRI OR WI VARIANCES. Seller's ownership of the Properties is
-------------------
such that, with respect to a well or unit listed on EXHIBIT B hereto, it
clearly (A) entitles Seller to receive a decimal share of the oil, gas
and other hydrocarbons produced from such unit, or from currently
producing completions in such well, which is less than the decimal share
set forth on EXHIBIT B in connection with such well or unit as the
"Revenue Interest" or (B) causes Seller to be obligated to bear a
decimal share of the cost of operation of such well (as to such
completions) or unit
9
<PAGE>
greater than the decimal share set forth on EXHIBIT B in connection with
such well or unit as the "Working Interest" (without at least a
proportionate increase in the share of production to which Seller is
entitled to receive).
(ii) NET ACRE SHORTFALLS. Seller's ownership of the Properties is
-------------------
such that it clearly entitles Seller to fewer than 23,511 total net
undeveloped acres (defined below) in the Certain Townships (below
defined). "NET UNDEVELOPED ACRES" shall be computed separately for each
lease identified on Exhibit A and shall mean, for each such lease, (a)
the number of acres covered by such lease which are located in the
Certain Townships and not included in a spacing unit for a producing
well, multiplied by (b) the interest in oil and gas covered by such
lease in such lands, multiplied by (c) Seller's undivided interest in
such lease insofar as it covers such lands (provided that if items (b)
and/or (c) vary as to different areas, a separate calculation shall be
done for each such area). "TOTAL NET UNDEVELOPED ACRES" shall mean the
total of the amounts computed under the preceding sentence for all
leases described on Exhibit A covering lands in the Certain Townships.
"CERTAIN TOWNSHIPS" means T8S, R15E; T9S, R15E; T8S, R16E; T9S, R16E;
T8S, R17E; T9S, R17E; T8S, R18E; and T9S, R18E, Uintah and Duschene
Counties, Utah.
(iii) LIENS. Seller's ownership of an Oil and Gas Property is
-----
subject to a lien other than (A) a lien for taxes which are not yet
delinquent or (B) a mechanic's or materialmen's lien (or other similar
lien), or a lien under an operating agreement or similar agreement, to
the extent the same relates to expenses incurred which are not yet
delinquent or (C) liens which will be released at or before Closing.
(iv) PREFERENTIAL RIGHTS. Seller's ownership of an Oil and Gas
-------------------
Property is subject to a Preferential Right, unless a waiver of such
Preferential Right has been obtained with respect to the transaction
contemplated hereby or an appropriate tender of the applicable interest
has been made to all parties holding such right and, with respect to
each such party, either (A) the period of time required for such party
to exercise such right has expired without such party exercising such
right, or (B) such right has been exercised and the affected portion of
the Properties has been excluded from the transactions contemplated
hereby (and the Purchase Price adjusted downward) as provided in Section
6(c).
(v) IMPERFECTIONS IN TITLE. Seller's ownership of an Oil and Gas
----------------------
Property is subject to an imperfection in title which is not such as
would normally be waived by persons engaged in the oil and gas business
when purchasing properties of a similar size, nature, location and
value.
(vi) ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE
---------------------
7(B)(VI), an environmental condition exists as to an Oil and Gas
Property which is required to be remediated by applicable environmental
laws (below defined) in any material respect ("applicable environmental
laws" shall mean all federal, state or local laws, rules, orders or
regulations pertaining to health or the environment, including those
relating to waste materials and/or hazardous substances).
Notwithstanding anything in the foregoing which may appear to the contrary, a
gas imbalance (e.g., a situation where Seller and its predecessors in title to
the Properties have taken more or less gas from a well or unit than ownership of
the Properties would
10
<PAGE>
entitle them to receive) shall not constitute a Defect; provided that an
adjustment at Closing may be made for the same pursuant to Section 12(e).
(c) SELLER'S RESPONSE. In the event that Buyer notifies Seller of
-----------------
Asserted Defects:
(i) CURE. Seller may (but shall have no obligation to) attempt to
----
cure, prior to Closing, one or more Asserted Defects.
(ii) POSTPONE CLOSING. Whether or not Seller has then begun to, or
----------------
ever begins to, cure one or more Asserted Defects (and whether or not
Seller has elected options (iii) or (iv) below with respect to one or
more Asserted Defects), Seller may postpone the Closing by designating a
new Closing Date not later than October 10, 1997. Notwithstanding any
such election to postpone Closing, Seller shall still have no obligation
to cure Asserted Defects.
(iii) INDEMNIFICATION. At any time, and from time to time, prior
---------------
to Closing, and regardless of whether or not Seller has then elected any
other option or options under this Section as to such Asserted Defect or
any other Asserted Defect (including without limitation regardless of
whether the procedure under Section 8 is ongoing as to such Asserted
Defect), Seller may (but shall have no obligation to) elect, with
respect to any Asserted Defect, covered by Sections 7(b)(ii) through
(v), to indemnify and hold Buyer harmless from and against any actual
damages or loss (but specifically excluding consequential, special or
similar damages) Buyer may suffer as a result of a third party claim
based on such Asserted Defect. If and when such election is made as to
an Asserted Defect, such Asserted Defect will be treated under this
Agreement as if cured.
(iv) ADJUSTMENT. Notwithstanding any other election made under
----------
this Section (without limitation, it being expressly recognized that
Seller may attempt to cure Asserted Defects while acting under this
election), Seller may elect to have one or more Asserted Defects handled
under Section 8 below.
8. CERTAIN PRICE ADJUSTMENTS.
-------------------------
(a) PROCEDURES. In the event that, as a part of the due diligence
----------
reviews provided for in Section 7 above, Asserted Defects are presented to
Seller and Seller is unable (or unwilling) to cure such Asserted Defects
prior to Closing, or in the event that Buyer has elected (pursuant to
Section 15) to treat an Oil and Gas Property affected by a casualty loss as
if it was an Oil and Gas Property affected by an Asserted Defect, then:
(i) AGREE UPON ADJUSTMENT. Buyer and Seller shall, with respect
---------------------
to each Property affected by such matters, attempt to agree upon an
appropriate downward adjustment of the Purchase Price to account for
such matters; and
11
<PAGE>
(ii) EXCLUDE PROPERTY. With respect to each Property as to which
----------------
Buyer and Seller are unable to agree upon appropriate adjustment with
respect to all such matters affecting such Property, such Property will
be excluded from the transaction contemplated hereby, and the Purchase
Price will be reduced by (a) the amount attributed on EXHIBIT B to the
wells located on such Property plus the amount attributed on EXHIBIT B
to the units in which such Property participates (but in the case of
such units, limited to the portion of such amount which is proportionate
to the portion of Seller's interest in such units, respectively, which
is attributable to such Property), plus (b) $400 per acre for each net
undeveloped acre included on such Property.
If the above procedure is applied to an Asserted Defect (or if Buyer identified
a Defect but elected not to assert it as an Asserted Defect) then, regardless of
whether an adjustment in the Purchase Price results therefrom, such Defect may
not be the subject of any other claims by Buyer against Seller (including,
without limitation,the same may not be asserted as the basis for any indemnity
under Section 13 hereof).
(b) CERTAIN ADJUSTMENTS. In the event that Buyer raises as an Asserted
-------------------
Defect one of the following types of Defects, the Purchase Price shall be
adjusted as set forth below in connection with such Defect:
(i) NRI VARIANCE/PROPORTIONATE PRICE REDUCTIONS. If the Asserted
-------------------------------------------
Defect is a Defect described in clause (A) of Section 7(b)(i): a
downward adjustment equal to the amount determined by multiplying the
amount set forth for such well or unit on EXHIBIT B by a fraction (A)
the numerator of which is an amount equal to the reduction (from the
"Revenue Interest" shown on EXHIBIT B for such well or unit) which has
clearly been determined to exist in the decimal share to which Seller is
entitled to as a result of its ownership interest in such well or unit
and (B) the denominator of which is the "Revenue Interest" shown for
such well or unit on EXHIBIT B.
(ii) NET ACRES SHORTFALL PROPORTIONATE PRICE REDUCTION. If the
-------------------------------------------------
Asserted Defect is a Defect described in Section 7(b)(ii): a downward
adjustment equal to an amount determined by multiplying $400 per acre by
the net acre shortfall which has clearly been determined to exist.
If such an adjustment is made, such adjustment will be deemed an adjustment
agreed to under Section 8(a)(i) above.
(c) POSSIBLE UPWARD ADJUSTMENTS. Should Seller determine (or should
---------------------------
Buyer, in the course of its due diligence reviews contemplated by Section 7
above, determine) that the ownership of the Properties by Seller entitles
Seller to a decimal share of the production from a well or unit listed on
EXHIBIT B greater than the decimal share shown as the "Revenue Interest" for
such well or unit on such EXHIBIT
12
<PAGE>
B, then Seller may propose an upward adjustment to the Purchase Price to
account for such fact, in which case such adjustment shall be handled in the
same manner as provided in Section 8(a) above with respect to adjustments
for Asserted Defects. The party making such determination shall notify the
other party no later than the Closing Date.
(d) LIMITATIONS ON ADJUSTMENTS. If the Purchase Price reductions (or
--------------------------
increases) which result from the above provided for procedure do not exceed
in the aggregate two percent (2%) of the Base Purchase Price, then no
adjustment of the Purchase Price shall occur, and none of the Oil and Gas
Properties which would be excluded by such procedure shall be excluded. If
the Purchase Price reductions (or increases) which result from the above
provided for procedure exceed in the aggregate two percent (2%) of the Base
Purchase Price, the Purchase Price shall be adjusted by the amount by which
such reduction (or increase) exceeds two percent (2%) of the Base Purchase
Price.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
------------------------------------------------
Buyer under this Agreement are subject to each of the following conditions being
met:
(a) REPRESENTATIONS TRUE AND CORRECT. Each and every representation of
--------------------------------
Seller under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time of
Closing be true and accurate in all material respects except as to changes
specifically contemplated by this Agreement or consented to by Buyer.
(b) COMPLIANCE WITH COVENANTS AND AGREEMENTS. Seller shall have
----------------------------------------
performed and complied in all material respects with (or compliance
therewith shall have been waived by Buyer) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Seller prior to or at the Closing.
(c) PRICE ADJUSTMENT LIMITATIONS. The aggregate downward adjustment
----------------------------
(if any) of the Purchase Price which results from the procedures set forth
in Sections 6(c), 8 and 15 does not exceed fifteen (15%) percent of the Base
Purchase Price.
(d) LITIGATION. No suit, action or other proceedings shall, on the
----------
date of Closing, be pending or threatened before any court or governmental
agency seeking to restrain, prohibit, or obtain material damages or other
material relief in connection with the consummation of the transactions
contemplated by this Agreement, other than litigation instituted by Buyer or
any affiliate of Buyer.
If any such condition on the obligations of Buyer under this Agreement is not
met as of the Closing Date, and Buyer is not in breach of its obligations
hereunder, this Agreement may, at the option of Buyer, be terminated. In the
event such a termination by Buyer occurs, the parties shall have no further
obligations to one another hereunder (other than
13
<PAGE>
the obligations under Sections 6(a)(iii) and 14 hereof, all of which will
survive such termination), and the Deposit will be refunded to Buyer. With
respect to any condition set forth above (other than condition (c) or (d)) which
is not met (and which is asserted by Buyer as a failure of one of its conditions
of Closing), and for which the reasons why such condition is not met relate to
some, but less than all, of the Properties, Seller may require that such failure
of such condition to be met be treated as an uncured Asserted Defect and handled
in accordance with the process set forth in Section 8 above, and, if Seller so
requires such handling, such condition will be considered met for the purposes
of this Section.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations of
-------------------------------------------------
Seller under this Agreement are subject to the each of the following conditions
being met:
(a) REPRESENTATIONS TRUE AND CORRECT. Each and every representation of
--------------------------------
Buyer under this Agreement shall be true and accurate in all material
respects as of the date when made and shall be deemed to have been made
again at and as of the time of Closing and shall at and as of such time of
Closing be true and accurate in all material respects except as to changes
specifically contemplated by this Agreement or consented to by Seller.
(b) COMPLIANCE WITH COVENANTS AND AGREEMENTS. Buyer shall have
----------------------------------------
performed and complied in all material respects with (or compliance
therewith shall have been waived by Seller) each and every covenant and
agreement required by this Agreement to be performed or complied with by
Buyer prior to or at the Closing.
(c) PRICE ADJUSTMENT LIMITATIONS. The aggregate downward adjustment
----------------------------
(if any) to the Base Purchase Price which results from the procedures set
forth in Sections 8 and 15 does not exceed fifteen (15%) percent of the Base
Purchase Price.
(d) LITIGATION. No suit, action or other proceedings shall, on the
----------
date of Closing, be pending or threatened before any court or governmental
agency seeking to restrain, prohibit, or obtain material damages or other
material relief in connection with the consummation of the transactions
contemplated by this Agreement, other than litigation instituted by Seller
or any affiliate of Seller.
If any such condition on the obligations of Seller under this Agreement is not
met as of the Closing Date, and Seller is not in breach of its obligations
hereunder, this Agreement may, at the option of Seller, be terminated. In the
event such a termination by Seller occurs, the parties shall have no further
obligations to one another hereunder (other than the obligations under Sections
6(a)(iii) and 14 hereof, all of which will survive such termination), and the
Deposit will be refunded to Buyer or retained by Seller as provided in Section 3
hereof.
11. CLOSING.
-------
14
<PAGE>
(a) ACTIONS AT CLOSING. The closing (herein called the "CLOSING") of
------------------
the transaction contemplated hereby shall take place in the offices of
Seller, at 5555 San Felipe, Suite 2100, Houston, Texas 77056, on September
30, 1997, at 10:00 a.m., local time, or at such other date and time (i) as
the Buyer and Seller may mutually agree upon or (ii) to which Seller may
postpone the Closing pursuant to Section 7 hereof (such date and time, as
changed pursuant to clauses (i) and (ii), being herein called the "CLOSING
DATE"). At the Closing:
(i) DELIVERY OF CONVEYANCE. Seller shall execute, acknowledge
----------------------
and deliver to Buyer a conveyance of the Properties (the "CONVEYANCE"),
in the form attached hereto as ANNEX I (and with EXHIBIT A hereto being
attached thereto as EXHIBIT A), effective as to runs of oil and
deliveries of gas and for all other purposes as of 7 o'clock a.m., local
time at the locations of the Properties, respectively, on April 1, 1997
(herein called the "EFFECTIVE DATE").
(ii) FEDERAL AND STATE CONVEYANCE FORMS. Seller shall execute
----------------------------------
(and, where required, acknowledge) and deliver to Buyer forms of
conveyance or assignment as required by the applicable authorities for
transfers of interests in state or federal leases included in the Oil
and Gas Properties.
(iii) LETTERS IN LIEU. If Buyer so requests, Seller shall execute
---------------
and deliver to Buyer letters in lieu of transfer orders (or similar
documentation), in form acceptable to both parties.
(iv) TURN OVER POSSESSION. Seller shall, to the extent Seller
--------------------
can do so, turn over possession of the Properties.
(v) PAYMENT TO SELLER. Buyer shall deliver to the Seller, by
-----------------
wire transfer of immediately available funds to an account designated by
Seller in a bank located in the United States, an amount equal to (A)
the Purchase Price, less or plus (as the case may be) (B) any
adjustments under this Agreement which are to be made at Closing, less
(C) the Deposit, plus (D) interest at the Agreed Rate (below defined) on
an amount equal to (I) the Base Purchase Price less (II) the Deposit,
from the Effective Date to Closing. The "AGREED RATE" shall mean a rate
per annum equal the lesser of (i) the Prime Rate in effect from time to
time, as published in The Wall Street Journal under the caption "Money
----------------------
"Money Rates" (provided, that in the event The Wall Street Journal
-----------------------
shall publish a split Prime Rate, the higher of such Prime Rates shall
apply) and (ii) the maximum interest rate permitted by applicable law.
(vi) SUCCESSION BY BUYER. Buyer shall, (A) furnish to Seller such
-------------------
evidence (including, without limitation, evidence of satisfaction of all
applicable bonding requirements) as Seller may require that Buyer is
qualified with the applicable authorities to succeed Seller as the owner
and, where applicable, operator of the Properties, (B) with respect to
properties operated by Seller
15
<PAGE>
where Buyer is to succeed Seller as operator, execute and deliver to
Seller appropriate evidence reflecting change of operator as required by
applicable authorities, and (C) execute and deliver to Seller such forms
as Seller may reasonably request for filing with the applicable
authorities to reflect Buyer's assumption of plugging and abandonment
liabilities with respect to the wells located on the Properties or on
units in which the Properties participate.
(vii) NON FOREIGN STATUS AFFIDAVIT. If Buyer so requests, each
----------------------------
party Seller will execute and deliver to Buyer an affidavit or other
certification (as permitted by such code) that such party is not a
"foreign person" within the meaning of Section 1445 (or similar
provisions) of the Internal Revenue Code of 1986 as amended (i.e., such
party is not a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate as those terms are defined
in such code and regulations promulgated thereunder).
(b) POST CLOSING ACTIONS.
--------------------
(i) NOTIFICATIONS BY BUYER. Immediately after the Closing,
----------------------
Buyer shall notify all applicable operators, non-operators, oil and gas
purchasers, and government agencies that it has purchased the
Properties.
(ii) TRANSFER OF FILES. Seller will use its best efforts to
-----------------
deliver to Buyer, at Buyer's expense and within 45 days after Closing,
all of Seller's lease files, abstracts and title opinions, division
order files, production records, well files, accounting records (but not
including general financial accounting or tax accounting records), and
other similar files and records which directly relate to the Properties,
other than those which Seller considers to be proprietary or
confidential to it or which Seller cannot provide to Buyer without, in
its opinion, breaching, or risking a breach of, confidentiality
agreements with other parties, or waiving, or risking waiving, legal
privilege. Seller may, at its election, make and retain copies of any or
all such files. Buyer shall preserve all files so delivered by Seller of
a period of ten years following Closing and will allow Seller access
(including, without limitation, the right to make copies at Seller's
expense) to such files at all reasonable times; specifically in this
connection (but not in limitation of the foregoing) Buyer recognizes
that Seller has received certain information requests from the United
States regarding payment of royalties on federal leases which, in order
to respond to, Seller will need access to such files.
(iii) OPERATIONAL TRANSITION.
----------------------
(A) OPERATIONS. For a reasonable period of time after
----------
Closing, Buyer and Seller shall cooperate with respect to
transition activities as to Properties where Buyer succeeds Seller
as operator. IT IS RECOGNIZED THAT THERE IS NO ASSURANCE GIVEN BY
16
<PAGE>
SELLER THAT BUYER SHALL SUCCEED SELLER AS OPERATOR OF ANY PROPERTY
WHERE OTHER PARTIES OWN INTERESTS IN THE WELLS LOCATED THEREON. To
the extent Seller remains an operator after Closing (which it shall
have no obligation to do), it shall serve as operator under the
applicable operating agreement in the manner provided by such
agreement (or, in the absence of such an agreement, in the manner
contemplated by the AAPL610 (1989) form Operating Agreement). For
each Property for which Seller continues to so operate after
Closing, Seller shall be entitled to receive, for each calendar
month for which it operates such Property for any part of such
month, (i) if such Property is covered by an operating agreement,
the overhead charge provided for in such agreement, and (ii) if
such Property is not covered by an operating agreement, an overhead
charge (to be paid by Buyer to Seller) equal to the per month
overhead charge provided for under Section 12(a) for wells not
covered by operating agreements. When Buyer takes over operation
of a Property, it will reimburse Seller for (i) all outstanding
joint interest billing receivables which relate to billings
rendered since the Effective Date, and (ii) all unbilled joint
interest expenses (including overhead charges), and the collection
of the same will thereafter be the responsibility of, and for the
account of, Buyer. Except to the extent Seller continues to so
operate one or more Properties after Closing (which, as provided
above, it has no obligation to do), or continues to provide
disbursement services as provided for in subsection (B) below, any
additional services provided by Seller to Buyer shall be at
Seller's sole discretion, and, to the extent Seller elects to
provide any such additional services, the nature, manner of
performance and compensation to Seller for such services shall be
the subject of a separate agreement between Seller and Buyer.
(B) CERTAIN DISBURSEMENTS. With respect to each Oil and Gas
---------------------
Property with respect to which Seller is disbursing proceeds of
production attributable to other parties entitled thereto, (i)
Seller shall continue to collect proceeds of production up to the
end of the month in which Closing occurs (or, if Buyer is, despite
its best efforts, unable to commence making disbursements as to
some Properties at such time, such later date (but not to exceed
the end of the month falling 3 months after Closing) requested by
Buyer as to such Properties), and shall be responsible for making
disbursements, in accordance with its normal procedures (and at
normal times), of such proceeds of production so collected to the
parties entitled to same, with any proceeds of production
thereafter collected by Seller to be promptly forwarded to Buyer
(who shall thereafter account for same to the parties entitled
thereto) and (ii) Seller shall, as promptly as possible after
Closing, deliver to Buyer (A) a copy of its "pay list" for
17
<PAGE>
each such Property and (B) a list of all parties for whom it is holding
in suspense proceeds of production. It is understood and agreed that
Seller does not represent or warrant to Buyer the accuracy of the "pay
lists" and other data so delivered. Upon Closing, Buyer shall become
responsible for all disbursements of proceeds of production (including,
without limitation, those disbursements made by Seller on Buyer's
behalf) and such disbursement activities shall be included in the
matters which Buyer assumes, and indemnifies Seller with respect to,
under Section 13 below. With respect to each well for which Seller so
provides such disbursement services after Closing, Seller shall be paid
by Buyer an amount equal to $200 for each month for which it provides
such services for such well (beginning with the month in which Closing
occurs).
(C) RESPONSIBILITIES AND INDEMNIFICATION. To the extent Seller
------------------------------------
so operates any Property after Closing, or so provides disbursement
services (or agrees to provide additional services), its obligations to
Buyer with respect to such services shall be no greater than those which
it would have as an operator to a non-operator under the applicable
operating agreement (or, in the absence of an operating agreement, under
the AAPL610 (1989 Revision) form Operating Agreement), IT BEING
RECOGNIZED THAT, UNDER SUCH AGREEMENTS AND SUCH FORM, THE OPERATOR IS
NOT RESPONSIBLE FOR ITS OWN NEGLIGENCE, AND HAS NO RESPONSIBILITY OTHER
THAN FOR GROSS NEGLIGENCE OR WILFUL MISCONDUCT. SELLER'S ACTIONS IN
PROVIDING SUCH SERVICES WILL BE COVERED BY THE INDEMNIFICATIONS PROVIDED
BY BUYER UNDER SECTION 13 BELOW.
12. CERTAIN ACCOUNTING ADJUSTMENTS.
------------------------------
(a) ADJUSTMENTS FOR REVENUES AND EXPENSES. Appropriate adjustments
-------------------------------------
shall be made between Buyer and Seller so that (i) Buyer will bear all
expenses which are incurred in the operation of the Properties after the
Effective Date, including, without limitation, all drilling costs, all
capital expenditures, all overhead charges under applicable operating
agreements (regardless of whether such operating agreements are with third
parties or related entities and regardless of whether Seller is the operator
or a non-operator), all other overhead charges actually charged by third
parties, and, where Seller is the operator of a well and there is no
operating agreement, overhead at the rate of $550 per well per month
(prorated for any period less than one month) for each month or part thereof
between the Effective Date and Closing, and Buyer will receive all proceeds
(net of applicable production, severance, and similar taxes) from sales of
oil, gas and/or other minerals which are produced from (or attributable to)
the Properties and which are produced after the Effective Date, and (ii)
Seller
18
<PAGE>
will bear all expenses which are incurred in the operation of the Properties
before the Effective Date and Seller will receive all proceeds (net of
applicable production, severance, and similar taxes) from the sale of oil,
gas and/or other minerals which were produced from (or attributable to) the
Properties and which were produced before the Effective Date. It is agreed
that, in making such adjustments: (i) oil which was produced from the Oil
and Gas Properties and which was, on the Effective Date, stored in tanks
located on the Oil and Gas Properties (or located elsewhere but used by
Seller to store oil produced from, or attributable to, the Oil and Gas
Properties prior to delivery to oil purchasers) and above pipeline
connections shall be deemed to have been produced before the Effective Date,
(ii) ad valorem and similar taxes assessed for periods prior to the
Effective Date shall be borne by Seller and ad valorem taxes assessed for
periods on or after the Effective Date shall be borne by Buyer (ad valorem
and similar taxes shall be considered assessed for the period for which they
are stated to be assessed, even if the same are based on production or other
activities occurring in prior periods), (iii) ad valorem and similar taxes
assessed with respect to a period which the Effective Date splits shall be
prorated based on the number of days in such period which fall on each side
of the Effective Date (with the day on which the Effective Date falls being
counted in the period after the Effective Date), (iv) prepaid expenses
attributed to periods after the Effective Date, but paid prior to the
Effective Date, shall be treated as expenses for the period after the
Effective Date, (v) the provisions of Section 18(c) shall be given effect as
if the same had taken effect on the Effective Date, (vi) casualty losses
shall be handled in accordance with Section 15, and (vii) no consideration
shall be given to the local, state or federal income tax liabilities of any
party.
(b) INITIAL ADJUSTMENT AT CLOSING. At least 5 days before the Closing
-----------------------------
Date, Seller shall provide to Buyer a statement showing its computations of
the amount of the adjustments provided for in subsection (a) above based on
amounts which prior to such time have actually been paid or received by
Seller. Such statement shall also reflect any other adjustments provided for
under this Agreement. Buyer and Seller shall attempt to agree upon such
adjustments prior to Closing, provided that if agreement is not reached,
Seller's computation shall be used at Closing, subject to further adjustment
under subsections (c) and (d) below. If the amount of adjustments so
determined which would result in a credit to Buyer exceed the amount of
adjustments so determined which would result in a credit to Seller, Buyer
shall, as provided in Section 11 above, receive a credit at Closing for the
amount of such excess, and, if the converse is true, then, as provided in
Section 11 above, the amount to be paid by Buyer to Seller at Closing shall
be increased by the amount of such excess.
(c) ADJUSTMENT POST CLOSING. On or before 120 days after Closing,
-----------------------
Buyer and Seller shall review any additional information which may then be
available pertaining to the adjustments provided for in subsection (a)
above, shall determine if any additional adjustments should be made beyond
those made at Closing (whether the same be made to account for expenses or
revenues not considered in making the
19
<PAGE>
adjustments made at Closing, or to correct errors made in the adjustments
made at Closing), and shall make any such adjustments by appropriate
payments from Seller to Buyer or from Buyer to Seller.
(d) ADDITIONAL ADJUSTMENTS. Should any additional items which would be
----------------------
the subject of adjustments provided for in subsection (a) above come to the
attention of Buyer or Seller after such adjustments under subsection (c) are
concluded, but prior to the end of two years following Closing, such
adjustments shall be made by appropriate payments from Buyer to Seller or
from Seller to Buyer. Except for any of such adjustments under the preceding
sentence, no further adjustments shall be made under this Section 12, and
should any expenses (or revenues) with regard to the Properties be charged
to (or received by) Seller or Buyer after two years following Closing, the
same shall be borne by (or in the case of revenues received by) Buyer,
regardless of the periods to which the same relate, unless the same are
revenues related to claims identified by Seller before the end of such two
year period (and of which Seller gives Buyer notice before the end of such
two year period), which revenues shall belong to Seller.
(e) IMBALANCE ADJUSTMENTS. At Closing, Buyer and Seller shall, based
---------------------
upon data available at that time, determine (i) the total amount of
"overproduction" of gas as of the Effective Date with respect to the wells
and units listed on Exhibit B (e.g. volumes of gas, measured in mcf, taken
from such wells and units by the Seller and its predecessors in title to the
Properties in excess of those volumes, measured in mcf, which the ownership
of the Properties would entitle them to receive) and (ii) total amount of
"underproduction" of gas as of the Effective Date with respect to wells and
units listed in Exhibit B (e.g. the amount by which the volumes of gas,
measured in mcf, from such wells and units which the ownership of the
Properties by Seller and its predecessors in title thereto entitle them to
take exceeds the volumes, measured in mcf, taken from such wells by Seller
and such predecessors). If the total amount of overproduction (as so
determined) exceeds the total amount of underproduction (as so determined),
then Buyer shall, as provided in Section 11 above, receive a credit against
the Purchase Price equal to $1.50 times such excess. If the total amount of
underproduction (as so determined) exceeds the total amount of
overproduction (as so determined), then, as provided in Section 11 above,
the amount to be paid by Buyer to Seller at Closing shall be increased by an
amount equal to $1.50 times such excess.
(f) ADJUSTMENTS FOR JONAH UNIT ACCOUNTS RECEIVABLE. Seller holds
----------------------------------------------
accounts receivable from certain other working interest owners in the Jonah
Unit in the Monument Butte Field in Utah. Such accounts receivable will be
assigned to Buyer at Closing, and the amount paid by Buyer to Seller at
Closing shall be increased by an amount equal to the then outstanding
balance of such accounts receivable plus any accrued interest thereon.
13. ASSUMPTION AND INDEMNIFICATION.
------------------------------
20
<PAGE>
(a) BUYER'S INDEMNITY. Buyer shall, on the date of Closing, agree
-----------------
(and, upon the delivery to Buyer of the Conveyance, shall be deemed to have
agreed), (i) to assume, and to timely pay and perform, all duties,
obligations and liabilities relating to the acquisition, ownership and/or
operation of the Properties on and after the Effective Date (including,
without limitation, those arising under the contracts and agreements
described in Section 1(c) above and the lease referred to in Section 1(e)
above), and (ii) to indemnify and hold Seller, its affiliates, and its and
their directors, officers, employees, attorneys, contractors and agents
harmless from and against any and all claims, actions, causes of action,
liabilities, damages, losses, costs or expenses (including, without
limitation, court costs and attorneys' fees) of any kind or character
arising out of or otherwise relating to the acquisition, ownership and/or
operation of the Properties on and after the Effective Date. In connection
with (but not in limitation of) the foregoing, it is specifically understood
and agreed that such duties, obligations and liabilities arising out or
otherwise relating to the acquisition, ownership and/or operation of the
Properties on and after the Effective Date shall be deemed to include all
matters arising out of the condition of the Properties on the Effective Date
(including, without limitation, within such matters all obligations to
properly plug and abandon, or replug and re-abandon, wells located on the
Properties, to restore the surface of the Properties and to comply with, or
to bring the Properties into compliance with, applicable environmental laws,
rules, regulations and orders, including conducting any remediation
activities which may be required on or otherwise in connection with
activities on the Properties), regardless of whether such condition or the
events giving rise to such condition arose or occurred before or after the
Effective Date, and the assumptions and indemnifications by Buyer provided
for in the first sentence of this section shall expressly cover and include
such matters; provided however that it is expressly agreed that any waste,
contaminants, substances, or materials that were shipped, transferred,
removed, or disposed of off the Properties prior to Closing ("PRE-CLOSING
SHIPPED MATERIALS") are the sole responsibility of Seller.
(b) SELLER'S INDEMNITY. Except for matters covered by Buyer's indemnity
------------------
under Section 13(a) above, Seller shall, on the date of Closing, agree (and,
upon the delivery to Buyer of the Conveyance shall be deemed to have agreed)
to indemnify and hold Buyer, its affiliates, and its and their directors,
officers, employees, attorneys, contractors and agents harmless from and
against any and all third party (not affiliated with Buyer) claims, actions,
causes of action, liabilities, damages,losses, costs or expenses (including,
without limitation, court costs and attorneys' fees) of any kind or
character arising out of or otherwise relating to the ownership and/or
operation of the Properties prior to the Effective Date; provided that it is
expressly understood that Seller's indemnity includes claims related to Pre-
closing Shipped Materials.
(c) CERTAIN PROVISIONS APPLICABLE TO INDEMNIFICATION. THE FOREGOING
------------------------------------------------
ASSUMPTIONS AND INDEMNIFICATIONS SHALL APPLY WHETHER OR NOT SUCH DUTIES,
OBLIGATIONS OR LIABILITIES, OR SUCH CLAIMS,
21
<PAGE>
ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR EXPENSES
ARISE OUT OF (i) NEGLIGENCE (INCLUDING SOLE NEGLIGENCE, SINGLE NEGLIGENCE,
CONCURRENT NEGLIGENCE, ACTIVE OR PASSIVE NEGLIGENCE, BUT EXPRESSLY NOT
INCLUDING GROSS NEGLIGENCE) OF ANY INDEMNIFIED PARTY, OR (ii) STRICT
LIABILITY.
14. NO COMMISSIONS OWED. Seller agrees to indemnify and hold harmless
-------------------
Buyer (and its affiliates, and its and their respective officers, directors,
employees, attorneys, contractors and agents) from and against any and all
claims, actions, causes of action, liabilities, damages, losses, costs or
expenses (including, without limitation, court costs and attorneys fees) of any
kind or character arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, Seller with any
broker or finder in connection with this Agreement or the transaction
contemplated hereby. Buyer agrees to indemnify and hold harmless Seller (and
its affiliates and its and their respective officers, directors, employees,
attorneys, contractors and agents) from and against any and all claims, actions,
causes of action, liabilities, damages, losses, costs or expenses (including,
without limitation, court costs and attorneys fees) of any kind or character
arising out of or resulting from any agreement, arrangement or understanding
alleged to have been made by, or on behalf of, Buyer with any broker or finder
in connection with this Agreement or the transaction contemplated hereby.
15. CASUALTY LOSS. In the event of damage by fire or other casualty to
-------------
the Properties prior to the Closing, this Agreement shall remain in full force
and effect, and in such event
(a) OIL AND GAS PROPERTIES. As to each such Property so damaged which
----------------------
is an Oil and Gas Property, then (unless Seller elects to repair such
damage, which Seller shall have no obligation to do, in which case all
rights to insurance proceeds, and claims against third parties, related
thereto shall belong to Seller), at Buyer's election, either (i) such
Property shall be treated as if it had an Asserted Defect associated with it
and the procedure provided for in Section 8 shall be applicable thereto (in
which case, unless Buyer and Seller agree to the contrary, all rights to
insurance proceeds, and claims against third parties, related thereto shall
belong to Seller), or (ii) the Purchase Price will not be adjusted, and
Seller shall, at Seller's election, either collect (and when collected pay
over to Buyer) any insurance claims related to such damage, or assign to
Buyer such insurance claims, and, in either event, Buyer shall take title to
the Property affected by such loss without reduction of the Purchase Price.
(b) OTHER PROPERTIES. As to each such Property so damaged which is
----------------
other than an Oil and Gas Property, Seller shall, at Seller's election,
either (i) repair such damage or replace such Property, (ii) collect for
(and when collected pay over to Buyer) any insurance claims related to such
damage, or (iii) assign to Buyer any
22
<PAGE>
insurance claims related to such damage, and Buyer shall take title to the
Property affected by such loss without reduction of the Purchase Price.
Seller has no obligation to carry insurance coverage (or, if it carries
insurance, to keep such insurance in force or to carry any particular types or
amounts of coverage), and in the event of a loss which is not covered by
insurance, Seller shall have no obligation to Buyer with respect thereto.
16. NOTICES. All notices and other communications required under this
-------
Agreement shall (unless otherwise specifically provided herein) be in writing
and be delivered personally, by recognized commercial courier or delivery
service which provides a receipt, by telecopier (with receipt acknowledged), or
by registered or certified mail (postage prepaid), at the following addresses:
If to Buyer: 475 17th Street, Suite 1500
Denver, Colorado 80202
Fax No. 303/296-4070
Attn: Kyle R. Miller
If to Seller: 5555 San Felipe, Suite 2100
Houston, Texas 77056
Fax No.: 281-602-2167
with copy to: 420 Boulevard of the Allies
Pittsburgh, Pennsylvania 15219
Fax No.: 412-553-6105
Attn: Law Department
and shall be considered delivered on the date of receipt. Either Buyer or
Seller may specify as its proper address any other post office address within
the continental limits of the United States by giving notice to the other party,
in the manner provided in this Section, at least ten (10) days prior to the
effective date of such change of address.
17. SURVIVAL OF PROVISIONS, LIMITATION ON DAMAGES. All representations
---------------------------------------------
and warranties made herein by Buyer and Seller shall be continuing and shall be
true and correct on and as of the date of Closing with the same force and effect
as if made at that time (and shall inure to the benefit of the respective
successors and assigns of Buyer and Seller), and all of such representations and
warranties shall survive the Closing and the delivery of the Conveyance
indefinitely. The provisions of Section 11 (to the extent the same are, by
mutual agreement, not performed at Closing), and Sections 12, 13(a), 13(c), 14,
16, 17 and 18 shall (subject to any limitations set forth therein) survive the
Closing and delivery of the Conveyance indefinitely. The provisions of Section
13(b) shall terminate two (2) years after Closing (except with respect to claims
definitively identified by Buyer, by notice in writing to Seller, prior to the
expiration of such two (2) years
23
<PAGE>
period) (the obligations which are limited as to survival by this sentence are
hereinafter called "CERTAIN SURVIVING OBLIGATIONS"). As additional limitations,
Seller shall (a) have no liability for the Certain Surviving Obligations until
the amount of the Certain Surviving Obligations exceeds an amount ("DEDUCTIBLE
AMOUNT") equal to three percent (3%) of the Base Purchase Price, and then Seller
shall be liable for the Certain Surviving Obligations only to the extent they
exceed such Deductible Amount, and (b) have no liability for the Certain
Surviving Obligations to the extent the total of the Certain Surviving
Obligations would exceed (exclusive of the Deductible Amount) an amount equal to
seven percent (7%) of the Base Purchase Price. Notwithstanding anything herein
which may appear to the contrary, (i) neither party shall have any obligations
with respect to this Agreement or the transaction contemplated hereby for any
special, consequential or punitive damages and (ii) Seller's liability with
respect to this Agreement and the transaction contemplated hereby shall never
exceed the Purchase Price (less any amounts credited against the Purchase Price
pursuant to Section 12).
18. MISCELLANEOUS MATTERS.
---------------------
(a) FURTHER ASSURANCES. After the Closing, Seller and Buyer shall
------------------
execute and deliver, and shall otherwise cause to be executed and delivered,
from time to time, such further instruments, notices, division orders,
transfer orders and other documents, and do such other and further acts and
things, as may be reasonably necessary to more fully and effectively grant,
convey and assign the Properties to Buyer and to otherwise carry out the
transaction contemplated hereby.
(b) LIKE KIND EXCHANGE. Seller may elect to structure this transaction
------------------
as a like-kind exchange pursuant to section 1031 of the Internal Revenue
Code of 1986, as amended, and the regulations promulgated thereunder, with
respect to any or all of the Properties (a "LIKE-KIND EXCHANGE") at any time
prior to the date of Closing. In order to effect a Like-Kind Exchange, Buyer
shall cooperate and do all acts as may be reasonably required or requested
by Seller with regard to effecting the Like-Kind Exchange, including, but
not limited to, permitting Seller to assign its rights under this Agreement
to a qualified intermediary of Seller's choice in accordance with Treasury
Regulation (S) 1.1031(k)-1(g)(4) or executing additional escrow
instructions, documents, agreements or instruments to effect an exchange;
provided, however, Buyer shall incur no expense in connection with such
Like-Kind Exchange and Buyer shall not be required to take title to any
property other than the Properties in connection with the Like-Kind
Exchange, and Buyer's possession of the Properties will not be delayed by
reason of any such Like-Kind Exchange.
(c) GAS IMBALANCES, MAKEUP OBLIGATIONS. Without limitation on any
----------------------------------
other provision of this Agreement, it is expressly understood and agreed
that, upon the occurrence of Closing, but effective as of the Effective
Date, Buyer shall succeed to and assume the position of Seller with respect
to all gas imbalances and make-up obligations related to the Properties
(regardless of whether such imbalances or make-up obligations arise at the
wellhead, pipeline, gathering system or other level, and
24
<PAGE>
regardless of whether the same arise under contract or otherwise). As a
result of such succession, Buyer shall (i) be entitled to receive any and
all benefits which Seller would have been entitled to receive by virtue of
such position (including, without limitation, rights to produce and receive
volumes of production in excess of volumes which it would otherwise be
entitled to produce and receive by virtue of ownership of the Properties and
rights to receive cash balancing payments), and (ii) be obligated to suffer
any detriments which Seller would have been obligated to suffer by virtue of
such position (including, without limitation, the obligation to deliver to
others production volumes which would have otherwise been attributable to
its ownership of the Properties, to deliver production to purchasers hereof
without receiving full payment therefor, or to make cash balancing payments
or to repay take or pay payments) and (iii) shall be responsible for any and
all royalty obligations with respect to such imbalances (including, without
limitation, any of the same arising out of royalties having been paid on an
"entitlements" basis rather than a "receipts" basis).
(d) DECEPTIVE TRADE PRACTICES WAIVER. To the extent applicable to the
--------------------------------
transaction contemplated hereby or any portion thereof, Buyer waives the
provisions of the Texas Deceptive Trade Practices Act (Sections 17.41
through 17.63, inclusive of the Texas Business and Commerce Code, other than
Section 17.555 which is not waived, and any comparable act in any other
state in which the Properties are located. In connection with such waiver,
Buyer hereby represents warrants to Seller that Buyer (i) is in the business
of seeking or acquiring by purchase or lease, goods, or services, for
commercial or business use, (ii) has knowledge and experience in financial
and business matters that enable it to evaluate the merits and risks of the
transaction contemplated hereby, (iii) is not in a significantly disparate
bargaining position and (iv) has assets of $5,000,000 or more according to
its most recent financial statement.
(e) PARTIES BEAR OWN EXPENSES. Each party shall bear and pay all
-------------------------
expenses (including, without limitation, legal fees) incurred by it in
connection with the transaction contemplated by this Agreement.
(f) NO SALES TAXES. No sales, transfer or similar tax will be
--------------
collected at Closing from Buyer in connection with this transaction. If,
however, this transaction is later deemed to be subject to sales, transfer
or similar tax, for any reason, Buyer agrees to be solely responsible, and
shall indemnify and hold Seller (and its affiliates, and its and their
directors, officers, employees, attorneys, contractors and agents) harmless,
for any and all sales, transfer or other similar taxes (including related
penalty, interest or legal costs) due by virtue of this transaction on the
Properties transferred pursuant hereto and the Buyer shall remit such taxes
at that time. Seller and Buyer agree to cooperate with each other in
demonstrating that the requirements for exemptions from such taxes have been
met.
25
<PAGE>
(g) ENTIRE AGREEMENT. This Agreement contains the entire understanding
----------------
of the parties hereto with respect to subject matter hereof and supersedes
all prior agreements, understandings, negotiations, and discussions among
the parties with respect to such subject matter; provided that any
Confidentiality Agreement executed by Buyer and Seller in connection with
the transaction contemplated hereby remains in full force and effect and is
not superseded or modified by this Agreement.
(h) AMENDMENTS, WAIVERS. This Agreement may be amended, modified,
--------------------
supplemented, restated or discharged (and provisions hereof may be waived)
only by an instrument in writing signed by the party against whom
enforcement of the amendment, modification, supplement, restatement or
discharge (or waiver) is sought.
(i) NO PRESS RELEASES. Except as may be required under applicable law,
-----------------
prior to Closing neither party shall make any public announcement with
respect to the transaction contemplated hereby without the consent of the
other party.
(j) CHOICE OF LAW. Without regard to principles of conflicts of law,
-------------
this Agreement shall be construed and enforced in accordance with and
governed by the laws of the state of Texas applicable to contracts made and
to be performed entirely within such state and the laws of the United States
of America, except that, to the extent that the law of a state in which a
portion of the Properties is located (or which is otherwise applicable to a
portion of the Properties) necessarily governs, the law of such state shall
apply as to that portion of the property located in (or otherwise subject to
the laws of) such state.
(k) HEADINGS, TIME OF ESSENCE, ETC. The descriptive headings contained
------------------------------
in this Agreement are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement. Within this
Agreement words of any gender shall be held and construed to cover any other
gender, and words in the singular shall be held and construed to cover the
plural, unless the context otherwise requires. Time is of the essence in
this Agreement.
(l) NO ASSIGNMENT. Neither party shall have the right to assign its
-------------
rights under this Agreement, without the prior written consent of the other
party first having been obtained.
(m) SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
----------------------
inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(n) COUNTERPART EXECUTION. This Agreement may be executed in
---------------------
counterparts, all of which are identical and all of which constitute one and
the same instrument. It shall not be necessary for Buyer and Seller to sign
the same counterpart.
26
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on the
date set forth above.
INLAND PRODUCTION COMPANY EQUITABLE RESOURCES ENERGY COMPANY
By: By:
-------------------------------- --------------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
-------------------------- --------------------------
27
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Annexes - I Conveyance Form
Schedules - 4(a)(v) Litigation Disclosures
6(b) AFE items pending, and permitted elections
7(b)(vi) Environmental matters excluded from Defects
Exhibits - A Lease Descriptions
B Wells and Units with WI & NRI and allocated price
28
<PAGE>
ANNEX I
-------
CONVEYANCE FORM
---------------
EQUITABLE RESOURCES ENERGY COMPANY (herein called "GRANTOR"), for Ten
Dollars and other good and valuable consideration (the receipt and sufficiency
of which are hereby acknowledged), does hereby GRANT, BARGAIN, SELL, CONVEY,
ASSIGN, TRANSFER, SET OVER, and DELIVER unto INLAND PRODUCTION COMPANY (herein
called "GRANTEE"), whose address is 475 17th Street, Suite 1500, Denver,
Colorado 80202, the following described properties, rights and interests:
(a) All right, title and interest of Grantor in and to oil, gas and/or
mineral leases described on EXHIBIT A hereto; and
(b) All rights, titles and interests of Grantor in and to, or otherwise
derived from, all presently existing and valid oil, gas and/or mineral
unitization, pooling, and/or communitization agreements, declarations and/or
orders (including, without limitation, all units formed under orders, rules,
regulations, or other official acts of any federal, state, or other authority
having jurisdiction, and voluntary unitization agreements, designations
and/or declarations) relating to the properties described in subparagraph (a)
above, to the extent and only to the extent such rights, titles and interests
are attributable to the properties described in subsection (a) above; and
(c) All rights, titles and interests of Grantor in and to all presently
existing and valid production sales contracts, operating agreements, and
other agreements and contracts which relate to any of the properties
described in subparagraphs (a) and (b) above, to the extent and only to the
extent such rights, titles and interests are attributable to the properties
described in subparagraphs (a) and (b) above; and
(d) All rights, titles and interests of Grantor in and to all materials,
supplies, machinery, equipment, improvements and other personal property and
fixtures (including, but not by way of limitation, all wells, wellhead
equipment, pumping units, flowlines, tanks, buildings, saltwater disposal
facilities, other injection facilities, compression facilities, gathering
systems, and other equipment) located on the properties described in
subparagraphs (a) and (b) above and used in connection with the exploration,
development, operation or maintenance thereof, and in and to water rights,
permits, licenses, rights of way, easements, and other rights of surface use
used in connection with the exploration, development, operation or
maintenance, of the properties described in subparagraphs (a) and (b) above,
in each case to the extent and only to the extent such rights, titles and
interests are attributable to the properties described in subparagraphs (a)
and (b) above.
The properties, rights and interests specified in the foregoing subparagraphs
(a), (b), (c), (d) and (e), exclusive of the properties, rights and interests
excluded below, are herein
I-1
<PAGE>
sometimes collectively called the "PROPERTIES". The Properties do not include,
and there is hereby expressly excepted and excluded therefrom and reserved to
Grantor, all rights and choses in action, arising, occurring or existing in
favor of Grantor prior to the Effective Date or arising out of the operation of
or production from the Properties prior to the Effective Date (including, but
not limited to, any and all contract rights, claims, receivable, revenues,
recoupment rights, recovery rights, accounting adjustments, mispayments,
erroneous payments or other claims of any nature in favor of Grantor and
relating and accruing to any time period prior to the Effective Date).
TO HAVE AND TO HOLD the Properties unto Grantee, its successors and
assigns, forever.
THIS CONVEYANCE IS MADE WITHOUT WARRANTIES OR REPRESENTATIONS, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, AND GRANTOR EXPRESSLY DISCLAIMS ANY AND ALL
REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING, THE
PROPERTIES ARE CONVEYED PURSUANT HERETO WITHOUT ANY WARRANTY OR REPRESENTATION
WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO TITLE TO THE
PROPERTIES OR RELATING TO THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A
PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES OF MATERIALS OR
MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE.
This Conveyance is subject to that certain Agreement of Sale and Purchase
dated July _____, 1997, between Grantor and Grantee.
This Conveyance is being executed in several counterparts all of which are
identical except that, to facilitate recordation, where a counterpart hereof is
being recorded there may be omitted from Exhibit A to such counterpart portions
of Exhibit A which describe properties located in jurisdictions other than the
jurisdiction in which such counterpart is being recorded. Complete copies
hereof including the entire Exhibit A have been retained by Grantor and Grantee.
All of such counterparts together shall constitute one and the same instrument.
I-2
<PAGE>
IN WITNESS WHEREOF this Conveyance has been executed on ______________ ___,
1997 effective as to runs of oil and deliveries of gas, and for all other
purposes, as of 7:00 a.m. local time at the locations of the Subject Properties,
respectively, on April 1, 1997
EQUITABLE RESOURCES ENERGY COMPANY
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
STATE OF _________ (S)
(S)
COUNTY OF ________ (S)
The foregoing instrument was acknowledged before me this ____ day of
________________, 1997, by ________________________________________, the
______________________________ of EQUITABLE RESOURCES ENERGY COMPANY, a West
Virginia corporation, on behalf of such corporation.
-----------------------------------------
Notary Public in and for the State of
---
Printed Name:
----------------------------
My Commission Expires:
-------------------
I-3
<PAGE>
SCHEDULE 4(a)(v)
Without agreeing that the following matters are material within the meaning of
Section 4(a)(v), the following matters are disclosed.
1. THE DEPARTMENT OF JUSTICE.
-------------------------
The Department of Justice and the Office of the Inspector General of the
Department of the Interior are conducting an industry-wide investigation of
whether producers have violated the False Claims Act in connection with
underpayments of royalties for extraction of oil or gas on federal or
Indian lands since 1986. Through a letter dated 02/03/97, the Department
requested production of certain information on a voluntary basis. Buyer
recognizes these matters may affect its ownership after the Effective Date.
1
<PAGE>
SCHEDULE 6(b)
[Pending AFE Activities]
AFE Item Permitted Elections
-------- -------------------
[NONE]
1
<PAGE>
SCHEDULE 7(b)(vi)
[Environmental matters that will not constitute "Defects"]
Without agreeing that the following matters are material within the meaning of
Section 7(b)(vi), the following items are disclosed:
1. A field office away from the compressor plant has not yet been constructed
although Seller has obtained approval from the BLM for a new field office.
2. The APD's have expired on the Balcron Federal #43-26 and #42014J wells for
which the drilling locations were constructed. These locations must be
reclaimed by November 15, 1997 unless a new APD is submitted for them.
3. Operation of the AJAX DPC 300 rental compressor at the Monument Butte gas
plant is only approved until October 10, 1997. Tentative plans are to
replace this unit with a larger AJAX DPC 600 compressor and a permit has
been obtained for this modification. The new operator will either have to
install the new compressor or obtain approval to continue using the smaller
engine (this should not be difficult since they approved the larger
engine). If installed, the new compressor will been to be source tested
after installation.
4. Air emissions permitting has not been done for any production facilities
other than the gas plant. However, Seller been working with State DAQ
through the Utah Petroleum Association to establish a practical system for
facility registrations. The state is aware that few oil and gas production
facilities are permitted and they need special provisions to accommodate
our industry.
1
<PAGE>
EXHIBIT A
---------
(example)
Recording data Land
County/State Lessor Lessee Date Book/Page Description
- ------------ ------ ------ ---- -------------- -----------
A-1
<PAGE>
EXHIBIT B
---------
[WELL, WI AND NRI DATA TO BE SUPPLIED BY EREC]
Well or Working Revenue Allocated
County/State Unit Name Interest Interest* Amount
- ------------ --------- -------- -------- ------
B-1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 8-K, into the Company's previously filed
Registration Statements on Form S-8 (File No. 33-41662), Form S-8 (File No.
333-27449), Form S-8 (File No. 33-84640), Form S-3 (File No. 33-84766) and Form
S-3 (File No. 33-80392).
/s/ Arthur Andersen LLP
-----------------------------------------
Arthur Andersen LLP
Denver, Colorado,
October 9, 1997
